section 271(1)(c) penalty can not be levied without mentioning charge by Assessing Officer

By | December 25, 2015

Facts of the Case

Brief facts relating to the case are that the assessee filed his income-tax return for the impugned assessment year on 26.07.2005 on the income of Rs. 1,02,000/-. Subsequently assessment under section 143(3) was completed at a total income of Rs. 16,51,637/- by making an addition of Rs. 15,49,637/- as undisclosed income. The said amount was deposited by the assessee out of which professional income, which remained undisclosed in the Corporation Bank, Gurgaon Branch between 21.04.2004 to 27.12.2004. The Assessing Officer initiated penalty proceedings under section 271(1)(c) and ultimately imposed penalty on the assessee vide order dated 27.06.2008 .

Summary of Decision :-

The penalty proceedings can be initiated on 2 charges i.e.

i) concealment of particulars of income and

ii) furnishing of inaccurate particulars of income.

Both the charges are entirely different. If the proceedings are initiated on charge of concealment, then penalty cannot be levied on the charge of furnishing of inaccurate particulars of income andvice versa.

The Assessing Officer in this case levied the penalty for both the charges without mentioning any specific charge. InCIT v. Atul Mohan Bindal [2009] 317 ITR 1  where Hon’ble Supreme Court was considering the same provision, it observed that the assessing officer has to be satisfied that a person has concealed the particulars of his income or furnished inaccurate particulars of such income. Thus the satisfaction of the Assessing Officer about the concealment of particulars of income or furnishing of inaccurate particulars of such income is essential before levying any penalty under section 271(1)(c) . The Assessing Officer as is apparent from the penalty order has not satisfied about the concealment of particulars of income or furnishing of inaccurate particulars of income on the part of the assessee. On this basis itself the penalty deleted.

IN THE ITAT KOLKATA BENCH ‘B’

Chandra Prakash Bubna

v.

Income-tax Officer, Ward- 27(3), Kolkata

P.K. BANSAL, ACCOUNTANT MEMBER
AND MAHAVIR SINGH, JUDICIAL MEMBER

IT APPEAL NO. 289 (KOL.) OF 2012
[ASSESSMENT YEAR 2005-06]

MAY  21, 2015

V.N. Purohit, FCA for the Appellant. Sanjay, Addl. CIT-D.R. for the Respondent.

ORDER

P.K. Bansal, Accountant Member – This appeal has been filed by the assessee against the order of ld. Commissioner of Income Tax (Appeals)-XIV, Kolkata dated 24.01.2012 for the assessment year 2005-06, by which the ld. CIT (Appeals) has confirmed the penalty levied on the assessee by the Assessing Officer under section 271(1)(c) vide order dated 27.06.2008.

2. Brief facts relating to the case are that the assessee filed his income-tax return for the impugned assessment year on 26.07.2005 on the income of Rs. 1,02,000/-. Subsequently assessment under section 143(3) was completed at a total income of Rs. 16,51,637/- by making an addition of Rs. 15,49,637/- as undisclosed income. The said amount was deposited by the assessee out of which professional income, which remained undisclosed in the Corporation Bank, Gurgaon Branch between 21.04.2004 to 27.12.2004. The Assessing Officer initiated penalty proceedings under section 271(1)(c) and ultimately imposed penalty on the assessee vide order dated 27.06.2008 by observing as under:—

“10. Therefore, considering all aspects of the case as discussed earlier, I am satisfied that this is a fit case where provisions of section 271(1)(c) of the I.T. Act, 1961 are clearly attracted. Considering the submissions of the assessee and also considering facts of the case, penalty @ 100% of the tax sought to be evaded is imposed as under:—

Total income as per order u/s 143(3) dt. 31.12.2007 ………….. Rs. 16,51,640/-
Tax on the assessed income ….. ………. Rs.     5,26,770/-
Less: Tax on the income excluding concealed income (after giving rebate u/s. 88) Rs.    1,925/-
………………………..
Tax sought to be evaded ……………………….. Rs.     5,24,845/-
………………………..

Therefore, penalty of Rs. 5,24,845/- being 100% of the tax sought to be evaded is imposed under section 271(1)(c) of the I.T. Act, 1961.”

3. The assessee went in appeal before the ld. CIT (Appeals), who sustained the penalty.

4. We have heard the rival contention of both parties and carefully considered the same along with the order of the authorities below.

Section 271(1)(c) reads as under:—

“271(1) If the Assessing Officer or the Commissioner (Appeals) [or the commissioner] in the course of any proceedings under this Act, is satisfied that any person—

(a) …

(b) ….

(c) has concealed the particulars of his income or furnished inaccurate particulars of such income, or

(d) ….

He may direct that such person shall pay by way of penalty,—

Explanation 1- Where in respect of any facts material to the computation of the total income of any person under this Act,—

(A) Such person fails to offer an explanation or offers an explanation which is found by the AO or the Commissioner (Appeals) or the Commissioner to be false

Or

(B) Such person offers an explanation which he is not able to substantiate and [fails to prove such explanation is bona fide and that all the facts relating to the same and material to the computation of his total income have been disclosed by him], then, the amount added or disallowed in computing the total income of such person as a result thereof shall, for the purposes of clause © of this sub-section be deemed to represent the income in respect of which particulars have been concealed.”

5. From the perusal of the aforesaid section, it is apparent that penalty under section 271(1)(c) is leviable if the Assessing Officer is satisfied in the course of any proceedings under this Act that any person has concealed the particulars of his income or furnished inaccurate particulars of the income. This is the settled law that the penalty proceedings and assessment proceedings are different. The penalty proceedings can be initiated on 2 charges i.e. i) concealment of particulars of income and ii) furnishing of inaccurate particulars of income. Both the charges are entirely different. If the proceedings are initiated on charge of concealment, then penalty cannot be levied on the charge of furnishing of inaccurate particulars of income andvice versa. Thus, there must be a clear finding about the charge for which penalty is imposed or initiated. It is incumbent upon the Assessing Officer to state whether penalty was being levied for concealment of income or for furnishing of inaccurate particulars of income. In the absence of such findings, the order would be bad in law. The case of New Sorathia Engg. Co. Ltd., v. CIT [2006] 282 ITR 642 on’ble Gujarat High Court has held as under: —

“It is incumbent upon the assessing officer to state whether the penalty was being levied for concealment of particulars of income by the assessee or whether any inaccurate particulars of income had been furnished by the assessee.

Held, that the penalty order and the order of the Commissioner (Appeals) showed that no clear cut finding had been reached. The Tribunal had failed to appreciate this legal issue. The ratio in CIT v. Manu Engineering Works [1980] 122 ITR 306 (Guj.) was applicable and the order of penalty could not be upheld by the Tribunal. The order was invalid.”

6. In the case of CIT v. Rajan & Co. [2007] 291 ITR 340/[2005] 146 Taxman 271 (Del), it is held that the provision of section 271(1)(c) of the Income Tax 1961 would require proper application of mind and recording of at least a bare minimum opinion on the part of Assessing Officer that a case for initiation of penalty proceeding was made as there was concealment of income or that incorrect particulars had been furnished by the assessee with the intention to avoid payment of taxes. Assessing Officer has not made out any charge either of concealment of particulars of income or furnishing of inaccurate particulars of income.

7. The penalty under section 271(1)(c) can be levied for either of the charge. The penalty order simply states “I am satisfied that this is a fit case where provisions of section 271(1)(c) of the Income Tax Act are clearly attract”. It does not state for what default penalty is levied Section 271(1)(c)(iii) is expressly clear that the penalty can be levied for concealment of particulars of income or furnishing of inaccurate particulars of income. It is the particulars of income which is the common subject matter of both the charges. The word ‘conceal’ as per Websters Dictionary means “to hide, withdraw, or remove from observation; cover or keep from sight; to keep secret; to avoid disclosing or divulging. That means non-disclosure of particulars of income. On the other hand, where particulars are disclosed but such disclosure is not correct, true or accurate, it would amount to furnishing of inaccurate particulars of income. For example, in case of businessman, if a particular transaction of sale is not shown in the books, it would amount to concealment of particulars of income while sale is shown but at a lesser value, it would amount to furnishing of inaccurate particulars of income.

8. In our opinion, Explanation 1 to section 271(1)(c) cannot be applied where charge against the ‘Assessee’ is furnishing of inaccurate particulars of income since it provides a deeming fiction qua concealment of particulars of income only and consequently cannot be extended to a case where charge against the ‘Assessee’ is furnishing of inaccurate particulars of income. On the other hand, where charge against the ‘Assessee’ is concealment of particulars of income, the Assessing Officer has to establish either that ‘Assessee’ has not disclosed the particulars of income under the main provisions or the case of ‘Assessee’ falls within the scope of the deeming fictions created under the Explanations. For example, the ‘Assessee’ might not disclose particular sales or dividend income or income from any source. Such instances would fall under the main provisions itself. In such cases, the burden is on the Assessing Officer to establish the existence of the charge on the basis of material on record.

9. Explanation 1 to section 271(1)(c) states that the amount added or disallowed in computing the total income of the assessee shall be deemed to be the income in respect of which particulars have been concealed. This deeming provision is not absolute one but is rebuttable one. It only shifts the onus on the assessee. Explanation 1 refers to the two situations in which presumption of the concealment of the particulars of income is deemed. It is not applicable where the charge against the assessee is furnishing inaccurate particulars of the income. The first situation is where the assessee in respect of any fact material to the computation of his total income fails to offer an explanation or offers an explanation, which is found by the Assessing Officer or the Commissioner to be false. The second situation is where the assessee in respect of any facts material to the computation of his total income offers an explanation, which, the assessee is not able to substantiate and also fails to prove that such explanation was bona fide one and that all the facts relating to the computation of total income have been disclosed by him. The presumption available under explanation to section 271(1)(c), cannot be drawn unless the case of the assessee falls under either of the clauses (a) or (b).

10. In this case, the Assessing Officer has not brought out any specific charge for which the penalty has been imposed on the assessee under section 271(1)(c) of the Act. He has not brought out whether the assessee has concealed the particulars of income or whether the assessee has furnished inaccurate particulars of income.

11. The Assessing Officer in this case levied the penalty for both the charges without mentioning any specific charge. InCIT v. Atul Mohan Bindal [2009] 317 ITR 1  where Hon’ble Supreme Court was considering the same provision, it observed that the assessing officer has to be satisfied that a person has concealed the particulars of his income or furnished inaccurate particulars of such income. Thus the satisfaction of the Assessing Officer about the concealment of particulars of income or furnishing of inaccurate particulars of such income is essential before levying any penalty under section 271(1)(c). The Assessing Officer as is apparent from the penalty order has not satisfied about the concealment of particulars of income or furnishing of inaccurate particulars of income on the part of the assessee. On this basis itself the penalty deleted.

12. In the result, the appeal filed by the assessee stands allowed.

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