S R Rajendra Kumar, Bangalore V. The Income Tax Officer Ward-5(2)(5), Bangalore

ITA 3059/BANG/2018

• Counselvise Citation: [2019] 115 COUNSELVISE.COM (IT) 6456 (ITAT-BANGALORE)
• Duration Of Justice: 11 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-10-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Assessment Year: 2008-2009
• Appeal Filed On: 13-11-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PRADEEP KUMAR CIT BENGALURU
• Assessee Lawyers: T V S BHAT
• Keywords: Principle of natural justice; Initiation of penalty proceedings
• Section: 271(1)(c); 274

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH : BANGALORE BEFORE SHRI N V VASUDEVAN, VICE PRESIDENT AND S HRI A K GARODIA , ACCOUNTANT MEMBE R ITA NO. 3059/BA NG/2019 ASSESSMENT YEAR : 2008 - 09 SHRI S.R. RAJENDRA KUMAR, NO.389/6, 5 TH MAIN, 1 ST STAGE, BANASHANKARI, HANUMANTHANAGAR, BENGALURU 5600 050. P AN: ADEPR 5363A VS. THE INCOME TAX OFFICER, WARD 5(2)(5), BENGALURU. APP ELLANT RESPONDENT APP ELLANT BY : SHRI T.V.S. BHAT, CA RESPONDENT BY : SHRI PRADEEP KUMAR, C IT(DR)(ITAT), BENGALURU. DATE O F HEARING : 17 . 1 0 .2019 DATE OF PRONOUNCEMENT : 23 . 1 0 .2019 O R D E R PER N V VASUDEVAN, VICE PRESIDENT THIS IS AN APPEAL BY THE ASSESSEE AGAINST THE O RDER DATED 17.09.2018 OF CIT(APPEALS) RELATING TO ASSESSMENT Y EAR 2008-09. IN THIS APPEAL THE ASSESSEE HAS CHALLENGED THE ORDER OF THE CIT(A) WHEREBY THE CIT(A) CONFIRMED THE ORDER OF THE AO IMPOSING PENAL TY ON THE ASSESSEE U/S.271(1)(C) OF THE INCOME TAX ACT, 1961 (THE ACT) . 2. THE FACTS AND CIRCUMSTANCES UNDER WHICH PENALTY WAS IMPOSED ON THE ASSESSEE BY THE AO ARE THAT THE ASSESSEE IS AN INDIVIDUAL. IN THE COURSE OF ASSESSMENT PROCEEDINGS FOR AY 2008-09, TH E AO NOTICED THAT THE ASSESSEE HAD A BANK ACCOUNT WITH KARURU VYSYA BANK AND THAT HAD NOT ITA NO.3059/BANG/2019 PAGE 2 OF 11 BEEN DISCLOSED IN THE BOOKS OF ACCOUNTS MAINTAINED BY THE ASSESSEE. THERE WAS ONE CASH DEPOSIT OF RS.1,000 IN THIS BANK ACCOUNT AND ABOUT 121 DEPOSITS OF MONEY BY CHEQUES TOTALLING IN ALL T O A SUM OF RS.17,48,674/-. THE ASSESSEE WAS ASKED TO EXPLAIN THE TRANSACTION I.E., THE SOURCE FOR THE DEPOSITS IN THE VARIOUS BANK ACC OUNTS. THE ASSESSEES REPLY WAS THAT DURING THE PREVIOUS YEAR HE HAD INCO ME FROM TRADING IN IRON AND STEEL UNDER THE NAME M/S. LOHIT WIRES & STEELS. THE VAT REGISTRATION WAS OBTAINED FOR THIS BUSINESS ONLY IN THE MONTH OF NOVEMBER, 2017. PRIOR TO OBTAINING VAT REGISTRATION HE COULD NOT OPEN CUR RENT ACCOUNT AND WAS THEREFORE DOING TRADING IN IRON AND STEEL AND THE C HEQUE DEPOSITS IN THE BANK ACCOUNT ARE NOTHING BUT SALES IN THE COURSE OF SUCH BUSINESS. THE ASSESSEE COULD NOT GIVE DETAILS OF PERSONS TO WHOM HE SOLD STEEL AND WHO HAD ISSUED CHEQUES TO HIM. IN THE CIRCUMSTANCES TH E SUM OF 17,48,674/- WAS ADDED TO THE TOTAL INCOME OF THE ASSESSEE AS UN EXPLAINED CASH CREDIT U/S.68 OF THE ACT. 3. BEFORE CIT(A), THE ASSESSEE COULD SHOW EVIDENCE OF SALE TO VARIOUS PARTIES. THE CIT(A) ACCEPTED THE EVIDENCE SO FILED AND RESTRICTED THE ADDITION MADE BY THE AO FROM RS.16,48,674 TO RS.6,9 9,470/-. 4. IN RESPECT OF THE ADDITION MADE AS AFORESAID, TH E AO INITIATED PENALTY PROCEEDINGS U/S.271(1)(C) OF THE ACT AND IMPOSED PE NALTY ON THE ASSESSEE WHICH WAS CONFIRMED BY THE CIT(A). HENCE, APPEAL BY THE ASSESSEE BEFORE THE TRIBUNAL. 5. BEFORE THE TRIBUNAL THE LEARNED COUNSEL FOR THE ASSESSEE CONTENDED THAT THE NOTICE ISSUED BEFORE IMPOSING PENALTY WAS NOT ACCORDANCE WITH LAW AND ON THIS GROUND THE ORDER IMPOSING PENALTY SHOUL D BE QUASHED. THE LEARNED COUNSEL FOR THE ASSESSEE ALSO DREW OUR ATTE NTION TO THE SHOW CAUSE NOTICE ISSUED U/S. 274 OF THE ACT BEFORE IMPO SING PENALTY AND SUBMITTED THAT THE SAID NOTICE DOES NOT SPECIFY AS TO WHETHER THE ASSESSEE ITA NO.3059/BANG/2019 PAGE 3 OF 11 IS GUILTY OF HAVING FURNISHED INACCURATE PARTICULA RS OF INCOME OR OF HAVING CONCEALED PARTICULARS OF SUCH INCOME. HE POINTED OUT THAT THE SHOW CAUSE NOTICE DOES NOT STRIKE OUT THE IRRELEVANT POR TION VIZ., FURNISHED INACCURATE PARTICULARS OF INCOME OR CONCEALED PAR TICULARS OF SUCH INCOME. HE DREW OUR ATTENTION TO A DECISION OF THE HONBLE KARNATAKA 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., WHETHER THE CHARGE IS THAT THE ASSESSEE HAS FURNISHED INACCURA TE PARTICULARS OF INCOME OR CONCEALED PARTICULARS OF INCOME BY S TRIKING OUT THE IRRELEVANT PORTION OF PRINTED SHOW CAUSE NOTICE, THAN THE IMPO SITION OF PENALTY ON THE BASIS OF SUCH INVALID SHOW CAUSE NOTICE CANNOT BE S USTAINED. 6. WE HAVE ALSO PERUSED THE SHOW-CAUSE NOTICE ISSUE D U/S.274 OF THE ACT FOR THE AFORESAID AY 2008-09. THE AO IN THE SA ID SHOW CAUSE NOTICE HAS NOT STRUCK OFF THE IRRELEVANT PORTION AS TO WHE THER THE CHARGE AGAINST THE ASSESSEE IS CONCEALING PARTICULARS OF INCOME OR FURNISHING OF INACCURATE PARTICULARS OF INCOME. 7. THE LEARNED DR RELIED ON THE ORDER OF THE CIT(A) . THE CIT(A) IN REJECTING THE CONTENTION OF THE ASSESSEE ON THE ISS UE OF INVALIDITY OF THE ORDER IMPOSING PENALTY BECAUSE OF DEFECTIVE SHOW CA USE NOTICE U/S.274 OF THE ACT HAD PLACED RELIANCE ON THE DECISION OF THE ITAT BANGALORE BENCH IN THE CASE OF SHRI P.M. ABDULLA VS. ITO ITA NO.1223 & 1224/BANG/2 012 ORDER DATED 17.10.2016 TAKING A VIEW THAT ABSENCE OF SPECIFIC MENTION 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 DECISIO N OF HONBLE KARNATAKA HIGH COURT IN THE CASE OF CIT VS. SRI DURGA ENTERPRISES (2014) TAXMANN.COM 442 (KARNATAKA) . THE CIT(A) ALSO PLACED RELIANCE ON THE DECISION OF ITAT HYDERABAD BENCH IN THE CASE OF JYOTHIRMOY YAMSANI VS. ITA NO.3059/BANG/2019 PAGE 4 OF 11 DCIT WHEREIN THE ITAT HYDERABAD HELD THAT THE DECISION OF THE HONBLE KARNATAKA HIGH COURT IN THE CASE OF MANJUNATHA COTTON & GINNING FACTORY (SUPRA) IS NOT APPLICABLE WHERE THERE IS CLARITY IN THE AS SESSMENT ORDER OR THE PENALTY PROCEEDINGS WHICH SHOWS THE MIND OF THE AO THAT HE IS PROCEEDING TO IMPOSE PENALTY FOR A PARTICULAR DEFAU LT I.E., CONCEALING PARTICULARS OF INCOME OR FURNISHING INACCURATE PA RTICULARS OF INCOME. 8. A CO-ORDINATE BENCH IN THE CASE OF SHRI A NAGARJU (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 KARNATA KA HIGH COURT IN THE CASE OF MANJUNATHA COTTON & SPINNING MILLS LTD., (SUPRA) AND THEREFORE CANNOT BE FOLLOWED. THE DECISION RENDERED IN THE C ASE OF SRI DURGA ENTERPRISES (SUPRA) WAS IN A TOTALLY DIFFERENT CONTEXT OF DEFECT IN NO TICE ISSUED U/S.148 OF THE ACT WHEREIN THE AY WAS NOT ME NTIONED AND PERIOD WITHIN WHICH THE RETURN WAS TO BE FILED WAS NOT MEN TIONED. THE DEFECT WAS HELD TO BE CURABLE U/S.292B OF THE ACT. THE SAME R EASONING CANNOT BE APPLIED IN THE CONTEXT OF SHOW CAUSE NOTICE U/S.274 OF THE ACT. THE DECISION OF THE ITAT HYDERABAD BENCH IN THE CASE OF JYOTHIRMOY YAMSANI (SUPRA) IS ALSO CONTRARY TO THE PRINCIPLE LAID DOWN BY HON BLE KARNATAKA HIGH COURT IN THE CASE OF MANJUNATHA COTTON & SPINNING MILLS LTD., (SUPRA) . THE HONBLE KARNATAKA HIGH COURT IN THE CASE OF MANJUNATHA COTTON & SPINNING MILLS LTD., (SUPRA) HAD NOT CARVED OUT ANY SUCH EXCEPTION THAT IF THERE IS CLARITY IN THE ASSESSMENT ORDER OR THE PEN ALTY PROCEEDINGS WHICH SHOWS THE MIND OF THE AO THAT HE IS PROCEEDING TO I MPOSE PENALTY FOR A PARTICULAR DEFAULT I.E., CONCEALING PARTICULARS OF INCOME OR FURNISHING INACCURATE PARTICULARS OF INCOME. 9. 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 STAT E AS TO WHETHER PENALTY IS ITA NO.3059/BANG/2019 PAGE 5 OF 11 BEING PROPOSED TO BE IMPOSED FOR CONCEALMENT OF PAR TICULARS OF INCOME OR FOR FURNISHING INACCURATE PARTICULARS OF INCOME. T HE HONBLE HIGH COURT HAS FURTHER LAID DOWN THAT CERTAIN PRINTED FORM WHERE A LL THE GROUNDS GIVEN IN SECTION 271 ARE GIVEN WOULD NOT SATISFY THE REQUIRE MENT OF LAW. THE COURT HAS ALSO HELD THAT INITIATING PENALTY PROCEEDINGS O N ONE LIMB AND FIND THE ASSESSEE GUILTY ON ANOTHER LIMB OF SEC.271(1)(C) OF THE ACT. THE HONBLE KARNATAKA HIGH COURT IN THE CASE OF CIT & ANR. V. M ANJUNATHA COTTON AND GINNING FACTORY (SUPRA) HAS LAID DOWN THE FOLLOWIN G PRINCIPLES TO BE FOLLOWED IN THE MATTER OF 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 FINDING REGAR DING THE EXISTENCE OF ANY SAID GROUNDS MENTIONED THEREIN AND THEN PENALTY PROCEEDINGS IS INITIATED, IN THE NOTICE TO BE ISSUE D UNDER SECTION 274, THEY COULD CONVENIENTLY REFER TO THE SAID ORDE R WHICH CONTAINS THE SATISFACTION OF THE AUTHORITY WHICH HA S PASSED THE ORDER. HOWEVER, IF THE EXISTENCE OF THE CONDITIONS COULD NOT BE DISCERNED FROM THE SAID ORDER AND IF IT IS A CASE O F RELYING ON DEEMING PROVISION CONTAINED IN EXPLANATION-1 OR IN EXPLANATION- 1(B), THEN THOUGH PENALTY PROCEEDINGS ARE IN THE NA TURE OF CIVIL LIABILITY, IN FACT, IT IS PENAL IN NATURE. IN EITHE R EVENT, THE PERSON WHO IS ACCUSED OF THE CONDITIONS MENTIONED IN SECTI ON 271 SHOULD BE MADE KNOWN ABOUT THE GROUNDS ON WHICH THE Y INTEND IMPOSING PENALTY ON HIM AS THE SECTION 274 MAKES IT CLEAR THAT ASSESSEE HAS A RIGHT TO CONTEST SUCH PROCEEDINGS AN D SHOULD HAVE FULL OPPORTUNITY TO MEET THE CASE OF THE DEPARTMENT AND SHOW THAT THE CONDITIONS STIPULATED IN SECTION 271(1)(C) DO N OT EXIST AS SUCH HE IS NOT LIABLE TO PAY PENALTY. THE PRACTICE OF TH E DEPARTMENT SENDING A PRINTED FARM WHERE ALL THE GROUND MENTION ED IN SECTION 271 ARE MENTIONED WOULD NOT SATISFY REQUIREMENT OF LAW WHEN THE CONSEQUENCES OF THE ASSESSEE NOT REBUTTING THE INIT IAL PRESUMPTION IS SERIOUS IN NATURE AND HE HAD TO PAY PENALTY FROM 100% TO 300% OF THE TAX LIABILITY. AS THE SAID PROVISIONS HAVE T O BE HELD TO BE STRICTLY CONSTRUED, NOTICE ISSUED UNDER SECTION 274 SHOULD SATISFY THE GROUNDS WHICH HE HAS TO MEET SPECIFICALLY. OTHE RWISE, ITA NO.3059/BANG/2019 PAGE 6 OF 11 PRINCIPLES OF NATURAL JUSTICE IS OFFENDED IF THE SH OW 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 INAC CURATE PARTICULARS OF INCOME. NO DOUBT, THE FACTS OF SOME CASES MAY ATTRACT BOTH THE OFFENCES AND IN SOME CASES THERE M AY BE OVERLAPPING OF THE TWO OFFENCES BUT IN SUCH CASES T HE INITIATION OF THE PENALTY PROCEEDINGS ALSO MUST BE FOR BOTH THE O FFENCES. BUT DRAWING UP PENALTY PROCEEDINGS FOR ONE OFFENCE AND FINDING THE ASSESSEE GUILTY OF ANOTHER OFFENCE OR FINDING HIM G UILTY FOR EITHER THE ONE OR THE OTHER CANNOT BE SUSTAINED IN LAW. IT IS NEEDLESS TO POINT OUT SATISFACTION OF THE EXISTENCE OF THE GROU NDS MENTIONED IN SECTION 271(1)(C) WHEN IT IS A SINE QUA NON FOR INITIATION OR PROCEEDINGS, THE PENALTY PROCEEDINGS SHOULD BE CONF INED ONLY TO THOSE GROUNDS AND THE SAID GROUNDS HAVE TO BE SPECI FICALLY 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 SHOU LD BE IMPOSED ONLY ON THE GROUNDS ON WHICH HE IS CALLED UPON TO A NSWER. IT IS NOT OPEN TO THE AUTHORITY, AT THE TIME OF IMPOSING PENALTY TO IMPOSE PENALTY ON THE GROUNDS OTHER THAN WHAT ASSES SEE WAS CALLED UPON TO MEET. OTHERWISE THOUGH THE INITIATIO N 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 ALSO BE IMPOSED ON THE S AME GROUND. WHERE THE BASIS OF THE INITIATION OF PENALT Y PROCEEDINGS IS NOT IDENTICAL WITH THE GROUND ON WHI CH THE PENALTY WAS IMPOSED, THE IMPOSITION OF PENALTY IS N OT VALID. THE VALIDITY OF THE ORDER OF PENALTY MUST BE DETERM INED WITH REFERENCE TO THE INFORMATION, FACTS AND MATERIALS I N THE HANDS OF THE AUTHORITY IMPOSING THE PENALTY AT THE TIME T HE ORDER WAS PASSED AND FURTHER DISCOVERY OF FACTS SUBSEQUEN T TO THE IMPOSITION OF PENALTY CANNOT 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 IN THE COU RSE OF ANY PROCEEDINGS THAT THERE IS CONCEALMENT OF INCOME OR FURNISHING OF ITA NO.3059/BANG/2019 PAGE 7 OF 11 INACCURATE PARTICULARS OF TOTAL INCOME UNDER CLAUSE (C). CONCEALMENT, FURNISHING INACCURATE PARTICULARS OF I NCOME ARE DIFFERENT. THUS 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 PAI REPORTED IN 292 ITR 11 AT PAGE 19 HAS HELD THAT CONCEALMENT OF INCOME AND FUR NISHING INACCURATE PARTICULARS OF INCOME CARRY DIFFERENT CO NNOTATIONS. 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 HEL D THAT LEVY OF PENALTY HAS TO BE CLEAR AS TO THE LIMB FOR WHICH IT IS LEVIED AND THE POSITION BEING UNCLEAR PENALTY IS NO T SUSTAINABLE. THEREFORE, WHEN THE ASSESSING OFFICER PROPOSES TO I NVOKE THE FIRST LIMB BEING CONCEALMENT, THEN THE NOTICE HAS T O BE APPROPRIATELY MARKED. SIMILAR IS THE CASE FOR FURNI SHING INACCURATE PARTICULARS OF INCOME. THE STANDARD PROF ORMA WITHOUT STRIKING OF THE RELEVANT CLAUSES WILL LEAD TO AN IN FERENCE AS TO NON- APPLICATION OF MIND. 10. 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 IMPOSI NG PENALTY FOR BREACH OF CIVIL OBLIGATIONS OR LIABILITIES. C) WILLFUL CONCEALMENT IS NOT AN ESSENTIAL INGREDI ENT FOR ATTRACTING CIVIL LIABILITY. D) EXISTENCE OF CONDITIONS STIPULATED IN SECTION 2 71(1)(C) IS A SINE QUA NON FOR INITIATION OF PENALTY PROCEEDINGS UNDER SECTION 271. ITA NO.3059/BANG/2019 PAGE 8 OF 11 E) THE EXISTENCE OF SUCH CONDITIONS SHOULD BE DISC ERNIBLE FROM THE ASSESSMENT ORDER OR ORDER OF THE APPELLATE AUTH ORITY OR REVISIONAL AUTHORITY. F) EVEN IF THERE IS NO SPECIFIC FINDING REGARDING THE EXISTENCE OF THE CONDITIONS MENTIONED IN SECTION 271(1)(C), A T LEAST THE FACTS SET OUT IN EXPLANATION 1(A) & (B) IT SHOULD B E DISCERNIBLE FROM THE SAID ORDER WHICH WOULD BY A LE GAL FICTION CONSTITUTE CONCEALMENT BECAUSE OF DEEMING PROVISION. G) EVEN IF THESE CONDITIONS DO NOT EXIST IN THE AS SESSMENT ORDER PASSED, AT LEAST, A DIRECTION TO INITIATE PROCEEDIN GS UNDER SECTION 271(L)(C) IS A SINE QUA NON FOR THE ASSESSM ENT OFFICER TO INITIATE THE PROCEEDINGS BECAUSE OF THE DEEMING PROVISION CONTAINED IN SECTION 1(B). H) THE SAID DEEMING PROVISIONS ARE NOT APPLICABLE TO 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 ORD ER OF ASSESSMENT LEVYING TAX AND INTEREST AND HAS PAID TA X 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 ENQUIR Y CONCLUDED BY AUTHORITIES IT HAS RESULTED IN PAYMENT OF SUCH TAX OR SUCH TAX LIABILITY CAME TO BE ADMITTED AND I F NOT IT WOULD HAVE ESCAPED FROM TAX NET AND AS OPINED BY TH E ASSESSING OFFICER IN THE ASSESSMENT ORDER. L) ONLY WHEN NO EXPLANATION IS OFFERED OR THE EXPL ANATION OFFERED IS FOUND TO BE FALSE OR WHEN THE ASSESSEE F AILS TO PROVE THAT THE EXPLANATION OFFERED IS NOT BONAFIDE, AN ORDER IMPOSING PENALTY COULD BE PASSED. ITA NO.3059/BANG/2019 PAGE 9 OF 11 M) IF THE EXPLANATION OFFERED, EVEN THOUGH NOT SUB STANTIATED BY THE ASSESSEE, BUT IS FOUND TO BE BONAFIDE AND ALL F ACTS RELATING TO THE SAME AND MATERIAL TO THE COMPUTATIO N OF HIS TOTAL INCOME HAVE BEEN DISCLOSED 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 S ATISFACTION OR HAS NOT ISSUED ANY DIRECTION TO INITIATE PENALTY PR OCEEDINGS, IN APPEAL, IF THE APPELLATE AUTHORITY RECORDS SATIS FACTION, 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 SPECIFIC ALLY STATE THE GROUNDS MENTIONED IN SECTION 271(1)(C), I .E., WHETHER IT IS FOR CONCEALMENT OF INCOME OR FOR FURN ISHING OF INCORRECT PARTICULARS OF INCOME 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 T O MEET SPECIFICALLY. OTHERWISE, PRINCIPLES OF NATURAL JUSTICE IS OFFENDED. ON THE BASIS OF SUCH PROCEEDINGS, NO P ENALTY 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 A SSESSMENT PROCEEDINGS. THE PROCEEDINGS FOR IMPOSITION OF PENA LTY THOUGH EMANATE FROM PROCEEDINGS OF ASSESSMENT, IT I S INDEPENDENT AND SEPARATE ASPECT OF THE PROCEEDINGS. U) THE FINDINGS RECORDED IN THE ASSESSMENT PROCEED INGS IN SO FAR AS 'CONCEALMENT OF INCOME' AND 'FURNISHING OF I NCORRECT PARTICULARS' WOULD NOT OPERATE AS RES JUDICATA IN T HE PENALTY PROCEEDINGS. IT IS OPEN TO THE ASSESSEE TO CONTEST THE SAID PROCEEDINGS ON MERITS. HOWEVER, THE VALIDITY OF THE ITA NO.3059/BANG/2019 PAGE 10 OF 11 ASSESSMENT OR REASSESSMENT IN PURSUANCE OF WHICH PE NALTY IS LEVIED, CANNOT BE THE SUBJECT MATTER OF PENALTY PRO CEEDINGS. THE ASSESSMENT OR REASSESSMENT CANNOT BE DECLARED A S INVALID IN THE PENALTY PROCEEDINGS. (EMPHASIS SUPPLIED) 11. 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 WHER EIN 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 HONBLE KARNATAKA HIGH COURT THE REVENUE PREFERRED AN APPEAL IN SLP IN CC NO.11485 OF 2016 AND THE HONBLE SUPREME COURT B Y ITS ORDER DATED 05.08.2016 DISMISSED THE SLP PREFERRED BY THE DEPAR TMENT. 12. WE HAVE ALREADY OBSERVED THAT THE SHOW CAUSE NO TICE ISSUED IN THE PRESENT CASE U/S 274 OF THE ACT DOES NOT SPECIFY TH E CHARGE AGAINST THE ASSESSEE AS TO WHETHER IT IS FOR CONCEALING PARTICU LARS 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. ITA NO.3059/BANG/2019 PAGE 11 OF 11 WE THEREFORE HOLD THAT IMPOSITION OF PENALTY IN THE PRESENT CASES CANNOT BE SUSTAINED AND THE SAME IS DIRECTED TO BE CANCELLED. 12. IN THE RESULT, THE APPEAL IS ALLOWED. PRONOUNCED IN THE OPEN COURT ON THIS 23 RD DAY OF OCTOBER, 2019. SD/- SD/- ( A K GARODIA ) ( N V VASUDEVAN ) ACCOUNTANT MEMBER VICE PRESIDENT BANGALORE, DATED, THE 23 RD OCTOBER, 2019. / D ESAI S MURTHY / COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, I TAT, BANGALORE. 6. GUARD FIL E BY ORDER ASSISTANT REGISTRAR, ITAT, BANGALORE.