DCIT, Udupi V. M/s Mahalasa Exports, Udupi

ITA 626/BANG/2015

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 95193 (ITAT-BANGALORE)
• Duration Of Justice: 3 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-08-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2010-2011
• Appeal Filed On: 20-04-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: CHANDRASHEKAR
• Assessee Lawyers: NANDINI DAS JT
• Keywords: Gross profit estimation; Principle of natural justice; Initiation of penalty proceedings

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH : BANGALORE BEFORE SHRI N.V. VASUDEVAN, JUDICIAL MEMBER AND SHRI ABRAHAM P. GEORGE, ACCOUNTANT MEMBER ITA NO. 626/BANG/2015 ASSESSMENT YEAR : 2010-11 THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE 1, UDUPI. VS. M/S. MAHALASA EXPORTS, S.NO.75-1 A 3B, RAJAJI ROAD, HIRIADKA, UDUPI 576 113. PAN : AAEFM 4143Q APPELLANT RESPONDENT APPELLANT BY : SHRI CHANDRASHEKAR, ADVOCATE RESPONDENT BY : SMT. NANDINI DAS, JT. CIT(DR) DATE OF HEARING : 04.08.2015 DATE OF PRONOUNCEMENT : 14.08.2015 O R D E R PER N.V. VASUDEVAN, JUDICIAL MEMBER THIS APPEAL BY THE REVENUE IS AGAINST THE ORDER D ATED 2.1.2015 OF THE CIT(APPEALS), MANGALORE RELATING TO ASSESSMENT YEAR 2010-11. ITA NO.626/BANG/2015 PAGE 2 OF 12 2. IN THIS APPEAL, THE REVENUE HAS CHALLENGED THE O RDER OF CIT(APPEALS) CANCELLING THE ORDER OF ASSESSING OFFI CER IMPOSING PENALTY ON THE ASSESSEE U/S. 271(1)(C) OF THE ACT. 3. THE FACTS AND CIRCUMSTANCES UNDER WHICH PENALTY WAS IMPOSED ON THE ASSESSEE BY THE AO ARE AS FOLLOWS. THE ASSES SEE IS A PARTNERSHIP FIRM IN THE BUSINESS OF EXPORT OF CASHEW KERNELS AF TER PROCESSING THE CASHEW NUTS. THERE WAS A SURVEY AT THE BUSINESS PR EMISES OF THE ASSESSEE, DURING THE COURSE OF SURVEY, EXCESS CASH OF RS.4,05,124/- AND DEFICIT STOCK OF CASHEW KERNELS OF 10,438 KGS WAS F OUND. THE ASSESSEE FAILED TO EXPLAIN THESE DISCREPANCIES AT THE TIME O F SURVEY. IT WAS ALSO NOTICED BY THE ASSESSING OFFICER THAT THE GROSS PRO FIT DECLARED BY THE ASSESSEE WAS AT 5.37% AND NET PROFIT 2.2% WHICH IN HIS OPINION WAS VERY LOW AS COMPARED TO OTHER CASHEW MANUFACTURERS PLACE D SIMILARLY AS THAT OF THE ASSESSEE. ACCORDING TO THE AO IN COMPARABLE CA SES, THE YIELD OF CASHEW KERNELS OUTTURN WAS IN THE RANGE OF 22% - 23 % AS AGAINST 19.85% SHOWN BY THE ASSESSEE. WHEN POINTED OUT, THE ASSESS EE VEHEMENTLY ARGUED THAT THE RESULTS SHOWN WERE GENUINE. 4. THE AO OBSERVED THAT THOUGH THE ASSESSEE HAS MAI NTAINED REGULAR BOOKS OF ACCOUNTS AND SUPPORTING DOCUMENTS, CONSIDE RING THE WIDE VARIATION IN THE GROSS PROFIT AND YIELD AS COMPARED TO OTHER UNITS PLACED SIMILARLY, THE AO PROPOSED TO ASSESS THE INCOME BY ADOPTING YIELD AT 22%. ITA NO.626/BANG/2015 PAGE 3 OF 12 5. REGARDING THE EXCESS CASH, IT WAS SUBMITTED BY T HE ASSESSEE THAT THE SAME WAS DUE TO THE OMISSION TO RECORD CASH SAL ES OF RS.3,81,910/- OF LOW GRADE REJECTED CASHEW KERNEL. REGARDING THE DIF FERENCE OF 10,438 KGS. SHORTAGE OF STOCK, IT WAS ALSO EXPLAINED THAT THE S AME IS DUE TO NON- RECORDING OF THE ABOVE SOLD AMOUNT OF 9,050 KGS OF CASHEW REJECTIONS AT RS.3,81,910 6. REGARDING LOW OUT-TURN AND PROFIT RATIOS, IT WAS ARGUED BY THE ASSESSEE THAT THE SAME ARE OUT OF THEIR CONTROL. CA SHEW BEING VOLATILE MARKET, NOT EVERYBODY GETS SIMILAR PROFITS. THOUGH FOR THE F.Y.2009-10 THE GP WAS LOW, FOR THE FY 2011-12 THE RESULTS WERE COM PARATIVELY VERY GOOD WHICH GOES TO SHOW THAT THE ASSESSEE DOES NOT MANIP ULATE THE RESULTS. THE ASSESSEE ALSO EXPLAINED THAT DURING THE PREVIOU S YEAR, MANY OF THE JOBS WERE OUTSOURCED TO FIRMS WHICH WERE NEW TO THE FIELD AND WERE BASED IN REMOTE VILLAGES. THIS RESULTED IN LOWER OUT TURN . WITH THEIR EXPERIENCE, THEY STRUCK TO THOSE JOB WORKING FIRMS WHO HAVE SHO WN IMPROVED RESULTS AND HENCE THE IMPROVEMENT IN SUBSEQUENT YEARS. THEI R OUT-TURN ALSO DEPENDS ON VARIOUS FACTORS LIKE PLACE OF ORIGIN OF THE RAW MATERIAL, CONDITIONS IN TRANSIT AND STORAGE, PLACE WHERE IT I S PROCESSED, THE STANDING OF THE FIRM IN BUSINESS, SKILL SETS OF THE WORK FOR CE, AND CONDITION OF PLANT AND MACHINERY. THE PROFIT RATIOS ALSO DEPEND ON THE QUALITY OF OUTPUT AND DEMAND IN THE MARKET BESIDES FOREIGN EXCHANGE FLUCT UATION. IN LIGHT OF THESE EXPLANATIONS, THE ASSESSEE PLEADED TO IGNORE THE SMALL DIFFERENCES ITA NO.626/BANG/2015 PAGE 4 OF 12 FOUND IN THE COURSE OF SURVEY AND VOLUNTEERED TO DE CLARE A SUM OF RS. 1 CRORE AS ADDITIONAL INCOME FOR THE A.YS.2010- 11 TO 2013-14. 7. HOWEVER, THE AO ON THE BASIS OF SOME JOB WORK RE PORTS FOUND AT THE TIME OF SURVEY WHICH REVEALED THAT THE YIELD DERIVE D IS IN THE RANGE OF 22% AND ON THE BASIS OF EXCESS CASH AND DEFICIT CASH FO UND AT THE TIME OF SURVEY WAS OF THE VIEW THAT PRODUCTION AND SALE OUT SIDE THE BOOKS CANNOT BE RULED OUT. THE AO CONFRONTED TO THE ASSESSEE THE ABOVE FACTS AND DIRECTED THE ASSESSEE TO ENHANCE DECLARATION OF INC OME TO RS.1,88,19,010/- FOR A.Y.2010-11 AND FILE REVISED R ETURN DECLARING THE ADDITIONAL INCOME OF RS.1,10,33,440/- FOR A.Y.2010- 11 BY ADOPTING YIELD @ 21%. THE ASSESSEE DID ACCORDINGLY AND THE SAME WAS ACCEPTED BY THE AO. IN RESPECT OF THE ADDITION SO MADE PENALTY PRO CEEDINGS U/S 271(1 )(C) WERE INITIATED. 8. THE AO IMPOSED PENALTY ON THE ASSESSEE HOLDING T HAT ASSESSEE CONCEALED PARTICULARS OF INCOME AND FURNISHED INACC URATE PARTICULARS OF INCOME. 9. ON APPEAL, THE CIT(APPEALS) CANCELLED THE ORDER IMPOSING PENALTY OBSERVING AS UNDER:- 14 THE ADDITION MADE IN THIS CASE IS MAINLY ON A CCOUNT OF LOW GROSS PROFIT AND LOW YIELD DECLARED IN THE BOOKS. A DMITTEDLY, IN THE ASSESSMENT ORDER THE AO ALSO MENTIONED THAT THE APPELLANT HAS MAINTAINED REGULAR BOOKS OF ACCOUNT WITH SUPPOR TING DOCUMENTS. THE ONLY BASIS ON WHICH THE ADDITIONAL I NCOME WAS OFFERED WAS THAT THE COMPARATIVE CASES ARE SHOWING HIGHER YIELDS ITA NO.626/BANG/2015 PAGE 5 OF 12 AND THAT FOR THE A.Y.2013-14 THE WORKSHEETS FOUND A T THE TIME OF SURVEY WERE SHOWING HIGHER YIELD THAN THAT OF THE Y IELD SHOWN IN THE BOOKS FOR THE A.Y.2010-11. THE APPELLANTS EXPL ANATION THAT THE YIELD AND GROSS PROFIT DEPENDS ON VARIOUS FACTO RS NARRATED ELSEWHERE IN THE ORDER WAS NOT ACCEPTED BY THE AO A ND FINALLY, THE ASSESSMENT WAS CONCLUDED BY ADOPTING VIA MEDIA YIELD BETWEEN 19.85% AS PER BOOKS AND 22% AS PER THE WORK SHEETS PERTAINING TO A.Y.2013-14 AND BY ADOPTING YIELD AT 21% WHICH WAS ACCEPTED BY BOTH THE PARTIES. FROM THE ASSESSME NT ORDER AND FROM THE WRITTEN SUBMISSIONS OF THE APPELLANT IT IS CLEAR THAT NO SUPPORTING INCRIMINATING MATERIAL OR ANYTHING LIKE THAT WAS FOUND DESPITE SURVEY AND FINALLY THE ASSESSMENT WAS BASED ON ESTIMATION ONLY. IT IS SETTLED LEGAL POSITION THAT LEVYING OF PENALTY DEPENDS ON FACTS AND CIRCUMSTANCES OF EACH CASE AND IS NOT AUTOMATIC. UNDER THE GIVEN FACTS AND CIRCUMSTANCES, IN THE ABSENCE OF ANY CONCEALMENT DETECTED, THE ADDITIONS ARE BASED ON COMPARISON OF YIELDS WITH SOME OTHER CONCERNS AND T HE YIELD OF SUBSEQUENT YEAR WHICH THOUGH WAS CONTESTED INITIALL Y, WAS ACCEPTED AT VIA MEDIA ESTIMATED PERCENTAGE OF 2L%, I FIND STRENGTH IN THE ARGUMENT OF THE APPELLANT THAT THE WORK SHEE TS RELIED ON PERTAIN TO A.Y. 2013-14 FOR WHICH YEAR THE YIELD IS CLAIMED TO BE IN LINE WITH THESE SHEETS, THESE DOCUMENTS CANNOT B E TERMED AS INCRIMINATING EVIDENCE. IT IS ALSO POINTED OUT THAT NO SEPARATE ADDITIONS WERE MADE WITH REGARD TO EXCESS CASH FOUN D OR DEFICIT STOCK IN THE ORDER SINCE THE ADDITION IS ON AGREED BASIS TO COVER UP EVERYTHING. FROM THESE SET OF FACTS, I AM OF THE VI EW THAT THERE CANNOT BE SCOPE FOR PENALYSING THE APPELLANT SINCE NO CONCEALMENT PERSE IS DETECTED AND NO INACCURATE PAR TICULARS ARE NOTICED. HENCE THE AO IS DIRECTED TO DELETE THE PEN ALTY. 10. AGGRIEVED BY THE ORDER OF CIT(APPEALS), THE REV ENUE HAS PREFERRED THE PRESENT APPEAL BEFORE THE TRIBUNAL. 11. WE HAVE HEARD THE SUBMISSIONS OF THE LD. DR, WH O RELIED ON THE ORDER OF AO. ITA NO.626/BANG/2015 PAGE 6 OF 12 12. THE LD. COUNSEL FOR THE ASSESSEE RELIED ON THE ORDER OF CIT(APPEALS) AND BROUGHT TO OUR NOTICE THE SHOW CAUSE NOTICE ISS UED BY THE AO U/S. 274 OF THE ACT BEFORE IMPOSING PENALTY ON THE ASSESSEE, WHICH DOES NOT SPELL OUT AS TO WHETHER PENALTY WAS BEING LEVIED FOR CONC EALMENT OF PARTICULARS OF INCOME OR FOR FURNISHING INACCURATE PARTICULARS OF INCOME. OUR ATTENTION WAS DRAWN TO THE DECISION OF THE HONBLE HIGH COURT OF KARNATAKA IN THE CASE OF CIT & ANR. V. MANJUNATHA COTTON AND GINNING FACTORY , 359 ITR 565 (KARN) WHEREIN THE HONBLE HIGH COURT HELD THAT NOTICE U/S . 274 OF THE ACT SHOULD SPECIFICALLY STATE AS TO WHETHER PEN ALTY IS BEING PROPOSED TO BE IMPOSED FOR CONCEALMENT OF PARTICULARS OF INCOME OR FOR FURNISHING INACCURATE PARTICULARS OF INCOME. IN THE ABSENCE O F A SPECIFIC MENTION AS ABOVE, IT WAS HELD THAT PENALTY IMPOSED IS LIABLE T O BE CANCELLED. 13. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. THE HONBLE KARNATAKA HIGH COURT IN THE CASE OF CIT & ANR. V. MANJUNATHA COTTON AND GINNING FACTORY (SUPRA) HAS LAID DOWN THE FOLLOWING PRINCIPLES TO BE FOLLOWED IN THE MATTER OF IMPOSING PENALTY U/S.271( 1)(C) OF THE ACT. NOTICE UNDER SECTION 274 59. AS THE PROVISION STANDS, THE PENALTY PROCEEDING S CAN BE INITIATED ON VARIOUS GROUND SET OUT THEREIN. IF THE ORDER PASSED BY THE AUTHORITY CATEGORICALLY RECORDS A FINDING REGAR DING THE EXISTENCE OF ANY SAID GROUNDS MENTIONED THEREIN AND THEN PENALTY PROCEEDINGS IS INITIATED, IN THE NOTICE TO BE ISSUE D UNDER SECTION 274, THEY COULD CONVENIENTLY REFER TO THE SAID ORDE R WHICH CONTAINS THE SATISFACTION OF THE AUTHORITY WHICH HA S PASSED THE ORDER. HOWEVER, IF THE EXISTENCE OF THE CONDITIONS COULD NOT BE ITA NO.626/BANG/2015 PAGE 7 OF 12 DISCERNED FROM THE SAID ORDER AND IF IT IS A CASE O F RELYING ON DEEMING PROVISION CONTAINED IN EXPLANATION-1 OR IN EXPLANATION- 1(B), THEN THOUGH PENALTY PROCEEDINGS ARE IN THE NA TURE OF CIVIL LIABILITY, IN FACT, IT IS PENAL IN NATURE. IN EITHE R EVENT, THE PERSON WHO IS ACCUSED OF THE CONDITIONS MENTIONED IN SECTI ON 271 SHOULD BE MADE KNOWN ABOUT THE GROUNDS ON WHICH THE Y INTEND IMPOSING PENALTY ON HIM AS THE SECTION 274 MAKES IT CLEAR THAT ASSESSEE HAS A RIGHT TO CONTEST SUCH PROCEEDINGS AN D SHOULD HAVE FULL OPPORTUNITY TO MEET THE CASE OF THE DEPARTMENT AND SHOW THAT THE CONDITIONS STIPULATED IN SECTION 271(1)(C) DO N OT EXIST AS SUCH HE IS NOT LIABLE TO PAY PENALTY. THE PRACTICE OF TH E DEPARTMENT SENDING A PRINTED FARM WHERE ALL THE GROUND MENTION ED IN SECTION 271 ARE MENTIONED WOULD NOT SATISFY REQUIREMENT OF LAW WHEN THE CONSEQUENCES OF THE ASSESSEE NOT REBUTTING THE INIT IAL PRESUMPTION IS SERIOUS IN NATURE AND HE HAD TO PAY PENALTY FROM 100% TO 300% OF THE TAX LIABILITY. AS THE SAID PROVISIONS HAVE T O BE HELD TO BE STRICTLY CONSTRUED, NOTICE ISSUED UNDER SECTION 274 SHOULD SATISFY THE GROUNDS WHICH HE HAS TO MEET SPECIFICALLY. OTHE RWISE, PRINCIPLES OF NATURAL JUSTICE IS OFFENDED IF THE SH OW CAUSE NOTICE IS VAGUE. ON THE BASIS OF SUCH PROCEEDINGS, NO PENALTY COULD BE IMPOSED ON THE ASSESSEE. 60. CLAUSE (C) DEALS WITH TWO SPECIFIC OFFENCES, TH AT IS TO SAY, CONCEALING PARTICULARS OF INCOME OR FURNISHING INAC CURATE PARTICULARS OF INCOME. NO DOUBT, THE FACTS OF SOME CASES MAY ATTRACT BOTH THE OFFENCES AND IN SOME CASES THERE M AY BE OVERLAPPING OF THE TWO OFFENCES BUT IN SUCH CASES T HE INITIATION OF THE PENALTY PROCEEDINGS ALSO MUST BE FOR BOTH THE O FFENCES. BUT DRAWING UP PENALTY PROCEEDINGS FOR ONE OFFENCE AND FINDING THE ASSESSEE GUILTY OF ANOTHER OFFENCE OR FINDING HIM G UILTY FOR EITHER THE ONE OR THE OTHER CANNOT BE SUSTAINED IN LAW. IT IS NEEDLESS TO POINT OUT SATISFACTION OF THE EXISTENCE OF THE GROU NDS MENTIONED IN SECTION 271(1)(C) WHEN IT IS A SINE QUA NON FOR INITIATION OR PROCEEDINGS, THE PENALTY PROCEEDINGS SHOULD BE CONF INED ONLY TO THOSE GROUNDS AND THE SAID GROUNDS HAVE TO BE SPECI FICALLY STATED SO THAT THE ASSESSEE WOULD HAVE THE OPPORTUNITY TO MEET THOSE GROUNDS. AFTER, HE PLACES HIS VERSION AND TRIES TO SUBSTANTIATE HIS CLAIM, IF AT ALL, PENALTY IS TO BE IMPOSED, IT SHOU LD BE IMPOSED ONLY ON THE GROUNDS ON WHICH HE IS CALLED UPON TO A NSWER. IT IS NOT OPEN TO THE AUTHORITY, AT THE TIME OF IMPOSING PENALTY TO IMPOSE PENALTY ON THE GROUNDS OTHER THAN WHAT ASSES SEE WAS CALLED UPON TO MEET. OTHERWISE THOUGH THE INITIATIO N OF PENALTY PROCEEDINGS MAY BE VALID AND LEGAL, THE FINAL ORDER IMPOSING ITA NO.626/BANG/2015 PAGE 8 OF 12 PENALTY WOULD OFFEND PRINCIPLES OF NATURAL JUSTICE AND CANNOT BE SUSTAINED. THUS ONCE THE PROCEEDINGS ARE INITIATED ON ONE GROUND, THE PENALTY SHOULD ALSO BE IMPOSED ON THE S AME GROUND. WHERE THE BASIS OF THE INITIATION OF PENALT Y PROCEEDINGS IS NOT IDENTICAL WITH THE GROUND ON WHI CH THE PENALTY WAS IMPOSED, THE IMPOSITION OF PENALTY IS N OT VALID. THE VALIDITY OF THE ORDER OF PENALTY MUST BE DETERM INED WITH REFERENCE TO THE INFORMATION, FACTS AND MATERIALS I N THE HANDS OF THE AUTHORITY IMPOSING THE PENALTY AT THE TIME T HE ORDER WAS PASSED AND FURTHER DISCOVERY OF FACTS SUBSEQUEN T TO THE IMPOSITION OF PENALTY CANNOT VALIDATE THE ORDER OF PENALTY WHICH, WHEN PASSED, WAS NOT SUSTAINABLE. 61. THE ASSESSING OFFICER IS EMPOWERED UNDER THE AC T TO INITIATE PENALTY PROCEEDINGS ONCE HE IS SATISFIED IN THE COU RSE OF ANY PROCEEDINGS THAT THERE IS CONCEALMENT OF INCOME OR FURNISHING OF INACCURATE PARTICULARS OF TOTAL INCOME UNDER CLAUSE (C). CONCEALMENT, FURNISHING INACCURATE PARTICULARS OF I NCOME ARE DIFFERENT. THUS THE ASSESSING OFFICER WHILE ISSUING NOTICE HAS TO COME TO THE CONCLUSION THAT WHETHER IS IT A CASE OF CONCEALMENT OF INCOME OR IS IT A CASE OF FURNISHING OF INACCURATE PARTICULARS. THE APEX COURT IN THE CASE OF ASHOK PAI REPORTED IN 292 ITR 11 AT PAGE 19 HAS HELD THAT CONCEALMENT OF INCOME AND FUR NISHING INACCURATE PARTICULARS OF INCOME CARRY DIFFERENT CO NNOTATIONS. THE GUJARAT HIGH COURT IN THE CASE OF MANU ENGINEERING REPORTED IN 122 ITR 306 AND THE DELHI HIGH COURT IN THE CASE OF VIRGO MARKETING REPORTED IN 171 TAXMAN 156, HAS HEL D THAT LEVY OF PENALTY HAS TO BE CLEAR AS TO THE LIMB FOR WHICH IT IS LEVIED AND THE POSITION BEING UNCLEAR PENALTY IS NO T SUSTAINABLE. THEREFORE, WHEN THE ASSESSING OFFICER PROPOSES TO I NVOKE THE FIRST LIMB BEING CONCEALMENT, THEN THE NOTICE HAS T O BE APPROPRIATELY MARKED. SIMILAR IS THE CASE FOR FURNI SHING INACCURATE PARTICULARS OF INCOME. THE STANDARD PROF ORMA WITHOUT STRIKING OF THE RELEVANT CLAUSES WILL LEAD TO AN IN FERENCE AS TO NON- APPLICATION OF MIND. 14. THE FINAL CONCLUSION OF THE HONBLE COURT WAS A S FOLLOWS:- 63. IN THE LIGHT OF WHAT IS STATED ABOVE, WHAT EME RGES IS AS UNDER:- ITA NO.626/BANG/2015 PAGE 9 OF 12 A) PENALTY UNDER SECTION 271(1)(C) IS A CIVIL LIAB ILITY. B) MENS REA IS NOT AN ESSENTIAL ELEMENT FOR IMPOSI NG PENALTY FOR BREACH OF CIVIL OBLIGATIONS OR LIABILITIES. C) WILLFUL CONCEALMENT IS NOT AN ESSENTIAL INGREDI ENT FOR ATTRACTING CIVIL LIABILITY. D) EXISTENCE OF CONDITIONS STIPULATED IN SECTION 2 71(1)(C) IS A SINE QUA NON FOR INITIATION OF PENALTY PROCEEDINGS UNDER SECTION 271. E) THE EXISTENCE OF SUCH CONDITIONS SHOULD BE DISC ERNIBLE FROM THE ASSESSMENT ORDER OR ORDER OF THE APPELLATE AUTHORITY OR REVISIONAL AUTHORITY. F) EVEN IF THERE IS NO SPECIFIC FINDING REGARDING THE EXISTENCE OF THE CONDITIONS MENTIONED IN SECTION 271(1)(C), A T LEAST THE FACTS SET OUT IN EXPLANATION 1(A) & (B) IT SHOULD BE DISC ERNIBLE FROM THE SAID ORDER WHICH WOULD BY A LEGAL FICTION CONST ITUTE CONCEALMENT BECAUSE OF DEEMING PROVISION. G) EVEN IF THESE CONDITIONS DO NOT EXIST IN THE AS SESSMENT ORDER PASSED, AT LEAST, A DIRECTION TO INITIATE PRO CEEDINGS UNDER SECTION 271(L)(C) IS A SINE QUA NON FOR THE ASSESSM ENT OFFICER TO INITIATE THE PROCEEDINGS BECAUSE OF THE DEEMING PRO VISION CONTAINED IN SECTION 1(B). H) THE SAID DEEMING PROVISIONS ARE NOT APPLICABLE TO THE ORDERS PASSED BY THE COMMISSIONER OF APPEALS AND TH E COMMISSIONER. I) THE IMPOSITION OF PENALTY IS NOT AUTOMATIC. J) IMPOSITION OF PENALTY EVEN IF THE TAX LIABILITY IS ADMITTED IS NOT AUTOMATIC. K) EVEN IF THE ASSESSEE HAS NOT CHALLENGED THE ORD ER OF ASSESSMENT LEVYING TAX AND INTEREST AND HAS PAID TA X AND INTEREST THAT BY ITSELF WOULD NOT BE SUFFICIENT FOR THE AUTH ORITIES EITHER TO INITIATE PENALTY PROCEEDINGS OR IMPOSE PENALTY, UNL ESS IT IS DISCERNIBLE FROM THE ASSESSMENT ORDER THAT, IT IS O N ACCOUNT OF SUCH UNEARTHING OR ENQUIRY CONCLUDED BY AUTHORITIES IT HAS RESULTED IN PAYMENT OF SUCH TAX OR SUCH TAX LIABILI TY CAME TO BE ITA NO.626/BANG/2015 PAGE 10 OF 12 ADMITTED AND IF NOT IT WOULD HAVE ESCAPED FROM TAX NET AND AS OPINED BY THE ASSESSING OFFICER IN THE ASSESSMENT O RDER. L) ONLY WHEN NO EXPLANATION IS OFFERED OR THE EXPL ANATION OFFERED IS FOUND TO BE FALSE OR WHEN THE ASSESSEE F AILS TO PROVE THAT THE EXPLANATION OFFERED IS NOT BONAFIDE, AN OR DER IMPOSING PENALTY COULD BE PASSED. M) IF THE EXPLANATION OFFERED, EVEN THOUGH NOT SUB STANTIATED BY THE ASSESSEE, BUT IS FOUND TO BE BONAFIDE AND AL L FACTS RELATING TO THE SAME AND MATERIAL TO THE COMPUTATION OF HIS TOTAL INCOME HAVE BEEN DISCLOSED BY HIM, NO PENALTY COULD BE IMP OSED. N) THE DIRECTION REFERRED TO IN EXPLANATION IB TO SECTION 271 OF THE ACT SHOULD BE CLEAR AND WITHOUT ANY AMBIGUIT Y. O) IF THE ASSESSING OFFICER HAS NOT RECORDED ANY S ATISFACTION OR HAS NOT ISSUED ANY DIRECTION TO INITIATE PENALTY PROCEEDINGS, IN APPEAL, IF THE APPELLATE AUTHORITY RECORDS SATISFAC TION, THEN THE PENALTY PROCEEDINGS HAVE TO BE INITIATED BY THE APP ELLATE AUTHORITY AND NOT THE ASSESSING AUTHORITY. P) NOTICE UNDER SECTION 274 OF THE ACT SHOULD SPEC IFICALLY STATE THE GROUNDS MENTIONED IN SECTION 271(1)(C), I .E., WHETHER IT IS FOR CONCEALMENT OF INCOME OR FOR FURNISHING OF I NCORRECT PARTICULARS OF INCOME Q) SENDING PRINTED FORM WHERE ALL THE GROUND MENTI ONED IN SECTION 271 ARE MENTIONED WOULD NOT SATISFY REQUIRE MENT OF LAW. R) THE ASSESSEE SHOULD KNOW THE GROUNDS WHICH HE H AS TO MEET SPECIFICALLY. OTHERWISE, PRINCIPLES OF NATURAL JUSTICE IS OFFENDED. ON THE BASIS OF SUCH PROCEEDINGS, NO PENA LTY 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 A SSESSMENT PROCEEDINGS. THE PROCEEDINGS FOR IMPOSITION OF PENA LTY THOUGH EMANATE FROM PROCEEDINGS OF ASSESSMENT, IT IS INDEP ENDENT AND SEPARATE ASPECT OF THE PROCEEDINGS. ITA NO.626/BANG/2015 PAGE 11 OF 12 U) THE FINDINGS RECORDED IN THE ASSESSMENT PROCEED INGS IN SO FAR AS 'CONCEALMENT OF INCOME' AND 'FURNISHING OF I NCORRECT PARTICULARS' WOULD NOT OPERATE AS RES JUDICATA IN T HE PENALTY PROCEEDINGS. IT IS OPEN TO THE ASSESSEE TO CONTEST THE SAID PROCEEDINGS ON MERITS. HOWEVER, THE VALIDITY OF THE ASSESSMENT OR REASSESSMENT IN PURSUANCE OF WHICH PENALTY IS LEVIE D, CANNOT BE THE SUBJECT MATTER OF PENALTY PROCEEDINGS. THE ASSESSMENT OR REASSESSMENT CANNOT BE DECLARED A S INVALID IN THE PENALTY PROCEEDINGS. 15. IT IS CLEAR FROM THE AFORESAID DECISION THAT O N THE FACTS OF THE PRESENT CASE THAT THE SHOW CAUSE NOTICE U/S. 274 OF THE ACT IS DEFECTIVE AS IT DOES NOT SPELL OUT THE GROUNDS ON WHICH THE PENALTY IS S OUGHT TO BE IMPOSED. FOLLOWING THE DECISION OF THE HONBLE KARNATAKA HIG H COURT, WE HOLD THAT THE ORDER IMPOSING PENALTY HAS TO BE HELD AS INVALI D. 16. APART FROM THE ABOVE, WE ARE OF THE VIEW THAT A DDITION IN RESPECT OF WHICH PENALTY WAS IMPOSED BY THE AO WAS ONLY ON LOW YIELD DECLARED IN THE BOOKS OF ACCOUNT. IT IS FUNDAMENTAL THAT BEFORE RE LYING ON THE COMPARATIVE RESULTS OF OTHER ASSESSEES IN SIMILAR LINE OF BUSIN ESS, BOOKS OF ACCOUNTS OF ASSESSEE SHOULD BE FOUND TO BE DEFECTIVE AND THERE SHOULD BE NON- AVAILABILITY OF YIELD PERCENTAGE, ACCEPTED BY THE R EVENUE IN ASSESSEES OWN CASE IN THE PAST. IN THE CASE OF ASSESSEE, IT APPEARS THAT REASONS FOR ADOPTING YIELD PREVAILING IN THE INDUSTRY WAS DUE T O DISCREPANCY FOUND IN THE FORM OF EXCESS CASH ADMITTEDLY AT THE TIME OF S URVEY AND DEFICIT STOCK OF CASHEW KERNELS. IT THEREFORE APPEARS TO US THAT T HE VERY BASIS OF ESTIMATION OF INCOME IN THE CASE OF ASSESSEE IS ON A WEAK FOOTING. IT IS A ITA NO.626/BANG/2015 PAGE 12 OF 12 DIFFERENT MATTER THAT ASSESSEE HAS ACCEPTED THE ORD ER OF AO WITHOUT CHALLENGING THE SAME. THE FACT REMAINS THAT THERE WAS NO DETECTION OF CONCEALMENT EITHER AT THE TIME OF SURVEY OR THEREAF TER. WE ARE THEREFORE OF THE VIEW THAT THE CIT(APPEALS) WAS JUSTIFIED IN CAN CELLING THE PENALTY IMPOSED BY THE AO ON THE ASSESSEE. WE DO NOT FIND ANY GROUNDS TO INTERFERE IN THE ORDER OF CIT(APPEALS). 17. CONSEQUENTLY, APPEAL BY THE REVENUE IS DISMISSE D. PRONOUNCED IN THE OPEN COURT ON THIS 14 TH DAY OF AUGUST, 2015. SD/- SD/- ( ABRAHAM P. GEORGE ) ( N.V. VASU DEVAN ) ACCOUNTANT MEMBER JUDICIAL M EMBER BANGALORE, DATED, THE 14 TH AUGUST, 2015. /D S/ COPY TO: 1. APPELLANT 2. RESPONDENTS 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR / SENIOR PRIVATE SECRETARY ITAT, BANGALORE.