Income Tax Appellate Tribunal - Jaipur
Jai Ambey Associates, Jaipur vs Ito, Jaipur on 25 January, 2018
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IN THE INCOME TAX APPELLATE TRIBUNAL,
JAIPUR BENCHES (SMC), JAIPUR
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BEFORE: SHRI VIJAY PAL RAO, JUDICIAL MEMBER
vk;dj vihy la-@ITA No. 801/JP/2016
fu/kZkj.k o"kZ@Assessment Year : 2011-12
M/s Jai Ambey Associates, cuke Income Tax Officer,
3/418-A. Yadav Dairy Farm, Vs. Ward -3(1),
Gandhi Path, Chitrakoot, Jaipur. Jaipur.
LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: AAGFJ8262K
vihykFkhZ@Appellant izR;FkhZ@Respondent
fu/kZkfjrh dh vksj ls@ Assessee by : Shri Rajeev Sagoni &
Shri Rohan Sagoni (C. A.)
jktLo dh vksj ls@ Revenue by : Shri R.A. Verma (Addl.CIT)
lquokbZ dh rkjh[k@ Date of Hearing : 28/11/2017
mn?kks"k.kk dh rkjh[k@ Date of Pronouncement : 25/01/2018
vkns'k@ ORDER
PER: VIJAY PAL RAO, J.M. This appeal by the assessee is directed against the order dated 21.06.2016 of CIT(A), Jaipur arising from the penalty order passed u/s 271(1)(c) of the I. T. Act for the assessment year 2011-12. The Assessee has raised the following ground:-
"1. In the facts and circumstances of the case and in law the ld. CIT(A) has erred in confirming the action of the ld. AO in imposing penalty of Rs. 4,95,018/- u/s 271(1)(c) of the Income Tax Act, 1961.
2 ITA 801/JP/16_ M/s jai Ambey Associates Vs. ITO, Jaipur The action of ld. CIT(A) is illegal, unjustified, arbitrary and against the facts of the case. Relief may please be granted by quashing the penalty of Rs. 4,95,018/- imposed u/s 271(1)(c).
2. The assessee Firm craves its right to add, amend or alter any of the grounds on or before the hearing."
2. The assessee has also raised the additional ground:-
"In the facts and circumstances of the case and in law the ld. AO has erred in imposing the penalty u/s 271(1)(c) without specifically pointing out in the show cause notice, whether the penalty was proposed on concealment of particulars of income or for furnishing inaccurate particulars of income."
Since, the additional ground raised by the assessee is legally in nature and goes to the root of the matter and therefore, first we take up the additional ground.
3. I have heard the ld. AR as well as ld. DR and considered the relevant material on record for admission of additional ground. The assessee is challenging the validity of notice issued u/s 274 r.w.s.
271(1)(c) of the IT Act dated 30.08.2013 the copy of the notice has been filed by the assessee which is not in dispute. Therefore for adjudication of the additional ground no investigation or examination of new facts is required but the same can be decided on the basis of the facts already record. Accordingly, in view of the decision of Hon'ble Supreme Court in case of National Thermal Power Co. Ltd. vs. CIT 229 ITR 383 the additional ground raised by the assessee is admitted for adjudication.
3 ITA 801/JP/16_ M/s jai Ambey Associates Vs. ITO, Jaipur
4. On the merits of the additional grounds:- The ld. AR of the assessee has submitted that the Assessing Officer has not specified in the notice issued u/s 274 of the Act whether the assessee has concealed the particulars of income or furnished inaccurate particulars income. He has relied upon the decision of Hon'ble Karnataka High Court in case of CIT vs. Manjunathan Cotton & ginning Factory 359 ITR 565 and submitted that the notice issued u/s 274 of the Act should specifically states the ground mention in section 271(1)(c) of the IT Act whether it is for concealment of income or for furnishing of inaccurate particulars of income sending a printed form where all grounds mentioned in section 271 would not satisfy the requirement of law. The assessee should know the ground which he has to meet for specifically otherwise the principles of natural justice is offended and on the basis of such proceeding no penalty can be imposed on the assessee. Thus, the ld. AR has contended that when the AO has not specified the ground for initiation of penalty which the assessee has to meet in his explanation the notice issued u/s 274 of the Act is not sustainable and liable to be quashed. He has also relied upon the decision of Hon'ble jurisdiction High Court dated 06.12.2016 in case of Sheveta Construction Co. vs. ITO in ITA No. 534/2008 as well as decision of Hon'ble Supreme Court in case of CIT vs. SSA's Emerald Meadows 73 taxmann.com 241 . Hence, ld. AR has pleaded that the impugned notice 4 ITA 801/JP/16_ M/s jai Ambey Associates Vs. ITO, Jaipur issued u/s 274 of the Act is not valid and liable to be quashed consequently the penalty of levy by the AO is also liable to be quashed.
5. On the other hand, ld. DR has submitted that the penalty proceeding u/s 271(1)(c) of the Act were initiated by the AO as per the assessment order on concealment of the income which was surrendered by the assessee during the assessment proceeding. He has referred to the assessment order passed u/s 143(3) of the Act and submitted that the assessee has not disclosed the sale to the extent of Rs. 16,02,000/- made during the year under consideration and when this fact was pointed out by the AO after getting the AIR information then, the assessee surrendered the said amount to tax. Hence, it is a case of concealment of income and the assessee itself has offered the income to tax when the AO discovered the income not offered to tax. He has relied upon the explanation 1B of section 271(1)(c) as well as decision of Coordinate Bench of this Tribunal dated 29.09.2017 in case of M/s Airen Metals Pvt. Ltd. vs. CIT in ITA No. 820/JP/2016. The ld. DR thus submitted that the decisions relied upon the ld. AR are not applicable in the facts and circumstances of the case when the assessee surrendered the income discovered by the AO during the course of enquiry. He has relied upon the orders of the authorities below.
In rejoinder the ld. AR of the assessee has submitted that the Assessing 5 ITA 801/JP/16_ M/s jai Ambey Associates Vs. ITO, Jaipur Officer in the assessment order passed u/s 143(3) of the Act was not sure and consistent about the ground on which the penalty was initiated. He has pointed out that at page 3 of the assessment order in para second the AO stated that the assessee has willfully concealed its income and has given inaccurate particulars of income while not showing actual sale and accordingly the penalty proceeding were initiated separately whereas at the end of the assessment order the AO has again stated that penalty proceeding u/s 271(1)(c) r.w.s. 274 of the Income Tax Act has been initiated separately for concealment of income or furnished inaccurate particulars of income. Therefore, the AO has not made it clear on what ground the penalty proceeding were initiated. Further, the assessee has challenged the validity of notice issued u/s 274 of the Act wherein the Assessing Officer has not specified the grounds on which the penalty proceeding were initiated. As regards the decision of the Coordinate Bench in case of M/s Airen Metals Pvt. Ltd. vs. ACIT the ld. AR has pointed out the said decision is on peculiar facts of the said case and therefore is not applicable to the case of the assesse.
6. I have considered the rival submissions as well as relevant material on record. There is no dispute that in the return of income the assessee has not disclosed the sale of flats amounting to Rs. 16,02,000 and when 6 ITA 801/JP/16_ M/s jai Ambey Associates Vs. ITO, Jaipur the AO pointed out the discrepancy in the sales disclosed by the assessee and the sales as per AIR information the assessee surrendered the said income and stated that due to inadvertent mistake the sale amounting to Rs. 16,02,000/- was not recorded in the books of accounts. Therefore, there is no dispute on the point that the assessee surrendered this income when the AO brought to the notice of the assessee about the discrepancy in the sales declares by the assessee which is not matching with the details as per AIR information. The Assessing Officer though stated in the assessment order that the penalty proceeding have been initiated separately however, the grounds on which the penalty proceeding have been initiated are required to be stated in the show cause notice issued u/s 274 r.w.s. 271(1)(c) of the Income Tax Act. I find that the Assessing Officer has neither specified a particular ground or default of the assessee nor deleted the irrelevant ground or default of the assessee as mentioned in the show cause notice issued u/s 274 dated 30.08.2013. The relevant para of the notice is reproduced as under:-
" have concealed the particulars of your income or --------- furnished inaccurate particulars of such income."
Though the assessee has surrendered this amount to tax however, it is an addition made to the income as declared by the assessee in the return of 7 ITA 801/JP/16_ M/s jai Ambey Associates Vs. ITO, Jaipur income and therefore, it is not the case where the AO has not made an addition but the case of the assessee falls in the category of addition to the total income has been made by the AO though based on the surrendered made by the assessee.
7. As regards the decision of Coordinate Bench of this Tribunal in case of M/s Airen Metals Pvt. Ltd. vs. ACIT (supra), I find that in the said case the AO issued two show cause notices u/s 274 of the Act and only second show cause notice issued by the AO specified grounds for which the penalty proceeding were initiated to make the assessee aware about the default committed by the assessee. Further, in the said case the assessee did not respond to the show cause notice and did not attend the penalty proceeding, therefore, no explanation was offered by the assessee before the AO in the penalty proceeding. Accordingly, the said decision is based on peculiar facts of the said case and cannot be applied in the case in hand where the AO has issued only one show cause notice u/s 274 without specifying the grounds for which the penalty u/s 271(1)(c) was proposed to be levied. The Hon'ble Karnataka High Court in case of CIT Manjunatha Cotton & ginning Factory (supra) has dealt with this issue extensively and held in 59 to 63 as under:-
"59. As the provision stands, the penalty proceedings can be initiated on various ground set out therein. If the order passed by
8 ITA 801/JP/16_ M/s jai Ambey Associates Vs. ITO, Jaipur 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(l)(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 9 ITA 801/JP/16_ M/s jai Ambey Associates Vs. ITO, Jaipur the existence of the grounds mentioned in Section 271(l)(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 T. Ashok Pai v. CIT [2007] 292 ITR 11/161 Taxman 340at 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 CIT v. Manu Engg. [1980] 122 ITR 306 and the Delhi High Court in the case of CIT v. Virgo Marketing (P.) 10 ITA 801/JP/16_ M/s jai Ambey Associates Vs. ITO, Jaipur Ltd. [2008] 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.
INDEPENDENT PROCEEDING
62. The penalty proceedings are distinct from assessment proceedings, and independent therefrom. The assessment proceedings are taxing proceedings. The proceedings for imposition of penalty though emanating from proceedings of assessment are independent and separate aspects of the proceeding. Separate provision is made for the imposition of penalty and separate notices of demand are made for recovery of tax and amount of penalty. Also separate appeal is provided against order of imposition of penalty. Above all, normally, assessment proceedings must precede penalty proceedings. Assessee is entitled to submit fresh evidence in the course of penalty proceedings. It is because penalty proceedings are independent proceedings. The assessee cannot question the assessment jurisdiction in penalty proceedings. Jurisdiction under penalty proceedings can only be limited to the issue of penalty, so that validity of the assessment or reassessment in pursuance of which penalty is levied, cannot be the subject matter in penalty proceedings. It is not possible to give a finding that the reassessment is invalid in such penalty proceedings. Clearly, there is no identity between the assessment proceedings and the penalty proceedings. The latter are separate proceedings that may, in some cases, follow as a consequence of the assessment proceedings. Though it is usual for the Assessing Officer to record in the assessment order that penalty proceedings are being initiated, this is more a matter of convenience than of legal requirement. All that the law requires, so far as the penalty proceedings are concerned, is that they should be initiated in the course of the proceedings for 11 ITA 801/JP/16_ M/s jai Ambey Associates Vs. ITO, Jaipur assessment. It is sufficient, if there is some record somewhere, even apart from the assessment order itself, that the Assessing Officer has recorded his satisfaction that the assessee is guilty of concealment or other default for which penalty action is called for. Indeed, in certain cases, it is possible for the Assessing Officer to issue a penalty notice or initiate penalty proceedings even long before the assessment is completed. There is no statutory requirement that the penalty order should precede or be simultaneous with the assessment order. In point of fact, having regard to the mode of computation of penalty outlined in the statute, the actual penalty order cannot be passed until the assessment is finalised.
CONCLUSION
63. In the light of what is stated above, what emerges is as under:
(a) Penalty under Section 271(l)(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(l)(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(l)(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 12 ITA 801/JP/16_ M/s jai Ambey Associates Vs. ITO, Jaipur 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).
(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.
(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 13 ITA 801/JP/16_ M/s jai Ambey Associates Vs. ITO, Jaipur 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(l)(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"
14 ITA 801/JP/16_ M/s jai Ambey Associates Vs. ITO, Jaipur 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."
I further note that the Hon'ble Supreme Court in case of CIT SSA's Emerald Meadows (supra) has dismissed the SLP filed by the Revenue against the decision of Hon'ble Karnataka High Court wherein the decision in case of CIT vs. Manjunatha Cotton & Ginning Factory (supra) was followed. Accordingly, in view of the above facts and circumstances of the case as well as the decisions cited (supra) I hold that the notice issued u/s 274 r.w.s. 271(1)(c) of the Act dated 30.08.2013 is not valid and the same is quashed. Since, the notice u/s 274 is quashed being invalid consequential levy of penalty is also deleted.
In the result the appeal of the assessee is allowed.
Order pronounced in the open court on 25/01/2018.
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¼ fot; iky jko ½ (VIJAY PAL RAO) U;kf;d lnL; @Judicial Member Tk;iqj@Jaipur fnukad@Dated:- 25/01/2018 *Santosh 15 ITA 801/JP/16_ M/s jai Ambey Associates Vs. ITO, Jaipur vkns'k dh izfrfyfi vxzfs 'kr@Copy of the order forwarded to:
1. vihykFkhZ@The Appellant- M/s Jai Ambey Associates, Jaipur.
2. izR;Fkh@ The Respondent- The ITO, 3(1), Jaipur.
3. vk;dj vk;qDr@ CIT
4. vk;dj vk;qDr¼vihy½@The CIT(A)
5. foHkkxh; izfrfuf/k] vk;dj vihyh; vf/kdj.k] t;iqj@DR, ITAT, Jaipur
6. xkMZ QkbZy@ Guard File (ITA No. 801/JP/16) vkns'kkuqlkj@ By order, lgk;d iathdkj@Asst. Registrar