Income Tax Appellate Tribunal - Jaipur
Gopi Bai Foundation, Jaipur vs Acit, Jaipur on 29 December, 2016
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IN THE INCOME TAX APPELLATE TRIBUNAL,
JAIPUR BENCHES (SMC), JAIPUR
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BEFORE: SHRI BHAGCHAND, ACCOUNTANT MEMBER
vk;dj vihy la-@ITA No. 760/JP/2016
fu/kZkj.k o"kZ@Assessment Year : 2006-07
M/s. Gopi Bai Foundation cuke The ACIT
112, Shakti Nagar Vs. Central Circle- 3
Kota Jaipur
LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: AAATG 3137 G
vihykFkhZ@Appellant izR;FkhZ@Respondent
fu/kZkfjrh dh vksj ls@Assessee by: Shri Vijay Goyal, CA
jktLo dh vksj ls@ Revenue by :Shri Rajinder Singh, Addl.CIT - DR
lquokbZ dh rkjh[k@ Date of Hearing : 23/12/2016
?kks"k.kk dh rkjh[k@ Date of Pronouncement : 29 /12/2016
vkns'k@ ORDER
PER BHAGCHAND, AM
The assessee has filed an appeal against the order of the ld.
CIT(A)-4, Jaipur dated 15-06-2016 for the assessment year 2006-07 raising therein following grounds:-
''1. On the facts and in the circumstances of the case and in law the ld. CIT(A) in not allowing the decision of ITAT Jaipur Bench in the case of Shankar Lal Khandelwal vs. DCIT in ITA No. 878/JP/2013 dated 11-03- 2 ITA No. 760/JP/2016 M/s. Gopi Bai Foundation vs. ACIT, Central Circle- 3, Jaipur .
2016 and rejecting the contention of the assessee that levy of penalty u/s 271(1)(c) is bad in law as the ld. AO initiated the penalty u/s 271(1)(c) under both the limbs i.e. concealed the particulars of income and furnished inaccurate particulars of income and at the time of notice u/s 274 he simply has ticked in prescribed proforma concealed particulars of income or furnished inaccurate particulars of income without deleting either limb of penalty. It is contended that the jurisdictional and legal mistake is not curable u/s 292B of the I.T. Act.
2. On the facts and in the circumstances of the case and in law the ld. CIT(A) erred in confirming the imposition of penalty of Rs. 1,22,400/- u/s 271(1)(c) of I.T. Act, 1961.'' 2.1 Apropos Ground No. 1 and 2 of the assessee, the facts of the case as emerges from the order of the ld. CIT(A) is as under:-
''3.1.2. I have considered assessee's submission and carefully gone through penalty order passed by the AO. I have carefully gone through the reassessment order passed on 25-03-2014 against which assessee did not prefer appeal. I have also taken a note that of the factual matrix of the case as well as applicable case laws. Here in this case, assessee has raised technical objection with regard to initiation of penalty proceedings. It is clear from the language of the provision that its aim is to prevent any return of income assessment, notice or other proceedings being treated as invalid merely by reason of any mistake, defect or omission in such return of income, assessment, notice or other proceedings being treated as invalid merely by reason of any mistake, defect or omission in such return of income, assessment, notice, other proceedings which are in substance and effect in conformity with or according to the intent and purpose of this Act. The question of application of Section 3 ITA No. 760/JP/2016 M/s. Gopi Bai Foundation vs. ACIT, Central Circle- 3, Jaipur .
292B cannot be prejudged by finding that return, notice, etc. is not as per the requirement of the statute and is/ are invalid. This way the very purpose of the Section to prevent declaration of return, notice, etc. as invalid is defeated. The finding that the return or notice etc. is invalid or to what extent is invalid is unnecessary and counterproductive. Invalid in my view is quite a strong word and ''mistake, defect or omission'' in the return, notice, etc. consider whether such return etc. '' is in substance and in effect in conformity with or according to the intent and purpose of this Act.''. In other words, it is to be seen whether such return or notice is in substance and in effect in conformity with or in accordance with the intent and purpose of the Act and not the validity of the return e.g. if it is shown that return of income, notice etc. have the same or substantially the same effect as would return, notice etc. without mistake, defect or omission would have such return, notice etc. must be given effect to and cannot be treated as invalid. If in substance and in effect, the intent and purpose of the enactment has been served, the action (return, notice, etc.) cannot be held to be invalid.
''Substance over from theory'' is the underlining philosophy of Section 292B of the Act. If in substance and in effect return, notice or assessment is in conformity with or according to intent and purpose of the Income-tax Act, the mistake, defect or omission is to be ignored. In view of these facts and circumstances, assessee's objection with regard to penalty proceedings initiated u/s 271(1)© of the Act is hereby dismissed.
Further, it is also submitted that no independent inquiries in this regard were carried out in the case of the assessee and the opportunity of cross examine to the persons were also not provided. Finally, AO imposed penalty treating Rs. 4,00,000/- as concealed income of assessee by holding 4 ITA No. 760/JP/2016 M/s. Gopi Bai Foundation vs. ACIT, Central Circle- 3, Jaipur .
that the assessee had willfully concealed its income and had given inaccurate particulars of its income by taking bogus bills. The fact of bogus accommodation entry bill has not been controverted by the assessee which fully supports AO's contention. In view of these findings, it is not required on the part of the AO to accord necessary opportunity to cross examine Shri Sanjay D Sonwani Director of M/s.
Washington Software Ltd. Assessee has also not controverted AO's finding given in para 4 of the assessment order. AO has also incorporated assessee's submission made in this regard in pg 4 of the assessment order. Further, post search operation, all concerns except the assessee of ''the Career Point Gr'' approached Hon'ble Settlement Commission, New Delhi. AO has in para 9 pg 6 of the assessment order has mentioned inter alia as under:-
''................9. Further it is also worthwhile to mention here that in the Career Point Group of Kota in which assessee belongs, during the proceeding before the Income Tax Settlement Commission, New Delhi (ISTC) admitted that they had obtained bogus bills against purchase of software from M/s. Washington Software Ltd. Mumbai. In this group cases, the Hon'ble ISTC has passed the order on 31-03-2013.'' This fact has also not been controverted by the assessee even at this appellate stage. Now, in view of these findings, AO is quite justified in making out a case of concealment of income inasmuch as furnishing of inaccurate particulars of income of Rs. 4,00,000/- and thereby levying of penalty of Rs. 1,22,400/- u/s 271(1)© of the Act. In view of these facts, assessee cannot take shelter behind the aforementioned case laws relied upon because facts here are totally different from theirs. Accordingly, penalty levied by the AO is hereby sustained. Assessee's appeal fails.5 ITA No. 760/JP/2016
M/s. Gopi Bai Foundation vs. ACIT, Central Circle- 3, Jaipur .
During the course of hearing, the ld. AR of the assessee submitted that the ld. CIT(A) has erred in not following the decision of jurisdiction ITAT Jaipur Bench in the case of Shankar Lal Khandelwal (supra) and also erred in confirming the imposition of penalty of Rs. 1,22,400/- u/s 271(1)(c) of the Act in the case of the assessee trust. The ld. AR of the assessee also filed the written submission to this effect as under:-
''2.1 Ground No 1 & 2 are regarding holding that Rs. 4,00,000/- is income which has been concealed by assessee and inaccurate particulars were filed and erred in imposing penalty of Rs. 1,22,400/-/- under section 271(1)(c) of I.T. Act, 1961.
Submission of the assessee.
1. The ld. AO initiated the penalty proceeding u/s 271(1)(c) of Income Tax Act in the assessment order dated 25.03.2014 in para 11 of the Assessment order the ld AO initiated penalty by mentioning that "Penalty proceedings u/s 271(1)(c) are being initiated separately for concealment of income and furnishing inaccurate particulars of income". In the assessment order the ld. AO further concluded in para 12 by mentioning that "Penalty proceedings u/s 271(1)(c) of the Act has been initiated for concealment of income/furnishing inaccurate particulars of income." Further in the penalty notice u/s 274 read with section 271 of I.Tax Act dated 25.03.2014 (copy enclosed herewith), which is pre printed prescribed form annexed with assessment order the ld. AO ticked on "271(1)(c) concealed particulars of yours income or furnished inaccurate particulars of income".
Thus the penalty proceedings were initiated without specifying the limb for reasons in the penalty notice to impose the penalty i.e. whether the penalty was initiated for concealment of particulars of income or for furnishing inaccurate particulars of income. Therefore the initiation and imposing of penalty proceedings is wrong, bad in law, in valid and void ab initio.
6 ITA No. 760/JP/2016M/s. Gopi Bai Foundation vs. ACIT, Central Circle- 3, Jaipur .
2. The notice U/s 271 should be specific on imposing of penalty u/s 271(1)(c) of Income Tax Act, 1961 i.e. concealed particulars of income or furnishing inaccurate particulars of income. Reliance is placed on the decision in the case of H. Lakshminarayana Vs. ITO, ITAT Banglore Tribunal ITA Nos. 992 to 996/Ban/2014 order dated 3rd July, 2015 wherein the decision of Hon'ble Karnataka High Court in the case of CIT & Anr. Vs Manjunatha Cotton and Ginning Factory has been considered wherein it has been held that penalty proceeding is a civil liability, in fact, it is penal in nature. In either event, the person who is accused of the conditions mentioned in Section 271 should be made known about the grounds on which they intend to imposing penalty on him as the Section 274 makes it clear that assessee has a right to contest such proceedings and should have full opportunity to meet the case of the department and show that the conditions stipulated in Section 271(1)(c) do not exist as such he is not liable to pay penalty. It is not open to the authority, at the time of imposing penalty to impose penalty on the grounds other than what assessee was called upon to meet. Otherwise though the initiation of penalty proceedings may be valid and legal, the final order imposing penalty would offend principles of natural justice and cannot be sustained. Once the proceedings are initiated on one ground, the penalty should also be imposed on the same ground. Where the basis of the initiation of penalty proceedings is not identical with the ground on which the penalty was imposed, the imposition of penalty is not valid. Therefore, in notice U/s 274 is to be marked appropriate on the basis of levy of penalty. The standard proforma without striking of the relevant item will lead to an inference as non-application of mind.
3. Hon'ble ITAT Jaipur Bench, Jaipur in its judgment in ITA 878/JP/2013 dated 11.03.2013 in the case of Shankar Lal Khandelwal Vs DCIT held that when assessing Officer has mentioned at the time of initiation of penalty proceeding under both the limbs i.e. concealed the particulars of income and furnished inaccurate particulars of income but at the time of notice U/s 274 he simply has ticked in prescribed proforma concealed particulars of income or furnished inaccurate particulars of income without deleting either limb of penalty even he has not put and in the notice itself between two limbs than the initiation of penalty proceedings cannot be considered as per law and Assessing Officer did not have any jurisdiction to 7 ITA No. 760/JP/2016 M/s. Gopi Bai Foundation vs. ACIT, Central Circle- 3, Jaipur .
impose penalty U/s 271(1)(c) of the Act. The findings of Hon'ble jurisdictional ITAT is as under:-
6. We have heard the rival contentions of both the parties and perused the material available on the record. In this case, the ld Assessing Officer initiated penalty proceedings for concealing of particulars of income and for furnishing inaccurate particulars of income vide order dated 31/12/2009.
Notice U/s 274 read with Section 271-272 of the Act was issued on 30/12/2009 by ticking of the notice as under:-
"U/s 271(1)(c):- Concealed particulars of income or furnished inaccurate particulars of income".
The ld Assessing Officer again gave notice during the course of penalty proceedings on 23/1/2012 wherein he gave show cause notice U/s 271(1)(c) for imposing of penalty without specifying the limb for reasons to impose the penalty, whether it is for concealed particulars of income or furnished inaccurate particulars of income. The ld CIT(A) has considered all the aspect and held that Explanation 5A to Section 271(1)(c) is applicable as in this case, a search was carried out after 01/6/2007 and the assessee has furnished return for A.Y. 2007-08 before search and additional income has been disclosed U/s 153A.Therefore, deeming provisions are applicable. It is undisputed fact that the assessee has disclosed additional income in return filed U/s 153A on the basis of incriminating document found during the course of search.
We have considered view that Explanation 5A is not required to be mentioned by the Assessing Officer specifically at the time of initiation or even in the show cause notice issued by the Assessing Officer, but basic defect we found that the ld Assessing Officer has mentioned at the time of initiation of penalty proceeding under both the limbs i.e. concealed the particulars of income and furnished inaccurate particulars of income but at the time of notice U/s 274 he simply has ticked in prescribed proforma concealed particulars of income or furnished inaccurate particulars of income without deleting either limb of penalty even he has not put and in the notice itself between two limbs. The amended provisions of Sub-section (1B) of Section 271 has been considered by the Hon'ble Delhi High Court in the case of Madhu Shree Gupta vs. UOl, 317 ITR 107 wherein it has been held that at the stage of initiation of penalty proceedings, the order passed by the Assessing Officer need not reflect satisfaction vis a vis each and every item of addition or disallowance if the overall sense gathered from the order is that a further prognosis is called for. It would be sufficient compliance with the law that there is a prima facie evidence for concealment of particulars of income or furnishing inaccurate particulars of income. Even after this section, the Assessing Officer has to satisfy the particular limb of initiation of penalty imposable U/s 271(1)(c) of the Act at the time of assessment proceedings. The Hon'ble Karnataka High Court in the case of CIT vs. M/s Manjunatha Cotton & Ginning Factory & Ors.(2013) 359 ITR 565 (Karn) held that sending printed form where all the grounds mentioned in section 271 would not satisfy the requirement of law. The assessee should know the 8 ITA No. 760/JP/2016 M/s. Gopi Bai Foundation vs. ACIT, Central Circle- 3, Jaipur .
ground which he has to meet specifically, otherwise, the principle of natural justice is offended on the basis of such proceedings, no penalty could be imposed to the assessee. The Hon'ble Punjab & Haryana High Court in the case of Tej Bhan Cotton Ginning & Pressing Factory Vs. CIT, Rohtak (supra) has held that the Assessing Officer in assessment order has satisfied himself regarding initiation of penalty proceedings, which was tantamount to satisfaction have recorded to the fact on the basis of addition made by the Assessing Officer for concealed income in assessment order. The Hon'ble Court has confirmed the penalty even penalty proceedings initiated by the Assessing Officer by mentioning penalty proceeding for concealing/furnishing of inaccurate particulars of income. The Hon'ble Punjab & Haryana High Court has expressed different view on initiation of penalty proceedings even notice U/s 274 issued by putting oblique between concealing and furnishing of inaccurate particulars of income whereas the Hon'ble Karnataka High Court has held that the Assessing Officer has to satisfy at the time of initiation of penalty proceeding and issuing notice U/s 274 of the Act that whether penalty is for concealed particulars of income or furnishing of inaccurate particulars of income. There were two opinions of the Hon'ble Courts. The Hon'ble Supreme Court has held that in case of two views of the court, favourable view of the assessee would be taken as held in the case of CIT Vs Vegetable Products Ltd. (1973) 88 ITR 192 (SC) and a recent decision in the case of CIT Vs. Vatika Township P Ltd. (2014) 367 ITR 466 (SC). Therefore, we are of the considered view that initiation of penalty proceedings is not as per law and Assessing Officer did not have any jurisdiction to impose penalty U/s 271(1)(c) of the Act. As the matter has been decided on technical issue, we are not expressing any view on merit of the case.
Accordingly, we delete the penalty confirmed by the ld CIT(A).
7. In the result, the appeal of the assessee is allowed."
4. Hon'ble ITAT in its recent judgment in case of Shri Murari Lal Mittal ITA No. 334/JP/2015 order dated 09/11/16 has canceled the penalty on the same grounds following the decision of Shri Shanker Khandelwal. The findings of Hon'ble ITAT are as under:-
2.5 I have heard the rival contentions and perused the materials available on record. It is noted from the record that the assessee is an individual declaring income from house property and income from business or profession as proprietor of M/s. Mittal Enterprises. The return u/s 139(1) of the Act was filed on 25-10-2004 by the assessee declaring total income of Rs. 1,51,100/-. Search and seizure operations were carried out on 27-08-2008 on residential and business premises of the assessee. The return u/s 153 of the I.T. Act was filed on 31-03-
2009 declaring total income of Rs. 5,85,090/- which included 9 ITA No. 760/JP/2016 M/s. Gopi Bai Foundation vs. ACIT, Central Circle- 3, Jaipur .
additional income surrender of Rs.4,53,819/-. The assessment was made by the AO u/s 153A/143(3) of I.T. Act on total income of Rs. 6,18,980/- which included the addition of Rs. 33,892/- made by the AO on account of disallowance made from various expenses. In penalty proceedings, the AO imposed the penalty of Rs. 1,36,145/- being 100% of tax payable on additional income of Rs. 4,53,819/- declared by the assessee. The ld. CIT(A) haf confirmed the action of the AO. It is noted from the record that the AO had initiated penalty proceedings for concealment of income or for furnishing inaccurate particulars of income. In the notice also, the AO has not specified for which specific reason the penalty proceedings has been initiated whether it is for concealment of income or for furnishing inaccurate particulars of income. Ultimately, the AO levied the penalty for concealment of income. The Hon'ble Karnataka High Court in the case of CIT & Anr vs. Manjunatha Cotton & Ginning Factory, 359 ITR 565 held as under:-
''though penalty proceedings are in the nature of civil liability, in fact, it is penal in nature. In either event, the person who is accused of the conditions mentioned in section 271 should be made known about the grounds on which they intend imposing penalty on him as section 274 makes it clear that the assessee has a right to contest such proceedings and should have full opportunity to meet the case of the Department and show that the conditions stipulated in section 271(1)(c) do not exist as such he is not liable to pay penalty. The practice of the Department sending a printed form where all the grounds mentioned in section 271 are mentioned would not satisfy the requirement of law when the consequences of the assessee not rebutting the initial presumption is serious in nature and he had to pay penalty from 100 per cent. to 300 per cent. of the tax liability. As the said provisions have to be held to be strictly construed, notice issued under section 274 should satisfy the grounds which he has to meet specifically. Otherwise, the principles of natural justice is offended if the show-cause notice is vague. On the basis of such proceedings, no penalty could be imposed on the assessee.'' It is also noted that similar type of issue was decided in favour of the assessee by ITAT Coordinate Bench in the case of Shankar Lal Khandelwal vs. DCIT, Central Circle- 1, Jaipur vide its order dated 11-03-2016 in ITA No. 878/JP/2013 for the assessment year 2007-08 by observing as under:-10 ITA No. 760/JP/2016
M/s. Gopi Bai Foundation vs. ACIT, Central Circle- 3, Jaipur .
6. We have heard the rival contentions of both the parties and perused the material available on the record. In this case, the ld Assessing Officer initiated penalty proceedings for concealing of particulars of income and for furnishing inaccurate particulars of income vide order dated 31/12/2009. Notice U/s 274 read with Section 271-272 of the Act was issued on 30/12/2009 by ticking of the notice as under:-
"U/s 271(1)(c):- Concealed particulars of income or furnished inaccurate particulars of income".
The ld Assessing Officer again gave notice during the course of penalty proceedings on 23/1/2012 wherein he gave show cause notice U/s 271(1)(c) for imposing of penalty without specifying the limb for reasons to impose the penalty, whether it is for concealed particulars of income or furnished inaccurate particulars of income. The ld CIT(A) has considered all the aspect and held that Explanation 5A to Section 271(1)(c) is applicable as in this case, a search was carried out after 01/6/2007 and the assessee has furnished return for A.Y. 2007-08 before search and additional income has been disclosed U/s 153A. Therefore, deeming provisions are applicable. It is undisputed fact that the assessee has disclosed additional income in return filed U/s 153A on the basis of incriminating document found during the course of search.
We have considered view that Explanation 5A is not required to be mentioned by the Assessing Officer specifically at the time of initiation or even in the show cause notice issued by the Assessing Officer, but basic defect we found that the ld Assessing Officer has mentioned at the time of initiation of penalty proceeding under both the limbs i.e. concealed the particulars of income and furnished inaccurate particulars of income but at the time of notice U/s 274 he simply has ticked in prescribed proforma concealed particulars of income or furnished inaccurate particulars of income without deleting either limb of penalty even he has not put and in the notice itself between two limbs. The amended provisions of Subsection (1B) of Section 271 has been considered by the Hon'ble Delhi High Court in the case of Madhu Shree Gupta vs. UOl, 317 ITR 107 wherein it has been held that at the stage of initiation of penalty proceedings, the order passed by the Assessing Officer need not reflect satisfaction vis a vis each and every item of addition or disallowance if the overall sense gathered from the order is that a further prognosis is called for. It would be sufficient 11 ITA No. 760/JP/2016 M/s. Gopi Bai Foundation vs. ACIT, Central Circle- 3, Jaipur .
compliance with the law that there is a prima facie evidence for concealment of particulars of income or furnishing inaccurate particulars of income. Even after this section, the Assessing Officer has to satisfy the particular limb of initiation of penalty imposable U/s 271(1)(c) of the Act at the time of assessment proceedings. The Hon'ble Karnataka High Court in the case of CIT vs. M/s Manjunatha Cotton & Ginning Factory & Ors.(2013) 359 ITR 565 (Karn) held that sending printed form where all the grounds mentioned in section 271 would not satisfy the requirement of law. The assessee should know the ground which he has to meet specifically, otherwise, the principle of natural justice is offended on the basis of such proceedings, no penalty could be imposed to the assessee.The Hon'ble Punjab & Haryana High Court in the case of Tej Bhan Cotton Ginning & Pressing Factory Vs. CIT, Rohtak (supra) has held that the Assessing Officer in assessment order has satisfied himself regarding initiation of penalty proceedings, which was tantamount to satisfaction have recorded to the fact on the basis of addition made by the Assessing Officer for concealed income in assessment order. The Hon'ble Court has confirmed the penalty even penalty proceedings initiated by the Assessing Officer by mentioning penalty proceeding for concealing/furnishing of inaccurate particulars of income. The Hon'ble Punjab & Haryana High Court has expressed different view on initiation of penalty proceedings even notice U/s 274 issued by putting oblique between concealing and furnishing of inaccurate particulars of income whereas the Hon'ble Karnataka High Court has held that the Assessing Officer has to satisfy at the time of initiation of penalty proceeding and issuing notice U/s 274 of the Act that whether penalty is for concealed particulars of income or furnishing of inaccurate particulars of income. There were two opinions of the Hon'ble Courts. The Hon'ble Supreme Court has held that in case of two views of the court, favourable view of the assessee would be taken as held in the case of CIT Vs Vegetable Products Ltd. (1973) 88 ITR 192 (SC) and a recent decision in the case of CIT Vs. Vatika Township P Ltd. (2014) 367 ITR 466 (SC).Therefore, we are of the considered view that initiation of penalty proceedings is not as per law and Assessing Officer did not have any jurisdiction to impose penalty U/s 271(1)(c) of the Act. As the matter has been decided on technical issue, we are not expressing any view on merit of the case. Accordingly, we delete the penalty confirmed by the ld CIT(A).
12 ITA No. 760/JP/2016M/s. Gopi Bai Foundation vs. ACIT, Central Circle- 3, Jaipur .
7. In the result, the appeal of the assessee is allowed.''
5. Hon'ble Kolkotta ITAT in the case of Vaibhav Tulsyan Versus I.T.O Ward 29 (4) , Kolkata I.T.A Nos. 736 & 737/Kol/2013 Dated:
27May 2016 [2016 (11) TMI 1030] has cancelled the penalty on the same ground.
"10. Heard the rival submissions and perused the material available on record. The question before us is as to whether the penalty order passed by the AO and confirmed by the CIT(A) falls for our consideration in pursuance of the Judgment of the Hon'ble Karnataka High Court supra. That on perusal of the said show cause notice dated 30-12-2010 issued u/s. 274 r.ws. 271(1)( c) of the Act purportedly issued to show cause why the penalty shall not be imposed, We find that irrelevant portion of such notice was not struck out by the AO. Therefore, the said notice is not clear whether it was issued for furnishing of inaccurate particulars of income or concealment of particulars of such income. We find that the assessee as relied on the order dated 06-11-2015 in the case of Suvaprassanna Bhattacharya Vs. ACIT, Kolkata in ITA No. 1303/Kol/2010 for the AY 2006-07 is applicable to the case on hand. The relevant findings of the said tribunal order is reproduced herein below for better understanding:"
8. The next argument that the show cause notice u/s. 274 of the Act which is in a printed form does not strike out as to whether the penalty is sought to be levied on the for "furnishing inaccurate particulars of income " or concealing particulars of such income". On this aspect we find that in the show cause notice u/s. 274 of the Act the AO has not struck out the irrelevant part. It is therefore not spell out as to whether the penalty proceedings are sought to be levied for "furnishing inaccurate particulars of income "or "concealing particulars of such income". The Hon'ble Karnataka High Court in the case of CIT & Anr. v. Manjunatha Cotton and Ginning Factory, 359 ITR 565 (Karn), has held that notice u/s. 274 of the Act should specifically state as to whether penalty is being proposed to be imposed for concealment of particulars of income or for furnishing inaccurate particulars of income. The Hon'ble High court has further laid down that certain printed form where all the grounds given in section 271 are given would not satisfy the requirement of law. The Court has also 13 ITA No. 760/JP/2016 M/s. Gopi Bai Foundation vs. ACIT, Central Circle- 3, Jaipur .
held that initiating penalty proceedings on one limb and find the assessee guilty in another limb is bad in law. It was submitted that in the present case, the aforesaid decision will squarely apply and all the orders imposing penalty have to be held as bad in law and liable to be quashed.
5.1 The Hon'ble Karnataka High Court in the case of CIT & Anr. v. Manjunatha Cotton and Ginning Factory (supra) has laid down the following principles to be followed in the matter of imposing penalty u/s.271(1)(c) of the Act.
"NOTICE UNDER SECTION 274
59. As the provision stands, the penalty proceedings can be initiated on various ground set out therein. If the order passed by the Authority categorically records a finding regarding the existence of any said grounds mentioned therein and then penalty proceedings is initiated, in the notice to be issued under Section 274, they could conveniently refer to the said order which contains the satisfaction of the authority which has passed the order. However, if the existence of the conditions could not be discerned from the said order and if it is a case of relying on deeming provision contained in Explanation1 or in Explanation1(B), then though penalty proceedings are in the nature of civil liability, in fact, it is penal in nature. In either event, the person who is accused of the conditions mentioned in Section 271 should be made known about the grounds on which they intend imposing penalty on him as the Section 274 makes it clear that assessee has a right to contest such proceedings and should have full opportunity to meet the case of the Department and show that the conditions stipulated in Section 271(1)(c) do not exist as such he is not liable to pay penalty. The practice of the Department sending a printed farm where all the ground mentioned in Section 271 are mentioned would not satisfy requirement of law when the consequences of the assessee not rebutting the initial presumption is serious in nature and he had to pay penalty from 100% to 300% of the tax liability. As the said provisions have to be held to be strictly construed, notice issued under Section 274 should satisfy the grounds which he has to meet specifically. Otherwise, principles of natural justice is offended if the show cause notice is vague. On the basis of such proceedings, no penalty could be imposed on the assessee.14 ITA No. 760/JP/2016
M/s. Gopi Bai Foundation vs. ACIT, Central Circle- 3, Jaipur .
60. Clause (c) deals with two specific offences, that is to say, concealing particulars of income or furnishing inaccurate particulars of income. No doubt, the facts of some cases may attract both the offences and in some cases there may be overlapping of the two offences but in such cases the initiation of the penalty proceedings also must be for both the offences. But drawing up penalty proceedings for one offence and finding the assessee guilty of another offence or finding him guilty for either the one or the other cannot be sustained in law. It is needless to point out satisfaction of the existence of the grounds mentioned in Section 271(1)(c) when it is a sine qua non for initiation or proceedings, the penalty proceedings should be confined only to those grounds and the said grounds have to be specifically stated so that the assessee would have the opportunity to meet those grounds. After, he places his version and tries to substantiate his claim, if at all, penalty is to be imposed, it should be imposed only on the grounds on which he is called upon to answer. It is not open to the authority, at the time of imposing penalty to impose penalty on the grounds other than what assessee was called upon to meet. Otherwise though the initiation of penalty proceedings may be valid and legal, the final order imposing penalty would offend principles of natural justice and cannot be sustained. Thus once the proceedings are initiated on one ground, the penalty should also be imposed on the same ground. Where the basis of the initiation of penalty proceedings is not identical with the ground on which the penalty was imposed, the imposition of penalty is not valid. The validity of the order of penalty must be determined with reference to the information, facts and materials in the hands of the authority imposing the penalty at the time the order was passed and further discovery of facts subsequent to the imposition of penalty cannot validate the order of penalty which, when passed, was not sustainable.
61. The Assessing Officer is empowered under the Act to initiate penalty proceedings once he is satisfied in the course of any proceedings that there is concealment of income or furnishing of inaccurate particulars of total income under clause (c). Concealment, furnishing inaccurate particulars of income are different. Thus the Assessing Officer while issuing notice has to come to the conclusion that whether is it a case of concealment of income or is it a case of furnishing of inaccurate particulars. The Apex Court in the case of Ashok Pai reported in 292 ITR 11 at page 19 has held that concealment 15 ITA No. 760/JP/2016 M/s. Gopi Bai Foundation vs. ACIT, Central Circle- 3, Jaipur .
of income and furnishing inaccurate particulars of income carry different connotations. The Gujarat High Court in the case of MANU ENGINEERING reported in 122 ITR 306 and the Delhi High Court in the case of VIRGO MARKETING reported in 171 Taxman 156, has held that levy of penalty has to be clear as to the limb for which it is levied and the position being unclear penalty is not sustainable. Therefore, when the Assessing Officer proposes to invoke the first limb being concealment, then the notice has to be appropriately marked. Similar is the case for furnishing inaccurate particulars of income. The standard pro forma without striking of the relevant clauses will lead to an inference as to non applicationof mind."
The final conclusion of the Hon'ble Court was as follows:"
63. In the light of what is stated above, what emerges is as under:
a) Penalty under Section 271(1)(c) is a civil liability.
b) Mens rea is not an essential element for imposing penalty for breach of civil obligations or liabilities.
c) Willful concealment is not an essential ingredient for attracting civil liability.
d) Existence of conditions stipulated in Section 271(1)(c) is a sine qua non for initiation of penalty proceedings under Section 271.
e) The existence of such conditions should be discernible from the Assessment Order or order of the Appellate Authority or Revisional Authority.
f) Even if there is no specific finding regarding the existence of the conditions mentioned in Section271(1)(c), at least the facts set out in Explanation 1(A) & (B) it should be discernible from the said order which would by a legal fiction constitute concealment because of deeming provision.
g) Even if these conditions do not exist in the assessment order passed, at least, a direction to initiate proceedings under Section 271(l)(c) is a sine qua non for the Assessment Officer to initiate the proceedings because of the deeming provision contained in Section 1(B).16 ITA No. 760/JP/2016
M/s. Gopi Bai Foundation vs. ACIT, Central Circle- 3, Jaipur .
h) The said deeming provisions are not applicable to the orders passed by the Commissioner of Appeals and the Commissioner.
i) The imposition of penalty is not automatic.
j) Imposition of penalty even if the tax liability is admitted is not automatic.
k) Even if the assessee has not challenged the order of assessment levying tax and interest and has paid tax and interest that by itself would not be sufficient for the authorities either to initiate penalty proceedings or impose penalty, unless it is discernible from the assessment order that, it is on account of such unearthing or enquiry concluded by authorities it has resulted in payment of such tax or such tax liability came to be admitted and if not it would have escaped from tax net and as opined by the assessing officer in the assessment order.
l) Only when no explanation is offered or the explanation offered is found to be false or when the assessee fails to prove that the explanation offered is not bona fide, an order imposing penalty could be passed.
m) If the explanation offered, even though not substantiated by the assessee, but is found to be bona fide and all facts relating to the same and material to the computation of his total income have been disclosed by him, no penalty could be imposed.
n) The direction referred to in Explanation IB to Section 271 of the Act should be clear and without any ambiguity.
o) If the Assessing Officer has not recorded any satisfaction or has not issued any direction to initiate penalty proceedings, in appeal, if the appellate authority records satisfaction, then the penalty proceedings have to be initiated by the appellate authority and not the Assessing Authority.
p) Notice under Section 274 of the Act should specifically state the grounds mentioned in Section 271(1)(c), i.e., whether it is for concealment of income or for furnishing of incorrect particulars of income
q) Sending printed form where all the ground mentioned in Section 271 are mentioned would not satisfy requirement of law.
17 ITA No. 760/JP/2016M/s. Gopi Bai Foundation vs. ACIT, Central Circle- 3, Jaipur .
r) The assessee should know the grounds which he has to meet specifically. Otherwise, principles of natural justice is offended. On the basis of such proceedings, no penalty could be imposed to the assessee.
s) Taking up of penalty proceedings on one limb and finding the assessee guilty of another limb is bad in law.
t) The penalty proceedings are distinct from the assessment proceedings. The proceedings for imposition of penalty though emanate from proceedings of assessment, it is independent and separate aspect of the proceedings.
u) The findings recorded in the assessment proceedings in so far as "concealment of income" and "furnishing of incorrect particulars"
would not operate as res judicata in the penalty proceedings. It is open to the assessee to contest the said proceedings on merits. However, the validity of the assessment or reassessment in pursuance of which penalty is levied, cannot be the subject matter of penalty proceedings. The assessment or reassessment cannot be declared as invalid in the penalty proceedings."
(emphasis supplied) It is clear from the aforesaid decision that on the facts of the present case that the show cause notice u/s. 274 of the Act is defective as it does not spell out the grounds on which the penalty is sought to be imposed. Following the decision of the Hon'ble Karnataka High Court, we hold that the orders imposing penalty in all the assessment years have to be held as invalid and consequently penalty imposed is cancelled.
For the reasons given above, we hold that levy of penalty in the present case cannot be sustained. We, therefore, cancel the orders imposing penalty on the Assessee and allow the appeal by the Assessee.
11. In the present case, as we noted above, the AO failed to strike out the irrelevant portion in the said show cause notice, Respectfully following the order above, we cancel the penalty levied u/s. 271(1) ( c) of the Act by the Assessing Officer as confirmed by the CIT( A) for both the assessment years under consideration. Having held that the notice issued by the AO U/Sec 274 r/w Sec 271(1)(c) of the Act during 18 ITA No. 760/JP/2016 M/s. Gopi Bai Foundation vs. ACIT, Central Circle- 3, Jaipur .
the course of penalty proceedings is not in conformity with the relevant provisions of the Act, we are of the view that Section 292B can not come to the rescue of the Revenue and the reliance of the Ld.DR on the said provision is clearly misplaced. Therefore, preliminary issue as raised by the assessee by way of additional ground for both the assessment years 2006-07 & 200708 are allowed, in view of the same the other grounds raised requires no adjudication, therefore, all are dismissed.
12. In the result, the appeals of assessee are allowed.
On the merit on imposing of the penalty we submit as under: -
6. Regarding the validity of addition made by ld. AO we may submit as under: -
a) The case of the assessee was reopened solely on the basis of statement of Shri Sanjay D. Sonawani director of Washington Softwares Ltd, 47, 2B, Govinda Chambers, Karve Road, Pune recorded on 16.03.2011 and wherein he admitted that his company was engaged in issuing non-genuine bogus sales bills in order to help the parties to inflating their expenses and in the list of the parties to whom bills were provided the assessee was one party who purchased the software from this company vide bill No. WSL/INV/36/2006-07 dated 03.03.2006 Rs. 4,00,000/-
. However no independent inquiries in this regard were carried out in the case of the assessee and the opportunity of cross examine to the persons were also not provided.
b) The Income Tax department carried out search operation over the assessee group on 04.12.2009 and during the course of search operations no evidence was found to show that the assessee was inflating the expanses and having some undisclosed funds. The assessment for AY 2006-07 was completed u/s 153A of Income Tax Act, 1961 on 15.12.2011. Therefore there is no reason in possession of the assessee that income had escaped by assessee.
c) There was no reason to believe that any income chargeable to tax has escaped assessment in the hands of the assessee. Except to statement of above named person which was recorded behind the back of the assessee and opportunity of cross examination 19 ITA No. 760/JP/2016 M/s. Gopi Bai Foundation vs. ACIT, Central Circle- 3, Jaipur .
was not provided to assessee there is no other positive material with department to prove that the assessee escaped the income. In the reasons recorded for reopening of assessment proceedings and in the statements of Shri Sanjay D. Sonawani it was alleged that the bogus bills were issued by this company in order to help the parties to inflating their expenses. But in the case of the assessee the software was purchased for the school naming "Global Public School" being run by the assessee and the income of the school is exempted u/s 10(23C)(iiiad) of Income Tax Act, 1961, therefore there is no motive with the assessee to inflate the expenses. Further the software expense was capitalized as fixed assets on which the assessee only claimed the depreciation.
d) The assessee had duly purchased the software on 03.06.2006 for Rs. 4,00,000/- from above named company and made the payment through a/c payee cheque. Without making necessary inquiries the reliance of statement of above named party is being made which can be given by him for his own reasons. The person who sold the software to the assessee claimed to be representative of Washington Softwares Ltd and approached to the trustees of the assessee for sales of the software related to School Management. After purchasing the software the person gave the bill of Washington Softwares Ltd and thereafter the payment against bill was made through a/c payee cheque in the name of above named company.
e) In the statement of Shri Sanjay D. Sonawani recorded on 16.03.2011 the person admitted that he was signing the bogus sales bills but from the perusal of sales bill supplied to assessee it seems that some other person was signed the sales bill supplied to the assessee and no question was asked from Shri Sanjay D. Sonawani that who signed the bill and in what authority/capacity he signed the bill. There is possibility that the person who actually supplied the software to assessee might have arranged the bill in the name of assessee from this company for the reasons best known to him and in this case no addition can be made in the hands of the assessee as the assessee actually purchased the software.
20 ITA No. 760/JP/2016M/s. Gopi Bai Foundation vs. ACIT, Central Circle- 3, Jaipur .
f) Thus the entire addition was made solely on the basis of statement of Shri Sanjay D. Sonawani which was recorded behind the back of the assessee and opportunity of cross examination was not provided to the assessee. Further except to the statement of Shri Sanjay D. Sonawani there is no other material with the department to prove that the assessee actually not purchased the software. As stated earlier there may be possibility that the person who actually supplied the software to the assessee might have arranged the bill from this company in the name of assessee. Thus from the statement of Shri Sanjay D. Sonawani a suspicious can only be drawn that the assessee might have taken the bogus bill for purchases of software but without examining/collecting the other evidences and looking to the surrounding circumstances it cannot be conclude that the assessee actually took the bogus bill. In the case of the assessee during the course of assessment proceedings no other exercise was done for proving that the assessee actually has not purchased the software and solely reliance was made over the statement of Shri Sanjay D. Sonawani.
g) The ld. AO made the addition solely relying on the statements of above named persons without having any independent material to prove the facts to be correct and without proving the motive behind taking the bogus bill more so when the expenses was an capital expenditure which was not recorded in P&L a/c and the entire income of the assessee was exempt from tax.
7. However to avoid the prolonged litigation the assessee has not filed the appeal against the assessment order which does not mean that the assessee accepted to the action of the ld. AO. The assessment proceedings and penalty proceedings are two separate proceedings. The additions made during assessment proceedings does not lead to conclusion that the assessee was having some undisclosed income or concealed the particulars of his income. The additions in assessment order may be because of some technical reasons which always do not mean that the assessee had concealed income, therefore for imposing a penalty the assessing officer has to prove that the assessee was having concealed income which was not proved in the case of the assessee.
8. The ld. AO not brought any positive material/finding/evidence on record to prove that the assessee was having some undisclosed income The ld. AO has not brought on record any material to show that the explanation of the assessee was false. The explanation of the assessee 21 ITA No. 760/JP/2016 M/s. Gopi Bai Foundation vs. ACIT, Central Circle- 3, Jaipur .
was not rejected on the strength of material. The additions made are not because of willful or conscious default, but only because of the reasons, which is of technical nature or estimation of income, and in such cases penalty should not be levied. The assessee rely on the following decision of jurisdictional High Court: -
1) Shiv Lal Tak Vs CIT [2001] 251 ITR 373 (Raj):
2) CIT Vs Harshvardhan Chemicals & Minerals Ltd [2003] 133 Taxman 320 (Raj)
3) Hari Gopal Singh v/s CIT, 258 ITR 85 (P&H)
4) Addl. CIT v/s Agarwal Mishthan Bhandar, 131 ITR 619 (1981)(Raj.)
5) CIT v/s M. M. Rice Mill, 253 ITR 17 (2002) (P&H)
9. In the penalty order the penalty was imposed by relying the finding of assessment order. No further positive material was brought on record to prove that the assessee has actually concealed the income The penalty u/s. 271 (1)(c) is not automatic. The findings of the AO in quantum proceeding are not binding in penalty proceedings. No any positive material was brought in penalty proceedings to show that the assessee has made willful attempt to conceal the income or to furnish inaccurate particulars of income.
10. The case law relied by the AO are also not applicable in the case of the assessee as in the cited case laws the penalty was confirmed because the assessee knowingly furnish inaccurate particulars of income or concealed the particulars of income while in the case of the assessee the assessee produced completed books of accounts/details which were available with it and co operated in the assessment proceedings. The department have no positive material to prove that the assessee has knowingly furnished inaccurate particulars of income or concealed the particulars of income.
11. Even after the assessment proceedings, to levy and sustain the penalty, the fundamental criteria is as to whether the revenue has established concealed income by bringing the cogent and reliable evidence or 22 ITA No. 760/JP/2016 M/s. Gopi Bai Foundation vs. ACIT, Central Circle- 3, Jaipur .
whether the revenue has proved that the explanation offered by the assessee is false and not bonafide. In the instant case, the revenue has not brought any cogent and reliable material or evidence on record to prove the understatement of revenue. Merely that the additions were made in assessment order it cannot be presumed that the assessee has concealed the particulars of income or evaded the tax. It is settled law that apparent is real and to disprove the same to be unreal, the burden always lies on the revenue in view of the authoritative pronouncements reported in 131 ITR 597 (SC) and 210 ITR 250 (Raj); (2007) 111 TTJ 531 (JP) relevant at page 537 Para 9.
12. The assessment proceedings and penalty proceedings are two separate proceedings. The additions made during assessment proceedings does not lead to conclusion that the assessee was having some undisclosed income or concealed the particulars of his income. The additions in assessment order may be because of some technical reasons which always does not mean that the assessee had concealed income, therefore for imposing a penalty the assessing officer has to prove that the assessee was having concealed income. The penalty u/s. 271(1)(c) is not automatic and for imposing the penalty u/s 271(1)(c) of Income Tax Act, 1961 the ld. AO has to brought on record any positive material to show that the assessee concealed his income. There must be independent finding as held
a) Hon'ble Calcutta High Court in the case of Durga Kamal Rice Mills v/s. CIT (2004) 265 ITR 25 (Cal.). V).
Held that the findings of the quantum proceedings stage are not binding in penalty proceedings. There must be independent finding
b) RANI SATI COAL SUPPLIER vs. ITO 26 TW 440;
Held that the addition made in quantum assessment and later on sustained is not sufficient ground for imposition of penalty u/s 271(1) (c).
c) Sunil Kumar Gangwal vs. DCIT 32 Taxworld 139 Held that finding in quantum proceedings are not binding in the penalty proceedings, for imposition of penalty, independent findings are required.
23 ITA No. 760/JP/2016M/s. Gopi Bai Foundation vs. ACIT, Central Circle- 3, Jaipur .
13. In the present case, the assessee has proved his explanation to be genuine. Penalty proceedings being penal in character, the department must establish that the additions so made are real income of the assessee The department must have before it before levying penalty cogent material or evidence from which it could be inferred that the assessee has consciously concealed the particulars of his income or had deliberately furnished inaccurate particulars in respect of the same and that the disputed amount is a revenue receipt. The penalty cannot be levied solely on the basis of the reasons given in the original order of assessment. In the case Sharma (J.P.) and Sons v. Commissioner of Income-tax reported in [1985] 151 ITR 0333 (Raj.) it has been held that Mere non-disclosure of true particulars of income or furnishing of inaccurate particulars is not sufficient to attract the penalty provisions contained in section 271(1)(c) of the Income-tax Act, 1961. In order that penalty may be imposed, there should be conscious concealment of particulars or inaccurate particulars must have been furnished deliberately by the assessee. The Hon'ble Supreme Court in case of Dilip N. Shroff v. Joint CIT [2007] 291 ITR 519 (SC) has again reiterated the above principle in Para 19 to 28 that the penalty should not be imposed solely on the basis of findings reached in quantum proceedings. In the case of CIT Vs. Krishi Tyre Retreading and Rubber Industries reported in 360 ITR 580 (Raj.) the Hon'ble Rajasthan High Court in Para 10 has held "Penalty proceedings are entirely distinct from assessment proceedings and, howsoever relevant and good, the findings in assessment proceedings may be, they are not conclusive so far as the penalty proceedings are concerned." The Hon'ble Court relied on various judgment including ratio laid down in case of Dilip N. Shroff v. Joint CIT [2007] 291 ITR 519 (SC). Since the assessee has not acted deliberately in defiance of law or was not guilty of conduct contumacious or dishonest, or has not acted in conscious disregard of its obligation, penalty cannot be levied. In this regard your kind attention is drawn towards the Supreme Court decision in the case of Hindustan Steels Ltd. Vs. State of Orissa, 83 ITR 26 (SC). Hon'ble Apex Court has held that "An order imposing penalty for failure to carry out a statutory obligation is the result of a quasi-criminal proceeding and penalty will not ordinarily be imposed unless the party obliged, either acted deliberately in defiance of law or was guilty of conduct contumacious or dishonest, or acted in conscious disregard of its obligation. Penalty will not also be imposed merely because it is lawful to do so. Whether penalty should be imposed for failure to perform a statutory obligation 24 ITA No. 760/JP/2016 M/s. Gopi Bai Foundation vs. ACIT, Central Circle- 3, Jaipur .
is a matter of discretion of the authority to be exercised judicially and on a consideration of all the relevant circumstances. Even if a minimum penalty is prescribed, the authority competent to impose the penalty will be justified in refusing to impose penalty, when there is a technical or venial breach of the provisions of the Act or where the breach flows from a bona fide belief that the offender is not liable to act in the manner prescribed by the statute."
2.2 Ground No. 2: - The assessee do not wants to add, alter and amend the grounds of appeal.
In view of the above submission it is clear that the addition in total income do not represent to real income of assessee but is on account of additions made for technical reasons, therefore it cannot be said that the assessee has concealed the income or filed inaccurate particulars. Your honour is requested kindly to cancel the penalty so imposed by the AO and confirmed by ld CIT(A)'' 2.3 The ld. DR relied on the orders of the authorities below.
2.4 I have heard the rival contentions and perused the materials available on record. It is noted from the records that the assessee is trust and running a school under the name of M/s. Global Public School at Kota. The return of income declaring total loss of Rs. 5,57,920/- was filed by the assessee on 31-10-2006. The income of the assessee is exempt u/s 10(23C) (iiiad) of Income Tax Act, 1961 as the assessee is carrying educational activities. The department carried out search operations over the Career Point group on 04-12-2009. The assessee belongs to this group. In this case the original return u/s 139 (1) was filed 25 ITA No. 760/JP/2016 M/s. Gopi Bai Foundation vs. ACIT, Central Circle- 3, Jaipur .
on 31/10/2006 declaring loss of Rs. 5,57,920/-. In response to Notice u/s 153C of Income Tax Act, the assessee filed return u/s 153C on 29/07/2011 declaring the loss of Rs. 5,57,920/-. The assessment u/s 153A was completed on 15/12/2011 accepting the returned loss. Later on the case was re-opened u/s 148 of I.T. Act, 1961 solely on the basis of statement of Shri Sanjay D. Sonawani director of Washington Softwares Ltd, 47, 2B, Govinda Chambers, Karve Road, Pune recorded on 16.03.2011 wherein he admitted that his company was engaged in issuing non-genuine/ bogus sales bills in order to help the parties to inflate their expenses and in the list of the parties to whom bills were provided the assessee was one party who purchased the software from this company vide bill No. WSL/INV/36/2006-07 dated 03.03.2006 Rs. 4,00,000/-. In the reassessment proceedings, it was held that the assessee has taken bogus purchase bill of Rs. 4,00,000/- against purchase of software. It was held that assessee has not purchased the software from M/s Washington Software Ltd and money shown to have been paid for software was returned back to the assessee. It was further held that the software was purchased from somewhere else from the undisclosed money which was 26 ITA No. 760/JP/2016 M/s. Gopi Bai Foundation vs. ACIT, Central Circle- 3, Jaipur .
added to the total income of the assessee. Thus the AO had no other alternative but to treat the amount used for purchase of software as undisclosed income of the assessee and added this amount of Rs.
4,00,000/- to the total income of the assessee. This would result in an addition of Rs. 4.00 lacs. According to the AO, this undisclosed income is not eligible for expenditure u/s 10(23C)(iiiad) as the same is not earned solely from imparting of educational activities. According to the AO, it is clear that the assessee has willfully concealed its income and has given inaccurate particulars of income by taking bogus bills. Thus the AO vide his order assessment order dated 25-03-2014 initiated the penalty proceedings separately u/s 271(1)© of the Act for concealment of income and furnishing inaccurate particulars of income. Further the A.O. imposed a penalty of Rs. 1,22,400/- u/s 271(1)(c) of I.T. Act, 1961 vide order dated 24-09-2014 being 100% of tax laviable on Rs. 4,00,000/-
treating the same as concealed income of assessee and holding that the assessee had willfully concealed its income and has given inaccurate particulars of its income by taking bogus bill. The ld. CIT(A) confirmed the action of the AO in imposing the penalty of Rs. 1,22,400/-. It is 27 ITA No. 760/JP/2016 M/s. Gopi Bai Foundation vs. ACIT, Central Circle- 3, Jaipur .
observed that assessment proceedings and penalty proceedings are two separate proceedings. The addition made during assessment proceedings does not lead to conclusion that the assessee was having some undisclosed income or concealed the particulars of income. The addition in assessment order may be because of some technical reasons which do not mean that the assessee had concealed income. Therefore, for imposing a penalty, the AO had to prove that the assessee was having concealed income. The penalty u/s 271(1)(c) of the Act is not automatic and for imposing penalty u/s 271(1)(c) of the Act, the AO had to brought on record any positive material to show that the assessee concealed his income. There must be independent finding and various Hon'ble Courts held as under:-
a) Hon'ble Calcutta High Court in the case of Durga Kamal Rice Mills v/s. CIT (2004) 265 ITR 25 (Cal.). V).
Held that the findings of the quantum proceedings stage are not binding in penalty proceedings. There must be independent finding
b) RANI SATI COAL SUPPLIER vs. ITO 26 TW 440;
Held that the addition made in quantum assessment and later on sustained is not sufficient ground for imposition of penalty u/s 271(1) (c).
c) Sunil Kumar Gangwal vs. DCIT 32 Taxworld 139 28 ITA No. 760/JP/2016 M/s. Gopi Bai Foundation vs. ACIT, Central Circle- 3, Jaipur .
Held that finding in quantum proceedings are not binding in the penalty proceedings, for imposition of penalty, independent findings are required.
It is also noted from the records that on similar issue u/s 271(1)© of the Act, the ITAT Jaipur Bench in the case of Shri Murari Lal Mittal vs. DCIT, Central Circle- 2, Jaipur had deleted the penalty vide order dated 9-11-2016 in ITA No. 333 & 334/JP/2015 by observing as under:-
2.5 I have heard the rival contentions and perused the materials available on record. It is noted from the record that the assessee is an individual declaring income from house property and income from business or profession as proprietor of M/s. Mittal Enterprises. The return u/s 139(1) of the Act was filed on 25-10-2004 by the assessee declaring total income of Rs. 1,51,100/-. Search and seizure operations were carried out on 27-08-2008 on residential and business premises of the assessee. The return u/s 153 of the I.T. Act was filed on 31-03-2009 declaring total income of Rs.
5,85,090/- which included additional income surrender of Rs.4,53,819/-. The assessment was made by the AO u/s 153A/143(3) of I.T. Act on total income of Rs. 6,18,980/- which included the addition of Rs. 33,892/- made by the AO on account of disallowance made from various expenses. In penalty proceedings, the AO imposed the penalty of Rs. 1,36,145/- being 100% of tax payable on additional income of Rs. 4,53,819/- declared by the assessee. The ld. CIT(A) had confirmed the action of the AO. It is noted from the record that the AO had initiated penalty proceedings for concealment of income or for furnishing inaccurate particulars of income. In the notice also, the AO has not specified for which specific reason the penalty proceedings has been initiated whether it is for concealment of income or for furnishing inaccurate particulars of income. Ultimately, 29 ITA No. 760/JP/2016 M/s. Gopi Bai Foundation vs. ACIT, Central Circle- 3, Jaipur .
the AO levied the penalty for concealment of income. The Hon'ble Karnataka High Court in the case of CIT & Anr vs. Manjunatha Cotton & Ginning Factory, 359 ITR 565 held as under:-
''though penalty proceedings are in the nature of civil liability, in fact, it is penal in nature. In either event, the person who is accused of the conditions mentioned in section 271 should be made known about the grounds on which they intend imposing penalty on him as section 274 makes it clear that the assessee has a right to contest such proceedings and should have full opportunity to meet the case of the Department and show that the conditions stipulated in section 271(1)(c) do not exist as such he is not liable to pay penalty. The practice of the Department sending a printed form where all the grounds mentioned in section 271 are mentioned would not satisfy the requirement of law when the consequences of the assessee not rebutting the initial presumption is serious in nature and he had to pay penalty from 100 per cent. to 300 per cent. of the tax liability. As the said provisions have to be held to be strictly construed, notice issued under section 274 should satisfy the grounds which he has to meet specifically.
Otherwise, the principles of natural justice is offended if the show- cause notice is vague. On the basis of such proceedings, no penalty could be imposed on the assessee.'' It is also noted that similar type of issue was decided in favour of the assessee by ITAT Coordinate Bench in the case of Shankar Lal Khandelwal vs. DCIT, Central Circle- 1, Jaipur vide its order dated 11-03-2016 in ITA No. 878/JP/2013 for the assessment year 2007- 08 by observing as under:-
6. We have heard the rival contentions of both the parties and perused the material available on the record. In this case, the ld Assessing Officer initiated penalty proceedings for concealing of particulars of income and for furnishing inaccurate particulars of income vide order dated 31/12/2009. Notice U/s 274 read with Section 271-272 of the Act was issued on 30/12/2009 by ticking of the notice as under:-30 ITA No. 760/JP/2016
M/s. Gopi Bai Foundation vs. ACIT, Central Circle- 3, Jaipur .
"U/s 271(1)(c):- Concealed particulars of income or furnished inaccurate particulars of income".
The ld Assessing Officer again gave notice during the course of penalty proceedings on 23/1/2012 wherein he gave show cause notice U/s 271(1)(c) for imposing of penalty without specifying the limb for reasons to impose the penalty, whether it is for concealed particulars of income or furnished inaccurate particulars of income. The ld CIT(A) has considered all the aspect and held that Explanation 5A to Section 271(1)(c) is applicable as in this case, a search was carried out after 01/6/2007 and the assessee has furnished return for A.Y. 2007-08 before search and additional income has been disclosed U/s 153A. Therefore, deeming provisions are applicable. It is undisputed fact that the assessee has disclosed additional income in return filed U/s 153A on the basis of incriminating document found during the course of search. We have considered view that Explanation 5A is not required to be mentioned by the Assessing Officer specifically at the time of initiation or even in the show cause notice issued by the Assessing Officer, but basic defect we found that the ld Assessing Officer has mentioned at the time of initiation of penalty proceeding under both the limbs i.e. concealed the particulars of income and furnished inaccurate particulars of income but at the time of notice U/s 274 he simply has ticked in prescribed proforma concealed particulars of income or furnished inaccurate particulars of income without deleting either limb of penalty even he has not put and in the notice itself between two limbs. The amended provisions of Sub- section (1B) of Section 271 has been considered by the Hon'ble Delhi High Court in the case of Madhu Shree Gupta vs. UOl, 317 ITR 107 wherein it has been held that at the stage of initiation of penalty proceedings, the order passed by the Assessing Officer need not reflect satisfaction vis a 31 ITA No. 760/JP/2016 M/s. Gopi Bai Foundation vs. ACIT, Central Circle- 3, Jaipur .
vis each and every item of addition or disallowance if the overall sense gathered from the order is that a further prognosis is called for. It would be sufficient compliance with the law that there is a prima facie evidence for concealment of particulars of income or furnishing inaccurate particulars of income. Even after this section, the Assessing Officer has to satisfy the particular limb of initiation of penalty imposable U/s 271(1)(c) of the Act at the time of assessment proceedings. The Hon'ble Karnataka High Court in the case of CIT vs. M/s Manjunatha Cotton & Ginning Factory & Ors.(2013) 359 ITR 565 (Karn) held that sending printed form where all the grounds mentioned in section 271 would not satisfy the requirement of law. The assessee should know the ground which he has to meet specifically, otherwise, the principle of natural justice is offended on the basis of such proceedings, no penalty could be imposed to the assessee. The Hon'ble Punjab & Haryana High Court in the case of Tej Bhan Cotton Ginning & Pressing Factory Vs. CIT, Rohtak (supra) has held that the Assessing Officer in assessment order has satisfied himself regarding initiation of penalty proceedings, which was tantamount to satisfaction have recorded to the fact on the basis of addition made by the Assessing Officer for concealed income in assessment order. The Hon'ble Court has confirmed the penalty even penalty proceedings initiated by the Assessing Officer by mentioning penalty proceeding for concealing/furnishing of inaccurate particulars of income. The Hon'ble Punjab & Haryana High Court has expressed different view on initiation of penalty proceedings even notice U/s 274 issued by putting oblique between concealing and furnishing of inaccurate particulars of income whereas the Hon'ble Karnataka High Court has held that the Assessing Officer has to satisfy at the time of initiation of penalty proceeding and issuing notice U/s 274 of the Act that whether penalty is for concealed particulars of income or furnishing of inaccurate particulars of income.32 ITA No. 760/JP/2016
M/s. Gopi Bai Foundation vs. ACIT, Central Circle- 3, Jaipur .
There were two opinions of the Hon'ble Courts. The Hon'ble Supreme Court has held that in case of two views of the court, favourable view of the assessee would be taken as held in the case of CIT Vs Vegetable Products Ltd. (1973) 88 ITR 192 (SC) and a recent decision in the case of CIT Vs. Vatika Township P Ltd. (2014) 367 ITR 466 (SC).
Therefore, we are of the considered view that initiation of penalty proceedings is not as per law and Assessing Officer did not have any jurisdiction to impose penalty U/s 271(1)(c) of the Act. As the matter has been decided on technical issue, we are not expressing any view on merit of the case. Accordingly, we delete the penalty confirmed by the ld CIT(A).
7. In the result, the appeal of the assessee is allowed.'' In view of the above deliberations and respectfully following the order of the Coordinate Bench in the case of Shankar Lal Khandelwal vs. DCIT, Central Circle- 1, Jaipur (supra), the penalty confirmed by the ld. CIT(A) is directed to be deleted. Thus the appeal of the assessee is allowed.'' It is also noted that the ld. AR of the assessee relied on various case laws (supra) including the judgement of ITAT, Kolkata Bench in the case of Vaibhah Tulsyan vs. ITO, Ward- 29(4), Kolkata (ITA No. 736 & 737/Kol/2013 dated 27-05-2016). In the case of Vaibhah Tulsyan vs. ITO, ITAT allowed the appeal of the assessee on the issue of penalty u/s 271(1)© of the Act. In view of the above deliberations, facts of the case 33 ITA No. 760/JP/2016 M/s. Gopi Bai Foundation vs. ACIT, Central Circle- 3, Jaipur .
and the case laws relied on (supra) by the assessee, the penalty of Rs.
1,22,400/- confirmed by the ld. CIT(A) u/s 271(1)(c) of the Act is directed to be deleted. Thus the appeal of the assessee is allowed.
3.0 In the result, the appeal of the assessee is allowed Order pronounced in the open court on 29 /12/2016.
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vkns'k dh izfrfyfi vxzfs "kr@Copy of the order forwarded to:
1. vihykFkhZ@The Appellant-M/s. Gopi Bai Foundation ,Kota
2. izR;FkhZ@ The Respondent- The ACIT, Central Circle- 3, Jaipur
3. vk;dj vk;qDr¼vihy½@ CIT(A).
4. vk;dj vk;qDr@ CIT,
5. foHkkxh; izfrfuf/k] vk;dj vihyh; vf/kdj.k] t;iqj@DR, ITAT, Jaipur
6. xkMZ QkbZy@ Guard File (ITA No. 760/JP/2016) vkns'kkuqlkj@ By order, lgk;d iathdkj@ Assistant. Registrar