TaxTMI 
TaxTMI 
2024 (5) TMI 787
X X X X Extracts X X X X
X X X X Extracts X X X X
....ome Tax Act, 1961 are invalid if the show-cause notice does not specifically spell out the grounds for imposition of the proposed penalty?". Facts 4. Briefly stated facts of the present case are that a search was conducted by the income tax department on 23.11.2007 under section 132 (1) of the Act, 1961 against various persons and business concerns of "Thakur Prasad Sao Group of Chaibasa" at different locations of Chaibasa and Kolkata. A survey was conducted under section 133A of the Act was carried out simultaneously at different places of the Group at Joda (Orissa), Rourkela, Jamshedpur and Tirildih(Jamshedpur). The aforesaid Group is engaged in mining of iron ore, manufacturing of sponge iron and trading in liquor. In the course of search and seizure operations, Panchnama were drawn in the name of various assessees in the Group including the assessee herein. After the search and seizure operations, the respondent/assessee has disclosed income of Rs. 4,99,00,000/- through Sri R.P. Sao, director of the company for the assessment year 2006-07. A notice under section 153A of the Act was issued and assessment was completed determining total income of the respondent/assessee at ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....read with Explanation 5A of the Act is being issued separately. 6. The aforesaid assessment orders were followed by notices under section 271 (1) (c) read with section 274 of the Act, 1961. The respondent/assessee participated in the penalty proceedings for both the assessment years i.e. assessment years 2006-07 and 2007-08 and made submissions through his authorised representative, namely, Sri Manav Chhawchharia, FCA, as under - Submissions for assessment year 2006-07 in penalty proceeding (i) Total disclosure of Rs. 27 crores was made in the name of various assesses of the Sao Group. The company has admitted undisclosed income of Rs. 4,99,00,000/-for the A.Y. 2006-07. (ii) In the statement recorded u/s 132 (4) on 24-11-2007, Mr. R.P. Sao, Director of the Co. said that the ad-hoc disclosure of additional income of Rs. 4.99 Cores for the A.Y. 2006-07 was made on the expectations that no penalty u/s 271(0)(c) will be imposed upon it. (iii) Undisclosed income of Rs. 4,99,00,000/- was duly included in the return filed u/s 153A which is treated as return u/s 139. Assessment was also completed on the returned income; hence no question of penalty ar....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... year 2006-07. c) Pages 4 & 16 of the seized documents marked as TPS -9 indicates the difference between total sales and sales recorded in Regular Books in case of M/S D.D. International. Thus entries on those pages related to the previous year 2005-06 relevant to the A.Y. 2006-07. d) Assessee admitted during the course of search that expenditure under various heads were inflated to the extent of Rs. 4,79,05,925/- and the under-invoiced sale to the tune of Rs. 19,25,388/-, which was exposed from the seized documents and printout taken from the impounded laptop. These facts were neither recorded in the company's regular Books of a/cs nor in any regular books of a/cs of any other member of this Group. This was undisclosed income of the assessee Co. which was within the knowledge of the concerned Authorised Signatory as on 25-11-2006 & 13-10-2007 when the original and revised returns were filed. e) Thus, the assessee Co. has wilfully, deliberately and intentionally concealed the particulars of the income to the extent of Rs. 4,99,00,000/- for the A.Y. 2006-07 while filing the original on return of income on 25-11-2006 and revised return on 13-10-2007. ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rgeable to income tax the previous year relevant to the assessment year 2007-08." c) Pages 3, 4 & 15 of the seized documents marked as TPS-9 indicates the difference between total sales and sales recorded in Regular Books. Thus entries on those pages related to the previous year 2006-07 relevant to the A.Y. 2007-08. d) Assessee admitted during the course of search that expenditure under various heads were inflated which was exposed from the seized documents and printout taken from the impounded laptop, Hard Disks etc. These facts were neither recorded in the company's regular Books of a/cs nor in any regular books of a/cs of any other members of the Group. This was undisclosed income of the assessee Co. which was within the knowledge of the concerned Authorised signatory as on 31-10-2007 when the original and revised returns were filed. e) Thus, the assessee Co. has wilfully, deliberately and intentionally concealed the particulars of the income to the extent of Rs. 10.63 Crores for the A.Y. 2007-2008 while filing the original return of income on 31.10.2007. f) Apart from the above, the assessee has intentionally furnished inaccurate particul....
X X X X Extracts X X X X
X X X X Extracts X X X X
....fore the Income Tax Appellate Tribunal, Bench "A", Kolkata and both were allowed by order dated 23.3.2016 passed by the ITAT. The Tribunal allowed an appeal holding as under - 3.6.5 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. Following the decision of the Hon'ble Karnataka High Court, we hold that the orders imposing penalty in all the assessment years have to be held as invalid and consequently penalty imposed is cancelled. 3.6.6. For the reasons given above, we hold that the levy of penalty in the present case cannot be sustained. We therefore cancel the orders imposing penalty on the assessee and allow the appeals of the assessee. In view of our above conclusions on the issue of defect in show cause notice u/s 274 of the Act, we are not dealing with the other arguments made on merits of the orders imposing penalty on the assessee. 12. Aggrieved with the aforesaid order of the ITAT, the appellant/revenue has filed the present appeal. Submissions 13. Learned counsel for the ap....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 271. (1) If the [Assessing] Officer or the "[*] [Commissioner (Appeals)] [or the Commissioner] in the course of any proceedings under this Act, is satisfied that any person- (a) [ * * *] (b) * * * (c) has concealed the particulars of his income or [***] furnished inaccurate particulars of [such income, or] (d) * * * he may direct that such person shall pay by way of penalty- (i) [ * * *] (ii) in the cases referred to in clause (b), "[in addition to tax, if any, payable] by him, "[a sum of ten thousand rupees] for each such failure:] (iii) in the cases referred to in clause (c) "[or clause (d)], "[in addition to tax, if any, payable] by him, a sum which shall not be less than, but which shall not exceed [three times], the amount of tax sought to be evaded by reason of the concealment of particulars of his income [or fringe benefits] or the furnishing of inaccurate particulars of such income "[or fringe benefits]. Explanation 1.-Where in respect of any facts material to the computation of the total income of any person under this Act,- (A) such person fails to offer an explanation or offer....
X X X X Extracts X X X X
X X X X Extracts X X X X
....se, to furnish within the period specified in sub-section (1) of section 153 a return of his income which he is required to furnish under section 139 in respect of any assessment year commencing on or after the 1st day of April, 1989, and until the expiry of the period aforesaid, no notice has been issued to him under clause (i) of sub-section (1) of section 142 Commissioner or section 148 and the Assessing Officer or the Commissioner (Appeals) is satisfied that in respect of such assessment year such person has taxable income, then, such person shall, for the purposes of clause (c) of this sub-section, be deemed to have concealed the particulars of his income in respect of such assessment year, notwithstanding that such person furnishes a return of his income at any time after the expiry of the period aforesaid in pursuance of a notice under section 148.] Explanation 4.- For the purposes of clause (iii) of this sub-section, the expression "the amount of tax sought to be evaded",- (a) in any case where the amount of income in respect of which particulars have been concealed or inaccurate particulars have been furnished has the effect of reducing the loss declared ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e search, makes a statement under sub-section (4) of section 132 that any money, bullion, jewellery or other valuable article or thing found in his possession or under his control, has been acquired out of his income which has not been disclosed so far in his return of income to be furnished before the expiry of time specified in [**] sub-section (1) of section 139, and also specifies in the statement the manner in which such income has been derived and pays the tax, together with interest, if any, in respect of such income.] Explanation 5A.- Where in the course of a search initiated under section 132 on or after the 1st day of June, 2007, the assessee is found to be the owner of,- (i) any money, bullion, jewellery or other valuable article or thing (hereafter in this Explanation referred to as assets) and the assessee claims that such assets have been acquired by him by utilizing (wholly or in part) his income for any previous year; or (ii) any income based on any entry in any books of account or other documents or transactions and he claims that such entry in the books of account or other documents or transactions represents his income (wholly or in par....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ocedure.- (1) No order imposing a penalty under this Chapter shall be made unless the assessee has been heard, or has been given a reasonable opportunity of being heard. (2) No order imposing a penalty under this Chapter shall be made- (a) by the Income-tax Officer, where the penalty exceeds ten thousand rupees; (b) by the [Assistant Commissioner or Deputy Commissioner], where the penalty exceeds twenty thousand rupees, except with the prior approval of the [Joint Commissioner.] 18. From perusal of the provisions afore-quoted, it is clear that if the assessing officer or the Commissioner (Appeals) or the Commissioner, in course of any proceeding under this Act is satisfied that any person has concealed the particulars of his income or furnished inaccurate particulars of such income, he may direct that such person shall pay by way of penalty in addition to tax, if any, payable by him, a sum which shall not be less but which shall not exceed three times, the amount of tax sought to be evaded by reason of concealment of particulars of his income or the furnishing of inaccurate particulars of such income. 19. Explanation-5A as afore-quoted is a deeming ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....iscussed. The assessing officer initiated penalty proceedings and observed that "show cause notice under Section 274 for imposing penalty under Section 271 (1) (c) read with Explanation-5A of the Act, has been issued separately." 22. Likewise in the assessment order for the assessment year 2007-08 the assessee filed original return of income on 31.10.2007 i.e. about one month before the search dated 23.11.2007 in which concealed income of Rs. 13,16,25,370/- was detected. Then he filed return under Section 153A on 31.03.2009 admitting the aforesaid concealed income. The assessing officer discussed in detail the undisclosed concealed income of the assessee amounting to Rs. 13,16,25,370/- which was admitted by the assessee. In the assessment order, the assessing officer specifically mentioned that "penalty proceedings under Section 271 (1) (c) has been initiated and show cause notice under Section 274 for imposing penalty under Section 271 (1)(c) read with Explanation-5A of the Act is being issued separately." 23. Concluding portions of the findings of undisclosed/concealed income recorded by the Assessing Officer in the Assessment order for A.Y. 2007-08 are as under:- ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....culars of his income or had furnished incorrect particulars of such income. What is contemplated by clause (1) of Section 271 is that the Income Tax Officer or the Appellate Assistant Commissioner should have been satisfied in the course of proceedings under the Act regarding matters mentioned in the clauses of that sub-section. It is not, however, essential that notice to the person proceeded against should have also been issued during the course of the assessment proceedings. Satisfaction in the very nature of things precedes the issue of notice and it would not be correct to equate the satisfaction of the Income-tax Officer or Appellate Assistant Commissioner with the actual issue of notice. The issue of notice is a consequence of the satisfaction of the Income-tax Officer of the Appellate Assistant Commissioner and it would, in our opinion, be sufficient compliance with the provisions of the statute if the Income-tax Officer or the Appellate Assistant Commissioner tallied about the matters referred to in clauses (a) to (2) of sub-section (1) of Section 271 during the course of proceedings under the Act even though notice to the person proceeded against in pursuance of that sati....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... issuing, the consequential notice should have issued another notice to the assessee and held a preliminary enquiry regarding the necessity of initiating proceedings. Such a course, in our opinion, would result in mere duplication of the procedure without any advantage to the parties. A similar contention was advanced in a case relating to initiation of proceedings under Section 34 of the Indian Income-tax Act, 1922, and was repelled by the Judicial Committee in the case of Commissioner of Income-tax v. Mahaliram Ramjidas, in the following words: "Therefore, a construction of Section 34 which requires a quasi-judicial enquiry to be held before the powers under the section can be operated result in mere duplication of procedure and in two enquiries of the same kind, into the same matter, conducted by the same official, and without any advantage to the parties. A construction so unreasonable and unpractical ought not to be preferred when another construction is open. Accordingly, their Lordships are of opinion that the Income-tax Officer is not required by the section to convene the assessee, or to intimate to him the nature of the alleged escapement, or to give him an oppor....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... an assessee makes a voluntary disclosure of his concealed income, he had to be absolved from penalty. ... 12. The AO has to satisfy itself whether the penalty proceedings be initiated or not during the course of the assessment proceedings and the AO is not required to record his satisfaction in a particular manner or reduce it into writing. The scope of Section 271 (1) (c) has also been elaborately discussed by this Court in Union of India v. Dharamendra Textile Processors and CIT v. Atul Mohan Bindal." 27. In the present set of facts, the respondent assessee has concealed particulars of true income in his returns and it is only after the search and seizure operation was conducted and voluminous documentary evidences came in the hands of the Income Tax Department evidencing concealment of income by the assessee only then he surrendered certain amounts as undisclosed income in the return under Section 153A filed much subsequent to the search and seizure. Therefore, disclosure of income was not voluntary but it was on account of concealed income detected by the Income Tax Department. As observed by Hon'ble Supreme court in Mak Data Private Limited (supra), t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....returns of income or were not his concealed income, rather he admitted it as his undisclosed income attracting penalty under clause (c) of sub-section (1) of Section 271 of the Act, 1961. Legal Fiction 29. Section 271 (1B) as afore-quoted was inserted by Finance Act, 2008 (18 of 2008) with retrospective effect from 01.04.1989, which specifically provides that where any amount is added or disallowed in computing the total income or loss of the assessee in any order of assessment or re-assessment of the 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 proceeding under the said clause (c). In the present set of facts, the Assessing Officer has not only recorded detailed findings of undisclosed income of the assessee while passing the assessment order but also clearly mentioned under-invoicing of sales by the assessee in the books for the assessment year 2006-07 [Rs. 19,25,388/-] and for the assessment year 2007-08 [Rs. 43,02,020/-]. Expenditures under various heads were infl....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ll Pvt. Ltd. & Ors. JT 2002 (10) SC 55 (paragraph 23), Hon'ble Supreme Court held that when a legal fiction is created, it must be given full effect. Similar principle has been laid down by Hon'ble Supreme Court in M. Venugopal v. Divisional Manager, Life Insurance Corporation of India, Machilipatnam A.P. & Anr. JT 1994 (1) SC 281, Indian Oil Corporation v. Chief Inspector of Factories & Ors. etc. (1998) 5 SCC 738, Voltas Limited, Bombay v. Union of India & Ors. 1995 SCC (Supp) 2 498, Harish Tandon v. Additional District Magistrate, Allahabad, U.P. & Ors. (1995) 1 SCC 537, G. Viswanathan etc. v. Hon'ble Speaker, Tamil Nadu Legislative Assembly, Madras & Anr. (1996) 2 SCC 353, Prafulla Kumar Das & Ors. v. State of Orissa & Ors. JT 2003 (9) SC 477 [paragraph 47] and Ashok Leyland Ltd. v. State of Tamil Nadu & Anr. JT 2004 (1) SC 289 [paragraphs 64-70]. 31. In Sadashiv Dada Patil v. Purushottam Onkar Patil (D) by LRs. JT 2006 (9) SC 64 (paragraphs 27 to 30), Hon'ble Supreme Court observed that legal fiction should not be extended beyond the scope thereof or beyond the language by which created. It cannot be pushed too far to result in enormous or absurd position. In the pre....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the Act speaks for itself vide State of Uttar Pradesh and Ors. V. Dr. Vijay Anand Maharaj AIR 1963 SC 946 and Arul Nadar vs Authorised Officer, Land Reforms (1998) 7 SCC 157 (para 5). It is well known principle of construction of a statue that when the language used in the statue is unambiguous and on a plain grammatical meaning being given to the words in the statue, the end result is neither arbitrary nor irrational nor contrary to the object of the statue, then it is the duty of the court to give effect to the words used in the statue as the words declare the intention of the law making for best vide Jagdish Ch. Patnaik & Ors. V. State of Orissa & Ors. 1998 4 SCC 456 (para 24). In Molar Mal (Dead) Through LRS v. Kay Iron Works (P) Ltd. reported in (2000) 4 SCC 285 ( Para 12,15) Hon'ble Supreme Court observed that normally the courts will have to follow the rule of literal construction which rule enjoins the court to take the words as used by the legislature and to give it the meaning which naturally implies. An exception to this rule is that when an application of literal construction of the words in the statue leads to absurdity, inconsistency or when it is shown that the lega....
X X X X Extracts X X X X
X X X X Extracts X X X X
....then the penalty proceedings cannot be said to be bad. 37. In the present set of facts the assessing officer has noted in the assessment order the concealment of particulars of income by the respondent/assessee. Notices were also directed to be issued as has been observed in the assessment orders. Once, in the assessment order the assessing officer has mentioned concealment of particulars of income by the assessee, the notice under section 274 is merely consequential. The respondent/assessee was well aware of the grounds of concealment of income recorded in the assessment order which he admitted. Section 274 of the Act prohibits imposition of penalty unless the assessee has been heard or has been given a reasonable opportunity of being heard. It is admitted fact of the case that the respondent/assessee was heard by the assessing officer who passed the penalty order. The submissions made by the respondent/assessee before the assessing officer in penalty proceedings, have been noted by the assessing officer which have also been reproduced by us above. Thus, it is undisputed that the respondent/assessee has been heard. Under the circumstances, when a satisfaction has been recorded ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....eedings under Section 271AAB and on facts this Court found that no substantial question of law was involved. The next relied upon judgment is of this Court in ITAT 8 of 2019 decided on 26.02.2019 by which the appeal was dismissed on the ground that unless the charge against the assessee was specific, the same cannot be maintained. In the present set of facts, the charge against the assessee was specific that he has undisclosed income/concealed his income. Detail facts in this regard were mentioned in the assessment order. Pursuant to notice under Section 274, the assessee submitted specific reply in penalty proceedings under Section 271 (1) (c). Thus, the aforesaid order of the coordinate Bench is distinguishable on facts. The next relied upon order is of this Court in Principal Commissioner of Income Tax, Central-2 Kolkata v. Bijoy Kumar Agarwal (ITAT No. 272 of 2017) by which appeal was dismissed on the ground that the notice under Section 271 (1) (c) does not specify which of the two contraventions, the assessee is guilty of. In the present set of facts, the notice under Section 274 for imposition of penalty under Section 271 (1) (c) of the Act, 1961 was issued to the respondent....