2024 (5) TMI 787 - HC - Income Tax

Penalty proceedings under section 271(1)(c) valid despite defective notice under section 274 challenge

Principal Commissioner of Income Tax-1, Kolkata Versus M/s. Thakur Prasad Sao & Sons. Pvt. Ltd.

The Calcutta HC held that penalty proceedings under section 271(1)(c) for income concealment were valid despite the assessee's challenge of a defective ... Penalty u/s 271 (1) (c) - concealed income detected by the Income Tax Department - income disclosed only after the search and seizure operation - allegation of Defective notice u/s 274 as show-cause notice does not specifically spell out the grounds for imposition of the proposed penalty - as per DR as after the search and seizure operations and pursuant to the notice u/s 153A assessee filed return of income declaring total income, thus Explanation-5A creating a deeming clause of “concealment of particulars of income” is fully attracted - HELD THAT:- Assessee has concealed particulars of true income in his returns and it is only after the search and seizure operation was conducted and voluminous documentary evidences came in the hands of the Income Tax Department evidencing concealment of income by the assessee only then he surrendered certain amounts as undisclosed income in the return u/s 153A filed much subsequent to the search and seizure. Therefore, disclosure of income was not voluntary but it was on account of concealed income detected by the Income Tax Department. In the present set of facts, the assessing officer has recorded his satisfaction in the assessment order and initiated penalty proceedings u/s 271 (1) (c) for concealment of particulars of income by the respondent assessee. He also directed for issuance of notice. The issuance of notice u/s 274 of the Act, 1961 was merely a consequence of the penalty proceeding initiated by the AO during the course of assessment proceedings. The assessee was well aware of the fact of concealment of particulars of income by him, which was well discussed in both the assessment orders by the assessing officer. There is no ambiguity in section 271 (1) (c) or section 271 (1B) or in Explanation 5A to sub-section 1 of section 271(c). Therefore, this Court cannot assume something which is not expressed or which shall stand in conflict with the aforesaid provisions. A plain reading of the aforesaid unambiguous provisions lead to an irresistible conclusion that if an assessee falls within the four corners of the legal fiction created by section 271 (1B) and the Explanation 5A and the AO has recorded his satisfaction of concealment of particulars of income during the course of assessment proceedings then the penalty proceedings cannot be said to be bad. In the present set of facts the AO has noted in the assessment order the concealment of particulars of income by the respondent/assessee. Notices were also directed to be issued as has been observed in the assessment orders. Once, in the assessment order the assessing officer has mentioned concealment of particulars of income by the assessee, the notice u/s 274 is merely consequential. It is admitted fact of the case that the respondent/assessee was heard by the assessing officer who passed the penalty order. The submissions made by the respondent/assessee before the assessing officer in penalty proceedings, have been noted by the assessing officer which have also been reproduced by us above. Thus, it is undisputed that the respondent/assessee has been heard. Under the circumstances, when a satisfaction has been recorded by the assessing officer during the assessment proceedings, consequential notice u/s 274 was issued to the respondent/assessee and the respondent/assessee has been afforded an opportunity of being heard then the Tribunal has committed a manifest error of law and facts and has completely misdirected itself to set aside the penalty orders on the ground that “the grounds for imposition of penalty were not mentioned in the show cause notice under section 274 of the Act and thus, the show cause notice was defective”. The conclusion of the Tribunal is also in conflict with the law laid down by Hon’ble Supreme Court in D. M. Manasrei [1972 (9) TMI 5 - SUPREME COURT] and Mak Data Pvt. Ltd. [2013 (11) TMI 14 - SUPREME COURT] The substantial question of law is answered in favour of the revenue and against the assessee and it is held that when the Assessing Officer has recorded in the Assessment order the particulars of concealed income/undisclosed income of the assessee and on that basis initiated penalty proceeding u/s 271 (1) (c) of the Act, 1961, then consequential notice u/s 274 issued by assessing officer to the assessee to afford him opportunity of hearing, is specifically a notice for penalty for concealment of particulars of income/undisclosed income. Such a notice complies with the principles of natural justice and is a valid notice u/s 274 of the Act, 1961. Issues Involved:1. Validity of penalty proceedings u/s 271(1)(c) of the Income Tax Act, 1961, when the show-cause notice does not specifically spell out the grounds for imposition of the proposed penalty.Summary:Issue 1: Validity of Penalty Proceedings u/s 271(1)(c)- The appeal pertains to penalties under section 271(1)(c) of the Income Tax Act, 1961 for assessment years 2006-07 and 2007-08.- The substantial question of law is whether penalty proceedings under Section 271(1)(c) are invalid if the show-cause notice does not specifically spell out the grounds for the proposed penalty.Facts:- A search was conducted on 23.11.2007 under section 132(1) against various entities of the 'Thakur Prasad Sao Group of Chaibasa,' leading to the disclosure of undisclosed income.- For the assessment year 2006-07, the assessee disclosed additional income of Rs. 4,99,00,000/- in the return filed u/s 153A.- For the assessment year 2007-08, the assessee disclosed additional income of Rs. 10,63,00,000/- in the return filed u/s 153A.- The Assessing Officer initiated penalty proceedings and issued show-cause notices under section 274 for imposing penalties under section 271(1)(c) read with Explanation 5A.Assessment and Penalty Orders:- The Assessing Officer imposed penalties of Rs. 1,67,97,340/- for the assessment year 2006-07 and Rs. 3,63,20,279/- for the assessment year 2007-08, citing concealment of income.- The CIT(A) upheld the penalties, but the ITAT set aside the penalty orders, declaring the show-cause notices defective for not specifying the grounds for penalty.High Court's Analysis:- The Court examined the provisions of section 271 and 274, emphasizing that the satisfaction of the Assessing Officer regarding concealment of income must be recorded during the assessment proceedings.- The Court noted that the Assessing Officer had indeed recorded satisfaction and initiated penalty proceedings during the assessment, and the issuance of the notice under section 274 was a consequence of this initiation.- The Court referred to the Supreme Court's rulings in D.M. Manasvi and Mak Data Pvt. Ltd., which clarified that the satisfaction of the Assessing Officer precedes the issuance of the notice and that the notice itself need not specify the grounds if the assessment order does.Conclusion:- The High Court concluded that the ITAT erred in setting aside the penalty orders based on the alleged defect in the show-cause notices.- The Court held that the penalty proceedings were valid as the Assessing Officer had recorded satisfaction during the assessment proceedings and provided the assessee with an opportunity to be heard.- The Court set aside the ITAT's order and remanded the matter to the ITAT to decide on merits within three months, without being influenced by the observations on the merits of the penalty.Disposition:- The appeal was allowed, and the matter was remanded to the ITAT for a decision on merits.