Income Tax Appellate Tribunal - Pune
Kanhaiyalal D. Jain, Pune vs Assistant Commissioner Of ... on 30 November, 2016
आयकर अपील�य अ�धकरण पुणे �यायपीठ "ए" पुणे म�
IN THE INCOME TAX APPELLATE TRIBUNAL
PUNE BENCH "A", PUNE
सु�ी सुषमा चावला,
चावला �या�यक सद�य एवं �ी आर. के. पांडा, लेखा सद�य के सम�
BEFORE MS. SUSHMA CHOWLA, JM AND SHRI R.K. PANDA, AM
आयकर अपील सं. / ITA No s.1201 to 1205/PN/2014
�नधा�रण वष� / Assessment Years : 2003-04 to 2007-08
Kanhaiyalal D. Jain,
C/o Chhoriya Group,
1st Floor, Kothari Plaza,
Bibewadi-Kondhwa Road,
Gera Junction, Lullanagar,
Pune - 411040 .... अपीलाथ�/Appellant
PAN: AAOPJ 6974A
Vs.
The Asst. Commissioner of Income Tax,
Central Circle - 3, Nashik .... ��यथ� / Respondent
अपीलाथ� क� ओर से / Appellant by : S/Shri Nikhil Pathak and
Deepak Sharma
��यथ� क� ओर से / Respondent by : Shri Anil Kumar Chaware
सुनवाई क� तार�ख / घोषणा क� तार�ख /
Date of Hearing : 26.10.2016 Date of Pronouncement: 30.11.2016
आदे श / ORDER
PER SUSHMA CHOWLA, JM:
This bunch of appeals filed by the assessee are against consolidated order of CIT(A)-I, Nashik, dated 16.04.2014 relating to assessment years 2003-04 to 2007-08 against respective orders levying penalty under section 271(1)(c) of the Income Tax Act, 1961 (in short 'the Act'). 2
ITA Nos.1201 to 1205/PN/2014 Kanhaiyalal D. Jain
2. All the appeals filed by the same assessee on similar issue were heard together and are being disposed of by this consolidated order for the sake of convenience. However, reference is being made to the facts and issues in ITA No.1201/PN/2014 to adjudicate the issues.
3. The assessee in ITA No.1201/PN/2014 has raised the following grounds of appeal:-
1] The learned CIT(A) erred in directing levy of penalty u/s 271(1)(c) @ 150% of the tax sought to be evaded on the ground that the appellant had concealed its income and also misrepresented the facts of the case.
2] The learned CIT(A) erred in enhancing the penalty levied from 100% to 150% without appreciating that on the facts of the case and in law, he had no power to enhance the penalty levied by the A.O. and accordingly, the enhancement made by the learned CIT(A) is not justified at all.
3] The learned CIT(A) erred in holding that the additional income declared by the assessee group in the course of search in respect of on money on sale of plots was not correct and the seized papers indicated unaccounted loans received by the assessee and accordingly, the assessee had misrepresented the facts and therefore, the levy of penalty was justified in law.
4] The learned CIT(A) failed to appreciate that the additional income declared by the group of Rs.13.99 Crs. was to buy peace and to cooperate with the dept. and there was no evidence that the assessee had actually earned that income and accordingly, the penalty levied by the A.O. was not justified at all.
5] The learned CIT(A) ought to have appreciated that if its contention is accepted and the notings on the seize papers indicate unaccounted loans received by the assessee, in that event, there is no question of taxing such amounts in the hands of the assessee and consequently, the penalty levied should be deleted.
6] Without prejudice to the above grounds, the assessee submits that in case, penalty is leviable, the same should not be levied on the entire additional income declared by the assessee but only on reasonable net profit percentage to be adopted on the on money received by the assessee.
7] The learned CIT(A) erred in holding that the assessee had misrepresented the facts without appreciating that if his contention is accepted, no income is taxable in the hands of the assessee and therefore, the question of levy of penalty simply does not arise.3
ITA Nos.1201 to 1205/PN/2014 Kanhaiyalal D. Jain 8] The learned CIT(A) has erred in passing the order without considering the correct facts of the case.
4. The assessee has also raised additional ground of appeal, which reads as under:-
1] The assessee submits that the penalty order passed u/s. 271(1)(c) was null and void since the notice issued by the ld. A.O. was bad in law.
5. The issue arising in this bunch of appeals is against levy of penalty under section 271(1)(c) of the Act. The assessee has also raised an additional ground of appeal wherein he has challenged the jurisdiction to levy penalty under section 271(1)(c) of the Act since as per the assessee, notice issued by the Assessing Officer was bad in law.
6. Before addressing the issue, we shall take up jurisdictional issue raised by the assessee by way of additional ground of appeal. Since the ground of appeal does not involve any investigation of facts and is purely legal, the same is admitted for adjudication.
7. Briefly, in the facts of the case, search and seizure action under section 132 of the Act was carried out on Chhoriya Group of cases on 22.08.2008. The assessee had filed original return of income on 01.12.2003 declaring total income of Rs.5,94,985/-. Consequent to notice issued under section 153A of the Act, the assessee filed return of income declaring income of Rs.45,70,765/-. The additional income was filed because of declaration made during the course of search and seizure operations, wherein the assessee had 4 ITA Nos.1201 to 1205/PN/2014 Kanhaiyalal D. Jain admitted that it had received on-money on sale of plots and shops which was not disclosed in the return of income. In this regard, the assessee had offered Rs.23,75,726/- as additional income for the instant assessment year. However, in the return of income filed in response to notice under section 153A of the Act, the assessee offered Rs.39,75,780/ - as additional income. The Assessing Officer while completing assessment proceedings in the case of assessee noted that if there was no search and seizure operations, the assessee would not have disclosed the additional income of Rs.39,75,780/- and the same would have remained concealed with the assessee. Thus, the assessee had concealed particulars of income of Rs.39,75,780/- and furnished inaccurate particulars of such income within meaning of Explanation 5A to section 271(1)(c) of the Act, was the order passed by the Assessing Officer. The assessment in the case of assessee was completed under section 143(3) r.w.s. 153A of the Act at the returned income of Rs. 45,70,765/-. Thereafter, the Assessing Officer passed penalty order under section 271(1)(c) of the Act after considering the reply of assessee that the additional income offered does not represented the true income as the same was gross sale receipts, on account of sale of plots, etc. The Assessing Officer vide para 4.3 held that the penalty was initiated under section 271(1)(c) of the Act within meaning of Explanation 5A to section 271(1)(c) of the Act and under the given circumstances, the assessee was deemed to have concealed the particulars of income and furnished inaccurate particulars of such income. The assessee was held to be liable to pay the penalty as the Act did not provide any immunity to such persons who offer income which was not disclosed by them in the regular return of income and which was unearthed during the course of search. The Assessing Officer thus, held that he was satisfied that the 5 ITA Nos.1201 to 1205/PN/2014 Kanhaiyalal D. Jain assessee has without reasonable cause concealed the particulars of his income of Rs.39,75,780/- and was liable to levy of penalty under section 271(1)(c) of the Act at Rs.12,52,370/-.
8. Before the CIT(A), the first objection raised by the assessee was that the Assessing Officer had failed to establish as to whether the assessee had concealed his particulars of income or furnished inaccurate particulars of income and has thus, erred in levying the penalty under section 271(1)(c) of the Act on both the counts. The CIT(A) in the first round, had deleted the levy of penalty under section 271(1)(c) of the Act, against which the Revenue filed an appeal before the Tribunal in ITA Nos. 1389 to 1395/PN/2012, ITA Nos.1922 to 1938/PN/2012, ITA Nos.1946 to 1953/PN/2012 a nd ITA Nos.1957 & 1958/PN/2012 and the Tribunal vide order dated 20.12.2013 had set aside the order of CIT(A) and restored the matter back to the file of CIT(A) holding that Explanation 5A to section 271(1)(c) of the Act was attracted. However, the matter was remanded to the file of CIT(A) for consideration of other pleas that may be raised by the assessee in support of its stand against the levy of penalty. The CIT(A) in the second round held that in view of order of Tribunal, the Assessing Officer was justified in levying the penalty under section 271(1)(c) r.w.s. Explanation 5A of the Act . Thereafter, the CIT(A) noted the factual aspects of the case and the documents seized during the course of search and also the declaration made by the Karta of assessee's family. He noted that the assessee had revised its return of income on account of transaction of purchase and sale of plots. However, on perusal of seized documents and the transaction with one Shri Devichand M. Jain found recorded in the said diaries, the CIT(A) observed that prima facie the 6 ITA Nos.1201 to 1205/PN/2014 Kanhaiyalal D. Jain transactions were in the nature of money lending. He has scanned some of the seized documents and at page 19 of the appellate order has given a finding that the amount received was cash loan on the left hand side and payment of interest on the right hand side. Similar observations were made in respect of other scanned pages. The CIT(A) thereafter, drew a chart of money lending transactions entered into by the assessee with various persons of Chhoriya Group & others and was of the view that with regard to levy of penalty under section 271(1)(c) of the Act for concealment of income and furnishing of inaccurate particulars of income, there was no doubt. The CIT(A) upheld the order of Assessing Officer in quantification of income for the purpose of levy of penalty, however, the CIT(A) enhanced the penalty to be levied at the higher rate of 150%.
9. The assessee is in appeal against the order of CIT(A) in levying the penalty at 150% and has challenged his power of enhancement. The assessee is also in appeal against levy of penalty under section 271(1)(c) of the Act perse. The jurisdictional issue raised by the assessee by way of additional ground of appeal is that there is no merit in passing the order under section 271(1)(c) of the Act levying penalty for concealment, where notice issued by the Assessing Officer was bad in law.
10. The learned Authorized Representative for the assessee pointed out that in the present appeal, the issue was against the validity of penalty order passed under section 271(1)(c) of the Act as the notice issued for levying penalty did not mention the specific charge. He further referred to the assessment order passed by the Assessing Officer in which penalty for 7 ITA Nos.1201 to 1205/PN/2014 Kanhaiyalal D. Jain concealment had been initiated both for concealment of income and furnishing of inaccurate particulars of income. The learned Authorized Representative for the assessee also pointed out that the penalty has been levied also on both counts. The learned Authorized Representative for the assessee referring to the facts of the case pointed out that pursuant to search on Chhoriya group on 22.08.2008 for assessment years 2003-04 to 2007-08, the returns were also filed. However, there was group declaration of Rs.11.44 crores for various entities and in the return of income filed in response to notice under section 153A of the Act, the i ncome was declared at Rs.13.99 crores in different years in the hands of different persons. He admitted that Explanation 5A to section 271(1)(c) of the Act was attracted since the assessee offered the additional income. However, attention was drawn to the satisfaction recorded by the Assessing Officer, wherein the requirement was satisfaction of one of the limbs, whereas the Assessing Officer was satisfied that the assessee had both concealed the particulars of income and furnished inaccurate particulars of income. He further pointed out that during the course of search when diaries were seized, unaccounted entries were found and the assessee offered income, so it was the case of concealment and not case of inaccurate particulars of income. In this regard, he stated that the charge of Assessing Officer for levying penalty for concealment was not clear and hence, the satisfaction recorded was incorrect. Our attention was drawn to the copies of notice issued under section 271(1)(c) of the Act which are placed at pages 169 to 177 of the Paper Book for the respective years, wherein it was pointed out that the Assessing Officer had not ticked the relevant parts and had not crossed irrelevant parts and it is not clear whether the Assessing Officer wants to hold the assessee liable for penalty for concealment or for 8 ITA Nos.1201 to 1205/PN/2014 Kanhaiyalal D. Jain furnishing inaccurate particulars of income. Our attention was further drawn to the order levying penalty under section 271(1)(c) of the Act, wherein in para 4.3, the Assessing Officer had referred to both the limbs, however, in para 6 only one limb was applied to hold the assessee to have concealed the particulars of income. The CIT(A) in the first round had deleted the penalty which was set aside by the Tribunal by holding that Explanation 5A to se ction 271(1)(c) of the Act was applicable. However, the matter was sent back to the file of CIT(A) to decide other pleas. The learned Authorized Representative for the assessee in this regard points out that the CIT(A) does not decide the jurisdictional issue but enlarges the scope on merits, hence, the additional ground of appeal. The learned Authorized Representative for the assessee pointed out that the ratio decided by the Hon'ble Karnataka High Court in CIT & Anr. Vs. Manjunath a Cotton and Ginning Factory (2013) 359 ITR 565 (Kar) is squarely applicable to the facts of the present case. He further relied on decisions of Pune Bench of Tribunal in M/s. Sai Venkata Construction Vs. Addl. CIT in ITA No.994/PN/2013 and Sai Venkata Construction Vs. ACIT in ITA No.995/PN/2013 , both relating to assessment year 2008-09, order dated 11.03.2016 and in Sanjog Tarachand Lodha Vs. ITO in ITA Nos.688 & 689/PN/2014, relating to assessment years 2007-08 & 2008-09, order dated 31.08.2015. Further, the learned Authoriz ed Representative for the assessee pointed out that other Tribunals in series of cases have also applied similar proposition. Thereafter, he relied on the ratio laid down by the Hon'ble Karnataka High Court in CIT Vs. SSA'S Emerald Meadows (2016) 73 taxmann.com 241 (Kar) and also pointed out that SLP filed before the Hon'ble Supreme Court in CIT Vs. SSA'S Emerald Meadows (2016) 73 taxmann.com 248 (SC) has been dismissed. Without prejudice to the above, the learned 9 ITA Nos.1201 to 1205/PN/2014 Kanhaiyalal D. Jain Authorized Representative for the assessee stressed that where the CIT(A) had treated the entries as loan, then the same was not the income of assessee and hence, no penalty for concealment under section 271(1)(c) of the Act was attracted.
11. The learned Departmental Representative for the Revenue placed reliance on the orders of Assessing Officer and CIT(A). He further placed reliance on the ratio laid down by the Hon'ble Bombay High Court in CIT Vs. Smt. Kaushalya (1994) 75 Taxman 549 (Bom) . He stressed that in view of the ratio laid down by the Hon'ble Bombay High Court, penalty in the case merits to be upheld. He also pointed out that the Hon'ble Supreme Court in the case of CIT Vs. SSA'S Emerald Meadows (supra) had only dismissed the SLP but there was no discussion on the issue.
12. The learned Authorized Representative for the assessee in rejoinder pointed out that the decision in CIT Vs. Smt. Kaushalya (supra) refers to assessment years 1968-69 to 1969-70 and also pointed out that the Hon'ble Bombay High Court had held that where exact charge was not known could prejudice the rights of assessee, as held for assessment year 1967-68.
13. We have heard the rival contentions and perused the record. The issue arising in the present bunch of appeals is jurisdictional issue of levy of penalty under section 271(1)(c) of the Act. The requirement of section is that where the Assessing Officer or the Commissioner of Appeals or the Principal Commissioner or Commissioner, in the course of any proceedings under the Act, is satisfied that any person has concealed the particulars of his income or 10 ITA Nos.1201 to 1205/PN/2014 Kanhaiyalal D. Jain furnished inaccurate particulars of such income, then he may direct that such person shall pay by way of penalty the amounts as specified in sub-clause (iii) which would be in addition to tax, if any, payable by the said person. The section thus requires the concerned Officer to record satisfaction in the course of any proceedings under the Act, that the person has concealed the particulars of his income or furnished inaccurate particulars of his income. After recording the satisfaction, during the course of penalty proceedings also, the concerned Officer has come to a finding that as to whether the person has concealed the particulars of his income or furnished inaccurate particulars of such income and thereafter, levy the penalty accordingly. The word used between the two acts i.e. concealment of particulars of income and furnishing of inaccurate particulars of such income is 'or'. So the penalty levied by the concerned Officer is on satisfaction of any of the limbs and not the satisfaction of both the limbs. Where the assessee had concealed the particulars of income in particular circumstances, then the Assessing Officer may record satisfaction to that effect and initiate penalty proceedings and thereafter on fixation of charge, levy the penalty for such act of concealing the particulars of income. Similarly, in cases where the assessee concerned had furnished inaccurate particulars of such income, then similar exercise has to be carried out by the concerned Officer.
14. The first stage of invocation of provisions of section 271(1)(c) of the Act is the satisfaction to be recorded by the Assessing Officer, which admittedly, has to be during the course of assessment proceedings. So, where the assessment proceedings are pending, then the Assessing Officer has to apply his mind and on being satisfied, he has to give a finding that the assessee 11 ITA Nos.1201 to 1205/PN/2014 Kanhaiyalal D. Jain before him has either concealed the particulars of income or furnished inaccurate particulars of income in respect of the issue before him. Thereafter, the notice should be issued to such person by the concerned Officer, wherein it should be clear that the assessee has to justify its case either for concealment of income or furnishing of inaccurate particulars of income. There may be cases where there is issue of both concealment of income and furnishing of inaccurate particulars of income, based on the nature of additions, then in such cases, satisfaction and notice thereon should specify exact charge against the assessee. The charge has to be further specified while completing penalty proceedings and the Assessing Officer has to come to a conclusion as to whether it is case of concealment of income or furnishing of inaccurate particulars of income. The question which further arises where the satisfaction recorded by the Assessing Officer and the notice issued thereafter is without application of mind, then can the subsequent order passed levying penalty be held to be valid?. The Hon'ble Karnataka High Court in CIT & Anr. Vs. Manjunath a Cotton and Ginning Factory (supra) had dealt upon the issue of notice under section 274 of the Act for the purpose of levying penalty for concealment and observed as under:-
"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 12 ITA Nos.1201 to 1205/PN/2014 Kanhaiyalal D. Jain 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.
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 [2007] 292 ITR 11 (SC) 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 Works reported in [1980] 122 ITR 306 (Guj) and the Delhi High Court in the case of CIT v. Virgo Marketing P. Ltd. reported in [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 13 ITA Nos.1201 to 1205/PN/2014 Kanhaiyalal D. Jain inaccurate particulars of income. The standard proforma without striking of the relevant clauses will lead to an inference as to non-application of mind."
15. The Hon'ble Karnataka High Court has laid down the proposition that the Assessing Officer is to be satisfied in the course of proceedings that there is either concealment of income or furnishing of inaccurate particulars of income under clause (c) to section 271(1) of the Act. It has been categorically held that concealment of income and furnishing of inaccurate particulars of income are different. The Hon'ble High Court has thus, laid down that the Assessing Officer while issuing notice has to come to conclusion that whether it is case of concealment of income or case of furnishing of inaccurate particulars of income. The reliance in this regard was placed on the ratio laid down by the Hon'ble Supreme Court in T. Ashok Pai Vs. CIT (2007) 292 ITR 11 (SC), wherein at page 19 it was held that concealment of income and furnishing inaccurate particulars of income carry different connotation. Applying the said proposition, it was held that where the Assessing Officer proposes to invoke the first limb being concealment, then the notice has to be appropriately marked. Similarly, for furnishing inaccurate particulars of income, the standard proforma without striking of relevant clauses, as per the Hon'ble High Court would lead to inference as to non-application of mind.
16. Further, the Hon'ble Karnataka High Court in CIT Vs. SSA'S Emerald Meadows (supra) has dismissed the appeal of Revenue, where the Tribunal had allowed the appeal of assessee holding that the notice issued by the Assessing Officer under section 274 r.w.s. 271(1)(c) of the Act to be bad in law as it does not satisfy which limb of section 271(1)(c) of the Act under which it has been initiated The Hon'ble High Court had relied on decision of Division 14 ITA Nos.1201 to 1205/PN/2014 Kanhaiyalal D. Jain Bench of the Court rendered in CIT & Anr. Vs. Manjunath a Cotton and Ginning Factory (supra). The Hon'ble Supreme Court in CIT Vs. SSA'S Emerald Meadows (supra) has dismissed the Special Leave Petition.
17. The Pune Bench of Tribunal in M/s. Sai Venkata Construction Vs. Addl. CIT (supra) and in Sanjog Tarachand Lodha Vs. ITO (supra) have applied the ratio laid down by the Hon'ble Karnataka High Court (supra) and held that where there is no striking off of either of limbs, then notice issued under section 274 r.w.s. 271(1)(c) of the Act was invalid and subsequent penalty proceedings were held to be vitiated.
18. The Mumbai Bench of Tribunal in Sanghavi Savla Commodity Brokers P. Ltd. Vs. ACIT in ITA No.1746/Mum/2011, relating to asse ssment year 2007- 08, order dated 22.12.2015 while deciding similar issue, wherein the Assessing Officer had initiated penalty proceedings for concealment of particulars of income without striking inappropriate words or any parts of notice and proceeded to levy penalty for concealment, then following the ratio laid down by the Hon'ble Karnataka High Court, the Tribunal held that notice issued for initiating penalty proceedings were invalid and consequently penalty proceedings were invalid.
19. Similar proposition has been laid down by Kolkata Bench of Tribunal in Shri Deepak Kumar Patwari Vs. ACIT in ITA Nos.616 to 618/Kol/2013 , relating to assessment years 2007-08 to 2009-10, order dated 03.02.2016 and it has been further held that the provisions of section 292B of the Act cannot cure the basic defect in assumption of jurisdiction and could only cure the mistake, 15 ITA Nos.1201 to 1205/PN/2014 Kanhaiyalal D. Jain defect or omission in the return of income, assessment, notice or the proceedings. The Tribunal further held that show cause notice and the reasons mentioned in the show cause notice were part of process of natural justice and the defect in such notice could not be overlooked. Similar proposition has further been laid down in other decisions of various Benches of Tribunal which have been relied upon by the assessee before us.
20. The learned Departmental Representative for the Revenue placed heavy reliance on the ratio laid down by the Hon'ble Bombay High Court in CIT Vs. Smt. Kaushalya (supra). In the facts of the case before the Hon'ble Bombay High Court, the Hon'ble High Court quashed the penalty levied for assessment year 1967-68 as the same was imposed without affording reasonable opportunity of hearing to the assessee. In respect of other two years where there was non-striking of inaccurate portion, the Hon'ble High Court held that the same would not invalidate the notice issued under section 274 of the Act. It was further held that the assessment orders were also made and reasons for issuing notice under section 274 r.w.s. 271(1)(c) of the Act were recorded by the Assessing Officer and since the assessee fully knew in detail the exact charge of Department against him, it could not be said that either there was non-application of mind by the ITO or so-called ambiguity wording in the notice impaired or prejudiced the right of assessee of reasonable opportunity of being heard. The jurisdictional High Court deliberated upon the provisions of section 274 of the Act which contained principle of natural justice of the assessee being heard before levying penalty. It also held that mere mistake in the language used or mere non-striking of inappropriate portion could not itself be invalidated the notice. It was held that 16 ITA Nos.1201 to 1205/PN/2014 Kanhaiyalal D. Jain the entire factual background would fall for consideration in the matter and no one aspect would be decisive.
21. In respect of assessment year 1967-68, the Hon'ble High Court in CIT Vs. Smt. Kaushalya (supra) acknowledged that there could exist a case where vagueness and ambiguity in the notice could demonstrate non-application of mind by the authority and / or ultimate prejudice to the right of opportunity of hearing contemplated under section 274 of the Act. The show cause notice for assessment year 1967-68 was issued even before the assessment order was made and where the assessee had no knowledge of exact charge of Department against him as in the notice not only there was use of word 'or' between the group of cases but there was use of word 'deliberately' also. The Hon'ble High Court held that notice clearly demonstrated non-application of mind on the part of Assessing Officer. The vagueness and ambiguity in the notice had also prejudiced the right of reasonable opportunity to the assessee since he did not know of exact charges he had to face. In this background, quashing of penalty proceedings for assessment year 1967-68 was held to be justified. Applying the said principle laid down by the Jurisdictional High Court, application of mind before issuing the notice under section 274 of the Act has to be considered. The Hon'ble High Court clearly held that where there is vagueness and ambiguity in the notice issued which could demonstrate non- application of mind by the authority which in turn, would ultimately prejudice the right of opportunity of hearing of the assessee as contemplated under section 274 of the Act, then such notice is invalid.
17
ITA Nos.1201 to 1205/PN/2014 Kanhaiyalal D. Jain
22. Now, coming to the facts of the case before us, wherein search and seizure operations were carried out on Chhoriya group of concerns on 22.08.2008 and declaration of Rs.11.44 crores was made in the hands of whole group for various years. Consequent to the notices issued under section 153A of the Act for various years, different entities filed the return of income for the respective years and cumulatively for Rs.13.99 crores as additional income. The income was declared on account of on-money on sale of plots, which was detected from the documents seized during the course of search. Admittedly, Explanation 5A to section 271(1)(c) of the Act is attracted in such cases. However, the case of assessee before us is that the Assessing Officer while completing the assessment proceedings had to be satisfied that the assessee had either concealed the income or furnished inaccurate particulars of income and is liable to levy of penalty under section 271(1)(c) r.w.s. Explanation 5A of the Act. The notice is to be issued to the assessee under section 274 of the Act. Before issuing such notice, satisfaction has to come out from the proceedings going on before the Assessing Officer. The perusal of assessment order passed in the present case reflects that the Assessing Officer while initiating proceedings has recorded satisfaction as to the assessee has furnished inaccurate particulars of income and has also concealed the income. The only source of addition in the hands of assessee is additional income offered by the assessee pursuant to search operations. In such circumstances, it is categorically a case of concealment. However, the Assessing Officer refers to both the limbs of section 271(1)(c) of the Act and the satisfaction recorded in this case suffers from infirmity. Further, even in the notice issued under section 274 of the Act, irrelevant part has not been struck off. While completing penalty proceedings also, the Assessing Officer 18 ITA Nos.1201 to 1205/PN/2014 Kanhaiyalal D. Jain makes reference to both the limbs i.e. concealment of income and furnishing of inaccurate particulars of income and in the final, levies penalty for concealment of income.
23. However, the question which is raised before us by way of additional ground of appeal is root of start of the proceedings i.e. recording of satisfaction and the issue of notice, which has been challenged by the assessee to be invalid. Applying the ratio laid down by the Hon'ble Karnataka High Court in CIT & Anr. Vs. Manjunath C otton and Ginning Factory (supra) and CIT Vs. SSA'S Emerald Meadows (supra) and in view of SLP being dismissed, we find merit in the plea of assessee that the satisfaction recorded in the present case to initiate penalty proceedings both for concealment of income and furnishing of particulars of income against additional income offered by the assessee is incorrect. Further, where the assessee is not aware of exact charge against him, the ambiguity in the notice issued under section 274 r.w.s. 271(1)(c) of the Act by not striking of portion which is not applicable, prejudice the right of reasonable opportunity to the assessee, as he was not made aware of exact charge he had to face. It is a clear-cut case of concealment since the assessee had offered additional income pursuant to search carried out at its premises. It is not the case of furnishing of inaccurate particulars of income and hence, the Assessing Officer should have recorded the satisfaction accordingly and issued the notice accordingly.
24. We find no merit on the partial reliance placed upon by the learned Departmental Representative for the Revenue on the decision of Jurisdictional High Court in CIT Vs. Smt. Kaushalya (supra). The Hon'ble High Court has 19 ITA Nos.1201 to 1205/PN/2014 Kanhaiyalal D. Jain clearly laid down the proposition that the Assessing Officer has to make the assessee fully aware of exact charge of the Department against him. As pointed out, in present case, in the assessment order itself while recording satisfaction for initiating proceedings under section 271(1)(c) of the Act, exact charge of the Department against the assessee is not clear. The Assessing Officer records the satisfaction for initiating penalty proceedings on both the counts i.e. concealment of income and furnishing of inaccurate particulars of income. The Hon'ble Bombay High Court had also upheld the quashing of penalty proceedings for assessment year 1967-68 to be justified on account of vagueness and ambiguity in the notice issued. But the Hon'ble High Court further held that where the assessee was fully aware of exact charge of the Department against him, then technical non-striking of certain terms in the notice would not invalidate the proceedings. Where there is default in the first stage of making the assessee aware of exact charge of the Department, then initiation of penalty proceedings are vitiated and the same are to be quashed. The issue of notice under section 274 of the Act on such vagueness and ambiguity makes such notice invalid and proceedings thereafter are to be quashed.
25. The Hon'ble Supreme Court in T. Ashok Pai Vs. CIT (supra) had held as under:-
"23. Section 271(1)(c) remains a penal statute. The rule of strict construction shall apply thereto. The ingredients for imposing penalty remain the same. The purpose of the Legislature that it is meant to be a deterrent to tax evasion is evidenced by the increase in the quantum of penalty, from 20 per cent under the 1922 Act to 300 per cent in 1985.
24. "Concealment of income" and "furnishing of inaccurate particulars"
carry different connotations. Concealment refers to a deliberate act on the part of the assessee. A mere omission or negligence would not constitute a deliberate act of suppression very or suggestion falsi." 20
ITA Nos.1201 to 1205/PN/2014 Kanhaiyalal D. Jain
26. Where concealment of income and furnishing of inaccurate particulars of income are two different connotations, then as per provisions of the Act, the satisfaction has to be recorded by the Assessing Officer before initiating penalty proceedings as to under which limb the case of assessee falls. In the present set of facts, the satisfaction as recorded by the Assessing Officer which is evident from the assessment order itself does not establish the case of Revenue against the assessee that it is liable for levy of penalty for concealment under which limb i.e. for concealment of income or for furnishing of inaccurate particulars of income. The notice issued under section 274 of the Act by the Assessing Officer also does not show cause the assessee as to make him aware of exact charge levied against him. In the absence of same, it causes prejudice to the right of reasonable opportunity to be allowed to the assessee before levy of penalty under section 271(1)(c) of the Act. Consequently, penalty notice issued in the present case suffers from infirmities i.e. lack of satisfaction and lack of notice being issued in making the assessee aware of exact charge against him, hence the same is quashed. The penalty proceedings completed pursuant to such notice are vitiated and the same are held to be invalid.
27. Now, coming to the merits of case, the assessee had offered additional income on account of on-money on sale of plots. The Assessing Officer had accepted the same and had initiated penalty proceedings under section 271(1)(c) of the Act. The CIT(A) during the course of appellate proceedings relating to section 271(1)(c) of the Act issued enhancement notice to the 21 ITA Nos.1201 to 1205/PN/2014 Kanhaiyalal D. Jain assessee. Thereafter, he had gone through the seized documents and elaborately referred to them and even reproduced the scanned copies of such documents and comes to conclusion that loans were received from Ratanlal Bafna, but still upholds the penalty levied under section 271(1)(c) of the Act. Once the finding of CIT(A) is that these are loans received from Bafna and are not on-money received on sale of plots, then in cases where penalty proceedings have been initiated on a different footing and the CIT(A) reverses the same and holds the same to be loans received by the assessee, there is change in opinion and basis for levy of penalty for concealment varies. In such circumstances, there is no merit in levy of penalty under section 271(1)(c) of the Act and there is no merit at all in levying the penalty @ 150%. Accordingly, we allow the claim of assessee even on merits. Thus, the grounds of appeal raised by the assessee and additional ground of appeal raised by the assessee are allowed.
28. The learned Authorized Representative for the assessee strongly stressed that the entire on-money offered by the assessee cannot be taxed as only the profit element in the on-money had to be taxed. In this regard, the learned Authorized Representative for the assessee placed reliance on various decisions. However, we are not addressing this issue in view of our deciding the jurisdictional issue of notice under section 274 of the Act, in favour of the assessee.
29. The facts and issues in ITA Nos.1 202/PN/2014 to 1205/PN/2014 are identical to the facts and issues in ITA No.1 201/PN/2014 and our decision in 22 ITA Nos.1201 to 1205/PN/2014 Kanhaiyalal D. Jain ITA No.1 201/PN/2014 shall apply mutatis mutandis to ITA No s.1202/PN/2014 to 1205/PN/2014.
30. In the result, all the appeals of assessee are allowed.
Order pronounced on this the 30th day of November, 2016.
Sd/- Sd/-
(R.K. PANDA) (SUSHMA CHOWLA)
लेखा सद�य / ACCOUNTANT MEMBER �या�यक सद�य / JUDICIAL MEMBER
पुणे / Pune; �दनांक Dated : 30th November, 2016.
GCVSR
आदे श क� ��त�ल�प अ�े�षत/Copy of the Order is forwarded to :
1. अपीलाथ� / The Appellant;
2. ��यथ� / The Respondent;
3. आयकर आयु�त(अपील) / The CIT(A)-I, Nashik;
4. आयकर आयु�त / The CIT (Central), Nagpur;
5. �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, पुणे "ए" / DR 'A', ITAT, Pune;
6. गाड� फाईल / Guard file.
आदे शानुसार/ BY ORDER, स�या�पत ��त //True Copy // व�र�ठ �नजी स�चव / Sr. Private Secretary आयकर अपील�य अ�धकरण ,पुणे / ITAT, Pune