Income Tax Appellate Tribunal - Jaipur
Lal Chand Mittal, Jaipur vs Dcit, 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. 772/JP/2016
fu/kZkj.k o"kZ@Assessment Year : 2003-04
Shri Lal Chand Mittal cuke The DCIT
B-18, Sardar Patel Marg Vs. Central Circle- 3,
Chomu House, Jaipur Jaipur
LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: ANSPC 9789 P
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 2003-04 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. 772/JP/2016 Shri Lal Chand Mittal vs. DCIT, 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.99,000/- u/s 271(1)(c) of I.T. Act, 1961 on account of addition of Rs. 4 lakhs made u/s 69B 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 duly considered assessee's submission and carefully gone through penalty order passed by the AO. I have also taken a note of the factual matrix of the case as well as applicable case laws relied upon. In this case, AO had initiated the penalty proceeding u/s 271(1)(c) of the Act in the assessment order passed on 31.08.2010 on the addition made in assessment order and pursuant to appellate order passed by Ld. CIT(A) wherein the addition of Rs.4,00,000/- was sustained by the Ld CIT(A) in ITA No.212/10-11 dt. 04/10/2013, penalty of Rs.99,000/- has been imposed under explanation 1 to the provision of section 271 (1)(c) of the Act. Briefly, facts of the case are as under:
i) Search was conducted at the various business and residential premises of the Mittal Group on 27.08.2008 to which the appellant belongs. In response to notice u/s 153A, the appellant filed his return of income on 11.05.2010 declaring total income of Rs.130/-.
It is pertinent to note that no return had been filed u/s 139(1) by the appellant for this A.Y. In the return in response to Section 153A, it was observed by the AO that in the capital amount the appellant had shown 3 ITA No. 772/JP/2016 Shri Lal Chand Mittal vs. DCIT, Central Circle- 3, Jaipur .
sundry advances of Rs.4 lakh which were subsequently gifted to Sh. Murari Lal Mittal in A.Y. 200708.
ii) During the course of assessment proceedings the assessee submitted these were sundry advances given to farmers for purchase of land. Subsequently, these were explained from past savings. During the course of search, it is pertinent to note that no documentary evidence was found to show that the assessee had given any amount of advances to anybody for land or otherwise.
iii) On perusal of statements u/s 132(4) taken during the course of search, it is seen that he did not mention having given any advance for land. What emerges from his statements is that he is a person of very small means and totally dependent on the other members of the family for even his household expenditure. In his statement taken on 27.08.2008, he has stated that his monthly income is Rs.5,000/-. He has stated he has 06 daughters the eldest daughter was married in 1984 and the marriage expenses of all the daughters were borne collectively by the brothers of the family. During the course of search a very small amount of cash of Rs.18,000/- was found at his residential premises. This clearly proves him to be a man of constraint financial means.
i) The AR of the appellant has filed a copy of statement of affairs of the appellant as on 31.03.2002 and 31.03.2003. The basic premise of this submission is that the sundry advances of Rs.4 lakh were carried forward from A.Y. 2002-03 to the balance sheet of A.Y. 2003-04 so the amount could not be added to the income of the appellant during the A.Y. This contention of the AR of the appellant is not acceptable because he had not filed any return of income u/s 139(1) for A.Ys. 2002-03 or 2003-04. Therefore, the computer generated statements of affairs after the search are clearly an afterthought because no documentary evidence in support of these liabilities and assets was found during the course of search nor admitted to during the search proceedings by the appellant. Therefore, these statements of affairs filed by the appellant do not have any evidentiary value.
ii) The AR has also filed a copy of the accounts of assessee in the books of M/s Suresh Medical Agency and Mittal Enterprises, and his bank accounts. All the three accounts further reiterate the fact that he was a person of very limited financial means. No direct evidence has been filed regarding the source of investment of Rs.4 lakh in these 4 ITA No. 772/JP/2016 Shri Lal Chand Mittal vs. DCIT, Central Circle- 3, Jaipur .
debtors. In absence of any direct evidence to explain the source of Rs.4 lakh and advance to debtors or farmers as claimed, the advances remain unexplained in the hands of the appellant given his lack of financial worth.
iii) Furthermore, at no stage were the details by way of the names, addresses or affidavits of the alleged debtors filed at any stage of the proceedings to substantiate his submissions.
ivi) Furthermore, the Ld. CIT(A) in the case of Murari Lal Mittal A.Y. 200708 ITA No.445/10-111 dated 01.03.2012 has deleted this addition of Rs.4 lakh in the hands of the Murari Lal Mittal by observing that if the AO was of the view that source of Rs.4 lakh was not properly explained in the hands of Lal Chand Mittal and the addition was made in his hands then it was not justified to make the same addition in the hands of Murari Lal Mittal in the year when this was allegedly gifted to him by Sh. Lal Chand Mittal.
Thus, it is clear that the source of these funds has to be explained in the hand of Sh. Lal Chand Mittal and the appellant has repeatedly failed to discharge his onus. In view of the facts discussed above, the amount of Rs.4 lakh added to the income of the appellant u/s 69 by the Ld. CIT(A) in ITA No.212/10-11.
Here at this stage, assessee has raised objection with regard to initiation of penalty proceedings for furnishing of inaccurate particulars whereas in the penalty notice dated 31-08-2010, the AO has mentioned as under:-
''Whereas in the course of assessment proceedings before me for the A.Y. 2003-04 it appears to me as per Section 274 read with Section 271(1)© of the I.T. Act you are liable for penalty for concealment of income/ furnishing inaccurate particulars of income.'' In view of this assessee's is challenging the penalty proceedings itself. Now let me explain what is the exact scope of the provisions of Section 292B of the I.T. Act, 1961 (the Act)?
Section 292-B of the Act was introduced w.e.f. October, 1,1975 and states that no return of income, assessment, notice, summons or other proceedings furnished or made or issued or taken or purported to 5 ITA No. 772/JP/2016 Shri Lal Chand Mittal vs. DCIT, Central Circle- 3, Jaipur .
have been furnished or made or issued or taken in pursuance of any of the provisions of the Act shall be invalid or shall be deemed to be invalid merely by reason of any mistake, defect or omission in such return of income, assessment, notice, summons or other proceedings if such return of income, assessment, notice, summons or other proceedings is in substance and effect in conformity with or according to the intent and purpose of the Act.
By CBDT Circular No.179 dated 30th September, 1975, the scope of Section 292B was explained and it has been stated in the said circular that this provision has been made to provide against purely technical objections without substance coming in the way of the validity of the assessment proceedings etc. Thus the circular itself makes it clear that it is only to overcome technical objections that Section 292-B has been introduced. Following case laws have been cited by the ld. CIT(A).
(i) CIT vs. R Girdhar, 145 ITR 246 (Kar.) (ii) CIT vs. Saraswathi Ammal, 146 ITR 486 (Mad.) (iii) Swaran Kanta vs. CIT , 176 ITR 291 (Pune) (iv) Assam Carbon Products Ltd. vs. CIT 224 ITR 57 (Gau.) (v) Sardar Harbinder Singh Sehgal vs. CIT, 27 ITR 512 (Gau.) (vi) Vanaja Textiles Ltd. vs. CIT, 249 ITR 374 (Ker.)
However, in the following cases, Section 292B of the Act was held to be inapplicable:-
(i) where no notice had been served on the proper person, it is a fundamental infirmity and not a technical irregularity.
(a) CIT vs. Phoolmati Devi (144 ITR 954 All) -notice sent to mother who was not guardian of the minor assessee.
(b) Gajendra Kumar Banthia vs. UOI (222 ITR 632 Cal) -
notice
(ii) Where penalty notice u/s 271(1)© was not signed [Umashankar Mishra vs. CIT (136 ITR 330 M.P)] 6 ITA No. 772/JP/2016 Shri Lal Chand Mittal vs. DCIT, Central Circle- 3, Jaipur .
(iii) unsigned return - under section 140 it is a mandatory to sign a return (Khilaldas and Sons vs. CIT , 225 ITR 960 (MP)] Therefore, it is clear from the above decisions that it is only to overcome certain technical objections that section 292-B can be resorted to. Where, however, the clear provisions of the law are not adhered to, section 292-B cannot be resorted to.
The question of application of section 292-B cannot be prejudged by finding that return, notice, etc. is not as per the requirement of the statute and is/are invalid; the finding that the return or notice etc. is invalid or to what extent it is invalid is unnecessary and counterproductive; if in the substance and in effect return, notice or assessment is in conformity with or according to intent and purpose of the Act, the mistake defect or omission is to be ignored as per the underlining philosophy of section 292-B of the Act.
On a plain reading of this section, it is observed that the return of income, etc., shall not be considered as invalid merely by defect or omission in such return or notice if it is in substance and effect in conformity with the intent and purpose of this Act. The rationale behind this section is that the return of income, assessment notice, penalty notice, summons or other proceedings should not be "held to be invalid due to technical mistakes", which otherwise do not have much impact touching its legality provided such return, assessment/penalty notice, summons or other proceedings, etc., are otherwise in conformity with the purpose of the Act. The 'purpose of the Act' and in particularly section 271(1)(c) of the Act is to impose penalty on concealed income or furnishing of inaccurate particulars of income of the assessee. This 'purpose' is best fulfilled when AO has correctly determined the correct concealed income in this case. It involves the making of assessment by the AO in which the particulars at income as furnished by the assessee are scrutinized for determining the correct total income and finally on the basis of investigation carried out made additions u/s 69 of the Act which has also been sustained by the Ld. CIT(A). The 'purpose of the Act' is PARTLY achieved when the correct total income is determined either by way of making adjustments by the AO and enhancing the stated income to the correct income and simultaneously initiates penalty proceedings on addition made, being the concealed income. It, therefore, transpires that if AO in his satisfaction note in the assessment order mentions that penalty proceedings initiated on the concealed income detected but in the 7 ITA No. 772/JP/2016 Shri Lal Chand Mittal vs. DCIT, Central Circle- 3, Jaipur .
notice issued failed to strike off the portion "for furnishing inaccurate particulars", which is otherwise in substance and effect in conformity with or according to the intent and purpose of this Act, then any technical defect in it would not render it to be invalid. In such a situation the provisions of section 292-B of the Act would not come to the rescue of the assessee and thus will not make such notice to be invalid. The instant case falls under this category.
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, 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 292-B 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 it 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". 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 invalidity 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 form theory" is the underlining philosophy of section 292-B 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 facts and circumstances of the case, the penalty imposed of Rs.99,000/- under explanation 1 to the provision of section 271(1)(c), on concealed income of Rs.4 lakh is hereby sustained. Assessee's appeal fails on this ground. In the result, the appeal stands dismissed for A.Y. 2003-04'' 8 ITA No. 772/JP/2016 Shri Lal Chand Mittal vs. DCIT, Central Circle- 3, Jaipur .
2.2 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. 99,000/- 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 : - On the facts and in the circumstances of the case and in law the Ld. AO erred in imposing the penalty of Rs. 99,000/- 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 31.08.2010 on the addition made in assessment order by mentioning that "Penalty proceedings u/s 271(1)(c) of the Act are initiated for furnishing inaccurate particulars of income". Further in the penalty notice u/s 274 read with section 271of I. Tax Act dated 31.08.2010 (copy enclosed herewith), annexed with assessment order the ld. AO mentioned that "Whereas in the course of assessment proceedings before me for the A. Y. 2003-04 it appears to me that as per sections 274 read with section 271(1)(c) of the I.T. Act you are liable for penalty for concealment of income/furnishing 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.
9 ITA No. 772/JP/2016Shri Lal Chand Mittal vs. DCIT, 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 recent 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 impose penalty U/s 271(1)(c) of the Act. The findings of Hon'ble jurisdictional ITAT is as under:-
10 ITA No. 772/JP/2016Shri Lal Chand Mittal vs. DCIT, 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 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 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 11 ITA No. 772/JP/2016 Shri Lal Chand Mittal vs. DCIT, Central Circle- 3, Jaipur .
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. Further in the penalty order too the ld. AO held that the assessee has intentionally concealed his income and furnished inaccurate particulars of his income by not disclosing his correct and true income in original return. The ld. AO could not specified that whether the assessee concealed the income or furnish inaccurate particulars of income. .
5. 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 cancelled 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 12 ITA No. 772/JP/2016 Shri Lal Chand Mittal vs. DCIT, Central Circle- 3, Jaipur .
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) 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 13 ITA No. 772/JP/2016 Shri Lal Chand Mittal vs. DCIT, Central Circle- 3, Jaipur .
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:-
"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 14 ITA No. 772/JP/2016 Shri Lal Chand Mittal vs. DCIT, Central Circle- 3, Jaipur .
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. 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).
15 ITA No. 772/JP/2016Shri Lal Chand Mittal vs. DCIT, Central Circle- 3, Jaipur .
7. In the result, the appeal of the assessee is allowed.''
6. 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 held that initiating penalty proceedings on one limb and find the assessee guilty in another limb is bad in law. It was 16 ITA No. 772/JP/2016 Shri Lal Chand Mittal vs. DCIT, Central Circle- 3, Jaipur .
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.17 ITA No. 772/JP/2016
Shri Lal Chand Mittal vs. DCIT, 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.18 ITA No. 772/JP/2016
Shri Lal Chand Mittal vs. DCIT, Central Circle- 3, Jaipur .
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 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 19 ITA No. 772/JP/2016 Shri Lal Chand Mittal vs. DCIT, Central Circle- 3, Jaipur .
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 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 20 ITA No. 772/JP/2016 Shri Lal Chand Mittal vs. DCIT, Central Circle- 3, Jaipur .
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 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.
21 ITA No. 772/JP/2016Shri Lal Chand Mittal vs. DCIT, Central Circle- 3, Jaipur .
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 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: -
7. The assessment of above named assessee was completed by the ld AO, wherein addition of Rs. 4,00,000/- was made u/s 69 of the I.T. Act, 1961 on account of alleged unexplained investment in sundry advances and the same was confirmed by the CIT (A).
8. Regarding source of advance of Rs. 4,00,000/- to sundry advances the assessee submitted following explanation to the AO: -
"2. Source of sundry advance of Rs. 4,00,000/-
The opening capital of the assessee in AY 2003-04 was Rs. 15,68,087.60 which includes sundry advances of Rs. 4,00,000/-. The sundry advance represents to advance given to farmers in AY 2001-2002 for purchase of agricultural land. Later on, it was discovered that the land was under dispute. The assessee could receive back his money in AY 2007-08 and the said amount was utilized for giving the gift to his brother Shri Murari Lal Mittal. The copy of balance sheet for 31.03.2002 and 31.03.2003 has been filed in previous hearing of the case. However a copy of the same is again enclosed herewith for your ready reference.
The advance was given to the following farmers 22 ITA No. 772/JP/2016 Shri Lal Chand Mittal vs. DCIT, Central Circle- 3, Jaipur .
(i) Kalu, Shyonath, Ramu, Chittar, Balu, Narayan, Mangilal, Harinarayan, Budha, Gopal, Bhoriya, Radheyshaym, Govind Narain, Jagdish, and Motilal, resident of Village Jaitpura (Hajyawala). The advance was given through a broker for purchase of land at village Jaitpura.
3. Explanation regarding addition of Rs. 4,00,000/- u/s 69 of Income Tax Act, 1961 The advances of Rs. 4,00,000/- was given to the farmers for purchase of land before 01.04.2002, therefore the same cannot be treated as income of the assessee of current year and no addition can be made in AY 2003-04 by applying the provisions of u/s 69 of Income Tax Act, 1961. Your allegation that this advance was created to generate cash which was utilized for gift to Shri Murari Lal Mittal is without basis. It is a fact that the repayment received from the above said persons was utilized in the gift to Shri Murari Lal Mittal but the assessee was of 58 years old and his past savings were sufficient to give the advances of Rs. 4,00,000/-"
9. The entire addition is based on the statement of affairs of 31.03.2002 and 31.03.2003 submitted by the assessee himself. The assessing officer presumed that the sundry advance created to generate cash for gift given to Shri Murari Lal Mittal in AY 2007-08. In such a case the opening capital as well as opening advance will be reduced and no addition deserves to made in the year under consideration. The opening balance in capital account in the balance sheet as on 31.3.2003 is closing balance of capital account as on 31.3.2002. The assets/ income prior to the Assessment Year cannot be considered in the Assessment Year. However the ld. AO as well as CIT (A) rejected the explanations of the assessee solely on the ground that the assessee failed to establish the source of cash or furnish other substantiating evidence to support the submission. Thus the addition was made because of the technical reason that the assessee could not filed the supporting evidence in support of his explanation otherwise the ld. AO as well as CIT (A) both could not prove that the payment of advances was made by the assessee out of his concealed income.
10. During the year under consideration the assessee was not having any source of concealed income. The department carried out intensive search over the assessee and during the course of search no material 23 ITA No. 772/JP/2016 Shri Lal Chand Mittal vs. DCIT, Central Circle- 3, Jaipur .
was found to show that the assessee was having any concealed source of income during the year under consideration. Further in the assessment order there is no any whisper which, establish that during the year under consideration the assessee was having any source of concealed income.
11. The allegation in the assessment order that the sundry debtors created to generate cash which was utilized for gift to Shri Murari Lal Mittal in AY 2007-08 is purely based on suspicion, surmises and conjectures without bringing any adverse positive material.
12. In the assessment order the ld. AO has not disproved the contention of assessee which proves that the explanation of the assessee was bonafide. He merely rejected the submission of the assessee because the assessee could not submit the support evidence in support of his submission. Section 69 is presumptive section and when an assessee could not satisfactorily explain the source of Investment, such investment is presumed to be income of the assessee. However in penalty proceeding, the benefit of such presumption is not available to the department. In the case of the assessee the assessee explained the source of investment and the same was not disproved by the assessing officer, therefore this is not a case where the assessee concealed the income.
13. 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) 24 ITA No. 772/JP/2016
Shri Lal Chand Mittal vs. DCIT, Central Circle- 3, Jaipur .
14. 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. 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 or 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.
15. 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 submitted his explanation which has not been disproved by the department. The department have no positive material to prove that the assessee has knowingly furnished inaccurate particulars of income or concealed the particulars of income.
16. 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 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 undisclosed income. Merely that the additions were made in assessment order and sustained by CIT (A) 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.
17. The assessment proceedings and penalty proceedings are two separate proceedings. The additions made during assessment proceedings does 25 ITA No. 772/JP/2016 Shri Lal Chand Mittal vs. DCIT, Central Circle- 3, Jaipur .
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.
18. 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. 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 26 ITA No. 772/JP/2016 Shri Lal Chand Mittal vs. DCIT, Central Circle- 3, Jaipur .
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 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."
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 27 ITA No. 772/JP/2016 Shri Lal Chand Mittal vs. DCIT, Central Circle- 3, Jaipur .
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 and the decision of Hon'ble Allahabad High Court in the case of Nanu Mal Het Chand vs. CIT, (2007) 294 ITR 185 (All.).
2.4 I have heard the rival contentions and perused the materials available on record. It is noted from the records that originally no return of income had been filed by the assessee for the year under consideration.
In this case, search was conducted on 27-08-2008. Various assets/ books of accounts and documents had been found and seized as per annexure prepared during the course of search. Accordingly, notice u/s 153A of the Act was issued and served upon the assessee on 31-03-2010. In response to the same, the assessee filed the return of income on 11-05-2010 declaring Nil income. It is noted from the assessment order that the assessee derived income from interest from bank. The AO completed the assessment u/s 153A/143(3) on 31-08-2010 determining total income of Rs. 4,00,130/- by making addition of Rs. 130/- on account of income from bank interest and Rs. 4,00,000/- u/s 69 of the Act. The AO initiated penalty proceedings u/s 274 r.w.s. 271(1)© of the Act for concealment of 28 ITA No. 772/JP/2016 Shri Lal Chand Mittal vs. DCIT, Central Circle- 3, Jaipur .
income. The assessee preferred appeal before the ld. CIT(A), Central, Jaipur against the assessment order who dismissed the appeal of the assessee vide her order dated 4-10-2013 in ITA No. 212/10-11. In order to complete the penal action, a further show cause notice u/s 271(1)(c) dated 02-02-2015 was issued and served upon the assessee. The assessee filed the reply before the DCIT, Central Circle-3, Jaipur (for short ''AO'') for not imposing the penalty but the reply of the assessee was not found satisfactory and he imposed the penalty of Rs. 99,000/- u/s 271(1)(c) of the Act by observing as under:-
''I have considered the reply of the A/R of the assessee and do not find satisfactory as is clear form the order of the AO wherein the AO found in the balance sheet the sundry advance of Rs. 4,00,000/- which has been created to generate cash which was utilized for gift (in cash) to Shri Murari Lal Mittal. The submission made by the assessee was not found tenable by the AO as the assessee failed to establish the source of cash available with him during the relevant period of A.Y. 2003-04 which was ultimately shown as gift to Shri Murari Lal Mittal in accounting period relevant to A.Y. 2007-08. Therefore, the AO rightly made the addition on this account.
The ld. CIT(A)(Central), Jaipur in his order in appeal no.2012/10-11 dated 4-10-201 has also dismissed the appeal of the assessee.29 ITA No. 772/JP/2016
Shri Lal Chand Mittal vs. DCIT, Central Circle- 3, Jaipur .
Further the case law cited by the assessee is distinguishable from the facts of the present case. Hence, the initiation of penalty is within the provision of section 271(1)(c) and the concealment of particulars of income were duly brought out in the assessment order.
In view of the facts discussed above, it is clear that the assessee has intentionally concealed his income and furnished inaccurate particulars of his income by not disclosing his correct and true income in the original return. This shows that the assessee has committed the default as prescribed u/s 271(1)© of the I.T. Act,19761 and is therefore, liable for penalty.'' In first appeal, the ld. CIT(A) confirmed the penalty of Rs. 99,000/- u/s 271(1)(c) of the Act. It is noted from the records that entire addition is based on statement of affairs of 31-03-2002 and 31-03-2003 submitted by the assessee himself. The AO presumed that the sundry advance was created to generate cash for gift given to Shri Murari Lal Mittal in A.Y. 2007-08. It is further noted that opening balance in capital account in the balance sheet as on 31-03-2003 is closing balance of capital account as on 31-03-2002. The assets/ income prior to the assessment year cannot be considered in the assessment year under consideration. However, the lower authorities rejected the contention of the assessee on the ground that assessee failed to establish the source of cash or furnished the other 30 ITA No. 772/JP/2016 Shri Lal Chand Mittal vs. DCIT, Central Circle- 3, Jaipur .
substantiating evidence to support the submission. It is also noted that during the year the assessee was not having any source of concealed income. The Department carried out intensive search over the assessee and no cogent material was found to show that the assessee was having any concealed source of income during the year under consideration. It is also noted in the assessment order that sundry debtors created to generate cash was utilized for gift to Shri Murari Lal Mittal in assessment year 2007-08 was without bringing any adverse positive material. No any positive material was brought in penalty proceeding to show that the assessee had made willful attempt to conceal the income or to furnish inaccurate particulars of income. The 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 his income. It is 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.31 ITA No. 772/JP/2016
Shri Lal Chand Mittal vs. DCIT, Central Circle- 3, Jaipur .
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 Held that finding in quantum proceedings are not binding in the penalty proceedings, for imposition of penalty, independent findings are required.
It is also observed that the penalty proceedings are penal in nature, the Department must establish that the additions so made are real income of the assessee. The Department must have some cogent material or 32 ITA No. 772/JP/2016 Shri Lal Chand Mittal vs. DCIT, Central Circle- 3, Jaipur .
evidence before levying the penalty that the assessee had consciously concealed the particulars of his income or had deliberately furnished inaccurate particulars of income. The Hon'ble supreme Court in the case of Dilip N Shroff vs. JCIT (2007) 219 ITR 519 observed that penalty should not be imposed solely on the basis findings reached in quantum proceedings. 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.
33 ITA No. 772/JP/2016Shri Lal Chand Mittal vs. DCIT, Central Circle- 3, Jaipur .
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, 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:-
34 ITA No. 772/JP/2016Shri Lal Chand Mittal vs. DCIT, 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 35 ITA No. 772/JP/2016 Shri Lal Chand Mittal vs. DCIT, Central Circle- 3, Jaipur .
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 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 36 ITA No. 772/JP/2016 Shri Lal Chand Mittal vs. DCIT, Central Circle- 3, Jaipur .
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.'' 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. 37 ITA No. 772/JP/2016 Shri Lal Chand Mittal vs. DCIT, Central Circle- 3, Jaipur .
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 and the case laws relied on (supra) by the assessee, the penalty of Rs.
99,000/- 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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1. vihykFkhZ@The Appellant-Shri Lal Chand Mittal, Jaipur
2. izR;FkhZ@ The Respondent- The DCIT, Central Circle- 3, Jaipur
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6. xkMZ QkbZy@ Guard File (ITA No. 772/JP/2016) vkns'kkuqlkj@ By order, lgk;d iathdkj@ Assistant. Registrar