Income Tax Appellate Tribunal - Hyderabad
M Chandra Mohan Goud, Hyd, Hyderabad vs Ito, Ward-4(4), Hyd, Hyderabad on 30 December, 2016
IN THE INCOME TAX APPELLATE TRIBUNAL
HYDERABAD BENCHES "B", HYDERABAD
BEFORE SMT. P. MADHAVI DEVI, JUDICIAL MEMBER
AND
SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER
I.T.A. No. 594/HYD/2016
Assessment Year: 2005-06
Sri Mula Chandra Mohan Goud, The Income Tax Officer,
HYDERABAD Vs Ward-4(4),
[PAN: AGWPM9920D] HYDERABAD
(Appellant) (Respondent)
For Assessee : Shri K.A. Sai Prasad, AR
For Revenue : Smt. U. Minichandran, DR
Date of Hearing : 14-12-2016
Date of Pronouncement : 30-12-2016
ORDER
PER B. RAMAKOTAIAH, A.M. :
This is an appeal by assessee against the order of the Ld. Commissioner of Income Tax (Appeals)-1, Hyderabad dated 29-01-2016, confirming the penalty u/s. 271(1)(c) of the Income Tax Act [Act] of Rs. 2,44,000/-.
2. Briefly stated, in the course of assessment proceedings, Assessing Officer (AO) noticed that there were deposits in Oriental Bank of Commerce and Development Credit Bank to an extent of Rs. 29,00,200/- which were treated as 'unexplained income' and was brought to tax. The matter has carried upto ITAT and in the proceedings, affidavits were filed by assessee from the proprietors I.T.A. No. 594/Hyd/2016 :- 2 -:
of Laxmi Wines and Mallikarjuna Bar & Restaurant, who were his close relatives stating that the cash deposits were sales of the above firms routed through the account of assessee for giving cheques/demand drafts to AP Beverages Corporation Ltd. Considering the submissions of assessee, the matter was set aside to the file of AO to examine the affidavits, along with other evidence and in the course of re-assessment proceedings, AO has accepted all the amounts, except two deposits. It is noticed that cash deposits amounting to Rs. 3,07,500/- in the Development Credit Bank a/c and Rs. 4,31,000/- in the Oriental Bank of Commerce a/c were not reflected in the Books of the above two concerns. Accordingly, an amount of Rs. 7,38,500/- was confirmed in the re- assessment orders which assessee has accepted without any further appeal. Since proceedings u/s. 271(1)(c) were initiated, AO levied the penalty.
3. Before the Ld.CIT(A), it was contended that the addition was an agreed addition in order to buy peace, even though the monies belong to the other concerns and relied on various case law such as;
i. Sandur Manganese & Iron [38 taxmann.com 106]; ii. CIT Vs. Steel Centre [51 taxmann.com 127]; iii. Rama Educational Welfare Society [44 taxmann.com 32]; iv. Vikaram Bhatia [47 Taxmannn.com 365] (ITAT, Lucknow)
4. Ld.CIT(A) however, in a very brief decision, confirmed the penalty stating as under:
"The submissions of the appellant and the order passed by the Assessing Officer have been carefully considered.
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During the course of Assessment proceedings, it was found that the Applicant has not reflected the two amounts, totaling up to Rs. 7,38,500/- in his books of Account. This is clear case of concealment.
Since this issue was decided after the ITAT, Hyderabad Order (set aside), I feel there is no need to interfere with the Order of the Assessing Officer. The penalty Order is confirmed".
4.1. Assessee apart from the issue on merits also raised an additional ground that 'In the absence of specific charge raised by the Assessing Officer in the notice u/s. 274 r.w.s. 271(1)(c), the levy of penalty u/s. 271(1)(c) is not valid'. It relied on the judgment of Hon'ble Karnataka High Court in the case of CIT & Anr. Vs. Manjunatha Cotton & Ginning Factory [359 ITR 565]. It was submitted that appeal by Revenue against the said judgment of Hon'ble Karnataka High Court was dismissed by the Hon'ble Supreme Court.
5. Coming to the merits, it was submitted that the amounts assessed in the hands of assessee are pertaining to the other two concerns and affidavits to that extent have been filed which have not been disproved. AO made the addition on the reason that the said amounts were not accounted for in their books of account. Once those amounts were accepted as belonging to them, it is not correct to levy penalty in the hands of assessee without proving that the money belongs to assessee. Just because assessee accepted the addition to settle the matters it is not enough to levy penalty u/s. 271(1)(c).
6. Ld. DR however, relied on the orders of the AO to substantiate that on the facts of the case, penalty is warranted.
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7. We have considered the rival contentions. Before going to the aspect of issuance of improper notice, it is necessary to consider whether penalty can be levied on merits as well. As briefly stated above, the AO has originally taxed the entire amount of Rs. 29,00,200/- as unexplained income of assessee. It was assessee's submission that the amounts deposited in the bank account do pertain to the business of Laxmi Wines and Mallikarjuna Bar & Restaurant. Assessee filed the affidavits for the first time before the ITAT and the matter was restored to the file of the AO for fresh examination. In the course of re-assessment, AO has examined and brought to tax the amount of Rs. 7,38,500/- stating as under:
"2. The assessee furnished copies of the affidavits filed before the ITAT along with the books of account of Laxmi Wines and Mallikarjuna Bar & Restaurant. During the assessment proceedings, it is noticed that there are cash deposits in the SBH Account of the assessee also which were not explained at the time of original assessment. The assessee submitted that they also represent the sales of both the above Accounts that immediately after deposit of the cash a Banker's Cheque has been taken. The books of account furnished have been verified. It is noticed that cash deposits amounting to Rs. 3,07,500/- in the Development Credit Bank Account of the assessee and Rs. 4,31,000/- in the Oriental Bank of Commerce Account of the assessee were not reflected in the books of the above two concerns. Hence, the amount totaling to Rs. 7,38,500/- is treated as Unexplained Income of the assessee.".
8. Thus, as can be seen from the above order, the reason for adding the amounts in the hands of assessee is only because the AO did not find necessary entries in the books of account of the above two concerns. If that is the case, since those people have owned up the amounts, necessary proceedings could have been initiated in their hands. However, in order to settle the matter, assessee had accepted the addition and paid the taxes accordingly.
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In these circumstances, we are of the opinion that assessee's explanation given has not been disproved. Just because an addition has been made and agreed by assessee, it does not automatically lead to levy of penalty u/s. 271(1)(c).
9. Assessee in the appeal has raised an additional ground contesting that the notice issued does not specify whether the proceedings were initiated for 'concealment of penalty' or 'for furnishing inaccurate particulars'. The copy of the notice placed on record do indicate that it is a printed proforma, without striking-off the relevant columns and simply signed by the AO which has served on assessee. On similar facts, the Hon'ble Karnataka High Court in the case of Manjunatha Cotton & Ginning Factory [359 ITR 565] (supra) has held that the practice of the department sending a printed form where all the grounds mentioned in 271 are mentioned would not satisfy the requirement of law when the consequence of assessee not rebutting the initial presumption is serious in nature and he had to pay penalty from 10% to 300% of tax liability. As the said provisions have to be held to be strictly construed, notice u/s. 274 should satisfy the grounds which he has to meet specifically. Otherwise, the principles of natural justice are offended, if the show cause notice is vague. On the basis of such proceedings, no penalty could be imposed on assessee.
10. Similar issue has come up in the case of M/s. Nivee Property Developers Private Ltd., Vs. ACIT in ITA No. 951/Hyd/2016 (AY. 2005-06) dt. 11-11-2016. In that case, the Co-ordinate Bench (SMC) of Hyderabad has held as under:
I.T.A. No. 594/Hyd/2016 :- 6 -:
"2. After hearing the rival contentions, we find that in the notice issued u/s 271(1)(c), the charge is not specified. In other words, the AO has not specifically stated whether the notice was issued for concealment of particulars of income or for furnishing inaccurate particulars of income. The Hon'ble Karnataka High Court in the case of CIT vs. Manjunatha Cotton & Ginning Factory reported in (2013) 35 taxmann.com 250 (Kar.) at Para 63 held as under:
"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) Wilful 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 Section 271(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(1)(c) is a sine qua non for the Assessment Officer to initiate the proceedings because of the deeming provision contained in Section 1(B).
(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 bonafide, an order imposing penalty could be passed.
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(m) If the explanation offered, even though not substantiated by the assessee, but is found to be bonafide 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.
(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 insofar 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".
Respectfully following the same, I quash the penalty levied u/s 271(1)(c) as bad in law".
11. Similarly in the case of Lalitkumar M Sakhala Vs. DCIT in ITA No. 938/Mum/2015 (AY. 2009-10) dt. 10-08-2016, the Co-ordinate Bench of Mumbai (SMC) has held as under:
I.T.A. No. 594/Hyd/2016 :- 8 -:
"4. Before me, the ld. counsel for the assessee stated that he has filed the explanation before the AO and the CIT(A) and also argued that in this case the AO has levied penalty for concealment u/s 271 (1) (c) of the Act, but without any specific charge i.e. the penalty for concealment of income or furnishing of inaccurate particulars of income. According to Ld. Counsel the AO himself is not convinced about the charge. The ld. counsel for the assessee drew my attention to the pages 2-3 of the assessee's paper book, wherein penalty notice u/s. 271(1)( c) r.w.s 274 of the Act dated 17- 11-2011 was issued by the AO to the assessee. The ld. counsel for the assessee stated before me that this issue is covered in favour of the assessee by the decision of the Hon'ble Karnataka High Court in the case of CIT Vs. Manjunatha Cotton and Ginning Factory (2013) 359 ITR 565 (Kar.). I find that the notice issued u/s. 274 r. w. s. 271 of the Act, dated 17-11- 2011, clearly reveals that the AO while issuing the notice has not strike off inappropriate words and accordingly, the purpose of the notice issued for levy of penalty is lost. Accordingly, it is not clear what default is committed by the assessee i.e. whether it is initiated for concealment of particulars of income or for furnishing of inaccurate particulars of income so that the penalty u/s. 271(1)( c) can be levied. I find that the Hon'ble Karnataka High Court in the case of Manjunatha Cotton and Ginning Factory (supra) has held as under:-
"58. It must be noticed that this finding recording concealment in the order to be passed by these authorities is only for the purpose of initiating. The said finding is not conclusive; it is in the nature of prima facie satisfaction, which authorizes them to initiate the penalty proceedings. Once a penalty proceedings is validly initiated, then under Section 274(1) an obligation is cast on the person initiating the proceedings to issue notice to the assessee. When such a notice is issued, it is open to the assessee to contest the accusation against him that he has concealed income or he has furnished inaccurate particulars. As there is an initial presumption of concealment, it is for the assessee to rebut the said presumption. The presumption found in Explanation 1 is a rebuttable presumption. If the authority, after hearing the assessee and looking into the material produced in the said proceedings before him is satisfied that though the income is undisclosed there was no intent to avoid tax and therefore, if he holds there is no concealment of income, then question of imposing penalty would not arise. It may be a case of not disclosing income without any intent to avoid tax; it may be a case of furnishing particulars without any intention to avoiding tax. Both stand on the same footing. It is only when the authority is satisfied that non-disclosure of income or furnishing inaccurate particulars was with the intention of evading tax, then it amount to concealment, it amounts to furnishing inaccurate particulars. Then, at his discretion, he may impose penalty as provided under the Act. Therefore, merely because the assessee accepted addition or deletion and did not challenge the assessment order by way of appeal, it cannot be concluded that such addition or deletion amounts to concealment of income or furnishing of inaccurate particulars. When a plea is taken that in order to avoid litigation and purchase peace, the tax levied is paid with interest, if the assessee is able to demonstrate his bona fides and if the I.T.A. No. 594/Hyd/2016 :- 9 -:
authority is satisfied about his bonafides, then the question of imposing penalty would not arise. Similarly, in cases where though the tax was not actually due but still the assessee pays tax with a hope of claiming deductions in the subsequent years, if the assessee is able to demonstrate there was no liability to pay tax at all, merely if assessee pays tax and he does not challenge order, that would not constitute concealment of income so as to enable the authorities to impose penalty. Similarly, in cases, where the legal position is not well settled, when few High Courts and Tribunals have taken a view in favour of the assessee and some High Courts and Tribunals have taken a view in favour of the Revenue and on legal advice if an assessee relies on the said legal position for not disclosing the income and for non-payment of tax, certainly, that is a fact which should weigh in the penalty proceedings after the assessee has paid tax with interest before imposing penalty.
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 Explanation-1 or in Explanation-1(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 form 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.
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 I.T.A. No. 594/Hyd/2016 :- 10 -:
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 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 proforma without striking of the relevant clauses will lead to an inference as to non- application of mind."
5. In view of the facts of the case that there is no specific charge raised by the AO while issuing notice u/s 274 r. w. s. section 271 of the Act, as discussed above, the issue is covered by the decision of the Hon'ble Karnataka High Court in the case of Manjunatha Cotton and Ginning Factory (supra). Respectfully following the above, I allow the appeal of the assessee".
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12. In the present case the notice does not specify for what offence the proceedings are initiated. The decision of the Karnataka High Court (supra) and other cases stated above will equally apply to the facts of the case. Even otherwise on merits also there is no scope for levy of penalty as considered above. Hence, both on principles of law and also on the facts, there is no scope for levy of penalty u/s 271(1)(c) on assessee. Considering the above, we have no hesitation in cancelling the penalty.
13. In the result, appeal of assessee is allowed.
Order pronounced in the open court on 30th December, 2016 Sd/- Sd/-
(P. MADHAVI DEVI) (B. RAMAKOTAIAH) JUDICIAL MEMBER ACCOUNTANT MEMBER Hyderabad, Dated 30th December, 2016 TNMM Copy to :
1. Sri Mula Chandra Mohan Goud, C/o. Ch. Parthasarathy & Co., 1-1-298/2/B/3, 1st Floor, Sowbhagya Avenue, St. No. 1, Ashok Nagar, Hyderabad.
2. The Income Tax Officer, Ward-4(4), Hyderabad.
3. CIT (Appeals)-1, Hyderabad.
4. The Pr.CIT-1, Hyderabad.
5. D.R. ITAT, Hyderabad.
6. Guard File.