TaxTMI 
TaxTMI 
2014 (1) TMI 1682
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....u/s.40A(3) of Rs. 4,940/- and disallowance of excess expenditure of Rs. 61,500/-. A notice for penalty under section 271(1)(c) of Income Tax Act was issued along with assessment order. In response to the notice issued, explanation was filed wherein it was submitted that the assessee always cooperated with the department in all respects for smooth completion of assessment and there was no failure on part of assessee to comply with the provisions of the Act. It was further submitted by assessee that there was no willful concealment of income or furnishing of inaccurate particulars. A.O. after considering the explanation of the assessee found it to be not acceptable as he was of the opinion that but for survey operations carried out, additional income would not have come to the light. Thus, A.O. held that assessee tried to conceal particulars of income which were detected during survey. In view of the above, A.O. held that the tax payable on additional income offered during the survey attracts the penalty provisions u/s. 271(1)(c) as the same is 'concealed income'. A.O. further relied on the Judgment of Hon'ble Supreme Court in the case of Union of India vs. Dharmendra Textiles Limite....
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....TR 855. 4.2. On the issue of revised return, the learned CIT(A) relying on the Judgment of Hon'ble Madras High Court in the case of P. Govindaswamy vs. CIT 244 ITR 510, Hon'ble Gujarat High Court Judgment in the case of LMP Precision Engg. Co. Ltd. vs. DCIT 330 ITR 93 and Hon'ble Jharkhand High Court Judgment in the case of CIT vs. Mahabir Prasad Bajaj 298 ITR 109 came to the conclusion that assessee has filed revised return which is not consequent to any bonafide omission but because of detection of concealment by the department. 4.3 With reference to the contention that there is no finding by the A.O. that there is willful concealment, the learned CIT(A) relied on the case of Hon'ble Madhya Pradesh High Court in the case of DCIT vs. Chirag Metal Rolling Mills Ltd. 305 ITR 29 to observe that where income is surrendered by an assessee, no separate enquiry is necessary before imposing penalty. 4.4 With reference to the contention that burden of proof is on the Revenue which is not discharged, the learned CIT(A) relying on the various case law came to the opinion that there is no onus cast upon the Department to prove willful concealment and it is on the assessee to prove that the....
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.....1 We have considered the rival arguments and after giving opportunity to the learned DR and considering the principles on the issue, we admit the ground and decide the issue in the course of this order. 7. Learned Counsel placed his arguments in detail and referred to various case law. It is the contention of the learned Counsel that the notice issued under section 271(1)(c) itself is invalid and consequently, the entire penalty proceedings are to be held as abinitio void (ground No.5). 8. Without prejudice to the above, it was submitted that the assessee filed revised return under a bonafide belief that no penalty will be levied in respect of additional income offered in the revised return and in the revised return the assessee has admitted higher income even though it has various expenditure, in order to settle the matters and even before the return was filed, assessee has paid the taxes on the assurance of survey party. Therefore, the action of the assessee is bonafide and penalty is not leviable. 9. Dealing with the above issues, learned Counsel referred to the notice issued under section 274/271(1)(c) by the Assessing Officer. Referring to the notice issued and various par....
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....ounsel further submitted that assessee paid taxes of Rs. 50 lakhs on 24.10.2008, Rs. 10,85,000/- on 07.11.2008 ie.., before filing the return on 28.11.2008 offering additional income of Rs. 1,50,69,196/-. 10. Learned Counsel further referred to the statement recorded under section 133A to submit that the Managing Partner accepted the additional income even though he clearly stated that there was expenditure. Since there is an assurance by the survey unit, assessee has accepted the additional income without claim of expenditure and assessee can justify that penalty is not leviable if the claim of expenditure was verified and allowed. It was his contention that learned CIT(A) without calling for any remand report on the additional expenditure claimed which was therein in the impounded material available with the department, rejected the contentions without examination. It was his submission that assessee even though has not earned that much income, accepted higher income in order to close the matters and immediately paid the taxes to justify the bonafide actions. With reference to the contention that what can be brought to tax must bear an element of profit out of such receipts, the....
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....s were struck-off. Since, there is no application of mind at the time of initiation of penalty, following the principles laid down by the Hon'ble Gujrath High Court in the case of Panna Corporation (supra), the proceedings are bad in law. Further, it was the submission that entire on money cannot be taxed and what is to be taxed can only be the income part of it. Referring to the statement given at the time of survey, learned Counsel submitted that there is expenditure which was also available from the impounded material and assessee has discharged his initial onus by giving a bonafide explanation that expenditure has to be reduced. The initial onus of bonafide explanation having been discharged by the assessee and has not been counterred by the Revenue, assessee's bonafide explanation has to be accepted. 12. Learned D.R., incidentally happens to be CIT(A) who passed the order, has defended the order by referring to various case law and the facts of the case. While accepting that the A.O. struck down relevant columns in the statutory notice, he preferred to the last line of the penalty notice to submit that notice was issued for proceedings under section 271(1)(c) only as can be s....
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....9,09,356/-. This statement of the A.O. both in the assessment order as well as in the penalty order is not correct. As seen from the copy of the return placed in the paper book from pages 1 to 14, Assessee has gross total income for the year at Rs. 71,76,397/- and after set off of carry forward losses and depreciation to the extent of Rs. 52,67,041/-, declared total income at Rs. 19,09,356/-. However, assessee having positive income, has offered the income under section 115JB at Rs. 71,98,828/-, which is the deemed 'total income' under the provisions of section 115JB. Nowhere in the Orders A.O. referred to the incomes under section 115JB and calculated the levy of penalty on the normal income of Rs. 19.09,356 ignoring the higher income of Rs. 71,98,828 offered under section 115JB of the Act. 13.2. After filing of the return of income, assessee's premises were covered under section 133A on 11.09.2008 i.e., within one year from the date of filing the return. It is not clear from the assessment order whether the notice for selection of scrutiny issued on 22.09.2008 is consequent to the survey under section 133A or otherwise for any other reasons for selection of case to scrutiny. Thi....
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....ssessory agreement -cum- sale with GPA in Venkateswara Nagar Gandigundam venture, registration expenses shown vide registration document dated 06.03.2007 No. 2098, actual expenses incurred Rs. 50,500/- instead of Rs. 1,12,000/- shown in the books of accounts. The difference of excess expenditure shown Rs. 61,500/- is disallowed and added to the return of income." 13.3. Thus, as can be seen from the assessment order, there is no discussion about any of the issues on which the penalty is being levied. Even though, proceedings under section 271(1)(c) are initiated as stated in the assessment order, copy of the order sheet placed by the learned CIT-DR in the paper book does not indicate initiation of penalty proceedings at all. The order sheet dated 22.12.2009 states the draft assessment order in this case was approved on facts and material brought to notice and initialed by an Officer (designation not known). Below that, there was an entry that "As directed assessment order DN and 271(1)(c) prepared and put up". There is no initial of any Officer below this noting which indicate that notice under section 271(1)(c) was routinely issued for initiation of separate proceedings. The order....
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....ddition to the returned income by disallowing the expenditure. Hence there is no suppression of income on our part." 13.6. As can be seen from the above, the assessee was under bonafide impression that the proceedings under section 271(1)(c) were initiated for the additions to the returned income which are small disallowances. 13.7. Coming to the assessee's contention that it has bonafidely offered the higher income than actual income without claiming expenditure, this issue was also require examination. As can be seen from the statement recorded by the Officer in the course of survey proceedings (name of the Officer and designation is not available in the statement), assessee has given a preliminary statement on 11.09.2008 and followed it up on 12.09.2008 and further on 22.09.2008. The A.O. accordingly referred to the statement dated 22.09.2008 in question No. 6 and 7. Which is as under : "Q.No.6 : Please workout the difference in sale consideration of Sai Ram Gardens at Parawada. Ans. We have sold at an average rate of 950/- per sq.yard. The total extent of sold area is 60,612. We have offered @ 700/- in the books. The difference amount comes to Rs. 1,50,69,196/-. I admit thi....
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....o Rs. 1,50,69,196/- (actual amount should have been Rs. 1,51,53,000/-). Thus, there is evidence with reference to actual receipt of the amounts available to the survey party, while determining the above amount. If those documents were examined, assessee's contention that it has unexplained expenditure also could have been verified by the A.O. Unfortunately, neither the survey party gave the working how it arrived at the above amount quantified in the sworn statement nor the A.O. discussed any thing about the quantification of the above amount in the assessment order as discussed earlier. In view of this, we cannot at this point of time, arrive at a conclusion that so much of the amount has been concealed by the assessee. As rightly held by the Hon'ble Gujarat High Court in the case of Panna Corporation (supra), what is to be brought to tax can only be the profit/income element in a transaction but not gross receipts of the transaction. Even though assessee admitted the entire gross receipts in the statement, there seems to be a bonafide action on the part of the assessee. 14. LAW ON THE PENALTY PROCEEDINGS : 14.1. The Income Tax Act 1961 has different chapters dealing with proced....
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....-(l) No order imposing a penalty under this Chapter shall be made unless the assessee has been heard, or has been given a reasonable opportunity of being heard. (2) No order imposing a penalty under this Chapter shall be made - (a) by the Income-tax Officer, where the penalty exceeds ten thousand rupees ; (b) by the Assistant Commissioner or Deputy Commissioner, where the penalty exceeds twenty thousand rupees, except with the prior approval of the Joint Commissioner. (3) An income-tax authority on making an order under this Chapter imposing a penalty, unless he is himself the Assessing Officer, shall forthwith send a copy of such order to the Assessing Officer." 14.2. Section 271 is a specific provision providing for imposition of penalties, and is a complete code in itself, regulating the procedure for the imposition of penalties prescribed. The proceedings have, therefore, to be conducted in accordance therewith, subject always to the rules of natural justice. The provisions for the assessment and levy of tax will not apply as such for the imposition of penalty. In such a situation, i.e., when there is a specific provision, proceedings should be taken only there under and n....
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....tion which is found by the Assessing Officer or the Commissioner (Appeals) or the Commissioner to be false, or (B) such person offers an explanation which he is not able to substantiate and fails to prove that such explanation is bona fide and that all the facts relating to the same and material to the computation of his total income have been disclosed by him, then, the amount added or disallowed in computing the total income of such person as a result thereof shall, for the purposes of clause (c) of this sub-section, be deemed to represent the income in respect of which particulars have been concealed." 14.6 After insertion of Explanation 1 to section 271(1)(c), the law on concealment and penalty has become stiffer. The Explanation as it stands now is a complete code having the following features : (1) Every difference between reported and assessed income needs an explanation. (2) If no explanation is offered, levy of penalty may justified. (3) If explanation is offered but is found to be false, penalty will be exigible. (4) If explanation is offered and it is not found to be false, penalty may not be leviable, if (a) such explanation is bona fide. (b) the assessee had ma....
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....the Assessing Officer or the Commissioner (Appeals) that the assessee has concealed or furnished inaccurate particulars of his income 14.9 It is already held in various judicial precedents that a mere addition in the assessment does not ipso facto lead to levy of penalty. The penalty under section 271(1)(c) can be levied only with two conditions prescribed for levy of penalty are satisfied. One such condition is for concealment of income and other for furnishing of inaccurate particulars of such income. These two are distinct limbs. It has already been held in various judgments that when an item has not been shown at all, it would fall in the limb of concealment and an item which has been shown in the return, but wrongly would come under the limb of furnishing of inaccurate particulars of income. It is clear from the provisions that levy of penalties attracted only when the conditions stipulated under section 271(1)(c) are attracted. When those conditions are not fulfilled, there is no question of exercising power under the said provision to impose penalty. 14.10. Ld CIT DR vehemently argued that the deficiency in the notice does not affect the proceedings and the levy of penalty....
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....d 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 1(B) to section 271 of the Act should be clear and without any ambiguity. (0) 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 c....
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....the initial onus placed by explanation has been discharged by him, the ownership of the revenue to show that the amount in question constitute the income and not otherwise. 14.12. Therefore, even though the assessee may declare the incomes by using the words voluntary disclosure to buy peace and to avoid litigation, amicable settlement etc., under the provisions what is to be seen is, whether the assessee had given any bonafide reasons initially placed by Explanation to section 271(1)(c). 14.13. Further, Coordinate Bench in the case of DCIT vs. Dr. Satish B. Gupta reported in 42 SOT 48 had also analysed the provisions of section 271(1)(c) with reference to the "amount added" or "disallowed in computing the total income". The Coordinate Bench has considered the law on the issue and held as under : From the last portion of Expln. 1, i.e., "the amount added or disallowed in computing total income........be deemed to represent the income in respect of which particulars have been concealed" would indicate that it is only the addition or disallowance to the total income that would represent the income for the purposes of levy of penalty within the meaning of Expln. 1 to s. 271(1)(c). ....
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.... are not equivalent to statutory proceedings. Another criteria of finding out as to whether particular action is a statutory proceeding or not it is to be seen whether it can be brought to a legal conclusion against the assessee by determining his right or liability. Merely carrying out survey under s. 133A does not create any liability against the assessee which is created only through assessment proceedings or penalty proceedings. Therefore, the Departmental Representative is incorrect in his submission that survey being a proceeding and AO has discovered concealment during survey, therefore, the assessee is liable for penalty under s. 271(1)(c). Further cl. (c) to s. 271(1) mentions "as concealed.......or furnished". They are past tense words indicating that assessee has committed certain act on which penalty is leviable. Thus the act of concealment or furnishing of inaccurate particulars should be viewed by the AO as done with respect to return of income. The omission or commission or contumacious conduct has to be viewed from the return of income and if certain thing is not disclosed or not furnished therein only then it can be said that assessee has concealed the particulars ....
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.... under section 143(3) of the Act simply relied on the additional income offered. The assessing officer did not unearth any additional income during the assessment time, nor even examined the impounded material. Hence the above case law does not apply to the present case as it pertain to different facts. 15.3 The case of C. Christopher v. CIT [2004] 140 TAXMAN 485 (MAD) As per the facts of the case, though the assessee has expressed his desire to settle the tax matters with the department by making disclosure, but no disclosure was made on the day of the search, or before the search was completed. No statement was given by the assessee under oath under section 132(4). Thereafter, the assessee made a disclosure on a later date and offered additional income for assessment of his income and also in the case of his wife. The assessing officer thereafter reassessed the assessee for the relevant assessment years on the basis of revised returns filed by the assessee and on reassessment, the assessee was found to have additional taxable income for all those years and tax was levied accordingly. The assessing officer also levied penalty under sections 271(1)(c) upon the assessee. Hence, t....
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.... does not apply to the case. More over the above case was distinguished by Hon'ble Supreme Court in later judgement. 15.6. Thus, the case law relied by A.O. does not apply to the facts of the case. 16. FINDINGS : 16.1. If we examine the facts of the case, keeping in mind the above principles, it is very clear that the A.O. has not recorded any satisfaction in the assessment order about the concealment nor followed the procedure under section 274 with reference to the grounds mentioned in section 271(1)(c) whether the notice issued is for the concealment of income or for furnishing of inaccurate particulars. Having deleted appropriate paras in the notice, sending a printed form particularly deleting the relevant columns, would not satisfy the requirement of law. Moreover, since the grounds on which assessee has to reply have not been specified, the principles of natural justice has been offended. On the basis of such proceedings, no penalty could be imposed on the assessee. Not only that the assessment order indicates that there is no difference between assessed income and returned income. What has been added in the assessment is not the subject matter of penalty. Even though the....
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....turn of income. Not only the assessment order did not reflect any satisfaction as required under s. 271(1) but even the show-cause notice was silent with reference to the satisfaction arrived at by the AO with reference to the concealment of income by the assessee company. Nothing has been placed before this Court by the Revenue to show that any other material was available with the AO to the effect that the assessee concealed the income. In the circumstances, it is not open to the AO to invoke the power under s. 271(1)(c) levying penalty. The impugned penalty proceedings are without jurisdiction apart from being arbitrary and illegal." 16.3 . Respectfully following the above Judgment of the jurisdictional High Court, since the facts of the case equally fits into the principles laid down by the Hon'ble A.P. High Court, we have no hesitation in holding that penalty under section 271(1)(c) is not imposable on the facts of the case. Even otherwise, assessee having given bonafide explanation that he has offered higher income even though that much income is not taxable, this contention of the assessee was not rebutted. As briefly stated above in the facts, A.O. has neither brought any ....