Satish babu Bethi Reddy, Hyd, Hyderabad V. Addl.CIT, Circle-7, Hyd, Hyderabad

ITA 890/HYD/2016

• Counselvise Citation: [2017] 130 COUNSELVISE.COM (IT) 6109 (ITAT-HYDERABAD)
• Duration Of Justice: 8 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-02-2017
• Appeal Filed By: Assessee
• Bench Allotted: B
• Assessment Year: 2006-2007
• Appeal Filed On: 14-06-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SUMAN MALIK
• Keywords: Principle of natural justice; Initiation of penalty proceedings
• Section: 32; 147; 131; 68; 246; 69; 145; 27; 148; 54; 37; 6; 56; 263; 63; 132; 12; 28; 271(1)(c); 144; 10; 90; 154; 2; 11; 15; 271(1)(b); 139; 92; 250; 274

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES A (SMC), HYDERABAD BEFORE SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER I.T.A. NO. 890/HYD/2016 ASSESSMENT YEAR: 2006-07 SRI SATISHBABU BETHI REDDY, HYDERABAD [PAN: AHTPB0696H] VS ADDL. COMMISSIONER OF INCOME TAX, RANGE-7, HYDERABAD (APPELLANT) (RESPONDENT) FOR ASSESSEE : SHRI K.A. SAI PRASAD, AR FOR REVENUE : SMT SUMAN MALIK, DR DATE OF HEARING : 31-01-2017 DATE OF PRONOUNCEMENT : 24-02-2017 O R D E R THIS IS AN APPEAL BY ASSESSEE AGAINST THE ORDER OF TH E COMMISSIONER OF INCOME TAX (APPEALS)-10, HYDERABAD, DATED 20-01-2016 FOR THE AY. 2006-07, CONFIRMING THE PENAL TY U/S. 271(1)(C) OF THE INCOME TAX ACT [ACT] OF RS. 1,90,834/-. 2. ASSESSEE HAS RAISED THE FOLLOWING GROUNDS: 1. THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) , IN THE FACTS AND CIRCUMSTANCES OF THE CASE, IS NOT JUSTIFIED IN CONF IRMING THE PENALTY U/S. 271(1)(C) OF RS. 1,90,834/-, LEVIED BY THE ADDL. CO MMISSIONER OF INCOME TAX, RANGE-7, HYDERABAD. 2. THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) DID NOT APPRECIATE THE FACT THAT THE ADDITION, ON WHICH THE PENALTY IS LEVIED, IS ONLY AN AGREED AND ESTIMATED DISALLOWANCE OF EXPENDITURE AND DID N OT CONSIDER THE SEVERAL DECISIONS CITED BY THE APPELLANT. I.T.A. NO. 890/HYD/2016 SRI SATISHBABU BETHI REDDY :- 2 - : 3. THE DECISION OF THE SUPREME COURT IN THE CASE OF MAK DATA (P) LTD (358 ITR 593), CITED BY THE LEARNED COMMISSIONER OF INCO ME TAX (APPEALS) IS IN A DIFFERENT CONTEXT AND NOT AT ALL APPLICABLE TO TH E FACTS OF THE APPELLANTS CASE. GROUND NO. 4 IS GENERAL IN NATURE. 3. BRIEF FACTS OF THE CASE ARE THAT ASSESSEE IS AN INDI VIDUAL, IS A COMMISSION AGENT FOR TWO REAL ESTATE COMPANIES. FOR THE SERVICES RENDERED BY HIM HE RECEIVED A GROSS COMMISSION OF R S. 26,60,867/- FOR THE AY. 2006-07 AND FILED HIS RETURN OF INCOME ON 30-03-2007 DECLARING AN INCOME OF RS. 9,03,067/-. ASSESSEE COULD NOT PRODUCE THE BOOKS OF ACCOUNT BEFORE THE ASSESSING OFFICER (AO). AO PROPOSED DISALLOWANCE OF RS. 5,00,000/- WHICH WA S ACCEPTED BY ASSESSEE. ON THAT, PENALTY PROCEEDINGS WERE INITI ATED AND PENALTY OF RS. 1,90,834/- WAS LEVIED BY THE AO. IN THE PENALTY PROCEEDINGS, THE AO HOWEVER, EXAMINED THE RECEIPTS FR OM THE COMPANY AND FOUND OUT THAT ASSESSEES RECEIPTS TOTAL TO RS. 41,17,527/- BUT DID NOT INITIATE ANY PROCEEDINGS NOR GA VE ANY FINDING THAT THE AMOUNT ADMITTED BY ASSESSEE AS RECEIPTS WERE SUPPRESSED. HOWEVER, HE LEVIED PENALTY U/S. 271(1) (C) ON ONLY THE DISALLOWANCE MADE BY THE AO OUT OF THE EXPENDITURE CLAI MS. 4. ASSESSEE CONTENDED BEFORE THE LD.CIT(A) 6. THAT THE AO DID NOT MAKE ANY FINDING THAT THE EXPEN SES CLAIMED TO BE FALSE OR BOGUS. IT IS NOT THE CASE O F THE AO THAT THE ADDITION HAS BEEN MADE ON ACCOUNT OF FURNISHING OF INACCURAT E PARTICULARS OF INCOME BY ASSESSEE. THERE WAS NO SATISFACTION RECO RDED BY THE LD.AO THAT ASSESSEE HAS CONNECTED THE PARTICULARS OF HIS INCOME OR FURNISHED INACCURATE PARTICULARS. A MERE MENTION AT THE END O F THE ASSESSMENT ORDER THAT PENALTY PROCEEDINGS WILL BE INITIATED SEPARAT ELY DOES NOT MEET THE REQUIREMENTS OF THE SECTION 271(1)(C). PENALTY CAN NOT BE IMPOSED MERELY BECAUSE ASSESSEE ACCEPTED ASSESSMENT ORDER LEVYING TAX AND INTEREST, UNLESS IT IS DISCERNIBLE FROM ASSESSMENT ORDER THAT ADDITION WAS ON ACCOUNT OF CONCEALMENT. I.T.A. NO. 890/HYD/2016 SRI SATISHBABU BETHI REDDY :- 3 - : 7. IT IS FURTHER SUBMITTED THAT IT IS ONLY AN AGREE D DISALLOWANCE ON ESTIMATE BASIS AND THERE IS NO FINDING OF CONCEALME NT OR FURNISHING OF INACCURATE PARTICULARS. THE ASSESSEE DID AGREE FOR THE PROPOSED DISALLOWANCE TO PURCHASE PEACE AND AVOID ANY LITIGA TION IN THE CIRCUMSTANCES OF THE CASE . 4.1. ASSESSEE RELIED ON THE FOLLOWING CASE LAW: I. DILIP KEDIA VS. ACIT [40 TAXMAN.COM 102] (HYDERABAD- TRIB.); II. CIT VS. MANJUNATHA COTTON & GINNING FACTORY [35 TAXMANN.COM 250] (KARNATAKA HIGH COURT); III. CIT VS. ELECTROLUX KELVINATOR LTD., [44 TAXMANN.COM 369 ] (DELHI HIGH COURT); IV. CIT VS. VATIKA CONSTRUCTIONS (P) LTD., [45 TAXMANN.COM 4 71] (DELHI HIGH COURT); 5. LD.CIT(A) HOWEVER, HAS NOT ANSWERED THE FIRST CON TENTION AT ALL AND REJECTED THE OTHER CONTENTIONS AS UNDER: 5.8 IN THIS CASE THE ASSESSEE CLAIMED HUGE EXPE NDITURE AND DID NOT PRODUCE ANY EVIDENCE IN SUPPORT OF THE CLAIM OF EXPENDITURE. HE DID NOT OFFER ANY COGENT AND RELIABLE EXPLANATION BEFOR E THE AO TO THE NOTICE ISSUED U/S. 271(1)(C) OF THE I.T ACT. HE MERELY ST ATED THAT HE WAS EAGER TO UNFETTER THE ASSETS AND TO HAVE PEACE WITH THE DEPA RTMENT HE AGREED FOR THE ADDITION. 5.9 EVEN ON AGREED DECISIONS PENALTY IS LEVIABLE AS HELD BY THE HON'BLE SUPREME COURT OF INDIA IN THE CASE OF MAK D ATA PVT LTD VS. CIT. HENCE, THIS ARGUMENT IS DEVOID OF ANY MERIT. AS PER THE DECISION OF HON'BLE SUPREME COURT IN THE CASE OF MAK DATA (P) LTD (358 ITR 593), WHEREIN IT WAS HELD THAT SURRENDER OF INCOME IS NOT VOLUNTARY, IN THE SENSE THAT THE OFFER OF SURRENDER WAS MADE IN VIEW OF THE DETECTIO N MADE BY THE AO. ASSESSEE HAS TO OFFER ITS EXPLANATION FOR CONCEALME NT OF PARTICULARS OF INCOME OR FURNISHING OF INACCURATE PARTICULARS OF I NCOME. EXPLANATION TO 271(1)(C) RAISES A PRESUMPTION OF CONCEALMENT BY DI FFERENCE IN INCOME ASSESSED BY THE AO BETWEEN THE REPORTED AND ASSESSE D INCOME. THE BURDEN IS ON THE ASSESSEE TO SHOW OTHERWISE BY COGE NT AND RELIABLE EVIDENCE ONLY THEN THE INITIAL ONUS PLACED BY THE E XPLANATION HAS BEEN DISCHARGED BY THE ASSESSEE, THE ONUS SHIFTS TO REVE NUE THAT AMOUNT IN QUESTION CONSTITUTE THE INCOME AND NOT OTHERWISE. I.T.A. NO. 890/HYD/2016 SRI SATISHBABU BETHI REDDY :- 4 - : 5.1. HOWEVER, LD.CIT(A) WHILE EXTRACTING THE SUBMISSI ONS IN PARA 3, HOWEVER, HAS EXTRACTED THE SUBMISSIONS PERTAINING TO ANOTHER ASSESSEE WHEREIN THE GROSS RECEIPTS WERE RS. 70,53,60 6/- AND INCOME RETURNED WAS RS. 14,70,986/-. IT SEEMS, THERE WERE COMMON SUBMISSIONS WITH ANOTHER CASE SRI VENKATA RATNAM MEKA AND THE SUBMISSIONS OF THAT ASSESSEE WERE EXTRACTED. 6. ASSESSEE HAS RAISED THE ADDITIONAL GROUND AS UNDER : IN THE ABSENCE OF SPECIFIC CHARGE RAISED BY THE AS SESSING OFFICER IN THE NOTICE U/S. 274 R.W.S. 271(1)(C), THE LEVY OF P ENALTY U/S. 271(1)(C) IS NOT VALID. LD. COUNSEL HAS STATED THAT THIS ISSUE WAS CONTENDED BEFO RE THE LD.CIT(A) IN WRITTEN SUBMISSIONS BUT WAS NOT ADJUDICA TED BY LD.CIT(A) HENCE RAISED AN ADDITIONAL GROUND. LD.DR HAS OBJECTED AND SUBMITTED THAT THE SAME SHOULD NOT BE ADMITTED. 6.1. HAVING CONSIDERED THE RIVAL CONTENTIONS, AS ASSES SEE HAS CONTESTED THE ISSUE BEFORE THE LD.CIT(A), AS CAN BE SE EN FROM THE EXTRACT OF SUBMISSIONS STATED ABOVE, THE ADDITIONAL GROUN D IS PURELY LEGAL IN NATURE, THEREFORE ADMITTED. 7. AFTER CONSIDERING THE RIVAL CONTENTIONS, I AM OF THE OPINION THAT THE LEVY OF PENALTY ON THE MERE DISALLOWANCE OF E XPENDITURE CANNOT BE SUSTAINED. AO HAS NOT MADE OUT A CASE OF CON CEALMENT OR FURNISHING OF INACCURATE PARTICULARS IN THE ORDER. THE ORDER OF THE AO IS AS UNDER: UNVERIFIABLE EXPENDITURE: THE ASSESSEE HAS NOT MAINTAINED REGULAR BOOKS OF A CCOUNTS. ON ACCOUNT OF THE NON MAINTENANCE OF REGULAR BOOKS OF ACCOUNTS, A TOTAL ROUNDSUM ADDITION OF RS. 5,00,000/- IS MADE TO THE INCOME RETURNED WHICH IS ACCEPTED BY THE ASSESSEE AS UNVERIFIABLE E XPENDITURE. I.T.A. NO. 890/HYD/2016 SRI SATISHBABU BETHI REDDY :- 5 - : 7.1. JUST BECAUSE ASSESSEE HAS NOT PRODUCED THE BOOKS OF ACCOUNT AND EXPENDITURE CLAIM IS UNVERIFIABLE, IT CAN NOT BE STATED THAT ASSESSEE HAS CONCEALED PARTICULARS OF INCOME OR F URNISHED INACCURATE PARTICULARS. AS SEEN FROM THE ORDER, AO H AS NOT DISALLOWED ANY SPECIFIC EXPENDITURE, BUT MADE A ROUND SUM DISALLOWANCE OF RS. 5 LAKHS. HE DID NOT EVEN BOTHER TO NAME THE NATURE OF EXPENDITURE DISALLOWED. IN THESE CIRCUMSTAN CES, THE MERE DISALLOWANCE OF EXPENDITURE DOES NOT ATTRACT LEVY OF PENALTY. 7.2. ASSESSEE CLAIMED BEFORE THE AO THAT THE NOTICE DOES NOT SPECIFY THE NATURE OF OFFENCE CALLING FOR PENALTY. A SSESSEE HAS RAISED AN ADDITIONAL GROUND CONTESTING THAT THE NOTICE ISSUED DOES NOT SPECIFY WHETHER THE PROCEEDINGS WERE INITIATED FOR CONCEALMENT OF PENALTY OR FOR FURNISHING INACCURATE PARTICULAR S. THE COPY OF THE NOTICE PLACED ON RECORD DO INDICATE THAT IT IS A PRIN TED PROFORMA, WITHOUT STRIKING-OFF THE RELEVANT COLUMNS AND SIMPLY SIGNED BY THE AO WHICH WAS SERVED ON ASSESSEE. ON SI MILAR FACTS, THE HON'BLE KARNATAKA HIGH COURT IN THE CASE OF MANJUN ATHA COTTON & GINNING FACTORY [359 ITR 565] HAS HELD THAT THE PRACTICE OF THE DEPARTMENT SENDING A PRINTED FORM WHERE ALL THE GROUNDS MENTIONED IN 271 ARE MENTIONED WOULD NOT SATISFY TH E REQUIREMENT OF LAW WHEN THE CONSEQUENCE OF ASSESSEE NOT REBUTTI NG THE INITIAL PRESUMPTION IS SERIOUS IN NATURE AND HE HAD TO PAY PENALTY FROM 10% TO 300% OF TAX LIABILITY. AS THE SAID PROVISION S HAVE TO BE HELD TO BE STRICTLY CONSTRUED, NOTICE U/S. 274 SHOULD SATIS FY THE GROUNDS WHICH HE HAS TO MEET SPECIFICALLY. OTHERWISE, THE PRINCIPLES OF NATURAL JUSTICE ARE OFFENDED, IF THE SHOW CAUSE NOT ICE IS VAGUE. ON THE BASIS OF SUCH PROCEEDINGS, NO PENALTY COULD BE IMPOSED ON ASSESSEE. I.T.A. NO. 890/HYD/2016 SRI SATISHBABU BETHI REDDY :- 6 - : 7.3. SIMILAR ISSUE HAS COME UP IN THE CASE OF M/S. N IVEE PROPERTY DEVELOPERS PRIVATE LTD., VS. ACIT IN ITA NO. 951/HYD /2016 (AY. 2005-06) DT. 11-11-2016. IN THAT CASE, THE CO-ORDINATE BENCH (SMC) OF HYDERABAD HAS HELD AS UNDER: 2. AFTER HEARING THE RIVAL CONTENTIONS, WE FIND THAT IN THE NOTICE ISSUED U/S 271(1)(C), THE CHARGE IS NOT SPECIFIED. IN OTHER WORDS, THE AO HAS NOT SPECIFICALLY STATED WHETHER THE NOTICE WAS ISSUED FOR CONCEALMENT OF PARTICULARS OF INCOME OR FOR FURNISHING INACCURATE PARTICULARS OF INCOME. THE HON' BLE KARNATAKA HIGH COURT IN THE CASE OF CIT VS. MANJUNATHA COTTON & GINNING FACTO RY REPORTED IN (2013) 35 TAXMANN.COM 250 (KAR.) AT PARA 63 HELD AS UNDER: 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 LIABILIT Y. (B) MENS REA IS NOT AN ESSENTIAL ELEMENT FOR IMPOSING P ENALTY FOR BREACH OF CIVIL OBLIGATIONS OR LIABILITIES. (C) WILFUL CONCEALMENT IS NOT AN ESSENTIAL INGREDIENT F OR ATTRACTING CIVIL LIABILITY. (D) EXISTENCE OF CONDITIONS STIPULATED IN SECTION 271(1 )(C) IS A SINE QUA NON FOR INITIATION OF PENALTY PROCEEDINGS UNDER SECTION 271 . (E) THE EXISTENCE OF SUCH CONDITIONS SHOULD BE DISCERNI BLE F ROM THE ASSESSMENT ORDER OR ORDER OF THE APPELLATE AUTHORITY OR REVISI ONAL AUTHORITY. (F) EVEN IF THERE IS NO SPECIFIC FINDING REGARDING THE EXISTENCE OF THE CONDITIONS MENTIONED IN SECTION 271(1)(C), AT LEAST THE FACTS SET OUT IN EXPLANATION 1(A) & (B) IT SHOULD BE DISCERNIBLE FROM THE SAID ORDER WHICH WOULD BY A LEGAL FICTION CONSTITUTE CONCEALMENT BECAUSE OF DEEMING PROVISION . (G) EVEN IF THESE CONDITIONS DO NOT EXIST IN THE ASSESS MENT ORDER PASSED, AT LEAST, A DIRECTION TO INITIATE PROCEEDINGS UND ER SECTION 271(1)(C) IS A SINE QUA NON FOR THE ASSESSMENT OFFICER TO INITIATE THE PROCEEDINGS BECAUSE OF THE DEEMING PROVISION CONTAINED IN SECTION 1(B). (H) THE SAID DEEMING PROVISIONS ARE NOT APPLICABLE TO T HE ORDERS PASSED BY THE COMMISSIONER OF APPEALS AND THE 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 ORDER O F ASSESSMENT LEVYING TAX AND INTERES T AND HAS PAID TAX AND INTEREST THAT BY ITSELF WOUL D 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 I S ON ACCOUNT OF SUCH UNEARTHING OR ENQUIRY CON CLUDED BY AUTHORITIES IT HAS RESULTED IN PAYMENT OF I.T.A. NO. 890/HYD/2016 SRI SATISHBABU BETHI REDDY :- 7 - : SUCH TAX OR SUCH TAX LIABILITY CAME TO BE ADMITTED AND IF NOT IT WOULD HAVE 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 THE ASSESSEE FAILS TO PROVE THAT THE EXPLANATION OFFERED IS NOT BONAFIDE, AN ORDER IMPOSING PENALTY COULD BE PASSED . (M) IF THE EXPLANATION OFFERED, EVEN THOUGH NOT SUBSTAN TIATED BY THE ASSESSEE, B UT IS FOUND TO BE BONAFIDE AND ALL FACTS RELATING TO THE SAME AND MATERIAL TO THE COMPUTATION OF HIS TOTAL INCOME HAVE BEEN DISCLOSED BY HIM, NO PENALTY COULD BE IMPOSED. (N) THE DIRECTION REFERRED TO IN EXPLANATION IB TO SECT ION 271 OF THE ACT SHOULD B E CLEAR AND WITHOUT ANY AMBIGUITY. (O) IF THE ASSESSING OFFICER HAS NOT RECORDED ANY SATIS FACTION OR HAS NOT ISSUED ANY DIRECTION TO INITIATE PENALTY PROCEEDINGS, IN APPEA L, IF THE APPELLATE AUTHORITY RECORDS SATISFACTION, THEN THE PENALTY PROCEEDINGS H AVE TO BE INITIATED BY THE APPELLATE AUTHORITY AND NOT THE ASSESSING AUTHORITY . (P) NOTICE UNDER SECTION 274 OF THE ACT SHOULD SPECIFIC ALLY STATE THE GROUNDS MENTIONED IN SECTION 271(1)(C), I.E., WHETHER IT IS FOR CONCEALMENT OF INCOME OR FOR FURNISHING OF INCORRECT PARTICULARS OF INCOME (Q) SENDING PRINTED FORM WHERE ALL THE GROUND MENTIONED IN SECTION 271 ARE MENTIONED WOULD NOT SATISFY REQUIREMENT OF LAW. (R) THE ASSESSEE SHOULD KNOW THE GROUNDS WHICH HE HAS T O MEET SPECIFICALLY. OTHERWISE, PRIN CIPLES OF NATURAL JUSTICE IS OFFENDED. ON THE BASIS OF SUCH PROCEEDINGS, NO PENALTY COULD BE IMPOSED TO THE ASS ESSEE. (S) TAKING UP OF PENALTY PROCEEDINGS ON ONE LIMB AND FI NDING THE ASSESSEE GUILTY OF ANOTHER LIMB IS BAD IN LAW. (T) THE PENALTY PROC EEDINGS ARE DISTINCT FROM THE ASSESSMENT PROCEEDING S. THE PROCEEDINGS FOR IMPOSITION OF PENALTY THOUGH EMANAT E FROM PROCEEDINGS OF ASSESSMENT, IT IS INDEPENDENT AND SEPARATE ASPECT O F THE PROCEEDINGS. (U) THE FINDINGS RECORDED IN THE ASSESSMENT PROCEEDI NGS INSOFAR AS 'CONCEALMENT OF INCOME' AND 'FURNISHING OF INCORRECT PARTICULARS' W OULD NOT OPERATE AS RES JUDICATA IN THE 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 LEVIED, CANNOT BE THE SUBJECT MATTER OF PENALTY PROCEEDINGS. THE ASSESSMENT OR REASSESSMENT CANNOT BE DECLARED AS INVALID IN THE PENALTY PROCEEDINGS. RESPECTFULLY FOLLOWING THE SAME, I QUASH THE PENALTY L EVIED U/S 271(1)(C) AS BAD IN LAW. I.T.A. NO. 890/HYD/2016 SRI SATISHBABU BETHI REDDY :- 8 - : 7.4. SIMILARLY IN THE CASE OF LALITKUMAR M SAKHALA VS . DCIT IN ITA NO. 938/MUM/2015 (AY. 2009-10) DT.10-08- 2016, THE CO-ORDINATE BENCH OF MUMBAI (SMC) HAS HELD AS UNDER: 4. BEFORE ME, THE LD. COUNSEL FOR THE ASSESSEE STA TED THAT HE HAS FILED THE EXPLANATION BEFORE THE AO AND THE CIT(A) AND ALSO A RGUED THAT IN THIS CASE THE AO HAS LEVIED PENALTY FOR CONCEALMENT U/S 271 ( 1) (C) OF THE ACT, BUT WITHOUT ANY SPECIFIC CHARGE I.E. THE PENALTY FOR CO NCEALMENT OF INCOME OR FURNISHING OF INACCURATE PARTICULARS OF INCOME. ACC ORDING TO LD. COUNSEL THE AO HIMSELF IS NOT CONVINCED ABOUT THE CHARGE. T HE LD. COUNSEL FOR THE ASSESSEE DREW MY ATTENTION TO THE PAGES 2-3 OF THE ASSESSEE'S PAPER BOOK, WHEREIN PENALTY NOTICE U/S. 271(1)( C) R.W.S 274 OF THE ACT DATED 17- 11-2011 WAS ISSUED BY THE AO TO THE ASSESSEE. THE L D. COUNSEL FOR THE ASSESSEE STATED BEFORE ME THAT THIS ISSUE IS COVERE D IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE HON'BLE KARNATAKA H IGH COURT IN THE CASE OF CIT VS. MANJUNATHA COTTON AND GINNING FACTORY (2 013) 359 ITR 565 (KAR.). I FIND THAT THE NOTICE ISSUED U/S. 274 R. W . S. 271 OF THE ACT, DATED 17-11- 2011, CLEARLY REVEALS THAT THE AO WHILE ISSU ING THE NOTICE HAS NOT STRIKE OFF INAPPROPRIATE WORDS AND ACCORDINGLY, THE PURPOSE OF THE NOTICE ISSUED FOR LEVY OF PENALTY IS LOST. ACCORDINGLY, IT IS NOT CLEAR WHAT DEFAULT IS COMMITTED BY THE ASSESSEE I.E. WHETHER IT IS INITIA TED FOR CONCEALMENT OF PARTICULARS OF INCOME OR FOR FURNISHING OF INACCURA TE PARTICULARS OF INCOME SO THAT THE PENALTY U/S. 271(1)( C) CAN BE LEVIED. I FIND THAT THE HON'BLE KARNATAKA HIGH COURT IN THE CASE OF MANJUNATHA COTT ON AND GINNING FACTORY (SUPRA) HAS HELD AS UNDER:- '58. IT MUST BE NOTICED THAT THIS FINDING RECORDING CONCEALMENT IN THE ORDER TO BE PASSED BY THESE AUTHORITIES IS ONLY FOR THE PURP OSE OF INITIATING. THE SAID FINDING IS NOT CONCLUSIVE; IT IS IN THE NATURE OF P RIMA FACIE SATISFACTION, WHICH AUTHORIZES THEM TO INITIATE THE PENALTY PROCEEDINGS . ONCE A PENALTY PROCEEDINGS IS VALIDLY INITIATED, THEN UNDER SECTION 274(1) AN OBLIGATION IS CAST ON THE PERSON INITIATING THE PROCEEDINGS TO ISSUE NOTICE TO THE A SSESSEE. WHEN SUCH A NOTICE IS ISSUED, IT IS OPEN TO THE ASSESSEE TO CONTEST THE A CCUSATION AGAINST HIM THAT HE HAS CONCEALED INCOME OR HE HAS FURNISHED INACCURATE PARTICULARS. AS THERE IS AN INITIAL PRESUMPTION OF CONCEALMENT, IT IS FOR THE A SSESSEE TO REBUT THE SAID PRESUMPTION. THE PRESUMPTION FOUND IN EXPLANATION 1 IS A REBUTTABLE PRESUMPTION. IF THE AUTHORITY, AFTER HEARING THE AS SESSEE AND LOOKING INTO THE MATERIAL PRODUCED IN THE SAID PROCEEDINGS BEFORE HI M IS SATISFIED THAT THOUGH THE INCOME IS UNDISCLOSED THERE WAS NO INTENT TO AV OID TAX AND THEREFORE, IF HE HOLDS THERE IS NO CONCEALMENT OF INCOME, THEN QUEST ION OF IMPOSING PENALTY WOULD NOT ARISE. IT MAY BE A CASE OF NOT DISCLOSING INCOME WITHOUT ANY INTENT TO AVOID TAX; IT MAY BE A CASE OF FURNISHING PARTICULA RS WITHOUT ANY INTENTION TO AVOIDING TAX. BOTH STAND ON THE SAME FOOTING. IT IS ONLY WHEN THE AUTHORITY IS SATISFIED THAT NON-DISCLOSURE OF INCOME OR FURNISHI NG INACCURATE PARTICULARS WAS I.T.A. NO. 890/HYD/2016 SRI SATISHBABU BETHI REDDY :- 9 - : WITH THE INTENTION OF EVADING TAX, THEN IT AMOUNT T O CONCEALMENT, IT AMOUNTS TO FURNISHING INACCURATE PARTICULARS. THEN, AT HIS DIS CRETION, HE MAY IMPOSE PENALTY AS PROVIDED UNDER THE ACT. THEREFORE, MERELY BECAUSE THE ASSESSEE ACCEPTED ADDITION OR DELETION AND DID NOT CHALLENGE THE ASSESSMENT ORDER BY WAY OF APPEAL, IT CANNOT BE CONCLUDED THAT SUCH ADD ITION OR DELETION AMOUNTS TO CONCEALMENT OF INCOME OR FURNISHING OF INACCURATE P ARTICULARS. WHEN A PLEA IS TAKEN THAT IN ORDER TO AVOID LITIGATION AND PURCHAS E PEACE, THE TAX LEVIED IS PAID WITH INTEREST, IF THE ASSESSEE IS ABLE TO DEMONSTRA TE HIS BONA FIDES AND IF THE AUTHORITY IS SATISFIED ABOUT HIS BONAFIDES, THEN TH E QUESTION OF IMPOSING PENALTY WOULD NOT ARISE. SIMILARLY, IN CASES WHERE THOUGH T HE TAX WAS NOT ACTUALLY DUE BUT STILL THE ASSESSEE PAYS TAX WITH A HOPE OF CLAI MING DEDUCTIONS IN THE SUBSEQUENT YEARS, IF THE ASSESSEE IS ABLE TO DEMONS TRATE THERE WAS NO LIABILITY TO PAY TAX AT ALL, MERELY IF ASSESSEE PAYS TAX AND HE DOES NOT CHALLENGE ORDER, THAT WOULD NOT CONSTITUTE CONCEALMENT OF INCOME SO AS TO ENABLE THE AUTHORITIES TO IMPOSE PENALTY. SIMILARLY, IN CASES, WHERE THE LEGA L POSITION IS NOT WELL SETTLED, WHEN FEW HIGH COURTS AND TRIBUNALS HAVE TAKEN A VIE W IN FAVOUR OF THE ASSESSEE AND SOME HIGH COURTS AND TRIBUNALS HAVE TA KEN A VIEW IN FAVOUR OF THE REVENUE AND ON LEGAL ADVICE IF AN ASSESSEE RELI ES ON THE SAID LEGAL POSITION FOR NOT DISCLOSING THE INCOME AND FOR NON-PAYMENT O F TAX, CERTAINLY, THAT IS A FACT WHICH SHOULD WEIGH IN THE PENALTY PROCEEDINGS AFTER THE ASSESSEE HAS PAID TAX WITH INTEREST BEFORE IMPOSING PENALTY. NOTICE UNDER SECTION 274 59. AS THE PROVISION STANDS, THE PENALTY PROCEEDINGS CAN BE INITIATED ON VARIOUS GROUND SET OUT THEREIN. IF THE ORDER PASSED BY THE AUTHORITY CATEGORICALLY RECORDS A FINDING REGARDING THE EXISTENCE OF ANY SA ID GROUNDS MENTIONED 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 HA S PASSED THE ORDER. HOWEVER, IF THE EXISTENCE OF THE CONDITIONS COULD NOT BE DIS CERNED FROM THE SAID ORDER AND IF IT IS A CASE OF RELYING ON DEEMING PROVISION CON TAINED 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 EITHE R EVENT, THE PERSON WHO IS ACCUSED OF THE CONDITIONS MENTIONED IN SECTION 271 SHOULD B E MADE KNOWN ABOUT THE GROUNDS ON WHICH THEY INTEND IMPOSING PENALTY ON HI M AS THE SECTION 274 MAKES IT CLEAR THAT ASSESSEE HAS A RIGHT TO CON TEST SUCH PROCEEDINGS AND SHOULD HAVE FULL OPPORTUNITY TO MEET THE CASE OF TH E 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 THE DEPARTMENT SEND ING A PRINTED FORM WHERE ALL THE GROUND MENTIONED IN SECTION 271 ARE MENTION ED WOULD NOT SATISFY REQUIREMENT OF LAW WHEN THE CONSEQUENCES OF THE ASS ESSEE 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 HA VE TO BE HELD TO BE STRICTLY CONSTRUED, NOTICE ISSUED UNDER SECTION 274 SHOULD S ATISFY THE GROUNDS WHICH HE HAS TO MEET SPECIFICALLY. OTHERWISE, PRINCIPLES OF N ATURAL JUSTICE IS OFFENDED IF I.T.A. NO. 890/HYD/2016 SRI SATISHBABU BETHI REDDY :- 10 -: THE SHOW 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 INACCURATE PART ICULARS OF INCOME. NO DOUBT, THE FACTS OF SOME CASES MAY ATTRACT BOTH THE OFFENC ES AND IN SOME CASES THERE MAY BE OVERLAPPING OF THE TWO OFFENCES BUT IN SUCH CASES THE INITIATION OF THE PENALTY PROCEEDINGS ALSO MUST BE FOR BOTH THE OFFEN CES. BUT DRAWING UP PENALTY PROCEEDINGS FOR ONE OFFENCE AND FINDING THE ASSESSE E 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 SATISFACTION OF THE EXISTE NCE OF THE GROUNDS MENTIONED IN SECTION 271(1)(C) WHEN IT IS A SINE QUA NON FOR INITIATION OR PROCEEDINGS, THE PENALTY PROCEEDINGS SHOULD BE CONFINED ONLY TO THOS E GROUNDS AND THE SAID GROUNDS HAVE TO BE SPECIFICALLY 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 SHOULD 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 IMPOS E PENALTY ON THE GROUNDS OTHER THAN WHAT ASSESSEE WAS CALLED UPON TO MEET. OT HERWISE THOUGH THE INITIATION OF PENALTY PROCEEDINGS MAY BE VALID AND LEGAL, THE FINAL ORDER IMPOSING 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 SAME GROUND. WHERE TH E BASIS OF THE INITIATION OF PENALTY PROCEEDINGS IS NOT IDENTICAL WITH THE GROUN D 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 REFERENCE TO THE IN FORMATION, FACTS AND MATERIALS IN THE HANDS OF THE AUTHORITY IMPOSING TH E PENALTY AT THE TIME THE ORDER WAS PASSED AND FURTHER DISCOVERY OF FACTS SUB SEQUENT 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 ACT TO INITIATE PENALTY PROCEEDINGS ONCE HE IS SATISFIED IN THE COURSE OF A NY PROCEEDINGS THAT THERE IS CONCEALMENT OF INCOME OR FURNISHING OF INACCURATE P ARTICULARS OF TOTAL INCOME UNDER CLAUSE (C). CONCEALMENT, FURNISHING INACCURAT E PARTICULARS OF INCOME 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 COUR T IN THE CASE OF ASHOK PAI REPORTED IN 292 ITR 11 AT PAGE 19 HAS HELD THAT CON CEALMENT OF INCOME AND FURNISHING INACCURATE PARTICULARS OF INCOME CARRY D IFFERENT CONNOTATIONS. 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 MA RKETING REPORTED IN 171 TAXMAN 156, HAS HELD THAT LEVY OF PENALTY HAS T O BE CLEAR AS TO THE LIMB FOR WHICH IT IS LEVIED AND THE POSITION BEING UNCLEAR P ENALTY IS NOT SUSTAINABLE. THEREFORE, WHEN THE ASSESSING OFFICER PROPOSES TO IN VOKE THE FIRST LIMB BEING CONCEALMENT, THEN THE NOTICE HAS TO BE APPROPRIATEL Y MARKED. SIMILAR IS THE CASE I.T.A. NO. 890/HYD/2016 SRI SATISHBABU BETHI REDDY :- 11 -: FOR FURNISHING INACCURATE PARTICULARS OF INCOME. TH E STANDARD PROFORMA WITHOUT STRIKING OF THE RELEVANT CLAUSES WILL LEAD TO AN INFERENCE AS TO NON- APPLICATION OF MIND.' 5. IN VIEW OF THE FACTS OF THE CASE THAT THERE IS N O SPECIFIC CHARGE RAISED BY THE AO WHILE ISSUING NOTICE U/S 274 R. W. S. SECTIO N 271 OF THE ACT, AS DISCUSSED ABOVE, THE ISSUE IS COVERED BY THE DECISI ON OF THE HON'BLE KARNATAKA HIGH COURT IN THE CASE OF MANJUNATHA COTT ON AND GINNING FACTORY (SUPRA). RESPECTFULLY FOLLOWING THE ABOVE, I ALLOW THE APPEAL OF THE ASSESSEE. 7.5. IN THE PRESENT CASE, THE NOTICE DOES NOT SPECIFY FO R WHAT OFFENCE THE PROCEEDINGS ARE INITIATED. THE DECISION OF THE KARNATAKA HIGH COURT (SUPRA) AND OTHER CASES STATED ABOVE WILL EQ UALLY APPLY TO THE FACTS OF THE CASE. 7.6. RECENTLY HON'BLE HIGH COURT OF BOMBAY IN THE CA SE OF CIT VS. SAMSON PERINCHERY (BOMBAY HIGH COURT) HAS HELD AS UN DER: S. 271(1)(C): FAILURE BY THE AO TO SPECIFY IN THE S. 274 NOTICE WHETHER THE PENALTY IS BEING INITIATED FOR 'FURNISH ING OF INACCURATE PARTICULARS OF INCOME' OR FOR 'CONCEALMENT OF INCOM E' IS FATAL. IT REFLECTS NON- APPLICATION OF MIND AND RENDERS THE LEVY OF PENALTY INVALID (MANJUNATHA COTTON 359 ITR 565 (KAR) FOLLOWED) 7.7. EVEN OTHERWISE ON MERITS ALSO THERE IS NO SCOPE FOR LEVY OF PENALTY AS CONSIDERED ABOVE. HENCE, BOTH ON PRINCIP LES OF LAW AND ALSO ON THE FACTS, THERE IS NO SCOPE FOR LEVY OF PENA LTY U/S 271(1)(C) ON ASSESSEE. CONSIDERING THE ABOVE, I HAVE NO HESITATI ON IN CANCELLING THE PENALTY, ALLOWING THE GROUNDS RAISED B Y ASSESSEE. 8. IN THE RESULT, APPEAL OF ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 24 TH FEBRUARY, 2017 SD/- (B. RAMAKOTAIAH) ACCOUNTANT MEMBER HYDERABAD, DATED 24 TH FEBRUARY, 2017 TNMM I.T.A. NO. 890/HYD/2016 SRI SATISHBABU BETHI REDDY :- 12 -: COPY TO : 1. SRI SATISHBABU BETHI REDDY, HYDERABAD. C/O. CH. PARTHASARATHY & CO., 1-1-298/2/B/3, 1 ST FLOOR, SOWBHAGYA AVENUE, ST.NO.1, ASHOK NAGAR, HYDERABAD. 2. ADDL. COMMISSIONER OF INCOME TAX, RANGE-7, HYDERABAD. 3. COMMISSIONER OF INCOME TAX(APPEALS)-10, HYDERABA D. 4. THE COMMISSIONER OF INCOME TAX (IT & TP), HYDERA BAD. 5. D.R. ITAT, HYDERABAD. 6. GUARD FILE.