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2016 (8) TMI 1492

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....rovisions of section 271[1][c] of the Act has not been complied with under the facts and circumstances of the case. 2.1 The learned Commissioner of Income-tax [Appeals] failed to appreciate the fact that the levy of penalty is not automatic and the learned assessing officer ought to have exercised his discretion before levying penalty under the facts and circumstances of the case. 2.2 The learned Commissioner of Income-tax [Appeals] failed to appreciate the fact that the Notice for initiation of penalty as to whether it is concealment of income or furnishing of inaccurate particulars of income is not discernable from the notice issued and consequently the learned Commissioner of Income-tax [Appeals] ought to have cancelled the order of penalty under the facts and circumstances of the case. 2.3 The learned Commissioner of Income-tax [Appeals] failed to appreciate that the penalty proceedings are independent with that of the assessment proceedings under the facts and circumstances of the case. 2.3 The learned Commissioner of Income-tax [Appeals] failed to appreciate that the appellant has neither concealed any income nor furnished inaccurate particulars of income to warra....

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....- The Assessing Officer initiated penalty proceedings u/s 271(1)(c) of the Act on account of above mentioned addition/disallowance and on account of unsecured loan amounting to Rs. 1,50,000/- which was not disclosed in the original return. The assessee filed an appeal with the CIT(A) against the order of assessment but the CIT(A) dismissed the appeal filed by the assessee confirming the additions made by the Assessing Officer. Consequently, the penalty proceedings were initiated by the Assessing Officer and after serving statutory notice and providing opportunity of hearing, order of penalty u/s 271(1)(c) r.w.s. 274 of the Act was passed by the Assessing Officer vide order dated 30.3.2012 thereby imposing penalty of Rs. 75,000/-. Aggrieved by the order of penalty, the assessee preferred appeal before the CIT(A) and CIT(A), after hearing the parties had partly allowed the appeal while finding no fault in the action of Assessing Officer in levying penalty u/s 271(1)(c) of the Act in respect of gift of Rs. 1 lac. Therefore, the Assessing Officer was directed to re-compute the amount of penalty leviable in respect of gift of Rs. 1 lac only. Aggrieved by the order of CIT(A), assessee ....

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....inappropriate words and parts of the notice, whereby it is not clear as to the default committed by the assessee, i.e. whether it is concealment of particulars of income or furnishing of inaccurate particulars of income that the penalty under section 271(1)(c) of the Act is sought to be levied. In this regard, we find that the Hon'ble High Court of Karnataka in its order in the case of M/s Manjunatah Cotton & Ginning Factory in ITA No.2546 of 2005 dated 13.12.2012, relied on by the assessee, has held that such a notice, as has also been issued in the case on hand, is invalid and the consequential penalty proceedings are also not valid. The relevant portion of their Lordships judgement at paras 59 to 62 thereof are extracted hereunder for reference: - "59. As the provision stands, the penalty proceedings can be initiated on various ground set 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 pas....

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....hould 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 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 and 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 o....

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...., we hold that the notice issued under section 274 r.w.s. 271 of the Act dated 30.12.2009 for A.Y. 2007-08 for initiating penalty proceedings under section 271(1)(c) of the Act in the case on hand is invalid and consequently, the penalty proceedings are also invalid. In this view of the matter, the additional ground raised by the assessee is allowed since the very basis for the levy of penalty under section 271(1)(c) of the Act has been held to be invalid, we are of the view that the other grounds of appeal at S.Nos. 1.1 to 2.1 (supra) raised by the assessee against the merits of the levy of penalty under section 271(1)(c) of the Act require no adjudication at this stage.  5. In the result, assessee's appeal for A.Y. 2007-08 is allowed." 7. We have analyzed and appreciated the orders passed by the coordinate bench of the Tribunal in the aforementioned case and point in dispute in the aforementioned case is identical with the point in dispute in the present case. The coordinate bench of the Tribunal has relied upon the judgment of the Hon'ble Karnataka High Court in the case of M/s. Manjunatha Cotton & Ginning Factory (supra) and has categorically held that very basis ....