Dharni Developers, Bhiwandi vs Assessee

BEFORE HON'BLE S/SHRI H.L. KARWA, PRESIDENT AND B.R.BASKARAN (AM) सव ी एच.एल. कावा, अ य एवं बी.आर.बा करन, लेखा सद य

आयकर अपील सं./I.T.A. No.1848 to 1851/Mum/2012 ( नधारण वष / Assessment Years :2003-04 to 2006-07)

M/s Dharni Developers बनाम/ Asstt. Commissioner of Income S No.131, Ground Floor, Vs. Tax, Central Circle, Dharni Arcade, Thane. Villae Rahnal, Anjur Phata, Bhivandi-421302 (अपीलाथ /Appellant) .. ( यथ / Respondent)

थायी ले ख ा सं . /जीआइआर सं . /PAN/GIRNo. :AADFD6145N

अपीलाथ ओर से / Assessee by : Shri Dharmesh Shah यथ क ओर से/Respondent by : Shri.Manjunatha Swamy

सन ु वाई क तार ख / Date of Hearing : 28.10.2014 घोषणा क तार ख /Date of Pronouncement : 07.01.2015

आदे श / 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 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 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.

घोषणा खल ु े यायालय म दनांकः 7th Jan 2015 को क गई ।

sd sd

(एच.एल. कावा/ H.L. KARWA) (बी.आर. बा करन,/ B.R. BASKARAN) अ य / PRESIDENT लेखा सद य/Accountant Member मब ुं ई Mumbai: 7th Jan, 2015.

व. न.स./ SRL , Sr. PS

आदे श क त ल प अ े षत/Copy of the Order forwarded to : 1. अपीलाथ / The Appellant 2. यथ / The Respondent. 3. आयकर आयु त(अपील) / The CIT(A)- concerned 4. आयकर आयु त / CIT concerned 5. वभागीय त न ध, आयकर अपील य अ धकरण, मब ुं ई / DR, ITAT, Mumbai concerned 6. गाड फाईल / Guard file.

आदे शानस ु ार/ BY ORDER, true copy सहायक पंजीकार (Asstt. Registrar) आयकर अपील य अ धकरण, मंब ु ई /ITAT, Mumbai