S. N. Vijeth, Mysore V. Income Tax Officer, Ward-1(3), Mysore

ITA 750/BANG/2018

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 0258 (ITAT-BANGALORE)
• Duration Of Justice: 5 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-09-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2005-2006
• Appeal Filed On: 12-03-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SIDDAPPAYI R N
• Keywords: Principle of natural justice; Question of law; Initiation of penalty proceedings
• Section: 27

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCH A BEFORE SHRI N. V. VASUDEVANV, JUDICIAL MEMBER AND SHRI A. K. GARODIA, ACCOUNTANT MEMBER I.T.A. NO. 750/BANG/2018 (ASSESSMENT YEAR: 2005 - 06) SHRI S. N. VIJETH, CONTRACTOR, CANAL STREET, NEAR SBM ROAD, SALIGRAMA, K. R. NAGAR TALUKA, MYSORE DISTRICT, PAN ACUPV5982E APPELLANT. VS. ITO, WARD 1 (3), MYSORE. RESPONDENT. ASSESSEE BY : SHRI NARENDRA SHARMA, ADVOCATE RE VENUE BY : SHRI SIDDAPPAYI R. N. ADDL. CIT ( DR ) DATE OF HEARING : 03.09.2018 DATE OF PRONOUNCEMENT : 07.09.2018 O R D E R PER SHRI A. K. GARODIA, A.M. : THIS APPEAL IS FILED BY THE ASSESSEE AND THIS IS DI RECTED AGAINST THE ORDER OF THE CIT (A) MYSORE DATED 19.01.2018 FOR A. Y. 2005 - 06. 2. THE ASSESSEE HAS RAISED AS MANY AS 11 GROUNDS BU T THE ONLY EFFECTIVE GRIEVANCE OF THE ASSESSEE IS ABOUT CONFIRMING OF TH E PENALTY IMPOSED BY THE AO U/S 271 (1) ( C) OF THE I. T. ACT OF RS. 918,373 /-. 3. IN COURSE OF HEARING BEFORE US, IT IS SUBMITTED BY THE LEARNED AR OF THE ASSESSEE THAT AS PER THE NOTICE ISSUED BY THE AO U/ S 274 R.W.S. 271 OF THE I. T. ACT 1961 ON 16.11.2010, THIS IS NOT CLEAR AS TO WHETHER THE ALLEGATION OF THE AO IS REGARDING CONCEALMENT OF INCOME OR OF FUR NISHING OF INACCURATE PARTICULARS OF INCOME. HE SUBMITTED A COPY OF THE N OTICE IN SUPPORT OF THIS CONTENTION. THEREAFTER HE PLACED RELIANCE ON THE JU DGMENT OF HONBLE KARNATAKA HIGH COURT RENDERED IN THE CASE OF CIT VS . MANJUNATHA COTTON & GINNING FACTORY AS REPORTED IN 359 ITR 565 AND SUB MITTED THAT AS PER THIS 2 ITA NO. 750/BANG/2018 JUDGMENT, THE PENALTY PROCEEDINGS ARE VITIATED BECA USE THE NOTICE ISSUED IS NOT IN ACCORDANCE WITH LAW AND THEREFORE, TRIBUNAL IS JUSTIFIED IN LAW IN SETTING ASIDE THE PENALTY ORDER. HE SUBMITTED THAT IN THE P RESENT CASE ALSO, THE PENALTY PROCEEDINGS ARE VITIATED BECAUSE THE NOTICE ISSUED IS NOT IN ACCORDANCE WITH LAW AND THEREFORE, THE PENALTY ORDE R SHOULD BE SET ASIDE. LEARNED DR OF THE REVENUE SUPPORTED THE ORDER OF CI T (A) BUT HE COULD NOT POINT OUT ANY BASIS AS PER WHICH, THIS JUDGMENT OF HONBLE KARNATAKA HIGH COURT IS NOT APPLICABLE IN THE PRESENT CASE. 4. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. WE FI ND THAT PARA 63 TO 66 OF THIS JUDGMENT OF HONBLE KARNATAKA HIGH COURT RENDE RED IN THE CASE OF CIT VS. MANJUNATHA COTTON & GINNING FACTORY (SUPRA) ARE RELEVANT AND THEREFORE, THESE PARAS ARE REPRODUCED HERE FOR READ Y REFERENCE. THE SAME ARE AS UNDER:- CONCLUSION 63. IN THE LIGHT OF WHAT IS STATED ABOVE, WHAT EMER GES IS AS UNDER: A) PENALTY UNDER SECTION 271(1)(C) IS A CIVIL LIABI LITY. B) MENS REA IS NOT AN ESSENTIAL ELEMENT FOR IMPOSIN G PENALTY FOR BREACH OF CIVIL OBLIGATIONS OR LIABILITIES. C) WILLFUL CONCEALMENT IS NOT AN ESSENTIAL INGREDIE NT FOR ATTRACTING CIVIL LIABILITY. D) EXISTENCE OF CONDITIONS STIPULATED IN SECTION 27 1(1)(C) IS A SINE QUA NON FOR INITIATION OF PENALTY PROCEEDINGS UNDER SECTION 271. E) THE EXISTENCE OF SUCH CONDITIONS SHOULD BE DISCE RNIBLE FROM THE ASSESSMENT ORDER OR ORDER OF THE APPELLARE AUTH ORITY OR REVISIONAL AUTHORITY. F) EVER IF THERE IS NO SPECIFIC FINDING REGARDING T HE EXISTENCE OF THE CORDRTIONS MENTIONED IN SECTION 271(1)(C), AT L EAST 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 ASS ESSMENT ORDER PASSED, AT LEAST, A DIRECTION TO INITIATE PROCEEDIN GS UNDER SECTION 271(L)(C) IS A SINE QUA NON FOR THE ASSESSMENT OFFI CER TO INITIATE THE PROCEEDINGS BECAUSE OF THE DEEMING PROVISION CO NTAINED IN SECTION 1(B). H) THE SAID DEEMING PROVISIONS ARE NOT APPLICABLE T O THE ORDERS PASSED BY THE COMMISSIONER OF APPEALS AND THE COMMI SSIONER. I) THE IMPOSITION OF PENALTY IS NOT AUTOMATIC. J) IMPOSITION OF PENALTY EVEN IF THE TAX LIABILITY IS ADMITTED IS NOT AUTOMATIC. 3 ITA NO. 750/BANG/2018 K) EVEN IF THE ASSESSEE HAS NOT CHALLENGED THE ORDE R 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 ADMITTED AND IF NOT IT WOULD HAVE ESCAPED FROM TAX NET AND AS OPINED BY THE ASSESSING OFFICER IN THE ASSESSMENT O RDER. 1) ONLY WHEN NO EXPLANATION IS OFFERED OR THE EXPLA NATION 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 SUBS TANTIATED BY THE ASSESSEE, BUT IS FOUND TO BE BONAFIDE AND ALL F ACTS RELATING TO THE SAME AND MATERIAL TO THE COMPUTATION OF HIS TOT AL INCOME HAVE BEEN DISCLOSED BY HIM, NO PENALTY COULD BE IMP OSED. N) THE DIRECTION REFERRED TO IN EXPLANATION IB TO S ECTION 271 OF THE ACT SHOULD BE CLEAR AND WITHOUT ANY AMBIGUITV. O) IF THE ASSESSING OFFICER HAS NOT RECORDED ANY SA TISFACTION OR HAS NOT ISSUED ANY DIRECTION TO INITIATE PENALTY PR OCEEDINGS, IN APPEAL, IF THE APPELATE AUTHORITY RECORDS SATISFACT ION, 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 SPECI FICALLY STATE THE GROUNDS MENTIONED IN SECTION 271(1)(C), I.E., W HETHER IT IS FOR CONCEALMENT OF INCOME OR FOR FURNISHING OF INCORREC T PARTICULARS OF INCOME Q) SENDING PRINTED FORM WHERE ALL THE GROUND MENTIO NED IN SECTION 271 ARE MENTIONED WOULD NOT SATISFY REQUIRE MENT OF LAW. R) THE ASSESSEE SHOULD KNOW THE GROUNDS WHICH HE HA S TO MEET SPECIFICALLY. OTHERWISE, PRINCIPLES OF NATURAL JUST ICE 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 AND FINDING THE ASSESSEE GUILTY OF ANOTHER LIMB IS BAD IN LAW. T) THE PENALTY PROCEEDINGS ARE DISTINCT FROM THE AS SESSMENT PROCEEDINGS. THE PROCEEDINGS FOR IMPOSITION OF PENA LTY THOUGH EMANATE FROM PROCEEDINGS OF ASSESSMENT, IT IS INDEP ENDENT AND SEPARATE ASPECT OF THE PROCEEDINGS. U) THE FINDINGS RECORDED IN THE ASSESSMENT PROCEEDI NGS IN SO FAR AS CONCEALMENT OF INCOME AND FURNISHING OF INCOR RECT 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. IN ITA 2564 & 2565/2005 4 ITA NO. 750/BANG/2018 64. IN THE LIGHT OF WHAT WE HAVE STAIED ABOVE, IT I S CLEAR THAT MERELY BECAUSE THE ASSESSEE AGREED FOR ADDITION AND ACCORDINGLY ASSESSMENT ORDER WAS PASSED ON THE BASIS OF THIS AD DITION AND WHEN THE ASSESSEE HAS PAID THE TAX AND THE INTEREST THEREON IN THE ABSENCE OF ANY MATERIAL ON RECORD TO SHOW THE CONCE ALMENT OF INCOME, IT CANNOT BE INFERRED THAT THE SAID ADDITIO N IS ON ACCOUNT OF CONCEALMENT. MOREOVER, THE ASSESSEE HAS OFFERED THE EXPLANATION. THE SAID EXPLANATION IS NOT FOUND TO B E FALSE. ON THE CONTRARY, IT IS HELD TO BE BONAFIDE. IN FACT IN THE ASSESSMENT PROCEEDINGS THERE IS NO WHISPER ABOUT THESE CONCEAL MENT. UNDER THESE CIRCUMSTANCES, THE ENTRY FOUND IN THE ROUGH C ASH BOOK COULD HAVE BEEN REFLECTED IN THE ACCOUNTS FOR THE S AID FINANCIAL YEAR IN WHICH THE SURVEY TOOK PLACE AS THE LAST DAT E FOR CLOSING THE ACCOUNT WAS STILL NOT OVER. THE VERY FACT THAT THE ASSESSEE AGREED TO PAY TAX AND DID NOT CHALLENGE THE ASSESSM ENT ORDER, IT IS CLEAR THE CONDUCT OF THE ASSESSEE CANNOT BE CONS TRUED AS MALAFIDE. THEREFORE, THE TRIBUNAL WAS JUSTIFIED IN SETTING ASIDE THE ORDERS PASSED BY THE APPELLATE AUTHORITY AS WEL L AS THE ASSESSING AUTHORITY. 65. IN SO FAR AS THE IMPOSITION OF PENALTY IS CONCE RNED, IT IS NOT IN ACCORDANCE WITH LAW. NO FAULT COULD BE FOUND WITH T HE TRIBUNAL FOR DELETING THE PENALTY. THUS, WE ANSWER THE SUBST ANTIAL QUESTION OF LAW IN FAVOUR OF THE ASSESSEE AND AGAIN ST THE REVENUE. IN ITA WO. 5020/2009 66. IN VIEW OF THE AFORESAID LAW, WE ARE OF THE VIE W THAT THE TRIBUNAL WAS JUSTIFIED IN HOLDING THAT THE ENTIRE P ROCEEDINGS ARE VITIATED AS THE NOTICE ISSUED IS NOT IN ACCORDANCE WITH LAW AND ACCORDINGLY JUSTIFIED IN INTERFERING WITH THE ORDER PASSED BY THE APPELLATE AUTHORITY AS WELL AS THE ASSESSING AUTHOR ITY AND IN SETTING ASIDE THE SAME. HENCE, WE ANSWER THE SUBSTA NTIAL QUESTIONS OF LAW FRAMED IN THIS CASE IN FAVOUR OF T HE ASSESSEE AND AGAINST THE REVENUE. 5. AS PER THESE PARAS, IT IS HELD BY HONBLE KARNAT AKA HIGH COURT THAT THE ASSESSEE SHOULD KNOW THE GROUNDS WHICH HE HAS TO ME ET SPECIFICALLY. OTHERWISE, PRINCIPLES OF NATURAL JUSTICE IS OFFENDE D. ON THE BASIS OF SUCH PROCEEDINGS, NO PENALTY COULD BE IMPOSED TO THE ASS ESSEE. IN THE PRESENT CASE ALSO, AS PER THE NOTICE ISSUED BY THE AO U/S 2 74 R.W.S. 271 OF THE I. T. ACT 1961 ON 16.11.2010, THIS IS NOT CLEAR AS TO WHE THER THE ALLEGATION OF THE AO IS REGARDING CONCEALMENT OF INCOME OR OF FURNISH ING OF INACCURATE PARTICULARS OF INCOME. HENCE, THIS JUDGMENT IS SQUA RELY APPLICABLE AND HENCE, RESPECTFULLY FOLLOWING THE SAME, THE PENALTY ORDER IS SET ASIDE AS NOT IN ACCORDANCE WITH LAW. 5 ITA NO. 750/BANG/2018 6. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALL OWED. ORDER PRONOUNCED IN THE OPEN COURT ON THE D ATE MENTIONED ON THE CAPTION PAGE. SD/- SD/ - (N. V. VASUDEVAN) (A. K. GARODIA) JUDICIAL MEMBER ACCOUNTANT MEMBER BANGALORE, DATED: 07.09.2018. MS* COPY TO: 1. APPELLANT 4. CIT(A) 2. RESPONDENT 5. DR, ITAT, BANGALORE 3. CIT 6. GUARD FILE BY ORDER SENIOR PRIVATE SECRETARY, INCOME TAX APPELLATE TRIBUNAL, BANGALORE.