M/s Godavari Townships PVT Ltd., Visakhapatnam V. The DCIT, Circle -3(1), Visakhapatnam, Visakhapatnam

ITA 54/VIZ/2012

• Counselvise Citation: 5425314 RSA 2012
• Duration Of Justice: 1 year(s) 11 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-01-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 12-12-2013
• Assessment Year: 2007-2008
• Appeal Filed On: 29-02-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: K V N CHARYA
• Keywords: Unexplained expenditure; Depreciation; Opportunity of being heard; Principle of natural justice; Bonafide belief; Initiation of penalty proceedings; Reasonable cause; Onus to prove; Revised return
• Section: 40A(3); 143(3); 142(1); 133A; 115JB; 133(6); 131; 27; 132

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM BENCH : VISAKHAPATNAM BEFORE SHRI B. RAMAKOTAIAH, A.M. AND SHRI SAKTIJIT DEY, J.M. ITA.NO.54/VIZAG/2012 ASSESSMENT YEAR 2007-2008 M/S. GODAVARI TOWNSHIPS PVT. LTD. VISAKHAPATNAM PAN AACCG0533F VS. DCIT, CIRCLE 3(1) VISAKHAPATNAM (APPELLANT) (RESPONDENT) FOR ASSESSEE : MR. GVN HARI FOR REVENUE : MR. KVN CHARYA DATE OF HEARING : 13.12.2013 DATE OF PRONOUNCEMENT : 29.01.2014 ORDER PER B. RAMAKOTAIAH, A.M. THIS APPEAL BY ASSESSEE IS AGAINST THE ORDER OF THE CIT(A), VISAKHAPATNAM DATED 28.11.2011 CONFIRMIN G THE PENALTY UNDER SECTION 271(1)(C) OF THE I.T. ACT, 1961 OF AN AMOUNT OF RS. 50 LAKHS. 2. BRIEFLY STATED, THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF REAL ESTATE DEVELOPMENT AND FILED ITS RETURN OF INCOME ON 18.10.2007 ADMITTING AN INCOME OF RS.19,09,3 56/-. SURVEY UNDER SECTION 133A WAS CARRIED OUT IN THE BUSINES S PREMISES OF THE ASSESSEE ON 11.09.2008 DURING WHICH ASS ESSEE OFFERED AN ADDITIONAL INCOME OF RS.1,50,69,196/- FOR A.Y . 2007- 08. ASSESSEE FILED A REVISED RETURN INCLUDING THIS ADD ITIONAL INCOME ON 28.11.2008. ASSESSMENT WAS COMPLETED ON TOTA L INCOME OF RS.1,70,44,992/- BY ACCEPTING INCOME DECLAR ED IN REVISED RETURN AND FURTHER INCLUDING DISALLOWANCE U/S.40 A(3) OF RS.4,940/- AND DISALLOWANCE OF EXCESS EXPENDITURE OF RS.61,500/-. A NOTICE FOR PENALTY UNDER SECTION 271( 1)(C) OF INCOME TAX ACT WAS ISSUED ALONG WITH ASSESSMENT ORDER. IN RESPONSE TO THE NOTICE ISSUED, EXPLANATION WAS FILED WHERE IN IT WAS SUBMITTED THAT THE ASSESSEE ALWAYS COOPERATED WITH THE DEPARTMENT IN ALL RESPECTS FOR SMOOTH COMPLETION OF ASSESSMENT AND THERE WAS NO FAILURE ON PART OF ASSESSEE TO COMPLY WITH THE PROVISIONS OF THE ACT. IT WAS FURTHER SUB MITTED BY ASSESSEE THAT THERE WAS NO WILLFUL CONCEALMENT OF I NCOME OR FURNISHING OF INACCURATE PARTICULARS. A.O. AFTER CONSIDERI NG THE EXPLANATION OF THE ASSESSEE FOUND IT TO BE NOT ACCEP TABLE AS HE WAS OF THE OPINION THAT BUT FOR SURVEY OPERATIONS CARRIED OUT, ADDITIONAL INCOME WOULD NOT HAVE COME TO THE LIGHT. TH US, A.O. HELD THAT ASSESSEE TRIED TO CONCEAL PARTICULARS OF INCOM E WHICH WERE DETECTED DURING SURVEY. IN VIEW OF THE ABOVE, A.O. HELD THAT THE TAX PAYABLE ON ADDITIONAL INCOME OFFERED DURIN G THE SURVEY ATTRACTS THE PENALTY PROVISIONS U/S. 271(1)(C) AS THE SAME IS CONCEALED INCOME. A.O. FURTHER RELIED ON THE JUDGMENT OF HONBLE SUPREME COURT IN THE CASE OF UNION OF INDIA VS. DHARMENDRA TEXTILES LIMITED 306 ITR 277 (SC ) WHEREIN IT IS HELD THAT WILLFUL CONCEALMENT IS NOT AN INGREDIENT FOR ATTRACTING CIVIL LIABILITY. FURTHER, A.O. RELIED ON THE DECISION OF HONBLE KERALA HIGH COURT IN THE CASE OF CIT VS. R. KE SAV NAIR 287 ITR 276 (KER.) WHEREIN IT WAS HELD THAT ASSESS EE AGREEING TO ADDITION IS NOT A BAR ON IMPOSITION OF PENAL TY. RELIANCE IS ALSO PLACED ON CIT VS. C. ANANTHARAMAN C HETTIAR 273 ITR 401 (MAD.) AND CHRISTOPHER VS. CIT 286 ITR 511 (MAD.) WHEREIN THE HONBLE MADRAS HIGH COURT HELD THAT DISCLOSURE OF ADDITIONAL INCOME BY FILING REVISED RETURN WITH AN ASSERTION THAT DISCLOSURE IS TO BUY PEACE IS NOT BAR ON P ENALTY AND PENALTY CAN BE IMPOSED EVEN IN THE CASE OF SO-CAL LED VOLUNTARY DISCLOSURE. RELYING ON ABOVE DECISIONS, A.O. WENT ON TO LEVY A PENALTY OF RS.50,00,000/- CONSIDERING THAT T HE 100% TAX ON INCOME SOUGHT TO BE EVADED WORKED OUT TO RS.49,07,271/-. 3. BEFORE CIT(A), ASSESSEE HAS RAISED GROUNDS AND CONTESTED THE ISSUE ON VARIOUS GROUNDS. ARGUMENTS TAK EN-UP BY THE ASSESSEE BEFORE THE CIT(A) CAN BE SUMMARIZED A S FOLLOWS: (A) ASSESSEE VOLUNTARILY OFFERED INCOME IN GOOD FAITH ; (B) ASSESSEE FILED REVISED RETURN BASED ON WHICH ASSESSMENT WAS COMPLETED; (C) THERE IS NO FINDING BY THE A.O. THAT THERE IS CONCEALMENT; (D) BURDEN OF PROOF OF CONCEALMENT IS ON REVENUE WHICH IS NOT DISCHARGED; (E) ADDITION OF ADDITIONAL INCOME WAS ON ASSURANCE GIVEN BY SURVEY PARTY; (F) ADDITIONAL INCOME OFFERED IS WITHOUT CONSIDERING THE UNACCOUNTED EXPENDITURE; 4. LEARNED CIT(A), AFTER CONSIDERING THE ARGUMENTS, DISCUSSED VARIOUS CONTENTIONS IN DETAIL AND CONFIRMED T HE PENALTY REJECTING THE ABOVE CONTENTIONS OF THE ASSESSE E IN HIS DETAILED ORDER RUNNING FROM PAGES 5 TO 12. ON EACH OF THE ISSUES, THE LEARNED CIT(A) GAVE DETAILED FINDINGS, BA SED ON VARIOUS CASE LAW. 4.1. ON THE ISSUE OF VOLUNTARY ADMISSION, THE LEARNED CIT(A)S FINDING WAS THAT ANY DISCLOSURE MADE AFTER DET ECTION OF CONCEALMENT/INCRIMINATING MATERIAL CANNOT BE TERMED A S VOLUNTARY AND HENCE, THE CLAIM OF ASSESSEE I.E., DISC LOSURE OF INCOME IS VOLUNTARY AND SHOULD NOT AMOUNT TO CONCEALMEN T- IS WITHOUT ANY BASIS. HE RELIED ON THE JUDGMENT OF HONBL E KARNATAKA HIGH COURT IN THE CASE OF KA SWAMY VS. CIT 23 9 ITR 386; HONBLE A.P. HIGH COURT JUDGMENT IN THE CASE OF KSN MURTHY VS. CBDT 252 ITR 269 AND HONBLE ALLAHABAD HI GH COURT JUDGMENT IN THE CASE OF BHAIRAV LAL VARMA VS. UNION OF INDIA 230 ITR 855. 4.2. ON THE ISSUE OF REVISED RETURN, THE LEARNED CIT( A) RELYING ON THE JUDGMENT OF HONBLE MADRAS HIGH COURT IN THE CASE OF P. GOVINDASWAMY VS. CIT 244 ITR 510, HONBLE GUJ ARAT HIGH COURT JUDGMENT IN THE CASE OF LMP PRECISION ENGG. CO. LTD. VS. DCIT 330 ITR 93 AND HONBLE JHARKHAND HIGH COURT JUDGMENT IN THE CASE OF CIT VS. MAHABIT PRASAD BAJAJ 298 ITR 109 CAME TO THE CONCLUSION THAT ASSESSEE HAS FILED R EVISED RETURN WHICH IS NOT CONSEQUENT TO ANY BONAFIDE OMISSI ON BUT BECAUSE OF DETECTION OF CONCEALMENT BY THE DEPARTMENT. 4.3 WITH REFERENCE TO THE CONTENTION THAT THER E IS NO FINDING BY THE A.O. THAT THERE IS WILLFUL CONCEALMEN T, THE LEARNED CIT(A) RELIED ON THE CASE OF HONBLE MADHYA PRADESH HIGH COURT IN THE CASE OF DCIT VS. CHIRAG METAL ROLLING MILLS LTD. 305 ITR 29 TO OBSERVE THAT WHERE INCOME IS SURRENDE RED BY AN ASSESSEE, NO SEPARATE ENQUIRY IS NECESSARY BEFORE IMPOSING PENALTY. 4.4 WITH REFERENCE TO THE CONTENTION THAT BU RDEN OF PROOF IS ON THE REVENUE WHICH IS NOT DISCHARGED, THE LEARNED C IT(A) RELYING ON THE VARIOUS CASE LAW CAME TO THE OPINION THAT T HERE IS NO ONUS CAST UPON THE DEPARTMENT TO PROVE WILLFUL CONCEALMENT AND IT IS ON THE ASSESSEE TO PROVE THAT TH ERE IS NO CONCEALMENT. 4.5 WITH REFERENCE TO THE CONTENTION THAT ADMISS ION OF ADDITIONAL INCOME WAS ON AN ASSURANCE GIVEN BY SURVEY PARTY, LEARNED CIT(A) RELYING ON THE HONBLE KERALA HIGH COURT JUDGMENT IN THE CASE OF CIT VS. A. SREENIVASA PAI 24 2 ITR 29 AND ALSO IN THE CASE OF ANAND LIQUORS VS. CIT 232 ITR 35 AND OTHER CASES TO HELD THAT EVEN IF THERE IS AN AGREEMENT, WHICH IS IN THIS CASE OBVIOUSLY DID NOT EXIST, THAT CANNOT STOP THE DUE PROCESS OF LAW. 4.6 ON THE ARGUMENT THAT THERE WAS ADDITIONAL EXP ENDITURE AS NOTED IN THE IMPOUNDED DOCUMENTS AND INSPITE OF T HAT ASSESSEE ADMITTED ADDITIONAL INCOME, LEARNED CIT(A) REJECTED THE CONTENTION STATING THAT ASSESSEE IS TAKING-UP THI S ARGUMENT FOR ARGUMENT SAKE, WITHOUT SUBSTANTIATING THE SAME. 4.7 BY ANALYZING EACH OF THE CONTENTIONS AND RELYIN G ON VARIOUS CASE LAW, LEARNED CIT(A) UPHELD THE LEVY OF PENA LTY UNDER SECTION 271(1)(C) OF THE ACT. 5. AGGRIEVED BY THIS ORDER, THE ASSESSEE IS IN APPE AL BEFORE US AND HAS RAISED THE FOLLOWING GROUNDS 2. THE LEARNED CIT(A), IS NOT JUSTIFIED IN UPHOLDING THE PENALTY OF RS.50,00,000/- LEVIED BY THE A.O. U/S. 271(1)(C) OF THE INCOME TAX ACT, 1961. 3. THE LEARNED CIT(A), OUGHT TO HAVE HELD THAT THE A.O. HAVING ACCEPTED THE INCOME AS PER REVISED RETURN OF INCOME, IS NOT JUSTIFIED IN LEVYING PENALTY U/S. 271(1)(C) WITH REGARD TO INCOME OFFERED VOLUNTARILY IN THE REVISED RETURN OF INCOME. 4. THE LEARNED CIT(A), OUGHT TO HAVE HELD THAT THE APPELLANT FILED REVISED RETURN OF INCOME UNDER THE BONA-FIDE BELIEF THAT PENALTY U/S. 271(1)(C) WILL NOT BE LEVIED IN RESPECT OF ADDITIONAL INCOME OFFERED IN THE REVISED RETURN OF INCOME. 5. THE NOTICE ISSUED U/S.271(1)(C) IS INVALID AND CONSEQUENTLY, THE SAID NOTICE IS LIABLE TO BE QUASHED AS ILLEGAL AND THE ENTIRE PENALTY PROCEEDINGS TO BE HELD AS VOID AB INITIO. 6. GROUNDS NO. 1 AND 6 ARE GENERAL IN NATURE AND THEREFORE, THEY NEED NOT BE ADJUDICATED. GROUNDS 2 TO 5 PERTAIN TO THE ISSUE OF PENALTY UNDER SECTION 271(1)( C) OF THE ACT. AS SEEN FROM THE GROUNDS, GROUND NO.5 IS ON THE NOTICE ISSUED UNDER SECTION 271(1)(C) CONTENDING THAT THE NOT ICE IS INVALID AND THEREFORE, THE PROCEEDINGS ARE TO BE HELD VOID AB INITIO. THIS CONTENTION WAS NOT RAISED BEFORE THE AUTHORIT IES AND HAS BEEN RAISED FOR THE FIRST TIME BEFORE THE TRIBUN AL. THEREFORE, IT BECOMES AN ADDITIONAL GROUND EVEN THOUGH STA TED IN THE MAIN GROUNDS OF APPEAL MEMO. 6.1 WE HAVE CONSIDERED THE RIVAL ARGUMENTS AND AFTER G IVING OPPORTUNITY TO THE LEARNED DR AND CONSIDERING THE PRINCI PLES ON THE ISSUE, WE ADMIT THE GROUND AND DECIDE THE ISSUE IN THE COURSE OF THIS ORDER. 7. LEARNED COUNSEL PLACED HIS ARGUMENTS IN DETAIL AND REFERRED TO VARIOUS CASE LAW. IT IS THE CONTENTION OF THE LEARNED COUNSEL THAT THE NOTICE ISSUED UNDER SECTION 271(1)(C) ITSELF IS INVALID AND CONSEQUENTLY, THE ENTIRE PENALTY PROCEEDIN GS ARE TO BE HELD AS ABINITIO VOID (GROUND NO.5). 8. WITHOUT PREJUDICE TO THE ABOVE, IT WAS SUBMITTED THAT THE ASSESSEE FILED REVISED RETURN UND ER A BONAFIDE BELIEF THAT NO PENALTY WILL BE LEVIED IN RES PECT OF ADDITIONAL INCOME OFFERED IN THE REVISED RETURN AND I N THE REVISED RETURN THE ASSESSEE HAS ADMITTED HIGHER INCO ME EVEN THOUGH IT HAS VARIOUS EXPENDITURE, IN ORDER TO SETTLE T HE MATTERS AND EVEN BEFORE THE RETURN WAS FILED, ASSESSEE HAS PAID THE TAXES ON THE ASSURANCE OF SURVEY PARTY. THERE FORE, THE ACTION OF THE ASSESSEE IS BONAFIDE AND PENALTY IS NOT LEVIABLE. 9. DEALING WITH THE ABOVE ISSUES, LEARNED COUNSEL REFERRED TO THE NOTICE ISSUED UNDER SECTION 274/271(1 )(C) BY THE ASSESSING OFFICER. REFERRING TO THE NOTICE ISSUED AND VARIOUS PARAS STATED THEREIN, LEARNED COUNSEL HAS SUBM ITTED THAT IN THE STATUTORY NOTICE ACCOMPANYING THE ASSESSME NT ORDER, THE LEARNED A.O. CUT-OUT ALL THE WORDS AND PARAGRAPHS EXCEPT WITH REFERENCE TO NON-COMPLIANCE TO SECTIONS 142 (1) AND 143(2). SPECIFICALLY, HE REFERRED TO THE STRIKING OF T HE PARAGRAPH PERTAINING TO HAVE CONCEALED PARTICULARS IN YOUR INCOME OR FURNISHING INACCURATE PARTICULARS OF SUCH INCOME. SINCE THE RELEVANT PARAGRAPHS OF THE NOTICE ISSUED UNDER SECTION 274 READ WITH SECTION 271 (1)(C) DOES NOT INDICATE INITIAT ION OF PROCEEDINGS FOR CONCEALED PARTICULARS OF INCOME OR FOR FURNISHING IN ACCURATE PARTICULARS OF INCOME, THE NOTICE PERSE IS INVALID. THEN, LEARNED COUNSEL REFERRED TO THE EXPLANA TION GIVEN BY THE ASSESSEE DATED 21.1.2010 IN RESPONSE TO THE NOTICE DATED 24.12.2009, TO SUBMIT THAT THE ASSESSEE SUBMITTED THAT THE PROPOSAL FOR LEVY OF PENALTY UNDER S ECTION 271(1)(C) IS NOT PROPER AS THERE IS NO WILLFUL CONCEALM ENT OF INCOME OR FILING OF INACCURATE PARTICULARS. IT WAS FURTHER SUBMITTED THAT YOUR GOODSELF HAS MADE ADDITION TO THE RETURN INCOME BY DISALLOWING THE EXPENDITURE. HENCE, THERE IS NO SUPPRESSION OF INCOME ON OUR PART. EXPLAINING THE ABOVE, LEARNED COUNSEL SUBMITTED THAT SINCE THE NOTICE ISSUE D UNDER SECTION 271(1)(C) DOES NOT CONTAIN THE WORDS CONCEALME NT OF INCOME BUT STILL STATED TO BE ISSUED UNDER SECTION 27 1(1)(C), THE ASSESSEE REPLIED ONLY TO THE EXTENT OF ADDITIONS MA DE IN THE ORDER BY WAY OF DISALLOWANCE OF CERTAIN EXPENDITURE. THEREFO RE, ASSESSEE WAS UNDER BONAFIDE IMPRESSION THAT PROCEEDINGS UNDER SECTION 271(1)(C) WERE INITIATED FOR THE ADDITIONS MADE TO THE RETURNED INCOME. THEN, REFERRING TO THE ASSESSMENT ORDER, LEARNED COUNSEL SUBMITTED THAT A.O. HAS ACCEPTED THE REVISED RETURN, AS SUCH, THERE IS NO WHISPER ABOUT INITIATION OF PROCEEDINGS FOR CONCEALMENT OR THE INCOME WHICH WAS SUPPOSED TO HAVE BEEN CONCEALED. A.O. HAD MADE ONLY T WO ADDITIONS TO THE INCOME IN REVISED RETURN FILED BY ASSE SSEE NAMELY, DISALLOWANCE UNDER SECTION 40A(3) OF RS.4940/- A ND DIFFERENCE OF EXCESS EXPENDITURE CLAIM OF RS.61,500/-. SINCE THE ASSESSMENT ORDER DOES NOT CONTAIN ANY REFERENCE TO CONCEALED INCOME, THERE IS NO REPLY BY ASSESSEE ON T HAT ASPECT OF ADDITIONAL INCOME OFFERED BY THE ASSESSEE, AS IT WA S UNDER BONAFIDE IMPRESSION THAT 271(1)(C) PROCEEDINGS WERE INI TIATED FOR THE ADDITIONS MADE IN THE ASSESSMENT ORDER ITSELF. LE ARNED COUNSEL FURTHER SUBMITTED THAT ASSESSEE PAID TAXES OF RS.50 LAKHS ON 24.10.2008, RS.10,85,000/- ON 07.11.2008 IE. ., BEFORE FILING THE RETURN ON 28.11.2008 OFFERING ADDITIO NAL INCOME OF RS.1,50,69,196/-. 10. LEARNED COUNSEL FURTHER REFERRED TO THE STATEMENT RECORDED UNDER SECTION 133A TO SUBMIT THAT THE MANAGIN G PARTNER ACCEPTED THE ADDITIONAL INCOME EVEN THOUGH HE CLEARLY STATED THAT THERE WAS EXPENDITURE. SINCE THERE IS AN ASS URANCE BY THE SURVEY UNIT, ASSESSEE HAS ACCEPTED THE ADDITI ONAL INCOME WITHOUT CLAIM OF EXPENDITURE AND ASSESSEE CAN JUS TIFY THAT PENALTY IS NOT LEVIABLE IF THE CLAIM OF EXPENDI TURE WAS VERIFIED AND ALLOWED. IT WAS HIS CONTENTION THAT LEARNED C IT(A) WITHOUT CALLING FOR ANY REMAND REPORT ON THE ADDITIONAL EXPENDITURE CLAIMED WHICH WAS THEREIN IN THE IMPOUNDED MATERIAL AVAILABLE WITH THE DEPARTMENT, REJECTED THE CONTENTIONS WITHOUT EXAMINATION. IT WAS HIS SUBMISSION THAT ASSESSEE EVEN THOUGH HAS NOT EARNED THAT MUCH INCOM E, ACCEPTED HIGHER INCOME IN ORDER TO CLOSE THE MATTERS AND IMMEDIATELY PAID THE TAXES TO JUSTIFY THE BONAFIDE AC TIONS. WITH REFERENCE TO THE CONTENTION THAT WHAT CAN BE BROUGHT TO TAX MUST BEAR AN ELEMENT OF PROFIT OUT OF SUCH RECEIPTS, THE LEARNED COUNSEL REFERRED TO THE JUDGMENT OF HONBLE GUJARAT HIGH COURT IN THE CASE OF DCIT VS. PANNA CORPORATION 74 DTR (GUJ .) 89 TO SUBMIT THAT CONSISTENTLY COURTS ARE FOLLOWING THE PRINCIPLE THAT EVEN UPON DETECTION OF ON MONEY RECEIVED OR UNACCOUNTED CASH RECEIPT, WHAT CAN BE BROUGHT TO TAX IS T HAT THE PROFIT ON SUCH RECEIPTS AND NOT THE ENTIRE RECEIPT ITSELF. IF THAT BE THE LEGAL POSITION, WHAT IS TO BE ESTIMATED I S, REASONABLE PROFIT OUT OF SUCH RECEIPTS WHICH MUST BEAR AN ELEMENT OF ESTIMATION. RELYING ON THE ABOVE, LEARNED COUNSEL SUBMITTED THAT WHAT ASSESSEE HAS OFFERED IS THE ENTI RE SO- CALLED ON MONEY WITHOUT ANY CLAIM OF EXPENDITURE AND IF THE EXPENDITURE DETAILS IN THE IMPOUNDED DOCUMENTS ARE CONSIDERED, THE INCOME WOULD BE MUCH LESS THAN WHAT WA S ACCEPTED BY THE ASSESSEE. IT WAS HIS SUBMISSION THAT ASSESSEE WAS UNDER BONAFIDE BELIEF THAT NO PENALTY WILL BE INI TIATED UNDER SECTION 271(1)(C) AS THE ASSESSEE HAS FILED RE VISED RETURN EVEN BEFORE ISSUANCE OF NOTICE BY THE A.O. FOR THE YEAR UNDER CONSIDERATION I.E., A.Y. 2008-2009, ASSESSEE HAS SUB MITTED HIGHER INCOME AND NO PROCEEDINGS UNDER SECTION 271(1)(C) WERE INITIATED FOR THAT YEAR AS THE RETURN OF INCOME ITSELF W AS FILED DISCLOSING HIGHER INCOME. 11. LEARNED COUNSEL CONTINUING THE ARGUMENTS FURTHER SUBMITTED THAT A.O. HAS NOT DISCHARGED THE B URDEN HOW THE ENTIRE INCOME WAS CONCEALED INCOME. RELYING ON THE PRINCIPLES LAID DOWN BY THE HONBLE HIGH COURT OF MADRAS I N THE CASE OF CIT VS. GEM GRANITES, KARNATAKA IN TAX CAS E APPEAL NO. 504/2009 DATED 12.11.2013 SUBMITTED THAT THERE IS NO CASE FOR LEVY OF PENALTY ONCE THE INITIAL ONUS P LACED BY EXPLANATION TO SECTION 271(1)(C) HAS BEEN DISCHARGED B Y THE ASSESSEE. HE ALSO REFERRED TO THE JUDGMENT OF THE HON BLE SUPREME COURT IN THE CASE OF MAK DATA PVT. LTD. VS. CI T IN CIVIL APPEAL NO. 9772 OF 2013 DATED 30 TH OCTOBER, 2013 TO SUBMIT THAT ASSESSEE HAS GIVEN BONAFIDE EXPLANATION W HICH WAS NOT PROVED WRONG AND ACCORDINGLY, THERE IS NO QUESTION OF LEVY OF PENALTY UNDER SECTION 271(1)(C). 11.1. THE LEARNED COUNSEL FINALLY SUBMITTED THAT P ENALTY NOTICE BEING NOT LEGAL, THE PROCEEDINGS UNDER SECTION 271 (1)(C) HAVE NOT BEEN VALIDLY INITIATED AND RELYING ON THE D ECISION OF THE HONBLE KARNATAKA HIGH COURT IN THE CASE OF CIT V S. MANJUNATH COTTON AND ZINNING FACTORY AND OTHERS 359 IT R 565 SUBMITTED THAT PROCEEDINGS ARE BAD IN LAW AS BOTH T HE LIMBS OF THE NOTICES WERE STRUCK-OFF. SINCE, THERE IS NO APPLICATION OF MIND AT THE TIME OF INITIATION OF PENA LTY, FOLLOWING THE PRINCIPLES LAID DOWN BY THE HONBLE GUJRAT H HIGH COURT IN THE CASE OF PANNA CORPORATION (SUPRA), THE PROCEEDINGS ARE BAD IN LAW. FURTHER, IT WAS THE SUBMISSION THAT ENTIRE ON MONEY CANNOT BE TAXED AND WHAT IS TO BE T AXED CAN ONLY BE THE INCOME PART OF IT. REFERRING TO THE STAT EMENT GIVEN AT THE TIME OF SURVEY, LEARNED COUNSEL SUBMITTED THAT THERE IS EXPENDITURE WHICH WAS ALSO AVAILABLE FROM THE IMPOUNDED MATERIAL AND ASSESSEE HAS DISCHARGED HIS INI TIAL ONUS BY GIVING A BONAFIDE EXPLANATION THAT EXPENDITURE HAS TO BE REDUCED. THE INITIAL ONUS OF BONAFIDE EXPLANATION HAVING BEEN DISCHARGED BY THE ASSESSEE AND HAS NOT BEEN COUN TERRED BY THE REVENUE, ASSESSEES BONAFIDE EXPLANATION HAS T O BE ACCEPTED. 12. LEARNED D.R., INCIDENTALLY HAPPENS TO BE CIT(A) WHO PASSED THE ORDER, HAS DEFENDED THE ORDER BY REFERRING TO VARIOUS CASE LAW AND THE FACTS OF THE CASE. WHILE ACCE PTING THAT THE A.O. STRUCK DOWN RELEVANT COLUMNS IN THE STATUTORY N OTICE, HE PREFERRED TO THE LAST LINE OF THE PENALTY NOTICE TO SUBMIT THAT NOTICE WAS ISSUED FOR PROCEEDINGS UNDER SECTION 271(1)(C) ONLY AS CAN BE SEEN FROM THE NOTICE ITSELF. HE OPPOSED THE CONTENTION OF THE LEARNED COUNSEL FOR THE ASSESSEE. 12.1. LEARNED D.R. PLACED ON RECORD PAPER BOOK AND CASE LAW TO SUBMIT THAT NOTICE UNDER SECTION 274 READ WITH SECTION 271 IS ONLY A SHOW CAUSE NOTICE WHEREAS THE JURISDICTION FOR INITIATION OF PROCEEDINGS IS THE PROCEEDING S IN THE ASSESSMENT ORDER. SINCE IT IS ONLY A PROCEDURAL REQUIREMENT, STRIKING OFF PARAS IN THE NOTICE DOES NOT MAKE THE PROCEEDINGS INVALID. HE, THEN REFERRED TO THE SECOND NO TICE ISSUED BY THE SAME OFFICER WHEREIN IT WAS CLEARLY STATE D THAT REPLY WAS TO BE GIVEN FOR CONCEALMENT OF INCOME. ASSESSEE HAS NOT GIVEN ANY REPLY TO THE SECOND NOTICE AND NO FURTHE R EXPLANATION WAS PROVIDED. IN VIEW OF THIS, THERE IS NEI THER ANY MISUNDERSTANDING NOR ANY NON-APPLICATION OF MIND. SINC E ASSESSEE HAS NOT GIVEN ANY EXPLANATION FOR THE SECOND NOT ICE, IT CANNOT BE CONSIDERED THAT A.O. HAS NOT CONSIDERED THE EXPLANATION. WHAT HAS HAPPENED IS A SIMPLE TECHNICA L MISTAKE IN STRIKING-UP THE VARIOUS COLUMNS IN THE NOTICE WHI CH IS CURABLE AND CANNOT HAVE NULLIFYING EFFECT ON THE PROCEE DINGS. NOT ONLY PROVISIONS OF SECTION 292B BUT ALSO VARIOUS CASE LA W ARE IN SUPPORT OF THE CONTENTION THAT THE DEFECTIVE NOTICE DOES NOT INVALID A PROCEEDING. LEARNED D.R. RELIED ON THE FOL LOWING CASE LAWS : (1) CIT VS. TOLLARAM HASSOMAL 298 ITR 022 (2) MAK DATA P. LTD. VS. CIT-II (SC) CIVIL APPEAL NO. 9772 OF 2013 DATED OCTOBER 30, 2013. (3) ACIT V. DILIP KUMAR BALAR 8 ITR (TRIBU.) 229 (4) SMT. MAHESH KUMAR BATRA VS. JCIT 95 TTJ 461. (5) SMT. KRISHNA VERMA V. ACIT 292 ITR 88 (6) CIT VS. VIJAY DAL MILLS 230 ITR 301 (7) CIT VS. DAMODARDAS MURALILAL 222 ITR 401 (8) GAYATHRI TEXTILES V. CIT 243 ITR 674 (9) ANAND LIQUORS V. CIT 232 ITR 35 (10) SIRISH MADHUKAR DALVI VS. ACIT 287 ITR 242 (11) CIT VS. RAJBIR SINGH 233 ITR 126 (12) CIT VS. NORTAN MOTORS 275 ITR 595 (13) DCIT VS. K. NATARAJAN 33 SOT 92 COMING TO THE MERITS, HE DEFENDED HIS ORDER, WHICH WAS ALREADY BRIEFLY STATED IN THE EARLIER PARA-4 ABOVE. 13. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND PERUSED THE VARIOUS CASE LAW PLACED ON RECORD. 13.1. FACTS OF THE CASE : BEFORE ADVERTING TO THE DECISION ON THE MERITS OF VARIOUS CONTENTIONS, IT IS APPROPRIATE TO PLACE THE F ACTS ON RECORD. ADMITTEDLY, THE ASSESSEE HAS FILED THE RETURN OF INCOME ON 18.10.2007. AS PER THE A.O. THE ADMITTED INCOME WAS TAKEN AS RS.19,09,356/-. THIS STATEMENT OF THE A.O. BOTH IN THE ASSESSMENT ORDER AS WELL AS IN THE PENALTY ORDER IS NOT CORRECT. AS SEEN FROM THE COPY OF THE RETURN PLACED IN THE PAPER BOOK FROM PAGES 1 TO 14, ASSESSEE HAS GROSS TOTAL INCOME FOR THE YEAR AT RS.71,76,397/- AND AFTER SET OFF OF CARRY FORWARD LOS SES AND DEPRECIATION TO THE EXTENT OF RS.52,67,041/-, DEC LARED TOTAL INCOME AT RS.19,09,356/-. HOWEVER, ASSESSEE HAVING POS ITIVE INCOME, HAS OFFERED THE INCOME UNDER SECTION 115JB AT RS.71,98,828/-, WHICH IS THE DEEMED TOTAL INCOME UN DER THE PROVISIONS OF SECTION 115JB. NOWHERE IN THE ORDERS A.O. REFERRED TO THE INCOMES UNDER SECTION 115JB AND CALCUL ATED THE LEVY OF PENALTY ON THE NORMAL INCOME OF RS 19.09,35 6 IGNORING THE HIGHER INCOME OF RS. 71,98,828 OFFERED UND ER SECTION 115JB OF THE ACT. 13.2. AFTER FILING OF THE RETURN OF INCOME, ASSESSEES PREMISES WERE COVERED UNDER SECTION 133A ON 11.09.200 8 I.E., WITHIN ONE YEAR FROM THE DATE OF FILING THE RETURN. IT I S NOT CLEAR FROM THE ASSESSMENT ORDER WHETHER THE NOTICE FOR SELECTION OF SCRUTINY ISSUED ON 22.09.2008 IS CONSEQUENT TO THE SURV EY UNDER SECTION 133A OR OTHERWISE FOR ANY OTHER REASONS FOR SELECTION OF CASE TO SCRUTINY. THIS ISSUE WAS NEITHER DISCUSSED BY THE A.O. NOR RAISED BEFORE US. AS SEEN FROM THE C HRONOLOGY OF EVENTS, THE SURVEY HAPPENED ON 11.09.2008. FIRST ST ATEMENT OF THE DIRECTOR WAS TAKEN ON 11.09.2008 IN THE OFFICE PR EMISES UNDER SECTION 131 AND ON 12.09.2008 AND FURTHER CONTINU ED BY ANOTHER STATEMENT UNDER SECTION 131 STATED TO BE IN CONTINUATION OF EARLIER STATEMENT ON 22.09.2008. AS B RIEFLY STATED ABOVE, BEFORE FILING THE REVISED RETURN, ASSESSE E PAID TAXES OF RS. 50 LAKHS ON 24.10.2008 AND RS.10,85,000 /- ON 07.11.2008 AND RETURN WAS FILED ON 28.11.2008. AS SE EN FROM THE ORDER OF THE ASSESSMENT, EXCEPT BRIEFLY STATING ABOU T THE SURVEY PROCEEDINGS, THERE WAS NO DISCUSSION ON ANY OF T HE ISSUES IE. WHY THE ADDITIONAL INCOME WAS OFFERED AND WHY THE REVISED RETURN WAS FILED AND WHETHER THERE IS ANY CONCE ALMENT OF INCOME OR FURNISHING OF INACCURATE PARTICULARS. THE ORDE R OF THE A.O. IS VERY BRIEF AND CAN BE EXTRACTED, WHICH IS AS UNDER : THE ASSESSEE IS A COMPANY ENGAGED IN THE BUSINESS O F REAL ESTATE DEVELOPERS. IN THIS CASE THE ASSESSEE FI LED ORIGINAL RETURN OF INCOME FOR THE A.Y. 2007-08 ON 18.10.2007 ADMITTING AN INCOME OF RS.19,09,356/-. LATER ON, A SURVEY U/S.133A WAS CONDUCTED IN THE BUSINESS PREMISES OF THE ASSESSEE ON 11.09.2008 AND AT THE TIME OF SURVEY THE ASSESSEE ADMITTED AN ADDITIO NAL INCOME OF RS.1,50,69,196/- FOR THE A.Y. 2007-08. THE ASSESSEE FILED A REVISED RETURN OF INCOME ON 28.11.2 008 AND OFFERED ADDITIONAL INCOME OF RS.1,50,69,196/- IN ADDITION TO THE REGULAR INCOME OF RS.19,09,356/- DECLARING A TOTAL INCOME OF RS.1,69,78,552/- AND ALS O PAID TAXES OF RS.50,00,000/- ON 24.10.08 AND RS.10,85,000/- ON 07.11.2008. THE CASE WAS CONVERTED INTO SCRUTINY AND ACCORDINGLY, A NOTICE U/S.143(2) WAS ISSUED ON 22.09.2008 AND NOTICE U/S. 142(1) WAS ISSUE D TO THE ASSESSEE ON 29.09.2008. FURTHER NOTICES U/S. 143(2) WERE ISSUED FROM TIME TO TIME AND IN RESPONSE THERETO, SRI P RAMAKRISHNA, THE AUTHORISED REPRESENTATIVE OF THE ASSESSEE, APPEARED FROM TIME TO TIME AND PRODUCED THE BOOKS OF ACCOUNT S ALONG WITH SUPPORTING BILLS AND VOUCHERS. DURING THE COURSE OF SCRUTINY PROCEEDINGS, IT IS FOU ND THAT THE ASSESSEE HAS MADE CASH PAYMENT IN EXCESS OF RS.20,000/- TOTALING TO RS.24,700/-. OUT OF THIS 20% WORKS OUT TO RS.4,940/- WHICH IS NOT ALLOWABLE EXPENDITURE FOR THE A.Y. 2007-08, HENCE THIS AMOUNT IS TO BE DISALLOWED U/S.40(A)(3). AS SEEN FROM THE POSSESSORY AGREEMENT CUM- SALE WIT H GPA IN VENKATESWARA NAGAR GANDIGUNDAM VENTURE, REGISTRATION EXPENSES SHOWN VIDE REGISTRATION DOCUM ENT DATED 06.03.2007 NO. 2098, ACTUAL EXPENSES INCURRED RS.50,500/- INSTEAD OF RS.1,12,000/- SHOWN IN THE B OOKS OF ACCOUNTS. THE DIFFERENCE OF EXCESS EXPENDITURE SH OWN RS.61,500/- IS DISALLOWED AND ADDED TO THE RETURN OF INCOME. 13.3. THUS, AS CAN BE SEEN FROM THE ASSESSMENT ORDER, THERE IS NO DISCUSSION ABOUT ANY OF THE ISSUES ON WHICH THE PENALTY IS BEING LEVIED. EVEN THOUGH, PROCEEDINGS UN DER SECTION 271(1)(C) ARE INITIATED AS STATED IN THE ASS ESSMENT ORDER, COPY OF THE ORDER SHEET PLACED BY THE LEARNED CIT-DR IN THE PAPER BOOK DOES NOT INDICATE INITIATION OF PENALTY PROCEEDINGS AT ALL. THE ORDER SHEET DATED 22.12.2009 STA TES THE DRAFT ASSESSMENT ORDER IN THIS CASE WAS APPROVED ON FACTS A ND MATERIAL BROUGHT TO NOTICE AND INITIALED BY AN OFFICER (DESIGNATION NOT KNOWN). BELOW THAT, THERE WAS AN ENTR Y THAT AS DIRECTED ASSESSMENT ORDER DN AND 271(1)(C) PREPARED AND PUT UP . THERE IS NO INITIAL OF ANY OFFICER BELOW THIS NOTIN G WHICH INDICATE THAT NOTICE UNDER SECTION 271(1)(C) WA S ROUTINELY ISSUED FOR INITIATION OF SEPARATE PROCEEDINGS. THE ORDER AS WELL AS ORDER SHEET INDICATE THE NON APPLICATIO N OF MIND TO THE PENALTY PROCEEDINGS. MOREOVER THERE IS NO DISCUSSION ON THE AMOUNT OF CONCEALMENT OR SATISFACTION FOR INITIATING PROCEEDINGS. 13.4. AS CONTENDED, NOTICE UNDER SECTION 271(1)(C) WA S ORIGINALLY ISSUED BY THE A.O. DATED 24.12.2009. THE NO TICE UNDER SECTION 274 READ WITH SECTION 271, IN THE PROFORMA PRESCRIBED UNDER THE ACT, HAS STRICKEN OFF CERTAIN STA RRED PORTIONS(*) IN THE NOTICE. PARA 1 WHICH WAS STRICKEN OFF RELATES TO FAILURE TO FURNISH RETURN OF INCOME IS NOT RELEVANT FOR THE PRESENT CASE. A CRUCIAL PART WAS THE PARA 3 THAT HAVE CONCEALED THE PARTICULARS OF YOUR INCOME OR FURNISHING INACCURATE PARTICULARS OF SUCH INCOME WAS ALSO STRIKE N OFF FULLY. THE ONLY PORTION LEFT IN THE NOTICE, WITHOUT ANY STRIKING OFF, IS WITH REFERENCE TO HAVE WITHOUT REASONABLE CAUSE F AILED TO COMPLY WITH THE NOTICE UNDER SECTION 142(1)/143(2) DATED 27.02.2009, 04.06.2009 AND 25.08.2009 ISSUED BY THI S OFFICE. AS CAN BE SEEN FROM THE NOTICE, THIS NOTICE WAS SPEC IFICALLY ISSUED FOR NON-COMPLYING WITH THE NOTICE UNDER SECTION 14 2(1) / 143(2) OF THE I.T. ACT FOR THE DEFAULTS COMMITTED ON 27.02.2009 AND OTHER DATES AS MENTIONED IN THE NOTICE. BY SPECIFYING THE DATES OF DEFAULT IN THE NOTICE ITSELF AND STRIKING OFF THE CRUCIAL PART OF CONCEALED PARTICULARS OF INCOME OR FURNISHING INACCURATE PARTICULARS OF SUCH INCOME, IT CAN BE NOTICED FROM THAT DOCUMENT THAT THE NOTICE WAS ISSUED FOR FAILURE TO COMPLY WITH THE NOTICE UNDER SECTION 142(1) / 143(2) AND NOT FOR DEFAULT UNDER SECTION 271(1)(C). 13.5. IN RESPONSE TO THE ABOVE NOTICE, THE ASSESSEE REPLIED AS UNDER : PENALTY PROCEEDINGS U/S.271 WERE INITIATED ALONG WIT H THE ASSESSMENT ORDER U/S.143(3) FOR FAILURE TO COMPLY THE PROVISIONS OF SEC.142(1)/143(3) OF I.T. ACT, 1961. WE WISH TO SUBMIT THAT WE HAD FILED THE LETTERS IN RESPONSE TO YOUR NOTICES AND ALSO SUBMITTED THE INFORMATION TIME TO TIME WHENEVER DIRECTED BY YOUR GOODSELF DURING THE COURSE OF ASSESSMENT PROCEEDINGS U/S. 143(3) OF I.T. ACT, 1961 WE HAVE ALWAYS COOPERATED WITH THE DEPARTMENT IN AL L RESPECTS FOR SMOOTH COMPLETION OF THE PROCEEDINGS. WE HAD NOT FAILED TO COMPLY THE PROVISIONS OF THE ACT. WE FURTHER WISH TO SUBMIT THAT THE PROPOSED LEVY OF PENALTY U/S.271(1)(C) IS NOT PROPER AS THERE WAS NO W ILLFUL CONCEALMENT OF INCOME OR FILING OF INACCURATE PARTICU LARS BY US. YOUR GOODSELF HAS MADE THE ADDITION TO THE RETURNED INCOME BY DISALLOWING THE EXPENDITURE. HENC E THERE IS NO SUPPRESSION OF INCOME ON OUR PART. 13.6. AS CAN BE SEEN FROM THE ABOVE, THE ASSESSEE WAS UNDER BONAFIDE IMPRESSION THAT THE PROCEEDINGS UNDER SECT ION 271(1)(C) WERE INITIATED FOR THE ADDITIONS TO THE RETU RNED INCOME WHICH ARE SMALL DISALLOWANCES. 13.7. COMING TO THE ASSESSEES CONTENTION THAT IT HAS BONAFIDELY OFFERED THE HIGHER INCOME THAN ACTUAL INCO ME WITHOUT CLAIMING EXPENDITURE, THIS ISSUE WAS ALSO REQU IRE EXAMINATION. AS CAN BE SEEN FROM THE STATEMENT RECORDED BY THE OFFICER IN THE COURSE OF SURVEY PROCEEDINGS (NAME OF THE OFFICER AND DESIGNATION IS NOT AVAILABLE IN THE STAT EMENT), ASSESSEE HAS GIVEN A PRELIMINARY STATEMENT ON 11.09. 2008 AND FOLLOWED IT UP ON 12.09.2008 AND FURTHER ON 22.09.2008. TH E A.O. ACCORDINGLY REFERRED TO THE STATEMENT DATED 22.09. 2008 IN QUESTION NO. 6 AND 7. WHICH IS AS UNDER : Q.NO.6 : PLEASE WORKOUT THE DIFFERENCE IN SALE CONS IDERATION OF SAI RAM GARDENS AT PARAWADA. ANS. WE HAVE SOLD AT AN AVERAGE RATE OF 950/- PER SQ.YARD. THE TOTAL EXTENT OF SOLD AREA IS 60,612. WE HAVE OFFERED @ 700/- IN THE BOOKS. THE DIFFERENCE AMOUNT COMES TO RS.1,50,69,196/-. I ADMIT THIS DIFFERENCE AMOUNT AS MY ADDITIONAL INCOME EVEN THOUGH I HAVE EXPLAINED EXPENDITURE ALSO AND OFFER THE SAME TO TAX. Q.NO.7: I AM SHOWING YOU LOOSE SHEET BUNDLE NO.37 S ERIALLY NUMBERED FROM 1 TO 349 IMPOUNDED FROM YOUR OFFICE PREMISES DURING THE COURSE OF SURVEY CONDUCTED U/S.133A ON 11.9.2008. PLEASE GO THROUGH THE CONTENTS OF PAGE NO.246 TO 253 AND EXPLAIN THE SAME. ANS: YES, I HAVE GONE THROUGH THE CONTENTS OF THE PA PERS. THEY RELATE TO GODAVARI ENCLAVE, AT RAJAHMUNDRY. THE AMOUNTS REFLECTED ARE THE SALE VALUES RECEIVED B Y US. WE HAVE UNDERTAKEN UP THE PROJECT GODAVARI ENCLAVE AT RAJAHMUNDRY IN AN EXTENT OF 56 ACRES OF LAND WITH TOTAL PLOTTED AREA AROUND 1,55,000 SQ. YARDS. OUT OF WHICH WE HAVE SOLD 45,000 SQ. YARDS TO M/S. SREEMITRA TOWNSHIPS PVT. LTD., HYDERABAD, IN BULK, @ RS.800/- PER SQ. YARD. APART FROM THIS, WE HAVE SOLD NEAR ABOUT 95,000 SQ. YARDS LEAVING BALANCE OF AROUND 17,000 SQ. YARDS. WE HAVE ADMITTED @ RS.800/- PER SQ. YARD IN THE BOOKS AS SALE VALUE ON THE SOLD PLOTS. BUT, AS PER THE INFORMATION AVAILABLE ON THESE LOOSE SHEETS, THE AVERATE RATE WORKS OUT TO RS.960/- FOR THE PLOTS SOLD BY US PLOT-WISE OTHER THAN THE BULK SALES TO SRIMITH RA TOWNSHIPS PVT. LTD. WE ADMIT THE DIFFERENCE IN SALE VALUE IN THE COMPANY HANDS WHICH WORKS OUT TO RS.1,52,00,000/-. EVEN THOUGH WE HAVE UNEXPLAINED EXPENDITURE, WE WILL OFFER THE SAME TO TAX. THE PRESENT PROJECT IS STILL GOING ON AND WE WILL PAY ADVANCE TAX ON THE ADDITIONAL INCOME OFFERED. 13.8. THE ANSWER IN QUESTION NO.7 PERTAIN TO THE LATER A.Y. IN WHICH ASSESSEE HAS ADMITTED THE INCOME OF RS.1,52,00,000/- IN THE RETURN ITSELF FILED ORIGINALLY AND THERE IS NO DISPUTE WITH REFERENCE TO THAT AS NO PENALTY PROCE EDINGS WERE INITIATED. HOWEVER, FOR THE IMPUGNED A.Y. SINCE RETURN WAS ALREADY FILED, ASSESSEE OFFERED HIGHER INCOME AND ADMITTED RS.1,50,69,196/-. THIS AMOUNT WAS ARRIVED AT BY THE SURV EY PARTY, AFTER DUE VERIFICATION OF THE RECORDS BUT WITHOUT CONSIDERING THE EXPENDITURE. WHAT WE NOTICED IS THAT WIT H REFERENCE TO THE TRANSACTION IN GODAVARI ENCLAVE, RA JAHMUNDRY THE DIFFERENCE IN PRICE OF RS.160/- PER SQ. YARD MULTIP LIED BY 95,000 SQ. YARDS SOLD DURING THE YEAR COMES EXACTLY TO RS.1,52,00,000/-. HOWEVER, FOR THE TRANSACTION IN SAI GARD EN IN PARWADA ,WHICH IS IN THE IMPUGNED ASSESSMENT YEAR, THE DIFFERENCE AMOUNT OF RS.250/- PER SQ. YARD ON 60,612 SQ. YARDS SOLD AREA DOES NOT COME TO RS.1,50,69,196/- (ACTUAL AMOU NT SHOULD HAVE BEEN RS.1,51,53,000/-). THUS, THERE IS EVI DENCE WITH REFERENCE TO ACTUAL RECEIPT OF THE AMOUNTS AVAI LABLE TO THE SURVEY PARTY, WHILE DETERMINING THE ABOVE AMOUNT. IF THOS E DOCUMENTS WERE EXAMINED, ASSESSEES CONTENTION THAT IT HAS UNEXPLAINED EXPENDITURE ALSO COULD HAVE BEEN VERIFIED BY THE A.O. UNFORTUNATELY, NEITHER THE SURVEY PARTY GAVE THE WORKING HOW IT ARRIVED AT THE ABOVE AMOUNT QUANTIFIED IN THE SW ORN STATEMENT NOR THE A.O. DISCUSSED ANY THING ABOUT THE QUANTIFICATION OF THE ABOVE AMOUNT IN THE ASSESSMENT OR DER AS DISCUSSED EARLIER. IN VIEW OF THIS, WE CANNOT AT THIS POI NT OF TIME, ARRIVE AT A CONCLUSION THAT SO MUCH OF THE AMOUN T HAS BEEN CONCEALED BY THE ASSESSEE. AS RIGHTLY HELD BY T HE HONBLE GUJARAT HIGH COURT IN THE CASE OF PANNA CORPORATION (SUPRA) , WHAT IS TO BE BROUGHT TO TAX CAN ONLY BE THE PROFIT/INCOM E ELEMENT IN A TRANSACTION BUT NOT GROSS RECEIPTS OF THE TRANSACTION. EVEN THOUGH ASSESSEE ADMITTED THE ENTIR E GROSS RECEIPTS IN THE STATEMENT, THERE SEEMS TO BE A BONAFI DE ACTION ON THE PART OF THE ASSESSEE. 14. LAW ON THE PENALTY PROCEEDINGS : 14.1. THE INCOME TAX ACT 1961 HAS DIFFERENT CHAPTERS DEALING WITH PROCEDURE FOR ASSESSMENT, FOR PENALTIES. CHAP TER- IV OF THE INCOME TAX ACT, 1961 DEALS WITH THE PROCEDURE F OR ASSESSMENT WHEREAS, CHAPTER-XXI DEALS WITH THE PENALTI ES LEVIABLE. SECTION 271 DEALS WITH PENALTIES FOR FAILURE TO FURNISH RETURNS, COMPLYING WITH NOTICES, CONCEALMENT OF INCOME ETC., AND SECION 274 DEAL WITH PROCEDURE WHICH ARE AS UNDER : 271. FAILURE TO FURNISH RETURNS, COMPLY WITH NOTICES, CONCEALMENT OF INCOME, ETC.- (1) IF THE ASSESSING OFFICER OR THE COMMISSIONER (APPEALS) IN THE COURSE OF ANY PROCEEDINGS UNDER THI S ACT, IS SATISFIED THAT ANY PERSON - (A) OMITTED (B) HAS FAILED TO COMPLY WITH A NOTICE UNDER SUB-SEC TION (1) OF SECTION 142 OR SUB-SECTION (2) OF SECTION 143 OR FAILS TO COMPLY WITH A DIRECTION ISSUED UNDER SUB-SECTION (2A ) OF SECTION 142, OR (C) HAS CONCEALED THE PARTICULARS OF HIS INCOME OR FURNISHED INACCURATE PARTICULARS OF SUCH INCOME, HE MAY DIRECT THAT SUCH PERSON SHALL PAY BY WAY OF PENA LTY,- (I) OMITTED (II) IN THE CASES REFERRED TO IN CLAUSE (B), IN ADDITI ON TO ANY TAX PAYABLE BY HIM, A SUM WHICH SHALL NOT BE LESS T HAN ONE THOUSAND RUPEES BUT WHICH MAY EXTEND TO TWENTY- FIVE THOUSAND RUPEES FOR EACH SUCH FAILURE ; (III) IN THE CASES REFERRED TO IN CLAUSE (C), IN ADDI TION TO ANY TAX PAYABLE BY HIM, A SUM WHICH SHALL NOT BE LESS T HAN BUT WHICH SHALL NOT EXCEED THREE TIMES THE AMOUNT OF TAX SOUGHT TO BE EVADED BY REASON OF THE CONCEALMENT OF PARTICULARS OF HIS INCOME OR THE FURNISHING OF INAC CURATE PARTICULARS OF SUCH INCOME. EXPLANATION I .-WHERE IN RESPECT OF ANY FACTS MATERIAL TO THE COMPUTATION OF THE TOTAL INCOME OF ANY PERSON U NDER THIS ACT,- (A) SUCH PERSON FAILS TO OFFER AN EXPLANATION OR OFF ERS AN EXPLANATION WHICH IS FOUND BY THE ASSESSING OFFICER OR THE COMMISSIONER (APPEALS) TO BE FALSE, OR (B) SUCH PERSON OFFERS AN EXPLANATION WHICH HE IS NO T ABLE TO SUBSTANTIATE AND FAILS TO PROVE THAT SUCH EXPLAN ATION IS BONA FIDE AND THAT ALL THE FACTS RELATING TO THE SAM E AND MATERIAL TO THE COMPUTATION OF HIS TOTAL INCOME HAVE BEEN DISCLOSED BY HIM, THEN, THE AMOUNT ADDED OR DISALLOWED IN COMPUTING THE TOTAL INCOME OF SUCH PERSON AS A RESULT THEREOF SHALL, FOR THE PURPOSES OF CLAUSE (C ) OF THIS SUB-SECTION BE DEEMED TO REPRESENT THE INCOME IN RESPECT OF WHICH PARTICULARS HAVE BEEN CONCEALED.' SECTION 274 DEALS WITH PROCEDURE TO BE FOLLOWED BEFORE IMPOSING PENALTY UNDER CHAPTER XXI. IT READS AS UNDER : '274. PROCEDURE.-(L) NO ORDER IMPOSING A PENALTY UNDER THIS CHAPTER SHALL BE MADE UNLESS THE ASSESSEE HAS BEEN HEARD, OR HAS BEEN GIVEN A REASONABLE OPPORTUNITY OF BEING HEARD. (2) NO ORDER IMPOSING A PENALTY UNDER THIS CHAPTER SHALL BE MADE - (A) BY THE INCOME-TAX OFFICER, WHERE THE PENALTY EXCEEDS TEN THOUSAND RUPEES ; (B) BY THE ASSISTANT COMMISSIONER OR DEPUTY COMMISSIONER, WHERE THE PENALTY EXCEEDS TWENTY THOUSAND RUPEES, EXCEPT WITH THE PRIOR APPROVAL OF THE JOINT COMMISSIONER. (3) AN INCOME-TAX AUTHORITY ON MAKING AN ORDER UNDE R THIS CHAPTER IMPOSING A PENALTY, UNLESS HE IS HIMSE LF THE ASSESSING OFFICER, SHALL FORTHWITH SEND A COPY OF SUCH ORDER TO THE ASSESSING OFFICER.' 14.2. SECTION 271 IS A SPECIFIC PROVISION PROVIDI NG FOR IMPOSITION OF PENALTIES, AND IS A COMPLETE CODE IN ITSELF, REGULATING THE PROCEDURE FOR THE IMPOSITION OF PENALTIES PRESCRIBED. THE PROCEEDINGS HAVE, THEREFORE, TO BE CONDUCTED IN ACCORDANCE THEREWITH, SUBJECT ALWAYS TO TH E RULES OF NATURAL JUSTICE. THE PROVISIONS FOR THE ASSESSMENT AND LEVY OF TAX WILL NOT APPLY AS SUCH FOR THE IMPOSITI ON OF PENALTY. IN SUCH A SITUATION, I.E., WHEN THERE IS A SP ECIFIC PROVISION, PROCEEDINGS SHOULD BE TAKEN ONLY THERE UNDER AND NOT UNDER ANY OTHER PROVISION. SECTION 271 ALONE, THEREFORE, GOVERNS THE IMPOSITION OF PENALTIES FOR CONCEALMENT OF INCOME OR FOR FURNISHING INACCURATE PARTICULARS OF SUCH INCOME. THE VALIDITY OF PENALTY PROCEEDINGS WILL HAVE TO BE TESTED ONLY FROM THE PERSPECTI VE OF SECTION 271. 14.3 SECTION 271(1) MAKES APPROPRIATE PROVISION FOR LEVYING PENALTIES ON ASSESSEES IN DIFFERENT EVENTUA LITIES. ONE SUCH EVENTUALITY IS FOR CONCEALMENT OF INCOME O R FURNISHING OF INACCURATE PARTICULARS OF SUCH INCOME. T HE PENALTY PROVISIONS HAS TWO DISTINCT LIMBS. ONE LIMB DEALS WITH THE CONDITION PRECEDENT FOR INITIATING PENA LTY ACTION AND ASSUMPTION OF JURISDICTION OF THE AUTHOR ITY CONCERNED. THIS LIMB IS SEPARATELY ENACTED IN CLAUS E (C) OF SUB-SECTION (1) OF SECTION 271. THE OTHER LIMB OF T HE PENALTY PROVISIONS IS THE SUBSTANTIAL PART WHICH DEAL S WITH THE ACTUAL IMPOSITION OF THE LIABILITY FOR PEN ALTY AND THE QUANTIFICATION THEREOF. THIS LIMB IS FOUND ENACTED , IN CLAUSE (III) OF SUB-SECTION (1) OF SECTION 271. THI S, HOWEVER, CANNOT MEAN THAT THE TWO LIMBS HAVE TO BE REA D DISJUNCTIVELY. ORDINARILY, PENALTY CAN BE IMPOSED U NDER CLAUSE (C) OF SECTION 271(1) AND THE QUANTUM OF PENA LTY IS PRESCRIBED IN CLAUSE (III) OF THE SAME SUB-SECTION. 14.4 AS IS CLEAR FROM SECTION 271(1)(C) THE SAID PROVISION IS ATTRACTED ONLY WHEN THE CONDITION STIPU LATED IN SECTION 271(1)(C) ARE ATTRACTED. IF THOSE CONDITI ONS ARE NOT FULFILLED THERE IS NO QUESTION OF EXERCISING POW ER UNDER THE SAID PROVISION TO IMPOSE PENALTY. THEREFOR E, IT IS NECESSARY TO FIND OUT WHAT ARE THE CONDITIONS, WHIC H MUST EXIST BEFORE INITIATING THE PROCEEDINGS UNDER SECTION 271(1). 14.5 SECTION 271(1)(C) MAKES IT CLEAR THAT IF TH E ASSESSING OFFICER OR THE COMMISSIONER (APPEALS) IN T HE COURSE OF ANY PROCEEDINGS UNDER THIS ACT IS SATISFI ED THAT ANY PERSON HAS CONCEALED THE PARTICULARS OF HIS INCOME OR FURNISHED INACCURATE PARTICULARS OF SUCH INCOME, T HEN HE MAY DIRECT THAT SUCH PERSON SHALL PAY BY WAY OF PENALTY STIPULATED IN THE AFORESAID PROVISION. THEN THE QUESTION IS, WHEN AN INCOME IS SAID TO BE CONCEALED S O AS TO ATTRACT THE PENALTY PROVISIONS. EXPLANATION 1 SETS OUT THE CIRCUMSTANCES WHICH JUSTIFIES LEVY OF PENALTY. I T READS AS UNDER : 'EXPLANATION 1.-WHERE IN RESPECT OF ANY FACTS MATERIAL TO THE COMPUTATION OF THE TOTAL INCOME OF ANY PERSON U NDER THIS ACT,- (A) SUCH PERSON FAILS TO OFFER AN EXPLANATION OR OF FERS AN EXPLANATION WHICH IS FOUND BY THE ASSESSING OFFICER OR THE COMMISSIONER (APPEALS) OR THE COMMISSIONER TO BE FALSE, OR (B) SUCH PERSON OFFERS AN EXPLANATION WHICH HE IS N OT ABLE TO SUBSTANTIATE AND FAILS TO PROVE THAT SUCH EXPLANATION IS BONA FIDE AND THAT ALL THE FACTS REL ATING TO THE SAME AND MATERIAL TO THE COMPUTATION OF HIS TOTAL INCOME HAVE BEEN DISCLOSED BY HIM, THEN, THE AMOUNT ADDED OR DISALLOWED IN COMPUTING THE TOTAL INCOME O F SUCH PERSON AS A RESULT THEREOF SHALL, FOR THE PURPO SES OF CLAUSE (C) OF THIS SUB-SECTION, BE DEEMED TO REPR ESENT THE INCOME IN RESPECT OF WHICH PARTICULARS HAVE BEE N CONCEALED.' 14.6 AFTER INSERTION OF EXPLANATION 1 TO SECTION 271(1)(C), THE LAW ON CONCEALMENT AND PENALTY HAS BECOME STIFFER . THE EXPLANATION AS IT STANDS NOW IS A COMPLETE CODE HAVING THE FOLLOWING FEATURES : (1) EVERY DIFFERENCE BETWEEN REPORTED AND ASSESSED INCOME NEEDS AN EXPLANATION. (2) IF NO EXPLANATION IS OFFERED, LEVY OF PENALTY M AY JUSTIFIED. (3) IF EXPLANATION IS OFFERED BUT IS FOUND TO BE FALS E, PENALTY WILL BE EXIGIBLE. (4) IF EXPLANATION IS OFFERED AND IT IS NOT FOUND TO BE FALSE, PENALTY MAY NOT BE LEVIABLE, IF (A) SUCH EXPLANATION IS BONA FIDE. (B) THE ASSESSEE HAD MADE AVAILABLE TO THE ASSESSING OFFICER ALL THE FACTS AND MATERIALS NECESSARY IN COMPUTATION OF INCOME. 14.7 THEREFORE, EXPLANATION 1 UNDERSTOOD IN THE PROPER CONTEXT, IN PARTICULAR, CLAUSE (C) OF SUB-SECTION (1 ) OF SECTION 271 MAKES THE INTENTION OF THE LEGISLATURE MANIFEST. THE CONDITION PRECEDENT FOR LEVYING THE PE NALTY IS THE SATISFACTION OF THE AUTHORITY THAT THERE IS A CONCEALMENT OF THE PARTICULARS OF THE INCOME OR INACCURATE PARTICULARS ARE FURNISHED TO AVOID PAYMENT OF TAX. ONCE THE AUTHORITY COMES TO SUCH CONCLUSION, THE LAW MANDATES THAT BEFORE IMPOSING PENALTY, THE ASSESS EE MUST BE HEARD. THE ASSESSEE IS GIVEN THE OPPORTUNITY TO OFFER HIS EXPLANATION. ONCE SUCH AN OPPORTUNITY IS GI VEN AND THE ASSESSEE FAILS TO OFFER THE EXPLANATION OR OF FERS EXPLANATION WHICH IS FOUND TO BE FALSE, THEN THE PENA LTY WILL FOLLOW AS PRESCRIBED UNDER SUB-CLAUSE (III) OF CLAUSE (C) OF SUB-SECTION (1) OF SECTION 271. WHERE THE ASS ESSEE OFFERS AN EXPLANATION AND SUBSTANTIATES THE EXPLANATIO N, THE QUESTION OF IMPOSING PENALTY WOULD NOT ARISE. EV EN IN CASES WHERE HE FAILS TO SUBSTANTIATE THE EXPLANATION BU T IF HE PROVES THAT THE EXPLANATION OFFERED IS A BONA FIDE ONE AND ALL THE FACTS RELATING TO THE SAME AND MATE RIAL TO THE COMPUTATION OF HIS TOTAL INCOME HAS BEEN DISCLOSED BY HIM, THEN, IN LAW, A DISCRETION IS VESTED WITH THE AUTHORITY NOT TO IMPOSE PENALTY. IN OTHER WORDS, IF THE ASSESSEE OFFERS EXPLANATION BUT FAILS TO SUBSTANTIATE THE SAME, BUT IF HE PROVES THAT EXPLANATION OFFERED IS BO NA FIDE BUT IS NOT SUFFICIENT TO SUBSTANTIATE THE EXPLANAT ION AND DISCLOSES ALL MATERIAL FOR THE COMPUTATION OF HIS TOTAL INCOME, THE QUESTION OF IMPOSING PENALTY WOULD NOT ARISE. 14.8 THE BASIS ON WHICH PENALTY FOR CONCEALMENT IS TO BE LEVIED AND QUANTIFIED IS INDICATED IN SUB-CLAUSE (I II) OF SUB-SECTION (1) OF SECTION 271. FOR STARTING THE PEN ALTY PROCEEDINGS UNDER THIS CLAUSE, THE CONDITION PRECEDEN T IS THAT THE ASSESSING OFFICER MUST BE SATISFIED THAT A PERSON HAS CONCEALED THE PARTICULARS OF HIS INCOME OR FURNISHE D INACCURATE PARTICULARS OF SUCH INCOME. THE INGREDIENT S WHICH GO TO MAKE UP THE CONDITIONS PRECEDENT TO THE INFLICTION OF PENALTY ARE : (I) THE ASSESSING OFFICER OR THE COMMISSIONER (APPE ALS) IN THE COURSE OF A PROCEEDING BEFORE HIM MUST BE SATISFIED THAT AN ASSESSEE HAS CONCEALED OR FURNISH ED INCORRECT PARTICULARS OF HIS INCOME ; (II) THERE MUST BE A DETERMINATION BY THE ASSESSING OFFICER OR THE COMMISSIONER (APPEALS) THAT THE ASSE SSEE HAS CONCEALED OR FURNISHED INACCURATE PARTICULARS O F HIS INCOME 14.9 IT IS ALREADY HELD IN VARIOUS JUDICIAL PRECEDENT S THAT A MERE ADDITION IN THE ASSESSMENT DOES NOT IPSO FACTO LEAD TO LEVY OF PENALTY. THE PENALTY UNDER SECTION 271(1)(C) CAN BE LEVIED ONLY WITH TWO CONDITIONS PRESCRIBED FOR LEVY OF PENALTY ARE SATISFIED. ONE SUCH CONDITION IS FOR CONCEALMENT OF INCOME AND OTHER FOR FURNISHING OF INACCURATE PARTICULARS OF SUC H INCOME. THESE TWO ARE DISTINCT LIMBS. IT HAS ALREADY BEE N HELD IN VARIOUS JUDGMENTS THAT WHEN AN ITEM HAS NOT BEEN SH OWN AT ALL, IT WOULD FALL IN THE LIMB OF CONCEALMENT AND AN ITEM WHICH HAS BEEN SHOWN IN THE RETURN, BUT WRONGLY WOULD C OME UNDER THE LIMB OF FURNISHING OF INACCURATE PARTICULARS OF INCOME. IT IS CLEAR FROM THE PROVISIONS THAT LEVY OF PENA LTIES ATTRACTED ONLY WHEN THE CONDITIONS STIPULATED UNDER SECT ION 271(1)(C) ARE ATTRACTED. WHEN THOSE CONDITIONS ARE NOT FULFILLED, THERE IS NO QUESTION OF EXERCISING POWER UNDER THE SAID PROVISION TO IMPOSE PENALTY. 14.10. LD CIT DR VEHEMENTLY ARGUED THAT THE DEFICIENC Y IN THE NOTICE DOES NOT AFFECT THE PROCEEDINGS AND THE L EVY OF PENALTY WAS VALID. MOST OF THE ARGUMENTS OF REVENUE WERE ANALYSED AND EXAMINED IN DETAIL IN THE CASE OF CIT VS MANJUNATHA COTTON AND GINNING FACTORY ( SUPRA) RELIED B Y LEARNED COUNSEL. HONBLE KARNATAKA HIGH COURT IN THE C ASE OF CIT VS. MANJUNATHA COTTON AND GINNING FACTORY IN 359 ITR 565 HAS EXTENSIVELY ANALYSED THE PROVISIONS OF THE ACT VIS--VIS VARIOUS CASE LAW, INCLUDING THAT OF HONBLE SUPREME COURT AND IN CONCLUSION ARRIVED AT THE FOLLOWING PRINCIPLES GOVERNI NG THE PENALTY PROCEEDINGS UNDER SECTION 271(1)(C). THESE ARE : IN THE LIGHT OF WHAT IS STATED ABOVE, WHAT EMERGES IS AS UNDER : (A) PENALTY UNDER SECTION 271(1)(C) IS A CIVIL LIABILIT Y. (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 INGREDIENT FOR ATTRACTING CIVIL LIABILITY. (D) EXISTENCE OF CONDITIONS STIPULATED IN SECTION 271 (1) (C) IS A SINE QUA NON FOR INITIATION OF PENALTY PROCEEDI NGS UNDER SECTION 271. (E) THE EXISTENCE OF SUCH CONDITIONS SHOULD BE DISCERN IBLE FROM THE ASSESSMENT ORDER OR THE ORDER OF THE APPELL ATE AUTHORITY OR THE REVISIONAL AUTHORITY. (F) EVEN IF THERE IS NO SPECIFIC FINDING REGARDING THE EXISTENCE OF THE CONDITIONS MENTIONED IN SECTION 27 1(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 DEE MING PROVISION. (G) EVEN IF THESE CONDITIONS DO NOT EXIST IN THE ASSES SMENT ORDER PASSED, AT LEAST, A DIRECTION TO INITIATE PROC EEDINGS UNDER SECTION 271(1) (C) IS A SINE QUA NON FOR THE ASSESSING OFFICER TO INITIATE THE PROCEEDINGS BECAU SE OF THE DEEMING PROVISION CONTAINED IN SUB-SECTION (LB). (H) THE SAID DEEMING PROVISIONS ARE NOT APPLICABLE TO THE ORDERS PASSED BY THE COMMISSIONER OF INCOME-TAX (APPEALS) AND THE COMMISSIONER. (I) THE IMPOSITION OF PENALTY IS NOT AUTOMATIC. (J) THE 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 PROCEEDI NGS 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 ADMITTED AND IF NOT IT WOULD H AVE 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 TH E ASSESSEE FAILS TO PROVE THAT THE EXPLANATION OFFERE D 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 BO NA FIDE AND ALL FACTS RELATING TO THE SAME AND MATERIA L 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. (0) 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 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 I NCOME OR FOR FURNISHING OF INCORRECT PARTICULARS OF INCOM E (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 AN D 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 ASPEC T OF THE PROCEEDINGS. (U) THE FINDINGS RECORDED IN THE ASSESSMENT PROCEEDI NGS IN SO FAR AS 'CONCEALMENT OF INCOME' AND 'FURNISHIN G OF INCORRECT PARTICULARS' WOULD NOT OPERATE AS RES JUDI CATA 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 PURSU ANCE OF WHICH PENALTY IS LEVIED, CANNOT BE THE SUBJECT M ATTER OF PENALTY PROCEEDINGS. THE ASSESSMENT OR REASSESSMENT CANNOT BE DECLARED AS INVALID IN THE PENALTY PROCEE DINGS. 14.11. IN ADDITION TO THE ABOVE PRINCIPLES LAID DOWN BY THE HONBLE KARNATAKA HIGH COURT, THE HONBLE SUPREME COU RT IN THE CASE OF CIT VS. MAK DATA PVT. LTD. IN CIVIL AP PEAL NO. 977 OF 2013 ALSO HELD THAT A.O. HAS TO SATISFY WHETHER THE PENALTY PROCEEDINGS BE INITIATED OR NOT DURING THE COURSE OF ASSESSMENT PROCEEDINGS AND THE A.O. IS NOT REQUIRED TO REFER HIS SATISFACTION IN A PARTICULAR MANNER OR REDUCED IT IN TO WRITING. FURTHER, IT WAS HELD THAT WHEN ASSESSEE HAD SURRENDERED WITH A VIEW TO AVOID LITIGATION AND TO BUY PE ACE AND TO CHANNEL ITS ENERGY AND RESOURCES TOWARDS PRODUCT IVE WORK AND TO MAKE AMENABLE SETTLEMENT WITH THE INCOME TAX DEPARTMENT, SUCH TYPE OF EXPLANATIONS ARE NOT RECOGNISED BY THE STATUTE UNDER EXPALNATION-1 TO SECTION 271(1)(C). THE QUESTION IS WHETHER THE ASSESSEE HAS OFFERED ANY EXPL ANATION FOR CONCEALMENT OF PARTICULARS OF INCOME OR FURNISHING INACCURATE PARTICULARS OF INCOME. EXPLANATION TO SECTION 2 71(1) RAISES A PRESUMPTION OF CONCEALMENT WHEN THERE IS DIFFE RENCE BETWEEN REPORTED AND ASSESSED INCOME. THE BURDEN IS THE N ON THE ASSESSEE TO SHOW OTHERWISE BY COGENT AND RELIABLE EVIDENCE. WHEN THE INITIAL ONUS PLACED BY EXPLANATIO N HAS BEEN DISCHARGED BY HIM, THE OWNERSHIP OF THE REVENUE T O SHOW THAT THE AMOUNT IN QUESTION CONSTITUTE THE INCOME AND N OT OTHERWISE. 14.12. THEREFORE, EVEN THOUGH THE ASSESSEE MAY DECLARE THE INCOMES BY USING THE WORDS VOLUNTARY DISCLOSURE TO BU Y PEACE AND TO AVOID LITIGATION, AMICABLE SETTLEMENT E TC., UNDER THE PROVISIONS WHAT IS TO BE SEEN IS, WHETHER THE ASSESS EE HAD GIVEN ANY BONAFIDE REASONS INITIALLY PLACED BY EXPLANA TION TO SECTION 271(1)(C). 14.13. FURTHER, COORDINATE BENCH IN THE CASE OF DCIT VS. DR. SATISH B. GUPTA REPORTED IN 42 SOT 48 HAD ALSO ANAL YSED THE PROVISIONS OF SECTION 271(1)(C) WITH REFERENCE TO THE AMOUNT ADDED OR DISALLOWED IN COMPUTING THE TOTAL INC OME. THE COORDINATE BENCH HAS CONSIDERED THE LAW ON THE ISSU E AND HELD AS UNDER : FROM THE LAST PORTION OF EXPLN. 1, I.E., 'THE AMOUNT ADDED OR DISALLOWED IN COMPUTING TOTAL INCOME........BE DEEM ED TO REPRESENT THE INCOME IN RESPECT OF WHICH PARTICU LARS HAVE BEEN CONCEALED' WOULD INDICATE THAT IT IS ONLY T HE ADDITION OR DISALLOWANCE TO THE TOTAL INCOME THAT W OULD REPRESENT THE INCOME FOR THE PURPOSES OF LEVY OF PE NALTY WITHIN THE MEANING OF EXPLN. 1 TO S. 271(1)(C). IN OTHE R WORDS IF NO ADDITION OR DISALLOWANCE IS MADE IN COMPUTING TOTAL INCOME THEN THERE WILL NOT BE ANY IN COME WHICH CAN BE DEEMED AS INCOME IN RESPECT OF WHICH PARTICULARS HAVE BEEN CONCEALED. CLAUSE (C) TO EXPLN. 4 TO S. 271(1)(C) EXPLAINS THE AMOUNT OF TAX SOUGHT TO EVADE . IT MEANS THE DIFFERENCE BETWEEN TAX ON THE TOTAL INCOM E ASSESSED AND THE TAX THAT WOULD HAVE BEEN CHARGEABLE AT SUCH TOTAL INCOME IS REDUCED BY THE AMOUNT ADDED. SINCE IN THE PRESENT CASE THE AO HAS NOT MADE ANY ADDITION IN THE RETURNED INCOME, QUESTION OF WORKIN G OUT ANY TAX SOUGHT TO BE EVADED WOULD NOT ARISE. (PARA 6) THE BASIS FOR LEVY OF PENALTY IS RETURN OF INCOME. I F ANY AMOUNT HAS BEEN SHOWN IN THE RETURN OF INCOME THEN IT CANNOT BE SAID THAT ASSESSEE HAS CONCEALED ANY PARTICULARS ABOUT THAT INCOME OR FURNISHED INACCURA TE PARTICULARS IN RELATION THERETO. THERE CANNOT BE ANY CONCEALMENT PRIOR TO FILING OF RETURN. QUESTION OF CONSIDERING WHETHER ASSESSEE IS LIABLE FOR ACTION UND ER S. 271(1)(C) WOULD ARISE ONLY WHEN RETURN OF INCOME IS SCRUTINIZED BY THE AO AND HE FINDS SOME MORE ITEMS OF INCOME OR ADDITIONAL INCOME OVER AND ABOVE WHAT IS DECLARED IN THE RETURN. IF IT IS SO, THE ASSESSEE W OULD BE LIABLE FOR ACTION UNDER S. 271(1)(C) IN RESPECT OF SUC H ITEMS ONLY WHICH ARE DISCOVERED BY THE AO ON THE SCRUTINY OF RETURN OF INCOME OR AFTER CARRYING OUT INVESTIGATION AND DISCOVERING SOME MORE ITEMS OF INCOME NOT FOUND DECLARED OR MENTIONED IN THE RETURN OF INCOME. PRIO R TO FILING OF RETURN OF INCOME THERE IS NO CONCEPT OF CONCEALMENT OR FURNISHING OF INACCURATE PARTICULARS. THE INITIAL PHRASE USED IN S. 271(1)(C) SUGGESTS THAT AO HAS TO FIND IN THE COURSE OF ANY PROCEEDINGS UNDER THIS AC T THAT ASSESSEE HAS CONCEALED THE PARTICULARS OF HIS INCOM E OR FURNISHED INACCURATE PARTICULARS OF SUCH INCOME. IN FACT THE PROCEEDINGS AGAINST THE ASSESSEE WOULD START ONL Y AFTER RETURN OF INCOME IS FILED BY THE ASSESSEE OR A FTER ISSUANCE OF STATUTORY NOTICE AGAINST HIM SUCH AS UN DER S. 142(1) OR UNDER S. 143(2). CARRYING OUT SURVEY UNDER S . 133A IS NOT AT ALL ANY PROCEEDINGS. PROCEEDINGS AS U SED IN S. 271(1)(C) ARE STATUTORY PROCEEDINGS INITIATED AG AINST THE ASSESSEE EITHER BY ISSUANCE OF STATUTORY NOTICE OR AFTER FILING OF RETURN OF INCOME. SURVEY UNDER S. 13 3A OR SEARCH UNDER S. 132 OR ISSUANCE OF NOTICE UNDER S. 133(6) FOR EXAMPLE, ARE ONLY MEANS OF COLLECTING EVIDENCE AGAINST THE ASSESSEE AND ARE NOT EQUIVALENT TO STATUT ORY PROCEEDINGS. ANOTHER CRITERIA OF FINDING OUT AS TO WH ETHER PARTICULAR ACTION IS A STATUTORY PROCEEDING OR NOT IT IS TO BE SEEN WHETHER IT CAN BE BROUGHT TO A LEGAL CONCLUSION AGAINST THE ASSESSEE BY DETERMINING HIS RIGHT OR LIA BILITY. MERELY CARRYING OUT SURVEY UNDER S. 133A DOES NOT CRE ATE ANY LIABILITY AGAINST THE ASSESSEE WHICH IS CREATED ONLY THROUGH ASSESSMENT PROCEEDINGS OR PENALTY PROCEEDINGS . THEREFORE, THE DEPARTMENTAL REPRESENTATIVE IS INCORR ECT IN HIS SUBMISSION THAT SURVEY BEING A PROCEEDING AND AO HAS DISCOVERED CONCEALMENT DURING SURVEY, THEREFORE, THE ASSESSEE IS LIABLE FOR PENALTY UNDER S. 271(1)(C). FURT HER CL. (C) TO S. 271(1) MENTIONS 'AS CONCEALED.......OR FURNISHED'. THEY ARE PAST TENSE WORDS INDICATING THAT ASSESSEE HAS COMMITTED CERTAIN ACT ON WHICH PENALTY IS LEVIABLE. THUS THE ACT OF CONCEALMENT OR FURNISHING O F INACCURATE PARTICULARS SHOULD BE VIEWED BY THE AO A S DONE WITH RESPECT TO RETURN OF INCOME. THE OMISSION OR COMMISSION OR CONTUMACIOUS CONDUCT HAS TO BE VIEWED FROM THE RETURN OF INCOME AND IF CERTAIN THING IS N OT DISCLOSED OR NOT FURNISHED THEREIN ONLY THEN IT CAN B E SAID THAT ASSESSEE HAS CONCEALED THE PARTICULARS OF INCOM E OR FURNISHED INACCURATE PARTICULARS OF INCOME. PRIOR T O THIS ASSESSEE HAS NOT DONE ANY CONTUMACIOUS CONDUCT ON WHICH PENALTY CAN BE LEVIED. MERELY BECAUSE CERTAIN RECEIPTS ARE NOT RECORDED IN THE BOOKS OF ACCOUNT O R RECEIPTS ARE NOT ISSUED TO THE PATIENTS, BUT INCOME THEREFROM WAS FINALLY DECLARED IN THE RETURN OF INCO ME, THEN THERE IS NO CONTUMACIOUS CONDUCT. FOR NOT MAINTAINING BOOKS OF ACCOUNT OR NOT ISSUING RECEIPTS TO THE PATIENTS FOR THE AMOUNT RECEIVED BY THE ASSESSE E, THE BOOKS, AT THE BEST, CAN BE REJECTED BY INVOKING PROV ISIONS OF S. 145(3) AND INCOME CAN BE ESTIMATED IN ACCORDAN CE WITH S. 144. BUT WHERE THE AO ACCEPTS THE INCOME DECLARED IN THE RETURN OF INCOME THEN ASSESSEE CANN OT BE CHARGED FOR ANY CONTUMACIOUS CONDUCT. THUS WHERE RETURNED INCOME IS ACCEPTED THERE IS NO CASE FOR LE VY OF PENALTY. CIT VS. PARKASH INDUSTRIES LTD. (2010) 322 ITR 622 (P&H) AND SMT. GOVINDA DEVI VS. CIT (2008) 220 CTR (ALL) 189 : (2008) 14 DTR (ALL) 341 : (2008) 304 ITR 340 (ALL) RELIED ON. 14.14. THUS, THE VARIOUS PRINCIPLES AND THE LAW INDICATE THAT THE PROCEEDINGS UNDER SECTION 271(1)(C) ARE INDEPENDENT AND REQUIRES SATISFACTION OF VARIOUS PROVISION S AS PRESCRIBED. 15. LEGAL POSITION AS RELIED BY A.O. : 15.1 ASSESSING OFFICER RELIED ON THE FOLLOWING CASE LA WS WHILE LEVYING PENALTY U/S.271(1)(C) OF THE INCOME TAX ACT, 1961. (A) CIT VS. R. KESAVAN NAIR (2006) 156 TAXMAN 172 (KER. ) (B) C.CHRISTOPHER V. CIT (2004) 140 TAXMAN 485 (MAD.) (C) CIT V. C. ANANTHAN CHETTIAR (2005) 142 TAXMAN 556 ( MAD.) (D) UNION OF INDIA V. DHARMENDRA TEXTILE PROCESSORS. 15.2 THE CASE OF CIT V. R KESAVAN NAIR [2006] 156 TAXMAN 172 (KER) AS PER THE FACTS OF THE CASE, THE ASSESSEE DURING THE SEARCH PROCEEDINGS OFFERED AN INCOME OF RS . 40,000/- AND LATER ON DURING THE PROCEEDINGS UNDER SECTION 143(3), THE ASSESSING OFFICER AFTER VERIFICA TION OF BOOKS OF ACCOUNT SEIZED AT THE TIME OF SEARCH, ADOPT ED THE INCOME RS. 3,45,643/ - AND INITIATED THE PENALTY PROCEEDINGS. IN THIS CASE THE ASSESSEE HAS NOT DISCLOS ED THE ENTIRE AMOUNT OF ADDITIONAL INCOME DURING THE SEARCH TIME; THE ADDITIONAL INCOME IS UNEARTHED BY T HE ASSESSING OFFICER DURING THE PROCEEDINGS UNDER SECTION 143(3) OF THE ACT. BUT ASSESSEE CASE IS DIFFERENT F ROM THE ABOVE REFERRED CASE. ASSESSEE HAD OFFERED THE ENTIRE AMOUNT OF ADDITIONAL INCOME DURING THE SURVEY PROCEEDINGS. THE ASSESSING OFFICER DURING THE PROCEEDINGS UNDER SECTION 143(3) OF THE ACT SIMPLY RELIED ON THE ADDITIONAL INCOME OFFERED. THE ASSESSIN G OFFICER DID NOT UNEARTH ANY ADDITIONAL INCOME DURING TH E ASSESSMENT TIME, NOR EVEN EXAMINED THE IMPOUNDED MATERIAL. HENCE THE ABOVE CASE LAW DOES NOT APPLY TO THE PRESENT CASE AS IT PERTAIN TO DIFFERENT FACTS. 15.3 THE CASE OF C. CHRISTOPHER V. CIT [2004] 140 TAXMAN 485 (MAD) AS PER THE FACTS OF THE CASE, THOUGH THE ASSESSEE HAS EXPRESSED HIS DESIRE TO SETTLE THE TAX MATTERS WITH THE DEPARTMENT BY MAKING DISCLOSURE, B UT NO DISCLOSURE WAS MADE ON THE DAY OF THE SEARCH, OR BEFORE THE SEARCH WAS COMPLETED. NO STATEMENT WAS GIVEN BY THE ASSESSEE UNDER OATH UNDER SECTION 132(4 ). THEREAFTER, THE ASSESSEE MADE A DISCLOSURE ON A LAT ER DATE AND OFFERED ADDITIONAL INCOME FOR ASSESSMENT OF H IS INCOME AND ALSO IN THE CASE OF HIS WIFE. THE ASSESSING OFFICER THEREAFTER REASSESSED THE ASSESSEE FOR THE RELEVANT ASSESSMENT YEARS ON THE BASIS OF REVISED RETURNS FILED BY THE ASSESSEE AND ON REASSESSMENT, T HE ASSESSEE WAS FOUND TO HAVE ADDITIONAL TAXABLE INCOME FOR ALL THOSE YEARS AND TAX WAS LEVIED ACCORDINGLY. T HE ASSESSING OFFICER ALSO LEVIED PENALTY UNDER SECTIONS 271(1)(C) UPON THE ASSESSEE. HENCE, THE ABOVE SAID CASE LAW, WHICH THE ASSESSING OFFICER HAD RELIED TO L EVY PENALTY DOES NOT APPLY TO THE PRESENT CASE. 15.4 CIT V. C. ANANTHAN CHETTIAR [2005] 142 TAXMAN 556 (MAD.) AS PER THE FACTS OF THE CASE, DURING THE SEARCH , CASH & JEWELLERY WERE FOUND WITH THE ASSESSEE. THE ASSESSEE FILED A REVISED RETURN BY DISCLOSING THE ADDITIONAL INCOME, BUT NO EXPLANATION WAS OFFERED EXCEPT ASSERTING THAT HE HAD DISCLOSED INCOME ONLY T O BUY PEACE WITH THE DEPARTMENT. THE RETURN WAS ACCEPTED AND ASSESSMENT MADE ON THE BASIS OF THE RETURN. THE ASSESSEE IN RESPONSE TO THE NOTICE SEEKING TO IMPOSE PENALTY, TOOK THE STAND THAT THERE WAS NO CONCEALMENT AND IT WAS ONLY FOR THE PURPOSE OF BUYING PEACE WITH THE DEPARTMENT THAT THE ADDITIONAL INCOME WAS DISCLOSED AND THE RETURN FILED. IN THE ASSESSEE C ASE THERE IS NO SEARCH AND NO SEIZURE OF ANY ASSETS. ENT IRE INCOME WAS DECLARED IN STATEMENT AND FOLLOWED WITH PAYMENT OF TAXES AND FILING OF RETURN. HENCE, THE ABOVE SAID CASE LAW, WHICH THE ASSESSING OFFICER HAD RELI ED TO LEVY PENALTY DOES NOT APPLY CASE. 15.5 IN THE CASE OF UNION OF INDIA V. DHARMENDRA TEXTILE PROCESSORS 306 ITR 277 (SC) AS PER THE JUDGMENT OF THE ABOVE REFERRED CASE LAW, THE APEX COURT HAS GIVEN ITS VERDICT IN TH E FOLLOWING MANNER. 'THE PENALTY UNDER THE SAID SECTION IS A CIVIL LIABILITY. WILFUL CONCEALMENT IS NOT AN ESSENTIAL INGREDIENT FOR ATTRACTING THE CIVI L LIABILITY AS IS THE CASE IN THE MATTER OF PROSECUTION UNDER SECTION 276C OF THE ACT. WHILE CONSIDERING AN APPEAL AGAINS T ALL ORDER MADE UNDER SECTION 271(1)(C) WHAT IS REQUIRED TO BE EXAMINED IS THE RECORD WHICH THE OFFICER IMPOSING THE PENALTY H AD BEFORE HIM AND IF THAT RECORD CAN SUSTAIN THE FINDING THERE HA D BEEN CONCEALMENT, THAT WOULD BE SUFFICIENT TO SUSTAIN TH E PENALTY. AS PER THE ABOVE JUDGMENT, THOUGH THE MENS REA I.E. WILLFUL CONCEALMENT IS NOT AN ESSENTIAL INGREDIENT FOR ATTRACTING PENALTY U/S 271(1)(C ), THE MOST IMPORTANT REQUIREMENT TO LEVY PENALTY U/S 271(1)(C) IS THE RECORD AND THE SAID RECORD SHOULD SUSTAIN THE FINDING THAT, THERE HAD BEEN CONCEALMEN T. BUT IN ASSESSEE CASE, THE TEAM HAD IMPOUNDED LOT O F MATERIAL DURING THE SURVEY PROCEEDINGS, THE ASSESSI NG OFFICER SIMPLY RELIED ON THE REVISED RETURN FILED B Y THE APPELLANT. HENCE, THE ABOVE SAID CASE LAW, WHICH T HE ASSESSING OFFICER HAD RELIED TO LEVY PENALTY DOES N OT APPLY TO THE CASE. MORE OVER THE ABOVE CASE WAS DISTINGUISHED BY HONBLE SUPREME COURT IN LATER JUDGEMENT. 15.6. THUS, THE CASE LAW RELIED BY A.O. DOES NOT APPLY TO THE FACTS OF THE CASE. 16. FINDINGS : 16.1. IF WE EXAMINE THE FACTS OF THE CASE, KEEP ING IN MIND THE ABOVE PRINCIPLES, IT IS VERY CLEAR THAT THE A .O. HAS NOT RECORDED ANY SATISFACTION IN THE ASSESSMENT ORDER ABOUT THE CONCEALMENT NOR FOLLOWED THE PROCEDURE UNDER SECTION 274 WITH REFERENCE TO THE GROUNDS MENTIONED IN SECTION 271(1 )(C) WHETHER THE NOTICE ISSUED IS FOR THE CONCEALMENT OF INCOM E OR FOR FURNISHING OF INACCURATE PARTICULARS. HAVING DELETED APPROPRIATE PARAS IN THE NOTICE, SENDING A PRINTED FORM PARTICULARLY DELETING THE RELEVANT COLUMNS, WOULD NOT S ATISFY THE REQUIREMENT OF LAW. MOREOVER, SINCE THE GROUNDS ON WHIC H ASSESSEE HAS TO REPLY HAVE NOT BEEN SPECIFIED, THE PRI NCIPLES OF NATURAL JUSTICE HAS BEEN OFFENDED. ON THE BASIS OF SUC H PROCEEDINGS, NO PENALTY COULD BE IMPOSED ON THE ASSESSE E. NOT ONLY THAT THE ASSESSMENT ORDER INDICATES THAT THERE IS NO DIFFERENCE BETWEEN ASSESSED INCOME AND RETURNED INCOME . WHAT HAS BEEN ADDED IN THE ASSESSMENT IS NOT THE SU BJECT MATTER OF PENALTY. EVEN THOUGH THE ASSESSEE HAS FILED ORIGINALLY A RETURN, REVISED RETURN FILED BY THE ASSESSEE BEFORE T HE SCRUTINY PROCEEDINGS HAVE BEEN CONDUCTED, GIVES RISE T O A PRESUMPTION THAT ASSESSEE HAS BONAFIDELY ADMITTED HIG HER INCOME. EVEN THOUGH FOUND IN THE COURSE OF SURVEY PROCEEDINGS, A.O. HAVE NOT STATED HOW THE AMOUNT WAS QUANTIFIED AND WHY THE AMOUNT HAS TO BE CONSIDERED A S CONCEALMENT OF INCOME. IT CANNOT BE STATED THAT THE AMOUNT OFFERED BY THE ASSESSEE CAN BE CONSIDERED AS CONCEALED INCOME IN THE LIGHT OF FACTS OF THE CASE. 16.2 MORE IMPORTANTLY ON SIMILAR ISSUE, THE HONBLE HIGH COURT OF A.P. IN THE CASE OF V.V. PROJECTS AND INVESTMEN TS PVT. LTD. VS. DCIT 300 ITR 40 (A.P.) CONSIDERED SIMILAR SIT UATION AND HELD THAT PENALTY IS NOT IMPOSABLE. THE HONBLE HI GH COURT CONSIDERING THE FACTS HELD AS UNDER : THE LANGUAGE OF SUB-S. (1) OF S. 271 ITSELF MAKES IT CLEAR THAT RECORDING OF SATISFACTION OF CONCEALMENT OF INC OME BY A PERSON OR FURNISHING INACCURATE PARTICULARS OF SUCH INCOME IS A CONDITION PRECEDENT FOR LEVYING PENALTY INVOKING THE POWER UNDER S. 271(1). THE AO HAS TO FORM HIS OWN OPINION AND RECORD HIS SATISFACTION OF CONCEALMENT OF INCOME OR FURNISHING INACCURATE PARTICULARS OF INCOME BEFORE INITIATING PENALTY PROCEEDINGS UNDER S. 271(1)(C). IT IS ALSO CLEAR THAT S UCH SATISFACTION OF THE AO MUST BE SPELT OUT IN THE ORD ER OF ASSESSMENT ITSELF BUT CANNOT BE ASSUMED FROM THE ISS UE OF A NOTICE UNDER S. 271(1)(C). FAILURE TO RECORD SUC H SATISFACTION AMOUNTS TO A JURISDICTIONAL DEFECT WHIC H CANNOT BE CURED. IT IS ALSO RELEVANT TO NOTE THAT WH ETHER THE ASSESSEE HAS CONCEALED HIS INCOME OR HAS DELIBERATELY FURNISHED INACCURATE PARTICULARS THEREO F IS ESSENTIALLY A FINDING OF FACT WHICH HAS TO BE SPELT O UT BY WAY OF RECORDING THE SATISFACTION OF THE AO AS REQUI RED UNDER S. 271(1). THEREFORE, IN THE ABSENCE OF SUCH A FINDING IN THE ASSESSMENT ORDER NO PENALTY PROCEEDIN GS CAN BE INITIATED. THE DECLARATION OF INCOME MADE BY THE ASSESSEE COMPANY IN REVISED RETURN AND THE EXPLANATI ON THAT IT HAD DONE SO TO BUY PEACE WITH THE DEPARTMEN T AND TO AVOID PROTRACTED LITIGATION WAS ACCEPTED BY T HE AO IN HIS ORDER DT. 16TH MARCH, 2001 WITHOUT RAISIN G ANY OBJECTION. ADMITTEDLY THE AO ACCEPTED THE RETURNS F ILED BY THE ASSESSEE AFTER VERIFICATION OF THE INFORMATI ON FILED AND BOOKS OF ACCOUNTS PRODUCED. THUS, THE ASSESSMENT WAS COMPLETED ACCEPTING THE RETURNED NET INCOME AS P ER THE REVISED RETURN OF INCOME. NOT ONLY THE ASSESSMEN T ORDER DID NOT REFLECT ANY SATISFACTION AS REQUIRED U NDER S. 271(1) BUT EVEN THE SHOW-CAUSE NOTICE WAS SILENT WI TH REFERENCE TO THE SATISFACTION ARRIVED AT BY THE AO WITH REFERENCE TO THE CONCEALMENT OF INCOME BY THE ASSES SEE COMPANY. NOTHING HAS BEEN PLACED BEFORE THIS COURT BY THE REVENUE TO SHOW THAT ANY OTHER MATERIAL WAS AVAILABLE WITH THE AO TO THE EFFECT THAT THE ASSESS EE CONCEALED THE INCOME. IN THE CIRCUMSTANCES, IT IS N OT OPEN TO THE AO TO INVOKE THE POWER UNDER S. 271(1)(C) LEVYING PENALTY. THE IMPUGNED PENALTY PROCEEDINGS ARE WITHOUT JURISDICTION APART FROM BEING ARBITRARY AND ILLEGAL. 16.3 . RESPECTFULLY FOLLOWING THE ABOVE JUDGMENT OF T HE JURISDICTIONAL HIGH COURT, SINCE THE FACTS OF THE CASE EQUALLY FITS INTO THE PRINCIPLES LAID DOWN BY THE HONBLE A.P. HIGH COURT, WE HAVE NO HESITATION IN HOLDING THAT PENALTY UND ER SECTION 271(1)(C) IS NOT IMPOSABLE ON THE FACTS OF THE CASE. EVEN OTHERWISE, ASSESSEE HAVING GIVEN BONAFIDE EXPLANATION THAT HE HAS OFFERED HIGHER INCOME EVEN THOUGH THAT MUCH INCOME IS NOT TAXABLE, THIS CONTENTION OF THE ASSESSEE WAS NOT RE BUTTED. AS BRIEFLY STATED ABOVE IN THE FACTS, A.O. HAS NEIT HER BROUGHT ANY CALCULATIONS ON RECORD NOR MENTIONED HOW THE AMOUNT W AS QUANTIFIED. IN THESE SET OF CIRCUMSTANCES, ASSESSEES CONTENTION THAT IT HAD UNEXPLAINED EXPENDITURE IN EARNING THAT GRO SS RECEIPTS CANNOT BE REJECTED. THEREFORE, EVEN THE PROVIS IONS OF EXPLANATION 1 TO SECTION 271(1)(C) COME INTO OPERATION AS THE ASSESSEES EXPLANATION HAS NOT BEEN DISPROVED. THEREFOR E, THE CONDITIONS FOR IMPOSING PENALTY DOES NOT SATISFY. IN VI EW OF THE VARIOUS FACTORS DISCUSSED ABOVE, WE HAVE NO HESITATION I N CANCELLING THE PENALTY. 16.4. THERE IS ONE MORE ASPECT TO THE ISSUE. UNLIKE I N A SEARCH CASE THERE IS NO PRESUMPTION THAT THE AMOUNT UNEARTHED DURING THE COURSE OF SURVEY WILL AUTOMATICALL Y BE CONSIDERED AS CONCEALED INCOME. NO PROVISION/EXPLANATIO N SIMILAR TO EXPLANATION-5 WAS PROVIDED IN THE SECTION TO COVER SURVEY CASES. SINCE, THE INCOME DETECTED/OFFERED IN SURV EY CANNOT BE DEEMED TO BE CONCEALED INCOME, TREATING THE SAME AS CONCEALED INCOME AS WAS DONE BY A.O. DOES NOT ARIS E. A.O. HAS TO ESTABLISH THE NATURE OF INCOME AS CONCEALED IN COME BEFORE LEVY OF PENALTY. AS DISCUSSED EARLIER, NOTHING WAS DONE BY A.O. EXCEPT ACCEPTING THE REVISED INCOME RETURNED IN THE ASSESSMENT PROCEEDINGS UNDER SECTION 143(3) OF THE ACT. 17. THE LEARNED CIT(A) IN HIS DETAILED ORDER HAS ELABORATELY DISCUSSED PRINCIPLES OF LAW WITH WHICH WE HAVE NO OBJECTION. HOWEVER, WHAT THE LEARNED CIT(A) HAS MISSED IS, APPLICATION OF VARIOUS PRINCIPLES ON THE GIVEN SET OF FAC TS. AS DISCUSSED BY US IN DETAIL, ON THE FACTS AS STATED A BOVE IN ASSESSEES CASE, PENALTY IS NOT IMPOSABLE. THEREFORE, WHILE APPRECIATING THE EFFORTS OF LEARNED CIT(A) IN IMPROVING THE ORDER OF THE A.O., WE HAVE NO HESITATION IN SETTING SET A SIDE THE ORDER OF LD.CIT(A) AND DELETE THE PENALTY LEVIED UNDER SE CTION 271(1)(C). 18. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 29.01. 2014. SD/- SD/- (SAKTIJIT DEY) (B. RAMAKOTAIAH) JUDICIAL MEMBER ACCOUNTANT MEMBER HYDERABAD, DATE 29 TH JANUARY, 2014 VBP/- COPY TO : 1. M/S. GODAVARI TOWNSHIPS PVT. LTD. D.NO.58-1-100/2 , PML COMPLEX, NAD ROAD, VISAKHAPATNAM 2. DCIT, CIRCLE 3(1), VISAKHAPATNAM 3. CIT(A) , VISAKHAPATNAM 4. CIT-1, VISAKHAPATNAM 5. D.R. ITAT VISAKHAPATNAM BENCH, VISAKHAPATNAM.