TaxTMI 
TaxTMI 
TaxTMI 
2018 (8) TMI 507
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....(AO) imposed penalty u/s 271(1)(c) of the Act, with reference to the second revised return, for the assessment year 2008-09 in the case of HPCL Mittal Energy Ltd. on three counts, viz., disallowance of business loss of Rs. 5.68 crore; non-declaration of interest income of Rs. 23.61 crore from deposits with banks and HPCL; and nondeclaration of interest income of Rs. 73 lac on FDRs as security given to the Trial court. These disallowance/additions were made in the assessment order, after recording due satisfaction, which were confirmed in quantum appeal by the ld. CIT(A) and also stood countenanced by the Tribunal. Penalty notice u/s 274 of the Act was issued by stating that the assessee 'concealed the particulars of income' qua the above three disallowance/additions. However, the penalty order was passed holding that 'the assessee concealed the particulars of his income/furnished inaccurate particulars of such income.' Penalty in the case of HPCL Mittal Pipelines Ltd. was initiated by the AO for the A.Y. 2008-09 by means of notice u/s 274 with reference to the second revised return on the charge of 'concealment of particulars of income' on three items, viz., disallowance of busines....
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............'. Thereafter, he referred to the provisions of section 271(1B) of the Act inserted by the Finance Act, 2008 w.r.e.f. 01.04.1989 and held that the assessee's case was covered under this provision. He did not elaborately discuss the consequences of initiating penalty by the AO on the ground of 'concealment of particulars of income', but ultimately imposing penalty on 'concealment of particulars of income/furnishing inaccurate particulars of such income'. Thereafter, difference in the opinions was formulated and signed by both the Members in terms of the above question. Since the ld. AM has also signed the above extracted solitary question referred to me in the capacity of Third Member, it has to be necessarily inferred that the recordings made by him in para 7 of his proposed order express his dissent with the ld. JM on the issue of deletion of penalty on the preliminary legal issue as discussed hereinabove. 4. The referred question restricts my domain only to deciding if penalty u/s 271(1)(c) of the Act can be sustained when the assessment order is passed and penalty is initiated with regard to the charge of 'concealment of particulars of income', but, is eventually impose....
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....aring it. The second expression is 'furnishing of inaccurate particulars of such income.' 'Inaccurate' means not accurate or correct. 'Inaccurate particulars' of income means the 'details of income which are not correct'. This would embrace situations where the total income goes under-reported because of the assessee furnishing wrong details. It may include claiming certain deductions of expenses which are not legitimately due to the assessee. It may also include claiming certain exemptions of income which are otherwise not available as per law. Both the expressions, viz., 'concealment of particulars of income' and 'furnishing of inaccurate particulars of such income' ultimately lead to under-reporting of income. Whereas the former connotes under-declaration by directly hiding the details of some items of income, the latter encompasses under-declaration of income indirectly, that is, by furnishing details in such a way which ultimately results in not reporting correct income, but such under-reporting is otherwise than by means of direct hiding. The nitty-gritty of the matter is that whereas 'concealment of particulars of income' implies not at all declaring a particular income, whi....
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....hese two items of interest income, totaling to Rs. 24.34 crore. On the other hand, the correct position in this regard is that during the year under consideration, the assessee was in the process of setting up of a refinery and the commercial operations had not started. It is discernible from the Annual accounts of the assessee for the relevant year that under the head of 'Fixed assets', the assessee declared an amount of Rs. 81.59 crore under the sub-head 'Expenditure during construction period (pending capitalization).' Detail of such expenditure capitalized in the balance sheet is available as per schedule 5 to the Balance sheet. Copy of schedule 5 is on page 87 of the paper book. It is perceptible that the assessee computed the amount of Rs. 81.59 crore under this sub-head after explicitly reducing the amount of 'Interest on bank deposits' to the tune of Rs. 24.34 crore. It was done on the premise that the interest earned on FDRs pertaining to the period of setting up of refinery was liable to be reduced from the costs incurred for capitalization. The assessee reduced such amount of interest of Rs. 24.34 crore on the face of schedule 5 forming part of Annual accounts, which dec....
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....lain his position qua the imposition of penalty on the additions/disallowances made in the assessment. The AO considers the explanation of the assessee and then decides if the penalty is imposable or not. Further, the opinion of the AO as to concealment of particulars of income or furnishing of inaccurate particulars of such income has to be seen with reference to the day on which he initiates/imposes penalty. Later events, like confirmation or deletion of additions/disallowances in quantum appeals, are irrelevant in this context. 11. It transpires from the above discussion that, in so far as the issue before me is concerned, there are broadly two different stages having bearing on the imposition of penalty, namely, assessment and penalty. At the assessment stage, the AO has to record a satisfaction in the assessment order as to whether the additions/disallowances, on which penalty is likely to be imposed, represent concealment of particulars of income or furnishing of inaccurate particulars of income. There can be two sub-stages in penalty proceedings requiring the AO to record such satisfaction, viz., at the time of initiating the penalty proceedings and at the time of passing t....
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....f income or furnishing of inaccurate particulars of such income. It cannot be conceived that a direction to initiate penalty proceedings in the assessment order is only 'satisfaction' and not 'proper satisfaction'. This contention, if taken to a logical conclusion, would mean that after such a direction in the assessment order constituting his satisfaction, the AO should once again specifically record satisfaction with reference to each addition or disallowance as to whether it is a case of concealment or furnishing of inaccurate particulars. It is obviously an absurd proposition and goes against the unambiguous language of the provision. Thus, it is overt that after insertion of sub-section (1B) to section 271, invariably, the AO should be deemed to have recorded proper satisfaction with reference to each addition/disallowance as to concealment or furnishing of inaccurate particulars, once a direction is contained in the assessment order to initiate penalty u/s 271(1)(c) of the Act. Requiring the recording of separate satisfaction, once again, by the AO would militate against the deeming provision contained in sub-section (1B). Admittedly, in all the four appeals under considerati....
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..... After initiating penalty on the charge of 'furnishing of inaccurate particulars of income', he cannot impose penalty by finding the assessee guilty of 'concealment of particulars of income'. Again, he cannot be uncertain in the penalty order as to concealment or furnishing of inaccurate particulars of income by using slash between the two expressions. When the AO is satisfied that it is a clear-cut case of imposition of penalty u/s 271(1)(c) of the Act on two or more additions/disallowances, one or more falling under the expression 'concealment of particulars of income' and the other under the 'furnishing of inaccurate particulars of income', he must specify it so by using the word 'and' between the two expressions in the notice at the time of initiation of penalty proceedings. If he remains convinced in the penalty proceedings that the penalty was rightly initiated on such counts and imposes penalty accordingly, he must specifically find the assessee guilty of 'concealment of particulars of income' and also 'furnishing of inaccurate particulars of income' in the penalty order. If the charge is not levied in the above manner in all the three clear-cut situations discussed above i....
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....alty proceedings of a clear-cut charge against the assessee in any of the three situations discussed above (say, concealment of particulars of income), but imposes penalty by holding the assessee as guilty of the other charge (say, furnishing of inaccurate particulars of income) or an uncertain charge (concealment of particulars of income/furnishing of inaccurate particulars of income), the penalty cannot be sustained. 20. Another crucial factor to be kept in mind is that that the satisfaction of the AO as to a clear-cut charge leveled by him in the penalty notice or the penalty order must concur with the actual default. If the clear-cut charge in the penalty notice or the penalty order is that of 'concealment of particulars of income', but it turns out to be a case of 'furnishing of inaccurate particulars of such income' or vice-versa, then also the penalty order cannot legally stand. 21. Apart from the above three situations in which the AO has clear-cut satisfaction, there can be another fourth situation as well. It may be when it is definitely a case of under-reporting of income by the assessee for which an addition/disallowance has been made, but the AO is not sure at the s....
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.... finding as to whether there was concealment of income by the assessee or whether any inaccurate particulars of such income had been furnished by the assessee.' 23. It is thus evident that uncertain charge at the stage of initiation of penalty proceedings can be made good with a clear-cut charge in the penalty order. In any case, existence of a clear-cut charge in penalty order is a must so as to validate any penalty order. 24. Coming back to the factual position obtaining in these cases, it is seen that the penalty orders have been vitiated on two counts. First, the AO initiated penalty with a specific and clear-cut charge of 'concealment of particulars of income' in all the penalty notices, however, the assessees have been found guilty in all the penalty orders on the uncertain and vague default of 'concealment /furnishing of inaccurate particulars of income'. Second, the clear-cut or certain charge of 'concealment of particulars of income' levied in all the penalty notices is wrong. The actual default is 'furnishing of inaccurate particular of such income', which also renders the penalty orders invalid. 25. The ld. DR contended that the use of a particular grammatical sign '....