TaxTMI 
TaxTMI 
2017 (8) TMI 722
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....ch Rasesh Kanakia Chairman of Kanakia Group admitted that it had purchased bogus bills amounting to Rs. 1.85 crores, in his statement recorded u/s.132(4) of the Act on 24/05/2011 for the year under consideration. It was observed by AO that bogus bills were debited in the books of the assessee, that material whatsoever was received by it against accommodation bills, that it had inflated cost of construction of the project by debiting bogus bills in its accounts, that the cost of construction was carried forward as workin- progress(WIP) since the project was under development. As the books of account of the assessee for the year were closed at the time of search so it could not give effect to such bogus purchases in the relevant year in its books. To give effect to the admitted bogus purchases the assessee reduced opening WIP in the AY. 2011-12 by the admitted amount of bogus purchases.The contention raised by the assessee was accepted during the assessment proceedings. The AO initiated penalty proceedings u/s. 271(1)(c). After considering the submissions of the assessee, dated 28/03/2013, the AO held that the assessee had debited bogus bills in its regular books of account, that it ....
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....that the returned income and assessed income remained same, that the assessee was found to be debiting bogus expenditure in his books of account, that closing WIP was akin to the loss incurred by assessee during the year as envisaged under Explanation 4 to section 271(1)(c), that the AO had rightly levied penalty u/s.271(1)(c) of the Act. 4. During the course of hearing before us, the Authorised Representative(AR)argued that there was no change in income, that no addition was made to the income returned by the assessee, that no penalty for concealment of income could be levied, that income was offered for the year under appeal, that the calculation machinery would fail in such cases, that the section spoke of tax sought to be evaded, that for the purpose income for the current year had to be considered, that it was a search and seizure case, that no incriminating material was found during the search, that the AO had not struck off the portion in the penalty notice to indicate as to which of the omissions the assessee had committed i.e. furnishing of inaccurate particulars or concealing the income. He referred to the cases of Meherjee Kasinath Holding Pvt. Ltd.(ITA/2555/Mum/2012, A....
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....0.12.2010 the final income has been assessed at Rs. 1,11,84,640/-. The relevant issue for our purpose is Long Term Capital Loss of Rs. 18,19,34,011/- reported by the assessee in its return of income. The said loss was incurred by the assessee on account of redemption of Preference shares of a concern, namely Shri Santram Finance Ltd. In the assessment finalized u/s 143(3) of the Act, the Assessing Officer disallowed the entire Long Term Capital Loss on the ground that the transaction of redemption of Preference shares was a bogus transaction and further the Assessing Officer also denied the carry forward of said loss. Subsequently, the Assessing Officer vide order passed u/s 271(1)(c) of the Act dated 29.6.2011 held the assessee guilty of furnishing of inaccurate particulars of income qua the aforesaid issue within the meaning of Sec. 271(1)(c) of the Act. The Assessing Officer levied penalty u/s 271(1)(c) of the Act @ 100% of the tax sought to be evaded, which was computed at Rs. 5,45,80,203/-. The CIT(A) has sustained the levy of penalty, but has allowed partial relief by correcting the computation of penalty and accordingly, the CIT(A) has scaled down the penalty to Rs. 4,12,26,....
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....he Act. ...... 8. We have carefully considered the rival submissions. Sec. 271(1)(c) of the Act empowers the Assessing Officer to impose penalty to the extent specified if, in the course of any proceedings under the Act, he is satisfied that any person has concealed the particulars of his income or furnished inaccurate particulars of such income. In other words, what Sec. 271(1)(c) of the Act postulates is that the penalty can be levied on the existence of any of the two situations, namely, for concealing the particulars of income or for furnishing inaccurate particulars of income. Therefore, it is obvious from the phraseology of Sec. 271(1)(c) of the Act that the imposition of penalty is invited only when the conditions prescribed u/s 271(1)(c) of the Act exist. It is also a well accepted proposition that 'concealment of the particulars of income' and 'furnishing of inaccurate particulars of income' referred to in Sec. 271(1)(c) of the Act denote different connotations. In fact, this distinction has been appreciated even at the level of Hon'ble Supreme Court not only in the case of Dilip N. Shroff (supra) but also in the case 9 of T. Ashok Pai, 292 ITR 11 (SC). Therefore, if....
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....in the case of Dilip N. Shroff (supra), the notice in the instant case does suffer from the vice of non-application of mind by the Assessing Officer. In fact, a similar proposition was also enunciated by the Hon'ble Karnataka High Court in the case of M/s. SSA's Emerald Meadows (supra) and against such a judgment, the Special Leave Petition filed by the Revenue has since been dismissed by the Hon'ble Supreme Court vide order dated 5.8.2016, a copy of which is also placed on record. 10. In fact, at the time of hearing, the ld. CIT-DR has not disputed the factual matrix, but sought to point out that there is due application of mind by the Assessing Officer which can be demonstrated from the discussion in the assessment order, wherein after discussing the reasons for the disallowance, he has recorded a satisfaction that penalty proceedings are initiated u/s 271(1)(c) of the Act for furnishing of inaccurate particulars of income. In our considered opinion, the attempt of the ld. CIT-DR to demonstrate application of mind by the Assessing Officer is no defence inasmuch as the Hon'ble Supreme Court has approved the factum of non-striking off of the irrelevant clause in the n....
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....w cause why a penalty should not be imposed. In the instant case, the AO did not specify the charge for which penalty proceedings were initiated and further he has issued a notice meant for calling the assessee to furnish the return of income. Hence, in the instant case, the assessing officer did not specify the charge for which the penalty proceedings were initiated and also issued an incorrect notice. Both the acts of the AO, in our view, clearly show that the AO did not apply his mind when he issued notice to the assessee and he was not sure as to what purpose the notice was issued. The Hon'ble Bombay High Court has discussed about non-application of mind in the case of Kaushalya (supra) and observed as under:-" The notice clearly demonstrated non-application of mind on the part of the Inspecting Assistant Commissioner. The vagueness and ambiguity in the notice had also prejudiced the right of reasonable opportunity of the assessee since he did not know what exact charge he had to face. In this back ground, quashing of the penalty proceedings for the assessment year 1967-68 seems to be fully justified." In the instant case also, we are of the view that the AO has issued a noti....