M/s. Shah Distributors, Davanagere V. Assistant Commissioner of Income, Circle-1(1), Davanagere

ITA 1975/BANG/2018

• Counselvise Citation: [2018] 119 COUNSELVISE.COM (IT) 2084 (ITAT-BANGALORE)
• Duration Of Justice: 4 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-11-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2010-2011
• Appeal Filed On: 11-06-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SRINANDINI DAS
• Keywords: Principle of natural justice; Question of law; Initiation of penalty proceedings
• Section: 27

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCH A BEFORE SHRI SUNIL KUMAR YADAV, JUDICIAL MEMBER AND SHRI A. K. GARODIA, ACCOUNTANT MEMBER I.T.A. NO. 1975/BANG/2018 (ASSESSMENT YEAR: 2010 - 11) M/S. SHAH DISTRIBUTORS, #371, 1 ST FLOOR, STATION ROAD, NEAR CLOCK TOWERS, DAVANGERE - 577001 PAN ABFFS0849B APPELLANT. VS. ACIT, CIRCLE 1 (1), RESPONDE NT. DAVANGERE ASSESSEE BY : SHRI NARENDRA SHARMA, ADVOCATE REVENUE BY : SMT. SRINANDINI DAS, ADDL. CIT (D R) DATE OF HEARING : 06.11 .2018 DATE OF PRONOUNCEMENT : 06.11.2018 O R D E R PER SHRI A. K. GARODIA, A.M. : THIS APPEAL IS FILED BY THE ASSESSEE AND THIS IS DIRECTED AGAINST THE ORDER OF THE CIT (A) DAVANGERE DATED 20.03.2018 FOR A. Y. 2010 - 11. 2. THE ASSESSEE HAS RAISED AS MANY AS 5 GROUNDS AND ONE ADDITIONAL GROUND BUT THE ONLY EFFECTIVE GRIEVANCE OF THE ASSESSEE IS ABOUT CONFIRMING OF THE PENALTY IMPOSED BY THE AO U/S 271 (1) ( C) OF THE I . T. ACT OF RS. 919,100/-. 3. IN COURSE OF HEARING BEFORE US, IT IS SUBMITTED BY THE LEARNED AR OF THE ASSESSEE THAT AS PER THE NOTICE ISSUED BY THE AO U/ S 274 R.W.S. 271 OF THE I. T. ACT 1961 ON 31.10.2013, THIS IS NOT CLEAR AS TO WHE THER THE ALLEGATION OF THE AO IS REGARDING CONCEALMENT OF INCOME OR OF FURNISHING OF INACCURATE PARTICULARS OF INCOME. HE SUBMITTED A COPY OF THE NOTICE IN SUPPOR T OF THIS CONTENTION. THEREAFTER HE SUBMITTED A COPY OF THE TRIBUNAL ORDE R RENDERED IN THE CASE OF SHRI ARUN KUMAR VS. ACIT IN ITA NO. 117/BANG/2016 DATED 16.12.2016 AND PLACED RELIANCE ON IT. HE POINTED OUT THAT IN THIS CASE, T HE TRIBUNAL HAS FOLLOWED A 2 ITA NO. 1975/BANG/2018 JUDGMENT OF HONBLE KARNATAKA HIGH COURT RENDERED I N THE CASE OF CIT VS. MANJUNATHA COTTON & GINNING FACTORY AS REPORTED IN 359 ITR 565 AND SUBMITTED THAT AS PER THE SAME, THE PENALTY PROCEED INGS WERE HELD TO BE VITIATED BECAUSE THE NOTICE ISSUED IS NOT IN ACCORDANCE WITH LAW AND THEREFORE, TRIBUNAL IS JUSTIFIED IN LAW IN SETTING ASIDE THE PENALTY ORDER . HE SUBMITTED THAT IN THE PRESENT CASE ALSO, THE PENALTY PROCEEDINGS ARE VITI ATED BECAUSE THE NOTICE ISSUED IS NOT IN ACCORDANCE WITH LAW AND THEREFORE, THE PE NALTY ORDER SHOULD BE SET ASIDE. LEARNED DR OF THE REVENUE SUPPORTED THE ORDE R OF CIT (A) BUT SHE COULD NOT POINT OUT ANY BASIS AS PER WHICH, THIS JUDGMENT OF HONBLE KARNATAKA HIGH COURT IS NOT APPLICABLE IN THE PRESENT CASE. 4. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. WE FI ND THAT PARA 63 TO 66 OF THIS JUDGMENT OF HONBLE KARNATAKA HIGH COURT RENDE RED IN THE CASE OF CIT VS. MANJUNATHA COTTON & GINNING FACTORY (SUPRA) ARE REL EVANT AND THEREFORE, THESE PARAS ARE REPRODUCED HERE FOR READY REFERENCE. THE SAME ARE AS UNDER:- CONCLUSION 63. IN THE LIGHT OF WHAT IS STATED ABOVE, WHAT EMER GES IS AS UNDER: A) PENALTY UNDER SECTION 271(1) (C) IS A CIVIL LIAB ILITY. B) MENS REA IS NOT AN ESSENTIAL ELEMENT FOR IMPOSIN G PENALTY FOR BREACH OF CIVIL OBLIGATIONS OR LIABILITIES. C) WILLFUL CONCEALMENT IS NOT AN ESSENTIAL INGREDIE NT FOR ATTRACTING CIVIL LIABILITY. D) EXISTENCE OF CONDITIONS STIPULATED IN SECTION 27 1(1) (C) IS A SINE QUA NON FOR INITIATION OF PENALTY PROCEEDINGS UNDER SECTION 271. E) THE EXISTENCE OF SUCH CONDITIONS SHOULD BE DISCE RNIBLE FROM THE ASSESSMENT ORDER OR ORDER OF THE APPELLATE AUTHORITY OR REVISI ONAL AUTHORITY. F) EVER IF THERE IS NO SPECIFIC FINDING REGARDING T HE EXISTENCE OF THE CONDITIONS MENTIONED IN SECTION 271(1)(C), AT LEAST THE FACTS SET OUT IN EXPLANATION 1(A) & (B) IT SHOULD BE DISCERNIBLE FROM THE SAID ORDER WHICH WOULD BY A LEGAL FICTION CONSTITUTE CONCEALMENT BECAUSE OF DEEMING P ROVISION. 3 ITA NO. 1975/BANG/2018 G) EVEN IF THESE CONDITIONS DO NOT EXIST IN THE ASS ESSMENT ORDER PASSED, AT LEAST, A DIRECTION TO INITIATE PROCEEDINGS UNDER SE CTION 271(L) (C) IS A SINE QUA NON FOR THE ASSESSMENT OFFICER TO INITIATE THE PROC EEDINGS BECAUSE OF THE DEEMING PROVISION CONTAINED IN SECTION 1(B). H) THE SAID DEEMING PROVISIONS ARE NOT APPLICABLE T O THE ORDERS PASSED BY THE COMMISSIONER OF APPEALS AND THE COMMISSIONER. I) THE IMPOSITION OF PENALTY IS NOT AUTOMATIC. J) IMPOSITION OF PENALTY EVEN IF THE TAX LIABILITY IS ADMITTED IS NOT AUTOMATIC. K) EVEN IF THE ASSESSEE HAS NOT CHALLENGED THE ORDE R 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 PROC EEDINGS OR IMPOSE PENALTY, UNLESS IT IS DISCERNIBLE FROM THE ASSESSMENT ORDER THAT, IT IS ON ACCOUNT OF SUCH UNEARTHING OR ENQUIRY CONCLUDED BY AUTHORITIES IT H AS 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 OPINED BY THE ASSESSING OFFICER IN THE ASSESSMENT ORDER. 1) ONLY WHEN NO EXPLANATION IS OFFERED OR THE EXPLA NATION OFFERED IS FOUND TO BE FALSE OR WHEN THE ASSESSEE FAILS TO PROVE THAT T HE EXPLANATION OFFERED IS NOT BONAFIDE, AN ORDER IMPOSING PENALTY COULD BE PASSED . M) IF THE EXPLANATION OFFERED, EVEN THOUGH NOT SUBS TANTIATED BY THE ASSESSEE, BUT IS FOUND TO BE BONAFIDE AND ALL FACTS RELATING TO THE SAME AND MATERIAL 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 S ECTION 271 OF THE ACT SHOULD BE CLEAR AND WITHOUT ANY AMBIGUITY. O) IF THE ASSESSING OFFICER HAS NOT RECORDED ANY SA TISFACTION OR HAS NOT ISSUED ANY DIRECTION TO INITIATE PENALTY PROCEEDINGS, IN A PPEAL, IF THE APPELLATE AUTHORITY RECORDS SATISFACTION, THEN THE PENALTY PR OCEEDINGS HAVE TO BE INITIATED BY THE APPELLATE AUTHORITY AND NOT THE AS SESSING AUTHORITY. P) NOTICE UNDER SECTION 274 OF THE ACT SHOULD SPECI FICALLY STATE THE GROUNDS MENTIONED IN SECTION 271(1) (C), I.E., WHETHER IT I S FOR CONCEALMENT OF INCOME OR FOR FURNISHING OF INCORRECT PARTICULARS OF INCOM E Q) SENDING PRINTED FORM WHERE ALL THE GROUND MENTIO NED IN SECTION 271 ARE MENTIONED WOULD NOT SATISFY REQUIREMENT OF LAW. 4 ITA NO. 1975/BANG/2018 R) THE ASSESSEE SHOULD KNOW THE GROUNDS WHICH HE HA S TO MEET SPECIFICALLY. OTHERWISE, PRINCIPLES OF NATURAL JUSTICE IS OFFENDE D. ON THE BASIS OF SUCH PROCEEDINGS, NO PENALTY COULD BE IMPOSED TO THE ASS ESSEE. 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 AS SESSMENT PROCEEDINGS. THE PROCEEDINGS FOR IMPOSITION OF PENALTY THOUGH EMANAT E FROM PROCEEDINGS OF ASSESSMENT, IT IS INDEPENDENT AND SEPARATE ASPECT O F THE PROCEEDINGS. U) THE FINDINGS RECORDED IN THE ASSESSMENT PROCEEDI NGS IN SO FAR AS CONCEALMENT OF INCOME AND FURNISHING OF INCORREC T PARTICULARS WOULD NOT OPERATE AS RES JUDICATA IN THE PENALTY PROCEEDINGS. IT IS OPEN TO THE ASSESSEE TO CONTEST THE SAID PROCEEDINGS ON MERITS. HOWEVER, TH E VALIDITY OF THE ASSESSMENT OR REASSESSMENT IN PURSUANCE OF WHICH PE NALTY IS LEVIED, CANNOT BE THE SUBJECT MATTER OF PENALTY PROCEEDINGS. THE ASSESSMENT OR REASSESSMENT CANNOT BE DECLARED A S INVALID IN THE PENALTY PROCEEDINGS. IN ITA 2564 & 2565/2005 64. IN THE LIGHT OF WHAT WE HAVE STATED ABOVE, IT I S CLEAR THAT MERELY BECAUSE THE ASSESSEE AGREED FOR ADDITION AND ACCORDINGLY AS SESSMENT ORDER WAS PASSED ON THE BASIS OF THIS ADDITION AND WHEN THE ASSESSEE HAS PAID THE TAX AND THE INTEREST THEREON IN THE ABSENCE OF ANY MATERIAL ON RECORD TO SHOW THE CONCEALMENT OF INCOME, IT CANNOT BE INFERRED THAT T HE SAID ADDITION IS ON ACCOUNT OF CONCEALMENT. MOREOVER, THE ASSESSEE HAS OFFERED THE EXPLANATION. THE SAID EXPLANATION IS NOT FOUND TO BE FALSE. ON T HE CONTRARY, IT IS HELD TO BE BONAFIDE. IN FACT IN THE ASSESSMENT PROCEEDINGS THE RE IS NO WHISPER ABOUT THESE CONCEALMENT. UNDER THESE CIRCUMSTANCES, THE E NTRY FOUND IN THE ROUGH CASH BOOK COULD HAVE BEEN REFLECTED IN THE ACCOUNTS FOR THE SAID FINANCIAL YEAR IN WHICH THE SURVEY TOOK PLACE AS THE LAST DAT E FOR CLOSING THE ACCOUNT WAS STILL NOT OVER. THE VERY FACT THAT THE ASSESSEE AGREED TO PAY TAX AND DID NOT CHALLENGE THE ASSESSMENT ORDER, IT IS CLEAR THE CON DUCT OF THE ASSESSEE CANNOT BE CONSTRUED AS MALAFIDE. THEREFORE, THE TRIBUNAL W AS JUSTIFIED IN SETTING ASIDE THE ORDERS PASSED BY THE APPELLATE AUTHORITY AS WELL AS THE ASSESSING AUTHORITY. 65. IN SO FAR AS THE IMPOSITION OF PENALTY IS CONCE RNED, IT IS NOT IN ACCORDANCE WITH LAW. NO FAULT COULD BE FOUND WITH THE TRIBUNAL FOR DELETING THE PENALTY. THUS, WE ANSWER THE SUBSTANTIAL QUESTION OF LAW IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE. 5 ITA NO. 1975/BANG/2018 IN ITA WO. 5020/2009 66. IN VIEW OF THE AFORESAID LAW, WE ARE OF THE VIE W THAT THE TRIBUNAL WAS JUSTIFIED IN HOLDING THAT THE ENTIRE PROCEEDINGS AR E VITIATED AS THE NOTICE ISSUED IS NOT IN ACCORDANCE WITH LAW AND ACCORDINGLY JUSTI FIED IN INTERFERING WITH THE ORDER PASSED BY THE APPELLATE AUTHORITY AS WELL AS THE ASSESSING AUTHORITY AND IN SETTING ASIDE THE SAME. HENCE, WE ANSWER THE SUB STANTIAL QUESTIONS OF LAW FRAMED IN THIS CASE IN FAVOUR OF THE ASSESSEE AND A GAINST THE REVENUE. 5. AS PER THESE PARAS, IT IS HELD BY HONBLE KARNAT AKA HIGH COURT THAT THE ASSESSEE SHOULD KNOW THE GROUNDS WHICH HE HAS TO ME ET SPECIFICALLY. OTHERWISE, PRINCIPLES OF NATURAL JUSTICE IS OFFENDED. ON THE B ASIS OF SUCH PROCEEDINGS, NO PENALTY COULD BE IMPOSED TO THE ASSESSEE. IN THE PR ESENT CASE ALSO, AS PER THE NOTICE ISSUED BY THE AO U/S 274 R.W.S. 271 OF THE I . T. ACT 1961 ON 31.10.2013, THIS IS NOT CLEAR AS TO WHETHER THE ALLEGATION OF T HE AO IS REGARDING CONCEALMENT OF INCOME OR OF FURNISHING OF INACCURATE PARTICULAR S OF INCOME. IN THE ASSESSMENT ORDER ALSO, THERE IS NO MENTION ABOUT THE NATURE OF ALLEGATION ALTHOUGH IN THE PENALTY ORDER ON PAGE 4, IT IS STATED THAT THE ASSE SSEE HAS FURNISHED INACCURATE PARTICULARS OF INCOME BUT IN THE ABSENCE OF A CLEAR ALLEGATION IN THE ASSESSMENT ORDER OR IN THE PENALTY NOTICE, THIS JUDGMENT IS SQ UARELY APPLICABLE AND HENCE, RESPECTFULLY FOLLOWING THE SAME, THE PENALTY ORDER IS SET ASIDE AS NOT IN ACCORDANCE WITH LAW. 6. IN THE RESULT, THE APPEAL OF THE ASSE SSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON TH E DATE MENTIONED ON THE CAPTION PAGE. SD/- SD/- (SUNIL KUMAR YADAV) (A. K. GARODIA) JUDICIAL MEMBER ACCOUNTANT MEMBER BANGALORE, DATED: 06.11.2018. MS* 6 ITA NO. 1975/BANG/2018 COPY TO: 1. APPELLANT 4. CIT(A) 2. RESPONDENT 5. DR, ITAT, BANGALORE 3. CIT 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR, INCOME TAX APPELLATE TRIBUNAL, BANGALORE.