|CORAM:||N. V. Vasudevan (JM), Waseem Ahmed (AM)|
|CATCH WORDS:||concealment of income, furnishing inaccurate particulars of income, penalty|
|COUNSEL:||A. K. Tibrewal|
|DATE:||November 6, 2015 (Date of pronouncement)|
|DATE:||December 3, 2015 (Date of publication)|
|FILE:||Click here to download the file in pdf format|
|S. 271(1)(c): A penalty notice u/s 274 which does not strike out the irrelevant portion & which does not specify whether the penalty is for “concealment” or for “furnishing inaccurate particulars” renders the penalty order void|
(i) On the question whether proper satisfaction was arrived at by the AO for initiating penalty proceedings u/s 271(1)(c), the order of assessment nowhere spells out or indicates that the AO was of the view that the assessee was guilty of either concealing particulars of income or furnishing inaccurate particulars of income. The offer to tax of income by the assessee has just been accepted. It is no doubt true that it is not the requirement of the law that the satisfaction has to be recorded in a particular manner, especially after the introduction of the provisions of Sec.271(1B) of the Act with retrospective effect from 1.4.1989. Nevertheless, as laid down by the Hon’ble Delhi High Court in the case of Ms.Madhushree Gupta, the position of law both pre and post Sec.271(1B) of the Act is similar, inasmuch, the AO will have to arrive at a prima facie satisfaction during the course of proceedings with regard to the assessee having concealed particulars of income or furnished inaccurate particulars, before he initiates penalty proceedings ‘prima facie’ satisfaction of the AO that the case may deserve the imposition of penalty should be discernible from the order passed during the course of the proceedings. At the stage of initiation of penalty proceeding, the order passed by the AO need not reflect satisfaction vis-a-vis each and every item of addition or disallowance, if overall sense gathered from the order is that a further prognosis is called for. The decision of the Hon’ble Supreme Court in the case of MAK Data (P) Ltd. (supra) has to be understood in the context of the facts of the said case. The Revenue places reliance only on the sentence appearing in para-10 of the judgment without reading it in the context of the observations in the last portion of para-9 of the said judgment. Therefore even the Hon’ble supreme court’s decision suggests that the satisfaction need not be recorded in a particular manner but from a reading of the assessment order as a whole such satisfaction should be clearly discernible. If the AO accepts all the contentions of the assessee and the offer of income that has not been declared in the return of income to tax without indicating either directly or indirectly that the assessee has concealed particulars of income or furnished inaccurate particulars of income, it cannot be said that satisfaction for initiation of penalty proceedings is discernible from the order of assessment. If the assessee in good faith offers income to tax voluntarily prior to any positive detection by the AO, such voluntary offer cannot be taken advantage of by the AO to initiate penalty proceedings against the assessee without specifying the reasons why penalty proceedings are initiated u/s.271(1)(c) of the Act. In the present case, we have read the order of assessment as a whole and are satisfied that satisfaction for initiation of penalty proceedings is not discernible from the order of assessment. We therefore concur with the argument of the learned counsel for the assessee that initiation of penalty proceedings was not proper in the present case and on that ground the imposition of penalty u/s.271(1)( c) of the Act is unsustainable.
(ii) The next argument that the show cause notice u/s.274 of the Act which is in a printed form does not strike out as to whether the penalty is sought to be levied on the for “furnishing inaccurate particulars of income” or “concealing particulars of such income”. On this aspect we find that in the show cause notice u/s.274 of the Act the AO has not struck out the irrelevant part. It is therefore not spelt out as to whether the penalty proceedings are sought to be levied for “furnishing inaccurate particulars of income” or “concealing particulars of such income”.
(iii) The Hon’ble Karnataka High Court in the case of CIT & Anr. v. Manjunatha Cotton and Ginning Factory, 359 ITR 565 (Karn), has held that notice u/s. 274 of the Act should specifically state as to whether penalty is being proposed to be imposed for concealment of particulars of income or for furnishing inaccurate particulars of income. The Hon’ble High court has further laid down that certain printed form where all the grounds given in section 271 are given would not satisfy the requirement of law. The Court has also held that initiating penalty proceedings on one limb and find the assessee guilty in another limb is bad in law. It was submitted that in the present case, the aforesaid decision will squarely apply and all the orders imposing penalty have to be held as bad in law and liable to be quashed. It is clear from the aforesaid decision that on the facts of the present case that the show cause notice u/s. 274 of the Act is defective as it does not spell out the grounds on which the penalty is sought to be imposed. Following the decision of the Hon’ble Karnataka High Court, we hold that the orders imposing penalty in all the assessment years have to be held as invalid and consequently penalty imposed is cancelled.
When we were in the department we have checks and counter checks before an assessment order and accompanying notices to verify the accuracy of the same by the head clerk and now present office superintendents. No where in the present set up the work is being counter checked as such. The inspections by CITs of an assessment circle / unit was focusing these aspects also. The CBDT had issued work load specifications for each cadre in the office manuals. But none of the staff or officers or supervisory officers ever seen any such publications. Till such remedial measures are implemented this state of affairs will continue and will be there for ever.
Violations of Procedure by an assesses are viewed gravely and penal action is initiated without use of discretion. The notice is printed and it is the normal course of action that clauses that are not applicable are struck of and then it is issued . These notices are of a statuary nature and as such needs extra care for it is issued under the seal of Government.
The recent case that comes to ones mind is the date of filing of return and filing of the audit report .Any violation attracts severe penal consequences .
The cavalier attitude of the officials who wield power leaves much to desire .They have the discretion to take a decision in favor of the assessee or against him on the basis of material before him.He is both the judge and the prosecutor .Hence there is the onus on him to deliver justice as well as punishment as prescribed .
Many officials feel that they are there only to penalize but few realize that they can also use their discretion to allow some concessions .The mind set of the officials need to change