Case Law Details
Brief of the Case
ITAT Pune held In the case of Shri Ajit Ramchandra Jadhav. vs. ACIT that the order initiating the penalty proceedings has to be a different order and has to be passed by the person, who has made the addition / assessment in the hands of the assessee. In case the said person is CIT (A), then he is competent to initiate the penalty proceedings and also competent to levy the penalty by passing a separate order, but the CIT (A) is not competent to initiate and levy the penalty for concealment under section 271(1) (c) by the same order while deciding the appeal against the order levying penalty for concealment passed by the Assessing Officer under section 271(1)(c).The CIT (A) in the present case has exceeded the jurisdiction and we find no merit in the order passed by the CIT (A).
Facts of the Case
The assessee had furnished the return of income on 18.12.2003 declaring total income of Rs.82,842/-. The said return of income was processed under section 143(1). Survey action under section 133A was carried out at the premises of the assessee and declaration of additional income of Rs.1.75 crores was made by the assessee. Pursuant to the issue of notice under section 148, the assessee filed revised return on 05.11.2009 declaring total income of Rs.1,25,39,650/- and agricultural income of Rs.3,26,988/-. The case of the assessee was taken up for scrutiny. The Assessing Officer notes that the assessee had credited a sum of Rs.1.42 crores to its Profit & Loss Account being the declaration account.
The assessee was asked to furnish the basis of declaration of additional income of Rs.1.42 crores as against the declaration made during the survey of Rs.1.75 crores. The assessee explained the said offer of Rs.1.42 crores. The Assessing Officer accepted the explanation of the assessee and the declaration of Rs.1.42 crores of additional income. Thereafter, the Assessing Officer on verification of Balance Sheet noted that the assessee had shown investment in Hotel Varsha at Rs.51,98,433/-. After deliberating upon the various aspects of the said investment, an addition of Rs.23,01,567/- was made as unexplained expenditure from undisclosed sources and penalty proceedings under section 271(1)(c) were initiated against the assessee. Another issue noted by the Assessing Officer was agricultural income declared by the assessee and considering the facts and circumstances of the case, the agricultural income was restricted to the income shown in the original return of income and the difference of Rs.1,51,640/- was considered as income from unexplained sources and added to the income of the assessee. The Assessing Officer also initiated penalty proceedings under section 271(1) (c) in respect of the said addition.
The Assessing Officer considering the contention of the assessee and the nature of additions held the assessee to have furnished inaccurate particulars of income to the extent of Rs.24,53,207/- i.e. on account of addition of Rs.23,01,567/- plus Rs.1,51,640/-.The Assessing Officer thus levied penalty under section 271(1) (c) at Rs.7,72,759/-.
Contention of the Assessee
The ld counsel of the assessee submitted that the Assessing Officer completed the assessment on total income of Rs.1,49,92,850/- i.e. after making two additions of Rs.23,01,567/- and Rs.1,51,640/-. In respect of the additional income offered by the assessee in its revised return of income, though on lower level the Assessing Officer did not initiate any penalty proceedings under section 271(1)(c).
Further submitted that section 251(1) talks of the powers of CIT (A) to vary the quantum of penalty levied, which has already been levied. Also section 271(1)(c) requires that in the course of any proceedings, where the Assessing Officer / CIT(A) is satisfied, they have the power to initiate and impose the penalty under section 271(1)(c). As per the learned Authorized Representative for the assessee, the word used in proceedings in section means assessment or re-assessment passed by the Assessing Officer, 263 order passed by the Commissioner and / or enhancement order in quantum proceedings passed by the CIT(A). The learned Authorized Representative for the assessee pointed out that where the Assessing Officer did not initiate or did not levy any penalty for concealment, then even where the powers of the CIT(A) are co-terminus with the powers of the Assessing Officer, he has no power to levy penalty.
He placed reliance on the ratio laid down by Pune Bench of Tribunal in M/s. Vijay Builders Vs. ITO in ITA No.863/PN/2013, relating to assessment year 2008-09, order dated 25.02.2015. The learned Authorized
Representative for the assessee further referred to the provisions of section 275(1), which provided the time limit for levy of penalty under section 271(1)(c) and pointed out that for levying the penalty, there has to be two different proceedings i.e. first, completion of proceedings in which penalty was initiated and then, levy of penalty for concealment.
Contention of the Revenue
The ld counsel of the revenue submitted that where the CIT (A) was satisfied on account of revised return filed by the assessee, he had the power to initiate penalty proceedings under section 271(1)(c) of the Act. Our attention was drawn to the Explanation below section 251(1) of the Act. The learned Departmental Representative for the Revenue relied on the order of CIT (A).
He further submitted that the issue is covered by the decision of Hon’ble Karnataka High Court in CIT & Anr. Vs. Manjunath Cotton and Ginning Factory (2013) 359 ITR 565 (Kar), wherein, it has been held that the CIT (A) can initiate and levy penalty for concealment on any issue including an issue for which the Assessing Officer had not initiated the penalty, but the CIT( A) could not direct the Assessing Officer to initiate and levy penalty on any issue.
Held by CIT (A)
The CIT (A) held that the assessee was not liable for any levy of penalty under section 271(1)(c) of the Act on additions of Rs.23,01,567/- on account of alleged unexplained investment in Hotel Varsha.. The
Revenue is not in appeal against the said deletion of penalty by the CIT (A). The CIT (A) further held that the penalty on addition of Rs.1,51,640/- on account of excessive agricultural income claimed by the assessee was justified. The assessee is not in appeal against the said confirmation of penalty on the additions of Rs.1,51,640/-.
The CIT (A) thereafter noted that the Assessing Officer had not initiated or levied penalty on additional income declared by the assessee during the survey action on 22.11.2007 and in the return of income filed after survey action on 05.11.2009. The CIT (A) issued a notice under section 251 alleging that the Assessing Officer had failed to levy penalty under section 271(1)(c) of the Act on the undisclosed income of Rs.1,24,56,842/-, which had been revealed during the survey action and which has not been declared in the original return of income but which was declared in the revised return filed in response to notice under section 148 of the Act. Therefore, in view of the provisions of clause (b) to section 251(1) of the Act, the CIT(A) proposed to enhance the penalty under section 271(1)(c) of the Act on the undisclosed income of Rs.1,24,56,842/-
The CIT (A) thus held the assessee to have concealed its income in the original return of income which was filed pursuant to survey and the assessee was held to be liable to levy of penalty on the undisclosed income of Rs.1,24,56,810/-. Penalty of Rs.39,23,895/- was levied under section 271(1)(c) of the Act.
Held by ITAT
The perusal of the assessment order reflects that no penalty proceedings were initiated by the Assessing Officer in respect of the additional income offered by the assessee. However, the Assessing Officer initiated the penalty proceedings under section 271(1)(c) of the Act in respect of the other two additions made by it. As referred to by us in the paras hereinabove, out of the said two additions, penalty related to one addition has been deleted by the CIT (A) and in respect of the other addition, the penalty for concealment has been upheld. There was no appeal against the quantum proceedings pending before the CIT (A).
The provisions of section 271(1)(c) of the Act and its application has been considered by the Hon’ble High Court of Karnataka in CIT & Anr. Vs. Manjunath Cotton and Ginning Factory (2013) 359 ITR 565 (Kar) vide its judgment dated 13.12.2012. The Hon’ble High Court has elaborately considered the various principles relating to levy of penalty for concealment under section 271(1)(c) of the Act. The perusal of the said judgment reveals that while deliberating upon the statutory provisions of Income-tax Act with special reference to section 271, the Hon’ble High Court held that section 271 is a specific provision providing for imposition of penalties, and is a complete code in itself, regulating the procedure for the imposition of penalties prescribed. The proceedings have, therefore, to be conducted in accordance therewith, subject always to the rules of natural justice. The provisions for the assessment and levy of tax will not apply as such for the imposition of penalty.
The Hon’ble High Court further observed that from the section, it is clear that the said provision is attracted only when the conditions stipulated in section 271(1)(c) of the Act are attracted. In case the conditions are not fulfilled, there is no question of exercising power under the said provision to impose penalty. The Hon’ble High Court thereafter, deliberated upon the conditions which must exist before initiating the proceedings under section 271 of the Act. The Hon’ble High Court was of the view that levy of penalty is not a matter of course, it has been found that the assessee concealed any income. Where there is no concealment, or no material for concealment, no penalty can be imposed …., the mere addition to the taxable income would not automatically lead to an order of penalty.
Referring to the provisions of section 271(1B) of the Act, the Hon’ble High Court observed that the Legislature by inserting the said provisions had created a legal fiction and when the assessment order contains direction for initiation of penalty proceedings, such order shall be deemed to constitute satisfaction of the Assessing Officer for initiation of penalty proceedings under section 271(1)(c) of the Act. The Hon’ble High Court stressed that the assessment order itself, should contain a direction for initiation of penalty proceedings.
The Hon’ble High Court further observed that under the scheme of section 271(1)(c) of the Act, the persons who are authorized to compute income as well as initiate the proceedings are the Assessing Officer, CIT(A) or Commissioner in the course of revisionary jurisdiction. It was clarified by the Hon’ble High Court that Explanation (1) applies to all these three officers, whereas the deeming provision of sub-section 1(B) refers only to the Assessing Officer. Where the order of assessment is passed by the CIT(A) or the Commissioner, then in the course of the said proceedings, if they are satisfied that there is any concealment of particulars of income, then the said satisfaction must be stated in the said order. It is also in this facts the deeming provisions and Explanation (1) would apply and thereafter, the authority was entitled to initiate penalty proceedings under section 271(1)(c) of the Act.
The Hon’ble High Court very clearly laid down that the levy of penalty can be two stages i.e. during the course of assessment by the Assessing Officer or during the course of appeal or revision proceedings, where if the authority is satisfied regarding concealment and furnishing of inaccurate particulars, it is then that authority, which is satisfied, has to initiate penalty proceedings and thereafter pass orders in respect of the penalty to be imposed. The Hon’ble High Court also elaborated that the imposition of penalty may be done at the stage of assessment or at the stage of an appeal. At the assessment stage, the Assessing Officer has to issue notice to the assessee to show cause as to why penalty should not be levied and this notice has to be issued in the course of assessment proceedings. Thereafter, the imposition of penalty has also to be done by the Assessing Officer within prescribed time. Where the penalty proceedings are initiated during the course of appeal or revision proceedings, the authority who has to be satisfied is the authority in whose proceedings, the issue is examined and not any other authority. Further, levy of penalty has also to be done by the same authority, but by different proceedings.
Visiting the facts of the present case, the assessment in the case of the assessee before us was completed by the Assessing Officer, who did not record any satisfaction for initiating the penalty proceedings in respect of the addition made on account of differential amount of Rs.1.24 crores. The penalty order for concealment under section 271(1)(c) of the Act was also passed by the said Assessing Officer without levying any penalty on account of additional income. However, the CIT(A) while deciding the appeal against the order levying penalty under section 271(1)(c) of the Act was of the view that the penalty for concealment is also leviable on the additional income offered by the assessee in its return of income pursuant to Survey action. We find no merit in the exercise of jurisdiction by the CIT(A) in the present case, where the assessment proceedings were completed by the Assessing Officer and thereafter, no appeal was filed before the CIT(A) against the quantum addition and there were no proceedings before the CIT(A) vis-à-vis the quantum additions. The Assessing Officer levied penalty on two accounts and did not levy any penalty on account of additional income offered by the assessee. The CIT (A) while disposing off the appeal against the order of levy of penalty under section 271(1)(c) of the Act had no jurisdiction to initiate the penalty proceedings and thereafter, also complete the same.
The order initiating the penalty proceedings has to be a different order and has to be passed by the person, who has made the addition / assessment in the hands of the assessee. In case the said person is CIT (A), then he is competent to initiate the penalty proceedings and also competent to levy the penalty by passing a separate order, but the CIT (A) is not competent to initiate and levy the penalty for concealment under section 271(1)(c) of the Act by the same order while deciding the appeal against the order levying penalty for concealment passed by the Assessing Officer under section 271(1)(c) of the Act. The CIT (A) in the present case has exceeded the jurisdiction and we find no merit in the order passed by the CIT (A).
Admittedly, where the CIT (A) has completed the assessment during the course of appellate proceedings and he is satisfied that there is a case of concealment and furnishing of inaccurate particulars of income, then he can initiate the penalty proceedings. Thereafter, the CIT (A) is only competent to issue show cause notice to the assessee before levying the penalty under section 271(1)(c) of the Act and thereafter, levy the penalty for concealment, if the facts of the case so desire. In the facts of the present case before us, this is not the position. The assessment was completed by the Assessing Officer, who had not recorded any satisfaction for initiating the penalty for concealment under section 271(1)(c) of the Act, with regard to the additional income offered. Thereafter, in the order levying penalty also, the Assessing Officer had not levied any penalty. The CIT (A) while deciding the appeal against the order levying penalty under section 271(1)(c) of the Act was only abrest of the penalty order passed by the Assessing Officer and while deciding the said appeal, he had no jurisdiction to initiate and levy penalty under section 271(1)(c) of the Act on an issue against which, the assessment was made by the Assessing Officer.
Accordingly appeal of the assessee allowed.
