Mahaveerchand Jain Vs DCIT (ITAT Chennai)
Facts- The assessee being resident individual was assessed u/s 143(3) r.w.s. 147 of the Act wherein the income was assessed at Rs.20.47 Lacs after certain additions of unexplained cash deposits in the bank account of the assessee. The assessee was engaged in the business of auctioneering under the name ‘Kankaria Auctioneers’. Pursuant to search action on Shri Jaswant Chand Bhandari on 12.08.2004, it was found that the said group sold jewellery and diamonds through ‘Kankaria Auctioneers’. Accordingly, the assessee’s case was reopened wherein it was found that cash was deposited by the assessee in his account with Vijaya Bank. The assessee could not explain the source of cash deposit but submitted that the income portion is only the margin / commission earned out of such auction sales. However, rejecting the same, Ld. AO added cash deposits in the hands of the assessee. The additions were confirmed in first appellate order.
Consequently, penalty proceedings were initiated against the assessee and notice u/s 274 r.w.s. 271(1)(c) was issued on 30.03.2006. Though the assessee opposed penalty, however, Ld. AO found it fit case for levy of penalty u/s 271(1)(c) and accordingly, a penalty of Rs.5.50 Lacs was proposed in penalty order dated 25.03.2014. Aggrieved, the assessee agitated the penalty before Ld. CIT(A).
Conclusion- Held that since no specific charge was framed either in the show-cause notice or in the body of penalty order and there was failure on the part of Ld. AO to frame specific charge against the assessee, the penalty would not be sustainable in the eyes of law. By deleting the impugned penalty, we allow the appeal.
FULL TEXT OF THE ORDER OF ITAT CHENNAI
1. Aforesaid appeals by assessee for Assessment Years (AY) 199899 to 2005-06 arises out of the common order passed by the learned Commissioner of Income Tax (Appeals)-18, Chennai [CIT(A)] on 21.09.2020 confirming penalty u/s. 271(1)(c) of the Act as levied by the Ld. AO vide separate orders.
2. The facts leading to penalty are pari-materia the same in all the years and therefore, adjudication in any one year shall be equally applicable to the other years also. For the purpose of adjudication, facts from AY 1998-99 have been considered in the appeal. The grounds raised by the assessee read as under:
1. The order of the learned Commissioner of Income (Appeals)-18, is wrong, illegal and is opposed to law. The learned Commissioner (Appeals) erred in law and on facts in confirming the action of learned assessing officer in levying penalty under section 271(1)(c).
2. The learned Commissioner Of Income (Appeals)-18 ought to have seen that the appellant has neither furnished inaccurate particulars of income nor has concealed the particulars of income warranting levy of penalty under section 271 (1)(C) .
3. The learned CIT(A)-18 ought to have seen that the penalty proceedings is deemed to have been initiated only with the issue of notice under section 274 r.w.s 271(1)(C) and that the said notice should specifically state the reasons for levy of penalty. Failure on the part of the AO to specifically state the reasons under which limb the penalty is levied would tantamount to failure to record satisfaction as well as nonapplication of mind thereby making the said levy illegal and opposed to law. In in the instant case the penalty notice suffers from aforesaid infirmity
4. The learned Commissioner (Appeals) erred in law and on facts in confirming the action of learned assessing officer in levying penalty under section 271(1)(c) solely on the basis that additions made in assessment order stands confirmed. The learned 1st appellate authority failed to see that the penalty proceedings are independent of assessment proceedings and therefore penalty is not leviable merely on the ground that the additions made in the assessment proceedings are sustained.
5. The leaned Commissioner ought to have seen that penalty cannot be levied merely because an amount is not allowed or taxed as income as held by Hon’ble Supreme Court in the case of M/s Hindustan Steel Ltd. vs State of Orissa (1972) 83 ITR 26(SC) and decision of Hon’ble High Court of Delhi in Escorts Financc Ltd. (2009) 226 CTR (Del) 105. In the instant case the additions was confirmed in the assessment only due to non-production of certain details. However this alone cannot lead to levy of penalty.
6. The learned CIT(A) ought to have seen that the discretion to impose a penalty must be exercised judicially and that penalty should be imposed only in cases where the party acts deliberately in defiance of law, or is guilty of contumacious or dishonest conduct, or acts in conscious disregard of its obligation. In the instant case the quantum assessment is completed on the basis of disallowance of a certain claim made by the assessee which would neither mean that the assessee has concealed any income or furnished inaccurate particulars warranting levy of penalty.
7. The learned Commissioner (Appeals) ought to have seen that for sustaining penalty, the bona fide explanation of the assessee has to be considered and that merely because the assessment proceedings have been confirmed does not automatically mean that penalty u/s 271(1)(c) is justified, unless the case is strictly covered by s. 271(1)(c).
3.1 Drawing our attention to Ground No.3, the Ld. AR placed on record notices issued by Ld. AO u/s. 274 r.w.s. 271(1)(c) of the Act and submitted that no specific charge was made against the assessee which would vitiate the penalty proceedings as per settled legal position. Reliance has been placed on the decision of Hon’ble Madras High Court in Babuji Jacob vs ITO (430 ITR 259) as well as the decision of Hon’ble Bombay High Court in PCIT V/s Goa Coastal Resorts and Recreation (P.) Ltd (272 Taxman 157) against which revenue’s Special Leave petition (SLP) has already been dismissed by Hon’ble Supreme Court which is reported at 130 Taxmann.com 379.
3.2 The Ld. Sr. DR, on the other hand, relied on the decision of the Hon’ble High Court of Madras in M/s. Gangotri Textiles Ltd vs DCIT (121 Taxmann.com 171) as well as another decision in Sundaram Finance Ltd. Vs. ACIT (93 Taxmann.com 250) against which the assessee’s SLP has already been dismissed by Hon’ble Supreme Court which is reported at 99 Taxmann.com 152.
3.3 Having heard the rival submissions and after due consideration of relevant material on record, our adjudication would be as under. The assessment for AY 1998-99 has been framed u/s 143(3) r.w.s. 147 of the Act whereas the assessment for AYs 1999-2000 to 2004-05 has been framed u/s 153C r.w.s. 143(3) of the Act whereas the assessment for AY 2005-06 has been framed u/s 153C r.w.s. 144 of the Act
Proceedings before Ld. AO
4.1 The assessee being resident individual was assessed u/s 143(3) r.w.s. 147 of the Act wherein the income was assessed at Rs.20.47 Lacs after certain additions of unexplained cash deposits in the bank account of the assessee. The assessee was engaged in the business of auctioneering under the name ‘Kankaria Auctioneers’. Pursuant to search action on Shri Jaswant Chand Bhandari on 12.08.2004, it was found that the said group sold jewellery and diamonds through ‘Kankaria Auctioneers’. Accordingly, the assessee’s case was reopened wherein it was found that cash was deposited by the assessee in his account with Vijaya Bank. The assessee could not explain the source of cash deposit but submitted that the income portion is only the margin / commission earned out of such auction sales. However, rejecting the same, Ld. AO added cash deposits in the hands of the assessee. The additions were confirmed in first appellate order.
4.2 Consequently, penalty proceedings were initiated against the assessee and notice u/s 274 r.w.s. 271(1)(c) was issued on 30.03.2006 which read as under: –
ITNS-29
NOTICE UNDER SECTION 274 READ WITH SECTION 271 OF THE
INCOME TAX ACT, 1961
OFFICE OF THE DEPUTY COMMISSIONER OF INCOME TAX
CENTRAL CIRCLE –II-(2), 46, NEW BUILDING, I FLOOR,
M.G. ROAD, CHENNAI – 34.
* * * * *
PAN NO: AALPK-3243-Q
Date: 30.03.2006
To
MAHAVEER CHAND JAIN
PROP M/S. KANKARIA AUCTIONEERS,
40 SACHIDANATHAM STREET,
KOSAPET, CHENNAI – 600 012.
Whereas in the course of proceedings before me for the assessment year 1998-99. It appears to me that you:-
* have without reasonable cause failed to comply with a notice under sub-section (1) of section 142 No. _________________ date ____ or sub-section (2) of section 143 No. _____________ dated or failed to comply with a direction issued under sub-section (2A) of section 142 no.____________ date____________ ü * have concealed the particulars of your Income or furnished inaccurate particulars of such income.
You are hereby requested to appear before me at 46, M.G. Road, Chennai -34 at 3 AM/PM on 04.05.2006 and show cause why an order imposing a penalty on you should not be made under section 271 of the Income Tax Act, 1961. If you do not wish to avail yourself of this opportunity of being heard in person or through authorized representative your may show cause in writing on or before the said date which will be considered before any such order is made under section 271.
(M. RAJASEKHAR IRS)
Deputy Commissioner of Income Tax,
Central Circle II(2), Chennai – 34.
4.3 Though the assessee opposed penalty, however, Ld. AO found it fit case for levy of penalty u/s 271(1)(c) and accordingly, a penalty of Rs.5.50 Lacs was proposed in penalty order dated 25.03.2014 by observing as under: –
“ The request of the assessee cannot be considered and is rejected as it is a fit case of levy penalty u/s 271(1)(c) of the Income Tax Act, 1961. I therefore propose to levy penalty u/s 271(1)(c) as per law I therefore levy a penalty of
Rs.5,50,000/- u/s 271(1)(c) of the Income Tax Act, 1961.”
Aggrieved, the assessee agitated the penalty before Ld. CIT(A).
Appellate proceedings
5.1 During appellate proceedings, it transpired that the assessee’s quantum appeals were dismissed by the Tribunal vide order dated 09.04.2014. The assessee challenged the correctness of impugned penalty on various grounds. The assessee, inter-alia, submitted that none of the cash deposits were his moneys but the money of others routed through his bank account against commission. It was also submitted that the aforesaid facts were not properly considered in the Tribunal’s order. The assessee also submitted that findings in the assessment proceedings do not by itself lead to the inference that there is concealment of income. Assessment and penalty proceedings are independent of each other and imposition of penalty does not automatically flow from quantum additions.
5.2 The status of returned income and assessed income was tabulated as follows: –
