TaxTMI 
TaxTMI 
2015 (11) TMI 1281
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....sessment u/s.143(3) was completed on 26.3.2010 determining total income of Rs. 6,12,900/-. 4. The additions made to the total income while completing the assessment u/s.143(3) of the Act by the AO were as follows:- (i) The Assessee declared rent received on letting out of shop of Rs. 41,400. Against the said income, the Assessee claimed deduction of Rs. 52,685 which was interest paid to HDFC Bank Ltd., on loan borrowed for repairing residential house which was a different property. Since the requirement for deduction of interest paid on borrowing against income from house property u/s.24(b) of the Act was that the borrowed funds ought to have been used for acquiring or constructing the property in respect of which income from house property was declared, the deduction was disallowed by the AO. The AO however allowed deduction of Rs. 30,000/- out of the interest paid under the 1st proviso to Sec.24(b) of the Act as the residential house was vacant during the previous year and its annual value was nil. This resulted in an addition to the total income of Rs. 22,685/-. (ii) Sundry creditors to the tune of Rs. 4,53,045 appearing in the balance sheet could not be satisfactory ex....
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.... 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 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. 8. The ld. DR relied on the order of the CIT(Appeals) wherein the CIT(A) has expressed his opinion that the assessee was fully aware of the charge against him and he cannot take shelter on technical grounds. 9. We have heard the rival submissions. 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, ....
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....ds. 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 ....
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....e qua non for the Assessment Officer to initiate the proceedings because of the deeming provision contained in Section 1(B). h) The said deeming provisions are not applicable to the orders passed by the Commissioner of Appeals and the Commissioner. i) The imposition of penalty is not automatic. j) Imposition of penalty even if the tax liability is admitted is not automatic. k) Even if the assessee has not challenged the order of assessment levying tax and interest and has paid tax and interest that by itself would not be sufficient for the authorities either to initiate penalty proceedings or impose penalty, unless it is discernible from the assessment order that, it is on account of such unearthing or enquiry concluded by authorities it has resulted in payment of such tax or such tax liability came to be admitted and if not it would have escaped from tax net and as opined by the assessing officer in the assessment order. l) Only when no explanation is offered or the explanation offered is found to be false or when the assessee fails to prove that the explanation offered is not bonafide, an order imposing penalty could be passed. m) If the explanation offered, eve....