R IN THE HIGH COURT OF KARNATAKA, DHARWAD BENCH DATED THIS THE17H DAY OF MARCH, 2023 PRESENT THE HON'BLE MR JUSTICE K.SOMASHEKAR AND THE HON'BLE MR JUSTICE UMESH M ADIGA I.T.A. No.100089 OF2016BETWEEN:
1. The Principal Commissioner of Income Tax (Central) Queen’s Road, Bengaluru.
2. The Deputy Commissioner of Income Tax, Central Circle, 1(3), Bengaluru. … Appellants (By Shri Y.V. Raviraj, Advocate) AND: M/s. Ennoble Construction No.6/4, Ennoble House Rahavachari Road Ballari-583 101 PAN: AABFE6394E. … Respondent (By Shri Mayank Jain, Advocate) This ITA is filed under Section 260A of the Income Tax Act, 1961 praying to set aside the orders passed by the Income Tax Appellate Tribunal, ‘C’ Bench, Bengaluru in ITA No.1844/Bang/2013, dated 29.07.2016 and confirm the order passed by the Deputy Commissioner of Income Tax Central Circle-1(3), Bengaluru for the AY200607. This ITA having been heard and reserved for judgment on 24.01.2023, coming on for pronouncement of judgment this day, K.Somashekar J., delivered the following:
2.
JUDGMENT
1 This appeal is directed against the order passed by the Income Tax Appellate Tribunal, ‘C’ Bench, Bengaluru in ITA No.1844/Bang/2013, dated 29.07.2016 (for short “ITAT”) with a prayer to allow the appeal by setting aside the said order and to confirm the order passed by the Deputy Commissioner of Income Tax, Central Circle-1(3) Bengaluru (for short “DCIT”) for the Assessment Year 2006-07 and to pass such other suitable order as deemed fit, in the facts and circumstance of the case.
2. Heard the learned standing counsel Shri Y.V. Raviraj for the appellant/revenue and the learned counsel Shri Mayank Jain for the respondent/assessee. Perused the order dated 29.07.2016 passed by the ITAT in ITA Nos.1812 & 1844/Bang/2013 for the Assessment Year 2006-07.
3. The factual matrix of this appeal are as under: The appeal is preferred by the assessee / respondent against the separate orders dated 24.09.2013 of the CIT (Appeals)-VI, Bengaluru for the Assessment Year 2006-07 confirming the penalty levied under Section 271(1)(c) of the Income Tax Act, 1961 (for short “the Act, 1961”). 3
4. It is relevant to refer to the impugned order dated 29.07.2016, which is challenged under this appeal. Undisputedly the Assessing Officer has not identified in the notice as to whether penalty proceedings are being initiated for concealment of income or furnishing inaccurate particulars of income. These are the contentions made and the same were considered by the aforesaid Tribunal keeping in view the various citations which were facilitated, and also extracted in the impugned order. “The order of the learned lower authorities u/s. 271(1)(c) is liable to be canceled for the reason that the notice u/s. 274 does not strike off the portion relating to levy of penalty for delay in filing Return of Income and also does not indicate whether it is a case of "Concealment of income" or "furnishing of inaccurate particulars of income" and also for the further reason that even the satisfaction recorded by Learned AO does not indicate whether it is a case of concealment of income or furnishing of inaccurate particulars of income. It is prayed that this Hon'ble ITAT may be pleased to cancel the penalty levied u/s. 271(1)(c) in the interests of equity and justice.
5. On account of the defective notice issued for initiation of penalty proceedings, the penalty order passed by the Assessing Officer is not sustainable in the eyes of law and thereafter set aside 4 the order of the CIT (Appeals) as well as the Assessing Officer and delete the penalty on account of wrong initiation of penalty proceedings. Since the penalty proceedings are quashed, no justification to deal with the appeals on merits, as it becomes academic and allowed the appeals of the assessee by order dated 29.07.2016, which is under challenge in this appeal.
6. It is relevant to refer the proceedings in ITA No.084/DCIT, CC13)/CIT(A)-VI/B’lore/2010-2011, dated 24th September 2013 that the appeal is preferred against the penalty under Section 271(1)(c) of the Act, 1961 levied by the Assessing Officer for Concealment of Income as detailed in the aforesaid order for a sum of Rs.6,50,00,000/-. The grounds of appeal raised are with regard to the levy of the penalty. Shri B.P.Sachin Kumar, C.A. appeared on behalf of the appellant/revenue. Written submissions Lwere filed and the appellant’s counsel requested that the case may be finalized on the basis of the written statement. Accordingly, the Assessing Officer noted on the basis of seized documents that there was difference in investment made by the Managing Partner, Shri G. Janardhan Reddy in respect of the land at Lillipur Hamlet, Hyderabad by Rs.18.75 crore. The same is also revealed in the orders relating to the Assessment Year 2006-07 in respect of M/s. Ennoble Construction, Ballari. 5
7. It is stated that the order passed by the Competent Authority has clearly brought on record that it is a case for levy of penalty under Section 271(1)(c) for concealment of income. Incidentally, in this case, the appellant has also furnished the inaccurate particulars as noticed by the Assessing Officer by disclosing this income for the Assessment Year 2008-09 instead of not disclosing the correct particulars of her income for the Assessment Year 2006-07. The Assessing Officer has levied a minimum penalty of Rs.6,50,00,000/-, the same is upheld. Consequently, the appeal stood dismissed.
8. It is further stated in the order under Section 271(1)(c) of the Income Tax Act, passed by the Deputy Commissioner of Income Tax, Central Circle-1(3), Bengaluru, dated 29.06.2010, wherein the case of the assessee was notified to this Circle consequent to the action under Section 132 conducted on 26.10.2007 at the above Office premises of the assessee/respondent at Ballari. Consequently, the proceeding under Section 153A r/w Section 143(3) of I.T Act, was initiated for the Assessment Year 2006-07 and the assessment was completed on 31.12.2009 on the total income of Rs.26,02,20,920/-, which included an unexplained investments made through cash payments to the extent of Rs.18,75,00,000/- representing difference 6 in consideration between the amount as per the copies of sale agreement for the purchase of land at Lillipur Hamlet, Hyderabad purchased by Shri G. Janardhan Reddy on behalf of three companies in which he had substantial interest, wherein the registered documents, which was considered for taxation and initiation of penalty proceedings.
9. In response to the said notice, the assessee/respondent filed its written submissions on 09.06.2010 and 22.06.2010 which have been duly considered in these proceedings. The case was posted for hearing and Shri B.P. Sachin Kumar, C.A. duly authorized to appear and case discussed with him on 09.06.2010. On 09.06.2010 at the request of the authorized representative, the case was adjourned to 16.06.2010 to enable him to furnish any additional evidence/information which requires consideration during the finalization of penalty proceedings over and above the explanation already given during the course of assessment proceedings. Further, at the request of the assessee’s A.R. On 16.06.2010, the case was again adjourned to 22.06.2010. On 22.06.2010, the assesse’s representative appeared and filed a written submission explaining the issue of unexplained investment relating to the amount of Rs.18.75 crores added represents the investment in the property at Hyderabad 7 and admitted this amount for the Assessment Year 2008-09 and also filed the return of income accordingly.
10. Wherein, it appears that the penalty proceedings are initiated with reference to the exception under Section 271(1)(c). It is indisputable that the following ingredients are to be satisfied in order that the penalty is imposed on an assessee under the aforesaid Section. However, the submission dated 09.06.2010 and 22.06.2010, the assessee/respondent contended that the Assessing Officer has added the amount of Rs.18.75 crores for the Assessment Year 2006- 07 while making the assessment as against the corresponding income declared by the assessee for the Assessment Year 2008-09. The assessee also accepts the fact that the details are available in the seized document marked A/GJR/11 and A/OMC/1 seized from the residence of Shri Gali Janardhan Reddy and the business premises of M/s.Obulapuram Mining Company Pvt. Ltd., Ballari respectively, wherein Shri Gali Janardhan Reddy and Smt.Laxmi Aruna have jointly stated that the funds for certain investments which were not recorded in the books of Account have flown from the funds of Partnership Firms M/s. Shri Raghavendra Constructions and M/s. Ennoble Constructions during the current year only i.e., Financial Year 2007- 08. The fact that the additional consideration of Rs.18.75 crores in purchase of the land at Lillipur Hamlet, Hyderabad was funded by the 8 assessee firm has been further accepted. The assessee refers to explanation 5A to Section 27(1)(c) and claims that it only shifts the initial burden to the assessee by a deeming fiction. The assessee further argues that there must be a clear finding that the assessee/respondent had concealed income or furnished inaccurate particulars of income. Further, in the assessee’s case, a return under Section 139 was filed on 31.10.2006, which was processed and selected for scrutiny for Assessment Year 2006-07. The assessee’s contention that there should be a clear finding that the assessee had concealed income or furnished inaccurate particulars of income. The assessee is required to consider the explanation of the assessee and the explanation must be proved false before imposing the penalty under the aforesaid section by invoking explanation. Even going by explanation 1(b) to section 271(1)(c), the penalty is leviable if a person offers an explanation for which he is not able to substantiate and fails to prove that 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 as contended. This claim has already been covered while dealing with the points earlier raised by the assessee. When the assessee is unable to substantiate its explanation, the question of proving it to be false or not bona fide will not arise since the explanation given could not be supported by the 9 assessee as contended in this appeal. In view of the above reasons, the explanation submitted in its letter dated 22.06.2010 was accordingly rejected, as contended by the standing counsel for the appellant/revenue. 11.The Income Tax Department in the assessment order of the Assessment Year 2006-07, action under Section 132 of the Act, 1961, was carried on in the case of the assessee at No.6/4, Ennoble House, Raghavachari Road, Ballari along with other group concerns of M/s. Obulapuram Mining Co. Pvt. Ltd., and Shri Gali Janardhan Reddy Ballari on 26.10.2007. However, the Assessment Order indicates the adoption of bank balances and indicates the unexplained investment made by the assessee towards on-money payment in purchase of immovable property in the names of Shri Gali Janardhan Reddy and his concerns. Assessment Order indicates that expenses debited under transport charges as contended in this appeal by the counsel namely Sri.Y.V.Raviraj for the appellant/revenue. Consequently, the order was passed after obtaining prior approval of the Additional Commissioner of Income Tax, Central Range-1, Bengaluru and also ordered for issue of penalty notice under Section 271(1)(c) of the Act and issued demand notice. These are all the contentions made by the learned standing counsel for the appellant/revenue and the impugned 10 order passed by the ITAT in ITA No.1844/Bang/2013 for the assessment year 2006-07, which has been challenged under this appeal by urging various grounds with citations.
12. In this appeal, this Court on 02.04.2018, formulated the following substantial questions of law for consideration, which reads as under: i.) Whether on the facts and in the circumstances of the case, the Tribunal is justified in law in holding that the penalty notice under Section 274 r/w Section 271(1)(c) is bad in law and invalid despite the amendment of Section 271(1B) with retrospective effect and by virtue of the amendment, the Assessing Officer has initiated the penalty by properly recording the satisfaction for the same?. ii.) Whether omission of the Assessing Officer to explicitly mention that the penalty proceedings are being initiated for furnishing of inaccurate particulars or that for concealment of income makes the penalty order liable for cancellation even when it has been proved beyond reasonable doubt that the assessee had concealed income in the facts and circumstances of the case?. iii.) Whether on the facts and in the circumstances of the case, the Tribunal is justified in deleting the penalty on the basis of the notice issued under Section 274 11 without taking into consideration that, in the order of penalty the Assessing Officer has specified that the Assessee has concealed particulars of income and also furnished inaccurate particulars of income?. iv.) Whether on the facts and in the circumstances of the case, the Tribunal is justified in deleting the penalty without considering the deeming provisions ‘Explanation 5A to Section 271(1)(c) of the Income Tax Act?.’ 13. Learned standing counsel for the appellants/revenue namely Shri Y.V. Raviraj taken us through the facts of the case instituted against the respondent/assessee and submits that a search and seizure action was conducted in the case of Shri Gali Janardhan Reddy on 26.10.2007 including the business premises of M/s. Ennoble Construction at Ballari. In the response notice under Section 153A, return of income came to be filed on 12.10.2009 declaring an income of Rs.4,93,06,950/- for the Assessment Year 2006-07. The Assessment under Section 143(3) read with Section 153A was completed for the Assessment Year 2006-07 on 31.12.2009 assessing the income at Rs.26,02,20,920/-. Further, the Assessing Officer vide order dated 28.06.2010 levied the penalty under Section 271(1)(c) of the Act, 1961. Aggrieved by the order of penalty, the assessee / respondent filed an appeal before the Commissioner of Income Tax 12 (Appeals). By order dated 24.09.2013, the Commissioner of Income Tax (Appeals) upheld the penalty order of the Assessing Officer and the appeal filed by the assessee/respondent came to be allowed by the Tribunal holding that the Assessing Officer has not mentioned in the notice of penalty as to whether the penalty proceedings are initiated for concealment of income or furnishing of inaccurate particulars of such income and as such the notice issued for initiation of penalty proceedings is defective, as contended by the standing counsel.
14. Whereas, the Tribunal relied upon the decision of this Court in the case of M/s. Manjunath Cotton and Ginning Factory (359 ITR565, the matter which could not be pursued before the Hon’ble Apex Court in view of the low tax effect. However, it is submitted before this Court that similar issues are involved in the case of M/s. Maganur Builders against the judgment of this Court in ITA No.616/2015, dated 28.07.2016, the Revenue has filed a Special Leave Petition before the Hon’ble Apex Court, the same is pending adjudication.
15. Learned counsel for the appellants/revenue in the grounds of the appeal memo stated that the Tribunal has erred in deleting the penalty levied under Section 271(1)(c) by the Assessing Officer and 13 when the facts and records prove beyond the reasonable doubt, the assessee/respondent had concealed the income. Further, the learned counsel for the appellants/revenue taken a ground that the Tribunal has grossly erred in holding that the penalty notice under Section 274 read with Section 271(1)(c) is bad in law and invalid without observing the amendment to Section 271(1B) with retrospective effect and by virtue of the amendment, the penalty initiated by the Assessing Officer has initiated the penalty by properly recording the satisfaction of the same. It is further contended that the Tribunal has erred in not noticing the fact that the Assessing Officer has clearly mentioned in his order that the assessee has concealed and also furnished accurate particulars of income. He further contended that in this appeal intervention of this Court is required and if not intervened, certainly there would be some miscarriage of justice.
16. This contention has been taken by the learned standing counsel for the appellants by referring to various provisions relating Explanation 5A to Section 271(1)(c). The explanation only shifts the initial burden to the assessee/respondent by a deeming fiction. It is indisputable that the following ingredients are to be satisfied in order that the penalty is imposed on an assessee under the aforesaid provision. However, there must be a clear finding that the assessee has concealed income or furnished inaccurate particulars of his 14 income. The penalty is not automatic once such a finding is recorded. Whereas, explanation 5A directly brings the case of an assessee under clause (c) of Section 271(1) once the conditions under the section are satisfied. In other words, the effect of the explanation 5A is that an assessee is deemed to have concealed the particulars of his income or furnished inaccurate particulars in the circumstances mentioned. Thus, it is imperative that the conditions mentioned under Explanation 1 of the Section are satisfied before imposing a penalty. The same has been considered in a given facts and circumstance of the case as contended.
17. The fact that the addition consideration of Rs.18.75 crore in purchase of the land at Lillipur Hamlet, Hyderabad was funded by the assessee firm has been further accepted by the assessee by disclosing the additional income of Rs.18.75 crore in the returns filed under Section 139 for the Assessment Year 2008-09 in the assessee’s case.
18. The assessee refers to Explanation 5A to Section 271(1)(c) and claims that it only shifts the initial burden to the assessee by a deemed fiction. In the assessee’s case, returns under Section 139 was filed on 31.10.2006, which was processed and selected for scrutiny for the Assessment Year 2006-07. The proceedings were 15 abated as a result of search action and issue of 153A notice. In the returns filed under Section 139, the assessee has not disclosed the fact of funding in cash a substantial amount of Rs.18.75 crores out of its income taxable for assessment year 2006-07 for the purposes of making investment by its sister concerns and the assessee disclosed such income of Rs.18.75 crores in the returns filed in response to 153A notice for the assessment year 2006-07 then only the re- substituted explanation 5A to Section 271(1)(c) could have been and penalty levied. But for the search action initiated, the fact of funding by cash by the assessee would not have come to light. These are all the contentions made by the learned standing counsel for the appellants/revenue namely Sri.Y.V. Raviraj, who has taken us through the impugned order.
19. In support of his contention, learned counsel Shri Y.V. Raviraj has placed reliance on the judgment of the Hon’ble Supreme Court in the case of K.P. Madhusudhanan Vs. Commissioner of Income Tax reported in (2001) 251 ITR0099(SC), wherein at paragraph Nos.4 & 5, reads as under: “4. In CIT vs. P.M. Shah (supra) the High Court at Bombay observed that the Explanation to s 271(1)(c) created a legal fiction. It was that the assessee would be deemed to have concealed the particulars of his income or furnished inaccurate particulars thereof in the 16 circumstances set out in the Explanation. But for such legal fiction, it could never have been said that there was any concealment or furnishing of inaccurate particulars of income simply because the returned income was less than 80 per cent of the assessed income. The Explanation shifted the burden of proof on the assessee. Therefore, it said, "when the Explanation is being resorted to by the ITO or by the IAC in penalty proceedings, it is essential that the assessee must be informed that penalty proceedings against him are being commenced under the Explanation to s. 271(1)(c)."
It added, "The 1AC could not have proceeded to levy the penalty under the Explanation to s. 271 (1)(c) in the absence of any initiation of penalty proceedings under the Explanation to s. 271(1) (c). These are penalty proceedings and the section must be strictly construed. The assessee, in our view, had no opportunity of meeting the case under the Explanation to s. 271(1)(c)," The Bench of the High Court at Bombay that delivered the judgment in the case of P.M. Shah (supra) followed it in the case of CIT vs. Dharamchand L. Shah (1993) 113 CTR (Bom) 214 204 ITR462(Bom). It said, ". ..... in the absence of invoking the Explanation: specifically, the burden would remain on the Revenue to bring the assessee's case within the mischief of the main provisions of s. 271(1)(c) of the Act.
5. We find it difficult to accept as correct the two judgments aforementioned. The Explanation to s. 271(1)(c) is a part of s.
271. When the ITO or the AAC17issues to an assessee a notice under s. 271, he makes the assessee aware that the provisions thereof are to be used against him. These provisions include the Explanation. By reason of the Explanation, where the total income returned by the assessee is less than 80 per cent of the total income assessed under s. 143 or 144 or 147, reduced to the extent therein provided, the assessee is deemed to have concealed the particulars of his income or furnished inaccurate particulars thereof, unless he proves that the failure to return the correct income did not arise from any fraud or neglect on his part. The assessee is, therefore, by virtue of the notice under s. 271 put to notice that if he does not prove, in the circumstances stated in the Explanation, that his failure to return his correct income was not due to fraud or neglect, he shall be deemed to have concealed the particulars of his income or furnished inaccurate particulars thereof and, consequently, be liable to the penalty provided by that section. No.express invocation of the Explanation to s. 271 in the notice under s. 271 is, in our view, necessary before the provisions of the Explanation therein are applied. The High Court at Bombay was, therefore, in error in the view that it took and the Division Bench in the impugned judgment was right.
20. Further, in the case of M/s. Sundaram Finance Limited (Formerly M/s. Sudaram Finance Services Ltd.,) 21, Patullous Road, Chennai Vs. The Assistant Commissioner of Income Tax, 18 Company Circle VI(4), Chennai-600 034 in T.C. (Appeal) Nos.876 and 877 of 2008 disposed off on 23.04.2018, wherein at paragraph No.16, reads as under: “16. We have perused the notices and we find that the relevant columns have been marked, more particularly, when the case against the assessee is that they have concealed particulars of income and furnished inaccurate particulars of income. Therefore, the contention raised by the assessee is liable to be rejected on facts. That apart, this issue can never be a question of law in the assessee’s case, as it is purely a question of fact. Apart from that, the assessee had at no earlier point of time raised the plea that on account of a defect in the notice, they were put to prejudice. All violations will not result in nullifying the orders passed by statutory authorities. If the case of the assessee is that they have been put to prejudice and principles of natural justice were violated on account of not being able to submit an effective reply, it would be a different matter. This was never the plea of the assessee either before the Assessing Officer or before the first Appellate Authority or before the Tribunal or before this Court when the Tax Case Appeals were filed and it was only after 10 years, when the appeals were listed for final hearing, this issue is sought to be raised. Thus on facts, we could safely conclude that even assuming that there was defect in the notice, it had caused no prejudice to the assessee and the assessee clearly understood what was the purport and import of 19 notice issued under Section 274 r/w. Section 271 of the Act. Therefore, principles of natural justice cannot be read in abstract and the assessee, being a limited company, having wide network in various financial services, should definitely be precluded from raising such a plea at this belated stage.
21. The learned standing counsel for the appellants/revenue submits that the above judgments relied are squarely applicable to the facts and circumstance of the present case on hand and emphatically submits that intervention of this Court is required in this appeal for setting aside the impugned order passed by the ITAT in ITA No.1844/Bang/2013, dated 29.07.2016 and to confirm the order passed by the DCIT, Bengaluru.
22. To controvert the arguments of the learned counsel for the appellants/revenue, learned counsel Shri Mayank Jain for the respondent/assessee submitted that the search action was initiated under Section 132 of the Act, 1961 on 26.10.2007 in the premises of the respondent/assessee and the seized documents discloses that money payment was made of Rs.18.75 crores for the purchase of land at Lillipur Hamlet, Hyderabad. During the course of search, statement under Section 132(4) of the Act, 1961 was recorded of Shri Gali Janardhan Reddy and Smt. Lakshmi Aruna admitted that 20 the funds for purchase of land at Lillipur Hamlet, Hyderabad was provided by M/s. Shri Raghavendra Constructions and M/s. Ennoble Constructions during the Financial Year 2007-08 (Assessment Year 2008-09). The respondent/assessee filed returns of income under Section 139(1) of the Act, 1961 for the Assessment Year 2008-09. In this returns of income, assessee as per statement dated 24.12.2007 issued under Section 132(4) of the Act, 1961 proceeded to declare Rs.18.75 crore as income towards money payment for purchase of land at Lillipur Hamlet, Hyderabad. However, the last date for filing the returns of income under Section 129(1) of the Act, 1961 was 31.10.2006 and the last date for filing returns of income under Section 139(5) of the Act, 1961 was 31.03.2007. Whereas, the returns of income were filed in response to notice under Section 153A of the IT Act for the Assessment Year 2006-07, however, Rs.18.75 crore towards payment of ‘on money payment’ was not declared. On 31.12.2009, assessment order was passed under Section 153A read with Section 143(3) of the Act, 1961 held on money of Rs.18.75 crore should be brought to tax during the Assessment Year 2006-07 as the properties were registered during the year.
23. It is further contended that notice issued under Section 271(1)(c) of the Act, 1961 that the assessee has concealment particulars of income or inaccurate particulars of such income does 21 not have any substance. In support of his contention, learned counsel has referred in respect of jurisdiction that it is important that the assumption of the jurisdiction by the Assessing Officer in a proceedings has to be identified before notice under Section 271(1)(c) of the Act, 1961 is issued. A bare perusal of the assessment order does not disclose that there was this satisfaction record of concealment of particulars of income as per Section 271(1)(c) of the Act, 1961. Subsequent to the coming into force of the Income Tax Act, 1961, the Hon’ble Supreme Court has expressed a similar view when interpreting Section 271(1)(c) of the Act, 1961 after amendment in D.M. Manasvi Vs. CIT reported in (1972)86 ITR557(SC), wherein the scope of that provision has been discussed extensively clause (c) of sub-section (1) of Section 271 shows that occasion for taking proceedings for payment of penalty arises if the ITO or the AAC is satisfied that any person has concealed the particulars of his income or furnished inaccurate particulars of such income. Insofar as the interpretation of the word “satisfaction” and the terms “concealment of particulars of income” or “furnishing of inaccurate particulars of such income” came up for consideration before the Hon’ble Delhi High Court (Full Bench) which interpreted Section 271(1)(c) of the Act, 1961 in CIT Vs. Rampur Engineering Co. Ltd., & Ors reported in (2209) 309 ITR413(Del), wherein it 22 is held that the legal position is well settled in view of the Supreme Court decisions in CIT & Anr. Vs. S.V. Angidi Chettiar (Supra) and D.M. Manasvi (Supra) that power to impose penalty under Section 271 of the Act depends upon the satisfaction of the ITO in the course of the proceedings under the Act. It cannot be exercised if he is not satisfied and has not recorded his satisfaction about the existence of the conditions specified and has not recorded his satisfaction about the existence of the conditions specified in clauses (a), (b) & (c) before proceedings are concluded. It is true that mere absence of the words “I am satisfied” may not be fatal but such a satisfaction must be spelt out from the order of the assessing authority as to concealment of income or deliberately furnishing inaccurate particulars. In the absence of a clear finding as to the concealment of income or deliberately furnishing inaccurate particulars, the initiation of the penalty proceedings will be without jurisdiction.
24. It is further contended that with regard to onus of proof it is relevant to refer to Section 271(1)(c) of the Act, 1961, which consists of two parts. The first aspect is that after assumption of jurisdiction the burden of proof would arise. The second aspect deals with the burden of proof. It is submitted that under the old Income Tax Act, 1922 and till the amendment of the new Income Tax Act, 23 1961, the onus was on the revenue to prove that the assessee has furnished inaccurate particulars or had concealed the income. After the amendment by introduction of explanation to Section 271(1)(c) of the I.T. Act, the onus of proof has been shifted from the revenue to the assessee. Each of the explanations provided to Section 271(1)(c) of the I.T. Act contemplates one eventuality in which the assessee can take recourse. Accordingly, the learned counsel submitted that in this case, the Tribunal has recorded a finding of fact that the assumption of jurisdiction is erroneous and not in consonance with law. Therefore, the second aspect that is regarding onus of proof has not been addressed. The same can be left open. Therefore, in view of the facts and legal position stated above, the question is to be answered in favor of the assessee and against the revenue.
25. It is further contended that Ennoble Constructions addressed a letter to the Deputy Commissioner of Income Tax, Central Circle-1(3), Income Tax Department, C.R. Building, Queens Road, Bengaluru in subject caption reply to penalty notice under Section 274 read with Section 271(1)(c) of the Act, 1961 for the Assessment Years 2006-07, wherein it is specifically contended that balance as per the bank statement and balance as per bank book maintained by the assessee may not tally for many reasons. In the 24 present case, cheques have been issued to the extent of Rs.1,14,42,889/- and debited to transportation charges payable account. Further, during the assessment proceeding, trade liability amounting to Rs.66,89,60,923/- was estimated to be genuine trade liability and the balance amount has been brought within the purview of tax. Therefore, they have already explained that trade liability amounting to Rs.67,11,15,779/- are genuine but the same has been partially disallowed and taxed accordingly. Merely because a view had been taken that a portion of the expenditure is not allowable, it does not automatically follow that it is concealed income. In this connection, the penalty should not ordinarily be levied unless the party obliged either acted deliberately in defiance of law or was guilty of conduct or acted in conscious disregard of its obligation. Therefore, it is not correct to penalize again under Section 271(1)(c) since there has been no concealment of income.
26. In view of the aforesaid facts and circumstances of the case, learned counsel for the respondent/assessee seeks for dropping of the penalty under Section 271(1)(c) of the Act, 1961. In support of his contention, learned counsel for the respondent/assessee placed reliance on the judgment in the case of the Commissioner of Income Tax & Anr Vs. S.V. Angidi Chettiar reported in (1962) 44 ITR0739(Civil Appeal Nos.6 to 8 of 1961), wherein it is held 25 that the scope of penalty under Section 281(1)(c) of 1922 Act, wherein it is urged that there were two defects in Section 28(1), as originally drafted that the penalty could be imposed only upon a person who was liable to pay income tax or super tax, and that the penalty which may be imposed was a multiple of the income tax and super tax, if any, which would have been avoided if the income as returned by such person would have been accepted as the correct income, and by the enactment of clause (d) to the proviso, the second defect was removed, but not the first. In support of this argument, counsel relied upon Section 23(5) as it stood, before it was amended by Section 14 of the Finance Act, 1956. Relying upon this scheme of levying tax, it was urged by counsel for the respondent that as the registered firm was not liable to pay tax, it could be rendered liable to pay penalty under Section 281(1)(c).
27. It is further contended that in the case of D.M. Manasvi Vs. Commissioner of Income Tax in Civil Appeal Nos. 1447 to 1450 of 1969, dated 19th September 1972 reported in (1972) 40 CCH0314ISCC, wherein it is held regarding penalty under Section 271(1)(c), the initiation of proceedings – before feeling satisfied for initiating penalty proceedings, ITO need not issue notice to assessee and it is sufficient if, after being satisfied in the course of assessment proceedings that penalty provisions are attracted, ITO issues 26 consequential notice, the fact that the ITO has to refer the case to the IAC if, the minimum imposable penalty exceeds the sum of rupees one thousand in a case falling under Clause (c) of sub-section (1) of Section 271 would not show that the proceedings in such a case cannot be initiated by the ITO. According to clause (c) of sub- section (1) of Section 271 of the Act, if the ITO or the AAC in the course of any proceedings under the Act is satisfied that any person has concealed the particulars of his income or furnished inaccurate particulars of such income, he may direct that such person shall pay in addition to the amount of tax by way of penalty a sum calculated in accordance with clause (iii) of that sub-section. Section 274 of the Act prescribes the procedure for the imposition of penalty, which stipulates “274. Procedure-(1) No order imposing a penalty under this Chapter shall be made unless the assessee has been heard, or has been given a reasonable opportunity of being heard”.
28. Learned counsel for the respondent/assessee has further contended that in the case of Commissioner of Income Tax Vs. Rampur Engineering Co. Ltd. & Ors. reported in (2008) 76 CCHY1305Del HC, wherein it is held regarding penalty under Section 271(1)(c) that validity by AO for the period before insertion of sub- section (1B) in Section 271 with effect from 1st April 1989 in the absence of a clear finding in the course of proceedings under the Act 27 indicating a satisfaction of AO as to concealment of income or deliberately furnishing inaccurate particulars, initiation of penalty proceedings under Section 271(1)(c) will be without jurisdiction. Absence of the words “I am satisfied” may not be fatal but such a satisfaction must be spelt out from the order of the assessing authority. Further, it is held that the legal position is well settled in view of the Supreme Court decision in CIT & An. Vs. S.V. Angidi Chettiar (Supra) and D.M. Manasvi (Supra) that the power to impose penalty under Section 271 of the Act depends upon the satisfaction of the ITO in the course of the proceedings under the Act. It cannot be exercised if he is not satisfied and has not recorded his satisfaction about the existence of the conditions specified in Clause (a), (b) & (c) before the proceedings are concluded. It is true that mere absence of the words ‘I am satisfied’ may not be fatal but such a satisfaction must be spelt out from the order of the assessing authority as to the concealment of income or deliberately furnishing inaccurate particulars. In the absence of a clear finding as to the concealment of income or deliberately furnishing inaccurate particulars, the initiation of penalty proceedings will be without jurisdiction.
29. Learned counsel for the respondent/assessee has also placed reliance in the case of Diwan Enterprises Vs. 28 Commissioner of Income Tax & Ors. reported in (1998) 66 CCH1097DelHC, wherein it is held with regard to the income from undisclosed sources, addition surrender by the assessee. The assessee itself surrendered the amount of alleged loan on its income, the AO was fully justified in treating the amount of loan and interest said to have been paid thereon as income. Further, the penalty under Section 271(1)(c), concealment recording of satisfaction Section 271(1) contemplates a finding as regards satisfaction of availability of grounds under Clause (c) being recorded during assessment proceedings as its income, AO nowhere recorded his satisfaction that the assessee had concealed the particulars of his income or furnished inaccurate particulars of income initiation of penalty proceedings was bad and consequently penalty is set aside. However, the contention of the assessee that the amount was surrendered on the condition that penalty would not be levied is liable to be rejected solely for the reason that the assessee did not appear before the AO in penalty proceedings.
30. Further, the learned counsel for the respondent has also relied on the reliance of a decision of this Court in the case of Commissioner of Income Tax & Anr. Vs. Manjunath Cotton & Ginning Factory, reported in (2012) 83 CCH0282Kar HC, wherein at paragraph No.39, following the judgment and other case 29 of the Hon’ble Apex Court in the Dharmendra’s case summarized the principles as (a) Mens rea is an essential or sine qua non for criminal offense; (b) a strait jacket formula of mens rea cannot be blindly followed in each and every case. The scheme of a particular statute may be diluted, in a given case; (c) if form the scheme, object and words used in the statute, it appears that the proceedings for imposition of penalty are adjudicatory in nature in contradiction to criminal or quasi-criminal proceedings, the determination is of the breach of the civil obligation by the offender. The word ‘penalty’ by itself will not be determinative to conclude the nature of proceedings being criminal or quasi-criminal. The relevant considerations being the nature of the functions being discharged by the authority and the determination of the liability of contravener and the delinquency; & (d) mens rea is not an essential element for imposing penalty for breach of civil obligation or liabilities. Learned counsel for the respondent/assessee submitted that this reliance is squarely applicable to the present case on hand. Further, in paragraph No.59 discussed regarding notice under Section 274, which reads as under: “59. As the provision stands, the penalty proceedings can be initiated on various grounds set out therein. If the order passed by the Authority categorically records a finding regarding the existence of any said grounds mentioned therein and then penalty proceedings 30 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 has passed the order. However, if the existence of the conditions could not be discerned from the said order and if it is a case of relying on deeming provision contained in Explanation-1 or in Explanation-1(B), then though penalty proceedings are in the nature of civil liability, in fact, it is penal in nature. In either event, the person who is accused of the conditions mentioned in Section 271 should be made known about the grounds on which they intend imposing penalty on him as the Section 274 makes it clear that assessee has a right to contest such proceedings and should have full opportunity to meet the case of the Department and show that the conditions stipulated in Section 271(1)(c) do not exist as such he is not liable to pay penalty. The practice of the Department sending a printed form where all the ground mentioned in Section 271 are mentioned would not satisfy requirement of law when the consequences of the assessee 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 have to be held to be strictly construed, notice issued under Section 274 should satisfy the grounds which he has to meet specifically. Otherwise, principles of natural justice are offended if the show cause notice is vague. On the basis of such proceedings, no penalty could be imposed on the assessee.” 31 31. It is further contended that the penalty proceedings are distinct from the assessment proceedings. The proceedings for imposition of penalty emanate from proceedings of assessment, it is an independent and separate aspect of the proceedings. The findings recorded in the assessment proceedings insofar as “concealment of income” and “furnishing of incorrect particulars” would 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. Insofar as notice under Section 274 of the Act should specifically state the grounds mentioned in Section 271(1)(c), i.e., whether it is for concealment of income or for furnishing incorrect particulars of income. This legal position has been enunciated in this case extensively.
32. The further reliance placed by the learned counsel for the respondent/assessee that in the case of Pr. Commissioner of Income Tax (A) Vs. Deccan Mining Syndicate (P.) Ltd., reported in (2019) 105 taxmann.com 277 (Kar), wherein it is held that the term ‘inaccurate particulars is not defined. Furnishing of all assessment of value of the property may not by itself be furnishing of inaccurate particulars. Even if the explanations are taken recourse to, 32 a finding has to be arrived at having regard to clause (a) of Explanation 1 that the assessing officer is required to arrive at a finding that the explanation offered by an assessee in the event he offers one was false. He may be found to have failed to prove that such explanation is not only bona fide but all the facts relating to the same and material to the income were not disclosed by him. Thus, apart from this explanation being not bona fide, it should have been found as fact that he has not disclosed all the facts which were material to the computation of his income.
33. In the case of Principal Commissioner of Income Tax Vs. Deccan Mining Syndicate (P.) Ltd., reported in (2019) 105 taxmann.com 278 (SC), wherein it is held that section 145 read with Section 271(1)(c) of the Income Tax Act, 1961, the method of accounting valuation of stock penalty for the assessment year 2008- 09 in course of assessment, the assessing officer made addition to assessee’s income on account of the alleged excess stock which came up as a result of purchases made outside the books of account. He also passed a penalty order under Section 271(1)(c) in respect of the said addition, the Tribunal concluded that excess stock existed only on account of wrong entries in books of account and in any case higher stock declared as closing stock in a particular year would be taken as opening stock at beginning of next year and therefore tax 33 effect of such alleged excess stock was ‘NIL’. The tribunal thus set aside additions made by the Assessing Officer. Accordingly, a penalty order was also set aside. The High Court upheld the order passed by the Tribunal whether on facts SLP filed against the decision of High Court was to be dismissed. Further, in the case of Commissioner of Income Tax Vs. SSA’s Emerald Meadows, reported in (2016) 73 taxmann.com 248 (SC), wherein held the scope of Section 274 read with Section 271(1)(c) of the Income Tax Act 1961 for penalty procedure for imposition of (conditions precedent) assessment year 2009-10. The Tribunal relying on the decision of the Division Bench of this Court in the case of CIT vs. Manjunath Cotton & Ginning Factory reported in (2013) 359 ITR565218 Taxman 423/35 Taxman.com 250 allowed the appeal of the assessee holding that notice issued by the Assessing Officer under Section 274 read with Section 271(1)(c) was bad in law as it did not specify under which limb of Section 271(1)(c) of the Act penalty proceedings had been initiated i.e., whether for concealment of particulars of income or furnishing of inaccurate particulars of income and the High Court held that the matter was covered by the aforesaid decision of Division Bench and therefore, there was no substantial question of law arouse for determination since there was no merit in SLP filed by the revenue and the same was liable to be dismissed. 34
34. The above reliances facilitated by the learned counsel for the respondent/assessee and referring various provisions of law, addressed his arguments and submitted that the same are applicable to the facts and circumstances of this case. It is further submitted that seeking intervention of this Court into the order passed by the Income Tax Appellate Tribunal, ‘C’ Bench, Bengaluru in ITA No.1844/Bang/2013, dated 29.07.2016 does not arise. On all these premises, the respondent/assessee is seeking for dismissal of this appeal as the same being devoid of merits.
35. The contentions made by the learned standing counsel for the appellants/revenue namely Shri Y.V. Raviraj, referring the impugned order passed by the ITAT and so also the order passed by the Assessing Officer by referring the materials and also recording of the statements of the witnesses and so also the counter arguments advanced by the learned for the respondent/assessee namely Shri Mayank Jain, where certain judgments and so also the materials inclusive of the specific provisions of the Income Tax Act, 1961 are relied, it is deemed appropriate to refer Section 11 of the Code of Civil Procedure, 1908, which reads as under: “11. Res judicata.—No Court shall try any suit or issue in which the matter directly and substantially in issue has been directly and substantially in issue in a 35 former suit between the same parties, or between parties under whom they or any of them claim, litigating under the same title, in a Court competent to try such subsequent suit or the suit in which such issue has been subsequently raised, and has been heard and finally decided by such Court. Explanation I.—The expression “former suit” shall denote a suit which has been decided prior to a suit in question whether or not it was instituted prior thereto. Explanation II.—For the purposes of this section, the competence of a Court shall be determined irrespective of any provisions as to a right of appeal from the decision of such Court. Explanation III.—The matter above referred to must in the former suit have been alleged by one party and either denied or admitted, expressly or impliedly, by the other. Explanation IV.—Any matter which might and ought to have been made ground of defense or attack in such a former suit shall be deemed to have been a matter directly and substantially in issue in such a suit. Explanation V.—Any relief claimed in the plaint, which is not expressly granted by the decree, shall for the purposes of this section, be deemed to have been refused. 36 Explanation VI.—Where persons litigate bona fide in respect of a public right or of a private right claimed in common for themselves and others, all persons interested in such right shall, for the purposes of this section, be deemed to claim under the persons so litigating . Explanation VII.—The provisions of this section shall apply to a proceeding for the execution of a decree and references in this section to any suit, issue or former suit shall be construed as references, respectively, to a proceeding for the execution of the decree, question arising in such proceeding and a former proceeding for the execution of that decree. Explanation VIII. —An issue heard and finally decided by a Court of limited jurisdiction, competent to decide such issue, shall operate as res judicata in a subsequent suit, notwithstanding that such Court of limited jurisdiction was not competent to try such subsequent suit or the suit in which such issue has been subsequently raised.
36. It is also relevant to refer Section 115 of the Indian Evidence Act, 1872, which reads as under: “115. Estoppel.- When one person has, by his declaration, act or omission, intentionally caused or permitted another person to believe a thing to be true and to act upon such belief, neither he nor his representative shall be allowed, in any suit or proceeding 37 between himself and such person or his representative, to deny the truth of that thing.
37. However, in view of the given peculiar facts and circumstances of the case, it is also relevant to refer Section 300 of the Code of Criminal Procedure, 1973, which reads as under: “300. Person once convicted or acquitted not to be tried for same offence.—(1) A person who has once been tried by a Court of competent jurisdiction for an offense and convicted or acquitted of such offense shall, while such conviction or acquittal remains in force, not be liable to be tried again for the same offense, nor on the same facts for any other offense for which a different charge from the one made against him might have been made under sub-section (1) of section 221, or for which he might have been convicted under sub-section (2) thereof. (2) A person acquitted or convicted of any offense may be afterwards tried, with the consent of the State Government, for any distinct offense for which a separate charge might have been made against him at the former trial under sub-section (1) of section 220. (3) A person convicted of any offense constituted by any act causing consequences which, together with such act, constituted a different offense from that of which he was convicted, may be afterwards tried for such last mentioned offense, if the consequences had not 38 happened, or were not known to the Court to have happened, at the time when he was convicted. (4) A person acquitted convicted of any offense constituted by any acts may, notwithstanding such acquittal or conviction, be subsequently charged with, and tried for, any other offense constituted by the same acts which he may have committed if the Court by which he was first tried was not competent to try the offense with which he is subsequently charged. (5) A person discharged under section 258 shall not be tried again for the same offense except with the consent of the Court by which he was discharged or of any other Court to which the first mentioned Court is subordinate. (6) Nothing in this section shall affect the provisions of section 26 of the General Clauses Act, 1897 (10 of 1897) or of section 188 of this Code. Explanation.—The dismissal of a complaint, or the discharge of the accused, is not an acquittal for the purposes of this section
38. Whereas, it is relevant to refer Articles 20 of the Constitution of India, which reads as under: “20. Protection in respect of conviction for offences.— (1) No person shall be convicted of any offense except for violation of a law in force at the time of 39 the commission of the Act charged as an offense, nor be subjected to a penalty greater than that which might have been inflicted under the law in force at the time of the commission of the offense. (2) No person shall be prosecuted and punished for the same offense more than once. (3) No person accused of any offense shall be compelled to be a witness against himself.
39. Referring to the materials facilitated by the learned standing counsel for the appellants/revenue namely Shri Y.V.Raviraj and equally the reliance facilitated by the learned counsel for the respondent/assessee namely Shri Mayank Jain, it is necessary to cite the above provisions of law for considering this appeal for the contentions made by the learned counsel as well as required to re- appreciate the above substantial questions of law raised by the appellant/revenue.
40. In the instant appeal, it is relevant to refer to the instances, where there was no substantial question of law. The difference between a question of law and substantial question of law was explained by the High Court citing from the decision of the Hon’ble Supreme Court in the case of Sir Chunilal Vs. Mehta and Sons reported in ITAT (2011) 336 ITR149(Ori), wherein the Hon’ble 40 Supreme Court laid down the following tests to determine whether a substantial question of law is involved. The tests are as under: (1) whether directly or indirectly it affects substantial rights of the parties, or, (2) the question is of general public importance, or, (3) whether it is an open question in the sense that the issue is not settled by the pronouncement of the Supreme Court or the Privy Council or by the Federal Court, or, (4) the issue is not free from difficulty, and (5) it calls for a discussion for an alternative view.
41. These are the tests which have been laid down the position of law by the Hon’ble Supreme Court of India, wherein the explanation of the assessee for the materials found during search was accepted on facts. The issue of whether penalty is leviable has to be decided on the finding of fact. In a case decided on a concurrent finding by the ITAT and thereby challenging the order passed by the DCIT, that no penalty is exigible. There can be no substantial question of law. If the grievances of revenue were on any fact found by the authorities or the Tribunal, the remedy lies in rectification and not in an appeal under the relevant provisions of the Income Tax Act, 41 1961. Where the issue had been decided solely on facts, there is no question of law. Where a question was not raised nor considered by the Tribunal, it cannot be considered by the High Court. Where there is a failure by the Tribunal to consider a ground that cannot be taken up by way of appeal to the High Court. Though the matter could be agitated before the Tribunal on the ground, the appeal in respect of the ground remains undisposed. But in the instant case, the appellant who is revenue has approached the Income Tax Appellate Tribunal, it has given a finding relating to the facts. It could have been entertained by the High Court on the inference, that the issue, which was undecided, has been decided against the assessee, a view sometimes taken by some Courts.
42. A decision of the Tribunal that there was no stock of difference as inferred by the Assessing Officer and that valuation adopted for stock as cost or market price, whichever is lower cannot be faulted, that such decision cannot give rise to question of law, since the appeal has been preferred by the appellants/revenue challenging the order passed by the ITAT.
43. Keeping in view the materials which secured by the revenue relating to the substantial question of law, which has been raised in this appeal, the appeal cannot be entertained and dismissal of appeal 42 arising out of same order of Tribunal by the Division Bench of High Court is binding and other appeals from same order to be dismissed as not involving a referable or appealable question of law. Counter to the arguments advanced by the learned counsel for the respondent/assessee, learned counsel for the appellants/revenue submits that ITAT has given more credential to the consideration for the materials for which it has secured and which material has been appreciated and also considered by the ITAT, when the question raised is concluded by the ITAT relating to the question of fact, then interference mere because preferring an appeal by the appellants/revenue is not rendered to be said that there shall be ineffective so that the appeal in case preferred by the appellants/revenue mere because there is a provision of Section 260A and mere because there is some substantial question of law which has stated supra. When there is a failure to appeal on similar points even unless clearance is obtained and it is to be clandestinely addressed the issue and it cannot arise for dwelling in detail and also interfere with the question of fact, which has been given a finding by the Appellants/revenue. Mere because Section 260A of the I.T. Act, 1961 does not contemplate dwelling in detail about the material facts which are secured by the authority during the course of even assessment of the year which is reflected in the order passed by the 43 ITAT. Section 260A of the I.T. Act was apparently prompted by an intent relating to jurisdiction and relating to substantial question of law as involved should come within the scope of the said provision relating to jurisdiction of the High Court. But a different view has been taken consistently by the High Court in a batch of cases in Sohanraj (L) Vs. DCIT reported in (1998) 235 ITR (St.) 35. This judgment extensively addressed the scope of Section 260A of the I.T. Act, 1961.
44. Even in the procedure for appeal, the time limit of 120 days is stipulated in clause (a) of Section 260A(2) for appeal to the High Court. In the case of departmental appeal, it is the date of receipt of the order by the Commissioner or Chief Commissioner that could be relevant. Where an appeal was filed beyond the time stipulated under Section 260A(2), the issue was whether the High Court has power to condone the delay in appeal. The appeal has been preferred challenging the order passed by the ITAT, there is a power to hear the appeal and only a question framed by the Court, it is based upon the grounds as urged in the appeal. As provided under Section 260A(4) of the I.T. Act, the procedure at the stage of admission, it is not necessary that there should be a preliminary hearing for admission as was the practice under the reference procedure earlier though such a practice is not barred. The High Court may suo motu 44 without hearing the respondent refuse admission on the ground that there is no substantial question of law involved while dismissing the appeal on this ground, also endorse the finding on merits on the basis of reasoning in the order of the Tribunal. The respondent cannot find fault with this procedure since his interest is protected. Needless to point out that in case the decision is likely to be adverse to him, it would be necessary to hear him by providing an opportunity under the law.
45. Section 260A reveals that the High court has power to remand a matter, if it is necessary. Where the Tribunal allowed a claim of assessee without discussion, matter was remanded wherein an estimated sum of arrived at as net profit from undisclosed income without basis, the matter was remanded for disposal under Section 260A. In the instant case, we are here to dwell in detail about the issue relating to substantial questions of law and even dwelling in detail about the materials which are secured by the authority under the relevant provisions of the IT Act. In the instant case, we are here to dwell in detail about the issue relating to the substantial question of law and also dwelling in detail about the materials which are secured by the authority under the relevant provisions of the Income Tax Act. 45
46. The question of fact which has already decided by the ITAT by dwelling in detail the materials for which secured by the authority against the respondent/assessee, but in this appeal, it cannot arise for again dwelling an issue in detail as contended by the learned standing counsel for the appellant/revenue.
47. The impugned order passed by the ITAT relating to the Assessment year 2006-07, even section 271(1)(c) would not satisfy the requirement of law. In light of these facts, the initiation of penalty proceedings is not in accordance with law and deserves to be annulled. This observation is also made in the impugned order, which is passed by the ITAT. In support of his contention, learned counsel for the assessee placed reliance on the decision in the case of CIT Vs. M/s. Manjunath Cotton and Ginning Factory (359 ITR565, the matter which could not be pursued before the Hon’ble Apex court in view of the low tax effect. The ITAT has carefully examined the notice issued under Section 274 read with Section 271(c) of the I.T. Act and found that the notices were issued on printed proforma, which the AO did not identify whether the assessee/respondent in this appeal has concealed the particulars of income or furnished inaccurate particulars of such income. Now the question arises whether it is necessary to identify in the notice. The penalty provision has two distinct limbs. The first limb deals with 46 condition precedent for initiating penalty action and assumption of jurisdiction of the authority concerned; this limb is separately enacted with each of clause (a) since omitted insofar as Section 271(1)(c). The second limb of the penalty provision is the substantial part which deals with the actual imposition for the liability of penalty and quantification thereof. The penalty provisions are not onerous so far as substantial and procedural provisions relating to penalty containing the Income Tax Act, 1961 have held to be not onerous.
48. Insofar as the aforesaid provisions of Section 271 of the Income Tax Act is concerned, it is relevant to states that there is no penalty in the absence of positive income; the word income in clause (c) refers to positive income only. Evasion of tax is sin co non. For imposition of penalty, if there is no taxable income or tax assessed for the payment during the particular year, the question of evasion and consequent penalty does not arise. The penalty cannot be imposed under Section 271(1)(c) of the I.T. Act, 1961. Clause (c) of the provision deals two specific offences i.e., to say concealing the particulars of income or furnishing inaccurate particulars of such income. No doubt, the facts of some cases may attract both the offences and in some cases, there may be overlapping of two offences. In the instant case, the proceedings initiated against respondent/assessee keeping in view the provision of Section 47 271(1)(c) of the I.T Act, 1961. Whereas the ITAT if the fact finding authority and a finding has been rendered based upon the materials, which were secured by the authority during the course of investigation. The penalty proceedings are distinct from assessment proceedings and independent. The assessment proceedings are taxing proceedings and the penalty proceedings are criminal proceedings in nature. A decision given in assessment proceedings cannot possibly bind the authority. The Tribunal keeping in view the provisions of Section 271(1)(c) of the I.T. Act has considered the evidence in terms of materials. In the instant appeal, the ITAT has given a finding on facts and the intervention of this Court merely because of filing of the appeal does not arise.
49. It is submitted that the penalty proceedings are distinct from assessment proceedings. The penalty proceedings have been held to be distinct from assessment proceedings and independent therefrom inasmuch as the assessment proceedings are taxing proceedings and the penalty proceedings are criminal proceedings in their very nature and a decision given in an assessment proceeding cannot possibly bind the authority who tries the assessee for an offence. Though the assessee is entitled to submit fresh evidence, in the course of the penalty proceedings, but in the instant case, the penalty proceedings and also assessment proceedings are 48 independent proceedings. The Tribunal confirmed the penalty under Section 271(1)(c) without considering this evidence. It was held that the order was not valid and the matter was remanded and the same has also been considered by the Hon’ble Supreme Court of India in various judgments that the penalty proceedings are distinct from assessment proceedings. But in the instant appeal, the Income Tax Appellate Tribunal has given finding on facts and when rendering finding on facts, then the High Court’s intervention merely because an appeal is preferred, the same cannot be considered.
50. In a given peculiar facts and circumstances of the case and on the substantial question of law as urged, the finding in assessment proceedings cannot be the sole basis of penalty without anything more, but penalty cannot be imposed solely on the basis of findings arrived at during assessment or reassessment or reassessment proceedings or proceedings culminating in best judgment assessment. There cannot be any tenable reason as to why the authorities cannot analyze the same evidence and materials produced earlier in the course of the assessment proceedings and base their findings thereon. It may be that the findings given by the authorities on certain materials at the assessment stage may not be conclusive but still the material constitutes good and relevant evidence. Where the penalty was levied on the ground that additions have been made 49 to the income as unexplained investment and such additions were deleted in appeal filed against the assessment, cancellation of penalty was valid. While penalty does not follow every addition, addition is the basis for penalty.
51. Insofar as a finding of concealment must be recorded, the levy of penalty is not a matter of course. Before a penalty is levied under this clause, a finding must be recorded that the assessee has been guilty of concealment or of furnishing inaccurate particulars of income for the year in question. Thus, where the assessee who is arraigned as respondent in this matter, produced certain materials relating to the books of accounts and assessment was completed by applying flat rate for estimating income. Therefore, in the instant case, it does not call for any interference and even seeks intervention of this Court.
52. It is also to be said that there is need for proper initiation of penalty proceedings that the penalty proceedings are required to be initiated during the course of assessment, though they are independent proceedings. The initiation itself is not automatic, but discretionary, so that there has to be a record of satisfaction. The expressions not proved and disproved are different. A difference was sought to be made between the expressions not proved and 50 disproved and the same was answered in a judgment of Raghuvir Soni vs. ACIT reported in (2002) 258 ITR239 53. An explanation would cover a case of not proved situation as well as disproved ones, where there is a failure to substantiate an explanation. Since inference in this case could well rest on the facts, the attempt of the taxpayer to make a question of law out of the same failed. Where the assessee concedes an addition, it does not automatically follow that certain amount conceded represents concealed income. In the instant case, the ITAT has dwelled in detail about the facts and also it is a fact finding authority. Therefore, the preponderant view of the Courts as regards the effect of revised return on penalty has been that the assessee cannot avoid the consequences of a deliberately false original return after the concealment has been brought home by the AO. This view can be taken to have become final after the decision of the Supreme Court by a Bench of three judges in Agarwal (GC) vs. CIT reported in (1990) 186 ITR571where the issue came up though not directly, when it endorsed the decision of the Guahati High Court, where it was found that penalty was exigible as the assessee was not able to establish that the mistake in the original return was inadvertent. These are all the issues decided by the Hon’ble Supreme Court of India by rendering a judgment. This contention has been made by 51 the learned counsel for the respondent/assessee. Therefore, in this appeal, learned counsel for the respondent/assessee contending that the same does not call for any interference.
54. The assessee must be informed that the explanation to Section 271(1)(c) is sought to be applied. In the instant case, since the explanation is only to postulate the rule of evidence and procedure. In view of the matter no specific reference about the explanation is necessary, even the show cause notice itself. However, a contrary view has been expressed in certain reliances rendered. But in the instant case, and even if the ITAT as a fact finding authority and given a finding it is based upon the materials for which collected by the investigating agency under the relevant provisions of IT Act. However, the onus of rebuttal is on the assessee to prove that the explanation given by him is correct, and if it is not discharged, penalty can be levied under Section 271 can be invoked at any stage. Therefore, the scope of Section 271(1)(c) it was answered by rendering a judgment by the Hon’ble Supreme Court of India that the ITAT is the tax finding body to assess the relevance and sufficiency of the materials and its conclusion that the assessee has discharged the onus would be one of the fact, unless there shall be found false on the part of the respondent/assessee, the penalty proceedings cannot be initiated, wherein a finding of fact as rendered by the ITAT. Even 52 conversely where the Tribunal’s finding that the assessee’s claim for depreciation, the Tribunal was justified in deleting certain penalty and consequently directed the Tribunal to consider even though the scope of Section 271(1)(c) of the IT Act. In the instant case, even though the penalty concept was there, it is to be termed as a protective measure, but the ITAT has answered to the facts which is the fact finding authority. Therefore, in this appeal, it does not arise for interference minutely to answer to the substantial question of law which has been raised, as mere because preferred an appeal as under Section 260A of the IT Act.
55. In the instant case, it is relevant to refer relating to the substantial question of fact or substantial question of law, the question whether in a given case, the assessee had a reasonable cause for not having filed the return within the statutory time or whether the explanation given by the assessee/respondent ought to have been accepted or not. Whether the presumption raised by the explanation to Section 271(1)(c) has been rebutted or not is essentially the question of fact. The same has been dealt by the ITAT in respect of the particulars of his income. Consideration of the true meaning of the concealment would be a mixed question of law and fact. Where there is a mixed question of law and fact, the inferences from the facts found is a question of law. Even though there is a 53 question of law, it must be answered keeping in view the provision of the IT Act. Mere because raising a question of law, it is based upon the grounds urged by the appellant / revenue and it is required to be answered. In the instant case, the question of fact, it was held that the question regarding levy penalty in the context of dispute as to the year of assessment or a question of fact.
56. Whereas, under this appeal, challenging the order passed by the ITAT (C) Bench, Bengaluru in ITA No.1844 / BANG / 2013 of the assessment year 2006-07, the Tribunal having carefully examined the notice issued as under Section 274 read with Section 271(1)(c) of the Act, then the Tribunal finds that the notice was issued on a printed proforma in which the AO did not identify whether the assessee has concealed particulars of income or furnished inaccurate particulars of such income, now the question arises whether it is necessary to identify if the notice itself that the proceeding under Section 271(1)(c) are initiated either for concealment of income or furnishing inaccurate particulars of income. But in the instant case, it is relevant to refer to the case of CIT and another vs. Manjunatha Cotton and Ginning Factory (supra) and wherein it has been laid down the parameters under which penalty 271(1)(c) of the Act has to be looked into. It is relevant to extract the observation made relating to the scope and objective of Section 271(1)(c). 54
59. As the provision stands, the penalty proceedings can be initiated on various grounds set out therein. If the order passed by the authority categorically records a finding regarding the existence of any said 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 has passed the order. However, if the existence of the conditions could not be discerned from the said order and if it is a case of relying on deeming provision contained in Explanation 1 or in Explanation 1(B), then though penalty proceedings are in the nature of civil liability, in fact, it is penal in nature. In either event, the person who is accused of the conditions mentioned in section 271 should be made known about the grounds on which they intend imposing penalty on him as section 274 makes it clear that the assessee has a right to contest such proceedings and should have full opportunity to meet the case of the Department and show that the conditions stipulated in section 271(1)(c) do not exist as such he is not liable to pay penalty. The practice of the Department sending a printed form where all the grounds mentioned in section 271 are mentioned would not satisfy the requirement of law when the consequences of the assessee not rebutting the initial presumption is serious in nature and he had to pay penalty from 100 per cent to 300 per cent of the tax liability. As the said provisions have to be held to be 55 strictly construed, notice issued under section 274 should satisfy the grounds which he has to meet specifically. Otherwise, the principles of natural justice are offended if 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 offenses, that is to say, concealing particulars of income or furnishing inaccurate particulars of income. No doubt, the facts of some cases may attract both the offences 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 offences. But drawing up penalty proceedings for one offence and finding the assessee 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 the satisfaction of the existence 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 those 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 answer. It is not open to the authority, at the time of imposing penalty to impose penalty on the grounds other than what the assessee was called upon to meet. Otherwise, though the initiation of penalty 56 proceedings may be valid and legal, the final order imposing penalty would offend the 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 the basis of the initiation of penalty proceedings is not identical with the ground on which the penalty was imposed, the imposition of penalty is not valid. The validity of the order of penalty must be determined with reference to the information, facts and materials in the hands of the authority imposing the penalty at the time the order was passed and further discovery of facts subsequent 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 any proceedings that there is concealment of income or furnishing of inaccurate particulars of total income under clause (c). Concealment, furnishing inaccurate particulars of income are different. Thus, the Assessing Officer while issuing notice has to come to the conclusion that whether it is a case of concealment of income or is it a case of furnishing inaccurate particulars. The apex court in the case of Ashok Pai reported in [2007]. 292 ITR11(SC) at page 19 has held that concealment of income and furnishing inaccurate particulars of income carry different connotations. The Gujarat High Court in the case of Manu Engineering Works reported in [1980]. 122 57 ITR306(Guj) and the Delhi High Court in the case of CIT v. Virgo Marketing P. Ltd. reported in [2008]. 171 Taxman 156, has held that levy of penalty has to be clear as to the limb for which it is levied and the position being unclear penalty is not sustainable. Therefore, when the Assessing Officer proposes to invoke the first limb being concealment, then the notice has to be appropriately marked. Similar is the case for furnishing inaccurate particulars of income. The standard proforma without striking of the relevant clauses will lead to an inference as to non-application of mind.
57. The ITAT arrived at a conclusion by turning to the facts of the instant case and rendering a finding that undisputedly the AO has not identified in the notice whether penalty proceedings are initiated or concealment of income or furnishing of inaccurate materials of such income. Whether the penalty proceedings are initiated for concealment of income or furnishing of inaccurate particulars of such income. Therefore, the reliance which is observed in detail then they have arrived to a conclusion that on the account of defective notice issued for initiation of penalty proceedings, then the penalty order passed by the AO is not sustainable in the eyes of law. Accordingly, set aside the order of the CIT (Appeals) as well as AO and delete the penalty on account of wrong initiation of the penalty proceedings. Consequently the appeals of the assessee were allowed. Whereas, in 58 this appeal challenging the order passed by the ITAT by urging various grounds and seeking for intervention by referring certain reliance stated supra and also taken various contentions and it is required to refer certain reliance rendered by this Court in a coordinate Bench of the ITA No.383/2016 dated 20.07.2022.
58. In the instant case, it is relevant to refer to the judgment rendered by the coordinate Bench of this Court in ITA No.383/2016 relating to the scope of Section 260A of IT Act. The said reliance relating to the assessee wherein arraigned as respondent in the said appeal also, assessee, a partnership firm was engaged in the business during the relevant period relating to the assessment year 2006-07 in respect of the respondent/assessee namely G.Lakshmi Arun – M/s.Ennoble Constructions, No.6/4, Ennoble House, Raghavachari Road, Ballari. In the instant case, it had filed the income tax return relating to the assessment year 2006-07 which dealt with the issues in respect of ITAT whereby the impugned order has been challenged under this appeal by the appellant/revenue. But the ITAT substantially considered the version of assessee/respondent. Therefore, the revenue/appellate authority has preferred this appeal under the relevant provision of Section 260A of the IT Act by raising substantial questions of law as stated above. 59
59. Having heard the learned counsel for the parties in this appeal and so also having perused the materials and dwelling in detail about the matter in question and also the substantial question, the right of appeal under Section 260A of the IT Act, wherein it is the scope and contentment, as in the case of CIT vs. Woondur Jupitar Chits (P) Limited reported in 213 ITR73had pointed out that the provisions of 1961 Act providing for reference on a question of law arising out of an order of the Tribunal were Archaic and therefore there was an eminent need for rationalization of the same. Accordingly, the parliament vide Finance (2) Act, 1998 inserted inter alia Sections 260A and 260B in Chapter – XX of the 1961 Act to provide for an appeal against the orders of Tribunal directly to the High Court, within whose jurisdiction, office of the AO is situated. Subsection (1) of Section 260A reads as under: “S. 260A. (1) An appeal shall lie to the High Court from every order passed in appeal by the Appellate Tribunal [before the date of establishment of the National Tax Tribunal}, if the High Court is satisfied that the case involves a substantial question of law.” (Other subsections are not much relevant and the same are not reproduced at this juncture) 60 60. The appeal lies only if the case involves a substantial question of law, which the memorandum of appeal, ideally speaking, has to precisely state. However, if the High Court is satisfied that a substantial question of law is otherwise involved, it may itself formulate such a question and admit the appeal. Appeal shall be ordinarily heard on the question so formulated. However, there is nothing, in the Act which would abridge the power of Court to hear, for reasons to be recorded, the appeal on any other substantial question of law, in addition to or substitution of the one framed in the appeal memo, if it is satisfied that the case involves such other question.
61. Be that as it may. This appeal is preferred by the appellant/revenue either to prefer by the assessee it lies only if the High Court is satisfied that the case involving a substantial question of law is required to be considered. Subsection (7) of Section 260A states that the provisions of CPC, relating to appeals to the High Court, as far as may be, apply to these appeals. This section is analogous to Section 100 of CPC. Noticeably, both these sections i.e., Section 260A of IT Act and Section 100 of CPC do not define the expression substantial question of law. The Apex Court vide Santosh Hazari vs. Purushottam reported in 251 ITR84SC is of the view that the word substantial qualifies the term question of law, it means 61 a question having substance, essential, real or sound worth, important or considerable. The substantial question of law on which an appeal shall be heard need not necessarily be a question of law of general importance. To be substantial, a question of law of general importance. To be substantial, a question of law must be debatable and it must have a material bearing on the decision of the case in the sense that if answered either way insofar as the rights of the parties are concerned.
62. It is relevant to state that it is profitable to see what Kanga & Palkhivala’s Law and Practice of Income Tax, Vol.II, Eleventh Edn., Lexis Nexus states that a question is a substantial question of law if: (i) it directly or indirectly affects substantial rights of the parties; or (ii) it is of general importance; (iii) it is an open question in the sense that the issue has not been settled by a pronouncement of the Supreme Court; (iv) it is not free from difficulty; or (v) it calls for a discussion for an alternative view. The findings are based on evidence; 62 (vi) relevant admissible evidence has not been taken into consideration; (vii) inadmissible evidence has been taken into consideration (viii) legal principles have not been applied in appreciating the evidence; or (ix) The evidence has been misread.
63. These tests are stated to be illustrative and in no way exhaustive of the powers of the High Court to entertain an appeal, if there is other substantive ground of law. It hardly needs to be stated that a provision for appeal should be liberally construed and read in a reasonable & practical manner.
64. A Coordinate Bench of this Court vide order dated 22.03.2019 has admitted an appeal on the question as ‘Redrafted’ vide Memo dated 22.03.2019 filed by the Revenue. The said question is construed keeping in view sub-section (1) of Section 37 of the Act, as where the provision apparently is the residuary section extending the allowance to the items of expenditure not covered by other sections. ‘Expenditure’ inter alia in the text & context of Section 37 primarily denotes the idea of spending or paying out or paying away. It is something that has gone irretrievably. Expenditure is not necessarily confined to the money which has been actually paid out, 63 but it covers a liability which has accrued due or incurred, although it may have to be discharged at a future date. The AO appears to have proceeded on the premise that the payment made towards transport has not been established by producing the evidentiary material. What he failed to see was that the business premises of the assessee having been admittedly raided by the CBI, all books of accounts, registers & files were not in his custody or power. The question of failing to produce evidence would have arisen only if the assessee with due diligence could produce some evidence that was in his custody or power and still failed to, sans any plausible explanation therefore; in a case where, he is disabled from producing any such evidentiary material because of raid & seizure by the statutory body like CBI, no blame can be laid at his doorstep. There is another related aspect touching the duty of the AO, which we would advertise to, a bit later. On examination of the nature of ‘substantial question of law’ as redrafted by the Revenue on which the Co-ordinate Bench admitted this appeal, the said question which is already reproduced above, has been framed keeping in view the provisions of sub section (1) section 37, which has the following text: “Any expenditure (not being expenditure of the nature described in section 30 to 36 and not being in the nature of capital expenditure or personal expenses of the assessee) laid out or expended wholly and exclusively for the purpose 64 of the business or profession shall be allowed in computing the income chargeable under the head “Profits and gains of business or profession…”.
65. The text of this sub section shows its building blocks such as: ‘expenditure’, ‘wholly and exclusively’ and ‘incurred for the business’. The burden of proving that the expenditure is incurred ‘wholly and exclusively for the purpose of business is on the Assessee’ vide JASWANT vs. CIT reported in 212 ITR24 The question whether an item of expenditure was wholly and exclusively laid out for the purpose of Assessee’s business has to be decided on the basis of evidentiary material that prima facie establishes these ‘building blocks’.
66. The question on which the appeal is admitted involves, in the first place, the ascertainment of facts as to the business expenditure in question, and in the second, the application of the correct principle of law to the fact so ascertained. Therefore, essentially such a question is only a mixed question of fact & law as observed by the Apex Court in COMMISSIONER OF INCOME TAX vs. GREAVES COTTON reported in 68 ITR200(207). Added, there is a certain difference between an ordinary question of law on the one hand and a mixed question of fact & law, on the other vide JANARDHANA RAO vs. JCIT reported in 273 ITR50 Ordinarily, to 65 answer a question of law of the kind, there is no need to consult the statute book; such a question can be answered just by turning the pages of the evidentiary record of the Assessment Proceedings concerned. Therefore, the said question is miles away from the precincts of Section 260A which employs the expression ‘substantial question of law’.
67. In this appeal, relating to the burden of proving the expenditure incurred ‘wholly and exclusively’ for the purpose of business, is on the Assessee. This burden needs to be discharged by the preponderance of probability. What should be the quantum & quality of evidentiary material to discharge such a burden is a matter lying in the discretion of AO and that the said discretion, as any, has to be exercised in accordance with the rules of reason & justice. It was the specific case of Assessee that his business premises having been raided, the CBI had seized & taken into custody all the registers, files, record & documents concerning the business in question and therefore he was disabled from producing any material to prove the payment towards transport credit. The factum of the CBI raid & seizure are not in dispute. Even proceedings of the preceding Assessment Year mention that. When all the documents are in the custody of CBI Police, asking the Assessee to produce the same, 66 virtually amounts to asking him to do the near impossible. Broom’s Legal Maxims, Tenth Edn., (Universal) at page 162 says: “Lex Non Cogit Ad Impossibilia. (Co. Litt. 231 b.) – The law does not compel a man to do that which he cannot possibly perform…” Sir Walter Scott (1771 – 1832) said: “…the law in its most positive and peremptory injunctions is understood to disclaim as it does in its general aphorisms, all intention of compelling to impossible…
68. In the above circumstances, the appeal being devoid of merits, the same was rejected.
69. At a cursory glance of the impugned order passed by the ITAT “C” Bench, Bengaluru in ITA No.1844/BANG / 2013 of the assessment year 2006-07, wherein it is observed that: “Turning to the facts of the instant case, we find that undisputedly the AO has not identified in the notices as to whether the penalty proceedings are initiated for concealment of income or furnishing of inaccurate particulars of such income. Therefore, following the aforesaid judgment of Hon'ble jurisdictional High Court, we are of the considered view that on account of defective notice issued for initiation of penalty proceedings, the penalty order passed by the AO is not sustainable in the eyes of law. We accordingly set aside the order of the CIT(Appeals) as well as the Assessing Officer and delete 67 the penalty on account of wrong initiation of penalty proceedings. Since the penalty proceedings are quashed, we find no justification to deal with the appeals on merits, as it becomes academic. In the result, the appeals of the assessee are allowed.
70. In totality of the circumstances of the case relating to the facts, the ITAT is a fact finding authority insofar a search and seizure action was conducted in the case of Sri.Gali Janardhan Reddy on 26.10.2007 including the premises business of M/s. Ennoble Constructions, Ballari. In response to the notices under Section 153A return of income came to be filed. In the absence of any material on record specifically to show the concealment of income or furnishing inaccurate particulars, it cannot be inferred that the said addition is on account of concealment. Therefore, the ITAT was considered the scope of provision of the IT Act, 1961, as in the instant appeal, the respondent/assessee preferred an appeal before the ITAT and the ITAT on carefully examining the entire material on record, even relating to the specific materials, though dwelling in detail about the particulars i.e., the concealment of particulars furnishing the inaccurate particulars of income, it cannot be arise to draw adverse inference as contended by the learned standing counsel 68 Sri.Y.V.Raviraj for the appellant/revenue. Therefore, the ITAT held under Section 271(1)(c) that even though the provision has been mandated, the ingredients cannot be attracted in both, either the facts, but the facts found by the ITAT, is based upon the materials. Such being the position, it cannot arise merely because a substantial question of law has been raised and it requires a response to the substantial question of law. It is obvious that it must be shown that the conditions under Section 271(1)(c) must exist before the penalty is imposed, there can be no dispute about whether everything would be dependent upon the return filed. But it is only the document where the assessee can furnish the particulars of the income. When such particulars are found to be inaccurate, the liability would arise. In the instant case, when the mens rea elements are required to be considered even to give more credibility to the material evidence. We need to only see whether the instant case is a matter of fact that the assessee / respondent has given inaccurate particulars but in the Webster’s dictionary the word “inaccurate” has been defined as not accurate, not exact or correct, nor according to the truth, erroneous as in an inaccurate statement, but we have already seen the intendment and also meaning of the word particulars, reading the word in conjunction, they must mean that the detail supplied in the 69 return which are not accurate, not exact or correct not according to the truth or erroneous.
71. Keeping in view the provision of Section 271(1)(c), the deemed provision, a legal fiction is created. But reading of Section closely and more so the ingredients of the said provision of IT Act, it is the domain vested with the appellant / revenue to establish their case relating to the scope of inaccurate particulars and concealment of income. But it must be noticed that this finding recording concealment in the order passed by the authorities is only for the purpose initiating, but the presumption found in explanation (1) is a rebuttable presumption. If the authority after hearing the assessee and looking into the material produced in the said proceeding before him, satisfies, perhaps holds that there is no concealment of income, then the question of penalty would not arise.
72. However, keeping in view the contention made by the learned Standing Counsel Shri Y.V. Raviraj for the appellant / Revenue and so also the learned counsel Shri Mayank Jain for the respondent / Assessee, at the cost of repetition, it is relevant to state that the counsel for the respondent / Assessee had relied the judgment of THE COMMISSIONER OF INCOME TAX AND ORS. Vs. MANJUNATHA COTTON AND GINNING FACTORY AND ORS. (MANU / 70 KA/ 2416/2012), wherein a Co-ordinate Bench of this Court has extensively addressed the issues relating to the provisions of the IT Act, 1961 and more particularly, has addressed the issues relating to Section 271(1)(c) of the IT Act, 1961, by referring to so many reliances.
73. Similarly, another Co-ordinate Bench of this Court in the case of PR. COMMISSIONER OF INCOME TAX & ANR vs. M/S. ENNOBLE CONSTRUCTION (I.T.A.No.383 OF2016 dated 20.07.2022, has addressed the issues relating to the provisions of Section 260A of the IT Act, 1961 referring to various reliances to arrive at a conclusion relating to the response to the substantial question of law in the given facts and circumstances of the case and so also relating to the concept of Section 37 of the IT Act, 1961 as well as the burden of proof and impossibility of its discharge and so also relating to Legal maxim ‘Lex Non Cogit Ad Impossibilia (Co.Litt. 231 b.) – The law does not compel a man to do that which he cannot possibly perform…
74. These are all the issues that have been addressed by the Co-ordinate Benches of this Court. The aforesaid reliances are squarely applicable to the present case on hand in the given facts and circumstances of the case. Therefore, it is said that the various contentions made by the counsel for the appellant / Revenue do not 71 hold any substance to question the impugned order passed by the Income Tax Appellate Tribunal.
75. In the instant case, the penalty proceedings are distinct from assessment proceedings. The assessment proceedings are taxing proceedings. The proceedings for imposition of penalty though emanating from proceedings of the assessment are independent and separate aspects of the proceedings, separate provisions are made for imposition of penalty. Even in the light of the materials which secured by the Investigating Agency under the relevant provisions of the IT Act, 1961, but the penalty under Section 271(1)(c) is a civil liability which can be emerged and the imposition of penalty even if the tax liability is admitted is not automatic, but Section 271(1)(c) of IT Act, 1961 indicating whether it is concealment of income or for furnishing inaccurate particulars of income.
76. In totality of the circumstances of the case, it cannot be inferred that insofar as addition even on account of concealment, moreover the assessee has offered the explanation, even the said explanation is not found to be false, on the contrary it is held to be bona fide. In fact in the instant case, in the assessment proceedings there is no whisper about the concealment of income and inaccurate particulars. It is even clear that the conduct of the assessee cannot 72 be construed as a mala fide. Therefore the order passed by the ITAT is found to be justifiable and it is based upon the materials secured by the Investigating Agency under the IT Act, 1961. However, the ITAT justified in holding that the proceedings are initiated even keeping the provision of Section 271(1)(c), it is not in accordance with law and accordingly justified in interfering with the order passed by the ITAT as well as the Assessing Officer/Authority. Accordingly, the substantial questions of law are answered in favor of the respondent/assessee.
77. Therefore, keeping in view of the aforesaid reasons and findings, we are of the opinion that the appeal preferred by the appellant/revenue do not hold any substances that calls for any interference in the impugned order passed by the ITAT “C” Bench, Bengaluru in ITA No.1844 / BANG / 2013 dated 29.07.2016 and in terms of the aforesaid reasons and findings, the appeal deserves to be dismissed as being devoid of merits. Accordingly, we proceed to pass the following order:
ORDERThe appeal preferred by the appellant/revenue is hereby dismissed by confirming the order passed by the Income Tax Appellate Tribunal, “C” Bench, Bengaluru in ITA No.1844 / BANG / 2013 dated 29.07.2016. 73 Before parting with this judgment, this court places on record its deep appreciation for the able research and assistance rendered by its Research Assistants-cum-Law Clerk, Mr.Pranav.K.B. Sd/- JUDGE Sd/- JUDGE Vnp* & RSH