AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2015 (3) TMI 1188
X X X X Extracts X X X X
X X X X Extracts X X X X
....ated 17.09.2014 of learned CIT (A) Visakhapatnam confirming the penalty imposed under section 271(1)(c) of the Act for assessment year 2010-11. 2. Briefly the facts are, assessee an individual, apart from deriving income from house property, also earns interest on bank deposits. For assessment year under consideration assessee filed a return of income declaring loss of Rs. 73,25,086. During the assessment proceedings Assessing Officer noticed that while computing income from house property, assessee has claimed deduction towards interest on borrowed capital of Rs. 1,69,62,265. On verification of record it was noticed by the Assessing Officer that during assessment proceedings for assessment year 2006-07, wherein the property was actually constructed, it was found by the Assessing Officer that assessee had utilized Rs. 7,21,14,405 for construction purposes as against borrowed funds of Rs. 10.50 crores availed from Punjab National Bank. Assessing Officer while conducting the assessment proceedings for assessment year 2006-07 was of the view, as entire borrowed fund was not utilized for construction purposes, interest on such borrowed fund was required to be disallowed proportionatel....
X X X X Extracts X X X X
X X X X Extracts X X X X
....y by raising various grounds on technical issues as well as on merits. However, submissions made by assessee did not find favour with the learned CIT (A) who confirmed the penalty by holding as under: "5. I have considered the submissions made. With regard to the contention raised by the AR that the penalty notice was not issued and not served on the assessee, a letter was issued to the Assessing Officer to verify the records and report on the contention raised in this regard. The A.R vide letter dated 9.9.2014 reported that the penalty notice was issued and duly served on the assessee on 29.3.2013 and enclosed a copy of acknowledgment. Accordingly, this contention of the assessee is rejected. 5.1 The Authorised Representative contended that satisfaction was not recorded in the assessment order and that the observation 'penalty proceedings will be initiated separately' could not amount to valid satisfaction contemplated under the Act. I have considered the plea. It is relevant to note that in view of the provisions contained in sec 271(1B) of the I.T. Act, the direction, 'penalty proceedings will be initiated separately' would amount to recording of satisfaction requisite under t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....egally unsustainable as the satisfaction of the Assessing Officer regarding concealment of income or furnishing inaccurate particulars of income is not discernible from the assessment order in terms of section 271(1B) of the Act. He further submitted, penalty imposed is also not valid as in in the show cause notice issued under section 271 r.w.s 274 the Assessing Officer has not specified whether imposition of penalty is for concealment of particulars of income or furnishing inaccurate particulars of income. The learned Authorised Representative submitted, even in the penalty order itself Assessing Officer was not sure whether penalty is imposable under section 271(1)(c) of the Act for concealment of income or furnishing inaccurate particulars of income. In this context he drew our attention to the finding of the Assessing Officer in the penalty order. The learned Authorised Representative submitted even otherwise also the disallowance of proportionate interest on borrowed capital is on notional basis by presuming that the entire borrowed fund was not utilized for the purpose of construction. The learned Authorised Representative submitted only because the assessee has agreed for s....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the facts on record clearly prove furnishing inaccurate particulars of income by assessee, provisions of section 271(1)(c) is clearly attracted. 7. We have considered the submissions of the parties and perused the materials on record as well as the orders of the Revenue authorities. We have also applied our mind to the decision relied upon by the parties. In so far as the contention of the learned Authorised Representative that the satisfaction of the Assessing Officer while initiating penalty proceedings under section 271(1)(c) in the assessment order is not in accordance with the provisions of section 271(1B) is concerned, we are unable to accept it. As can be seen, Assessing Officer while making proportionate disallowance has observed that though, the assessee out of her own accord has made similar disallowance in assessment year 2009-10 as also agreed for similar disallowance in assessment year 2006-07, but has not disallowed proportionate interests in the assessment year under consideration. Further, Assessing Officer has also made addition of Rs. 15,60,000 under section 68 of the Act as assessee could not explain the source of such investment with supporting evidence. There....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ding a printed form 'here all the grounds 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 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 satisfactio....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ion 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 of inaccurate particulars of income. The standard proforma without striking of the relevant clauses will lead to an inference as to non-application of mind." 8. As could be seen, the Hon'ble Karnataka High Court (supra), in very clear terms held that unless show cause notice is clear as to whether the penalty proposed to be imposed is for concealment of particulars of income or for furnishing of inaccurate particulars of income no penalty can be imposed under section 271(1)(c) as the notice issued is defective. The Hon'ble High Court held that in absence of clarity in the show cause notice, the assessee could not be expected to furnish his explanation in an effective manner. The ratio laid down by the Hon'ble Karnataka High Court (supra) clearly apply to the facts of the present case. On a perusal of the show cause notice issued under section 271 read with section 274, it is manifest Assessing Officer has not specified whether the penalty proposed to be imposed und....