AI Drafter 
TaxTMI 
TaxTMI 
2018 (6) TMI 1277
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.... scrutiny proceedings) and where assessee rapidly on 8/10/2014 and 3/12/2014 voluntarily and in good faith suo motto offered for taxation on estimation basis 8% of gross receipts as its income, which declaration of assessee became the final/concluding basis of assessment , so in such glaring facts, imposition of penalty u/s 271(l)(c) is out rightly bad and ex-facie unlawful. 2. That on the facts and in the circumstances of the case and in law, ld CIT-A erred in sustaining the penalty u/s 271(1)(c) of the Act amounting to Rs. 68,77,152 as levied by ld AO, in hands of appellant who is civil contractor, on basis of invalid initiation of penalty proceedings in assessment order dated 25/03/2015 where no express and explicit finding is "discernible " from the body of the order; 3. That on the facts and in the circumstances of the case and in law, ld C1T-A erred in sustaining the penalty u/s 271(l)(c) of the Act amounting to Rs. 68,77,152 as levied by ld AO, in hands of appellant who is civil contractor, on basis of vague and mechanical show cause notice issued u/s 274 of the Act which ground was duly raised in appeal memo in Form 35 before first appellate authority: ....
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....as made suo moto surrender without any condition which was also accepted by the AO. It is also not in dispute that the entire addition made in this case is on the basis of estimation of net profit by the AO. 6. The Ld. AR for the assessee company challenging the impugned order contended inter alia that show-cause notice issued by the AO u/s 274, available at page 4 of the Paper Book is not a valid notice to initiate the penalty proceedings as the assessee company has not been made aware if it has, "concealed the particulars of income or has furnished inaccurate particulars of such income", and relied upon the decision rendered by the Hon'ble Karnataka High Court in case of CIT vs. Manjunatha Cotton and Ginning Factory & Ors. 359 ITR 565 (Karn.); that during survey proceeding assessee has made suo moto surrender on the basis of which net profit @ 8% has been assessed by the AO, and in such cases penalty cannot be levied; and that AO while framing the assessment u/s 143(3) has not recorded specific satisfaction to initiate the penalty proceedings. 7. However, on the other hand, Ld. DR for the Revenue to repel the arguments addressed by the Ld. AR for the assessee company conten....
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.... (Meenu Singh Bist) DY. Commissioner of Income Tax Circle-1, Ghaziabad 10. Undisputedly, additions made against the assessee during the quantum proceedings have already been confirmed. It is settled principle of law that the penalty cannot be imposed merely on the ground that the additions made in the income of the assessee has been confirmed rather to proceed with imposition of penalty u/s 271(1)(c), the AO has to prove that there was concealment of particulars of income or assessee has furnished inaccurate particulars of such income. 11. First of all, perusal of para 5 of Assessment Order framed u/s 143(3) of the Act, goes to prove that the AO has not recorded his specific satisfaction to initiate penalty proceedings either for furnishing 'inaccurate particulars of income or for concealment of particulars of income' rather stated that initiate proceeding u/s 271(1)(c) of the Act separately. For ready perusal para 5 of the assessment order is extracted as under:- " In view of the above discussion, the assessment is completed on income of Rs. 3,46,75,166/-. Issue notice of demand accordingly. Initiate proceedings u/s 271(1)(c) of the I.T. A....
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....are not applicable to the orders passed 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 co....
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....s case in the face of the decisions rendered by the Hon'ble High Court in Manjunatha Cotton and Ginning Factory & Ors. (supra). 16. Next contention raised by Ld. AR for the assessee is that in case of suo moto surrender made by the assessee during survey proceeding on the basis of which net profit has been estimated no penalty can be imposed as assessee has not concealed any particulars of income or has furnished inaccurate particulars of income. We are of the considered view that when assessee has made voluntary surrender of income and his books of accounts have been rejected by the AO, who has proceeded to estimate the net profit on the basis of voluntary surrender to the rate of 8%, there is no concealment of particulars of income or furnishing of inaccurate particulars of such income, on the part of the assessee, so as to initiate penalty proceeding against the assessee. Hon'ble Allahabad High Court in the case of CIT vs. Radha Kishan Goel -(2005) 278 ITR 454 (All.), while deciding the identical issue as to levy penalty in case of voluntarily surrender has held as under:- "From a perusal of Expln. 5 it is evident that in circumstances which otherwise did not attract....
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....atement about the manner in which such income has been derived, it can be inferred that such undisclosed income was derived from the business which he was carrying on or from other sources. The object of the provision is achieved by making the statement admitting the non-disclosure of money, bullion, jewellery, etc. Thus, much importance should not be attached to the statement about the manner in which such income has been derived. It can be inferred on the facts and circumstances of the case, in the absence of anything to the contrary. Therefore, mere non-statement of the manner in which such income was derived would not make Expln. 5(2) inapplicable. For the reasons stated above, there is no error in the order of the Tribunal and the same is upheld. " 17. Identical issue has also come up before Hon'ble Allahabad High court in the case of Commissioner of Income Tax Kanpur vs. M/s Dee Control and Electric Pvt. Ltd. in ITA No. 82 of 2017 vide order dated 19.12.2017 wherein penalty was imposed on the basis of estimated net profit made by the AO after rejecting the books of accounts and decided the issue in favour of the assessee by returning the following findings:- Havin....
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....hat the assessee had offered to tax (by way of surrender) the income in respect of which penalty had been imposed is, in the facts of the present case, not decisive of the issue whether penalty had been validly imposed. In a given set of facts where some material & evidence is unearthed disclosing concealed income or in face of which the particulars of income disclosed by the assessee are declared inaccurate, it may be open to the assessing officer to draw such a conclusion if after issuance of a show cause notice and confronting the assessee with such material the assessee makes a surrender. However, such is not the case here. According to the assessing Officer himself (as per the assessment order) nothing incriminating was discovered during the survey. Then, if the assessing officer has relied on the self same material and also estimated the income of the assessee at virtually the same quantum as disclosed by the assessee. The penalty order does not disclose any independent or other reasoning to prove the allegation of concealment of income and/or furnishing of inaccurate particulars of income. In fact, the assessing officer has not even made any distinction between the ....
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....ption as to fact of infraction of law committed by the assessee. Again, though as a possibility, it may not be denied that in a given set of facts the assessing officer may be able to successfully allege and establish that the assessee both 'concealment of particulars of income' and also 'furnished inaccurate particulars of income' but again these are contingencies or fact circumstance that must be alleged and found to be existing, simultaneously. There can be no presumption as to their co-existence or even existence of one of the two contingencies or infringements. In the present case, the assessing officer has not given any reason as to how he reached the conclusion that "the assessee has concealed it's income and furnished inaccurate particulars of it's income''. Merely because, the books of account had been rejected it did not in itself establish or prove either of the two circumstance to levy penalty," leave 'alone"' both circumstances as the penalty order suggests. The assessing officer, was obliged to reason and state in the penalty order how according to him the assessee had either concealed the particulars of his income or ....