TaxTMI 
TaxTMI 
TaxTMI 
2016 (4) TMI 1124
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....me Tax Act, 1961 (hereinafter referred to as the 'Act') and the Revenue has challenged the order of the CIT(A) wherein the Learend CITA had reduced the penalty from 300% to 100% of the tax u/s 271(1)(c ) of the Act. 2. The facts and circumstances under which penalty was imposed on the Assessee by the AO in all the AYs referred to above are as follows:- The Income Tax Department had conducted search and seizure operations u/s.132(1) of the Act in the office of the group concerns at No.39, Shakespeare Sarani, Kolkata ; at Janki Sadan, Anchal Road, Iskcon Mandir Road, Siliguri on 18.03.2008. The assessee group is mainly engaged in the business activities of infrastructure developments and trading. The group has also invested huge monies in land and properties and raised share capital through accommodation transactions. In the course of search and seizure operations, Panchanama were drawn in the name of the assessee, individual members and group concerns. Manoj Kumar Jain & Sons (HUF) filed a letter dated 19.2.2009 in which it was stated that some of the assets and documents found and seized in the course of search and seizure operation at the various premises of the group which are ....
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....hinery in the Financial Year 2005-06 from M/s D.K. Enterprises. so, the fixed assets came from erstwhile partnership firm and the present management was not aware of these facts as this was not in control of its affairs. As such it was argued that the false claim was initiated by the erstwhile firma and for that, the present management cannot be held responsible since it was not aware of this fact. The Learned AO not satisfied with this reply levied penalty @ 300% of the tax on additions made in the search assessment. On first appeal, the Learned CITA found that the assessee had not offered the aforesaid income of Rs. 19,57,900/- in the return filed in response to notice issued u/s 153A of the Act. The Learned CITA held that as per the plain reading of Explanation 5A to section 271(1)(c ) of the Act, any undisclosed income which is found or declared after the date of search initiated u/s 132 of the Act on or after 1.6.2007, the assessee will be liable for penalty on the said amount which is not already declared in the return filed u/s 139(1) of the Act. Hence the Learned CITA held that the assessee shall be deemed to have concealed the particulars of his income or furnished inaccur....
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....me of Rs. 9,04,543/- in the return filed in response to notice issued u/s 153A of the Act. The Learned CITA held that as per the plain reading of Explanation 5A to section 271(1)(c ) of the Act, any undisclosed income which is found or declared after the date of search initiated u/s 132 of the Act on or after 1.6.2007, the assessee will be liable for penalty on the said amount which is not already declared in the return filed u/s 139(1) of the Act. Hence the Learned CITA held that the assessee shall be deemed to have concealed the particulars of his income or furnished inaccurate particulars of such income. But however, he reduced the penalty from 300% to 100% of tax. 3.3. Aggrieved, the assessee as well as the revenue are in appeal before us. The assessee has also raised additional ground before us as follows:- 1) That the Ld. A.O. erred in not mentioning the limb of sec 271(1)(c ) that has been violated by the assessee, in the notice issued u/s 274 r.w.s 271 of the Income Tax Act 1961. Further, the Ld. AO has not recorded any satisfaction as to whether the assessee has concealed his income or has furnished inaccurate particulars of his income in the penalty notice issued u/s 27....
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....ing concealed particulars of income or furnished inaccurate particulars, before he initiates penalty proceedings; (iii) 'prima facie' satisfaction of the AO that the case may deserve the imposition of penalty should be discernible from the order passed during the course of the proceedings. Obviously, the AO would arrive at a decision, i.e., a final conclusion only after hearing the assessee; (iv) at the stage of initiation of penalty proceeding the order passed by the AO need not reflect satisfaction vis-a-vis each and every item of addition or disallowance if overall sense gathered from the order is that a further prognosis is called for; (v) however, this would not debar an assessee from furnishing evidence to rebut the 'prima facie' satisfaction of the AO; since penalty proceeding are not a continuation of assessment proceedings; (vi) due compliance would be required to be made in respect of the provisions of ss. 274 and 275; (vii) the proceedings for initiation of penalty proceeding cannot be set aside only on the ground that the assessment order states 'penalty proceedings are initiated separately' if otherwise, it conforms to the parameters set out hereinabove are met. The pr....
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....se of MAK Data (supra) and held that in the absence of initiation of penalty proceedings in the order of assessment, imposition of penalty u/s.271(1)( c) of the Act was unsustainable. 3.5.5. We have given a very careful consideration to the rival submissions. We have also perused the orders of assessment for AYs 2006-07 & 2007-08. In AYs 2006-07 & 2007-08, certain additions have been made in the search assessment. There was no adverse observation by the Learned AO in the order of assessment. The Assessee also did not object to the addition made by the Learned AO and it was more or less an agreed addition. In the circumstances, the question arises whether satisfaction required for initiating proceedings for concealment or furnishing of inaccurate particulars of income in the course of assessment proceedings has been arrived at by the Learned AO. We have also perused the show-cause notice issued u/s.274 of the Act for all the aforesaid AYs 2006-07 & 2007-08. The Learned AO in the said show cause notice has not struck off the irrelevant portion as to whether the charge against the assessee is "concealing particulars of income or furnishing of inaccurate particulars of income". In thi....
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....ced that certain documents comprising of share application forms, bank statements, memorandum of association of companies, affidavits, copies of Income Tax Returns and assessment orders and blank share transfer 8 deeds duly signed, have been impounded in the course of survey proceedings under Section 133A conducted on 16.12.2003, in the case of a sister concern of the assessee. The survey was conducted more than 10 months before the assessee filed its return of income. Had it been the intention of the assessee to make full and true disclosure of its income, it would have filed the return declaring an income inclusive of the amount which was surrendered later during the course of the assessment proceedings. Consequently, it is clear that the assessee had no intention to declare its true income. It is the statutory duty of the assessee to record all its transactions in the books of account, to explain the source of payments made by it and to declare its true income in the return of income filed by it from year to year. The AO, in our view, has recorded a categorical finding that he was satisfied that the assessee had concealed true particulars of income and is liable for penalty proc....
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....urate particulars of income" or "concealing particulars of such income". 9.1. 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 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. 9.2. 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 proceed....
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....nds 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 autho....
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.... 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 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 ....
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.... 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. 3.5.6. The aforesaid ruling will squarely apply to the facts of the present case. In the present case also satisfaction for initiation of penalty proceedings u/s.271(1)( c) of the Act is not discernible from the order of assessment. The show cause notice u/s.274 of the Act is also defective. The same is also enclosed as Annexure A to this order. Following the decision referred to above, we hold that the penalty imposed on the Assessee u/s.271(1)( c) of the Act cannot be sustained and the same is directed to be cancelled. Accordingly, the additional ground raised by the assessee in all the four appeals are allowed. The other ground raised by the revenue and assessee are dismissed as infructuous. 4. ITA No. 1235/Kol/2011 (AY 2007-08) in the case of Jain Infra Projects Ltd (Assessee Appeal) The facts and circumstances under wh....
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....de additions towards disallowance of filing fees paid for increase of authorized capital amounting to Rs. 2,50,000/- ; service tax disallowed u/s 43B of the Act amounting to Rs. 8,04,061/- based on tax audit report and disallowance u/s 40(a)(ia) of the Act amounting to Rs. 31,97,865/-. During the penalty proceedings u/s 271(1)(c ) of the Act, the assessee claimed that it had made voluntary disclosure of additional income of Rs. 5,96,176/- which were ultimately added in the search assessment and also stated that the same cannot be construed as a disclosure made by the assessee as a result of the search proceedings and based on any search material. It was also contended by the assessee that the present management took over the business of M/s Bengal Construction Co. with effect from 07.11.2006. M/s Bengal Construction Co. was a firm which had shown bogus purchase of plant and machinery in the Financial Year 2005-06 from M/s D.K.Enterprises. so, the fixed assets came from erstwhile partnership firm and the present management was not aware of these facts as this was not in control of its affairs. As such it was argued that the false claim was initiated by the erstwhile firma and for t....