Shri Joginder Singh, Ludhiana V. ITO, W-7(4), Ludhiana

ITA 767/CHANDI/2019

AI Insights

The case involves Shri Joginder Singh, who appealed against the penalty imposed by the Income Tax Officer (ITO), Ward-7(4), Ludhiana, for alleged inaccuracies in his income tax return for the assessment year 2013-14. The ITO had assessed additional income based on a presumptive rate of 1% of gross sales, suspecting the assessee of providing accommodation entries through bogus bills. The penalty was contested on grounds including lack of specific satisfaction for penalty initiation and that the issue was debatable. The CIT(A) upheld the penalty, leading to the appeal in the Tribunal. The Tribunal, referencing various judicial precedents, found procedural lapses in the penalty's initiation and thus set it aside.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 127533 (ITAT-CHANDIGARH)
• Duration Of Justice: 4 year(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-06-2023
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 06-06-2023
• Assessment Year: 2013-2014
• Appeal Filed On: 15-05-2019
• Other Referred Cases: Rampur Engg. Co. Ltd vs. CIT, Ram Commercial Enterprises vs. CIT, CIT vs. MWP Ltd., CIT vs. Sangrur Vanaspati Mills Ltd., CIT vs. Munish Iron Store, Ms. Madhushree Gupta vs UOI & ANR
• Laws Referred To: Income Tax Act
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Question of law; Initiation of penalty proceedings; Revised return; Set aside
• Section: 271(1)(c); 142(1); 260A; 133(6); 143(2); 48

Judgement Text

आयकर अपील य अ धकरण,च डीगढ़ यायपीठ “B” , च डीगढ़ IN THE INCOME TAX APPELLATE TRIBUNAL, CHANDIGARH BENCH “B”, CHANDIGARH ी आकाश द प जैन, उपा य एवं ी #व$म &संह यादव, लेखा सद+य BEFORE: SHRI A.D.JAIN, VICE PRESIDENT AND SHRI VIKRAM SINGH YADAV, ACCOUNTANT MEMBER आयकर अपील सं./ ITA NO. 767/Chd/ 2019 नधा रण वष / Assessment Year : 2013-14 Shri Joginder Singh, B-1/329, New Kundan Puri, Civil Lines, Ludhiana. बनाम The ITO Ward-7(4), Ludhiana. थायी लेखा सं./PAN NO: BMVPS3710F अपीलाथ /Appellant यथ /Respondent नधा रती क! ओर से/Assessee by : None राज व क! ओर से/ Revenue by : Smt. Amanpreet Kaur, Sr. DR स ु नवाई क! तार&ख/Date of Hearing : 07.06.2023 उदघोषणा क! तार&ख/Date of Pronouncement : 09.06.2023 आदेश/Order PER VIKRAM SINGH YADAV, AM: This is an appeal filed by the assessee against the order of the ld. CIT(A)-3 Ludhiana dated 11.12.2018 wherein the assessee through various grounds of appeal has challenged the sustenance of penalty u/s 271(1)(c) of the Act amounting to Rs.1,29,203/-. 2. Briefly the facts of the case are that the assessee filed his return of income declaring total income of Rs.2,65,520/- which was selected for scrutiny and notices u/s 143(2) and 142(1) were issued. Subsequently information u/s 133(6) was also called for from the sundry creditors as well as copy of the bank statements ITA 767/CHD/2019 A.Y. 2013-14 2 were called for from the assessee's bank. Thereafter, the statement of the assessee was also recorded on 10.03.2016. In the assessment order, the AO has stated that the assessee has shown total turnover of Rs.10 Cr and has made banking transaction of Rs.4 Cr. It was held by the AO that the assessee has failed to produce any documentary evidence in support of his claim of expenses and in the absence of the same, sale and purchase vouchers could not be verified with the bank statements and also the creditors could not be verified and accordingly, the books of account were rejected. 3. Further, the AO has recorded his finding stating that it is presumed that the assessee has done the business of providing accommodation entries by bogus bills of sale and purchase and therefore, the income of the assessee was assessed at 1% of the gross sales amounting to Rs.10,06,636/-. Thereafter, after giving credit of the income declared in the return of income amounting to Rs.2,65,520/-, addition of Rs.7,41,116/- was made and assessed income was determined at Rs.10,06,636/-. Penalty proceedings were separately initiated u/s 271(1)(c)of the Act for furnishing inaccurate particulars of income. 4. Subsequently, during the course of penalty proceedings, the assessee did not attend to the said proceedings nor filed any submissions. Thereafter given the fact that the assessee has not ITA 767/CHD/2019 A.Y. 2013-14 3 filed any appeal against the additions made during the quantum proceedings and the fact that the assessee has not given any explanation, the AO recorded his finding stating that the assessee has furnished inaccurate particulars of his income amounting to Rs.7,41,116/- and thereafter penalty @ 100% of tax sought to be evaded amounting to Rs.1,29,203/- was levied. 5. Being aggrieved the assessee carried the matter in appeal before the ld. CIT(A) and has raised various contentions. It was contended that the AO has not drawn any specific satisfaction at the time of initiation of penalty proceedings u/s 271(1)(c)of the Act and reliance was placed on Full Bench decision of the Hon’ble Delhi High Court in case of Rampur Engg. Co. Ltd 309 ITR 143 (Del) wherein the earlier decision in case of Ram Commercial Enterprises 246 ITR 568 (Del) was approved. It was submitted that even taking into consideration the legislative amendments in terms of Section 271(1B) in absence of specific directions while initiating the penalty proceedings, the same are liable to be set aside and in support reliance was placed on the Hon'ble Karnataka High Court decision in case of CIT Vs MWP Ltd. [2014] 41 taxmann.com 496. It was further contended that in the Show Cause Notice, the AO has not specified which specific limb of Section 271(1)(c)of the Act is proposed to be initiated against the assessee and in support, reliance was placed on the Hon'ble Karnataka High Court decision in case of ITA 767/CHD/2019 A.Y. 2013-14 4 Manjunatha Cotton & Ginning Factory. It was further contended that the assessment has been framed by estimating the income of the assessee at 1% of the gross turnover and the said estimate is without reference to any material and without bringing any positive evidence against the assessee and it was, accordingly, submitted that no penalty can be levied in case of estimation of income and reliance was placed on the Hon'ble Punjab & Haryana High Court decision in case of CIT Vs Sangrur Vanaspati Mills Ltd. 303 ITR 53 besides various other decisions. It was further contended that the penalty has been imposed on debatable issue and on genuine difference of opinion wherein the AO has estimated the net profit at 1% of the gross turnover as against 0.26% declared by the assessee. It was further contended that by estimating 1% of the sales as duly disclosed in the return of income, it cannot be held that the assessee has furnished any inaccurate particulars of income. It was submitted that the sale figures have been taken by the AO basis the return of income and therefore, where the same is not disputed and only the income has been estimated, it cannot be a case of furnishing of inaccurate particulars of income. 6. The submissions and the contentions so advanced by the assessee were considered but not found acceptable to the ld. CIT(A) and the levy of penalty amounting to Rs.129,203/- was sustained and the relevant findings of the ld. CIT(A) are ITA 767/CHD/2019 A.Y. 2013-14 5 contained at para 4.2 of the impugned order which reads as under : “4 . 2 I have carefully considered rival submission. As per the facts of the case the appellant has been found to be involved in providing accommodation entries to various persons on commission. During the course of assessment proceedings the assessing officer found that the assessee had done the business of trading of building material and had provided the accommodation entries by bogus bills of sale/purchase. Accordingly the income of the assessee was assessed @ 1% on the gross sale of Rs. 10,06,63,636/- which came to Rs. 10,06,636/-. During the course of assessment proceedings the assessee could not produce any documentary evidence in order to prove his contention. The assessing officer after giving due opportunity and recording the statement of the appellant assessed at his income @ 1% of gross receipts. The assessee did not file any appeal against the addition. During the appellate proceedings the assessee through his authorised representative has taken additional grounds of appeal vide letter dated 14/08/2018. The assessee has taken up five additional grounds of appeal. Vide 5 grounds of appeal the assessee has challenged the penalty under section 271(1)(c). I have carefully gone through the additional grounds of appeal wherein the assessee has challenged the validity of issue of penalty notice stating that the assessing officer has initiated penalty proceedings without any specific satisfaction and issued notice under section148 in mechanical manner. The assessee has also agitated that the penalty 271(1)(c) cannot be levied on debatable issue on estimated income. I have carefully considered appellant's plea and additional grounds of appeal, which are on legal grounds. I have carefully considered the written submission filed by the appellant during the course of appellate proceedings wherein the assessee has challenged that the assessing officer has not drawn any specific satisfaction before initiating the penalty and other grounds. I have also carefully considered facts of the case, and various judicial pronouncements relied upon by the assessee. I do- not find any substance in the contention of the assessee. In the case of assessee it is an admitted fact, that the assessee has been found to be indulged in providing accommodation entries to various parties, in lieu of commission. In my considered view the assessing officer has assessed the income of assessee in justified manner by only assessing 1% of commission. Therefore in view of the facts , the income of the assessee was assessed at 1% on the gross sale of Rs. 10,06,63,636 which came to Rs. 10,06,636/-. It is undoubted that the assessee has been found to be involved in providing failed to disclose inaccurate particulars of income in his return of income. It is also pertinent to mention that the assessee has not filed any written submission at the time of penalty proceedings to defend itself. Perusal of the assessment penalty order shows that at the time of assessment proceedings the assessee has duly accepted the disallowance and therefore the assessee has not file any appeal against this disallowance. In my ITA 767/CHD/2019 A.Y. 2013-14 6 considered view it is undoubted fact that the appellant has failed to furnish accurate particular of his income in his return of income. Therefore, the levy of penalty on the part of AO, is justified. Accordingly the penalty of Rs.1,29,203/- under section 271(1)(c) of the Act for furnishing inaccurate particulars of Income is upheld. With the result these grounds of appeal are dismissed.” 7. We have heard the rival contentions and purused the material available on record. We find that one of the contentions which has been raised by the assessee before the ld CIT(A) relates to the fact that the AO has not drawn any specific satisfaction at the time of initiation of penalty proceedings u/s 271(1)(c)of the Act and even in terms of Section 271(1B) in absence of specific directions while initiating the penalty proceedings, the penalty proceedings are liable to be set aside and in support reliance was placed on the Hon'ble Karnataka High Court decision in case of CIT Vs MWP Ltd. (Supra). The ld CIT(A) has referred to the said contention being advanced by the assessee but has failed to address the same while confirming the levy of penalty. In our view, where the initiation of penalty proceedings itself has been challenged by the assessee, being the jurisdictional requirement, it is essential to address the same before proceedings with other contentions of the assessee. 8. The Punjab & Haryana High Court in the case of CIT vs Munish Iron Store (2003) 263 ITR 484 has held that the jurisdiction to impose penalty flows from recording of the satisfaction and in case, there is defect in assumption of ITA 767/CHD/2019 A.Y. 2013-14 7 jurisdiction, the same cannot be cured and has approved the order of the Tribunal cancelling the penalty imposed on the assessee on the ground that the satisfaction as regards concealment of income or furnishing of inaccurate particulars by the assessee in order to assume jurisdiction, initiated and levy of penalty was not recorded, as envisaged by law and the relevant findings of the Hon’ble High Court are as under: “Shri Sawhney argued that failure of the assessee to file a correct return was by itself sufficient for levy of penalty under Section 271(1)(c) of the Act and the Tribunal committed a serious error by setting aside the orders of the assessing authority and the Commissioner of Income-tax (Appeals) only on the ground of non-recording of satisfaction by the Assessing Officer in the order of assessment. In our opinion, there is no merit in the argument of learned counsel. A reading of the order passed by the Tribunal shows that after making a reference to the judgments of the Supreme Court and some High Courts in Jain Brothers v. Union of India (1970) 77 ITR 107(SC), D.M. Manasvi v. CIT (1972) 86 ITR 557 (SC), CIT v. Ram Commercial Enterprises Ltd. (2000) 246 ITR 568(Del) and Diwan Enterprises v. CIT (2000) 246 ITR 571(Del), the Tribunal culled out the proposition of law in the following words : ITA 767/CHD/2019 A.Y. 2013-14 8 “It is clear from above that jurisdiction to impose penalty flows from recording of the satisfaction and in case there is a jurisdictional defect in the assumption of jurisdiction, it cannot be cured. With the aforesaid legal quoting, we are to examine the question whether the Assessing Officer assumed proper jurisdiction. It is again to be noted that from the issue of notice under Section 271(1)(c), the recording of legal and valid satisfaction cannot be assumed.” The Tribunal then referred to the order of assessment passed by the Assessing Officer and observed: “It is clear from the above that not a word has been written about concealment of income. The Assessing Officer quietly accepted the revised return and the income disclosed therein. He did not record how and why the revised return was submitted. The statement of the partner on pages 14-16 of the paper book, Shri Ramesh Kumar was recorded and in that statement, he did explain the reasons which led to filing of the revised return. Learned counsel for the assessee contended that those reasons were impliedly accepted by the Assessing Officer. Looking at the assessment order, one cannot challenge the above assertion of learned counsel for the assessee. At ITA 767/CHD/2019 A.Y. 2013-14 9 any rate, the satisfaction about the concealment of income of furnishing of inaccurate particulars of income to assume jurisdiction to initiate and levy penalty is clearly not recorded as enjoined by law. The above jurisdictional defect in our view cannot be cured. Accordingly, we hold that penalty imposed is not valid and jurisdiction to impose the same was illegally assumed without recording a proper satisfaction. Penalty imposed is cancelled for the above reasons.” In our opinion, the reasons assigned by the Tribunal for cancellation of the penalty are legally correct and the order passed by it does not give rise to any question of law, much less a substantial question of law requiring determination by this court under Section 260A of the Act. Hence, the appeal is dismissed.” 9. In this regard, we refer to the provisions of section 271(IB) of the Act which provides that “(1B) Where any amount is added or disallowed in computing the total income or loss of an assessee in any order of assessment or reassessment and the said order contains a direction for initiation of penalty proceedings under clause (c) of sub-section (1), such an order of assessment or reassessment shall be deemed to constitute ITA 767/CHD/2019 A.Y. 2013-14 10 satisfaction of the Assessing Officer for initiation of the penalty proceedings under the said clause (c).” 10. The amended provisions came up for consideration before the Hon’ble Delhi High Court in case of Ms. Madhushree Gupta vs UOI & ANR. (WP(C) No. 5059 of 2008 dated 24.07.2009) wherein it was held that the prima facie satisfaction of the Assessing officer has to be discernable from the records at the stage of initiation of penalty proceedings and the same remains a jurisdictional requirement even post amendment and the relevant observations read are as under: “15.5 In our opinion the impugned provision only provides that an order initiating penalty cannot be declared bad in law only because it states that penalty proceedings are initiated, if otherwise it is discernible from the record, that the Assessing Officer has arrived at prima facie satisfaction for initiation penalty proceedings. The issue is of discernibility of the ‘satisfaction‘ arrived at by the Assessing Officer during the course of proceeding before him. 15.6 As indicated hereinabove, the position is no different post-amendment. The contra-submission of the learned ASG that prima facie satisfaction of the Assessing Officer need not be reflected at the stage of initiation but only at the stage of imposition of penalty is in the teeth of Section 271(1)(c) of ITA 767/CHD/2019 A.Y. 2013-14 11 the Act. Section 271(1)(c) has to be read in consonance of Section 271(1B). The presence of prima facie satisfaction for initiation of penalty proceedings was and remains a jurisdictional fact which cannot be wished away as the provision stands even today, i.e., post amendment. If an interpretation such as the one proposed by the Revenue is accepted then, in our view, the impugned provision will fall foul of Article 14 of the Constitution as it will then be impregnated with the vice of arbitrariness. The Assessing Officer would in such a situation be in a position to pick a case for initiation of penalty merely because there is an addition or disallowance without arriving at a prima facie satisfaction with respect to infraction by the assessee of clause (c) of sub-section (1) of Section 271 of the Act. A requirement which is mandated by the provision itself. 15.7 Learned ASG also sought to place reliance on the Memorandum as well as Clause 48 of the Notes on Clauses appended to the Finance Act, 2008. Even though both the Memorandum as well as Notes On Clauses refers to the conflict in judicial opinion and gives that, as the reason for insertion of the impugned provision, in our opinion, in sub- section (1B) of Section 271 does not do away with the principle that the prima facie satisfaction of the Assessing officer must be discernible from the order passed by the ITA 767/CHD/2019 A.Y. 2013-14 12 Assessing Officer during the course of assessment proceedings pending before him.” 11. The Karnataka High Court in case of CIT vs MWP (supra) has held that as the words used in the deeming fiction of section 271(IB) is direction, it is imperative that the assessment order contains a direction. It has been held by the Hon’ble High Court that the use of the phrase like “penalty proceedings are being initiated separately” or “penalty proceedings under section 271(1)(C) are initiated separately” do not comply with the meaning of word “direction” as contemplated under the amended provisions of law and the proceedings which are initiated contrary to the said legal position are liable to be set-aside and the relevant observations read are as under: 50. A reading of Section clearly indicates that the assessment order should contain a direction for initiation of penalty proceedings. The meaning of the word direction is of importance. Merely saying that penalty proceedings are being initiated will not satisfy the requirement. The direction to initiate proceedings should be clear and not be ambiguous. It is well settled law that fiscal statutes are to be construed strictly and more so the deeming provisions by way of legal fiction are to be construed more strictly. They have to be interpreted only for the said issue for which it has deemed and the manner in which the deeming has been contemplated to be restricted in the manner sought to be deemed. As the words used in the legal fiction or the deeming provisions of Section 271 (IB) is Direction, it is imperative that the assessment order contains a direction. Use of the phrases like (a) penalty proceedings are being initiated separately and (b) penalty proceedings under Section 271(l)(c) are initiated separately, do not comply with the meaning of the word direction as contemplated even in the amended provisions of law. The direction should be clear and without any ambiguity. The word 'direction' has been interpreted by the decision of the Apex Court in the case of Rajinder Nath v. CIT [1979] 120ITR 14 where it has been held that in any event whatever else it may amount to, on its very terms the observation that the ITO is free to take action, to assess the excess in the hand of the co-owners cannot be described as a direction. A direction by a statutory authority is in the nature of an order requiring positive compliance. When it is left to the ITA 767/CHD/2019 A.Y. 2013-14 13 option and discretion of the ITO whether or not take action, it cannot be described as a direction. 51. Therefore, it is settled law that in the absence of the existence of these conditions in the assessment order penalty proceedings could not be proceeded with. The proceedings which are 'initiated contrary to the said legal position are liable to be set aside' 12. In the instant case, on perusal of the assessment order, it is noted that the Assessing officer has rejected the books of accounts as the assessee failed to produce the same for verification and thereafter, a presumption has been drawn that the assessee has provided accommodation entries by way of bogus bills of purchase and sales and thereafter, on the declared turnover of Rs 10 crores, the Assessing officer has estimated income at the rate of 1% of the gross receipts and after giving credit for income declared in the return of income, has made an addition of Rs 7,41,116/- and it has been stated that the penalty proceedings u/s 271(1)(C) are being initiated separately for furnishing inaccurate particulars of income. We therefore find that there is no prima facie satisfaction which has been recorded by the AO for initiation of penalty proceedings which can be discerned from reading of the assessment order. There is no direction for initiation of penalty proceedings and merely addition has been made to the returned income on a presumptive basis which is not sufficient for acquiring jurisdiction as contemplated by the provisions of section 271(1B) of the Act. In view of the same, we are of the considered view that there is a jurisdictional defect while initiating the penalty proceedings in ITA 767/CHD/2019 A.Y. 2013-14 14 absence of recording of prima facie satisfaction and recording of directions and we cannot be cured and as a result, the consequent penalty proceedings deserve to be set-aside. 13. In the result, the appeal of the assessee is allowed. Order pronounced in the Open Court on 09.06.2023. Sd/- Sd/- आकाश द प जैन #व$म &संह यादव (AAKASH DEEP JAIN) ( VIKRAM SINGH YADAV) उपा य / VICE PRESIDENT लेखा सद+य/ ACCOUNTANT MEMBER Poonam Date: 06.2023 आदेश क! त,ल-प अ.े-षत/ Copy of the order forwarded to : 1. अपीलाथ / The Appellant 2. यथ / The Respondent 3. आयकर आय ु /त/ CIT 4. -वभागीय त न2ध, आयकर अपील&य आ2धकरण, च5डीगढ़/ DR, ITAT, CHANDIGARH 5. गाड फाईल/ Guard File आदेशान ु सार/ By order, सहायक पंजीकार/ Assistant Registrar