Relevant Extract of the Judgment
3. The relevant facts are that a search & seizure operation was conducted at the premises of the assessee and its group company on 18.02.2011. In response to the notice issued under sec. 153A, the assessee furnished return of income along with year-wise bifurcation of Rs.10 crores surrendered by the assessee immediately after the completion of search. The Assessing Officer framed assessments under 153A accepting the returns of income filed for the assessment years under consideration. The Assessing Officer thereafter initiated penalty proceedings under sec. 271(1)(c) of the Income-tax Act, 1961 and levied the penalty for the assessment years under consideration. The aggrieved assessee approached the first appellate authority but could not succeed. The action of the learned CIT(Appeals) in upholding the penalty levied by the Assessing Officer for these assessment years has been questioned by the assessee before the ITAT.
Penalty under Section 271(1)(c) of Income TAx Act, 1961 cannot be imposed if Assessing Officer does not specify whether the penalty is for “concealment of income” or for “furnishing inaccurate particulars
7. We have considered the rival arguments made by both the sides, perused the orders of the Assessing Officer and the CIT(A) and the Paper Book filed on behalf of the assessee. We have also considered the various decisions cited before us. The learned counsel for the assessee drew out attention to the show cause notice issued u/s. 274 of the Act before imposing penalty and submitted that the said notice doe s not specify as to whether the assessee is guilty of having “furnished inaccurate particulars of income” or of having “concealed particulars of such income”. He pointed out that show cause notice does not strike out the irrelevant portion viz., “furnished inaccurate particulars of income” or “concealed particulars of such income”. He further drew attention to the assessment order also stating that there is no charge specified in the assessment order itself. He drew our attention to a decision of the Hon’ble’ Karnataka High Court in the case of CIT v. Manjunatha Cotton & Ginning Factory (2013) 218 Taxman 423 (Kar.) wherein it was held that if the show cause notice u/s. 274 of the Act does not specify as to the exact charge viz., whether the charge is that the assessee has “furnished inaccurate particulars of income” or “concealed particulars of income” by striking out the irrelevant portion of pointed show cause notice, then the imposition of penalty on the basis of such invalid show cause notice cannot be sustained. To examine this argument of the ld. AR we firstly examine facts for assessment year 2006- 2007, The assessment under section 153A (1) (b) of the income tax act was framed on 28/03/2013 wherein returned income under section 153A is accepted as assessed income. While initiating the penalty proceedings under section 271 (1) (C), Ld. assessing officer in assessment order has stated that the assessee has not disclosed this income is Suo Moto but for the search this income would not have been unearthed. Hence he was satisfied that the penalty under section 271 (1) (C) read with expression 5A of the income tax act has to be initiated for which notice under section 271 (1) (C) is being issued separately. Then he went on to say that :-
“ However as discussed above, I am satisfied that the assessee is liable for facing penalty proceedings under section 271 (1) ( c) of the income tax act 1961 read with explanation 5A thereto, with regards to the addition of Rs. 2535000/- as detailed above and accordingly penalty proceedings are being initiated separately for the issue of notice under section 274 of the act.”
Further at the end of the assessment order it has been stated that in respect of income is disclosed to tax/additions made a separate notice under section 274 read with section 271 (1) ( c ) is issued in respect of all the disclosures/additions above. The first contention raised by Ld. authorized representative is that in the notice issued there is no reference about whether the show cause is for furnishing of inaccurate particulars of income or concealment of income. Therefore he submitted that when the charge made against the assessee is twin charge the notice is not a valid notice for levy of the penalty. Even if the para No. 8 of the penalty order is seen where it is mentioned as under :-
“8. The provisions of section 271 (1) (C) read with explanation 5A are clearly attracted as the assessee has concealed particulars, furnished inaccurate particulars of its income for the previous year 2005 – 06.”
From above it is apparent that even at the time of initiation of penalty proceedings as well as at the time of levy of penalty, the Ld. assessing officer is not sure whether he is levying penalty for furnishing of inaccurate particulars of its in income or concealment of the income. The learned counsel for the assessee drew out attention to the show cause notice issued u/s. 274 of the Act before imposing penalty and submitted that the said notice doe s not specify as to whether the assessee is guilty of having “furnished inaccurate particulars of income” or of having “concealed particulars of such income”. He pointed out that the pointed show cause notice does not strike out the irrelevant portion viz., “furnished inaccurate particulars of income” or “concealed particulars of such income”. He drew our attention to a decision of the Hon’ble’ Karnataka High Court in the case of CIT v. Manjunatha Cotton & Ginning Factory (2013) 218 Taxman 423 (Kar.) wherein it was held that if the show cause notice u/s. 274 of the Act does not specify as to the exact charge viz., whether the charge is that the assessee has “furnished inaccurate particulars of income” or “concealed particulars of income” by striking out the irrelevant portion of pointed show cause notice, then the imposition of penalty on the basis of such invalid show cause notice cannot be sustained. The Hon’ble Karnataka High Court in the case of CIT & Anr. v. Manjunatha Cotton and Ginning Factory, 359 ITR 565 (Karn), has held that notice u/s. 274 of the Act should specifically state as to whether penalty is being proposed to be imposed for concealment of particulars of income or for furnishing inaccurate particulars of income. The Hon’ble High court has further laid down that certain printed form where all the grounds given in section 271 are given would not satisfy the requirement of law. The Court has also held that initiating penalty proceedings on one limb and find the assessee guilty in another limb is bad in law. It was submitted that in the present case, the aforesaid decision will squarely apply and all the orders imposing penalty have to be held as bad in law and liable to be quashed. The Hon’ble Karnataka High Court in the case of CIT & Anr. v. Manjunatha Cotton and Ginning Factory (supra) has laid down the following principles to be followed in the matter of imposing penalty u/s.271(1)(c) of the Act.
“63. In the light of what is stated above, what emerges is as under :
(a) Penalty under section 271(1)(c) is a civil liability.
(b) Mens rea is not an essential element for imposing penalty for breach of civil obligations or liabilities.
(c) Willful concealment is not an essential ingredient for attracting civil
(d) Existence of conditions stipulated in section 271(1)(c) is a sine qua non for initiation of penalty proceedings under section 271.
(e) The existence of such conditions should be discernible from the assessment order or the order of the appellate authority or the revisional authority.
(f) Even if there is no specific finding regarding the existence of the conditions mentioned in section 271(1)(c), at least the facts set out in Explanation 1(A) and 1(B) it should be discernible from the said order which would by a legal fiction constitute concealment because of deeming provision.
(g) Even if these conditions do not exist in the assessment order passed, at least, a direction to initiate proceedings under section 271(1)(c) is a sine qua non for the Assessing Officer to initiate the proceedings because of the deeming provision contained in sub-section (1 B).
(h) The said deeming provisions are not applicable to the orders passed by the Commissioner of Income-tax (Appeals) and the Commis sioner.
(i) The imposition of penalty is not automatic.
(j) The imposition of penalty even if the tax liability is admitted is not
(k) Even if the assessee has not challenged the order of assessment levying tax and interest and has paid tax and interest that by itself would not be sufficient for the authorities either to initiate penalty proceedings or impose penalty, unless it is discernible from the assessment order that, it is on account of such unearthing or enquiry concluded by the authorities it has resulted in payment of such tax or such tax liability came to be admit ted and if not it would have escaped from tax net and as opined by the Assessing Officer in the assessment order.
(l) Only when no explanation is offered or the explanation offered is found to be false or when the assessee fails to prove that the explanation offered is not bona fide, an order imposing penalty could be passed.
(m) If the explanation offered, even though not substantiated by the assessee, but is found to be bona fide and all facts relating to the same and material to the computation of his total income have been disclosed by him, no penalty could be imposed.
(n) The direction referred to in Explanation 1(B) to section 271 of the Act should be clear and without any ambiguity.
(o) If the Assessing Officer has not recorded any satisfaction or has not issued any direction to initiate penalty proceedings, in appeal, if the appellate authority records satisfaction, then the penalty proceedings have to be initiated by the appellate authority and not the assessing authority.
(p) Notice under section 274 of the Act should specifically state the grounds mentioned in section 271(1)(c), i.e., whether it is for concealment of income or for furnishing of incorrect particulars of income
(q) Sending printed form where all the grounds mentioned in section 271 are mentioned would not satisfy the requirement of law.
(r) The assessee should know the grounds which he has to meet specifically. Otherwise, the principles of natural justice is offended. On the basis of such proceedings, no penalty could be imposed to the assessee.
(s) Taking up of penalty proceedings on one limb and finding the assessee guilty of another limb is bad in law.
(t) The penalty proceedings are distinct from the assessment proceedings. The proceedings for imposition of penalty though emanate from proceedings of assessment, it is independent and separate aspect of the proceedings.
(u) The findings recorded in the assessment proceedings in so far as “concealment of income” and “furnishing of incorrect particulars” would not operate as res judicata in the penalty proceedings. It is open to the assessee to contest the said proceedings on the merits. However, the validity of the assessment or reassessment in pursuance of which penalty is levied, cannot be the subject matter of penalty proceedings. The assessment or reassessment cannot be declared as invalid in the penalty proceedings.”
[underline supplied by us]
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. Even The assessment order is also silent on this aspect. Therefore in the complete assessment proceedings as well as penalty proceedings against the assessee that whether it has furnished inaccurate particulars of income or has concealed particulars of income. The provisions of penalty proceedings cannot be distinctly applied in assessments related to search and other regular assessment. Therefore the principles laid down by the decision of Hon’ble Karnataka High Court also squarely applies to the facts of the present case even though exploration 5A of section 271(1)(C) is invoked. Similar view has been taken by other coordinate benches in following decisions:-
1) DCIT Central circle versus Shaym Sundar Dhanuka 1869 – 1 870/KOL/201 3
2) Champa Goel Vs ACIT ITA No 696/Chd/2012
3) Nisheeth Kumar Jain versus ACIT ITA 961 – 964/KOL/2013
4) Harishkumar Sarogi V DCIT ITA No 1222-1226/Kol/2011 & 1496- 1499/Kol/201 1
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.
