TaxTMI 
TaxTMI 
2020 (2) TMI 1033
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....e notice and furnished his reply before AO on the charge of concealment of income. 2. Whether on the facts and in the circumstances of the case the CIT (A) is justified in holding that the penalty imposed by the AO is not sustainable because the order passed u/s 143(3) r.w.s. 153A does not specify under which limb the penalty is initiated. Nor does notice u/s 274 do so. The Appellant crave, leave or reserving the right to amend modify, alter add or forego any ground(s) of appeal at any time before or during the hearing of this appeal." 2. The brief facts leading to the controversy are that the assessee is engaged in the business of financing and is a Director in M/s. Shubhdeep Finance Co. Pvt. Ltd. and M/s. Prakash Deep Finance Co. Ltd. A search and seizure operation was carried out under section 132 of the IT Act in the case of the assessee as well as group concern on 31st July, 2012. During the course of search and seizure action certain documents were found revealing the nature of finance activities carried out by the assessee known as 100 days financing scheme. In the statement recorded under section 132(4) of the IT Act, the assessee surrendered an income of Rs. 10 crores....
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....her the AO has also made the additions during the assessment proceedings based on the seizure material itself. Therefore, the issue of validity of initiation of proceedings under section 271(1)(c) does not arise when the assessee himself has surrendered the income being undisclosed income. The ld. D/R has further contended that the ld. CIT (A) has admitted an additional ground regarding validity of initiation of penalty proceedings without giving an opportunity of hearing to the AO. Since the ld. CIT (A) has not adjudicated the matter on merits but deleted the penalty only on the legal issue and that too without giving an opportunity to the AO, therefore, there is a violation of principles of natural justice and Rule 46A of the IT Rules. Thus the ld. CIT/DR has contended that the matter may be remanded to the record of the ld. CIT (A) to decide the same afresh after granting an opportunity of hearing to the AO. The ld. D/R has further contended that even otherwise when the assessee has not raised this issue before the AO, then the same cannot be raised before the ld. CIT (A). In support of his contention, he has relied upon the decision of Delhi Benches of the Tribunal in case of V....
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....nishing inaccurate particulars of income. Thus the AO has issued show cause notice under section 274 read with section 271 of the IT Act for various defaults without striking off the irrelevant part of the said notice. Thus the AO was not sure about the charges for which the penalty proceedings were proposed to be initiated. He has further contended that neither in the show cause notice the AO has shown about the charges for levy of penalty nor in the penalty order passed under section 271(1)(c) the AO has given a definite finding. He has referred to the concluding para of the order dated 11.08.2017 passed under section 271(1)(c) of the Act and submitted that the AO has again stated that the penalty is levied under section 271(1)(c) for concealment of particulars of income or furnishing inaccurate particulars of such income to the extent of the respective amounts for each year. Therefore, the AO has given an identical finding for all these years whereby it is clear that the AO was not sure even at the time of passing the penalty order what default the assessee has committed. The ld. A/R has relied upon the decision of Hon'ble Jurisdictional High Court dated 6th December, 2016 in ca....
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.... penalty proceedings as the AO has not specified a default/charge in the show cause notice issued under section 274 read with section 271 of the Act and further no definite finding is given by the AO in the penalty order passed under section 271(1)(c). However, so far as the penalty levied by the AO in respect of the additions made to the total income of the assessee, this Tribunal in the quantum appeal vide order dated 30th July, 2018 has either deleted the said addition made by the AO or set aside the same to the record of the AO. The relevant findings of the Tribunal in ITA Nos. 922, 923 & 924/JP/2016 and ITA Nos. 935, 936 & 937/JP/2016 are in para 9, 22, 35 and 39 are as under :- "9. We have considered the rival submissions as well as relevant material on record. There is no dispute that prior to 19/6/2009, no evidence was found during the search and seizure action regarding any income on account of interest from 100 days finance scheme. Though, the assessee has not disputed the fact that the assessee has been carrying out this activity since long time and also shown the income in the books of account, however, the income shown in the books of account is not matching with t....
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.... case when the Assessing Officer as well as the ld. CIT(A) has accepted the fact that the assessee was suffering from the ailment and was undergoing the treatment of Tuberculosis during the period under consideration then the estimation made by the Assessing Officer as well as the confirmed by the ld. CIT(A) without any proper and reasonable basis and particularly in the reassessment proceedings U/s 153A is not permitted. Even the Assessing Officer has not worked out the income on basis of the funds available with the assessee and employed in the business activity by considering the corresponding application of income which was found during the course of search and seizure action as well as recorded in the books of account of the assessee. Therefore, when the Assessing Officer has not found any significant discrepancy in the income offered by the assessee and corresponding application of income then there is no reason for not accepting the income offered by the assessee. Accordingly, in facts and circumstances of the case when the addition was made by the Assessing Officer purely on ad hoc estimation and without any tangible material, the same is not sustainable and consequently is....
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....t the income declared by these persons in their return of income is only matching with the deposits and therefore, the entire source of deposit is not explained. It is pertinent to note that the assessment under consideration is reassessment U/s 153A of the Act and therefore, the addition of income can be made only on the basis of seized material. The cheque books found during the search and seizure action is not an evidence to disclose any undisclosed income of the assessee in the form of deposits of cash in the bank accounts of these persons. Only inference which can be drawn from the availability of cheque books with the assessee is that the assessee might have used the bank accounts of these persons. However, in absence of any documentary evidence of operating of the bank accounts by the assessee, the mere availability of cheque books with the assessee cannot be an evidence for making addition of the cash deposits in the accounts of these persons specifically when all these persons are regularly assessed to income tax. The assessee filed the return of income in support of explanation. Further the statement of one of these persons namely Shri Mahaveer Prasad Sharma was recorde....
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....recorded under common head in both i.e. the books of account as well as seized material. However, many items which were recorded in the seized material are not claimed in regular books of account. Therefore, it is evident from the comparative details of the expenditure that the entire expenditure which is recorded in the seized material has not been claimed in the books of account. We find that about 50% of the items which are recorded in the seized materials are not recorded in the books of account. However, the remaining items which are recorded in both seized material as well as books of account are under common heads, therefore it requires the verification and examination of further details of each and every sub-head of expenditure under a particular head. Hence, we find that the disallowance of the entire claim of the expenditure by the authorities below is contrary to the record and therefore uncalled for, though the possibility of some of the expenditure found in the seized material may also be claimed in the regular books of account cannot be ruled out. Therefore, to the extent of the expenditure, which is not claimed in the books of account and found recorded in the seized....
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....daughters and son can be a family dispute and can be settled mutually between themselves and has no bearing on the taxability of the income in the hands of the recipients. Therefore, once the amount was found duly credited in the bank account of Smt. Saraswati Devi Sharma and subsequently it was transferred in the account of the assessee then the transaction cannot be doubted. Even the source of credit in the account of mother in law is found during the search and seizure action. The assessee explained that during the last days of her life, she was residing with the assessee and her daughter Smt. Kalawati Sharma, wife of assessee and thus it is natural that all her belongings and valuables would be at the place of assessee. Accordingly, in view of the above facts and circumstances of the case, we are of the considered opinion that when the seized material itself shows the source of amount deposited in the bank account of Smt. Saraswati Devi Sharma by cheque and subsequent transfer from her account to the account of assessee, the same cannot be treated as undisclosed income of the assessee. Accordinlgy, we delete the addition made by the Assessing Officer on this account." In view ....
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....22(2)/34 of the Indian Income-tax Act, 1922 or which you were required to furnish under section 139(1) or by a notice given under section 139(2)/148/143(3) of the Income-tax Act, 1961, No._____ dated _____ or have without reasonable cause failed to furnish it within the time allowed and to the manner required by the said section 139(1) or such notice. *have without reasonable cause failed to comply with a notice under section 22(4)/23(2) of the Indian Income-tax Act, 1922 or under section 142(1)/143(2) of the Income-tax Act, 1961 No._____ dated 06.06.2012. *have concealed the particulars of your income or______ furnished inaccurate particulars or such income. Penalty u/s 271(1)(c) initiate for undisclosed income of the specified previous year. You are hereby requested to appear before me at 11.00 AM on 15-05-2015 and show cause why an order imposing penalty on you should not be made under section 271 of the Income-tax Act, 1961. If you do not wish to avail yourself of this opportunity of being heard in person or through your authorized representative you may show cause in writing on or before the said date which will be considered before any such order is made under section 2....
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....0 AM on 15-05-2015 and show cause why an order imposing penalty on you should not be made under section 271 of the Income-tax Act, 1961. If you do not wish to avail yourself of this opportunity of being heard in person or through your authorized representative you may show cause in writing on or before the said date which will be considered before any such order is made under section 271. Sd/- (Praveen Kumar Mittal) Asstt. Commissioner of Income-tax, Central Circle-2, Jaipur." "NOTICE UNDER SECTION 274 READ WITH SECTION 271 OF THE INCOME-TAX ACT, 1961. PIN - AGMPS 2776 H &nbs....
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....the IT Act and the concealment of particulars of income or furnishing inaccurate particulars of such income. The AO has also given the date of the notices issued under section 142(1)/143(2) as 06.06.2012. It is manifest from these show cause notices that this date of 06.06.2012 has no connection with the assessment proceedings of the assessee when notice under section 153A itself was issued on 10.03.2013. A bare reading of the show cause notice clearly shows that it was issued by the AO without application of mind and even without striking off the irrelevant part of said show cause notice. Although the show cause notice was not in the printed proforma but it was taken as a print out specifically in the name of the assessee. Thus giving the particulars of the assessee along with the PAN of the assessee in the show cause notice clearly shows that this notice was specifically issued to the assessee, however, the AO has grossly failed to even indicate for what default the show cause notice was issued to the assessee. Therefore, the show cause notice itself suffers from illegality of not specifying the default/charges for which the penalty proceedings were proposed to be initiated by t....
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.... law. Moreover the decision of the Delhi High Court in Ram Commercial Enterprises (6 supra) was also followed by the same High Court in Commissioner of Income Tax v. M.K. Sharma (9supra) and SLP (c) No. 17591 of 2008 filed against the said decision was dismissed by the Supreme Court on 18.7.2008. Applying the above principle that the assessing officer should record in the assessment order his satisfaction that the assessee had either concealed the income or furnished inaccurate particulars of income in his return before imposing penalty, we noticed that in the assessment orders passed by the assessing officer for the assessment year 198283 (which is the subject matter of I.T.T.A. No.29 of 2000) and for the assessment year 198384 (which is subject matter of I.T.T.A. No. 33 of 2000), no such satisfaction is recorded." 6. Another decision of Supreme Court in case of Dilip N. Shroff vs. Joint Commissioner of Income Tax & Anr. (2007) 291 ITR 519 (SC) it has been held as under : " It is of some significance that in the standard proforma used by the Assessing Officer in issuing a notice despite the fact that the same postulates that inappropriate words and paragraphs were to be dele....
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....has to specify the default/charge whether he propose to initiate the proceedings for concealment of income or furnishing inaccurate particulars of income. Even in the standard proforma used by the AO, the AO is required to delete the irrelevant and inappropriate word in the paragraph. Similarly, the Third Member decision of Amritsar Bench of the Tribunal in case of HPCL Mittal Energy Ltd. vs. ACIT (supra) has considered this issue and given the concluding finding in para 21 as under :- "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 stage of initiation of penalty proceedings of the precise charge as to 'concealment of particulars of income' or 'furnishing of inaccurate particulars of income'. In such circumstances, he may use slash between the two expressions at the time of initiation of penalty proceedings. However, during the penalty proceedings, he must get decisive, which should be reflected in the penalty order, as to whether the....
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.... held that the AO, has to give a notice as to whether he proposes to levy penalty for concealment of income or furnishing inaccurate particulars. He cannot have both the conditions and if it is so he has to say so in the notice and record a finding in the penalty order. 10. In that view of the matter, the issue is answered in favour of the assessee and against the department. In this regard, I have perused the said paras 59 to 61 of the Hon'ble Karnataka High Court in the case of Manjunatha Cotton & Ginning Factory (supra) and the same read as under: "NOTICE UNDER SECTION 274 59. As the provision stands, the penalty proceedings can be initiated on various ground set out therein. If the order passed by the Authority categorically records a finding regarding the existence of any said grounds mentioned therein and then penalty proceedings is initiated, in the notice to be issued under Section 274, they could conveniently refer to the said order which contains the satisfaction of the authority which has passed the order. However, if the existence of the conditions could not be discerned from the said order and if it is a case of relying on deeming provision contained in Exp....
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....unds 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 justice and cannot be sustained. Thus once the proceedings are initiated on one ground, the penalty should also be imposed on the same ground. Where the basis of the initiation of penalty proceedings is not identical with the ground on which the penalty was imposed, the imposition of penalty is not valid. The validity of the order of penalty must be determined with reference to the information, facts arid materials in the hands of the authority imposing the penalty at the time the order was passed and further discovery of facts subsequent to the imposition of penalty cannot validate the order of penalty which, when passed, was not sustainable. 61. The Assessing Officer is empowered under the Act to initiate penalty proceedings once he is satisfied in the course of any proceedings that there is concealment of income or furnishing of inaccurate particulars of total income under clause (c).Concealment, furnishing inaccurate particulars of income are different. Thus the Assessing Offic....
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....jurisdictional Hon'ble ITAT there cannot be other view to take but to hold that penalty imposed u/s 271(1)(c) is bad in law. The appellant thus succeed on legal ground/contention raised. The penalty is therefore directed to be deleted. No adjudication on merit of imposition of penalty U/s 271(1)(c) is considered necessary." In view of the facts and circumstances of the case as discussed above as well as various binding precedents, we do not find any error or illegality in the impugned order of the ld. CIT (A). 5.3. As regards the decision relied upon by the ld. D/R, we find that the Tribunal in case of Vijay Aggarwal vs. DCIT (supra) has held in para 16 and 17 as under :- "16. Coming to the plea taken for the first time before us that the penalty notice did not specify under which limb of the section the penalty proceedings have been initiated. In our considered opinion this issue was never raised before the first appellate authority and has been raised for the first time before the Tribunal. We agree with the DR that the question whether correct limb has been applied is a question of fact and not a question of law. For this proposition we draw support from the decision of ....
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....he assessee's case, as it is purely a question of fact. Apart from that, the assessee had at no earlier point of time raised the plea that on account of a defect in the notice, they were put to prejudice. All violations will not result in nullifying the orders passed by statutory authorities. If the case of the assessee is that they have been put to prejudice and principles of natural justice were violated on account of not being able to submit an effective reply, it would be a different matter. This was never the plea of the assessee either before the Assessing Officer or before the first Appellate Authority or before the Tribunal or before this Court when the Tax Case Appeals were filed and it was only after 10 years, when the appeals were listed for final hearing, this issue is sought to be raised. Thus on facts, we could safely conclude that even assuming that there was defect in the notice, it had caused no prejudice to the assessee and the assessee clearly understood what was the purport and import of notice issued under Section 274 r/w, Section 271 of the Act. Therefore, principles of natural justice cannot be read in abstract and the assessee, being a limited company, h....
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....e is not filed any reply on this issue. 5. It is clear that the additional income of Rs. 1,16,62,560/-declared in the return of income filed u/s 153A of the Act, is not a lumpsum declaration made by the assessee. In fact, additional income under a specific head viz., Other Sources which was not declared in the return of income u/s 139 has been declared in the ROI u/s 153A. Had the additional income been declared simply to buy peace of mind and to avoid litigation, such additional income would not have been backed up by specific and quantified difference in specific heads of income. The very fact that such additional income was related to specific heads in a quantified manner proves that the additional income declared in the return of income u/s 153A was based on particulars of income concealed in the ROI u/s 139. This fact also proves that the additional income declared u/s 153A was not to buy peace of mind and to avoid litigation. The fundamental contention raised by the assessee, therefore, fails. Consequently, the case laws cited and relied upon by the assessee, also do not find application in the instant case. 6. Now, So far as the legal position of proceedings u/s 271(1)(c....
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....the income declared subsequent to the search, which in the instant case is u/s 153A of the Act. Hence, for any assessee to say that for the purpose of imposition of penalty u/s 271(1)(c) in a search assessment, the original return of income filed u/s 139 cannot be considered, is wholly incorrect and is in direct contradiction to the mandate of explanation 5A to section 271(1)(c) of the Act. 10. As regards the contention of the assessee that no incriminating documents was found as a result of search indicating any undisclosed income nor any evidence was brought on record during course of assessment from which it could be alleged that assessee was having undisclosed income, it must be said that the basic thrust of such contention is to limit the scope of penalty u/s 271(1)(c) to the finding of incriminating documents during search. In raising this contention, the assessee is only partly correct to the limited extent of clause (i) of explanation 5A to section 271(1)(c).But, the said explanation also has a second limb to it as contained in clause (ii). According to clause (ii) of Explanation 5A to section 271(1)(c), in cases of search conducted after 01-06-2007, 'any income b....
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....s having undisclosed income. The AO while countering these contentions of the assessee has just referred to clause (ii) of Explanation 5A to section 271(1)(c). Therefore, the AO has not disputed these factual contentions of the assessee and also not referred to any incriminating material either in the assessment order or in the penalty proceedings so far as the additional income offered by the assessee in the return of income. It is pertinent to note that the Explanation 5A to section 271(1)(c) is deeming fiction which cannot be extended beyond the scope of the said provision. It is clear from the Explanation 5A that once any money, bullion, jewellery or other valuable article or thing or any income based on any entry in the books of account or other documents or transactions but the assessee has not declared the said income in the return of income filed prior to the date of search, then even if such income is declared in the return of income filed post search, the assessee would be deemed to have concealed the particulars of his income or furnished inaccurate particulars of income. Therefore, only when the conditions prescribed under Explanation 5A and particularly the income dis....