TaxTMI 
TaxTMI 
2017 (1) TMI 1256
X X X X Extracts X X X X
X X X X Extracts X X X X
....ut that in view of Rule 29 of ITAT Rules, all the assessee in the appeals listed for hearing want to plead that the satisfaction recorded by the Assessing Officer while initiating penalty proceedings under section 271(1)(c) of the Act is not correct since the penalty proceedings have been initiated for both the limbs of section i.e. for concealment of income and for furnishing inaccurate particulars of income. Nanasaheb Shankarrao Gaikwad ITA Nos.2095/PUN/2013 to 2098/PUN/2013 Assessment Years: 2004-05 to 2007-08 4. The issue arising in the present bunch of appeals is against levy of penalty under section 271(1)(c) of the Act. 5. The learned Authorized Representative for the assessee in this regard pointed out that the assessee had declared additional income pursuant to the search on the premises of assessee which was added as additional income in the return of income and thereafter, penalty under section 271(1)(c) of the Act was levied. The first objection raised by the learned Authorized Representative for the assessee was as to whether Explanation 5A to section 271(1)(c) of the Act is attracted. The second limb of objection of the learned Authorized Representative....
X X X X Extracts X X X X
X X X X Extracts X X X X
....of the Act be initiated. Such was the order passed by the Assessing Officer under section 143(3) of the Act in assessment year 2004- 05. Similar observations have been made by the Assessing Officer in assessment years 2005-06 to 2007-08. The case of the assessee before us is in the absence of satisfaction being recorded as to which limb of section 271(1)(c) of the Act is satisfied, then such satisfaction recorded by the Assessing Officer to initiate penalty proceedings both for concealment of income and furnishing of inaccurate particulars of income against the additional income offered by the assessee is incorrect. It is further contended that where the assessee is not aware of exact charge against him, the ambiguity in the notice issued, thereafter without striking off of inapplicable portion, it prejudices the right of reasonable opportunity allowed to the assessee to meet the case of Revenue, in the absence of exact charge he had to face. In the facts of the present case, where the additional income was offered pursuant to search, it was clear-cut case of concealment of income and the Assessing Officer should have recorded satisfaction accordingly and issued notice. The Assessi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ns of section 271(1)(c) of the Act is the satisfaction to be recorded by the Assessing Officer, which admittedly, has to be during the course of assessment proceedings. So, where the assessment proceedings are pending, then the Assessing Officer has to apply his mind and on being satisfied, he has to give a finding that the assessee before him has either concealed the particulars of income or furnished inaccurate particulars of income in respect of the issue before him. Thereafter, the notice should be issued to such person by the concerned Officer, wherein it should be clear that the assessee has to justify its case either for concealment of income or furnishing of inaccurate particulars of income. There may be cases where there is issue of both concealment of income and furnishing of inaccurate particulars of income, based on the nature of additions, then in such cases, satisfaction and notice thereon should specify exact charge against the assessee. The charge has to be further specified while completing penalty proceedings and the Assessing Officer has to come to a conclusion as to whether it is case of concealment of income or furnishing of inaccurate particulars of income. Th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ome 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 satisfaction of the existence of the grounds 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 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....of the Act. It has been categorically held that concealment of income and furnishing of inaccurate particulars of income are different. The Hon'ble High Court has thus, laid down that the Assessing Officer while issuing notice has to come to conclusion that whether it is case of concealment of income or case of furnishing of inaccurate particulars of income. The reliance in this regard was placed on the ratio laid down by the Hon'ble Supreme Court in T. Ashok Pai Vs. CIT (2007) 292 ITR 11 (SC), wherein at page 19 it was held that concealment of income and furnishing inaccurate particulars of income carry different connotation. Applying the said proposition, it was held that where the Assessing Officer proposes to invoke the first limb being concealment, then the notice has to be appropriately marked. Similarly, for furnishing inaccurate particulars of income, the standard proforma without striking of relevant clauses, as per the Hon'ble High Court would lead to inference as to non-application of mind. 16. Further, the Hon'ble Karnataka High Court in CIT Vs. SSA'S Emerald Meadows (supra) has dismissed the appeal of Revenue, where the Tribunal had allowed the appeal of assessee ho....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... heavy reliance on the ratio laid down by the Hon'ble Bombay High Court in CIT Vs. Smt. Kaushalya (supra). In the facts of the case before the Hon'ble Bombay High Court, the Hon'ble High Court quashed the penalty levied for assessment year 1967-68 as the same was imposed without affording reasonable opportunity of hearing to the assessee. In respect of other two years where there was non-striking of inaccurate portion, the Hon'ble High Court held that the same would not invalidate the notice issued under section 274 of the Act. It was further held that the assessment orders were also made and reasons for issuing notice under section 274 r.w.s. 271(1)(c) of the Act were recorded by the Assessing Officer and since the assessee fully knew in detail the exact charge of Department against him, it could not be said that either there was non-application of mind by the ITO or so-called ambiguity wording in the notice impaired or prejudiced the right of assessee of reasonable opportunity of being heard. The jurisdictional High Court deliberated upon the provisions of section 274 of the Act which contained principle of natural justice of the assessee being heard before levying penalty. It al....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d during the course of search. Admittedly, Explanation 5A to secti on 271(1)(c) of the Act is attracted in such cases. However, the case of assessee before us is that the Assessing Officer while completing the assessment proceedings had to be satisfied that the assessee had either concealed the income or furnished inaccurate particulars of income and is liable to levy of penalty under section 271(1)(c) r.w.s. Explanation 5A of the Act. The notice is to be issued to the assessee under section 274 of the Act. Before issuing such notice, satisfaction has to come out from the proceedings going on before the Assessing Officer. The perusal of assessment order passed in the present case reflects that the Assessing Officer while initiating proceedings has recorded satisfaction as to the assessee has furnished inaccurate particulars of income and has also concealed the income. The only source of addition in the hands of assessee is additional income offered by the assessee pursuant to search operations. In such circumstances, it is categorically a case of concealment. However, the Assessing Officer refers to both the limbs of section 271(1)(c) of the Act and the satisfaction recorded in thi....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 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 technical non-striking of certain terms in the notice would not invalidate the proceedings. Where there is default in the first stage of making the assessee aware of exact charge of the Department, then initiation of penalty proceedings are vitiated and the same are to be quashed. The issue of notice under section 274 of the Act on such vagueness and ambiguity makes such notice invalid and proceedings thereafter are to be quashed. 25. The Hon'ble Supreme Court in T. Ashok Pai Vs. CIT (supra) had held as under:- "23. Section 271(1)(c) remains a penal statute. The rule of strict construction shall apply thereto. The ingredients for imposing penalty remain the same. The purpose of the Legislature that it is meant to be a deterrent to tax evasion is evidenced by the i....
X X X X Extracts X X X X
X X X X Extracts X X X X
....A) is that these are loans received from Bafna and are not on-money received on sale of plots, then in cases where penalty proceedings have been initiated on a different footing and the CIT(A) reverses the same and holds the same to be loans received by the assessee, there is change in opinion and basis for levy of penalty for concealment varies. In such circumstances, there is no merit in levy of penalty under section 271(1)(c) of the Act and there is no merit at all in levying the penalty @ 150%. Accordingly, we allow the claim of assessee even on merits. Thus, the grounds of appeal raised by the assessee and additional ground of appeal raised by the assessee are allowed." 9. Further, in bunch of cases i.e. in Nandkishor Tulsidas Katore Vs. ACIT in ITA Nos.2174 to 2180/PN/20 14, relating to assessment years 2002-03 to 2008-09, order dated 14.12.2016, reference was made to the judgment of Hon'ble High Court of Karnataka in CIT Vs. SSA'S Emerald Meadows (2016) 73 taxmann.com 241 (Kar), wherein the issues raised before the Hon'ble High Court were as under:- "(1) Whether, omission if Assessing Officer to explicitly mention that penalty proceedings are being initiated for furnis....
X X X X Extracts X X X X
X X X X Extracts X X X X
....hing of inaccurate particulars of income. Under the provisions of section 271(1)(c) of the Act, penalty for concealment is leviable where the assessee has fulfilled either conditions i.e. concealment of income or furnishing of inaccurate particulars of income. The Assessing Officer while initiating penalty proceedings has to be satisfied as to under which limb, the penalty is leviable and consequent thereto, issue notice in this regard. However, in the facts of the present case and as pointed out hereinabove, the Assessing Officer has failed to record satisfaction correctly and consequently, we hold that initiation of penalty proceedings against the assessee are not valid for non-recording of satisfaction by the Assessing Officer while completing assessment proceedings. Further, the Assessing Officer has failed to strike off either of the limbs of section 271(1)(c) of the Act, which are not satisfied by the assessee and consequently, notice issued under section 274 r.w.s. 271(1)(c) of the Act is bad in law and order levying penalty for concealment thereafter, is infructuous. Accordingly, we hold so. The Statute has provided distinction between concealment of income and furnishing o....
X X X X Extracts X X X X
X X X X Extracts X X X X
....essee and initiated penalty proceedings under section 271(1)(c) of the Act for furnishing inaccurate particulars and concealing the income. The Assessing Officer recorded satisfaction to that effect that unaccounted income was not shown by the assessee and consequently penalty proceedings were initiated for furnishing inaccurate particulars and concealing the income. The satisfaction recorded in the present case by the Assessing Officer is not correct and consequently, the issue arising in the present appeal is squarely covered by the ratio laid down in earlier bunch of appeals with lead order in Kanhaiyalal D. Jain Vs. ACIT (supra). We have already referred to the aforesaid decision in the paras hereinabove and following the same parity of reasoning, we hold that initiation of penalty proceedings against the assessee are not valid for non-recording of satisfaction by the Assessing Officer while completing assessment proceedings. Accordingly, the order levying penalty for concealment is held to be invalid. Kedar Nanasaheb Gaikwad ITA Nos.2091/PUN/2013 to 2094/PUN/2013 Assessment Years 2005-06 to 2008-09 15. We allow the plea of assessee in raising jurisdictional issue o....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ding the issue for assessment year 1968-69, had held that where the assessee was aware of the charge against him, merely because one of the limbs was not struck off would not vitiate the notice issued under section 274 of the Act. In the facts of the present case, the Assessing Officer had recorded satisfaction while completing assessment proceedings that the assessee had concealed its income and had issued the assessment order. Hence, the assessee was aware of exact charge against him and merely because one of the portions were not struck off in the notice issued under section 274 of the Act does not make the said notice as inappropriate. 18. Since it is the case of search carried out after 01.06.2007, then the provisions of Explanation 5A to section 271(1)(c) of the Act are attracted. Similar issue was decided by the Pune Bench of Tribunal in Mrs.Sarita Kaur Manjeet Singh Chopra Vs. ITO in ITA No.1562/PN/2013, relating to assessment year 2009-10, order dated 30.10.2015, wherein it was held as under:- "15. Now, coming to the issue that where the assessee had offered the income in the return of income filed after surrendering the additional income, can the assessee be held to....
X X X X Extracts X X X X
X X X X Extracts X X X X
....f money, bullion, jewellery, valuable articles or things, then in case he declared the same under the statement recorded under section 132(4) of the Act and thereafter, pays the taxes on the same, no penalty under section 271(1)(c) of the Act was levied on such person. 16. However, for searches initiated under section 132 of the Act on or after first day of June, 2007, another Explanation 5A was applicable, which was introduced by the Finance Act, 2007 w.e.f. 01.06.2007. The original Explanation 5A provided that where in the course of search, the assessee was found to be the owner of any money, bullion, jewellery, valuable articles or things and the assessee claims that such asset had been acquired by him by utilizing wholly or in part his income for any previous year or any income is based on any entry in books of account or other documents or transactions and he claims that the same represents his income for any previous year, then where the period has ended before the date of search and the due date for filing the return of income for such year has expired and the assessee has not filed the return of income, then notwithstanding that such income is declared by him in any retu....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... section 271(1)(c) of the Act, it is noted that the person is deemed to have concealed particulars of his income or furnished inaccurate particulars of such income, which is equivalent to the value of money, bullion, jewellery, valuable articles or things from the possession of the assessee during the course of search conducted on or after first day of June, 2007. Further, where any income is based on any entry in any books of account or other documents or transactions and he claims that all the above said represents his income for any previous year, then the Explanation lays down to that extent, the person would be deemed to have concealed his particulars of income or furnished inaccurate particulars of income. 18. Now, coming to the main provisions which constitute two portions i.e. what is concealment and quantum of penalty to be levied. The question is quantum of income on which penalty is to be levied. The said issue was before the Pune Bench of Tribunal in ACIT Vs. Mulay Construction P. Ltd. & Ors. in ITA Nos.116 to 119/PN/2012 & Ors. and it was held as under: - "16. The next limb of argument of the Ld. counsel is that Explanation 5A(ii) contemplates "income" and ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e by the Hon'ble' Supreme Court of sec. 2(24) of the Act, it is clear that it is an 'inclusive' definition and it covers all income come under charging provisions of the Act. If the argument of the learned counsel is to be accepted then no income can be taxed u/s. 68, 69, 69A, 69B, 69C & 69D. 18. It is necessary to refer to Explanation 5A which reads as under: "Explanation 5A - Where, in the course of a search initiated under section 132 on or before the 1st day of June 2007, the assessee is found to be the owner of (i) Any money, bullion, jeweler or other valuable article or thing (hereinafter in this Explanation referred to as assets) and the assessee claims that such assets have been acquired by him by utilizing (wholly or in part) his income for any previous year; or (ii) Any other income based on any entry in any books of account or other documents or transactions and he claims that such entry in the books of account or other documents or transactions represents his income (wholly or in part) for any previous year, which has ended before the date of search and (a) where the return of income for such previous year has be....
X X X X Extracts X X X X
X X X X Extracts X X X X
....is pertinent to note that sec. 69C provides that if any unrecorded expenditure is found and the assessee fails to explain the source of the said expenditure or explanation of the assessee is not satisfactory, then to the extent of the amount covered by such expenditure is treated as income. Ultimately what is taxed under Sec. 69 C of the Act is not the expenditure but it is basically the undisclosed income which has been applied for incurring the unrecorded expenditure. In our view, there is no merit in the argument of the Ld. Counsel that the assessee has only declared the amount expenditure. We therefore, hold that to the extent of the income offered by the assessee pertaining to the expenditure in the returns filed in response to notice u/s 153A, Explanation-5A is applicable and as there is a legal presumption against the assessee in respect of the said income detected during the course of search and seizure operation, the assessee case is squarely covered by Explanation- 5(ii) as the assessee himself has admitted the said undisclosed income." 19. Applying the said proposition to the facts of the present case, we hold that the income offered by the assessee pertaining to the ....