TaxTMI 
TaxTMI 
2017 (1) TMI 997
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....ded during survey. The same has been reproduced in the assessment order as well as penalty order as Annexure-II. As per the said document the assessee had transferred eight shops and one office at market value of Rs. 1,05,03,400/- to the two retiring partners, whereas in the books of account an amount of Rs. 35,03,400/- was recorded in respect of aforesaid transactions. During the course of assessment proceedings the assessee explained that the total sale consideration as per market value is Rs. 1,05,03,400/-, value disclosed in the books of account is Rs. 47,80,000/-. The assessee treated the difference between the amount declared in books and market value i.e. Rs. 57,23,400/- as goodwill. The assessee has written off 1/5th of the said goodwill i.e. Rs. 11,44,680/- in the profit and loss account and carried the balance to the Balance Sheet. The Assessing Officer while finalizing the assessment, apart from other additions/disallowances, added back the goodwill written off and also initiated penalty proceedings u/s. 271(1)(c) of the Act. In first appeal, the Commissioner of Income Tax (Appeals) upheld the addition in respect of goodwill written off. The matter travelled up to the Tr....
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....tice u/s. 274 r.w.s. 271(1)(c) on 29-12-2009 the Assessing Officer issued notice for concealment of income and/or furnishing inaccurate particulars of income. If the notice was issued for one of the above said two charges then irrelevant parts in the proforma notice was not struck of. In first appeal, the Commissioner of Income Tax (Appeals) confirmed the levy of penalty u/s. 271(1)(c) for furnishing of inaccurate particulars of income. There is no consistency in the assessment order, notice issued u/s. 274 r.w.s. 271(1)(c), order levying penalty u/s. 271(1)(c) and the order of Commissioner of Income Tax (Appeals) with respect to charge for levy of penalty. It is not clear whether the penalty is levied for concealment of income or furnishing of inaccurate particulars of income or both. Therefore, the penalty proceedings are liable to be set aside. In support of his submissions the ld. AR placed reliance on the recent decision of Pune Bench of the Tribunal in the case of Kanhaiyalal D. Jain Vs. The Asstt. Commissioner of Income Tax in ITA Nos. 1201 to 1205/PN/2014 for the assessment years 2003-04 to 2007-08 decided on 30-11-2016. 4. Per contra Shri Suhas S. Kulkarni representing th....
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.... paragraph 4 of the assessment order concluded as under : "As the fair market value of the goods transferred is much more than the value shown in the return of income, therefore this amount is taxable in the hands of the firm as has been done by the assessee. However, the assessee is not entitled to any deduction on a/c of goodwill as discussed above. It may be mentioned that during the survey, the assessee had taken a plea that the amount will be disclosed by partners as per provision of section 28(V). However none of the partners disclosed his amount in their individual return but have 'preferred to disclose this amount in firm. The goodwill debited of Rs. 11,44,680/- is added. Penalty proceedings are initiated u/s. 271(1)(c) for filing wrong particulars of income." A further perusal of the assessment order shows that the Assessing Officer while concluding the assessment observed as under: "Give credit for prepaid taxes. Issue D.N/Challan/R.O. accordingly after verification of prepaid taxes. Charge interest u/s. 234A, 234B and 234C as applicable. Issue show cause notice u/s. 274 r.w.s. 271(1)(c) as the assessee has concealed income/furnished inaccurate particulars of inco....
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....income and thereby concealing particulars of income to the tune of Rs. 11,44,680/-. Therefore, a minimum penalty of Rs. 3,85,300/- (Rs. Three lakhs eighty five thousand three hundred only) is hereby levied to the assessee. U/s. 271(1)(c) of the Act, being 100% of the tax sought to be evaded." 10. When the assessee carried the matter in appeal before the Commissioner of Income Tax (Appeals), the Commissioner of Income Tax (Appeals) confirmed the levy of penalty u/s. 271(1)(c) for furnishing inaccurate particulars of income. It is an undisputed fact that the addition with respect to disallowances of goodwill written off has been confirmed by the Tribunal. It is a well settled law that penalty proceedings and assessment proceedings are separate and independent. Merely, because the addition is confirmed ipso facto would not mean that addition would result in levy of penalty. 11. The penalty proceedings u/s. 271(1)(c) can be initiated only when the conditions laid down under the section for levy of penalty are satisfied. Penalty u/s. 271(1)(c) can be levied for concealment of income or furnishing inaccurate particulars of income or both. 'Concealment of income' and 'furnishing of ina....
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....quirement of law. The assessee should know the grounds which he has to meet specifically. Otherwise, the principles of natural justice are offended. No penalty could be imposed on the assessee on the basis of such proceedings. The relevant extract of the judgment of Hon'ble Karnataka High Court reads as under : "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, they could conveniently refer to the said order which contains the satisfaction of the authority which has passed the order. However, if the existence of the conditions could not be discerned from the said order and if it is a case of relying on deeming provision contained in Explanation-1 or in Explanation-1(B), then though penalty proceedings are in the nature of civil liability, in fact, it is penal in nature. In either event, the person who is accused of the conditions mentioned in Section 271 should be made known about the grounds on which they inte....
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....ound, 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 penalty proceedings once he is satisfied in the course of any proceedings that there is concealment of income or furnishing of inaccurate particulars of total income under clause (c). Concealment, furnishing inaccurate particulars of income are different. Thus the Assessing Officer while issuing notice has to come to the conclusion that whether is it a case of concealment of income or is it a case of furnishing of inaccurate particulars. The Apex Court in the case of Ashok Pai reported in 292 ITR 11 at page 19 has held that concealment of income and furnishi....
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.... the Assessing Officer should have recorded the satisfaction accordingly and issued the notice accordingly. 24. We find no merit on the partial reliance placed upon by the learned Departmental Representative for the Revenue on the decision of Jurisdictional High Court in CIT Vs. Smt. Kaushalya (supra). The Hon'ble High Court has clearly laid down the proposition that the Assessing Officer has to make the assessee fully aware of exact charge of the Department against him. As pointed out, in present case, in the assessment order itself while recording satisfaction for initiating proceedings under section 271(1)(c) of the Act, exact charge of the Department against the assessee is not clear. The Assessing Officer records the satisfaction for initiating penalty proceedings on both the counts i.e. concealment of income and furnishing of inaccurate particulars of income. The Hon'ble Bombay High Court had also upheld the quashing of penalty proceedings for assessment year 1967-68 to be justified on account of vagueness and ambiguity in the notice issued. But the Hon'ble High Court further held that where the assessee was fully aware of exact charge of the Department against him, then te....