Baisetty Revathi, Visakhapatnam V. THE DCIT, Visakhapatnam

ITA 599/VIZ/2014

• Counselvise Citation: 59925314 RSA 2014
• Duration Of Justice: 3 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-03-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Assessment Year: 2010-2011
• Appeal Filed On: 13-11-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: D MANOJ KUMAR
• Keywords: Unexplained cash credit; Principle of natural justice; Proportionate interest; Initiation of penalty proceedings; Corroborative evidences
• Section: 68; 27

Judgement Text

ITA NO.599 OF 2014 SMT BAISETTY REVATHI VIZAG PAGE 1 OF 16 IN THE INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM BENCH, VISAKHAPATNAM BEFORE SHRI J. SUDHAKAR REDDY, ACCOUNTANT MEMBER, & SHRI SAKTIJIT DEY, JUDICIAL MEMBER ITA NO.599/VIZAG/2014 ASSESSMENT YEAR: 2010-11 SMT. BAISETTY REVATHI, PROPX: M/S. SRINIVASA HOMES, 49-54-16/3 MADHURI RESIDENCY, BALAYYA SASTRY LAYOUT VISAKHAPATNAM DY.COMMISSIONER OF INCOME TAX CIRCLE 3(1) VISAKHAPATNAM (APPELLANT) PAN NO: ADAPB 0569 J VS. (RESPONDENT) ASSESSEE BY: SHRI I. KAMA SASTRY, CA DEPARTMENT BY: SHRI D. MANOJ KUMAR, DR DATE OF HEARING: 4/3/2015 DATE OF PRONOUNCEMENT: 5/3/2015 ORDER PER SAKTIJIT DEY. THIS IS AN APPEAL BY THE ASSESSEE AGAINST THE ORDER DATED 17.09.2014 OF LEARNED CIT (A) VISAKHAPATNAM CONFIRMI NG THE PENALTY IMPOSED UNDER SECTION 271(1)(C) OF THE ACT F OR ASSESSMENT YEAR 2010-11. 2. BRIEFLY THE FACTS ARE, ASSESSEE AN INDIVIDUAL, APA RT FROM DERIVING INCOME FROM HOUSE PROPERTY, ALSO EARNS INTE REST ON BANK DEPOSITS. FOR ASSESSMENT YEAR UNDER CONSIDERATION ITA NO.599 OF 2014 SMT BAISETTY REVATHI VIZAG PAGE 2 OF 16 ASSESSEE FILED A RETURN OF INCOME DECLARING LOSS OF RS.73,25,086. DURING THE ASSESSMENT PROCEEDINGS ASSES SING OFFICER NOTICED THAT WHILE COMPUTING INCOME FROM HOUSE PROPERTY, ASSESSEE HAS CLAIMED DEDUCTION TOWARDS INTE REST ON BORROWED CAPITAL OF RS.1,69,62,265. ON VERIFICATION O F RECORD IT WAS NOTICED BY THE ASSESSING OFFICER THAT DURING ASSES SMENT PROCEEDINGS FOR ASSESSMENT YEAR 2006-07, WHEREIN THE PROPERTY WAS ACTUALLY CONSTRUCTED, IT WAS FOUND BY THE ASSESSING OFFICER THAT ASSESSEE HAD UTILIZED RS.7,21, 14,405 FOR CONSTRUCTION PURPOSES AS AGAINST BORROWED FUNDS OF RS .10.50 CRORES AVAILED FROM PUNJAB NATIONAL BANK. ASSESSING OFFICER WHILE CONDUCTING THE ASSESSMENT PROCEEDINGS FOR ASSE SSMENT YEAR 2006-07 WAS OF THE VIEW, AS ENTIRE BORROWED FUND WAS NOT UTILIZED FOR CONSTRUCTION PURPOSES, INTEREST ON SUCH BO RROWED FUND WAS REQUIRED TO BE DISALLOWED PROPORTIONATELY TO W HICH, AS NOTED BY THE ASSESSING OFFICER, ASSESSEE AGREED. ASSE SSING OFFICER OBSERVED THAT FOLLOWING THE SAME PRINCIPLE, A SSESSEE HERSELF, DISALLOWED PROPORTIONATE INTEREST ON BORROWED CAPITAL WHILE COMPUTING INCOME FROM HOUSE PROPERTY IN ASSES SMENT YEAR 2009-10. HOWEVER, IN THE ASSESSMENT YEAR UNDER CONSIDERATION ASSESSEE HAS NOT MADE ANY SUCH PROPORTI ONATE DISALLOWANCE OF INTERESTS ON THE BORROWED FUND. ACCOR DINGLY, ASSESSING OFFICER CALCULATED PROPORTIONATE INTEREST ON BORROWED ITA NO.599 OF 2014 SMT BAISETTY REVATHI VIZAG PAGE 3 OF 16 FUND WHICH WAS NOT UTILIZED FOR THE PURPOSE OF CONSTRU CTION AND MADE A DISALLOWANCE OF RS.54,74,678 OUT OF THE TOTA L AMOUNT OF INTEREST CLAIMED OF RS.1,69,62,265. FURTHER, IT WAS NOTICED BY THE ASSESSING OFFICER THAT THERE WAS A CASH DEPOSIT OF RS.15,60,000 IN THE ASSESSEES BANK ACCOUNT ON 31 .03.2010. AS THE ASSESSEE COULD NOT FURNISH ANY CREDIBLE EVID ENCE TO EXPLAIN THE SOURCE OF SUCH DEPOSITS, ASSESSING OFFICE R TREATED THE SAME AS UNEXPLAINED CREDIT UNDER SECTION 68 OF THE ACT AND ADDED TO THE TOTAL INCOME. WHILE COMPLETING THE ASSESSMEN T ASSESSING OFFICER ALSO DIRECTED FOR INITIATION OF PR OCEEDINGS FOR IMPOSITION OF PENALTY UNDER SECTION 271(1)(C) OF THE ACT. IN PURSUANCE OF SUCH DIRECTION, A SHOW CAUSE NOTICE UNDE R SECTION 274 R.W.S. 271 WAS ISSUED TO THE ASSESSEE SEEK ING HIS EXPLANATION WITH REGARD TO IMPOSITION OF PENALTY UNDER SECTION 271(1)(C) OF THE ACT. 3. IN RESPONSE TO THE SAID NOTICE ASSESSEE SUBMITTED HER EXPLANATION STATING THEREIN THAT THE DISALLOWANCE WITH REG ARD TO INTERESTS ON BORROWED CAPITAL IS ON AGREED BASIS WITH A N ASSURANCE THAT NO PENALTY PROCEEDINGS UNDER SECTION 27 1(1)(C) WOULD BE INITIATED. AS FAR AS UNEXPLAINED CASH DEPOSI TS INTO THE BANK ACCOUNTS ARE CONCERNED IT WAS SUBMITTED THAT THOUGH TH E ASSESSEE WAS NOT IN A POSITION TO ESTABLISH WITH STRICT PROOF OF ITA NO.599 OF 2014 SMT BAISETTY REVATHI VIZAG PAGE 4 OF 16 EVIDENCE BUT THERE IS NO POSSIBILITY TO ESTABLISH CONCE ALMENT SHE HAD ACCEPTED THE ADDITIONS AS SHE WAS NOT ABLE TO FURNISH STRICT PROOF OF EVIDENCE THEREFORE WANTED TO BUY PEACE WITH THE DEPARTMENT. ASSESSING OFFICER WAS HOWEVER, NOT CONVIN CED WITH THE EXPLANATION SUBMITTED BY THE ASSESSEE. ACCORD INGLY HE PROCEEDED TO PASS AN ORDER UNDER SECTION 271(1)(C) OF THE ACT ON 24.9.2013 IMPOSING PENALTY OF RS.20,71,750. BEIN G AGGRIEVED OF THE PENALTY ORDER, ASSESSEE PREFERRED A PPEAL BEFORE THE LEARNED CIT (A). 4. BEFORE THE FIRST APPELLATE AUTHORITY ASSESSEE OBJEC TED TO THE IMPOSITION OF PENALTY BY RAISING VARIOUS GROUNDS ON TECHNICAL ISSUES AS WELL AS ON MERITS. HOWEVER, SUBM ISSIONS MADE BY ASSESSEE DID NOT FIND FAVOUR WITH THE LEARNED CIT (A) WHO CONFIRMED THE PENALTY BY HOLDING AS UNDER: 5. I HAVE CONSIDERED THE SUBMISSIONS MADE. WITH REGARD TO THE CONTENTION RAISED BY THE AR THAT THE PENALTY NOTICE WAS NOT ISSUED AND NOT SERVED ON THE ASSESSEE, A LETTER WAS ISSUED TO THE ASSESSING OFFICER TO VERIFY THE RECORDS AND REPORT ON THE CONTENTION RAISED IN THIS REGARD. THE A.R VIDE LETT ER DATED 9.9.2014 REPORTED THAT THE PENALTY NOTICE WAS ISSUED AND DULY SERVED ON THE ASSESSEE ON 29.3.2013 AND ENCLOSED A COPY OF ACKNOWLEDGMENT. ACCORDINGLY, THIS CONTENTION OF THE ASSESSEE IS REJECTED. 5.1 THE AUTHORISED REPRESENTATIVE CONTENDED THAT SATISFACTION WAS NOT RECORDED IN THE ASSESSMENT ITA NO.599 OF 2014 SMT BAISETTY REVATHI VIZAG PAGE 5 OF 16 ORDER AND THAT THE OBSERVATION PENALTY PROCEEDINGS WILL BE INITIATED SEPARATELY COULD NOT AMOUNT TO V ALID SATISFACTION CONTEMPLATED UNDER THE ACT. I HAVE CONSIDERED THE PLEA. IT IS RELEVANT TO NOTE THAT IN VIEW OF THE PROVISIONS CONTAINED IN SEC 271(1B) OF THE I .T. ACT, THE DIRECTION, PENALTY PROCEEDINGS WILL BE INITIATED SEPARATELY WOULD AMOUNT TO RECORDING OF SATISFACTION REQUISITE UNDER THE ACT. FURTHER, THE HON'BLE SC IN THE CASE OF MAK DATA PVT LTD VS. CIT 358 ITR 593 (S.C) HAS OBSERVED, THE AO HAS TO SATISFY WHETHER THE PENALTY PROCEEDINGS BE INITIATE D OR NOT DURING THE COURSE OF ASSESSMENT PROCEEDINGS AND THE ASSESSING OFFICER IS NOT REQUIRED TO RECORD HIS SATISFACTION IN A PARTICULAR MANNER OR REDUCE I NTO WRITING. THUS, IT IS NOT NECESSARY THAT THE ASSESS ING OFFICER HAD TO SPELL OUT THE SATISFACTION IN A PART ICULAR MANNER OR REDUCE INTO WRITING IT HAS TO BE HELD THA T THE SATISFACTION IS VERY MUCH DISCERNIBLE FROM THE RECORDAL OF DIRECTION PENALTY PROCEEDINGS INITIATE D SEPARATELY. IN VIEW OF THE ABOVE LEGAL POSITION, I DO NOT FIND ANY MERIT IN THE ASSESSEES CONTENTION AND ACCORDINGLY THIS PLEA IS REJECTED. 5.2 WITH REGARD TO PROPORTIONATE DISALLOWANCE OF INTEREST ON BORROWED CAPITAL, THE ACT CONTENDED THA T THE CIT (A) HAS DELETED THE PENALTY IN THE ASSESSEE S APPEAL FOR ASSESSMENT YEAR 2007-08 & A.Y 2008-09 WHICH INVOLVED SIMILAR ISSUES AND ACCORDINGLY THE IMPUGNED PENALTY SHOULD BE DELETED. IT IS RELEVANT TO NOTE THAT THE DISALLOWANCE OF PROPORTIONATE INTERES T WAS MADE FROM ASSESSMENT YEAR 2006-07 ONWARDS AND WHICH HAS BEEN ADMITTED BY THE ASSESSEE. BUT THE ASSESSEE STILL CHOSE TO CLAIM HIGHER CLAIM OF DEDUCTION FOR A.Y 2010-11 ALSO WHICH ONLY GO TO PROVE THAT THE ASSESSEE HAD DELIBERATELY FURNISHED INACCURATE PARTICULARS OF INCOME. IT ONLY INDICATES THE MIND OF THE ASSESSEE TO TAKE CHANCE WITH THE DEPARTMENT AND AVAIL HIGHER TAX BENEFIT. IN VIEW OF THESE FACTUAL POSITION, I AM OF THE VIEW THAT PENAL TY IS EXIGIBLE FOR THIS YEAR AS IT IS EVIDENT THAT INACCURATE PARTICULARS OF INCOME HAVE BEEN FURNISHE D DELIBERATELY. AS REGARDS THE UNEXPLAINED CREDITS, I T IS NOTED THAT THE ASSESSEE HAS NOT GIVEN ANY VALID EXPLANATION REGARDING THE CREDITS NOR ADDUCED ANY EVIDENCE TO SHOW THAT THE CLAIM WAS MADE BONAFIDE. THE PARTICULARS RELATING TO THE CREDIT HAVE BEEN ITA NO.599 OF 2014 SMT BAISETTY REVATHI VIZAG PAGE 6 OF 16 DETECTED BY THE DEPARTMENT DURING THE ASSESSMENT PROCEEDINGS. THEREFORE, I FIND THAT THE ASSESSING OFFICER IS JUSTIFIED IN HOLDING THAT THE ASSESSEE I S EXIGIBLE FOR PENALTY FOR NOT DISCLOSING THESE TRANSACTIONS. IN THE LIGHT OF THE ABOVE DISCUSSION, IT IS HELD THAT ASSESSING OFFICER IS JUSTIFIED IN LEVYING THE IMPUGNED PENALTY. ACCORDINGLY THE SAME IS UPHELD. 5. THE LEARNED AUTHORISED REPRESENTATIVE SUBMITTED BEFOR E US, THE PENALTY IMPOSED UNDER SECTION 271(1)(C) OF THE ACT IS LEGALLY UNSUSTAINABLE AS THE SATISFACTION OF THE ASSESS ING OFFICER REGARDING CONCEALMENT OF INCOME OR FURNISHIN G INACCURATE PARTICULARS OF INCOME IS NOT DISCERNIBLE F ROM THE ASSESSMENT ORDER IN TERMS OF SECTION 271(1B) OF THE ACT. HE FURTHER SUBMITTED, PENALTY IMPOSED IS ALSO NOT VALID AS IN IN THE SHOW CAUSE NOTICE ISSUED UNDER SECTION 271 R.W.S 2 74 THE ASSESSING OFFICER HAS NOT SPECIFIED WHETHER IMPOSITION OF PENALTY IS FOR CONCEALMENT OF PARTICULARS OF INCOME O R FURNISHING INACCURATE PARTICULARS OF INCOME. THE LEA RNED AUTHORISED REPRESENTATIVE SUBMITTED, EVEN IN THE PENALTY ORDER ITSELF ASSESSING OFFICER WAS NOT SURE WHETHER PENALTY IS IMPOSABLE UNDER SECTION 271(1)(C) OF THE ACT FOR CONCE ALMENT OF INCOME OR FURNISHING INACCURATE PARTICULARS OF INCOM E. IN THIS CONTEXT HE DREW OUR ATTENTION TO THE FINDING OF THE ASSESSI NG OFFICER IN THE PENALTY ORDER. THE LEARNED AUTHORISED REPRESENTATIVE SUBMITTED EVEN OTHERWISE ALSO THE DISALLO WANCE OF PROPORTIONATE INTEREST ON BORROWED CAPITAL IS ON NOT IONAL ITA NO.599 OF 2014 SMT BAISETTY REVATHI VIZAG PAGE 7 OF 16 BASIS BY PRESUMING THAT THE ENTIRE BORROWED FUND WAS N OT UTILIZED FOR THE PURPOSE OF CONSTRUCTION. THE LEARNED AUTHORISED REPRESENTATIVE SUBMITTED ONLY BECAUSE THE ASSESSEE HAS AGREED FOR SUCH DISALLOWANCE, IT DOES NOT NECESSARILY FOLLOW THAT ASSESSEE HAS CONCEALED HIS IN COME OR FURNISHED INACCURATE PARTICULARS OF INCOME WHILE CLA IMING DEDUCTION TOWARDS INTEREST ON BORROWED CAPITAL. IN THIS CONTEXT IT WAS SUBMITTED BY THE LEARNED AUTHORISED REPRESENTATIV E THAT A PART OF THE BORROWED FUND TO BE PRECISE, AN AMOUNT OF RS.1,20,24,000 WAS UTILIZED FOR PURCHASE OF LAND. T HEREFORE, IT CANNOT BE SAID THAT THE ENTIRE BORROWED FUND WAS NOT UTIL IZED FOR THE CONSTRUCTION. THE LEARNED AUTHORISED REPRESENTA TIVE SUBMITTED BEFORE US THAT CONSIDERING THE AFORESAID FACTS, CIT (A) IN ASSESSMENT YEAR 2007-08 AND 2008-09 HAS DELET ED THE PENALTY IMPOSED UNDER SECTION 271(1)(C) ON ACCOUNT OF ADDITION MADE ON DISALLOWANCE OF INTEREST ON BORROWED CAPITAL. IT WAS SUBMITTED BY THE LEARNED AUTHORISED REPRESENTATIVE THAT DEPARTMENTAL APPEAL AGAINST SUCH ORDER OF THE CIT (A) W AS ALSO DISMISSED BY THE TRIBUNAL. IN SUPPORT OF HIS CONTENTIO N THE LEARNED AUTHORISED REPRESENTATIVE RELIED UPON THE FOLLO WING DECISIONS. COMMISSIONER OF INCOME-TAX V.MANJUNATHA COTTON & GINNING FACTORY 359 ITR 565 ITA NO.599 OF 2014 SMT BAISETTY REVATHI VIZAG PAGE 8 OF 16 DILIP N. SHROFF V.JOINT COMMISSIONER OF INCOME-TAX, SPECIAL RANGE, MUMBAI, 210 CTR 228 6. THE LEARNED DEPARTMENTAL REPRESENTATIVE ON THE OTHER HAND SUBMITTED BEFORE US, FROM THE ASSESSMENT ORDER IT I S EVIDENT THAT IN THE EARLIER ASSESSMENT YEARS, INTEREST ON BORROWED CAPITAL HAS BEEN PROPORTIONATELY DISALLOWED A S THE ENTIRE BORROWED FUND WAS NOT UTILIZED FOR CONSTRUCTION P URPOSE TO WHICH ASSESSEE ALSO AGREED. HOWEVER, ASSESSEE IN THE IMPUGNED ASSESSMENT YEAR HAS AGAIN CLAIMED THE ENTIRE INTEREST ON BORROWED FUND WITHOUT MAKING PROPORTIONATE DISALLOWANCE. FURTHER, LEARNED DEPARTMENTAL REPRESENTATI VE SUBMITTED, ASSESSEE HAS NOT FURNISHED ANY EVIDENCE TO E XPLAIN THE SOURCE OF THE DEPOSITS MADE INTO THE BANK ACCOUNT O F RS.15.60 LAKHS. THEREFORE, THERE BEING A CLEAR CASE OF CONCEALMENT OF PARTICULARS OF INCOME OR FURNISHING IN ACCURATE PARTICULARS OF INCOME, IMPOSITION OF PENALTY UNDER SE CTION 271(1)(C) OF THE ACT IS JUSTIFIED. LEARNED DEPARTMENTA L REPRESENTATIVE SUBMITTED, AS THE DISCUSSION MADE IN THE ASSESSMENT ORDER CLEARLY SHOW THAT THE ASSESSING OFFIC ER HAS RECORDED HIS SATISFACTION FOR IMPOSITION OF PENALTY UN DER SECTION 271(1)(C) OF THE ACT IN ACCORDANCE WITH THE PROV ISIONS OF SECTION 271(1B), ASSESSEES CLAIM CANNOT BE ACCEPTED. LEARNED DEPARTMENTAL REPRESENTATIVE SUBMITTED, AS THE FACTS ON REC ORD ITA NO.599 OF 2014 SMT BAISETTY REVATHI VIZAG PAGE 9 OF 16 CLEARLY PROVE FURNISHING INACCURATE PARTICULARS OF IN COME BY ASSESSEE, PROVISIONS OF SECTION 271(1)(C) IS CLEARLY ATTRACTED. 7. WE HAVE CONSIDERED THE SUBMISSIONS OF THE PARTIES A ND PERUSED THE MATERIALS ON RECORD AS WELL AS THE ORDERS OF THE REVENUE AUTHORITIES. WE HAVE ALSO APPLIED OUR MIND TO THE DECISION RELIED UPON BY THE PARTIES. IN SO FAR AS THE CONTENTION OF THE LEARNED AUTHORISED REPRESENTATIVE THAT THE SATISFAC TION OF THE ASSESSING OFFICER WHILE INITIATING PENALTY PROC EEDINGS UNDER SECTION 271(1)(C) IN THE ASSESSMENT ORDER IS NOT IN ACCORDANCE WITH THE PROVISIONS OF SECTION 271(1B) IS CONCERNED, WE ARE UNABLE TO ACCEPT IT. AS CAN BE SEEN, ASSESSING OFFICER WHILE MAKING PROPORTIONATE DISALLOW ANCE HAS OBSERVED THAT THOUGH, THE ASSESSEE OUT OF HER OWN ACCOR D HAS MADE SIMILAR DISALLOWANCE IN ASSESSMENT YEAR 2009-10 AS ALSO AGREED FOR SIMILAR DISALLOWANCE IN ASSESSMENT YEAR 2 006-07, BUT HAS NOT DISALLOWED PROPORTIONATE INTERESTS IN THE ASSESSMENT YEAR UNDER CONSIDERATION. FURTHER, ASSESSIN G OFFICER HAS ALSO MADE ADDITION OF RS.15,60,000 UNDER SECTION 68 OF THE ACT AS ASSESSEE COULD NOT EXPLAIN THE SOURC E OF SUCH INVESTMENT WITH SUPPORTING EVIDENCE. THEREFORE, THE SATISFACTION OF THE ASSESSING OFFICER FOR IMPOSITION OF PENALTY UNDER SECTION 271(1)(C) IN THE PRESENT CASE, IN OUR V IEW, IS ITA NO.599 OF 2014 SMT BAISETTY REVATHI VIZAG PAGE 10 OF 16 DISCERNIBLE FROM THE DISCUSSIONS MADE BY ASSESSING O FFICER IN THE ASSESSMENT ORDER. IN THIS CONTEXT IT IS TO BE NOTED TH AT WHILE INITIATING PROCEEDINGS UNDER SECTION 271(1)(C), ASSESSING OFFICER IS NOT REQUIRED TO RECORD IN DETAIL HIS SATIS FACTION WITH REGARD TO FURNISHING OF INACCURATE PARTICULARS OF INCO ME OR CONCEALMENT OF INCOME. THE DISCUSSION MADE IN THE ASSESSMENT ORDER SHOULD INDICATE THAT ASSESSING OFFICER WAS PRIMA FACIE SATISFIED THAT PENALTY PROCEEDINGS UNDER S ECTION 271(1)(C) IS TO BE INITIATED. IN AFORESAID VIEW OF TH E MATTER THIS CONTENTION OF THE ASSESSEE IS REJECTED. HOWEVER, AS C AN BE SEEN IN THE SHOW CAUSE NOTICE ISSUED UNDER SECTION 271 R. W.S. 274 OF THE ACT, THE ASSESSING OFFICER HAS NOT SPECIFIED WHE THER PENALTY PROPOSED TO BE IMPOSED UNDER SECTION 271(1)( C) IS FOR CONCEALMENT OF PARTICULARS OF INCOME OR FURNISHING OF INACCURATE PARTICULARS OF INCOME. THE HON'BLE KARNATAK A HIGH COURT IN THE CASE OF CIT VS. MANJUNATHA COTTON & GINNI NG FACTORY 359 ITR 565 WHILE CONSIDERING THE VERY SAME ISSUE HELD AS UNDER: 59. AS THE PROVISION STANDS, THE PENALTY PROCEEDIN GS CAN BE INITIATED ON VARIOUS GROUND SET OUT THEREIN. IF THE ORDER PASSED BY THE AUTHORITY CATEGORICALLY RECORDS A FIN DING REGARDING THE EXISTENCE OF ANY SAID GROUNDS MENTION ED THEREIN AND THEN PENALTY PROCEEDINGS IS INITIATED, IN THE NOTICE TO BE ISSUED UNDER SECTION 274, THEY COULD CONVENIENTLY REFER TO THE SAID ORDER WHICH CONTAINS THE SATISFACTION OF THE AUTHORITY WHICH HAS PASSED THE ORDER. HOWEVER, IF THE EXISTENCE OF THE CONDITIONS COULD N OT BE ITA NO.599 OF 2014 SMT BAISETTY REVATHI VIZAG PAGE 11 OF 16 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 A RE IN THE NATURE OF CIVIL LIABILITY, IN FACT, IT IS PENAL IN NATURE. IN EITHER EVENT, THE PERSON WHO IS ACCUSED OF THE CONDITIONS MENTONED IN SECTION 271 SHOULD BE MADE KNOWN ABOUT THE GROUN DS ON WHICH THEY INTEND IMPOSING PENALTY ON HIM AS THE SE CTION 274 MAKES IT CLEAR THAT ASSESSEE HAS A RIGHT TO CON TEST SUCH PROCEEDINGS AND SHOULD HAVE FULL OPPORTUNITY TO MEE T THE CASE OF THE DEPARTMENT AND SHOW THAT THE CONDITIONS STIPULATED IN SECTION 271(1)(C) DO NOT EXIST AS SUC H HE IS NOT LIABLE TO PAY PENALTY. THE PRACTICE OF THE DEPARTME NT SENDING A PRINTED FORM HERE ALL THE GROUNDS MENTIONED IN S ECTION 271 ARE MENTIONED WOULD NOT SATISFY REQUIREMENT OF LAW WHEN THE CONSEQUENCES OF THE ASSESSEE NOT REBUTTING THE INITIAL PRESUMPTION IS SERIOUS IN NATURE AND HE HAD TO PAY PENALTY FROM 100% TO 300% OF THE TAX LIABILITY. AS THE SAID PROVISIONS HAVE TO BE HELD TO BE STRICTLY CONSTRUED , NOTICE ISSUED UNDER SECTION 274 SHOULD SATISFY THE GROUNDS WHICH HE HAS TO MEET SPECIFICALLY. OTHERWISE, PRINCIPLES OF NATURAL JUSTICE IS OFFENDED IF THE SHOW CAUSE NOTICE IS VAG UE. ON THE BASIS OF SUCH PROCEEDINGS, NO PENALTY COULD BE IMPO SED 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 OFFENCES. BUT DRAWING UP PENALTY PROCEEDINGS FO R ONE OFFENCE AND FINDING THE ASSESSEE GUILTY OF ANOTHER OFFENCE OR FINDING HIM GUILTY FOR EITHER THE ONE OR THE OTHER CANNOT BE SUSTAINED IN LAW. IT IS NEEDLESS TO POINT OUT SATIS FACTION OF THE EXISTENCE OF THE GROUNDS MENTIONED IN SECTION 2 71(1)(C) WHEN IT IS A SINE QUA NON FOR INITIATION OR PROCEED INGS, THE PENALTY PROCEEDINGS SHOULD BE CONFINED ONLY TO THOS E GROUNDS AND THE SAID GROUNDS HAVE TO BE SPECIFICALL Y STATED SO THAT THE ASSESSEE WOULD HAVE THE OPPORTUNITY TO MEET THOSE GROUNDS. AFTER, HE PLACES HIS VERSION AND TRI ES TO SUBSTANTIATE HIS CLAIM, IF AT ALL, PENALTY IS TO BE IMPOSED, IT SHOULD BE IMPOSED ONLY ON THE GROUNDS ON WHICH HE I S CALLED UPON TO ANSWER. IT IS NOT OPEN TO THE AUTHORITY, AT THE TIME OF IMPOSING PENALTY TO IMPOSE PENALTY ON THE GROUNDS O THER THAN WHAT ASSESSEE WAS CALLED UPON TO MEET. OTHERWI SE, THOUGH THE INITIATION OF PENALTY PROCEEDINGS MAY BE VALID AND LEGAL, THE FINAL ORDER IMPOSING PENALTY WOULD O FFEND PRINCIPLES OF NATURAL JUSTICE AND CANNOT BE SUSTAIN ED. THUS ONCE THE PROCEEDINGS ARE INITIATED ON ONE GROUND, T HE PENALTY SHOULD ALSO BE IMPOSED ON THE SAME GROUND. WHERE ITA NO.599 OF 2014 SMT BAISETTY REVATHI VIZAG PAGE 12 OF 16 THE BASIS OF THE INITIATION OF PENALTY PROCEEDINGS IS NOT IDENTICAL WITH THE GROUND ON WHICH THE PENALTY WAS IMPOSED, THE IMPOSITION OF PENALTY IS NOT VALID. TH E VALIDITY OF THE ORDER OF PENALTY MUST BE DETERMINED WITH REF ERENCE TO THE INFORMATION, FACTS AND MATERIALS IN THE HANDS O F THE AUTHORITY IMPOSING THE PENALTY AT THE TIME THE ORDE R WAS PASSED AND FURTHER DISCOVERY OF FACTS SUBSEQUENT 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 A CT TO INITIATE PENALTY PROCEEDINGS ONCE HE IS SATISFIED I N THE COURSE OF ANY PROCEEDINGS THAT THERE IS CONCEALMENT OF INC OME OR FURNISHING OF INACCURATE PARTICULARS OF TOTAL INCOM E UNDER CLAUSE (C). CONCEALMENT, FURNISHING OF INACCURATE P ARTICULARS OF INCOME ARE DIFFERENT. THUS THE ASSESSING OFFICER WHILE ISSUING NOTICE HAS TO COME TO THE CONCLUSION THAT W HETHER IS IT A CASE OF CONCEALMENT OF INCOME OR IS IT A CASE OF FURNISHING OF INACCURATE PARTICULARS. THE APEX COUR T IN THE CASE OF ASHOK PAL REPORTED IN 292 ITR 11 AT PAGE 19 HAS HELD THAT CONCEALMENT OF INCOME AND FURNISHING OF I NACCURATE PARTICULARS OF INCOME CARRY DIFFERENT CONNOTATIONS. THE GUJRAT HIGH COURT IN THE CASE OF MANU ENGINEERING REPORTED IN 122 ITR 306 AND THE DELHI HIGH COURT IN THE CASE OF VIRGO MARKETING REPORTED IN 171 TAXMAN 156, HAS HELD THAT LEVY OF PENALTY HAS TO BE CLEAR AS TO THE LIMB FOR WHICH IT IS LEVIED AND THE POSITION BEING UNCLEAR PENALTY IS NO T SUSTAINABLE. THEREFORE, WHEN THE ASSESSING OFFICER PROPOSES TO INVOKE THE FIRST LIMB BEING CONCEALMENT, THEN TH E NOTICE HAS TO BE APPROPRIATELY MARKED. SIMILAR IS THE CASE FOR FURNISHING OF INACCURATE PARTICULARS OF INCOME. THE STANDARD PROFORMA WITHOUT STRIKING OF THE RELEVANT CLAUSES W ILL LEAD TO AN INFERENCE AS TO NON-APPLICATION OF MIND. 8. AS COULD BE SEEN, THE HONBLE KARNATAKA HIGH COURT (SUPRA), IN VERY CLEAR TERMS HELD THAT UNLESS SHOW CA USE NOTICE IS CLEAR AS TO WHETHER THE PENALTY PROPOSED TO BE IMPOS ED IS FOR CONCEALMENT OF PARTICULARS OF INCOME OR FOR FURNI SHING OF INACCURATE PARTICULARS OF INCOME NO PENALTY CAN BE IM POSED UNDER SECTION 271(1)(C) AS THE NOTICE ISSUED IS DEFEC TIVE. THE HONBLE HIGH COURT HELD THAT IN ABSENCE OF CLARITY IN THE SHOW ITA NO.599 OF 2014 SMT BAISETTY REVATHI VIZAG PAGE 13 OF 16 CAUSE NOTICE, THE ASSESSEE COULD NOT BE EXPECTED TO FUR NISH HIS EXPLANATION IN AN EFFECTIVE MANNER. THE RATIO LAID DOW N BY THE HONBLE KARNATAKA HIGH COURT (SUPRA) CLEARLY APPLY TO THE FACTS OF THE PRESENT CASE. ON A PERUSAL OF THE SHOW CAUSE NOTICE ISSUED UNDER SECTION 271 READ WITH SECTION 274, IT IS MANIFEST ASSESSING OFFICER HAS NOT SPECIFIED WHETHER THE PENALT Y PROPOSED TO BE IMPOSED UNDER SECTION 271(1)(C) IS FOR CONCEALMENT OF PARTICULARS OF INCOME OR FOR FURNISHIN G OF INACCURATE PARTICULARS OF INCOME. 9. FURTHER, IT IS WORTH MENTIONING, EVEN IN THE PENAL TY ORDER PASSED UNDER SECTION 271(1)(C) ASSESSING OFFICER HAS NOT GIVEN ANY CONCLUSIVE FINDING AS TO WHETHER PENALTY IMPOSED IS FOR CONCEALMENT OF PARTICULARS OF INCOME OR FURNISHING IN ACCURATE PARTICULARS OF INCOME. FOR READY REFERENCE THE OBSERV ATIONS MADE BY THE ASSESSING OFFICER IS EXTRACTED HEREUNDER: IN VIEW OF THE FOREGOING, THE SUBMISSION/ EXPLANATION FURNISHED BY THE ASSESSEE IS HELD AS UNTENABLE AND ACCORDINGLY I AM SATISFIED THAT THE ASSESSEE HAS CONCEALED/FURNISHED INACCURATE PARTICULARS OF INCOME AS ENVISAGED UNDER SECTION 271(1)(C) AND AS SUCH INVITES LEVY OF PENALTY. 10. THE HON'BLE GUJARAT HIGH COURT IN THE CASE OF CIT VS. JYOTI LTD (34 TAXMANN.COM 65)(GUJ.) WHILE CONSIDERING A CASE OF ITA NO.599 OF 2014 SMT BAISETTY REVATHI VIZAG PAGE 14 OF 16 IMPOSITION OF PENALTY UNDER SECTION 271(1)(C) ON IDE NTICAL OBSERVATIONS MADE BY ASSESSING OFFICER, HELD AS UNDE R: 6. WE DO NOT FIND ANY REASON TO INTERFERE. THE ASSESSING OFFICER IN HIS PENALTY ORDER NOTED AS UNDER:- 'IN VIEW OF THE ABOVE FACTS, IT IS CLEAR THAT THE ASSESSEE CONCEALED INCOME/FURNISHED INACCURATE PARTICULARS OF INCOME. I, THEREFORE, CONSIDER IT A FIT CASE FOR LEVY OF PENALTY UNDER SECTION 271(1)(C)' 7. THE TRIBUNAL WAS THUS CORRECT IN HOLDING THAT THE ASSESSING OFFICER IN THE ORDER OF PENALTY ALSO DID NOT COME TO A CLEAR FINDING REGARDING PENALTY BEING IMPOSED ON CONCEALMENT OF INCOME OR ON FURNISHING INACCURATE PARTICULARS OF INCOME. 11. THEREFORE, WHEN THE ASSESSING OFFICER HIMSELF W AS NOT SURE WHETHER ASSESSEE HAS CONCEALED THE PARTICULARS OF INCOME OR HAS FURNISHED INACCURATE PARTICULARS OF INCOME, TH E IMPOSITION OF PENALTY UNDER SECTION 271(1)(C) OF THE ACT IS INVALID. THEREFORE, FOR THESE REASONS ALONE, BY APPL YING THE DECISIONS OF HON'BLE KARNATAKA HIGH COURT AND HON'BL E GUJARAT HIGH COURT ORDER PASSED IMPOSING PENALTY UNDE R SECTION 271(1)(C) IS INVALID. 12. EVEN OTHERWISE ALSO IN SO FAR AS THE ADDITION OF RS.54,74,678 ON ACCOUNT OF PROPORTIONATE DISALLOWANCE OF INTEREST ON BORROWED CAPITAL IS CONCERNED, IN OUR VIEW SUCH ADDITION DOES NOT CALL FOR IMPOSITION OF PENALTY UNDER SECTION ITA NO.599 OF 2014 SMT BAISETTY REVATHI VIZAG PAGE 15 OF 16 271(1)(C) OF THE ACT. THERE IS NO DISPUTE TO THE FACT THA T THE ASSESSEE HAS BORROWED THE FUND OF RS.10.50 CRORES FR OM THE PUNJAB NATIONAL BANK. PROPORTIONATE DISALLOWANCE OF I NTEREST ON SUCH BORROWED FUND IS BEING DONE FROM ASSESSMENT YEAR 2006-07 ON THE REASONING THAT THE ASSESSEE HAS UTILIZED AN AMOUNT OF RS.7,21,14,405 FOR CONSTRUCTION AND NOT THE ENTIRE BORROWED FUNDS. THOUGH, ASSESSEE MIGHT HAVE AGREED F OR SUCH PROPORTIONATE DISALLOWANCE OF INTEREST ON BORROWED FUN D FOR WHATEVER MAY BE THE REASON, BUT IT IS A FACT ON RECORD THAT ASSESSEES CLAIM THAT AN AMOUNT OF RS.1.20 CRORES WA S UTILIZED FOR PURCHASE OF LAND HAS NOT BEEN CONTROVERTED BY THE DEPARTMENT. IN FACT, THE LEARNED CIT (A) WHILE CONSID ERING THE VALIDITY OF PENALTY IMPOSED UNDER SECTION 271(1)(C) OF THE ACT ON SIMILAR DISALLOWANCE OF INTEREST ON BORROWED CAPITAL F OR ASSESSMENT YEARS 2007-08 AND 2008-09 DELETED THE PENA LTY BY OBSERVING THAT THE DISALLOWANCE OF PROPORTIONATE INTEREST ON BORROWED FUND IS ON NOTIONAL OR ESTIMATE BASIS AND AS SUCH PENALTY CANNOT BE IMPOSED UNDER SECTION 271(1)(C). TH E DECISION OF THE LEARNED CIT (A) WAS UPHELD BY THE IT AT WHILE DISMISSING THE APPEALS OF THE DEPARTMENT. THEREFORE, O N MERITS ALSO PENALTY UNDER SECTION 271(1)(C) COULD NOT BE IMPOSABLE, AT LEAST, TO THE EXTENT OF ADDITION MADE ON DISALLOWANCE OF PROPORTIONATE INTERESTS ON BORROWED FUN DS. IN ITA NO.599 OF 2014 SMT BAISETTY REVATHI VIZAG PAGE 16 OF 16 VIEW OF THE FOREGOING DISCUSSIONS, WE DELETE THE PENA LTY IMPOSED UNDER SECTION 271(1)(C) OF THE ACT. 13. IN THE RESULT, THE APPEAL FILED BY THE ASSESSE E IS ALLOWED. PRONOUNCED IN THE OPEN COURT ON 5 TH MARCH, 2015. SD/- SD/- (J. SUDHAKAR REDDY) (SAKTIJIT DEY) ACCOUNTANT MEMBER JUDICIAL MEMBER DATE: 5 TH MARCH, 2015 PVV/SPS CAMP: VISAKHAPATNAM, COPY TO 1 SMT. BAISETTY REVATHI, PROPX: M/S. SRINIVASA HOMES, 49- 54-16/3 MADHURI RESIDENCY, BALAYYA SASTRY LAYOUT VISAKHAPATNAM 2 DY.COMMISSIONER OF INCOME TAX CIRCLE 3(1) VISAKHA PATNAM 3 THE CIT (A) VISAKHAPATNAM 4 THE CIT VISAKHAPATNAM 5 DEPARTMENTAL REPRESENTATIVE ITAT VISAKHAPATNAM 6 GUARD FILE BY ORDER ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM