TaxTMI 
TaxTMI 
2017 (3) TMI 132
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....ppellant. (b) The learned Commissioner of Income Tax (Appeals) failed to appreciate the fact that there was no clarity at the time of initiation of the penalty proceedings as to relevant clause under which the penalty proceedings are initiated/applicable and hence the penalty order is void. (c) The appellant prays that the penalty order passed u/s 271(1)(c) be annulled/cancelled as void ab-initio. 2. (a) On merits, the learned Commissioner of Income Tax (Appeals) has erred in confirming the penalty levied on the appellant. (b) The learned Commissioner of Income Tax (Appeals) has failed to appreciate the fact that there was a genuine error and the income was inadvertently omitted to be considered in the computation and the appellant had filed the revised computation of income and paid the taxes with interest as applicable and there was no intent on the part of the appellant to furnish conceal income or furnish inaccurate particulars of his income as contemplated under section 271 (l)( c) of the Income Tax Act, 1961. (c) The appellant prays that the penalty levied u/s 271(l)(c) be deleted." 3. The brief facts of the case are that assessment in the case of the assess....
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....ssessee was asked to explain whether he has shown capital gains in respect of the above redemption in his return of income filed with the Revenue or not. In reply, the assessee submitted as under:- "Redemption of Mutual Funds: Since I had not maintained books of accounts, the capital gains on redemption of Mutual Funds had escaped the working while finalizing my income tax return. The said capital gains can be added to my income and I will pay the appropriate tax on the same. As regards non disclosure of income, I would like to state that I am an honest assessee and the above mistake is only due to over sight and non maintenance of books of accounts. I would also like to draw your attention to the professional fees offered for tax. The entire income has been offered for tax and no expenses have been claimed against the same which also explains my intention is never to conceal income or not pay appropriate taxes." The assessee had filed revised computation of income vide letter dated 18.02.2014 offering Rs. 12,23,642/- under the head 'Short Term Capital Gains'. After considering assessee's explanation, the short term capital gain of Rs. 12,23,642/- was added by ....
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.... confirmed the order dated 26-08-2014 passed by the A.O. u/s 271(1)(c) of the Act levying penalty of Rs. 3,13,000/- against the assessee. The ld. CIT(A) relied upon several case laws as detailed in the appellate order dated 05-02-2016 and observed that the assessee has concealed income by way of furnishing of inaccurate particulars of income and the assessee failed to offer any cogent explanation in support of his claim. The assessee's argument that the mistake is only due to oversight for non-maintenance of books of accounts was rejected by learned CIT(A) and learned CIT(A) observed that the assessee only offered said income when specifically confronted by the AO wherein the assessee only filed revised computation of income before the AO during assessment proceedings and not even filed revised return of income. Thus, the ld. CIT(A) held vide appellate orders dated 05-02-2016 that the assessee's case falls within the ambit of section 271(1)(c) of the Act and the A.O. was right in levying penalty of Rs. 3,13,000/- u/s 271(1)(c) of the Act. 5. Aggrieved by the appellate order dated 05-02-2016 passed by the ld. CIT(A), the assessee is in appeal before the tribunal. 6. The ld. Co....
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....ssessee to conceal said income from the Revenue with an intention to evade taxes. When the mistake was brought to the assessee's knowledge by the AO during the course of assessment proceedings u/s 143(3) of the Act read with Section 143(2) of the Act , the assessee immediately filed revised computation of income and paid due taxes to the Revenue with interest. He submitted that the assessee being a salaried employee, this mistake was inadvertent and not willful and rather it was an error which occurred inadvertently. Thus, it is submitted that there is no application of mind by the A.O. before issuing notice dated 20-02-2014 u/s 274 r.w.s. 271(1)(c) of the Act in an mechanical manner without application of mind. Our attention was also drawn to the order of ITAT, Kolkata bench in the case of Chandra Prakash Bubna v. ITO reported in [2015] 64 taxmann.com 155 and submitted that the assessee being an honest taxpayer and the mistake had inadvertently crept in the return of income which was immediately rectified once the AO brought the same to the notice of the assessee wherein the assessee filed revised computation of income during the course of assessment proceedings and paid the due t....
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.... professional income of Rs. 2,73,75,000/- from abroad in a single shot payment and it was claimed that no expenses had been incurred against this professional income. The assessee got tax-audit conducted by a qualified chartered accountant as prescribed u/s 44AB of the Act w.r.t. professional receipts. The case was selected for scrutiny by Revenue for framing assessment u/s 143(3) of the Act. The A.O. during course of assessment proceedings u/s 143(3) read with Section 143(2) of the Act observed that the assessee has not disclosed income on account of Directors sitting fee of Rs. 4 lacs and Short term capital gain of Rs. 12,23,642/- earned by the assessee during the previous year relevant to the impugned assessment year in the return of income filed with the Revenue and on being cornered and confronted by the Revenue , the assessee had admitted having earned the said income(s) by filing revised computation of income during the course of assessment proceedings . On being asked the assessee stated before the AO that inadvertently due to mistake the said income(s) were not disclosed in the return of income filed with the Revenue. The assessee also submitted that one of the reasons for....
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....e as well capital gains on redemption of Mutual Fund in the declaration of income in the return of income filed with the Revenue. It is only when the assessee was cornered and confronted by the A.O., the assessee came forward with the revised computation of income and paid due taxes to the Revenue. This, in our considered view in the instant appeal based on facts and circumstances of the case is not a reasonable and bonafide cause for non-declaration of income in the return of income filed with the revenue to get out of rigors of Section 271(1)(c) of the Act, keeping in view peculiar facts and circumstances of the case. The assessee had also raised a legal ground that no specific charge has been framed by the Revenue against the assessee while initiating penalty proceedings u/s 271(1)(c) of the Act r.w.s. 274 of the Act as to whether the assessee did concealed the particulars of income or furnished in-accurate particulars of income and in the absence thereof, the penalty proceedings, in the opinion of the assessee are not sustainable in law. We have gone through notice dated 20-02-2014 issued by the AO u/s 274 read with Section 271(1)(c) of the Act which is reproduced hereunder ....
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....hows application of mind by the AO , wherein the AO recorded as under : "5.... *** *** The assessee has vide letter dated 18.02.2014 filed revised computation of income offering Rs. 4,00,000/- as director's sitting fees. The explanation submitted by the assessee is considered . It is noted that the assessee has made disclosure of income of Rs. 4,00,000/- only after the assessee was asked to explain the same. The assessee did not pointed out voluntarily after receipt of statutory notice u/s 143(3) which was issued after one year of filing of return of income. Even after that when the case was under hearing, the assessee did not offer the income of Rs. 4,00,000/- being director's sitting fees unless he was specifically asked to explain the same. It is , therefore evident from the conduct of the assessee that he was trying to evade the income to the extent of Rs. 4,00,000/-. Considering these facts, income of Rs. 4,00,000/- is assessed under the head income from business. Considering these facts, I am satisfied that the assessee has concealed his income by furnishing inaccurate particulars of income to the extent of Rs. 4,00,000/- and thus penalty proceedings u/s 271(1)(c)....
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....Court in the case of Ram Commercials has held that such a note alone in the assessment order does not satisfy the requirement of assuming jurisdiction in law in respect of the initiation of penalty proceedings. The satisfaction should be in the assessment order. The said view was also approved by the full Bench of the Delhi High Court in the case of CIT v. Rampur Engg. [2009] 309 ITR 143/176 Taxman 211. The said view has been approved by the Apex Court in the case of Dilip N. Shroff (supra). That is the view the courts have consistently taken. After taking note of the judicial pronouncements in this regard, the Legislature thought it fit to insert Section 271(1)(B), which reads as under: "271.(1)(B) Where any amount is added or disallowed in computing the total income or loss of an assessee in any order of assessment or reassessment and the said order contains a direction for initiation of penalty proceedings under clause (c) of sub-Section (1), such an order of assessment or reassessment shall be deemed to constitute satisfaction of the Assessing Officer for initiation of the penalty proceedings under the said clause (c)." 49. By the aforesaid deeming provision a legal....
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....Assessing Officer before initiation of penalty proceedings is a must. The satisfaction should be that he has concealed particulars of his income or furnished inaccurate particular of such income and even in the absence of those expressed words or findings recorded in the Assessment proceedings, if a direction as aforesaid is mentioned, it constitutes satisfaction of the Assessing Officer. DIRECTION 50. A reading of Section clearly indicates that the assessment order should contain a direction for initiation of penalty proceedings. The meaning of the word direction is of importance. Merely saying that penalty proceedings are being initiated will not satisfy the requirement. The direction to initiate proceedings should be clear and not be ambiguous. It is well settled law that fiscal statutes are to be construed strictly and more so the deeming provisions by way of legal fiction are to be construed more strictly. They have to be interpreted only for the said issue for which it has deemed and the manner in which the deeming has been contemplated to be restricted in the manner sought to be deemed. As the words used in the legal fiction or the deeming provisions of Section 271(1B)....
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....do not disclose the facts set out in Explanation 1, they are not entitled to the benefit of deeming provision contained in provision (1)(B). The said deeming provision is confined only to the Assessing Officer. 53. From these discussion, it is clear that condition precedent for initiation of penalty proceedings under Section 271(l)(c) is existence of condition referred to in the said section. The person initiating penalty proceedings should be satisfied about the existence of said conditions which should be reflected in the assessment orders passed by them. In a given case, after appreciating the entire records, the Officer passing the order may categorically state that he is satisfied that the assessee has concealed income. Once such a finding is recorded that is sufficient to initiate penalty proceedings. Assuming such a categorical finding is not recorded in the order, at least, he has to record facts as contemplated in Explanation 1. If these facts are discernible from the assessment order, the deeming clause in Explanation 1 is attracted and the income is deemed to have been concealed. That gives the jurisdiction to the Officer passing the order to initiate the penalty proc....
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....y by way of penalty". The authority in which proceedings, there is satisfaction of concealment or furnishing inaccurate particulars of income alone can levy the penalty and not any other authority. If the Commissioner (Appeals) in the course of appeal proceedings is satisfied then it is the Commissioner (Appeals) who have to initiate the penalty proceedings and also complete the same by levying the penalty. He cannot permit the assessing authority to levy penalty. 56. Provisions of Section 274(3) makes it clear that if an authority other than the Assessing Officer passes an order under Chapter XXI which deals with matters of penalties then such authority has to forthwith send the copy of the order to the Assessing Officer. This fortifies that it is the authority who is satisfied in the course of the proceedings before it has the jurisdiction to initiate and levy of penalty. The Allahabad High Court in the case of Motilal Shamsundar v. CIT [1972] 84 ITR 186 held that when the amounts were discovered in the course of appellate proceedings before him, it was discovered by him. It was for him then to impose the penalty. If he was satisfied that the assessee had concealed the particu....
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....ied is paid with interest, if the assessee is able to demonstrate his bona fides and if the authority is satisfied about his bonafides, then the question of imposing penalty would not arise. Similarly, in cases where though the tax was not actually due but still the assessee pays tax with a hope of claiming deductions in the subsequent years, if the assessee is able to demonstrate there was no liability to pay tax at all, merely if assessee pays tax and he does not challenge order, that would not constitute concealment of income so as to enable the authorities to impose penalty. Similarly, in cases, where the legal position is not well settled, when few High Courts and Tribunals have taken a view in favour of the assessee and some High Courts and Tribunals have taken a view in favour of the Revenue and on legal advice if an assessee relies on the said legal position for not disclosing the income and for non-payment of tax, certainly, that is a fact which should weigh in the penalty proceedings after the assesee has paid tax with interest before imposing penalty. NOTICE UNDER SECTION 274 59. As the provision stands, the penalty proceedings can be initiated on various ground se....
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.... 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 authority imposing the penalty at the time the ....
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....edings can only be limited to the issue of penalty, so that validity of the assessment or reassessment in pursuance of which penalty is levied, cannot be the subject matter in penalty proceedings. It is not possible to give a finding that the reassessment is invalid in such penalty proceedings. Clearly, there is no identity between the assessment proceedings and the penalty proceedings. The latter are separate proceedings that may, in some cases, follow as a consequence of the assessment proceedings. Though it is usual for the Assessing Officer to record in the assessment order that penalty proceedings are being initiated, this is more a matter of convenience than of legal requirement. All that the law requires, so far as the penalty proceedings are concerned, is that they should be initiated in the course of the proceedings for assessment. It is sufficient, if there is some record somewhere, even apart from the assessment order itself, that the Assessing Officer has recorded his satisfaction that the assessee is guilty of concealment or other default for which penalty action is called for. Indeed, in certain cases, it is possible for the Assessing Officer to issue a penalty notice....
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....ent order. (l) Only when no explanation is offered or the explanation offered is found to be false or when the assessee fails to prove that the explanation offered is not bonafide, an order imposing penalty could be passed. (m) If the explanation offered, even though not substantiated by the assessee, but is found to be bonafide and all facts relating to the same and material to the computation of his total income have been disclosed by him, no penalty could be imposed. (n) The direction referred to in Explanation IB to Section 271 of the Act should be clear and without any ambiguity. (o) If the Assessing Officer has not recorded any satisfaction or has not issued any direction to initiate penalty proceedings, in appeal, if the appellate authority records satisfaction, then the penalty proceedings have to be initiated by the appellate authority and not the Assessing Authority. (p) Notice under Section 274 of the Act should specifically state the grounds mentioned in Section 271(l)(c), i.e., whether it is for concealment of income or for furnishing of incorrect particulars of income (q) Sending printed form where all the ground mentioned in Section 271 are mentione....
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....notice simply stated as under: "I am satisfied that this is a fit case where provisions of Section 271(1)(c) of the Income Tax Act are clearly attract". While in the instant appeal the AO has issued notice u/s. 274 read with Section 271(1)(c) of the Act dated 20-02-2014 wherein the AO recorded as under: "Whereas in the course of proceedings before me for the assessment year 2011-12, it appears that you have concealed the particulars of your income or furnished inaccurate particulars of such income." In the instant appeal , the AO has recorded satisfaction in detail in the assessment order dated 20-02-2014 before invoking penalty provisions u/s 271(1)(c) of the Act by recording as under:- "5.... *** *** The assessee has vide letter dated 18.02.2014 filed revised computation of income offering Rs. 4,00,000/- as director's sitting fees. The explanation submitted by the assessee is considered . It is noted that the assessee has made disclosure of income of Rs. 4,00,000/- only after the assessee was asked to explain the same. The assessee did not pointed out voluntarily after receipt of statutory notice u/s 143(3) which was issued after one year of filing of retu....
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....the income earned by way of Director Sitting Fee of Rs. 4,00,000/- and short term capital gains on redemption of HDFC Mutual Funds to the tune of Rs. 12,23,642/- in the return of income filed by the assessee with the Revenue, to which the assessee admitted and immediately after being confronted by Revenue filed revised computation of income and paid due taxes to the Revenue. By no stretch of imagination it can be held that the assessee was not aware of the charge as framed by the AO in the assessment order dated 20-02-2014 framed u/s 143(3) of the Act with which he was burdened for initiating penalty proceedings u/s 271(1)(c) of the Act. We have also observed that in the order dated 26-08-2014 passed by the AO u/s 271(1)(c) of the Act levying penalty on the assessee , the AO after considering the explanation of the assessee has clearly recorded the charge on which penalty had been levied on the assessee u/s 271(1)(c) of the Act, by holding as under : " 5. The assessee's submission has been considered , but the same is not found acceptable. The assessee has not furnished any concrete evidence either during assessment proceedings or penalty proceedings, which establish that there ....