Shri. K. Ramaswamy, Mysore V. Assistant Commissioner of Income Tax, Circle-2(1), Mysore

ITA 1867/BANG/2018

• Counselvise Citation: [2020] 111 COUNSELVISE.COM (IT) 5985 (ITAT-BANGALORE)
• Duration Of Justice: 1 year(s) 8 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-02-2020
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Assessment Year: 2010-2011
• Appeal Filed On: 30-05-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MANJEETH SINGH BENGALURU
• Keywords: Principle of natural justice; Initiation of penalty proceedings; Revenue expenditure; Set aside
• Section: 271(1)(c); 143(3); 92B; 133A; 250; 274; 271B; 13; 27; 148

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH : BANGALORE BEFORE SHRI N.V. VASUDEVAN, VICE PRESIDENT AND SHRI A.K.GARODIA, ACCOUNTANT MEMBER SL. NO. ITA NO. A.Y. APPELLANT V. RESPONDENT(S) 1. 2. 3. 4. 5. 1866/B/2018 1867/B/2018 1868/B/2018 959/B/2018 2527/B/2018 2008-09 2010-11 2012-12 2009-10 2011-12 SHRI K. RAMASWAMY. # 2930/1, K-23, NEAR ST. MARRYS CONVENT CIRCLE, JLB ROAD, MYSURU 570004 PAN:ADGPR5117A THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE 2(1), MYSURU - 570008 6. 7. 8. 966/B/2018 1869/B/2018 1870/B/2018 2007-08 2010-11 2011-12 SHRI. AJITH. R. # 567, ASHWINI, 1 ST CROSS, MARUTHI TEMPLE ROAD, KUVEMPUNAGARA, MYSURU -570023. PAN:AGP P R0788R THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE 1(1), MYSURU - 570008 APPELLANT BY : SHRI TATAKRISHNA, ADVOCATE. RESPONDENT BY : SHRI MANJEETH SINGH, ADDL . CIT(DR)(ITAT), BENGALURU. DATE OF HEARING : 04.02 .2020 DATE OF PRONOUNCEMENT : 12 .02 .2020 O R D E R PER BENCH ITA NOS.966, 1869 & 1870/BANG/2018 ARE APPEALS BY THE ASSESSEE AGAINST THE ORDERS DATED 28.9.2017, 28.2.2018 & 28. 02.2018 RESPECTIVELY OF THE CIT(APPEALS), MYSURU RELATING TO ASSESSMENT YEA RS 2007-08, 2010-11 & 2011-12 WHEREBY THE CIT(APPEALS) CONFIRMED THE OR DER OF AO IMPOSING PENALTY U/S. 271(1)(C) OF THE ACT. ITA NO.1866 TO 1870/B/18 & ORS. PAGE 2 OF 18 2. THE ASSESSEE IN THE ABOVE APPEALS IS MR.R.AJITH . HE IS ASSESSED IN THE STATUS OF AN INDIVIDUAL. HE IS ENGAGED IN REAL ESTATE BUSINESS. THERE WAS A SURVEY U/S. 133A OF THE INCOME-TAX ACT, 1961 [THE ACT] CONDUCTED IN THE CASE OF ASSESSEES FATHER MR.K.RAMASWAMY. THE SURVEY WAS CONDUCTED ON 22.7.2013. THE ASSESSEE HAD NOT FILED RETURN OF INCOME IN THE AFORESAID 3 ASSESSMENT YEARS AND THEREFORE NOTI CE U/S. 148 WAS ISSUED TO THE ASSESSEE ON 19.3.2014 FOR AY 2007-08, 23.9.2 013 FOR AY 2010-11 & 23.9.2013 FOR AY 2011-12. IN AY 2007-08 THE INCOME DECLARED IN THE RETURN WAS ACCEPTED, BUT IN AY 2010-11 & 2011-12, A SUM OF RS.10,000 WHICH WAS CLAIMED AS EXPENSES WAS DISALLOWED BY THE AO FOR WANT OF VOUCHERS. SINCE THE ASSESSEE HAD FILED RETURN OF I NCOME ONLY PURSUANT TO THE SURVEY, AND THEREAFTER BY ISSUE OF NOTICE U/S. 148 OF THE ACT, PENALTY PROCEEDINGS WERE INITIATED AGAINST THE ASSESSEE AND PENALTY WAS IMPOSED ON THE ASSESSEE U/S. 271(1)(C) OF THE ACT BY THE AO . THE ORDER OF AO WAS CONFIRMED BY THE CIT(APPEALS). 3. AGGRIEVED BY THE ORDERS OF THE CIT(A), THE ASSES SEE IS IN APPEAL BEFORE THE TRIBUNAL. IN THE APPEAL OR AY 2007-08 I N GROUND NO.7, AND FOR AY 2010-11 & 2011-12 IN GROUND NO.9, THE ASSESSEE H AS RAISED THE ISSUE THAT THE SHOW CAUSE NOTICE U/S. 274 OF THE ACT BEFO RE IMPOSING PENALTY DID NOT SPECIFY AS TO WHETHER THE PENALTY IS BEING INIT IATED FOR CONCEALING PARTICULARS OR FOR FURNISHING INACCURATE PARTICULAR S OF INCOME. COPY OF THE SAID SHOW CAUSE NOTICE HAS BEEN FILED BEFORE US AND IS PLACED AT PAGES 126 TO 128 OF THE PAPER BOOK. HE POINTED OUT THAT THE SHOW CAUSE NOTICE DOES NOT STRIKE OUT THE IRRELEVANT PORTION VIZ., F URNISHED INACCURATE PARTICULARS OF INCOME OR CONCEALED PARTICULARS OF SUCH INCOME. HE DREW OUR ATTENTION TO A DECISION OF THE HONBLE KARNATAK A HIGH COURT IN THE CASE OF CIT VS. 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., WHETH ER THE CHARGE IS THAT THE ITA NO.1866 TO 1870/B/18 & ORS. PAGE 3 OF 18 ASSESSEE HAS FURNISHED INACCURATE PARTICULARS OF I NCOME OR CONCEALED PARTICULARS OF INCOME BY STRIKING OUT THE IRRELEV ANT PORTION OF PRINTED SHOW CAUSE NOTICE, THAN THE IMPOSITION OF PENALTY ON THE BASIS OF SUCH INVALID SHOW CAUSE NOTICE CANNOT BE SUSTAINED. 4. WE HAVE ALSO PERUSED THE SHOW-CAUSE NOTICE ISSUE D U/S.274 OF THE ACT FOR ALL THE AFORESAID AYS 2007-08, 2010-11 & 20 11-12. THE AO IN THE SAID SHOW CAUSE NOTICE HAS NOT STRUCK OFF THE IRREL EVANT PORTION AS TO WHETHER THE CHARGE AGAINST THE ASSESSEE IS CONCEAL ING PARTICULARS OF INCOME OR FURNISHING OF INACCURATE PARTICULARS OF I NCOME. 5. THE LEARNED DR RELIED ON THE ORDER OF THE CIT(A) . HE PLACED RELIANCE ON THE DECISION OF THE HONBLE ITAT BANGAL ORE BENCH IN THE CASE OF SHRI P.M. ABDULLA VS. ITO ITA NO.1223 & 1224/BAN G/2012 ORDER DATED 17.10.2016 TAKING A VIEW THAT ABSENCE OF SPECIFIC M ENTION IN THE SHOW CAUSE NOTICE U/S.274 OF THE ACT ABOUT THE CHARGE U/ S.271(1)(C ) OF THE ACT IS NOT FATAL TO LEVY OF PENALTY U/S.271(1)( C) OF THE ACT. IN COMING TO THE AFORESAID CONCLUSION THE BENCH FOLLOWED DECISION OF HONBLE KARNATAKA HIGH COURT IN THE CASE OF CIT VS. SRI DURGA ENTERPR ISES (2014) TAXMANN.COM 442 (KARNATAKA). A CO-ORDINATE BENCH I N THE CASE OF SHRI A NAGARAJU (ITA NO.2196/BANG/2016 DATED 6/4/2018) , HAS CONSIDERED THE DECISION CITED BY THE LEARNED DR IN THE CASE OF P.M. ABDULLAH (SUPRA) AND HAS HELD THAT THE SAME IS CONTRARY TO THE DECISION OF HONBLE KARNATAKA HIGH COURT IN THE CASE OF MANJUNATHA COTTON & SPINNING MILLS LTD., (SUPRA) AND THEREFORE CANNOT BE FOLLOWED. THE DECISION REN DERED IN THE CASE OF SRI DURGA ENTERPRISES (SUPRA) WAS IN A TOTALLY DIFFEREN T CONTEXT OF DEFECT IN NOTICE ISSUED U/S.148 OF THE ACT WHEREIN THE AY WAS NOT MENTIONED AND PERIOD WITHIN WHICH THE RETURN WAS TO BE FILED WAS NOT MENTIONED. THE DEFECT WAS HELD TO BE CURABLE U/S.292B OF THE ACT. THE SAME REASONING CANNOT BE APPLIED IN THE CONTEXT OF SHOW CAUSE NOTI CE U/S.274 OF THE ACT. 6. SIMILARLY THE RELIANCE BY THE LEARNED DR ON THE DECISION OF HONBLE ITA NO.1866 TO 1870/B/18 & ORS. PAGE 4 OF 18 SUPREME COURT IN THE CASE OF SKYLIGHT HOSPITALITY LLP VS. ACIT (2018) 92 TAXMANN.COM 93(SC) IS ALSO MISPLACED AS IT WAS A DECISION RENDERED IN THE CONTEXT OF SEC.148 OF THE ACT WHEREIN THE NAME OF T HE ERSTWHILE COMPANY WHICH GOT CONVERTED INTO AN LLP WAS MENTIONED. THE DEFECT WAS HELD TO BE CURABLE AND FALLING WITHIN THE MISCHIEF OF SEC.2 92B OF THE ACT. THIS DECISION RENDERED IN THE CONTEXT OF SEC.148 OF THE ACT IN OUR VIEW IS NOT RELEVANT IN THE PRESENT CASE. 6. THE HONBLE 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 CONCEAL MENT OF PARTICULARS OF INCOME OR FOR FURNISHING INACCURATE PARTICULARS OF INCOME. THE HONBLE HIGH COURT HAS FURTHER LAID DOWN THAT CERTAIN PRINT ED FORM WHERE ALL THE GROUNDS GIVEN IN SECTION 271 ARE GIVEN WOULD NOT SA TISFY THE REQUIREMENT OF LAW. THE COURT HAS ALSO HELD THAT INITIATING PE NALTY PROCEEDINGS ON ONE LIMB AND FIND THE ASSESSEE GUILTY ON ANOTHER LIMB O F SEC.271(1)( C) OF THE ACT. THE HONBLE 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 O F IMPOSING PENALTY U/S.271(1)(C) OF THE ACT. NOTICE UNDER SECTION 274 59. AS THE PROVISION STANDS, THE PENALTY PROCEEDING S CAN BE INITIATED ON VARIOUS GROUND SET OUT THEREIN. IF THE ORDER PASSED BY THE AUTHORITY CATEGORICALLY RECORDS A FIN DING REGARDING THE EXISTENCE OF ANY SAID GROUNDS MENTION ED 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 N OT BE DISCERNED FROM THE SAID ORDER AND IF IT IS A CASE O F RELYING ON DEEMING PROVISION CONTAINED IN EXPLANATION-1 OR IN ITA NO.1866 TO 1870/B/18 & ORS. PAGE 5 OF 18 EXPLANATION-1(B), THEN THOUGH PENALTY PROCEEDINGS A RE IN THE NATURE OF CIVIL LIABILITY, IN FACT, IT IS PENAL IN NATURE. IN EITHER EVENT, THE PERSON WHO IS ACCUSED OF THE COND ITIONS MENTIONED IN SECTION 271 SHOULD BE MADE KNOWN ABOUT THE GROUNDS ON WHICH THEY INTEND IMPOSING PENALTY O N 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 FARM WHERE ALL THE GROUND MENTIONED IN SECTION 271 ARE MENTIONED WOULD NOT SATISFY REQUIREMENT OF LAW WHEN THE CONSEQUENCE S OF THE ASSESSEE NOT REBUTTING THE INITIAL PRESUMPTION IS SERIOUS IN NATURE AND HE HAD TO PAY PENALTY FROM 10 0% TO 300% OF THE TAX LIABILITY. AS THE SAID PROVISIONS H AVE 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 JUST ICE IS OFFENDED 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, TH AT IS TO SAY, CONCEALING PARTICULARS OF INCOME OR FURNISHING INACCURATE PARTICULARS OF INCOME. NO DOUBT, THE FAC TS OF SOME CASES MAY ATTRACT BOTH THE OFFENCES AND IN SOM E CASES THERE MAY BE OVERLAPPING OF THE TWO OFFENCES BUT IN SUCH CASES THE INITIATION OF THE PENALTY PROCEEDING S ALSO MUST BE FOR BOTH THE OFFENCES. BUT DRAWING UP PENAL TY PROCEEDINGS FOR ONE OFFENCE AND FINDING THE ASSESSE E 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 G ROUNDS MENTIONED IN SECTION 271(1)(C) WHEN IT IS A SINE QU A NON FOR INITIATION OR PROCEEDINGS, THE PENALTY PROCEEDI NGS SHOULD BE CONFINED ONLY TO THOSE GROUNDS AND THE SA ID 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 I S CALLED UPON TO ANSWER. IT IS NOT OPEN TO THE AUTHOR ITY, AT THE TIME OF IMPOSING PENALTY TO IMPOSE PENALTY ON T HE GROUNDS OTHER THAN WHAT ASSESSEE WAS CALLED UPON TO ITA NO.1866 TO 1870/B/18 & ORS. PAGE 6 OF 18 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 ALS O BE IMPOSED ON THE SAME GROUND. WHERE THE BASIS OF THE INITIATION OF PENALTY PROCEEDINGS IS NOT IDENTI CAL WITH THE GROUND ON WHICH THE PENALTY WAS IMPOSED, THE IMPOSITION OF PENALTY IS NOT VALID. THE VALIDIT Y OF THE ORDER OF PENALTY MUST BE DETERMINED WITH REFERENCE TO THE INFORMATION, FACTS AND MATERIALS I N 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 CANNO T VALIDATE THE ORDER OF PENALTY WHICH, WHEN PASSED, WAS NOT SUSTAINABLE. 61. THE ASSESSING OFFICER IS EMPOWERED UNDER THE AC T TO INITIATE PENALTY PROCEEDINGS ONCE HE IS SATISFIED I N THE COURSE OF ANY PROCEEDINGS THAT THERE IS CONCEALMENT OF INCOME OR FURNISHING OF INACCURATE PARTICULARS OF T OTAL INCOME UNDER CLAUSE (C). CONCEALMENT, FURNISHING INACCURATE PARTICULARS OF INCOME ARE DIFFERENT. THU S 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 PA I REPORTED IN 292 ITR 11 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 TAXMAN 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 ASS ESSING OFFICER PROPOSES TO INVOKE THE FIRST LIMB BEING CONCEALMENT, THEN THE NOTICE HAS TO BE APPROPRIATEL Y MARKED. SIMILAR IS THE CASE FOR FURNISHING INACCURA TE PARTICULARS OF INCOME. THE STANDARD PROFORMA WITHOU T STRIKING OF THE RELEVANT CLAUSES WILL LEAD TO AN IN FERENCE AS TO NON-APPLICATION OF MIND. ITA NO.1866 TO 1870/B/18 & ORS. PAGE 7 OF 18 8. THE FINAL CONCLUSION OF THE HONBLE COURT WAS A S FOLLOWS:- 63. IN THE LIGHT OF WHAT IS STATED ABOVE, WHAT EME RGES IS AS UNDER: A) PENALTY UNDER SECTION 271(1)(C) IS A CIVIL LIAB ILITY. B) MENS REA IS NOT AN ESSENTIAL ELEMENT FOR IMPOSING PENALTY FOR BREACH OF CIVIL OBLIGATIONS OR LIABILIT IES. C) WILLFUL CONCEALMENT IS NOT AN ESSENTIAL INGREDI ENT FOR ATTRACTING CIVIL LIABILITY. D) EXISTENCE OF CONDITIONS STIPULATED IN SECTION 271(1)(C) IS A SINE QUA NON FOR INITIATION OF PENAL TY PROCEEDINGS UNDER SECTION 271. E) THE EXISTENCE OF SUCH CONDITIONS SHOULD BE DISCERNIBLE FROM THE ASSESSMENT ORDER OR ORDER OF T HE APPELLATE AUTHORITY OR 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 EXPLANATIO N 1(A) & (B) IT SHOULD BE DISCERNIBLE FROM THE SAID ORDER WH ICH WOULD BY A LEGAL FICTION CONSTITUTE CONCEALMENT BEC AUSE OF DEEMING PROVISION. G) EVEN IF THESE CONDITIONS DO NOT EXIST IN THE ASSESSMENT ORDER PASSED, AT LEAST, A DIRECTION TO I NITIATE PROCEEDINGS UNDER SECTION 271(L)(C) IS A SINE QUA N ON FOR THE ASSESSMENT OFFICER TO INITIATE THE PROCEEDINGS BECAUSE OF THE DEEMING PROVISION CONTAINED IN SECTI ON 1(B). H) THE SAID DEEMING PROVISIONS ARE NOT APPLICABLE TO THE ORDERS PASSED BY THE COMMISSIONER OF APPEALS AN D THE COMMISSIONER. I) THE IMPOSITION OF PENALTY IS NOT AUTOMATIC. J) IMPOSITION OF PENALTY EVEN IF THE TAX LIABILITY IS ADMITTED IS NOT AUTOMATIC. ITA NO.1866 TO 1870/B/18 & ORS. PAGE 8 OF 18 K) EVEN IF THE ASSESSEE HAS NOT CHALLENGED THE ORD ER 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 ASSESSME NT ORDER THAT, IT IS ON ACCOUNT OF SUCH UNEARTHING OR ENQUIRY CONCLUDED BY AUTHORITIES IT HAS RESULTED IN PAYMENT OF SUCH TAX OR SUCH TAX LIABILITY CAME TO BE ADMITTED AND IF NOT IT WOULD HAVE ESCAPED FROM TAX NET AND AS OPINE D 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 TH E ASSESSEE FAILS TO PROVE THAT THE EXPLANATION OFFERE D IS NOT BONAFIDE, AN ORDER IMPOSING PENALTY COULD BE PASSED . M) IF THE EXPLANATION OFFERED, EVEN THOUGH NOT SUBSTANTIATED BY THE ASSESSEE, BUT IS FOUND TO BE BONAFIDE AND ALL FACTS RELATING TO THE SAME AND MAT ERIAL TO THE COMPUTATION OF HIS TOTAL INCOME HAVE BEEN DISCL OSED BY HIM, NO PENALTY COULD BE IMPOSED. N) THE DIRECTION REFERRED TO IN EXPLANATION IB 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 INI TIATE PENALTY PROCEEDINGS, IN APPEAL, IF THE APPELLATE AU THORITY 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 I NCOME OR FOR FURNISHING OF INCORRECT PARTICULARS OF INCOM E Q) SENDING PRINTED FORM WHERE ALL THE GROUND MENTIONED IN SECTION 271 ARE MENTIONED WOULD NOT SATISFY REQUIREMENT OF LAW. R) THE ASSESSEE SHOULD KNOW THE GROUNDS WHICH HE HAS TO MEET SPECIFICALLY. OTHERWISE, PRINCIPLES OF NATURAL JUSTICE IS OFFENDED. ON THE BASIS OF SUCH ITA NO.1866 TO 1870/B/18 & ORS. PAGE 9 OF 18 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 IMPOSIT ION OF PENALTY THOUGH EMANATE FROM PROCEEDINGS OF ASSESSMENT, IT IS INDEPENDENT AND SEPARATE ASPECT O F THE PROCEEDINGS. U) THE FINDINGS RECORDED IN THE ASSESSMENT PROCEEDINGS IN SO FAR AS 'CONCEALMENT OF INCOME' AN D 'FURNISHING OF INCORRECT PARTICULARS' WOULD NOT OPE RATE AS RES JUDICATA IN THE PENALTY PROCEEDINGS. IT IS OPEN TO THE ASSESSEE TO CONTEST THE SAID PROCEEDINGS ON MERITS. HOWEVER, THE VALIDITY OF THE ASSESSMENT OR REASSESS MENT IN PURSUANCE OF WHICH PENALTY IS LEVIED, CANNOT BE THE SUBJECT MATTER OF PENALTY PROCEEDINGS. THE ASSESSMENT OR REASSESSMENT CANNOT BE DECLARED A S INVALID IN THE PENALTY PROCEEDINGS. (EMPHASIS SUPPLIED) 7. 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 S OUGHT TO BE IMPOSED. THE HONBLE KARNATAKA HIGH COURT IN THE CASE OF CIT VS. SSAS EMERALD MEADOWS IN ITA NO.380 OF 2015 DATED 23.11.2015 WHEREIN THE HONBLE KARNATAKA HIGH COURT FOLLOWING ITS OWN DECISION IN THE CASE OF CIT VS MANJUNATHA COTTON AND GINNING FACTORY (2013) 359 IT R 565 TOOK A VIEW THAT IMPOSING OF PENALTY U/S 271(1)(C) OF THE ACT I S BAD IN LAW AND INVALID FOR THE REASON THAT THE SHOW CAUSE NOTICE U/S 274 OF TH E ACT DOES NOT SPECIFY THE CHARGE AGAINST THE ASSESSEE AS TO WHETHER IT IS FOR CONCEALMENT OF PARTICULARS OF INCOME OR FURNISHING OF INACCURATE P ARTICULARS OF INCOME. THE LD. COUNSEL FURTHER BROUGHT TO OUR NOTICE THAT AS A GAINST THE DECISION OF THE ITA NO.1866 TO 1870/B/18 & ORS. PAGE 10 OF 18 HONBLE KARNATAKA HIGH COURT THE REVENUE PREFERRED AN APPEAL IN SLP IN CC NO.11485 OF 2016 AND THE HONBLE SUPREME COURT BY ITS ORDER DATED 05.08.2016 DISMISSED THE SLP PREFERRED BY THE DEPAR TMENT. 8. WE HAVE ALREADY OBSERVED THAT THE SHOW CAUSE NO TICE ISSUED IN THE PRESENT CASE U/S 274 OF THE ACT DOES NOT SPECIF Y THE CHARGE AGAINST THE ASSESSEE AS TO WHETHER IT IS FOR CONCEALING PAR TICULARS OF INCOME OR FURNISHING INACCURATE PARTICULARS OF INCOME. THE SH OW CAUSE NOTICE U/S 274 OF THE ACT DOES NOT STRIKE OUT THE INAPPROPRIATE WO RDS. IN THESE CIRCUMSTANCES, WE ARE OF THE VIEW THAT IMPOSITION O F PENALTY CANNOT BE SUSTAINED. THE PLEA OF THE LD. COUNSEL FOR THE ASSE SSEE WHICH IS BASED ON THE DECISIONS REFERRED TO IN THE EARLIER PART OF TH IS ORDER HAS TO BE ACCEPTED. WE THEREFORE HOLD THAT IMPOSITION OF PENA LTY IN THE PRESENT CASES CANNOT BE SUSTAINED AND THE SAME IS DIRECTED TO BE CANCELLED. ITA NOS. 959, 1867 & 1868/BANG/2018 9. THESE ARE APPEALS AGAINST THE SEPARATE ORDER OF CIT(APPEALS), MYSURU DATED 28.9.2017 FOR AY 2009-10, DATED 28.2.2 018 FOR AY 2010-11 & 28.8.2018 FOR AY 2012-13, BY THE ASSESSEE, SHRI K . RAMASWAMY, FATHER OF SHRI AJITH R. ASSESSEE IN ITA NOS. 966, 1869 & 1870/B/2018. IN THESE CASES ALSO, PENALTY U/S. 271(1)(C) OF THE ACT WAS I NITIATED AND LEVIED ON THE ASSESSEE FOR THE REASON THAT BUT FOR THE SURVEY, AS SESSEE WOULD NOT HAVE FILED RETURN OF INCOME. THE CIT(APPEALS) CONFIRMED THE ORDER OF AO. 10. IN ALL THESE APPEALS, ASSESSEE HAS RAISED GR OUND NO.7, WHICH READS AS FOLLOWS:- 7. AS REGARDS THE LEARNED ASSESSING OFFICER HAVING NOT RECORDED SATISFACTION BEFORE INITIATING PENALTY PRO CEEDINGS : 7.1. THE LEARNED ASSESSING OFFICER IS NOT JUSTIFI ED IN LEVYING PENALTY WITHOUT RECORDING HIS SATISFACTION IN THE R E- ASSESSMENT ORDER BEFORE INITIATING PENALTY PROCEEDI NGS. ITA NO.1866 TO 1870/B/18 & ORS. PAGE 11 OF 18 7.2. THE LEARNED ASSESSING OFFICER HAS FAILED TO APPRECIATE THAT THE PROVISIONS OF SECTION 271(1B) DO NOT APPLY FOR THE REASON THAT THE RE-ASSESSMENT ORDER DOES NOT CONTAI N ANY DIRECTION FOR INITIATION OF PENALTY PROCEEDINGS. 7.3. THE LEARNED ASSESSING OFFICER HAS FAILED TO APPRECIATE THAT THE EXPRESSION 'PENALTY PROCEEDINGS INITIATED U/S 271(1)(C), 271B SEPARATELY' STATED IN THE RE-ASSESS MENT ORDER, CANNOT BE REGARDED AS 'DIRECTION FOR INITIAT ION OF PENALTY PROCEEDINGS'. 7.4. WITHOUT PREJUDICE TO THE ABOVE, THE EXPRESSI ON 'PENALTY PROCEEDINGS INITIATED' U/S 271(1)(C), 271B SEPARATE LY' STATED IN THE RE-ASSESSMENT ORDER DOES NOT NAME THE EXACT NATURE OF ALLEGED OFFENCE, I.E. CONCEALMENT O R FURNISHING OF INACCURATE PARTICULARS. 11. THE LD. COUNSEL FOR THE ASSESSEE BROUGHT TO OUR NOTICE THAT IN THE ORDER OF ASSESSMENT CONCLUDED U/S. 143(3) R.W.S. 14 8 OF THE ACT, THE AO HAS MERELY OBSERVED IN ALL THE 3 ASSESSMENT ORDERS AS FOLLOWS:- PENALTY PROCEEDINGS U/S. 271(1)(C), 271B, SEPARATE LY. HE SUBMITTED THAT SUCH INITIATION OF PENALTY PROCEE DINGS IN THE ORDER OF ASSESSMENT DOES NOT REFLECT PROPER RECORDING OF SAT ISFACTION FOR INITIATING PENALTY PROCEEDINGS AND IN THIS REGARD DREW OUR ATT ENTION TO A DECISION OF THE HONBLE HIGH COURT OF KARNATAKA IN THE CASE OF CIT V. MWP LTD. [2014] 41 TAXMANN.COM 496 (KAR). IN THIS DECISION, ON IDENTICAL FACTS, THE HONBLE HIGH COURT OF KARNATAKA TOOK A VIEW THAT THERE IS N O RECORDING OF PROPER SATISFACTION, IF IN THE ASSESSMENT ORDER THE OBSERV ATIONS ARE ONLY FOR INITIATING PENALTY PROCEEDINGS U/S. 271(1)(C) OF TH E ACT. THE HONBLE HIGH COURT ALSO CONSIDERED THE EFFECT OF PROVISIONS OF S ECTION 271B OF THE ACT, WHICH PROVIDE THAT A MERE OBSERVATION IN THE ORDER OF ASSESSMENT THAT PENALTY PROCEEDINGS ARE INITIATED SEPARATELY WOULD BE SUFFICIENT RECORDING OF SATISFACTION. THE HONBLE HIGH COURT DEALT WITH TH IS ARGUMENT AS FOLLOWS:- 10. SECTION 271(1)(C) OF THE ACT, WAS THE SUBJECT MATTER OF INTERPRETATION BY THIS COURT IN THE CASE OF CIT V. MANJUNATHA ITA NO.1866 TO 1870/B/18 & ORS. PAGE 12 OF 18 COTTON & GINNING FACTORY [2013] 218 TAXMAN 423/35 TAXMANN.COM 250 (KAR.). INTERPRETING THE DEEMING PR OVISIONS IT HAS BEEN HELD AS UNDER: '48. AS THE OPENING WORDS OF EXPLANATION 1 MAKES IT CLEAR WHERE IN RESPECT OF ANY FACTS MATERIAL TO THE COMPU TATION OF THE TOTAL INCOME OF ANY PERSON UNDER THIS ACT SU CH PERSON FAILS TO OFFER AN EXPLANATION OR OFFERS AN EXPLANATION WHICH IS FOUND TO BE FALSE OR OFFERS AN EXPLANATION WHICH IS NOT ABLE TO SUBSTANTIATE AND F AILS TO PROVE THAT SUCH EXPLANATION IS BONA FIDE, THEN THE AMOUNT ADDED OR DISALLOWED IN COMPUTING THE TOTAL INCOME O F SUCH PERSON AS A RESULT THEREOF SHALL FOR THE PURPOSES O F CLAUSE (C) OF THIS SUB-SECTION BE DEEMED TO REPRESENT THE INCOME IN RESPECT OF WHICH PARTICULARS HAVE BEEN CONCEALED . THEREFORE, IT IS CLEAR THAT AFORESAID INSTANCES BY ITSELF DO NOT CONSTITUTE CONCEALMENT. THE ASSESSING OFFICERS WERE JUST WRITING AT THE END OF THE ASSESSMENT ORDER THA T PENALTY PROCEEDINGS ARE INITIATED OR SOMETHING TO T HE EFFECT. THE DELHI HIGH COURT IN THE CASE OF RAM COMMERCIALS HAS HELD THAT SUCH A NOTE ALONE IN THE ASSESSMENT ORDER DOES NOT SATISFY THE REQUIREMENT O F ASSUMING JURISDICTION IN LAW IN RESPECT OF THE INIT IATION OF PENALTY PROCEEDINGS. THE SATISFACTION SHOULD BE IN THE ASSESSMENT ORDER. THE SAID VIEW WAS ALSO APPROVED B Y THE FULL BENCH OF THE DELHI HIGH COURT IN THE CASE OF CIT V. RAMPUR ENGG. [2009] 309 ITR 143. THE SAID VIEW HAS BEEN APPROVED BY THE APEX COURT IN THE CASE OF DILI P N. SHROFF V. JT. CIT [2007] 291 ITR 519. THAT IS THE V IEW THE COURTS HAVE CONSISTENTLY TAKEN. AFTER TAKING NOTE O F THE JUDICIAL PRONOUNCEMENTS IN THIS REGARD, THE LEGISLA TURE THOUGHT IT FIT TO INSERT SECTION 271(1)(B), WHICH R EADS AS UNDER: '271(1)(B) WHERE ANY AMOUNT IS ADDED OR DISALLOWED IN COMPUTING THE TOTAL INCOME OR LOSS OF AN ASSESSEE I N ANY ORDER OF ASSESSMENT OR REASSESSMENT AND THE SAID OR DER CONTAINS A DIRECTION FOR INITIATION OF PENALTY PROC EEDINGS UNDER CLAUSE (C) OF SUB-SECTION (1), SUCH AN ORDER OF ASSESSMENT OR REASSESSMENT SHALL BE DEEMED TO CONSTITUTE SATISFACTION OF THE ASSESSING OFFICER FO R INITIATION OF THE PENALTY PROCEEDINGS UNDER THE SAID CLAUSE (C ).' ITA NO.1866 TO 1870/B/18 & ORS. PAGE 13 OF 18 49. BY THE AFORESAID DEEMING PROVISION A LEGAL FICT ION IS CREATED. WHEN THE ASSESSMENT ORDER CONTAINS A DIRECTION FOR INITIATION OF PENALTY PROCEEDINGS SUCH ORDER SHALL DEEM TO CONSTI TUTE SATISFACTION OF THE ASSESSING OFFICER FOR INITIATIO N OF PENALTY PROCEEDINGS UNDER SUB-CLAUSE (C) OF SECTION 271 OF THE ACT. AS THE LANGUAGE OF SECTION 271 MAKES IT CLEAR BEFORE A DIRECTION IS ISSUED TO PAY PENALTY, THE PERSON ISSUING THE DIREC TION MUST BE SATISFIED ABOUT THE CONDITION MENTIONED IN CLAUSE ( C) OF SECTION 271(1). THE QUESTION IS, WHETHER SUCH SATISFACTION SHOULD BE IN WRITING. AS THE SATISFACTION HAS TO BE IN THE COURS E OF ANY PROCEEDINGS AND IT IS AT THE TIME OF COMPUTATION OF THE TOTAL INCOME OF ANY PERSON AND AS IT RESULTS IN AN ASSESS MENT ORDER WHICH HAS TO BE MANDATORILY IN WRITING, THE SATISFA CTION SHOULD BE FOUND IN THE SAID ORDER. THE EXISTENCE OF THESE FAC TS IS A CONDITION PRECEDENT FOR INITIATION OF PENALTY PROCE EDINGS UNDER SECTION 271. THIS PROVISION IS ATTRACTED ONCE IN AN Y SUCH ASSESSMENT ORDERS, A DIRECTION FOR INITIATION OF PE NALTY PROCEEDINGS UNDER CLAUSE (C) OF SUB-SECTION (1) IS MADE. THEREBY, IT MEANS EVEN IF THE ORDER DOES NOT CONTAI N A SPECIFIC FINDING THAT THE ASSESSEE HAS CONCEALED INCOME OR H E IS DEEMED TO HAVE CONCEALED INCOME BECAUSE OF THE EXIS TENCE OF FACTS WHICH ARE SET OUT IN EXPLANATION 1, IF A MERE DIRECTION TO INITIATE PENALTY PROCEEDINGS UNDER CLAUSE (C) OF SU B-SECTION (1) IS FOUND IN THE SAID ORDER, BY LEGAL FICTION, IT SHALL BE DEEMED TO CONSTITUTE SATISFACTION OF THE ASSESSING OFFICER FO R INITIATION OF PENALTY PROCEEDINGS UNDER SAID CLAUSE (C). THE SAID PROVISION CAME UP FOR INTERPRETATION BY THE DELHI HIGH COURT IN THE CASE OF MS. MADHUSHREE GUPTA V. UNION OF INDIA [2009] 309 I TR 143, WHEREIN THE DELHI HIGH COURT HELD THAT THE SATISFAC TION SHOULD BE DISCERNABLE IN THE ASSESSMENT ORDER. POSITION POST AMENDMENT IS NOT IN MUCH VARIANCE WITH PRE-AMENDMENT. THEY HE LD THAT PROVISIONS WILL FALL FOUL OF ARTICLE 14 OF THE CONS TITUTION IF THE SAME IS NOT READ IN THE MANNER IT HAS READ AND IN F ACT HAS READ DOWN THE PROVISIONS TO HOLD IT CONSTITUTIONAL. THER EFORE ACCORDING TO DELHI HIGH COURT, IN POST AMENDMENT AN D PRE AMENDMENT THERE IS NOT MUCH DIFFERENCE AND THE SATI SFACTION IS REQUIRED TO ARRIVED IN THE COURSE OF ASSESSMENT PRO CEEDINGS AND SHOULD BE DISCERNABLE IN THE ASSESSMENT ORDER. THER EFORE, THIS PROVISION MAKES IT ABUNDANTLY CLEAR THAT SATISFACTI ON OF THE ASSESSING OFFICER BEFORE INITIATION OF PENALTY PROC EEDINGS IS A MUST THE SATISFACTION SHOULD BE THAT HE HAS CONCEAL ED PARTICULARS OF HIS INCOME OR FURNISHED INACCURATE P ARTICULAR OF SUCH INCOME AND EVEN IN THE ABSENCE OF THOSE EXPRES SED WORDS OR FINDINGS RECORDED IN THE ASSESSMENT PROCEEDINGS, IF A ITA NO.1866 TO 1870/B/18 & ORS. PAGE 14 OF 18 DIRECTION AS AFORESAID IS MENTIONED, IT CONSTITUTES SATISFACTION OF THE ASSESSING OFFICER. DIRECTION 50. A READING OF SECTION CLEARLY INDICATES THAT THE ASSESSMENT ORDER SHOULD CONTAIN A DIRECTION FOR INITIATION OF PENALTY PROCEEDINGS. THE MEANING OF THE WORD DIRECTION IS O F IMPORTANCE. MERELY SAYING THAT PENALTY PROCEEDINGS ARE BEING INITIATED WILL NOT SATISFY THE REQUIREMENT. THE DIR ECTION TO INITIATE PROCEEDINGS SHOULD BE CLEAR AND NOT BE AMBIGUOUS. I T IS WELL SETTLED LAW THAT FISCAL STATUTES ARE TO BE CONSTRUE D STRICTLY AND MORE SO THE DEEMING PROVISIONS BY WAY OF LEGAL FICT ION ARE TO BE CONSTRUED MORE STRICTLY. THEY HAVE TO BE INTERPRETE D ONLY FOR THE SAID ISSUE FOR WHICH IT HAS DEEMED AND THE MANNER I N WHICH THE DEEMING HAS BEEN CONTEMPLATED TO BE RESTRICTED IN T HE MANNER SOUGHT TO BE DEEMED. AS THE WORDS USED IN THE LEGAL FICTION OR THE DEEMING PROVISIONS OF SECTION 271(1B) IS DIRECT ION, IT IS IMPERATIVE THAT THE ASSESSMENT ORDER CONTAINS A DIR ECTION. USE OF THE PHRASES LIKE (A) PENALTY PROCEEDINGS ARE BEI NG INITIATED SEPARATELY AND (B) PENALTY PROCEEDINGS UNDER SECTIO N 271(1)(C) ARE INITIATED SEPARATELY, DO NOT COMPLY WITH THE ME ANING OF THE WORD DIRECTION AS CONTEMPLATED EVEN IN THE AMENDED PROVISIONS OF LAW. THE DIRECTION SHOULD BE CLEAR AND WITHOUT A NY AMBIGUITY. THE WORD 'DIRECTION' HAS BEEN INTERPRETED BY THE DE CISION OF THE APEX COURT IN THE CASE OF RAJINDER NATH V. CIT [197 9] 120 ITR 14 WHERE IT HAS BEEN HELD THAT IN ANY EVENT WHATEVE R ELSE IT MAY AMOUNT TO, ON ITS VERY TERMS THE OBSERVATION THAT T HE ITO IS FREE TO TAKE ACTION, TO ASSESS THE EXCESS IN THE HAND OF THE CO- OWNERS CANNOT BE DESCRIBED AS A DIRECTION. A DIRECT ION BY A STATUTORY AUTHORITY IS IN THE NATURE OF AN ORDER RE QUIRING POSITIVE COMPLIANCE. WHEN IT IS LEFT TO THE OPTION AND DISCR ETION OF THE ITO WHETHER OR NOT TAKE ACTION, IT CANNOT BE DESCRI BED AS A DIRECTION. 51. THEREFORE, IT IS SETTLED LAW THAT IN THE ABSENC E OF THE EXISTENCE OF THESE CONDITIONS IN THE ASSESSMENT ORD ER PENALTY PROCEEDINGS COULD NOT BE PROCEEDED WITH. THE PROCEE DINGS WHICH ARE 'INITIATED CONTRARY TO THE SAID LEGAL POS ITION ARE LIABLE TO BE SET ASIDE' 11. IN THE INSTANT CASE IN THE ASSESSMENT ORDER WHA T HAS BEEN SAID REGARDING DIMINUTION IN THE VALUE OF INVESTMEN T IS AS UNDER: ITA NO.1866 TO 1870/B/18 & ORS. PAGE 15 OF 18 '1. PROVISIONS FOR DIMINUTION IN THE VALUE OF INVES TMENT: THE ASSESSEE HAS CLAIMED AN AMOUNT OF RS. 4,40,00,000/- UNDER THIS HEAD. THIS HAS BEEN CLAIME D AS A REVENUE EXPENDITURE AND INCLUDED IN THE LOSS OF RS. 4,44,84,483/- SHOWN UNDER THE HEAD BUSINESS OR PROFESSION. ON ENQUIRY IT IS INTIMATED BY THE COMPA NY THAT THERE IS A DIMINUTION IN THE VALUE OF INVESTMENT ON ACCOUNT OF THE ASIAN AGE SOUTH LTD., IT WAS FURTHER STATED IN THE LETTER DATED 2-9-2003, THAT ACCORDING TO THE COMPAN Y IT FORMS A PART OF THE LOSS OF THE COMPANY. THE ASSESS EE WAS REQUESTED TO FURNISH FACTUAL AND LEGAL JUSTIFIC ATION OF THE CLAIM. IN REPLY VIDE LTR. DT. 31-10-03, THE PRO CEDURE OF VALUATION AS PER ACCOUNTING STANDARD NO. 13 WAS EXPLAINED, HOWEVER IN THE LAST PARA IT WAS STATED T HAT THE COMPANY IS OF THE VIEW THAT UNDER THE PROVISIONS OF THE IT. ACT, THE SAID CLAIM IS NOT ALLOWABLE. THE COMPANY W AS AGAIN REQUESTED TO INTIMATE WHETHER THE CLAIM IS BE ING WITHDRAWN. VIDE LETTER DT. 10-11-03, IT IS STATED T HAT THE CLAIM IS BEING WITHDRAWN. IN VIEW OF THIS THE CLAIM OF RS. 4,40,00,000/- IS NOT CONSIDERED FOR COMPUTATION AND CLAIM DISALLOWED.' THEREAFTER, IN THE END, IT IS STATED AS UNDER: 'PENALTY U/S 271(1)(C) INITIATED SEPARATELY.' 12. A READING OF THE AFORESAID ORDER MAKES IT CLEAR THAT ASSESSING AUTHORITY WAS NOT SATISFIED THAT THERE IS ANY CONCEALMENT OF THE INTENT. FURTHER THERE IS NO DIRE CTION FOR INITIATION OF PENALTY PROCEEDINGS COULD BE GATHERED FROM THE SAID ORDER ALSO. IT IS HELD IN THE AFORESAID JUDGME NT THAT (A) PHRASES LIKE PENALTY PROCEEDINGS ARE BEING INITIATE D SEPARATELY (B) PENALTY PROCEEDINGS UNDER SECTION 27 1(1)(C) ARE INITIATED SEPARATED DON NOT COMPLY WITH THE MEA NING OF THE WORD DIRECTION AS CONTEMPLATED EVEN IN THE AMEN DED PROVISIONS OF LAW. THE DIRECTION SHOULD BE CLEAR AN D WITHOUT ANY AMBIGUITY. THE WORD 'DIRECTION' HAS BEEN INTERPRETED BY THE DECISION OF THE APEX COURT IN THE CASE OF RAJINDER NATH V. CIT [1979] 120 ITR 14/2 TAXMAN 204, WHERE IT HAS BEEN H ELD THAT IN ANY EVENT WHATEVER ELSE IT MAY AMOUNT TO, ON ITS VE RY TERMS THE OBSERVATION THAT THE ITO IS FREE TO TAKE ACTION, TO ASSESS THE EXCESS IN THE HAND OF THE CO-OWNERS CANNOT BE DESCR IBED AS A DIRECTION. A DIRECTION BY A STATUTORY AUTHORITY IS IN THE NATURE OF AN ORDER REQUIRING POSITIVE COMPLIANCE. WHEN IT IS LEFT TO THE ITA NO.1866 TO 1870/B/18 & ORS. PAGE 16 OF 18 OPTION AND DISCRETION OF THE ITO WHETHER OR NOT TAK E ACTION, IT CANNOT BE DESCRIBED AS A DIRECTION. 13. IN THE ABSENCE OF SUCH A DIRECTION, THE DEEMING PROVISION IS NOT ATTRACTED. THEREFORE THE CONDITIONS PRESCRIBED UNDER SECTION 271(1)(C) OF THE ACT, IS NOT ATTRACTED. THEREFORE T HE TRIBUNAL WAS JUSTIFIED IN SETTING ASIDE THE ORDER PASSED BY THE ASSESSING AUTHORITY AS WELL AS THE APPELLATE AUTHORITY, IMPOS ING PENALTY. NO MERITS. DISMISSED. THE SUBSTANTIAL QUESTION OF L AW IS ANSWERED IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE. 12. HE ALSO BROUGHT TO OUR NOTICE IDENTICAL DECISIO NS RENDERED BY THE HONBLE HIGH COURT OF KARNATAKA IN THE CASE OF CIT V. CHANDRASEKARAN, 230 TAXMAN 658 (KARNATAKA) AND SAFINA HOTELS P. LTD. V CIT, [2016] 66 TAXMANN.COM 334 (KAR) . 13. THE LD. DR RELIED ON THE ORDER OF AO. 14. AFTER CONSIDERING THE RIVAL SUBMISSIONS, WE ARE OF THE VIEW THAT PENALTY IMPOSED IN THE PRESENT CASES HAS TO BE CANC ELLED FOR THE REASON THAT THE AO HAS NOT RECORDED PROPER SATISFACTION IN THE ORDER OF ASSESSMENT FOR INITIATING PENALTY U/S. 271(1)(C) OF THE ACT. IN THE DECISIONS CITED BY THE LD. COUNSEL FOR THE ASSESSEE ON IDENTICAL FACTS AS IN THE CASE OF ASSESSEE IN THE PRESENT APPEALS, THE HONBLE HIGH COURT OF KARN ATAKA TOOK THE VIEW THAT THERE HAS BEEN NO RECORDING OF SATISFACTION FO R INITIATING PENALTY U/S. 271(1)(C) AND ON THAT GROUND THE PENALTY IMPOSED WA S CANCELLED. IN VIEW OF THE AFORESAID DECISIONS OF THE HONBLE HIGH COUR T OF KARNATAKA, WE ARE OF THE VIEW THAT THE PENALTY IMPOSED IN THE PRESENT CASES DESERVES TO BE ANNULLED. ACCORDINGLY, THE PENALTIES ARE CANCELLED AND THE APPEALS OF THE ASSESSEE ARE ALLOWED. ITA NO.1866/B/18 & 2527/BANG/2018 15. ITA 1866/B/18 IS AN APPEAL THE ASSESSEE AGAINST THE ORDER DATED 28.2.2018 OF THE CIT(APPEALS), MYSORE RELATING TO A Y 2008-09. ITA ITA NO.1866 TO 1870/B/18 & ORS. PAGE 17 OF 18 2527/B/2018 IS AN APPEAL AGAINST THE ORDER DATED 13 .7.2018 OF THE CIT(APPEALS), MYSORE, RELATING TO AY 2011-12. THES E APPEALS ARE BY THE ASSESSEE, MR. K. RAMASWAMY. IN THESE APPEALS ALSO, THE FACTS ARE IDENTICAL, THE PENALTY PROCEEDINGS U/S. 271(1)(C) W ERE INITIATED FOR THE REASON THAT BUT FOR THE SURVEY, THE ASSESSEE WOULD NOT HAVE FILED RETURN OF INCOME. THE ASSESSEE HAS RAISED GROUND NO.8 CHALLE NGING THE ACTION OF THE AO IN NOT SPECIFYING THE SPECIFIC CHARGE AGAINS T THE ASSESSEE IN THE SHOW CAUSE NOTICE ISSUED U/S. 274 OF THE ACT. COPY OF THE SHOW CAUSE NOTICE FOR AY 2008-09 AT PAGE 157 OF THE PB AND F OR THE AY 2011-12 AT PAGE 128 OF PAPER BOOK. THE SAME HAS BEEN PERUSED A ND IT IS FOUND THAT THE SHOW CAUSE NOTICE DOES NOT SPECIFY THE CHARGE A GAINST THE ASSESSEE AS TO WHETHER IT IS FOR FURNISHING INACCURATE PARTICUL ARS OR CONCEALING PARTICULARS OF INCOME. WE ARE OF THE VIEW THAT IN LIGHT OF THE DECISION OF THE HONBLE HIGH COURT OF KARNATAKA IN THE CASE OF MANJUNATHA COTTON AND GINNING MILLS LTD. (SUPRA) THE IMPOSITION OF PENALTY IS LIABLE TO BE CANCELLE D ON THE GROUND THAT THE SHOW CAUSE NOTICE U/S.274 OF THE ACT FOR I MPOSING PENALTY DOES NOT SPELL OUT THE SPECIFIC CHARGE. THE PENALTY IMPOSED IS DIRECTED TO BE CANCELLED. 16. IN THE RESULT, BOTH THE APPEALS BY THE ASSESS EE ARE ALLOWED. 17. IN THE COMBINED RESULT, ALL THE APPEALS OF THE ASSESSES ARE ALLOWED. PRONOUNCED IN THE OPEN COURT ON THIS 12 TH DAY OF FEBRUARY, 2020. SD/- SD/- ( A.K.GARODIA ) ( N V VASUDEVAN ) ACCOUNTANT MEM BER VICE PRESIDENT BANGALORE, DATED, THE 12 TH FEBRUARY, 2020. / DESAI S MURTHY / ITA NO.1866 TO 1870/B/18 & ORS. PAGE 18 OF 18 COPY TO: 1. APPELLANT S (2) 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR ITAT, BANGALORE.