Income Tax Appellate Tribunal - Jaipur
Shri Gulam Farooq Ansari, Jaipur vs Income Tax Officer, Jaipur on 23 April, 2018
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IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES, JAIPUR
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BEFORE: SHRI VIJAY PAL RAO, JM & SHRI BHAGCHAND, AM
vk;dj vihy la-@ITA No. 912 & 913/JP/2017
fu/kZkj.k o"kZ@Assessment Year : 2009-10 & 2010-11
Shri Gulam Farooq Ansari cuke The ITO,
3261-62, Majid Mansion, Nawab Vs. Ward-2(1),
Ka Chouraha, Ghat Gate, Jaipur. Jaipur.
LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: AABPF 0454 A
vihykFkhZ@Appellant izR;FkhZ@Respondent
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s Assessee by : Shri Vijay Goyal (C.A.)
jktLo dh vksj ls@ Revenue by : Shri J.C. Kulhari (JCIT)
lquokbZ dh rkjh[k@ Date of Hearing : 05/04/2018
mn?kks"k.kk dh rkjh[k@Date of Pronouncement: 23/04/2018
vkns'k@ ORDER
PER: VIJAY PAL RAO, J.M. These two appeals by the assessee are directed against the composite order of CIT (A), Jaipur dated 29.09.2017 arising from penalty order passed u/s 271(1)(c) of the I.T. Act for the assessment years 2009-10 & 2010-11 respectively. The assessee has raised the common grounds in these appeals. The grounds raised for the assessment year 2009-10 are reproduced as under:-
ITA No. 912&913/JP/2017 Shri Gulam Farooq Ansari vs. ITO "1. On the facts and in the circumstances of the case and in law the ld. CIT(A) erred in rejecting the legal contention of the assessee that the initiation and imposing of penalty proceeding is wrong, bad in law, in-valid and void-ab-initio as the ld AO initiated/imposed the penalty u/s 271(1)(c) of Income Tax Act, 1961 without specifying the limb for reasons in the penalty notice to impose the penalty i.e.. Whether it is for concealment of particulars of income or for furnishing of inaccurate particulars of income.
2. On the facts and in the circumstances of the case and in law the ld. CIT(A) erred in confirming the penalty u/s 271(1)(c) of I.T. Act, 1961 on the additional income of Rs. 29,01,920/-
declared by the assessee in his return of income filed u/s 153A of the Act.
3. The assessee prays for leave to add, to amend, to delete, or modify the all or any grounds of appeal on or before the hearing of appeal."
2. Ground no. 1 is regarding the validity of initiation of proceedings u/s 271(1)(c) of the Act as the AO has not specified the grounds in the show cause notice issued u/s 274 of the Act whether it is for concealment of particulars of income or for furnishing of inaccurate particulars of income. There was search u/s 132 on 22.09.2010 in the case of Shree Ram Group, Jaipur to which the assessee belongs. In response to the notice u/s 153A of the Act the assessee filed his return of income declaring total income of Rs. 30,44,970/- for the assessment 2 ITA No. 912&913/JP/2017 Shri Gulam Farooq Ansari vs. ITO year 2009-10 which includes Rs. 29,01,920/- as income surrendered at the time of search. Similarly in the assessment year 2010-11 the assessee in the return of income filed u/s 153A of the Act had offered the income to tax as surrendered during the search. The Assessing Officer while completing the assessment proceeding u/s 153A of the Act made various additions and accordingly, the total income of the assessee was assessed at Rs. 4,09,95,690/- for the assessment year 2009-10 and Rs. 2,25,61,940/- for the assessment year 2010-11. Thus, the AO made addition of Rs. 3,76,00,000/- for the assessment year 2009-10 and Rs. 2,07,00,000/- for the assessment year 2010-11. The assessee challenged the action of the AO in the quantum proceedings before the ld. CIT(A) however, in the mean time the Assessing Officer initiated the proceedings u/s 271(1)(c) of the Act by issuing the show cause notice dated 31.03.2013. The quantum appeals were decided by the ld. CIT(A) vide order dated 12.10.2015 whereby part relief was granted to the assessee. The assessee further carried the matter to this Tribunal and finally this Tribunal has deleted the additions made by the AO in the assessment framed u/s 153A of the Act for both the years except the income surrendered by the assessee. Subsequently, the AO as levied the penalty u/s 271(1)(c) of the Act in respect of the income 3 ITA No. 912&913/JP/2017 Shri Gulam Farooq Ansari vs. ITO surrendered by the assessee for both the years. The assessee challenged the action of the AO before the ld. CIT(A) but could not succeed.
3. Before us, the ld. AR of the assessee has submitted that the penalty levied u/s 271(1)(c) of the Act is not sustainable as the Assessing Officer has not specified the ground and charge against which the penalty was proposed to be levied whether it was 'concealment of particulars of income or for furnishing of inaccurate particulars of income'. Therefore, the initiation of penalty proceeding is bad in law and void-ab-intio. The ld. AR has referred to the show cause notice issued by the AO u/s 274 r.w.s. 271 and submitted that the Assessing Officer has not specified the ground for which the penalty was proposed to be levied. In support of his contention, he has relied upon the decision of Hon'ble Karnataka High Court in case of CIT vs. Manjunatha Cotton and Ginning Factory 359 ITR 565 as well as decision of Hon'ble Supreme Court in case of CIT vs. SSA's Emerald Meadows 242 taxman 150. The ld. AR has also relied upon the decision of Hon'ble of jurisdictional High Court in case of Sheveta Construction Company Pvt. Ltd vs. ITO vide decision dated 06.12.2016 in DB ITA No. 534/2008. Hence, the ld. AR of the assessee 4 ITA No. 912&913/JP/2017 Shri Gulam Farooq Ansari vs. ITO has submitted that when the AO has not specified the charge in the show cause notice then the assessee was not given an opportunity to explain and reply to the charge of the Assessing Officer.
4. On the other hand, ld. DR has submitted that the penalty is levied in respect of the surrender income which is undisclosed income of the assessee, therefore, the question of explaining the charge does not arise when the assessee himself has surrendered the income which is nothing but concealment of particulars of income. He has relied upon the orders of the authorities below.
5. We have considered the rival submissions as well as relevant material on record. The issue before us is the validity of show cause notice u/s 274 of the act issued on 31.03.2013. We note that identical notices were issued for both the assessment years and the Assessing Officer has not specified the charge/ground for which the penalty was proposed to be levied u/s 271(1)(C) of the Act. It is pertinent to note that at the time of issue of notice dated 31.03.2013 the Assessing Officer initiated the penalty proceedings for levy of penalty u/s 271(1)(C) in respect of the entire amount of additions made by the AO as well as the amount which was surrendered by the assessee. Therefore, the notice issued by the AO u/s 274 of the Act is for initiation 5 ITA No. 912&913/JP/2017 Shri Gulam Farooq Ansari vs. ITO of penalty proceeding against the entire income assessed by the AO. Though subsequently the additions made by the AO were deleted by ld CIT(A) and further by this Tribunal in the quantum proceedings however, that subsequent decisions of the appellate authorities would not rectify the deficiency and illegality from which the notice issued u/s 274 of the Act suffers when it was issued on 31.03.2013. Thus, it is not a case where the penalty proceedings were initiated by the AO only in respect of the income surrendered by the assessee but the show cause notices were issued for levy of penalty in respect of the entire income which is more than Rs. 4 crores for the assessment year 2009-10 and Rs. 2 crores for the assessment year 2010-11. Hence, we do not agree with the contention of the ld. DR that the penalty was finally levied in respect of the income surrendered by the assessee and hence the validity of show cause notice u/s 274 of the Act cannot be questioned. Since, the show cause notice was issued for levy of penalty in respect of the entire income therefore, the AO was bound to specific the charge against the assessee and the ground on which the penalty was proposed to be levied. The Hon'ble Karnataka High Court in case of CIT vs. Manjunath Cotton and Ginning Factory (supra) while dealing with an 6 ITA No. 912&913/JP/2017 Shri Gulam Farooq Ansari vs. ITO identical issue of validity of notice u/s 274 r.w.s. 271 has held in para 59 to 63 as under:-
"59. As the provision stands, the penalty proceedings can be initiated on various ground set out therein. If the order passed by the Authority categorically records a finding regarding the existence of any said grounds mentioned therein and then penalty proceedings is initiated, in the notice to be issued under Section 274, they could conveniently refer to the said order which contains the satisfaction of the authority which has passed the order. However, if the existence of the conditions could not be discerned from the said order and if it is a case of relying on deeming provision contained in Explanation 1 or in Explanation 1(B), then though penalty proceedings are in the nature of civil liability, in fact, it is penal in nature. In either event, the person who is accused of the conditions mentioned in Section 271 should be made known about the grounds on which they intend imposing penalty on him as the Section 274 makes it clear that assessee has a right to contest such proceedings and should have full opportunity to meet the case of the Department and show that the conditions stipulated in Section 271(l)(c) do not exist as such he is not liable to pay penalty. The practice of the Department sending a printed form where all the ground mentioned in Section 271 are mentioned would not satisfy requirement of law when the consequences of the assessee not rebutting the initial presumption is serious in nature and he had to pay penalty from 100% to 300% of the tax liability. As the said provisions have to be held to be strictly construed, notice issued under Section 274 should satisfy the grounds which he has to meet specifically. Otherwise, principles of natural justice is offended if the show cause notice is vague. On the basis of such proceedings, no penalty could be imposed on the assessee.
60. Clause (c) deals with two specific offences, that is to say, concealing particulars of income or furnishing inaccurate 7 ITA No. 912&913/JP/2017 Shri Gulam Farooq Ansari vs. ITO 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(l)(c) when it is a sine qua non for initiation or proceedings, the penalty proceedings should be confined only to those grounds and the said grounds have to be specifically stated so that the assessee would have the opportunity to meet those grounds. After, he places his version and tries to substantiate his claim, if at all, penalty is to be imposed, it should be imposed only on the grounds on which he is called upon to answer. It is not open to the authority, at the time of imposing penalty to impose penalty on the grounds other than what assessee was called upon to meet. Otherwise though the initiation of penalty proceedings may be valid and legal, the final order imposing penalty would offend principles of natural justice and cannot be sustained. Thus once the proceedings are initiated on one ground, the penalty should also be imposed on the same ground. Where the basis of the initiation of penalty proceedings is not identical with the ground on which the penalty was imposed, the imposition of penalty is not valid. The validity of the order of penalty must be determined with reference to the information, facts and materials in the hands of the authority imposing the penalty at the time the order was passed and further discovery of facts subsequent to the imposition of penalty cannot validate the order of penalty which, when passed, was not sustainable.
61. The Assessing Officer is empowered under the Act to initiate penalty proceedings once he is satisfied in the course of any proceedings that there is concealment of income or furnishing of inaccurate particulars of total income under clause (c).8
ITA No. 912&913/JP/2017 Shri Gulam Farooq Ansari vs. ITO Concealment, furnishing inaccurate particulars of income are different. Thus the Assessing Officer while issuing notice has to come to the conclusion that whether is it a case of concealment of income or is it a case of furnishing of inaccurate particulars. The Apex Court in the case of T. Ashok Pai v. CIT [2007] 292 ITR 11/161 Taxman 340at page 19 has held that concealment of income and furnishing inaccurate particulars of income carry different connotations. The Gujarat High Court in the case of CIT v. Manu Engg. [1980] 122 ITR 306 and the Delhi High Court in the case of CIT v. Virgo Marketing (P.) Ltd. [2008] 171 Taxman 156, has held that levy of penalty has to be clear as to the limb for which it is levied and the position being unclear penalty is not sustainable. Therefore, when the Assessing Officer proposes to invoke the first limb being concealment, then the notice has to be appropriately marked. Similar is the case for furnishing inaccurate particulars of income. The standard proforma without striking of the relevant clauses will lead to an inference as to non-application of mind.
INDEPENDENT PROCEEDING
62. The penalty proceedings are distinct from assessment proceedings, and independent therefrom. The assessment proceedings are taxing proceedings. The proceedings for imposition of penalty though emanating from proceedings of assessment are independent and separate aspects of the proceeding. Separate provision is made for the imposition of penalty and separate notices of demand are made for recovery of tax and amount of penalty. Also separate appeal is provided against order of imposition of penalty. Above all, normally, assessment proceedings must precede penalty proceedings. Assessee is entitled to submit fresh evidence in the course of penalty proceedings. It is because penalty proceedings are independent proceedings. The assessee cannot question the assessment jurisdiction in penalty proceedings. Jurisdiction under penalty proceedings can only be limited to the issue of penalty, 9 ITA No. 912&913/JP/2017 Shri Gulam Farooq Ansari vs. ITO so that validity of the assessment or reassessment in pursuance of which penalty is levied, cannot be the subject matter in penalty proceedings. It is not possible to give a finding that the reassessment is invalid in such penalty proceedings. Clearly, there is no identity between the assessment proceedings and the penalty proceedings. The latter are separate proceedings that may, in some cases, follow as a consequence of the assessment proceedings. Though it is usual for the Assessing Officer to record in the assessment order that penalty proceedings are being initiated, this is more a matter of convenience than of legal requirement. All that the law requires, so far as the penalty proceedings are concerned, is that they should be initiated in the course of the proceedings for assessment. It is sufficient, if there is some record somewhere, even apart from the assessment order itself, that the Assessing Officer has recorded his satisfaction that the assessee is guilty of concealment or other default for which penalty action is called for. Indeed, in certain cases, it is possible for the Assessing Officer to issue a penalty notice or initiate penalty proceedings even long before the assessment is completed. There is no statutory requirement that the penalty order should precede or be simultaneous with the assessment order. In point of fact, having regard to the mode of computation of penalty outlined in the statute, the actual penalty order cannot be passed until the assessment is finalised. CONCLUSION
63. In the light of what is stated above, what emerges is as under:
(a) Penalty under Section 271(l)(c) is a civil liability.
(b) Mens rea is not an essential element for imposing penalty for breach of civil obligations or liabilities.10
ITA No. 912&913/JP/2017 Shri Gulam Farooq Ansari vs. ITO
(c) Wilful concealment is not an essential ingredient for attracting civil liability.
(d) Existence of conditions stipulated in Section 271(l)(c) is a sine qua non for initiation of penalty proceedings under Section 271.
(e) The existence of such conditions should be discernible from the Assessment Order or order of the Appellate Authority or Revisional Authority.
(f) Even if there is no specific finding regarding the existence of the conditions mentioned in Section 271(l)(c), at least the facts set out in Explanation 1(A) & (B) it should be discernible from the said order which would by a legal fiction constitute concealment because of deeming provision.
(g) Even if these conditions do not exist in the assessment order passed, at least, a direction to initiate proceedings under Section 271(l)(c) is a sine qua non for the Assessment Officer to initiate the proceedings because of the deeming provision contained in Section 1(B).
(h) The said deeming provisions are not applicable to the orders passed by the Commissioner of Appeals and the Commissioner.
(i) The imposition of penalty is not automatic.
(j) Imposition of penalty even if the tax liability is admitted is not automatic.
(k) Even if the assessee has not challenged the order of assessment levying tax and interest and has paid tax and interest that by itself would not be sufficient for the authorities either to initiate penalty 11 ITA No. 912&913/JP/2017 Shri Gulam Farooq Ansari vs. ITO proceedings or impose penalty, unless it is discernible from the assessment order that, it is on account of such unearthing or enquiry concluded by authorities it has resulted in payment of such tax or such tax liability came to be admitted and if not it would have escaped from tax net and as opined by the Assessing Officer in the assessment order.
(l) Only when no explanation is offered or the explanation offered is found to be false or when the assessee fails to prove that the explanation offered is not bonafide, an order imposing penalty could be passed.
(m) If the explanation offered, even though not substantiated by the assessee, but is found to be bonafide and all facts relating to the same and material to the computation of his total income have been disclosed by him, no penalty could be imposed.
(n) The direction referred to in Explanation IB to Section 271 of the Act should be clear and without any ambiguity.
(o) If the Assessing Officer has not recorded any satisfaction or has not issued any direction to initiate penalty proceedings, in appeal, if the appellate authority records satisfaction, then the penalty proceedings have to be initiated by the appellate authority and not the Assessing Authority.
(p) Notice under Section 274 of the Act should specifically state the grounds mentioned in Section 271(l)(c), i.e., whether it is for concealment of income or for furnishing of incorrect particulars of income
(q) Sending printed form where all the ground mentioned in Section 271 are mentioned would not satisfy requirement of law. 12
ITA No. 912&913/JP/2017 Shri Gulam Farooq Ansari vs. ITO
(r) The assessee should know the grounds which he has to meet specifically. Otherwise, principles of natural justice is offended. On the basis of such proceedings, no penalty could be imposed to the assessee.
(s) Taking up of penalty proceedings on one limb and finding the assessee guilty of another limb is bad in law.
(t) The penalty proceedings are distinct from the assessment proceedings. The proceedings for imposition of penalty though emanate from proceedings of assessment, it is independent and separate aspect of the proceedings.
(u) The findings recorded in the assessment proceedings insofar as "concealment of income" and "furnishing of incorrect particulars"
would not operate as res judicata in the penalty proceedings. It is open to the assessee to contest the said proceedings on merits. However, the validity of the assessment or reassessment in pursuance of which penalty is levied, cannot be the subject matter of penalty proceedings. The assessment or reassessment cannot be declared as invalid in the penalty proceedings."
By following the said decision in case of CIT vs. Manjunath Cotton and Ginning Factory (supra) the Hon'ble Karnataka High Court in case of CIT SSA's Emerald Meadows (supra) has again decided this issue in favour of the assessee and against the Revenue. The SLP filed by the Revenue against the said decision of Hon'ble Karnataka High court has been dismissed by the Hon'ble Supreme Court reported in 242 taxman 150. Thus, the decision of Hon'ble Karnataka High Court in case of CIT vs. 13 ITA No. 912&913/JP/2017 Shri Gulam Farooq Ansari vs. ITO Manjunatha Cotton and Ginning Factory (supra) has not been disturbed by the Hon'ble Supreme Court. We further note that the Hon'ble Jurisdictional High Court in case of Sheveta Construction Company Pvt. Ltd vs. ITO (supra) has considered an identical issue in para 5 to 10 as under:-
"5. Counsel for the appellant relied upon the decision of Andhra Pradesh High Court in case of Chennakesava Pharmaceuticals Vs. Commissioner of Income Tax reported in (2012) 349 ITR 196, wherein it has been held as under:-
In Reliance Petroproducts (P.) Ltd.'s case (1 supra), the Supreme Court also held that imposition of penalty is unwarranted when there is no finding in the assessment order that details supplied by the assessee were found to be false. This indicates that the view taken by the Delhi High Court in Ram Commercial Enterprises Ltd.'s case (6 supra) which has been approved in Dilip N. Shroff's case (10 supra) continues to be valid and this part of the judgment in Dilip N. Shroff's case (10 supra) has not been over ruled and continues to be good law. Moreover, the decision of the Delhi High Court in Ram Commercial Enterprises (supra) was also followed by the same High Court in CIT v. M.K. Sharma (9supra) and SLP(C) No. 17591 of 2008 filed against the said decision was dismissed by the Supreme Court on July 18, 2008.
Applying the above principle that the Assessing Officer should record in the assessment order his satisfaction that the assessee had either concealed the income or furnished inaccurate particulars of income in his return before imposing penalty, we noticed that in the assessment orders passed by the assessing officer for the assessment year 198283 (which is the subject matter of I.T.T.A.No.29 of 2000) and for the assessment year 14 ITA No. 912&913/JP/2017 Shri Gulam Farooq Ansari vs. ITO 1983-84 (which is subject matter of I.T.T.A.No.33 of 2000), no such satisfaction is recorded."
6. Another decision of Supreme Court in case of Dilip N. Shroff Vs. Joint commissioner of Income Tax & Anr. (2007) 291ITR 519 (SC) it has been held as under
" It is of come significance that in the standard proforma used by the Assessing Officer in issuing a notice despite the fact that the same postulates that inappropriate words and paragraphs were to be deleted, but the same had not been done. Thus, the Assessing Officer himself was not sure as to whether he had proceeded on the basis that the assessee had concealed his income or he had furnished inaccurate particulars. Even before us, the learned Additional solicitor General while placing the order of assessment laid emphasis that he had dealt with both the situations.
The impugned order, therefore, suffers from non-application of mind. It was also bound to comply with the principles of natural justice.
The Income Tax Officer had merely held that the assessee is guilty of furnishing of inaccurate particulars and not of concealment of income; which finding was arrived at also by the Commissioner of Income Tax and the Income Tax Appellate Tribunal. In the facts and circumstances of the case, there are enough material to show that the action on the part of the appellant may not be said to be such which would attract the penal provision under s. 271(1)(c). For the reasons aforementioned, the impugned judgment cannot be sustained."
7. He contended that while concluding the assessment order the officer must be clear whether it is the concealment of income or furnishing of inaccurate detail. He cannot have both the things. 7.1 However, Mr. Singhi appearing for the department submits that a perusal of the order of penalty makes it amply clear 15 ITA No. 912&913/JP/2017 Shri Gulam Farooq Ansari vs. ITO that both the things are fulfilled. In that view of the matter the view taken by the Tribunal is required to be accepted.
8. We have heard Mr. Prakul Khurana and Mr. Anuroop Singhi.
9. Taking into consideration the decision of the Andhra Pradesh High Court which virtually considered the subsequent law and the law which was prevailing on the date the decision was rendered on 27.08.2012. In view of the observations made in the said judgment, we are of the opinion that the contention raised by the appellant is required to be accepted and in the finding of Assessing Officer in the assessment order it is held that the AO, has to give a notice as to whether he proposes to levy penalty for concealment of income or furnishing inaccurate particulars. He cannot have both the conditions and if it is so he has to say so in the notice and record a finding in the penalty order.
10. In that view of the matter, the issue is answered in favour of the assessee and against the Department."
Accordingly, in view of the binding precedent we hold that when the AO has not specifically indicated the grounds for initiation of proceedings for levy of penalty whether it is for concealment of particulars of income or for furnishing inaccurate particulars of income, then the said show cause notice suffers from illegality and consequential order passed by the AO u/s 271(1)(c) is not sustainable and liable to be quashed. Accordingly, we set aside the impugned order passed u/s 271(1)(c) and delete the penalty of levied by the AO u/s 271(1)(c) of the Act. 16
ITA No. 912&913/JP/2017 Shri Gulam Farooq Ansari vs. ITO
6. Ground No. 2 relates to confirming the penalty u/s 271(1)(c) on the additional income of Rs. 29,01,920/- for A.Y. 2009-10 and Rs. 16,51,000/- for A.Y. 2010-11 declared by the assessee in his return of income filed u/s 153A of the Act. Since, we have decided ground no. 1 in favour of the assessee and quashed the penalty orders therefore, ground no. 2 of the assessee has become infructuous.
In the result, the appeals filed by the assessee are partly allowed. Order pronounced in the open court on 23/04/2018.
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fnukad@Dated:- 23/04/2018.
*Santosh.
vkns'k dh izfrfyfi vxzfs 'kr@Copy of the order forwarded to:
1. vihykFkhZ@The Appellant- Shri Gulam Farooq Ansari, Jaipur.
2. izR;FkhZ@ The Respondent- ITO, Ward-2(1), Jaipur.
3. vk;dj vk;qDr@ CIT
4. vk;dj vk;qDr@ CIT(A)
5. foHkkxh; izfrfuf/k] vk;dj vihyh; vf/kdj.k] t;iqj@DR, ITAT, Jaipur.
6. xkMZ QkbZy@ Guard File {ITA No. 912 & 913/JP/2017} vkns'kkuqlkj@ By order, lgk;d iathdkj@Asst. Registrar 17