AI Drafter 
TaxTMI 
TaxTMI 
2017 (11) TMI 1415
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....e written-off in Profit & Loss account Rs. 46,47,611 Consideration received on assignment of trade market declared as long term capital gain was assessed as business income Rs. 3,80,00,000 3. While completing assessment on the basis of additions made, the Assessing Officer also initiated proceedings for imposition of penalty under section 271(1)(c) of the Act. Against the addition made in the assessment order, the assessee preferred appeal before the first appellate authority. 4. During the pendency of appeal before the learned Commissioner (Appeals), the Assessing Officer issued show cause notice under section 274 r/w section 271(1)(c), calling upon the assessee to explain why penalty under section 271(1)(c) of the Act shall not be imposed. In response to the show cause notice, though, the assessee filed its explanation opposing imposition of penalty, however, the Assessing Officer proceeded to pass an order on 29th March 2012, imposing penalty of Rs. 1,55,00,000 alleging furnishing inaccurate particulars of income. The assessee challenged the penalty imposed under section 271(1)(c) before the first appellate authority. 5. In the course of first appellate proceed....
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.... of a factory building and an advance of Rs. 30 lakh was paid to the owner of the factory building. However, ultimately the transaction did not materialize and the owner of the property agreed to refund the advance paid and in that regard paid an amount of Rs. 5 lakh to the assessee and for the balance amount of Rs. 25 lakh he issued post dated cheques which were dishonoured by the Bank on presentation due to unavailability of funds. He submitted, though, the assessee filed complaint under section 138 of Negotiable Instrument Act, 1881, however, it was not able to recover the amount of Rs. 25 lakh. Therefore, assessee decided to write-off the amount in its books. He submitted, the assessee never claimed it as a bad debt under section 36(1)(vii), but, treated it as business loss, since, the advance was made in course of business. He submitted, all informations related to the write-off of Rs. 25 lakh was furnished not only in the audited accounts but also in the return of income. In this context, he drew our attention to the Profit & Loss account at Page-19 of the paper book and more particularly to Schedule-15 of the Profit & Loss account which is placed at Page-26 of the paper book....
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....oncealing particulars of income by the assessee. The Assessing Officer has simply mentioned "penalty proceedings under section 271(1)(c) are initiated". Thus, on a reading of the assessment order, satisfaction of the Assessing Officer with regard to the nature of offence committed by the assessee in terms of section 271(1)(c) is not discernible. Further, on a perusal of the show cause notice dated 31st December 2007, issued under section 274 r/w section 271(1)(c), which is in a standard printed format and a copy of which is placed at Page-35 of the paper book, it is noticed that the Assessing Officer has not deleted the inappropriate words to indicated the specific charge of offence for which he initiated proceedings for imposition for imposition of penalty under section 271(1)(c). Neither in the assessment order nor in the show cause notice issued under section 274 of the Act, the Assessing Officer has notified the assessee about the specific limb of section 271(1)(c) of the Act for which he intends to impose penalty. That being the fact, it is very much surprising to note that in the impugned penalty order passed under section 271(1)(c) the Assessing Officer has observed that dur....
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....mbiguity. The word „direction‟ has been interpreted by the decision of the Apex Court in the case of RAJENDRANATH reported in 120 ITR pg.14, where it has been held that in any event whatever else it may amount to, on its very terms the observation that the ITO is free to take action, to assess the excess in the hand of the coowners cannot be described as a direction. A direction by a statutory authority is in the nature of an order requiring positive compliance. When it is left to the option and discretion of the ITO whether or not take action, it cannot be described as a direction. 51. Therefore, it is settled law that in the absence of the existence of these conditions in the assessment order penalty proceedings could not be proceeded with. The proceedings which are initiated contrary to the said legal position are liable to be set aside." 11. As could be seen from the aforesaid observations of the Hon'ble Court, use of phrase like "penalty proceedings under section 271(1)(c) are initiated" cannot be construed as a direction for initiation of penalty proceedings. As far as the contention of the Learned Departmental Representative that in terms of sub-secti....
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....ed by the Commissioner of Appeals and the Commissioner. i) The imposition of penalty is not automatic. j) Imposition of penalty even if the tax liability is admitted is not automatic. k) Even if the assessee has not challenged the order of assessment levying tax and interest and has paid tax and interest that by itself would not be sufficient for the authorities either to initiate penalty proceedings or impose penalty, unless it is discernible from the assessment order that, it is on account of such unearthing or enquiry concluded by authorities it has resulted in payment of such tax or such tax liability came to be admitted and if not it would have escaped from tax net and as opined by the assessing officer in the assessment 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 be....
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....is, according to the Hon'ble Supreme Court, deprives the assessee a fair opportunity to explain its stand, thereby, violating the principle of natural justice. As held by the Hon'ble Supreme Court in CIT v/s Reliance Petroproducts Pvt. Ltd., [2010] 322 ITR 158 (SC). The aforesaid principle laid down in case of Dilip N. Shroff (supra) still holds good in spite of the decision of the Hon'ble Supreme Court in Union of India v/s Dharmendra Textile Processors, [2008] 306 ITR 277 (SC). Even in case of CIT v/s Kaushalya & Ors. [1995] 261 ITR 660, on which the Learned Departmental Representative relied upon the Hon'ble Jurisdictional High Court has observed that notice issued under section 274 must reveal application of mind by the Assessing Officer and the assessee must be made aware of the exact charge on which he had to file his explanation. The Court observed, vagueness and ambiguity in the notice deprives the assessee of reasonable opportunity as he is unaware of the exact charge he has to face. 14. In case of Samson Perinchery (supra), the Hon'ble Jurisdictional High Court while referring to the decision of the Hon'ble Karnataka High Court in Manjunatha Cotton ....