Calcutta High Court
Tax vs M/S. Thakur Prasad Sao & Sons on 2 May, 2024
Author: Rajarshi Bharadwaj
Bench: Rajarshi Bharadwaj
1
A.F.R.
OD - 2
IN THE HIGH COURT AT CALCUTTA
Special Jurisdiction [Income Tax]
ORIGINAL SIDE
ITA/66/2018
PRINCIPAL COMMISSIONER OF INCOME
TAX-1, KOLKATA
VS
M/S. THAKUR PRASAD SAO & SONS.
PVT. LTD.
BEFORE :
THE HON'BLE JUSTICE SURYA PRAKASH KESARWANI
And
THE HON'BLE JUSTICE RAJARSHI BHARADWAJ
Date :2nd May, 2024
Appearance :
Smt. Smita Das De, Adv.
...for the appellant.
Sri Abhratosh Majumder, Sr. Adv.
Sri AvraMazumder, Adv.
Smt. Alisha Das, Adv.
Sri Samrat Das, Adv.
Sri Kausheyo Roy, Adv.
...for the respondent.
1. Heard Smt. Smita Das De, learned senior standing counsel for the
appellant/revenue and Mr. Abhratosh Majumder, learned senior advocate
assisted by Mr. AvraMazumder, learned counsel for the
respondent/assessee.
2. The present appeal relates to penalty under section 271(1)(c) of the
Income Tax Act, 1961 (hereinafter referred to as the said 'Act, 1961')
relating to assessment years 2006-07 and 2007-08.
3. This appeal was admitted by this Court by order dated 14th May, 2018 on
the following substantial question of law :-
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"Whether the penalty proceedings under Section 271(1)(c) of the
Income Tax Act, 1961 are invalid if the show-cause notice does
not specifically spell out the grounds for imposition of the
proposed penalty?".
Facts
4. Briefly stated facts of the present case are that a search was conducted by
the income tax department on 23.11.2007 under section 132(1) of the
Act, 1961 against various persons and business concerns of "Thakur
Prasad Sao Group of Chaibasa" at different locations of Chaibasa and
Kolkata. A survey was conducted under section 133A of the Act was
carried out simultaneously at different places of the Group at Joda
(Orissa), Rourkela, Jamshedpur and Tirildih(Jamshedpur). The aforesaid
Group is engaged in mining of iron ore, manufacturing of sponge iron and
trading in liquor. In the course of search and seizure operations,
Panchnama were drawn in the name of various assessees in the Group
including the assessee herein. After the search and seizure operations, the
respondent/assessee has disclosed income of Rs.4,99,00,000/- through
Sri R.P. Sao, director of the company for the assessment year 2006-07. A
notice under section 153A of the Act was issued and assessment was
completed determining total income of the respondent/assessee at
Rs.27,14,06,050/-. Against the aforesaid assessment order under section
153A, the respondent/assessee filed an appeal before the CIT(A) who
granted the relief by deleting additions of Rs.54,91,493/-. During the
course of assessment proceedings, the respondent/assessee admitted
that cash amounting to Rs.4,20,19,077/- was received without there
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being any supply of material to the party concerned, i.e. Sree Metallik
Limited. On the basis of the aforesaid entries, Sri Ramesh Prasad Sao
declared an undisclosed income of Rs.4,30,00,000/- including the
aforesaid amount, in the return of income filed under Section 153A for the
assessment year 2007-08. Under invoicing of sales was also admitted
by the respondent/assessee which was not recorded in the books of
accounts that were offered to tax as part of disclosure under section
132(4) of the Act. (Accordingly, a sum of Rs.19,25,388/- for the
assessment year 2006-07 and Rs.43,02,020/- for the assessment year
2007-08 were disclosed as an additional income pursuant to the search.)
It was also found that expenditures under various heads were enhanced
by the assessee to the extent of Rs.4,79,05,925/- which the
respondent/assessee admitted to be not genuine business expenses
and, accordingly, disclosed additional income pursuant to the search in
the assessment year 2006-07. Thus, a total sum of Rs.4,99,00,000/-
was admitted as undisclosed income in the assessment year 2006-07
which forms part of total disclosure of Rs.27 crores of the Group made
under section 132(4) of the Act, 1961.
5. Similarly, for the assessment year 2007-08 notice under section 153A of
the Act, 1961 was issued to the respondent/assessee on 26.2.2009 and in
response thereof, respondent/assessee filed return of income on
31.3.2009 declaring total income of Rs.1,38,39,05,410/- as against
original return filed on 31.10.2007 under section 139 disclosing income of
Rs.127,24,13,150/-. After the search and seizure operations and
impounding of documents, the respondent/assessee declared an
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undisclosed income of Rs.13,16,25,370/- which was added to the
income disclosed in the returns apart from certain other additions.In
the assessment order the assessing officer mentioned that penalty
proceeding under section 271(1)(c) of the
Act, 1961 has been initiated and show cause notice under section 274 for
imposing penalty under section 271(1)(c) read with Explanation 5A of the
Act is being issued separately.
6. The aforesaid assessment orders were followed by notices under section
271(1)(c) read with section 274 of the Act, 1961. The respondent/assessee
participated in the penalty proceedings for both the assessment years i.e.
assessment years 2006-07 and 2007-08 and made submissions through
his authorised representative, namely, Sri Manav Chhawchharia, FCA, as
under -
Submissions for assessment year 2006-07 in penalty proceeding
(i) Total disclosure of Rs. 27 crores was made in the name of various
assesses of the Sao Group. The company has admitted
undisclosed income of Rs. 4,99,00,000/-for the A.Y. 2006-07.
(ii) In the statement recorded u/s 132(4) on 24-11-2007, Mr. R.P. Sao,
Director of the Co. said thatthe ad-hoc disclosure of additional
income ofRs. 4.99 Cores for the A.Y.2006-07 was made on the
expectations that no penalty u/s 271(0)(c) will be imposed upon it.
(iii) Undisclosed income of Rs. 4,99,00,000/- was duly included in the
return filed u/s 153A which is treated as return u/s 139.
Assessment was also completed on the returned income; hence no
question of penalty arises.
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(iv) Disclosure u/s 153A was made by the assesse voluntarily,
after the search. Thus, there is no concealment of income in this
year.
Submissions for assessment year 2007-08 in penalty proceeding
(i) Total disclosure of Rs.27 crores was made in the name of various
assesses of the Sao Group. The company has admitted
undisclosed income of Rs. 10,63,00,000/-for the A.Y. 2007-08.
(ii) In the statement recorded u/s 132(4) on 24-11-2007, the
assesseeCo. said that the ad-hoc disclosure of additional income of
Rs.10.63 Crores for this year was made on the expectations that no
penalty u/s 271(1)(c) would be imposed upon it.
(iii) Undisclosed income of Rs. 10,63,00,000/- was duly included in the
return filed u/s 153A which is treated as return u/s 139.
Assessmentwas also completed on the returned income; hence no
question of penalty arises.
(iv) Disclosure u/s 153A was made by the assesse Voluntarily,
after the search. Thus, there is noconcealment of income in this
year.
7. The assessing officer considered the submissions of the
respondent/assessee and imposed a penalty of Rs.1,67,97,340/- under
section 271(1)(c) of the Act read with Explanation 5A for the assessment
year 2006-07 and Rs.3,63,20,279/- for the assessment year 2007-08.
8. The reasons recorded by the assessing officer in the penalty order for the
assessment year 2006-07, is reproduced below :-
"The above submission has been carefully considered. The relevant facts
of the case are reproduced below to ascertain whether the assessee had
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indeed declared voluntarily the undisclosed income of Rs.4,99,00,000/-
for the A.Y. 2006-07:
a) Original return was filed voluntarily u/s 139 on 25-11-2006
disclosing total income of Rs.22,15,91,170/- and further revised u/s
139(5) on 13-10-2007 reducing the total income to 21,60,99,680/-.
Return was duly verified by the authorized signatory of the
assessee.
b) In the verification of return the assessee has declared that "to the
best of my knowledge and belief. the information given in the
return thereto is correct and complete and that the amount
of total income and other particulars shown therein are truly
stated and are in accordance with the provisions of the
Income Tax Act, 1961, in respect of income chargeable to
income tax the previous year relevant to the assessment year
2006-07.
c) Pages 4 & 16 of the seized documents marked as TPS -9 indicates
the difference between total sales and sales recorded in Regular
Books in case of M/S D.D. International. Thus entries on those
pages related to the previous year 2005-06 relevant to the A.Y.
2006-07.
d) Assessee admitted during the course of search that expenditure
under various heads were inflated to the extent of Rs.
4,79,05,925/- and the under-invoiced sale to the tune of
Rs.19,25,388/-, which was exposed from the seized documents
and printout taken from the impounded laptop. These facts were
neither recorded in the company's regular Books of a/cs nor in any
regular books of a/cs of any other member of this Group. This was
undisclosed income of the assesse Co. which was within the
knowledge of the concerned Authorised Signatory as on 25-
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11-2006 & 13-10-2007 when the original and revised returns
were filed.
e) Thus, the assessee Co. has wilfully, deliberatelyand
intentionally concealed the particulars of the income to the
extent of Rs.4,99,00,000/- for the A.Y. 2006-07 while filing the
original on return of income on 25-11-2006 and revised return on 13-
10-2007.
f) Assessee admitted the undisclosed income only when the
irrefutable evidences like pages 4 & 16 of the loose bunch
marked TPS-9 and printout of laptop was found and
seized/impounded by the Department in course of search/
Survey.
g) Alleged voluntary disclosure u/s 132(4) stated to have been made
with the sole intention to get the immunity from imposition of penalty
u/s 271(1)(c)of the I.T Act is in contravention to explanation 5A to
section 271(1)(c). That is why undisclosed income of Rs. 4.99 Crore
was included in the return of income filed u/s 153A only in pursuant
to search for the A.Y. 2006-07.
The submission of the assessee was considered and found to have no
merit in the light of the provisions of the Explanation 5A to section 271(1)(c)
inserted by the Finance Act 2007. The provisions are very clear that if any
undisclosed income is found or declared after the date of search initiated
u/s 132 on or after the 01-06-2007, the on the said assessee will be liable
for penalty on the said income & investment not already declared in the
return filed under Section 139(1) of the Act. In this case, the assessee
had filed return of income u/s 139(1) for the A.Y.2006-07 on 25-11-
2006. But the income in question was not offered in the said
return filed u/s 139(1). Accordingly, I am of the considered opinion
that this is a fit case for imposition of penalty u/s 271(1)(c) read
with Explanation -5A of the I.T. Act.
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9. The reasons recorded by the assessing officer in the penalty order for the
assessment year 2007-08, is reproduced below :-
"The above submission has been carefully considered. The relevant facts
of the case are reproduced below to ascertain whether the assessee had
indeed declared voluntarily the undisclosed income of Rs. 10,63,00,000/-
for the A.Y. 2007-08:
a) Original return was filed voluntarily u/s 139 on 31-10-2007
disclosing total income of Rs.127,24,13,150/- and was duly
verified by the authorized signatory of the assessee.
b) In the verification of return the assessee has solemnly
declared that "to the best of my knowledge and belief, the
information given in the return thereto is correct and
complete and that the amount of total income and other
particulars shown therein are truly stated and are in
accordance with the provisions of the Income Tax Act,
1961, in respect of income chargeable to income tax the
previous year relevant to the assessment year 2007-08."
c) Pages 3, 4 & 15 of the seized documents marked as
TPS -9 indicates the difference between total sales and
sales recorded in Regular Books. Thus entries on those
pages related to the previous year 2006-07 relevant to the A.Y.
2007-08.
d) Assessee admitted during the course of search that
expenditure under various heads were inflated which was
exposed from the seized documents and printout taken from the
impounded laptop, Hard Disks etc. These facts were neither
recorded in the company's regular Books of a/cs nor in any
regular books of a/cs of any other members of the Group. This
was undisclosed income of the assesse Co. which was within
the knowledge of the concerned Authorised signatory as on 31-
10-2007 when the original and revised returns were filed.
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e) Thus, the assessee Co. has wilfully, deliberately and
intentionally concealed the particulars of the income to
the extent of Rs.10.63 Crores for the A.Y. 2007-2008
while filing the original return of income on 31.10.2007.
f) Apart from the above, the assessee has intentionally
furnished inaccurate particulars as discussed above
namely, Suspense and Advance of 139(1) on 31-10-2007. Rs.
603386/-, cash receipt from S.K Naredi for Rs.10,00,000/-
while filing the original return u/s 139(1) on 31-10-2007.
g) Assessee admitted the undisclosed income only when the
irrefutable evidences like pages 3, 4 & 15 of the loose bunch
marked TPS-9, printout of laptop, Recordings of Computer Hard
disk. Audited Balance Sheet for the A.Y. 2007-08 and other
loose sheets which were found and seized/impounded by the
Department in course of search/ Survey.
h) Alleged voluntary disclosure u/s 132(4) stated to have made
with the sole intention to get the immunity from imposition of
penalty u/s 271(1)(c) of the I.T Act is in contravention to
explanation 5A to section 271(1)(c). That is why undisclosed
income of Rs. 10.63 Crore was included in the return of income
filed u/s 153A only in pursuant to search for the A.Y. 2007-08.
The submission of the assessee was considered and found to have no
merit in the light of the provisions of the Explanation 5A to section
271(1)(c) inserted by the Finance Act 2007. The provisions are very clear
that if any undisclosed income is found or declared after the date of
search initiated u/s 132 on or after the 01-06-2007, the assessee will be
liable for penalty on the said income/investment not already declared in
the return filed under section 139(1) of the Act. In this case, the assessee
had filed return of income u/s 139(1) for the A.Y. 2007-08 on 31-10-2007.
But the income in question was not offered in the said return filed u/s
139(1). Accordingly, I am of the considered opinion that this is a fit case
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for imposition of penalty u/s 271(1)(c) read with Explanation -5A of the
I.T. Act, 1961."
10. Aggrieved with the aforesaid penalty orders under section 271(1)(c) of the
Act, 1961, the respondent/assessee filed an appeal being Appeal
No.352/CC-XVII/CIT(A), C-1/12-13 for the assessment year 2006-07 and
appeal No.351/CC-XVII/CIT(A), C-1/12-13 for the assessment year 2007-
08. Both the aforesaid appeals were dismissed by the Commissioner of
Income Tax (Appeals), Central - 1, Kolkata.
11. Aggrieved with the aforesaid orders of the CIT(A), the respondent/assessee
filed an appeal being ITA No.1434/Kol/11 for the assessment year 2006-
07 and an appeal being ITA No.1535/Kol/11 for the assessment year
2007-08 before the Income Tax Appellate Tribunal, Bench "A", Kolkata
and both were allowed by order dated 23.3.2016 passed by the ITAT. The
Tribunal allowed an appeal holding as under -
3.6.5 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.
3.6.6. For the reasons given above, we hold that the levy
of penalty in the present case cannot be sustained. We therefore cancel
the orders imposing penalty on the assessee and allow the appeals of
the assessee. In view of our above conclusions on the issue of defect in
show cause notice u/s 274 of the Act, we are not dealing with the
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other arguments made on merits of the orders imposing penalty on the
assessee.
12. Aggrieved with the aforesaid order of the ITAT, the appellant/revenue has
filed the present appeal.
Submissions
13. Learned counsel for the appellant submits that the penalty for both the
assessment years was lawfully imposed by the assessing officer and it was
correctly upheld by the CIT(A). The Tribunal has committed a manifest
error on law and facts to set aside both the penalty orders. She submits
that in view of the judgment of Hon'ble Supreme Court in K.P.
Madhusudhanan Vs. Commissioner of Income Tax, Cochin (2001) 6 SCC
665 (para 10), the impugned order of the ITAT deserves to be set aside.
14. Learned counsel for the respondent/assessee submits that the
assessing officer has failed to initiate penalty proceedings under section
271(1)(c) of the Act, 1961 during the course of assessment proceeding
and has not recorded that the assessee has concealed his income.
15. Therefore, the penalty orders were quite illegal and have been lawfully
set aside by the ITAT. He further submits that in the notice under
Section 274 of the Act, 1961, the assessing officer has not recorded the
grounds on which the penalty was sought to be imposed. Therefore, the
notice under Section 271 (1)(c) of the Act, 1961 was defective.
Consequently, the ITAT has not committed any error of law or fact to set
aside both the penalties. In support of his submission, learned counsel
for the respondent/assessee has relied upon the following judgments:
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i) (2013) 359 ITR 565 (Kar.) Commissioner of Income Tax & Anr.
vs. Manjunatha Cotton & Ginning Factory (paragraphs 62 &
63);
ii) (2023) 154 taxmann.com 433 (Cal) Principal Commissioner of
Income Tax-II, Kolkata vs. Industrial Safety Project (P) Ltd.
(paragraph 13);
iii) Order dated 26.02.2019 in ITAT No.8 of 2019 Principal CIT-I,
Kolkata vs. M/s. SRMB Srijan Ltd.;
iv) Order dated 22.04.2019 in ITAT No.272 of 2017 Principal
Commissioner of Income Tax, Central-II, Kolkata vs. Bijoy
Kumar Agarwal;
v) (2021) 434 ITR 1 (Bom.) Mr. Md. Farhan A. Shaikh vs. The
Deputy Commissioner of Income Tax (Central), Circle-I,
Belgaun & Anr.
vi) (2005) 278 ITR 32 (Del.) Commissioner of Income Tax vs. Auto
Lamps Ltd.
Discussion & Findings:
16. We have carefully considered the submission of the learned counsel for
the parties and perused the paper book.
17. Before we proceed to examine the rival submissions of learned counsels
for the parties, it would be appropriate to reproduce the relevant
provisions of the Act, 1961 as under:
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271. (1) If the [Assessing] Officer or the "[*] [Commissioner (Appeals)] [or
the Commissioner] in the course of any proceedings under this Act, is
satisfied that any person-
(a) [ * * *]
(b) * * *
(c) has concealed the particulars of his income or [***]
furnished inaccurate particulars of [such income, or]
(d) * * *
he may direct that such person shall pay by way of penalty-
(i) [ * * *]
(ii) in the cases referred to in clause (b), "[in addition to tax, if any,
payable] by him, "[a sum of ten thousand rupees] for each such
failure:]
(iii) in the cases referred to in clause (c) "[or clause (d)], "[in addition
to tax, if any, payable] by him, a sum which shall not be less
than, but which shall not exceed [three times], the amount of tax
sought to be evaded by reason of the concealment of particulars
of his income [or fringe benefits] or the furnishing of inaccurate
particulars of such income "[or fringe benefits].
Explanation 1.-Where in respect of any facts material to the
computation of the total income of any person under this Act,-
(A) such person fails to offer an explanation or offers an explanation
which is found by the [Assessing] Officer or the [Commissioner
(Appeals)] "[or the Commissioner] to be false, or
(B) such person offers an explanation which he is not able to
substantiate [and fails to prove 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],
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then, the amount added or disallowed in computing the total income of
such person as a result thereof shall, for the purposes of clause (c) of
this sub-section, be deemed to represent the income in respect of which
particulars have been concealed.
Explanation 2.- Where the source of any receipt, deposit, outgoing or
investment in any assessment year is claimed by any person to be an
amount which had been added in computing the income or deducted in
computing the loss in the assessment of such person for any earlier
assessment year or years but in respect of which no penalty under
clause (iii) of this sub-section had been levied, that part of the amount so
added or deducted in such earlier assessment year immediately
preceding the year in which the receipt, deposit, outgoing or investment
appears (such earlier assessment year hereafter in this Explanation
referred to as the first preceding year) which is sufficient to cover the
amount represented by such receipt, deposit or outgoing or value of such
investment (such amount or value hereafter in this Explanation referred
to as the utilised amount) shall be treated as the income of the assessee,
particulars of which had been concealed or inaccurate particulars of
which had been furnished for the first preceding year; and where the
amount so added or deducted in the first preceding year is not sufficient
to cover the utilised amount, that part of the amount so added or
deducted in the year immediately preceding the first preceding year
which is sufficient to cover such part of the utilised amount as is not so
covered shall be treated to be the income of the assessee, particulars of
which had been concealed or inaccurate particulars of which had been
furnished for the year immediately preceding the first preceding year
and so on, until the entire utilised amount is covered by the amounts so
added or deducted in such earlier assessment years.
Explanation 3.--Where any person [***] fails, without reasonable cause,
to furnish within the period specified in sub-section (1) of section 153 a
return of his income which he is required to furnish under section 139 in
respect of any assessment year commencing on or after the 1st day of
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April, 1989, and until the expiry of the period aforesaid, no notice has
been issued to him under clause (i) of sub-section (1) of section 142
Commissioner or section 148 and the Assessing Officer or the
Commissioner (Appeals) is satisfied that in respect of such assessment
year such person has taxable income, then, such person shall, for the
purposes of clause (c) of this sub-section, be deemed to have concealed
the particulars of his income in respect of such assessment year,
notwithstanding that such person furnishes a return of his income at
any time after the expiry of the period aforesaid in pursuance of a notice
under section 148.]
Explanation 4.- For the purposes of clause (iii) of this sub-section, the
expression "the amount of tax sought to be evaded",-
(a) in any case where the amount of income in respect of which
particulars have been concealed or inaccurate particulars have been
furnished has the effect of reducing the loss declared in the return or
converting that loss into income, means the tax that would have been
chargeable on the income in respect of which particulars have been
Concealed or inaccurate particulars have been furnished had such
income been the total income;]
(b) in any case to which Explanation 3 applies, means the tax on the
total income assessed [as reduced by the amount of advance tax, tax
deducted at source, tax collected at source and self-assessment tax
paid before the issue of notice under section 148];
(c) in any other case, means the difference between the tax on the total
income assessed and the tax that would have been chargeable had
such total income been reduced by the amount of income in respect of
which particulars have been concealed or inaccurate particulars have
been furnished.]
Explanation 5.-Where in the course of a [search initiated under section
132 before the 1st day of June, 2007], the assessee is found to be the
owner of any money, bullion, jewellery or other valuable article or thing
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(hereafter in this Explanation referred to as assets) and the assessee
claims that such assets have been acquired by him by utilising (wholly or
in part) his income,-
(a) for any previous year which has ended before the date of the
search, but the return of income for such year has not been furnished
before the said date or, where such return has been furnished before
the said date, such income has not been declared therein; or
(b) for any previous year which is to end on or after the date of the
search,
then, notwithstanding that such income is declared by him in any return of
income furnished on or after the date of the search, he shall, for the
purposes of imposition of a penalty under clause (c) of sub-section (1) of
this section, be deemed to have concealed the particulars of his income or
furnished inaccurate particulars of such income, [unless,-
(1) such income is, or the transactions resulting in such income are
recorded.-
(i) in a case falling under clause (a), before the date of the search; and
(ii) in a case falling under clause (b), on or before such date, in the
books of account, if any, maintained by him for any source of income or
such income is otherwise disclosed to the [Chief Commissioner or
Commissioner] before the said date; or
(2) he, in the course of the search, makes a statement under sub-section (4)
of section 132 that any money, bullion, jewellery or other valuable article or
thing found in his possession or under his control, has been acquired out of
his income which has not been disclosed so far in his return of income to be
furnished before the expiry of time specified in [**] sub-section (1) of section
139, and also specifies in the statement the manner in which such income
has been derived and pays the tax, together with interest, if any, in respect
of such income.]
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Explanation 5A.- Where in the course of a search initiated under
section 132 on or after the 1st day of June, 2007, the assessee is
found to be the owner of,-
(i) any money, bullion, jewellery or other valuable article or
thing (hereafter in this Explanation referred to as assets) and
the assessee claims that such assets have been acquired by
him by utilizing (wholly or in part) his income for any
previous year; or
(ii) any income based on any entry in any books of account or
other documents or transactions and he claims that such
entry in the books of account or other documents or
transactions represents his income (wholly or in part) for any
previous year,
which has ended before the date of search and, -
(a) where the return of income for such previous year has been
furnished before the said date but such income has not been
declared therein; or
(b) the due date for filing the return of income for such previous
year has expired but the assessee has not filed the return,
then, notwithstanding that such income is declared by him in any
return of income furnished on or after the date of search, he shall,
for the purposes of imposition of a penalty under clause (c) of sub-
section (1) of this section, be deemed to have concealed the
particulars of his income or furnished inaccurate particulars of
such income."]
Explanation 6.-Where any adjustment is made in the income or loss
declared in the return under the proviso to clause (a) of sub-section (1) of
section 143 and additional tax charged under that section, the provisions
of this sub-section shall not apply in relation to the adjustment so made.]
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Explanation 7.-Where in the case of an assessee who has entered into an
international transaction defined in section 92B, any amount is added or
disallowed in computing the total income under sub-section (4) of section
92C, then, the amount so added or disallowed shall, for the purposes of
clause (c) of this sub-section, be deemed to represent the income in respect
of which particulars have been concealed or inaccurate particulars have
been furnished, unless the assessee proves to the satisfaction of the
Assessing Officer or the Commissioner (Appeals) [or the Commissioner]
that the price charged or paid in such transaction was computed in
accordance with the provisions contained in section 92C and in the
manner prescribed under that section, in good faith and with due
diligence.]
Section 271(1B) (inserted by Finance Act, 2008 (18 of 2008)
with retrospective effect from 1.4.1989-
(1B) Where any amount is added or disallowed in computing the
total income or loss of an assessee in any order of assessment or
reassessment and the said order contains a direction for initiation of
penalty proceedings under clause (c) of sub-section (1), such an order
of assessment or reassessment shall be deemed to constitute
satisfaction of the Assessing Officer for initiation of the penalty
proceedings under the said clause (c).
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.
(2) No order imposing a penalty under this Chapter shall be made-
(a) by the Income-tax Officer, where the penalty exceeds ten
thousand rupees;
(b) by the [Assistant Commissioner or Deputy Commissioner],
where the penalty exceeds twenty thousand rupees,
19
except with the prior approval of the [Joint Commissioner.]
18. From perusal of the provisions afore-quoted, it is clear that if the
assessing officer or the Commissioner (Appeals) or the Commissioner, in
course of any proceeding under this 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
by way of penalty in addition to tax, if any, payable by him, a sum which
shall not be less but which shall not exceed three times, the amount of
tax sought to be evaded by reason of concealment of particulars of his
income or the furnishing of inaccurate particulars of such income.
19. Explanation-5A as afore-quoted is a deeming provision that
notwithstanding that such income is declared by him in the return of
income furnished on after the date of search, he shall for the purposes
of imposition of penalty under clause (c) of sub-section (1) of this section,
be deemed to have concealed the particulars of his income or
furnished inaccurate particulars of such income.
20. In the present set of facts, undisputedly the search and seizure operation
under Section 132 of the Act, 1961 was conducted on 23.11.2007. The
original return of income under Section 139 of the Act, 1961 for the
assessment year 2006-07 was filed by the assessee on 25.11.2006
disclosing total income of Rs.22,15,91,970/- which was revised by him
under Section 139(5) of the Act, 1961 on 13.10.2007 disclosing total
income of Rs.21,60,97,680/- and the notice under Section 153A was
issued to the assessee on 26.02.2009 and pursuant thereto, the
20
assessee filed return of his income for the assessment year 2006-07
on 31.03.2009 declaring a total income of Rs.26,55,63,560/-.
Likewise, for the assessment year 2007-08, the assessee filed original
return of income under Section 139 of the Act, 1961 on 31.10.2007
disclosing total income of Rs.127,24,13,150/-. After the search and
seizure operations on 23.11.2006 and pursuant to the notice dated
26.02.2009 under Section 153A of the Act, 1961, the
respondent/assessee filed return of income for the assessment year
2007-08 on 31.03.2009 declaring total income of
Rs.138,39,05,410/-. Thus, the Explanation-5A creating a deeming
clause of "concealment of particulars of income" is fully attracted on
facts of the present case for both the assessment years.
21. We have carefully perused both the assessment orders for the
assessment years 2006-07 and 2007-08. From the assessment order
for the assessment year 2006-07, it is evident that the
respondent/assessee, due to seizure of various documents etc. during
search and seizure operation under Section 132, on account of strong
and unrebuttable evidences of huge concealment of income, had
admitted concealed income in his return under Section 153A filed on
31.03.2009, after about 28 months of filing of the revised return. The
assessing officer has specifically added Rs.4,99,00,000/- in the income
disclosed by the assessee in his returns, on account of "under-invoiced
of sales", and "inflated expenditures" as per seized documents - as
discussed. The assessing officer initiated penalty proceedings and
observed that "show cause notice under Section 274 for imposing
21
penalty under Section 271(1)(c) read with Explanation-5A of the Act, has
been issued separately."
22. Likewise in the assessment order for the assessment year 2007-08
the assessee filed original return of income on 31.10.2007 i.e. about one
month before the search dated 23.11.2007 in which concealed income of
Rs.13,16,25,370/- was detected. Then he filed return under Section
153A on 31.03.2009 admitting the aforesaid concealed income. The
assessing officer discussed in detail the undisclosed concealed income of
the assessee amounting to Rs13,16,25,370/- which was admitted by the
assessee. In the assessment order, the assessing officer specifically
mentioned that "penalty proceedings under Section 271(1)(c) has been
initiated and show cause notice under Section 274 for imposing penalty
under Section 271 (1)(c) read with Explanation-5A of the Act is being
issued separately."
23. Concluding portions of the findings of undisclosed/concealed income
recorded by the Assessing Officer in the Assessment order for A.Y. 2007-
08 are as under:-
Assessment Year 2006-07
"Under invoicing of sales, and not genuine expenditure as per seized
document - as discussed: Rs.4,99,00,000/-"
Assessment Year 2007-08
22
"The undisclosed income as per seized/impounded documents of the
assessee for the year, as per discussions made in the earlier paragraphs,
is as under:
SI. Particulars Undisclosed Income
(Rs.)
1. Under invoicing of sales as per TPS- 43,02,020
9 (Chaibasa) pages - 3,4,15 & 16
2. Undisclosed income as per SK-2 19,00,000
3. Inflation of expenses as per HBS-7 4,06,57,915
4. Undisclosed income as per SKN-20 5,29,53,306
5. Undisclosed income in view of SKN- 3,17,71,984
20 for the remaining period of the
previous year
6. Miscellaneous Undisclosed income 40,145
as per disclosure petition of the
assessee
Total undisclosed income for A.Y. 2007-08 13,16,25,370
."
24. Thus, from perusal of the assessment orders for both the assessment
years, i.e., 2006-07 and 2007-08 it is evident that the assessing officer
has specifically noted concealment of particulars of income and the
income so concealed was admitted by the respondent/assessee as he
was having no explanation. The concealment was supported by
documentary evidences. The specific amount of undisclosed income was
added in the income disclosed by the assessee in his returns. The
penalty proceedings itself was initiated by the assessing officer while
passing the assessment order. The issuance of notice under Section
274 of the Act, 1961 was in fact, a consequence of the initiation of
23
penalty proceedings by the assessing officer during the course of
assessment proceedings.
25. In D.M. Manasvi vs. Commissioner of Income Tax, Gujarat-II,
Ahmedabad reported in 1973 (3) SCC 207 (pragraphs 8, 10 & 11), the
Hon'ble Supreme Court observed that issuance of notice to assessee
under Section 274 is a consequence of prima facie satisfaction reached
by the assessing officer in the assessment proceedings regarding
concealment of particulars of income or furnishing of inaccurate
particulars of income and held as follows:
"8. The fact that notices were issued subsequent to the
making of the assessment orders would not, in our opinion,
show that there was no satisfaction of the Income-tax Officer
during the assessment proceedings that the assessee had
concealed the particulars of his income or had furnished
incorrect particulars of such income. What is contemplated by clause
(1) of Section 271 is that the Income Tax Officer or the Appellate
Assistant Commissioner should have been satisfied in the course of
proceedings under the Act regarding matters mentioned in the
clauses of that sub-section. It is not, however, essential that notice to
the person proceeded against should have also been issued during
the course of the assessment proceedings. Satisfaction in the
very nature of things precedes the issue of notice and it
would not be correct to equate the satisfaction of the Income-
tax Officer or Appellate Assistant Commissioner with the
actual issue of notice. The issue of notice is a consequence of
the satisfaction of the Income-tax Officer of the Appellate
Assistant Commissioner and it would, in our opinion, be
sufficient compliance with the provisions of the statute if the
Income-tax Officer or the Appellate Assistant Commissioner
tallied about the matters referred to in clauses (a) to (2) of
sub-section (1) of Section 271 during the course of proceedings
under the Act even though notice to the person proceeded against in
pursuance of that satisfaction is issued subsequently. We may in
this context refer to a decision of five judges Bench of this court in
the case of Commissioner of Income-tax v. 5. V. Angidi Chattiar,
24
Shah, J., speaking for the court, while dealing with Section 28 of the
Indian Income-tax Act, 1922, observed:
"The power to impose penalty under Section 28 depends upon the
satisfaction of the Income-tax Officer in the course of proceedings
under the Act; it cannot be exercised if he is not satisfied about the
existence of conditions specified in clauses (a), (b) or (s) before the
proceedings are concluded. The proceeding to levy penalty has,
however, not to he commenced by the Income-tax Officer before the
completion of the assessment proceedings by the Income-tax Officer.
Satisfaction before conclusion of the proceeding under the Act, and
not the issue of a notice or initiation of any step for imposing penalty
is a condition for the exercise of the jurisdiction."
10. We are also not impressed by the argument advanced on behalf
of the appellant that the proceedings for the imposition of penalty
were initiated not by the Income-tax Officer but by the Inspecting
Assistant Commissioner when the matter had been referred to him
under Section 274(2) of the Act. The proceedings for the imposition of
penalty in terms of sub-section (1) of Section 271 have necessarily to
be initiated either by the Income-tax Officer or by the Appellate
Assistant Commissioner. The fact that the Income-tax Officer has to
refer the case to the Inspecting Assistant Commissioner 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 Income-tax Officer. The Income-tax Officer
in such an event can refer the case to the Inspecting Assistant
Commissioner after initiating the proceedings. It would, indeed, be
the satisfaction of the Income-tax Officer in the course of the
assessment proceedings regarding the concealment of income
which would constitute the basis and foundation of the
proceedings for levy of penalty.
11. There is also no force in the submission made on behalf
of the appellant that the Income-tax Officer, before feeling
satisfied regarding the necessity of initiating proceedings for
imposition of penalty and before issuing, the consequential
notice should have issued another notice to the assessee and
held a preliminary enquiry regarding the necessity of
initiating proceedings. Such a course, in our opinion, would result
in mere duplication of the procedure without any advantage to the
parties. A similar contention was advanced in a case relating to
25
initiation of proceedings under Section 34 of the Indian Income-tax
Act, 1922, and was repelled by the Judicial Committee in the case of
Commissioner of Income-tax v. Mahaliram Ramjidas, in the following
words:
"Therefore, a construction of Section 34 which requires a quasi-
judicial enquiry to be held before the powers under the section can
be operated result in mere duplication of procedure and in two
enquiries of the same kind, into the same matter, conducted by the
same official, and without any advantage to the parties. A
construction so unreasonable and unpractical ought not to be
preferred when another construction is open. Accordingly, their
Lordships are of opinion that the Income-tax Officer is not
required by the section to convene the assessee, or to
intimate to him the nature of the alleged escapement, or to
give him an opportunity of being heard, before he decides to
operate the powers conferred by the section."
It may also be observed that what is contemplated by
Sections 271 and 274 of the Act is that there should be,
prima facie, satisfaction of the Income-tax Officer or the
Appellate Assistant Commissioner in respect of the matters
mentioned in sub-section (1) before he hears the assessee or
gives him an opportunity of being heard. The final conclusion
on the point as to whether the requirements of clauses (a), (b)
and (c) of Section 271(1) have been satisfied would be reached
only after the assessee has been heard or has been given a
reasonable opportunity of being heard."
26. In Mak Data Private Limited v. Commissioner of Income Tax - II
(2014) 1 SCC 674 [paragraphs 9 to 13], Hon'ble Supreme Court
considered the provisions of Section 271(1)(c) and Section 274 of the Act,
1961 in the context of surrender of income after search and seizure and
after observing that surrender of income is concealment as the surrender
was not voluntary, and held as under:-
"9. The AO, in our view, shall not be carried away by
the plea of the assessee like "voluntary disclosure", "buy peace",
26
"avoid litigation", "amicable settlement", etc. to explain away its
conduct. The question is whether the assessee has offered any
explanation for concealment of particulars of income or furnishing
inaccurate particulars of income. The Explanation to Section
271(1) raises a presumption of concealment, when a
difference is noticed by the AO, between reported and assessed
income. The burden is then on the assessee to show
otherwise, by cogent and reliable evidence. When the initial
onus placed by the Explanation, has been discharged by him, the
onus shifts on the Revenue to show that the amount in question
constituted the income and not otherwise.
10. The assessee has only stated that he had
surrendered the additional sum of Rs. 40,74,000 with a
view to avoid litigation, buy peace and to channelise the
energy and resources towards productive work and to make
amicable settlement with the Income Tax Department. The
statute does not recognise those types of defences under
Explanation 1 to Section 271(1)(c) of the Act. It is trite law
that the voluntary disclosure does not release the
appellant assessee from the mischief of penal proceedings.
The law does not provide that when an assessee makes a
voluntary disclosure of his concealed income, he had to be
absolved from penalty.
...
12. The AO has to satisfy itself whether the
penalty proceedings be initiated or not during the course of
the assessment proceedings and the AO is not required to
record his satisfaction in a particular manner or reduce it
into writing. The scope of Section 271(1)(c) has also been
elaborately discussed by this Court in Union of India v.
Dharamendra Textile Processors and CIT v. Atul Mohan Bindal."
27. In the present set of facts, the respondent assessee has concealed
particulars of true income in his returns and it is only after the search
and seizure operation was conducted and voluminous documentary
evidences came in the hands of the Income Tax Department evidencing
concealment of income by the assessee only then he surrendered certain
amounts as undisclosed income in the return under Section 153A filed
much subsequent to the search and seizure. Therefore, disclosure of
income was not voluntary but it was on account of concealed
income detected by the Income Tax Department. As observed by
Hon'ble Supreme court in Mak Data Private Limited (supra), the law does
not provide that when an assessee makes a voluntary disclosure of his
concealed income, he has to be absolved from penalty. The assessing
officer has to satisfy only whether the penalty proceeding is to be
initiated or not during the course of assessment proceedings. He is not
required to record his satisfaction in a particular manner or to reduce it
in writhing, as held in Mak Data Private Limited (supra). In the present
set of facts, the assessing officer has recorded his satisfaction in the
assessment order and initiated penalty proceedings under Section
271(1)(c) of the Act, 1961 for concealment of particulars of income by the
respondent assessee. He also directed for issuance of notice. The
issuance of notice under Section 274 of the Act, 1961 was merely a
consequence of the penalty proceeding initiated by the Assessing Officer
during the course of assessment proceedings. The assessee was well
aware of the fact of concealment of particulars of income by him,
which was well discussed in both the assessment orders by the
assessing officer.
28. Language of the Explanation 5A to Section 271(1) of the Act, 1961 is
plain and unambiguous. It applies to cases where, in the course of
search initiated under Section 132 or after the 1st day of June 2007, the
assessee is found to be the owner of any asset as mentioned in clauses
(i) or (ii) representing his income in any previous year which has ended
before the date of search and where the return of income for such
previous year has been furnished before the date of search but such
income has not been declared therein; or the due date for filing the
return of income for such previous year has expired but the assessee has
not filed the return, then, notwithstanding that such income is
declared by him in any return of income furnished on or after the
date of search, he shall, for the purpose of imposition of a penalty
under Clause (c) of sub-section (1) of Section 271, be deemed to
have concealed the particulars of his income or furnished
inaccurate particulars of such income. The judgment of Hon'ble
Supreme Court in Mak Data Pvt. Ltd. (supra) is also on the same line.
The respondent assessee could not lead any evidence that
Rs.4,99,00,000/- for A.Y. 2006-07 and Rs.10.63 crores for A.Y. 2007-08
detected as concealed income in search dated 23.11.2007 were either
disclosed in his original or revised returns of income or were not his
concealed income, rather he admitted it as his undisclosed income
attracting penalty under clause (c) of sub-section (1) of Section 271 of
the Act, 1961.
Legal Fiction
29. Section 271(1B) as afore-quoted was inserted by Finance Act, 2008 (18
of 2008) with retrospective effect from 01.04.1989, which specifically
provides that where any amount is added or disallowed in computing the
total income or loss of the assessee in any order of assessment or re-
assessment of the and the said order contains a direction for
initiation of penalty proceedings under clause (c) of sub-section (1),
such an order of assessment or reassessment shall be deemed to
constitute satisfaction of the Assessing Officer for initiation of the
penalty proceeding under the said clause (c). In the present set of
facts, the Assessing Officer has not only recorded detailed findings of
undisclosed income of the assessee while passing the assessment order
but also clearly mentioned under-invoicing of sales by the assessee in
the books for the assessment year 2006-07 [Rs.19,25,388/-] and for the
assessment year 2007-08 [Rs.43,02,020/-]. Expenditures under various
heads were inflated to the extent of Rs.4,79,05,925/- in A.Y. 2006-07
which were not genuine business expenditures and were admitted by
the assessee to be so. The assessing officer also clearly observed in the
assessment order for the assessment year 2006-07 that the
undisclosed income of Rs.4,99,00,000/- found from the
seized/impounded documents have been declared by the assessee
in the return filed under Section 153A for the assessment year
2006-07. Thus, the undisclosed income has been clearly
admitted by the assessee. In Mak Data Private Limited (supra),
Hon'ble Supreme Court has clearly observed that surrender of
income after search is not voluntary but concealment. The deeming
provision as provided in sub-section (1B) was inserted by the Parliament
on account of certain judgements after taking note of the judicial
pronouncement, as observed by the Karnataka High Court in the case of
Manjunatha Cotton and Ginning Factory (supra) [relied by the
respondent assessee], as under:-
"... After taking note of the judicial pronouncements in
this regard, the Legislature thought it fit to insert section
271(1B), which reads as under:
"271. (1B) Where any amount is added or disallowed in
computing the total income or loss of an assessee in any
order of assessment or reassessment and the said order
contains a direction for initiation of penalty proceedings
under clause (c) of sub-section (1), such an order of
assessment or reassessment shall be deemed to constitute
satisfaction of the Assessing Officer for initiation of the
penalty proceedings under the said clause (c)."
By the aforesaid deeming provision a legal fiction is
created. When the assessment order contains a direction
for initiation of penalty proceedings such order shall deem
to constitute satisfaction of the Assessing Officer for
initiation of penalty proceedings under sub-clause (c) of
section 271 of the Act."
30. Thus, sub-section (1B) of Section 271 creating a legal fiction deserves to
be given full effect. In Builders Association of India and others etc.
etc. v. Union of India and others etc. etc. AIR 1989 SC 1371
(paragraph 36) a Constitution Bench of Hon'ble Supreme Court held
that when the law creates a legal fiction, such fiction should be
carried to its logical end. There should not be any hesitation in giving
full effect to it. In Bhavnagar University v. Palitana Sugar Mill Pvt.
Ltd. & Ors. JT 2002 (10) SC 55 (paragraph 23), Hon'ble Supreme
Court held that when a legal fiction is created, it must be given full
effect. Similar principle has been laid down by Hon'ble Supreme Court
in M. Venugopal v. Divisional Manager, Life Insurance Corporation
of India, Machilipatnam A.P. & Anr. JT 1994 (1) SC 281, Indian Oil
Corporation v. Chief Inspector of Factories & Ors. etc. (1998) 5 SCC
738, Voltas Limited, Bombay v. Union of India & Ors. 1995 SCC
(Supp) 2 498, Harish Tandon v. Additional District Magistrate,
Allahabad, U.P. & Ors. (1995) 1 SCC 537, G. Viswanathan etc. v.
Hon'ble Speaker, Tamil Nadu Legislative Assembly, Madras & Anr.
(1996) 2 SCC 353, Prafulla Kumar Das & Ors. v. State of Orissa &
Ors. JT 2003 (9) SC 477 [paragraph 47] and Ashok Leyland Ltd. v.
State of Tamil Nadu & Anr. JT 2004 (1) SC 289 [paragraphs 64-70].
31. In Sadashiv Dada Patil v. Purushottam Onkar Patil (D) by LRs. JT
2006 (9) SC 64 (paragraphs 27 to 30), Hon'ble Supreme Court
observed that legal fiction should not be extended beyond the scope
thereof or beyond the language by which created. It cannot be pushed
too far to result in enormous or absurd position. In the present set of
facts, we find that the legal fiction created either by Explanation 5A
or by Section 271(1B) of the Act, 1961 has been neither extended
beyond the said provision nor beyond the language by which it has
been created.
32. In Commissioner of Commercial Tax, Ranchi and Another v. Swarn
Rekha Cokes and Coals Pvt. Ltd. and Others 2004 (136) STC 57 SC
(paragraph 29), Hon'ble Supreme Court observed the Court should
ascertain the purpose for which the legal fiction is created and
having done so to assume all those facts and consequences which
are incidental or inevitable corollaries to give effect to the fiction.
When the law requires that an imaginary state of affairs should be
treated as real, then, unless prohibited from doing so, one must also
imagine as real the consequences and incidents which, if putative
state of affairs had in fact existed, must inevitably have flowed from
or accompanied it.
33. In Bangaru Laxman v. State (Through CBI) and Another (2012) 1
SCC 500 (paragraphs 20-24) and State of Madhya Pradesh and
Others v. Lafarge Dealers Association and Others (2019) 7 SCC 584
(paragraphs 15-29), Hon'ble Supreme Court again observed that a
deeming provision is a legal fiction and an admission of non-existence of
the fact deemed. Therefore, while interpreting the provision creating a
legal fiction, the Court has to ascertain the purpose for which the fiction
is created. We have already discussed the purpose for which the legal
fiction either in Explanation 5A or sub-section (1B) of Section 271 has
been created.
Principle of Construction/Interpretation of Statute
34. A fiscal statue has to be interpreted on the basis of language used
therein and not dehors the same. No words ought to be added or deleted.
Only the language used in the statue ought to be considered so as to
ascertain proper meaning and intent of the legislation. The court is to
ascribe natural and ordinary meaning to the words used by the
legislature and the court ought not, under any circumstances, to
substitute its own impressions and ideas in place of legislative intent as
is available from a plain reading of the statutory provisions, vide Orissa
State Warehousing Corporation V. Commissioner of Income Tax
(1999) 4 SCC 197 (Para 40). When the language is plain and
unambiguous and admits of only one meaning, no question of
construction of a statue arises, that the Act speaks for itself vide State
of Uttar Pradesh and Ors. V. Dr. Vijay Anand Maharaj AIR 1963 SC
946 and Arul Nadar vs Authorised Officer, Land Reforms (1998) 7
SCC 157 (para 5). It is well known principle of construction of a statue
that when the language used in the statue is unambiguous and on a
plain grammatical meaning being given to the words in the statue, the
end result is neither arbitrary nor irrational nor contrary to the object of
the statue, then it is the duty of the court to give effect to the words used
in the statue as the words declare the intention of the law making for
best vide Jagdish Ch. Patnaik & Ors. V. State of Orissa & Ors. 1998 4
SCC 456 (para 24). In Molar Mal (Dead) Through LRS v. Kay Iron Works
(P) Ltd. reported in (2000) 4 SCC 285 ( Para 12,15) Hon'ble Supreme
Court observed that normally the courts will have to follow the rule of
literal construction which rule enjoins the court to take the words as
used by the legislature and to give it the meaning which naturally
implies. An exception to this rule is that when an application of literal
construction of the words in the statue leads to absurdity, inconsistency
or when it is shown that the legal context in which the words are used or
by reading the statue as a whole it requires a different meaning. In view
of these settled principles of law, provisions of the Explanation 5A to
Section 241(1) has to be given full effect.
35. It is settled law that in interpreting a statute, every effort should be
made to give effect to each and every word used by the legislature.
Presumption is that the legislature inserted every part thereof for a
purpose and the legislative intention is that every part of the statute
should have effect. A construction which attributes redundancy to
the legislature will not be accepted except for compelling reasons
such as obvious drafting errors vide Nathi Devi v. Radha Devi Gupta
JT 2005 (1) SC 1 (paragraphs 12-15) : (2005) 2 SCC 271. There
cannot be any scope for Courts to undertake exercise to read
something into the provision which the legislature in its wisdom
has consciously omitted vide 2009 (242) ELT 162 (paragraphs 14
and 15) [State v. Parmeshwaran Subramani]. Court's jurisdiction to
interpret a statute can be invoked when the same is ambiguous.
Court can iron out fabric but cannot the change the texture of
fabrics. It cannot enlarge the scope of legislation or intention when
language is plain and unambiguous. It cannot add or subtract words
to a statute or read something into it which is not there. It cannot
rewrite or recast legislation. Intention of legislation must be gathered
from the language used. Legislative intention must be found from the
provision. When negative words are used, provision shall be mandatory.
Every clause in a statute be construed with reference to the context and
other clauses of the Act, so as, as far as possible, to make a consistent
enactment of the whole statute or series of statute.
36. There is no ambiguity in section 271(1)(c) or section 271(1B) or in
Explanation 5A to sub-section 1 of section 271(c). Therefore, this Court
cannot assume something which is not expressed or which shall stand
in conflict with the aforesaid provisions. A plain reading of the aforesaid
unambiguous provisions lead to an irresistible conclusion that if an
assessee falls within the four corners of the legal fiction created by
section 271(1B) and the Explanation 5A and the assessing officer has
recorded his satisfaction of concealment of particulars of income during
the course of assessment proceedings then the penalty proceedings
cannot be said to be bad.
37. In the present set of facts the assessing officer has noted in the
assessment order the concealment of particulars of income by the
respondent/assessee. Notices were also directed to be issued as has
been observed in the assessment orders. Once, in the assessment order
the assessing officer has mentioned concealment of particulars of income
by the assessee, the notice under section 274 is merely consequential.
The respondent/assessee was well aware of the grounds of concealment
of income recorded in the assessment order which he admitted. Section
274 of the Act prohibits imposition of penalty unless the assessee has
been heard or has been given a reasonable opportunity of being heard. It
is admitted fact of the case that the respondent/assessee was heard by
the assessing officer who passed the penalty order. The submissions
made by the respondent/assessee before the assessing officer in penalty
proceedings, have been noted by the assessing officer which have also
been reproduced by us above. Thus, it is undisputed that the
respondent/assessee has been heard. Under the circumstances, when a
satisfaction has been recorded by the assessing officer during the
assessment proceedings, consequential notice under section 274 was
issued to the respondent/assessee and the respondent/assessee has
been afforded an opportunity of being heard then the Tribunal has
committed a manifest error of law and facts and has completely
misdirected itself to set aside the penalty orders on the ground that "the
grounds for imposition of penalty were not mentioned in the show cause
notice under section 274 of the Act and thus, the show cause notice was
defective". The conclusion of the Tribunal is also in conflict with the law
laid down by Hon'ble Supreme Court in D. M. Manasrei (supra) and Mak
Data Pvt. Ltd. (supra).
38. Learned Counsel for the assessee respondent has relied upon certain
High Courts judgment which we now proceed to examine. In
Manjunatha Cotton And Ginning Factory (Supra) heavily relied by
learned counsel for the respondent assessee, Karnataka High Court
held that "Notice under Section 274 of the Act should specifically state
the grounds mentioned in Section 271(1)(c)" and "the assessee should
know the grounds which he has to meet specifically". We find that in the
present set of facts, notice under Section 274 for penalty under Section
271(1)(c) of the Act, 1961 was issued by the Assessing Officer to the
respondent assessee to afford him opportunity of hearing for
concealment of particulars of income. Details of un-disclosed/concealed
income have been well mentioned in the Assessment Order of the
respondent assessee and being well aware of it, the respondent assessee
made specific submission in penalty proceedings which we have
reproduced above. Thus, essential requirements of Section 271(1)(c)
read with Section 274 have been complied with. Law in this regard has
been well explained by Hon'ble Supreme Court in D. M. Manasri (supra)
and Mak Data Pvt. Ltd. (supra) which are binding precedent. Any
observation in the above noted Karnataka High Court judgment contrary
to the judgments of Hon'ble Supreme Court, is not a good law. Hon'ble
Supreme Court in CIT v. SSA's Emerald Meadows (2016) 73
Taxmann.com 248 dismissed the SLP in limine. The next judgment
relied by learned counsel for the respondent assessee is the judgment of
this Court in Principal Commissioner of Income Tax-2 v. Industrial
Safety Products (P) Ltd. (2023) 154 Taxmann.com 433 (Cal.) which
relates to penalty proceedings under Section 271AAB and on facts this
Court found that no substantial question of law was involved. The next
relied upon judgment is of this Court in ITAT 8 of 2019 decided on
26.02.2019 by which the appeal was dismissed on the ground that
unless the charge against the assessee was specific, the same cannot be
maintained. In the present set of facts, the charge against the assessee
was specific that he has undisclosed income/concealed his income.
Detail facts in this regard were mentioned in the assessment order.
Pursuant to notice under Section 274, the assessee submitted specific
reply in penalty proceedings under Section 271(1)(c). Thus, the aforesaid
order of the coordinate Bench is distinguishable on facts. The next
relied upon order is of this Court in Principal Commissioner of Income
Tax, Central-2 Kolkata v. Bijoy Kumar Agarwal (ITAT No. 272 of
2017) by which appeal was dismissed on the ground that the notice
under Section 271(1)(c) does not specify which of the two contraventions,
the assessee is guilty of. In the present set of facts, the notice under
Section 274 for imposition of penalty under Section 271(1)(c) of the Act,
1961 was issued to the respondent assessee for concealment of
particulars of income/undisclosed income which were well mentioned in
the Assessment Order. The assessee made specific submissions before
the assessing officer in penalty proceedings which have been reproduced
above. Neither there was any allegation of breach of principles of natural
justice not it has been violated. Thus, the aforesaid order in Bijoy
Kumar Agarwal's case is distinguishable. The next relied upon
judgments are the judgment of Bombay High Court in Mr. Mohd. Farhan
(supra) and Delhi High Court in Auto Lamps Ltd. (supra) which are not
only distinguishable on facts but also are not binding on this Court.
39. For all the reasons afore-stated, the impugned order the Income Tax
Appellate Tribunal dated 23.3.2016 in ITA No.1434/Kol/11 for the
assessment year 2006-07 and in ITA No.1535/Kol/11 for the
assessment year 2007-08 is hereby set aside. The Appeal (ITA No.66 of
2018) is allowed. The substantial question of law is answered in favour
of the revenue and against the assessee and it is held that when the
Assessing Officer has recorded in the Assessment order the particulars of
concealed income/undisclosed income of the assessee and on that basis
initiated penalty proceeding under section 271(1)(c) of the Act, 1961,
then consequential notice under Section 274 issued by assessing officer
to the assessee to afford him opportunity of hearing, is specifically a
notice for penalty for concealment of particulars of income/undisclosed
income. Such a notice complies with the principles of natural justice
and is a valid notice under Section 274 of the Act, 1961
40. The matter is remanded to the Income Tax Appellate Tribunal with
direction to decide the ITA No.1434/Kol/2011 and ITA
No.1535/Kol/2011 on merit, in accordance with law, within three
months, after affording reasonable opportunity of hearing to the parties,
without being influenced by any of the observations made in this order
on merits of imposition of penalty upon the respondent assessee.
(SURYA PRAKASH KESARWANI, J.)
I agree
(RAJARSHI BHARADWAJ, J.)
Sd/S.Kumar/As.
