TaxTMI 
TaxTMI 
2017 (2) TMI 219
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....appeal against the quantum proceedings is pending before the Hon'ble ITAT, and penalty proceedings may be kept in abeyance and thereby construing that the assessee does not have any explanation regarding the addition made in the quantum order. 2. On the facts and in the circumstances of the case and in law, the Learned Assessing Officer has erred in levying a penalty of Rs. 18,81,903/- u/s 271 (1)(c) of the Income Tax Act, 1961 which was reduced by Learned CIT to the tune of Rs. 12,82,190/- for the addition made by Learned Assessing Officer which are highly debatable and arising out of surmises and guess work and are not supported by any cogent evidences, and therefore, entire penalty needs to be struck down. 3. On the facts and in the circumstances of the case and in law, the Learned Assessing Officer has erred in levying a penalty u/s 271 (1)(c) of the Income Tax Act, 1961 without recording any satisfaction regarding furnishing of inaccurate particulars of income or concealment of income, rather penalty is levied for both the alleged defaults. 4. On the facts and in the circumstances of the case and in law, the Learned Assessing Officer has erred in levying a penalty....
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....interest claimed pertaining to house loan - Rs.11,94,186/- 6. Out of telephone expenses - Rs. 6,000/- 7. Out of vehicle expenses - Rs.1,98,852/- 8. On a/c of construction account - Rs.12,00,000/- 9. Out of HUF income and Loan from HUF - Rs.5,24,726/- 10. U/s 69 Smt. Sarita and Seema Jadhwani - Rs.2,14,730/- 11 U/s 145(3) - Rs.11,71,337/- 12. U/s 44AE - Rs. 80,720/- 8. The Assessing Officer while making individual disallowances has observed that penalty proceedings under section 271(1)(c) of the Income Tax Act, 1961 are separately initiated. Such observation is made individually in respect of each of the disallowance made in the hands of assessee. While concluding the assessment, the Assessing Officer directs issue notice under section 274 r.w.s. 271(1)(c) of the Income Tax Act, 1961. Thereafter, order was passed under section 274 r.w.s. 271(1)(c) of the Act, wherein the Assessing Officer took note that the addition in respect of five of the items was upheld by the CIT(A) after giving effect to the order of CIT(A). A notice was issued to the assessee to show cause as to why penalty....
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....alty proceedings under section 271(1)(c) of the Act during the course of assessment proceedings arose before the Tribunal in Kanhaiyalal D. Jain Vs. ACIT (supra), wherein it was held as under:- "13. We have heard the rival contentions and perused the record. The issue arising in the present bunch of appeals is jurisdictional issue of levy of penalty under section 271(1)(c) of the Act. The requirement of section is that where the Assessing Officer or the Commissioner of Appeals or the Principal Commissioner or Commissioner, in the course of any proceedings under the Act, is satisfied that any person has concealed the particulars of his income or furnished inaccurate particulars of such income, then he may direct that such person shall pay by way of penalty the amounts as specified in sub-clause (iii) which would be in addition to tax, if any, payable by the said person. The section thus requires the concerned Officer to record satisfaction in the course of any proceedings under the Act, that the person has concealed the particulars of his income or furnished inaccurate particulars of his income. After recording the satisfaction, during the course of penalty proceedings also, the ....
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....nalty be held to be valid?. The Hon'ble Karnataka High Court in CIT & Anr. Vs. Manjunatha Cotton and Ginning Factory (supra) had dealt upon the issue of notice under section 274 of the Act for the purpose of levying penalty for concealment and observed 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 intend imposing penalty on him as the Section....
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....n 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 [2007] 292 ITR 11 (SC) at page 19 has held that concealment of income and furnishing inaccurate particula....
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....nitiated The Hon'ble High Court had relied on decision of Division Bench of the Court rendered in CIT & Anr. Vs. Manjunatha Cotton and Ginning Factory (supra). The Hon'ble Supreme Court in CIT Vs. SSA'S Emerald Meadows (supra) has dismissed the Special Leave Petition. 17. The Pune Bench of Tribunal in M/s. Sai Venkata Construction Vs. Addl. CIT (supra) and in Sanjog Tarachand Lodha Vs. ITO (supra) have applied the ratio laid down by the Hon'ble Karnataka High Court (supra) and held that where there is no striking off of either of limbs, then notice issued under section 274 r.w.s. 271(1)(c) of the Act was invalid and subsequent penalty proceedings were held to be vitiated. 18. The Mumbai Bench of Tribunal in Sanghavi Savla Commodity Brokers P. Ltd. Vs. ACIT in ITA No.1746/Mum/2011, relating to assessment year 2007 -08, order dated 22.12.2015 while deciding similar issue, wherein the Assessing Officer had initiated penalty proceedings for concealment of particulars of income without striking inappropriate words or any parts of notice and proceeded to levy penalty for concealment, then following the ratio laid down by the Hon'ble Karnataka High Court, the Tribunal held that noti....
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....tion in the matter and no one aspect would be decisive. 21. In respect of assessment year 1967-68, the Hon'ble High Court in CIT Vs. Smt. Kaushalya (supra) acknowledged that there could exist a case where vagueness and ambiguity in the notice could demonstrate non-application of mind by the authority and / or ultimate prejudice to the right of opportunity of hearing contemplated under section 274 of the Act. The show cause notice for assessment year 1967-68 was issued even before the assessment order was made and where the assessee had no knowledge of exact charge of Department against him as in the notice not only there was use of word 'or' between the group of cases but there was use of word 'deliberately' also. The Hon'ble High Court held that notice clearly demonstrated non-application of mind on the part of Assessing Officer. The vagueness and ambiguity in the notice had also prejudiced the right of reasonable opportunity to the assessee since he did not know of exact charges he had to face. In this background, quashing of penalty proceedings for assessment year 1967-68 was held to be justified. Applying the said principle laid down by the Jurisdictional High Court, applica....
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....eference to both the limbs i.e. concealment of income and furnishing of inaccurate particulars of income and in the final, levies penalty for concealment of income. 23. However, the question which is raised before us by way of additional ground of appeal is root of start of the proceedings i.e. recording of satisfaction and the issue of notice, which has been challenged by the assessee to be invalid. Applying the ratio laid down by the Hon'ble Karnataka High Court in CIT & Anr. Vs. Manjunath Cotton and Ginning Factory (supra) and CIT Vs. SSA'S Emerald Meadows (supra) and in view of SLP being dismissed, we find merit in the plea of assessee that the satisfaction recorded in the present case to initiate penalty proceedings both for concealment of income and furnishing of particulars of income against additional income offered by the assessee is incorrect. Further, where the assessee is not aware of exact charge against him, the ambiguity in the notice issued under section 274 r.w.s. 271(1)(c) of the Act by not striking of portion which is not applicable, prejudice the right of reasonable opportunity to the assessee, as he was not made aware of exact charge he had to face. It is a ....
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....ealment refers to a deliberate act on the part of the assessee. A mere omission or negligence would not constitute a deliberate act of suppression very or suggestion falsi." 26. Where concealment of income and furnishing of inaccurate particulars of income are two different connotations, then as per provisions of the Act, the satisfaction has to be recorded by the Assessing Officer before initiating penalty proceedings as to under which limb the case of assessee falls. In the present set of facts, the satisfaction as recorded by the Assessing Officer which is evident from the assessment order itself does not establish the case of Revenue against the assessee that it is liable for levy of penalty for concealment under which limb i.e. for concealment of income or for furnishing of inaccurate particulars of income. The notice issued under section 274 of the Act by the Assessing Officer also does not show cause the assessee as to make him aware of exact charge levied against him. In the absence of same, it causes prejudice to the right of reasonable opportunity to be allowed to the assessee before levy of penalty under section 271(1)(c) of the Act. Consequently, penalty notice issue....