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2018 (6) TMI 1525
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....1(1)(c)/271AAA of Income Tax Act (in short referred as 'Act') Act framed by the DCIT (Central), Indore. 2. Since common issues are involved, these appeals were heard together and are being disposed of by this consolidated order for the sake of convenience. 3. Briefly stated, the facts, as culled out from record, are that search and seizure operations u/s 132 of the Act were carried out on 5.5.2011 at the business as well as residential premises of Keti Kalyan Group of Indore comprising of various companies, business concerns and individuals. During the course of search Mr. Tikamchand Garg, who is also a director and share holder in various group companies on behalf of the business concerns and individuals, surrendered unaccounted income of Rs. 51 crore and offered it for taxation and also gave post dated cheques of Rs. 7.51 crores towards taxes. Subsequently, assessment proceedings u/s 153A read with section 143(3) of the Act were carried out in the group cases after issuing necessary notices as required under the law. The unaccounted income was offered in various group cases as well as individuals. The assessments were completed with minor additions and in general income dis....
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....ts and in the circumstances of the case and in law the penalty levied is uncalled for and bad in law and it is prayed that the penalty may very kindly be deleted. (ii) That, the learned CIT(A) erred in upholding the penalty levied u/s 271(1)(c) overlooking the fact that neither the requisite conditions as envisaged by law for the purpose of levying this penalty are present/fulfileld in this case nor the order imposing penalty u/s 271(1)(c) is a speaking order. (iii) That, the learned CIT(A) erred in holding that the provisions of explanation 5A to section 271(1)(c) are applicable in this cae. That on the facts and in the circumstances of the case, the said observation is wrong and uncalled for. The learned CIT(A) ought not to have confirmed the penalty." 5. We would first take up the legal ground through which it is commonly pleaded that the alleged notice issued u/s 274 read with section 271(1)(c) of the Act is bad in law as the Assessing Officer has not specified the charge against the assessee as to whether the penalty has been levied for concealment of particulars of income or furnishing inaccurate particulars of income. 6. Before us, the learned counsel....
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....ge for levying penalty is not specific, the notice issued u/s 271(1)(c) is bad in law as it does not specify as to under which limb of section 271(1)(c) of the Act penalty proceedings have been initiated. When the notice does not specify the charge for levy of penalty, it has been held in many cases by various Courts that penalty cannot be levied. For this proposition, the learned counsel for the assessee placed reliance on the following decisions:- (i) CIT and Anr. V/s Manjunath Cotton & Ginning Factory (2013) 359 ITR 565 (Karn.)copy enclosed at page no. 01to27 of case law paper book. (ii) Following this decision the Honourable Karnataka High Court in CIT V/s SSA'S Emerald MeadowsITA No. 380/2015 dated 23.11.2015 has dismissed the appeal of the revenue, where the Honourable Tribunal had allowed the appeal of the assessee holding that the notice issued by the AO u/s 274 r.w.s. 271(1)(c) of the Act to be bad in law as it does not specified under which limb of section 271(1)(c) of the Act under which it has been initiated. (copy enclosed at page no. 28 to 31 of case law paper book) (iii) The Honourable Supreme Court has dismissed the Special Leave Petition ....
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....ention of the appellant group wherein it is held that no penalty can be levied when there is no specific charge specified in the notice u/s 274 r.w.s. 271(1)(c). Some of the cases are mentioned hereunder: (vii) Principal CIT V/s Smt. BaisettyRevathi of Honourable Andhra High Court dated 13.07.2017 (viii) CIT V/s Shri Samson Perinchery of Honourable Bombay High Court dated 05.01.2017 (ix) Aditya Chemicals Ltd. vs. ITO(2017) 51 CCH 0643(Deli-Trib) (x) ABR Auto(P) Ltd. vs. ACIT (2017) 51 CCH 0477(Deli-Trib (xi) SujataBhardwaj vs. DCIT (2017) 190TTJ 406 Jodhpur Tri. 7. On the other hand, the learned DR vehemently argued supporting the orders of the lower authorities and submitted that the assessee has surrendered undisclosed income which was not offered to tax in earlier assessment years and, therefore, the penalty has been rightly levied. He, however, could not controvert the fact that the alleged notice was issued without specifying the particular limb as to under which the penalty proceedings have been initiated. 8. We have heard both the parties, perused the material available on record and have also gone through the case laws cite....
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....ection 27 I (1)( c ). Yours faithfully, \. ------ (Ram kumar Yadava) Deputy Commissioner of Income Tax (Central), Indore " 9. From the perusal of the above notice we find that the Assessing Officer has initiated the penalty proceedings mentioning both the reasons "have concealed the particulars of income or furnished inaccurate particulars of income " which shows that the Assessing Officer was not sure of the specific charge for which penalty has been levied. In such a situation whether the alleged notice is valid or not needs to be examined in the light of various judicial pronouncements which have dealt with the very same issue. 10. We shall first go through the decision of the coordinate Bench in the case of Narayana Heights & Towers; ITA No. 1033/JP/2016 order dated 20.2.2017 which has decided this very issue in favour of the assessee by following the judgment of the Hon'ble Karnataka High Court in the case of Manjunath Cotton & Ginning Factory; 359 ITR 565 by observing as under :- "3.2. We have heard the rival contention, perused the material available on record and gone through the orders of the authorities below. For the....
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....s 274 of the Act should specifically state as to whether penalty is being proposed for concealment of particulars of income or inaccurate particulars of income. In the present case notice under section 274 dated 25/3/2015 enclosed at paper book page 16 reads as under: "Penalty Notice Under Section 274, Read with Section 271 of the IT Act. 1961" Whereas in the course of proceedings before me for the Assessment Year 2012-13. It appears to me that you have:- Read With Section 271(1)(c) concealed particulars of income or furnished inaccurate particulars of income." Therefore, there is no specific charge by the Assessing Officer. Further, it is noted that the Assessing Officer in penalty order (as noted hereinabove) has proceeded on the basis of the assumption that the assessee is satisfied with the assessment order. Therefore, it appears that the assessee has nothing to say and has no objection regarding the imposing of the penalty under section 271(1)(c) of the Act. In our considered view, the assessing officer was not justified in imposing the penalty on this basis, the action of the assessing officer is contrary to the provision of law. The ld. CIT (A) without considering the bindin....
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....ed 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 bona fide, an order imposing penalty could be passed. (m) If the explanation offered, even though not substantiated by the assessee, but is found to be bona fide 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 1(B) 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. Notice under section 274 of the Act should specifically state the grounds mentioned in section 271(1)(c), i.e., whether it is for concealment of income or for furnishing of incorrect particulars of income (q) Sending printed form where a....
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....usal of the penalty order reveals that the AO has rejected the contentions of the assessee on the basis that the undisclosed income is declared as result of search was not recorded in books of accounts before the date of search. We find that the penalty notices under section 274 read with section 271 (l)(c) were issued in the cyclostyled format without the striking off either of the two charges i.e. "concealment of income" or "furnishing of iriaccurat:e particulars". Thus, the penalty proceedings were initiated mwithout specifying any particular or specific charge against the as,sesscc in either the assessment order or even the penalty to point out that no charge either of "concealment (Ii' income" or "furnishing of inaccurate particulars" was made in. sessment orders in all these cases, Further perusal of the assessment order reveals that it is simply stated that penalty proceedings are initiated ii] s. 271 (lHc). Similarly the perusal of the penalty show cause notice is issued under section 274 read with section 271 (l)(c) showed that it was mentioned ... "Have concealed the particulars of income or furnished in.accurate particulars of such income" . Thus, we find that the ch....
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.... of the Division Bench of this Court rendered in the case of CIT vs. Manjunath Cotton Ginning Factory 12013] 359 LTr~ 565. ( Copy filed P8- 28 to 31) It was further po in tcd out. that SLP filed by the Department against this decision was dismissed by Hon "ble Supreme Court on 05-08-2016 reported in CIT v. SSA'S Emerald Meadows [2016] 73 taxmann.com 248 (SC). The learned counsel also submitted that even in the matter of search case where penalty is levied under Explanation SA to section 271 (1)(c), following decision of CIT v. Manjunath Cotton Ginning Factory [2013] 359 ITI< 5(;5 (Karnataka) , it has been held that the show cause notice under section 274 was defective as it does not spell out the grounds on which the penalty is sought to be imposed and consequently, penalty imposed was cancelled. The case law in the case: of Mahabir Prasad Agarwal v . ACIT Kolkatta Tribunal in [LT.A. No. 738 & 739/Kol/2013 dated '15-10-2016] (P8-33 to 39) also support the. case of the assessee as the facts are identical with the facts of the present appeals as in these appeals the show cause notices issued before imposing penalty did not specified whether as to the assessee is guilty of hav....
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.... "was not sure that on what ground he is levying the penalty. 8.5. Considering above facts and circumstances and relying judicial precedents discussed above, we are of the considered opinion that specific c11arge was levied in penalty show cause notice nor penalty is penalty levied under section 271 (l)(c) is not sustainable in law, as no warranted on facts and law as discussed above, hence, it is cancelled. Accordingy, all 19 appeals of six assessees are allowed". 12. Further we find that the Coordinate Bench Delhi in the recent decision pronounced on 26.3.2018 in the case of Ravine & Associates Private Limited v. ACIT (2018) 64 (Tri) 149 had an occasion to decide an identical issue wherein it was held as follows :- "11.8 We have considered the rival submissions and perused the material on record. It is evident from the notices u/s 274 r.w.s. 271 of the Act dated 27.12.2007 and 6.3.2012 that the AO has not specifically specified under which limb of section 271(1)(c) of the Act, the penalty proceedings had been initiated by him, i.e., whether for concealment of particulars of income or furnishing of inaccurate particulars of income. The Hon'ble High Court of Ka....
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...., while allowing the appeal of the assessee, has relied on the decision of the Division Bench of this Court rendered in the case of CIT v. Manjunatha Cotton & Ginning Factory [2013] 359 ITR 565/218 Taxman 423/35 taxmann.com 250 (Kar.). 4. In our view, since the matter is covered by judgment of the Division Bench of this Court, we are of the opinion, no substantial question of law arises in this appeal for determination by this Court. The appeal is accordingly dismissed. 11.10 The SLP filed by the revenue against the above judgment has been dismissed by Hon'ble Supreme Court of India and the decision of Hon'ble Supreme Court is reproduced here in below: "1 Delay condoned 2 We do not find any merit in this petition. The special leave petition is accordingly dismissed. 3 Pending application, if any stands disposed off." 11.11 Therefore, in the circumstances and on the facts of the present case and in light of the judgments of the Hon'ble Karnataka High Court and the Hon'ble Supreme Court reproduced hereinabove, we are of the considered view that the Assessing officer is required to specify as to under which limb of section 271(1)(c) of the Act, the penalty proceedings had been initiat....
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....reast can he still be accused of concealment though in the return there has been the omission. By the time the AO takes up the issue and comes across the information in his possession, if the assessee makes up the deficiency and offers the income or furnishes accurate particulars he, in our opinion, cannot be held guilty of concealment of income or furnishing of inaccurate particulars of his income. Any action rectified relates back to original act and to the date and time of filing the return. When the AO starts scrutiny of the return and initiates assessment proceedings there is nothing concealed and the inaccuracy, if any, disappeared.. A perusal of this provision clearly shows that it is in the course of any proceedings under the Act, assessment proceedings in this case, that the AO is to be satisfied that the assessee has concealed the particulars of his income or furnished inaccurate particulars of such income. It is thus to be judged at this stage and if at this stage he has declared the correct income and/or furnished accurate particulars of his income then there is no scope, in our opinion, to arrive at the satisfaction by the AO because at that stage there in no such conc....
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....tion letters, bank accounts, passport etc. in the hands of the assessee, it might be valid gift that would have convinced a reasonably minded person, specially a person exercising a judicial function. The accepted position of law is that merely because an assessee had agreed to the assessment that cannot bring in automatic levy of penalty. 25. The facts and circumstances and the merits of the case and the cogent evidences placed on record are such as to exonerate the assessee from concealment penalty. The CIT(A) in my opinion is right in deleting the penalty, his order is affirmed and the appeals of the Revenue are dismissed." 13. From the perusal of the above judgments and examining the facts of the instant nine appeals, we find that in all these cases the Assessing Officer has not struck down the relevant "word" from the sentence in the cyclostyled proforma of penalty show cause notice which means that the Assessing Officer was not sure as to on what ground he has initiated the penalty proceedings and in such a case the alleged notice is not sustainable in law and is liable to be quashed. We, therefore, respectfully following the judgments and decisions referred to above, allo....
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....of the appellants, they are entitled to immunity from penalty as provided in sub section (2) of section 271AAA.However, these penalties were levied and confirmed only on the ground that the appellant failed to specify and substantiate the manner in which such income was derived. 2. In this respect it is submitted that the additional incomes surrendered have been accepted merely on the basis of the explanation given by the appellant and on the basis of offering the same as business income by the appellant, which fact is clearly discernable from the assessment order and also categorically stated by the Learned CIT(A) in her order. 3. It is submitted that all these assessees are carrying on different business activities and the additional incomes were generated during the course of the respective business activities only. The assessee also explained these incomes before the Investigation wing and also in the returns of income filed subsequently through notes, which are enclosed in the respective paper books. 4. It is further submitted that even otherwise it is implied that the additional/ undisclosed income is generated from the business carried on by the as....
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....ommissioner of Income Tax, Chandigarh Tribunal (2017) 157 DTR 0 177 (Chd)(Trib) 17. Per contra, the learned DR referring to the judgment of Hon'ble High Court of Delhi in the case of Principal CIT vs. Smt. Ritu Singhal; 92 taxmann.com 2224 (Del) submitted that the onus was on the assessee to specify during the course of search proceedings as to how it derived undisclosed income and under what head it fell and it is not mandatory that the revenue authorities should raise a specific query to this effect. 18. We have heard both the parties, perused the material available on record and have also gone through the judgments relied upon by both the parties. The common issue relates to penalty levied u/s 271AAA of the Act and confirmed by the learned Commissioner of Income Tax (Appeals). The Assessing Officer has denied the immunity to the assessee provided u/s 271AAA(2) of the Act for the sole reason that the assessee has not substantiated the manner in which the undisclosed income was derived. Before going ahead we would first like to reproduce the provisions of section 271AAA of the Act :- "Penalty where search has been initiated. 271AAA. (1) The Assessing Of....
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....nded before the date of search, but the date of filing the return of income under sub-section (1) of section 139 for such year has not expired before the date of search and the assessee has not furnished the return of income for the previous year before the said date; or (ii) in which search was conducted." 19. From the perusal of the above section we observe that the penalty cannot be levied if the assessee fulfils three conditions mentioned in sub-section (2) of section 271AAA of the Act. In the instant case there is no dispute at the end of parties that the assessee has fulfilled condition nos. 1 and 3 of sub-section (2) of section 271AAA of the Act and that the assessee has admitted the undisclosed income in the statement recorded u/s 132(4) of the Act during the course of search and has also paid taxes together with interest, if any, in respect of the undisclosed income. The bone of contention revolves round the second condition which says that the assessee should substantiate the manner in which the undisclosed income was derived. The learned counsel for the assessee has contended that during the course of giving the statement, the assessee admitted the undisclose....
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....to fulfilment of second condition and we find that the Tribunal vide its order dated 28.6.2017 in ITA Nos. 1027 & 1028/Ind/2016, relying upon the judgment of the Hon'ble Gujarat High Court in the case of CIT vs. Mahindra C. Shah (supra) as well as other judgments and decisions, held the action of the Assessing Officer imposing penalty u/s 271AAA of the Act as not justified observing as follows :- "7. We have considered the facts rival submissions and material on record. We find that during the course of search and seizure operation a statement under section 132(4) of the Act was recorded on 13-05-2011 and 27-05-2011, from Shri Tikamchand Garg , head of Garg family, wherein in reply to question No.2 of his statement dtd. 13-05-2011 (Paper Book Page No.2) and again on 27-05-2013 in reply to question no. 2, of his statement dtd. 27-05-2011, he on behalf of all the individuals of Garg family and group of concerns and companies had made a disclosure of additional income of Rs. 70 Crores, by stating that this amount covers and represent any undisclosed income receipts, discrepancy or disallowances or any valuable article or things, money, jewellery, documents or papers found....
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....ge it cannot be expected from a person to preempt the statement required to be given in law as a part of his defense. 12. In these circumstances, we are of the view that under section 132(4) of the Act unless the authorised officer puts a specific question with regard to the manner in which income has been derived, it is not expected from the person to make a statement in this regard and in case in the statement the manner in which income has been derived has not been stated but has been stated subsequently, that amounts to the compliance with Explanation 5(2) of the Act. We are also of the opinion that in case there is nothing to the contrary in the statement recorded under section 132(4) of the Act, in the absence of any specific statement 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 nondisclosure of money, bullion, jewellery, etc. Thus, we are of the opinion that much importance should not be attached to the statement about the manner in which such income has....
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....Properties & Finance Pvt. Ltd. [I.T.A. No. 1081 I Koll 20 13] wherein penalty under section 271 AAA were levied on the ground that the assessee is not entitled immunity, as the conditions stipulated were not fulfilled. It was observed by the A.O. the assessee has not substantiated the manner in which the undisclosed income was derived. Penalty was levied on the ground that but for the search the assessee would not have come forward with the additional income as discussed in paragraph 5 of the order. The ITAT in para 8.3 noted that the additional income of Rs. 1.75 crores was offered voluntarily by the assessee without incriminating material found during the course of search and held that same does not fall within the definition of undisclosed income. In Para 8.4 it has been held that nothing in implementing was found with regard to the aspect of share capital and is loans which were ultimately offered by the assessee, hence it was school proved that the offer of income was without detection of the Department and accordingly the argument that but for the search, this income would not have been offered does not hold any water and deserve to be dismissed. Our view is also supported by....
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....f the present case wherefrom it is evident that during the course of search proceedings, the Authorised Officer of the Department has not raised any specific query regarding manner in Court and coordinated bench various tribunal as discussed above which the undisclosed income has been derived and on the contrary the assessee has explained that undisclosed income is being surrendered on the basis of loose papers, discrepancies found in seized material and valuables found during search.' We thus respectfully following the above decisions of Hon'ble Allahabad High Court and Horible Gujarat High Court and coordinated bench various tribunal as discussed above hold that in absence of query raised by the Authorized Officer during the course of search recording the statement under section 132(4) about the manner in which the undisclosed income has been derived and about its substantiation, the A.O. was not justified in imposing penalty under section 271AAA of the Act specifically when the surrendered undisclosed income has been accepted and due taxes has been paid by the assessee. Hence, we hereby set-aside the impugned orders of the authorities below and cancel the penalty levied ....
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.... (4) of section 132 of the Act were satisfied. With respect to disclosure of the manner in which the income was earned, the said authorities were of the opinion that while recording the s tatement of the assessee during search, no question regarding this issue was put by the Revenue officer. Reliance was placed on the decision of this Court in case of Commissioner of IncomeTax v. Mahendra C. Shah reported in [2008] 299 ITR 305 (Guj). 4. Having noted the facts, we find that the issue is covered against the Revenue by virtue of the judgment of this Court in case of Mahendra C. Shah (supra) in which, following observations were made: "15. In so far as the alleged failure on the part of the assessee to specify in the statement under Section 132(4) of the Act regarding the manner in which such income has been derived, suffice it to state that when the statement is being recorded by the authorized officer it is incumbent upon the authorized officer to explain the provisions of Explanation 5 i in entirety to the assessee concerned and the authorized officer cannot stop short at a particular stage so as to permit the Revenue to take advantage of such a lapse in the statem....
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....he immunity from paying the penalty if all the other conditions are fulfilled whereas in the case of CIT vs. Smt. Ritu Singal (supra) the onus is placed on the assessee to substantiate the manner in which the undisclosed income has been earned even if the specific query has not been asked. In such a situation, we are of the view that the judgment of the Hon'ble Apex Court in the case of CIT vs. Vegetable Products Limited; 88 ITR 192 (Supreme Court) needs to be applied wherein after detailed discussion, it was held by the Hon'ble Supreme Court as under :- "If we find that language to be ambiguous or capable of more meanings than one, then we have to adopt that interpretation which favours the assessee, more particularly so because the provision relates to imposition of penalty." We, therefore, respectfully following the above judgment of the Hon'ble Supreme Court and the judgment of the Hon'ble Gujarat High Court in the case of CIT vs. M/s Shahlon Silk Mills Pvt. Ltd. (supra) as well as the decisions of the Tribunal in the cases of the very same group of assessees relating to the instant appeals and in the given facts and circumstances, find that th....