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IN THE INCOME TAX APPELLATE TRIBUNAL "D" BENCH, MUMBAI
BEFORE HON'BLE S/SHRI H.L. KARWA, PRESIDENT AND B.R.BASKARAN (AM)
.. , .. ,
./I.T.A. No.1848 to 1851/Mum/2012
( / Assessment Years :2003-04 to 2006-07)
M/s Dharni Developers / Asstt. Commissioner of Income
S No.131, Ground Floor, Vs. Tax, Central Circle,
Dharni Arcade, Thane.
Villae Rahnal,
Anjur Phata,
Bhivandi-421302
( /Appellant) .. ( / Respondent)
. / . / PAN/GIRNo. :AADFD6145N
/ Assessee by : Shri Dharmesh Shah
/Respondent by : Shri.Manjunatha Swamy
/ Date of Hearing
: 28.10.2014
/Date of Pronouncement : 07.01.2015
/ O R D E R
Per B.R.BASKARAN, Accountant Member:
All the four appeals filed by the assessee are directed against the
common order passed by the ld.CIT(A)-1, Thane confirming the penalty levied
u/s 271(1)( c ) of the Income Tax Act, 1961(the Act) for the assessment years
2003-04 to 2006-07.
2. At the time of hearing, the ld. counsel for the assessee invited our
attention to the additional ground raised by the assessee, wherein the assessee
had challenged the validity of penalty orders. The Ld A.R submitted that the AO
has stated in the assessment order for the years under consideration that the
assessee has "concealed its particulars of income and hence penal proceedings
2 ITA No.1848 to 1851/M/2012
are initiated under section 271(1)(c) of the Act". However, in the penalty order,
the AO has concluded that the assessee has deliberately furnished inaccurate
particulars of their income and accordingly levied penalty. The Ld A.R submitted
that the assessing officer has initiated penalty proceedings under one limb of the
provisions of sec. 271(1)(c) of the Act, but levied penalty under another limb
which is not permissible under the Act.
3. The ld. Counsel, by placing reliance on the decision of the Mumbai Bench
of the Tribunal in the case of Shri Samson Perinchery V/s ACIT in ITA
No.4625/Mum/2013 (AY-2003-04) dated 11.10.2013 and also on the decision of
the Hon'ble Karnaraka High Court rendered in the case of CIT V/s Manjunatha
Cotton and Ginning Factory (Karn) reported in 359 ITR 565 (Karn), submitted
that the AO should be clear as to the limb for which he has initiated penalty
proceedings. The ld. Counsel submitted that the AO having initiated penalty
proceedings for concealment of particulars of its income should not have levied
penalty for furnishing inaccurate particulars of income. Accordingly, he submitted
that the impugned penalty orders for all the assessment years under
consideration are liable to be set aside on this legal/technical ground.
4. On the contrary, the ld. DR submitted that the AO has issued penalty
notices by stating that "it appears to him that the assessee has concealed the
particulars of its income or furnished inaccurate particulars of income".
Accordingly, the ld. DR submitted that the assessing officer has initiated penalty
proceedings for both the defaults prescribed under sec. 271(1)(c) of the Act.
Accordingly he submitted that the assessee was not right in submitting that the
AO has initiated penalty proceedings for the default relating to concealment of its
particulars of income only. The ld. DR submitted that the AO, during the course
of penalty proceedings, has come to the conclusion that the assessee has
furnished inaccurate particulars of income. Accordingly the Ld D.R contended
that the these orders cannot be found fault on this legal/technical ground, since
the penalty proceedings have been initiated for both the defaults which fact is
evidence from the penalty notices issued by the assessing officer. The Ld D.R
further submitted that the two types of defaults mentioned in sec. 271(1)(c)
ultimately lead to evasion of tax through concealment of income and the penalty
is ultimately levied on the basis of amount of tax sought to be evaded. This is
3 ITA No.1848 to 1851/M/2012
very much made clear under Explanation 1 to sec. 271(1)(c), which provides for
deemed concealment of income.
5. We have heard the parties on this legal issue and perused the record. We
notice that the AO has observed as under in the assessment order relating to the
assessment year 2003-04:
"Since the assessee had not offered this amount of Rs.7,63,600/- in its
return of income file u/s 139(1) of the IT Act, the assessee has
concealed his particulars of income and penal proceedings are
initiated u/s 271(1)( c) of the Act."
Identical observations have been made by the AO in other years under
consideration also. Since the penalty notices are issued during the course of
assessment proceedings, in our view, the said notices have to be read along with
the assessment order. Accordingly, even if the assessing officer has failed to
strike down any one of the two defaults, the intention of the assessing officer for
initiating the penalty proceedings could be ascertained form the assessment
order. In all the years under consideration, the solitary addition made by the
assessing officer was related to unaccounted business receipts. The above said
observations made by the assessing officer in the assessment orders would
show that the penalty proceedings were initiated for "concealment of particulars
of income" only. However in the penalty order, the AO has concluded as under :
"Thus it is clear that the assessee has tried to evade the taxes on income
by filing inaccurate particulars of their income and thereby concealing the
same. I therefore, hold that the assessee in this case has deliberately
furnished inaccurate particulars of their income for relevant previous year
thereby attracting penalty provision u/s 271(1)(c) of the IT Act. I am
therefore, satisfied that this is a fit case for levy of penalty u/s 271(1)( c )
of the Act, 1961."
Thus, it can be noticed that the AO, after having initiated proceedings for
"concealing the particulars of income", has levied penalty for "furnishing of
inaccurate particulars of income".
6. At this stage, it is pertinent to refer to the decision of the Hon'ble Gujarat
High Court in the case of K.M.Bhatia (Quarry) V/s CIT reported in 193 ITR
379(Guj), wherein the Hon'ble Gujarat High Court has held that penalty
proceeding having been initiate on the ground of "furnishing inaccurate
4 ITA No.1848 to 1851/M/2012
particulars of income", imposition of penalty on the ground of "concealment of
income" was not justified. Identical view has been expressed by the Hon'ble
Gujarat High Court in the case of CIT V/s Lakhdhir Lalji [1972] 85 ITR 77 (Guj).
7. A co-ordinate Bench of the Mumbai Tribunal has also considered an
identical issue in the case of Shri Samson Perinchery (supra), wherein the AO
had initiated penalty proceedings for "furnishing inaccurate particulars of
income", however, levied penalty for "concealment of particulars of income".
The Co-ordinate Bench after considering the decision of Hon'ble Karnataka
High Court in the case of CIT V/s Manjunatha Cotton and Ginning Factory
(Karn) (supra) has observed and held as under :
"12. The above extracts reveal that the AO has not applied his mind to the
fact for which reason of the penalty, the notices were issued. The above
documents reveal that the penalty proceedings were initiated for "failure
to furnish inaccurate particulars of income and however, the
penalty was levied for concealment of income" .
12.1. In this regard, we have perused the said paras 59 to 61 of the
Honble 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
Explanation-1 or in Explanation-1(B), then though penalty proceedings are
in the nature of civil liability, in fact, it is penal in nature. In either event,
the person who is accused of the conditions mentioned in Section 271 should
be made known about the grounds on which they intend imposing penalty on
him as the Section 274 makes it clear that assessee has a right to contest
such proceedings and should have full opportunity to meet the case of the
Department and show that the conditions stipulated in Section 271(1)(c) do
not exist as such he is not liable to pay penalty. The practice of the
Department sending a printed form where all the ground mentioned in
Section 271 are mentioned would not satisfy requirement of law when
the consequences of the assessee not rebutting the initial presumption is
serious in nature and he had to pay penalty from 100% to 300% of the tax
liability. As the said provisions have to be held to be strictly construed,
notice issued under Section 274 should satisfy the grounds which he
has to meet specifically. Otherwise, principles of natural justice is offended
5 ITA No.1848 to 1851/M/2012
if the show cause notice is vague. On the basis of such proceedings, no
penalty could be imposed on the assessee.
60. Clause (c) deals with two specific offences, that is to say,
concealing particulars of income or furnishing inaccurate particulars of
income. No doubt, the facts of some cases 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(l)(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
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 or furnishing of inaccurate particulars of total
income under clause (c). Concealment, furnishing inaccurate particulars of
income are different. Thus the Assessing Officer while issuing notice has to
come to the conclusion that whether is it a case of concealment of income or
is it a case of furnishing of inaccurate particulars. The Apex Court in the case
of Ashok Pal reported in (2007) 292 ITR 11 (C) at page 19 has held that
concealment of income and furnishing inaccurate particulars of income carry
different connotations. The Gujarat High Court in the case of MANU
ENGINEERING reported in 122 ITR 306 and the Delhi High Court in the case
of VIRGO MARKETING reported in 171 Taxmann 156, has held that levy of
penalty has to be clear as to the limb for which it is levied and the
position being unclear penalty is not sustainable. Therefore, when the
Assessing Officer proposes to invoke the first limb being concealment, then
the notice has to be appropriately marked. Similar is the case for furnishing
inaccurate particulars of income. The standard proforma without striking of
the relevant clauses will lead to an inference as to non-application of mind."
13. From the above, it is clear that the penalty should be clear as to the
limb for which it is levied and the position being unclear here the penalty
is not sustainable. Therefore, considering the same, we are of the opinion
that the ground raised by the assessee should be allowed on technical
6 ITA No.1848 to 1851/M/2012
grounds. Accordingly, adjudication of the penalties on merits become an
academic exercise. Therefore, the grounds raised in all the six assessment
years are allowed."
8. In the instant cases also, we have noticed that the assessing officer has
initiated penalty proceedings under one default or limb of sec. 271(1)(c) of the
Act, but levied for another default or limb of that section. Consistent with the
view expressed by the Tribunal and High Courts, we hold that the impugned
penalty levied in all the years under consideration is not sustainable. Hence, we
do not find it necessary to address the issues urged on merits. Accordingly we
set aside the orders of Ld CIT(A) and direct the assessing officer to delete the
penalty levied u/s 271(1)(c) of the Act for all the years under consideration.
9 In the result, all the four appeals of the assessee stand allowed.
The above order was pronounced in the open court on 7th Jan,2015.
7th Jan 2015
sd sd
(.. / H.L. KARWA) (.. ,/ B.R. BASKARAN)
/ PRESIDENT /Accountant Member
Mumbai: 7th Jan, 2015.
. ../ SRL , Sr. PS
/Copy of the Order forwarded to :
1. / The Appellant
2. / The Respondent.
3. () / The CIT(A)- concerned
4. / CIT concerned
5. , , /
DR, ITAT, Mumbai concerned
6. / Guard file.
/ BY ORDER,
true copy
(Asstt. Registrar)
, /ITAT, Mumbai
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