TaxTMI 
TaxTMI 
2020 (2) TMI 712
X X X X Extracts X X X X
X X X X Extracts X X X X
.... on 22.7.2013. The assessee had not filed return of income in the aforesaid 3 assessment years and therefore notice u/s. 148 was issued to the assessee on 19.3.2014 for AY 2007-08, 23.9.2013 for AY 2010-11 & 23.9.2013 for AY 2011-12. In AY 2007-08 the income declared in the return was accepted, but in AY 2010-11 & 2011-12, a sum of Rs. 10,000 which was claimed as expenses was disallowed by the AO for want of vouchers. Since the assessee had filed return of income only pursuant to the survey, and thereafter by issue of notice u/s. 148 of the Act, penalty proceedings were initiated against the assessee and penalty was imposed on the assessee u/s. 271(1)(c) of the Act by the AO. The order of AO was confirmed by the CIT(Appeals). 3. Aggrieved by the orders of the CIT(A), the Assessee is in appeal before the Tribunal. In the appeal or AY 2007-08 in ground No.7, and for AY 2010-11 & 2011-12 in ground No.9, the Assessee has raised the issue that the show cause notice u/s. 274 of the Act before imposing penalty did not specify as to whether the penalty is being initiated for concealing particulars or for furnishing inaccurate particulars of income. Copy of the said show cause notice has....
X X X X Extracts X X X X
X X X X Extracts X X X X
....curable u/s.292B of the Act. The same reasoning cannot be applied in the context of show cause notice u/s.274 of the Act. 6. Similarly the reliance by the learned DR on the decision of Hon'ble Supreme Court in the case of Skylight Hospitality LLP Vs. ACIT (2018) 92 taxmann.com 93(SC) is also misplaced as it was a decision rendered in the context of Sec.148 of the Act wherein the name of the erstwhile company which got converted into an LLP was mentioned. The defect was held to be curable and falling within the mischief of Sec.292B of the Act. This decision rendered in the context of Sec.148 of the Act in our view is not relevant in the present case. 6. The Hon'ble Karnataka High Court in the case of CIT & Anr. v. Manjunatha Cotton and Ginning Factory, 359 ITR 565 (Karn) has held that notice u/s. 274 of the Act should specifically state as to whether penalty is being proposed to be imposed for concealment of particulars of income or for furnishing inaccurate particulars of income. The Hon'ble High court has further laid down that certain printed form where all the grounds given in section 271 are given would not satisfy the requirement of law. The Court has also held that init....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... may attract both the offences and in some cases there may be overlapping of the two offences but in such cases the initiation of the penalty proceedings also must be for both the offences. But drawing up penalty proceedings for one offence and finding the assessee guilty of another offence or finding him guilty for either the one or the other cannot be sustained in law. It is needless to point out satisfaction of the existence of the grounds mentioned in Section 271(1)(c) when it is a sine qua non for initiation or proceedings, the penalty proceedings should be confined only to those grounds and the said grounds have to be specifically stated so that the assessee would have the opportunity to meet those grounds. After, he places his version and tries to substantiate his claim, if at all, penalty is to be imposed, it should be imposed only on the grounds on which he is called upon to answer. It is not open to the authority, at the time of imposing penalty to impose penalty on the grounds other than what assessee was called upon to meet. Otherwise though the initiation of penalty proceedings may be valid and legal, the final order imposing penalty would offend principles of natural ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... civil liability. d) Existence of conditions stipulated in Section 271(1)(c) is a sine qua non for initiation of penalty proceedings under Section 271. e) The existence of such conditions should be discernible from the Assessment Order or order of the Appellate Authority or Revisional Authority. f) Even if there is no specific finding regarding the existence of the conditions mentioned in Section 271(1)(c), at least the facts set out in Explanation 1(A) & (B) it should be discernible from the said order which would by a legal fiction constitute concealment because of deeming provision. g) Even if these conditions do not exist in the assessment order passed, at least, a direction to initiate proceedings under Section 271(l)(c) is a sine qua non for the Assessment Officer to initiate the proceedings because of the deeming provision contained in Section 1(B). h) The said deeming provisions 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....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s recorded in the assessment proceedings in so far as "concealment of income" and "furnishing of incorrect particulars" would not operate as res judicata in the penalty proceedings. It is open to the assessee to contest the said proceedings on merits. However, the validity of the assessment or reassessment in pursuance of which penalty is levied, cannot be the subject matter of penalty proceedings. The assessment or reassessment cannot be declared as invalid in the penalty proceedings." (emphasis supplied) 7. It is clear from the aforesaid decision that on the facts of the present case that the show cause notice u/s. 274 of the Act is defective as it does not spell out the grounds on which the penalty is sought to be imposed. The Hon'ble Karnataka High Court in the case of CIT vs. SSA's Emerald Meadows in ITA No.380 of 2015 dated 23.11.2015 wherein the Hon'ble Karnataka High Court following its own decision in the case of CIT vs Manjunatha Cotton and Ginning factory (2013) 359 ITR 565 took a view that imposing of penalty u/s 271(1)(c) of the Act is bad in law and invalid for the reason that the show cause notice u/s 274 of the Act does not specify t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....proceedings initiated u/s 271(1)(c), 271B separately' stated in the re-assessment order, cannot be regarded as 'direction for initiation of penalty proceedings'. 7.4. Without prejudice to the above, the expression "penalty proceedings initiated' u/s 271(1)(c), 271B separately' stated in the re-assessment order does not name the exact nature of alleged offence, i.e. concealment or furnishing of inaccurate particulars." 11. The ld. counsel for the assessee brought to our notice that in the order of assessment concluded u/s. 143(3) r.w.s. 148 of the Act, the AO has merely observed in all the 3 assessment orders as follows:- "Penalty proceedings u/s. 271(1)(c), 271B, separately". He submitted that such initiation of penalty proceedings in the order of assessment does not reflect proper recording of satisfaction for initiating penalty proceedings and in this regard drew our attention to a decision of the Hon'ble High Court of Karnataka in the case of CIT V. MWP Ltd. [2014] 41 taxmann.com 496 (Kar). In this decision, on identical facts, the Hon'ble High Court of Karnataka took a view that there is no recording of proper satisfaction, if in the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....order of assessment or reassessment and the said order contains a direction for initiation of penalty proceedings under clause (c) of sub-section (1), such an order of assessment or reassessment shall be deemed to constitute satisfaction of the Assessing Officer for initiation of the penalty proceedings under the said clause (c)." 49. By the aforesaid deeming provision a legal fiction is created. When the assessment order contains a direction for initiation of penalty proceedings such order shall deem to constitute satisfaction of the Assessing Officer for initiation of penalty proceedings under sub-clause (c) of Section 271 of the Act. As the language of Section 271 makes it clear before a direction is issued to pay penalty, the person issuing the direction must be satisfied about the condition mentioned in clause (c) of Section 271(1). The question is, whether such satisfaction should be in writing. As the satisfaction has to be in the course of any proceedings and it is at the time of computation of the total income of any person and as it results in an assessment order which has to be mandatorily in writing, the satisfaction should be found in the said order. ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....al statutes are to be construed strictly and more so the deeming provisions by way of legal fiction are to be construed more strictly. They have to be interpreted only for the said issue for which it has deemed and the manner in which the deeming has been contemplated to be restricted in the manner sought to be deemed. As the words used in the legal fiction or the deeming provisions of Section 271(1B) is Direction, it is imperative that the assessment order contains a direction. Use of the phrases like (a) penalty proceedings are being initiated separately and (b) penalty proceedings under Section 271(1)(c) are initiated separately, do not comply with the meaning of the word direction as contemplated even in the amended provisions of law. The direction should be clear and without any ambiguity. The word 'direction' has been interpreted by the decision of the Apex Court in the case of Rajinder Nath v. CIT [1979] 120 ITR 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 s....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the amended provisions of law. The direction should be clear and without any ambiguity. The word 'direction' has been interpreted by the decision of the Apex Court in the case of Rajinder Nath v. CIT [1979] 120 ITR 14/2 Taxman 204, 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 co-owners 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. 13. In the absence of such a direction, the deeming provision is not attracted. Therefore the conditions prescribed under Section 271(1)(c) of the Act, is not attracted. Therefore the Tribunal was justified in setting aside the order passed by the Assessing Authority as well as the Appellate Authority, imposing penalty. No merits. Dismissed. The substantial question of law is answered in favour of the assessee and against the Revenue." 12. He also brought to our notice identical decis....