JUDGMENT
Ashok Kumar, J. - These Income Tax Appeals arise from the decision of the Income Tax Appellate Tribunal (in short 'ITAT') dated 2.1.2017 passed in I.T.A. No. 416/Lucknow/2016 (Assessment Year 2014-15), I.T.A. No.417/Lucknow/2016 (Assessment Year 2014-15) and I.T.A. No.418/Lucknow/2016 (Assessment Year 2014-15). Since the issue is same and the appeals arise against the common order and judgment, the same are decided by us by a common judgment.
2. Following questions of law have been framed by the assessee :
"(A)
Whether on the facts and circumstances of the case and in law, the Ld. ITAT has erred in not appreciating the facts that the notice was issued for imposition of penalty u/s 271AAB and not for imposition of penalty u/s 271(a)(c) of the Act ?
(B)
Whether on the facts and circumstances of the case and in law, the Ld. ITAT has erred in not appreciating the facts that the specific charge 'have in a statement under sub section 4 of section 132 during the course of search and seizure operation admitted undisclosed income' was mentioned in the notice ?
(C)
Whether the benefit of Section 292BB was correctly denied to the AO/appellant by the I TAT?"
3. We have heard Sri Manu Ghildyal, learned counsel for the appellant and Sri Abhinava Mehrotra, learned counsel for the assessee respondent.
4. The brief facts of the present case are that a search operation has been held and M/s. Chandak group of cases was searched under Section 132 of the Income Tax Act, 1961 (hereinafter referred to as 'Act') on 24.10.2013. During the course of search the father of the assessee Sri Kamal Kishore Chandak has surrendered undisclosed income of Rs.12 crores on behalf of himself, his wife and his son, namely Kamal Kishore Chandak, Smt. Shakuntala Chandak and Sri Sandeep Chandak. This statement of Sri Kamal Kishore Chandak has been recorded under Section 132(4) on 25.10.2013. During the course of recording of the statement the assessee Sandeep Chandak has submitted that whatever investment was made in his name was looked after by his father Sri Kamal Kishore Chandak and in fact, he knew nothing about the same. The documents further indicates that on 13.11.2013, Sri Sandeep Chandak along with his both the parents had admitted that each of them had surrendered Rs.4 crores each as undisclosed income and the fact that is surrender of undisclosed income of Rs. 4 crores of Sandeep Chandak was again submitted by his authorised representatives on behalf of all the assessees during the assessment proceedings on 9.1.2015. It is further noticed that the assessee, Sri Sandeep Chandak had explained that the said amount was earned from the trading of F&O and derivatives and was advanced for purchase of land.
5. During the course of search operation various incriminating items were found and the same were seized, which relates to all the assessees of M/s Kamal Chandak Group.
6. In result, it was pursuant to that surrender of Rs.4 crores by all the three assesses as undisclosed income, the assessing officer has initiated penalty proceedings under Sections 271AAB of the Act. A notice dated 24.9.2015 has been issued of which the assessee has filed their reply, however the Assessing Officer did not find it satisfactory and therefore, he has imposed penalty under Section 271AAB upon all the three assessee amounting to Rs.40 lakhs each. The penalty order under Section 271AAB of the Act has been passed on 29.9.2015, which has been challenged by the assessees, as the assessees were not satisfied, in appeal before the CIT (Appeals)-4, Kanpur.
7. The CIT (Appeals) vide its order dated 31.5.2016 has dismissed the appeal and has affirmed the penalty order passed under Section 271AAB of the Act.
8. Against the order of the CIT (Appeals) the appeals are filed before the ITAT, Lucknow, which are heard and are decided by a common judgment dated 2.1.2017 and the ITAT has allowed the appeal filed by the assessees and set aside the penalty order as well as the order of the CIT (Appeals). Against the order of the ITAT, Lucknow dated 2.1.2017 the instant appeals are filed by the Commissioner of Income Tax.
9. We have heard the learned counsel for the appellants and learned counsel representing the assessee.
10. Learned counsel for the appellant has submitted that the order impugned passed by the ITAT are wholly illegal, arbitrary as well as an order which has been passed without application of mind. Learned counsel for the appellant has placed the relevant paragraph of the impugned order of the Tribunal namely para 8, which is quoted hereinbelow :
"The penalty proceeding has been initiated by issuing notice u/s 274 read with section 271(1) (c) of the Act (1)(c) on 23/09/2015 asking the assessee to appear before the Assessing Officer at 10:30 A.M. On 28/09/2015."
11. Counsel for the appellant has submitted that the penalty proceedings are being initiated under Section 271AAB of the Act and not under Section 271 (1)(c) of the Act. He has pointed out that the Tribunal has wrongly proceeded on the basis of the fact that the impugned penalty proceedings are being carried out under Section 271(1)(c). He has submitted that from the perusal of the penalty notice dated 23.9.2015 it is crystal clear that the notice has been issued under Section 274 read with section 271 of the Act. Counsel for the appellant (Revenue) has submitted that in the said notice dated 23.9.2015 the assessing authority of the assessee has categorically and clearly mentioned and has requested the assessee to appear before him and clearly indicated therein that as to why an order imposing the penalty be not made under Section 271 of the Act and has further mentioned that in case of failure on the part of the assessee in not appearing and not availing the opportunity of being heard in person or through an authorised representative on or before the date indicated in the notice and also indicated that the assessee may show cause through authorised representative in writing on or before the date indicated and his reply will be considered before any such order is made under Section 271AAB. We find that in the show cause notice the assessing authority has clearly indicated that the penalty proceedings are related to the penal proceeding of Section 271AAB and surprisingly, we find that the ITAT has proceeded by considering the said notice issued under Section 271(1)(c).
12. Learned counsel for the appellant has submitted that the findings recorded by the ITAT namely that issuance of the notice under Section 271(1)(c) of the Act will not automatically deem that the assessing authority has initiated the proceedings for imposition of penalty under Section 271AAB and accordingly given an opportunity to the assessee is wholly irrelevant. The ITAT has further held that the departmental representative has conceded before the Tribunal that the penalty proceedings have not been initiated under Section 271AAB therefore, no penalty can legally be imposed against the assessee. In this regard, the Tribunal has observed as follows :
"The notice since does not relate to the provision of section 271AAB therefore, I cannot agree with Learned D.R. That the notice issued u/s 271(1)(c) of the Act was valid for initiation of proceedings u/s 271AAB. Initiation of penalty proceedings, in my view, is the foundation for the validity of the imposition of penalty u/s 271AAB. On this basis itself, the penalty can be cancelled. This is also fact on record that no penalty proceedings either u/s 271(1)(c) of the Act (1)(c) or 271AAB has been initiated during the course of assessment proceedings."
13. The ITAT has further held that the assessing authority should record the satisfaction report before proceeding under Section 271AAB which in the present case is disappeared.
14. The ITAT at the end has recorded as follows :
"No opportunity has been given to the assessee in respect of the penalty to be levied u/s271AAB of the Act. On this basis also, the order passed by the Assessing Officer is against the principles of natural justice of providing the proper opportunity to the assessee and accordingly I quash the order of the Assessing Officer. I have also gone through the provisions of section 271AAB and noted that this section specifies three different situations under which the penalty can be imposed on the assessee under different clauses (a), (b) and (c), the penalty has to be imposed on different rate. The Assessing Officer has not specified in the notice in respect of which clause the penalty is going to be levied on the assessee. On this basis also, in my opinion, the penalty cannot be sustained."
15. At the end the Tribunal has held that since the provisions of Section 271AAB are not mandatory therefore, levy of penalty in each and every case where ever the assessee has made default is unjustified.
16. On the other hand, learned counsel for the assessee has submitted and has relied upon the findings recorded by the ITAT and has emphasised that in the present case unless the satisfaction is recorded and in the present case since the same has not been recorded by the assessing authority and the notice has been issued under Section 274 read with section 271, as such the impugned penalty proceedings under Section 271AAB are wholly illegal and unjustified therefore, he assailed the judgment of the Tribunal.
17. After hearing the parties at length, on inquiry, the counsel for the appellants has placed the copy of the assessment order which has been passed in the cases of all the assessees for the Assessment Year 2014-15 as an individual status dated 31.3.2015 under Section 143 (3) of the Act.
18. We have noticed that in the assessment proceedings the assessing authority has observed as below :
"The assessee, has e-filed the return of income u/s 139(1) on 30.09.2014 vide acknowledgment No.37789163100914. In the said return the assessee has declared total income Rs.4,16,39,320/-. The case is to be completed under compulsory scrutiny as per the provisions of Section 153A(b) of the I.T. Act, 1961, accordingly a notice u/s 143(2) of the I.T. Act, 1961 dated 17.1.2014 was issued and duly served upon the assessee. Thereafter, further notices u/s 143(2)/142(1) of the I.T. Act 1961 along with detailed questionnaire dated 01.12.2014 were issued and served upon the assessee on 01.12.2014 fixing the date of compliance on 08.12.2014."
19. During the course of the assessment proceedings the assessee (namely Sri Sandeep Chandak) has shown his income for Assessment Year 2014-15 being total income of Rs.4,16,39,315/- which the assessee earned as Salary Income, Rental Income from Property at City Centre, Kanpur, Dividends, interest on PPF/bank on Saving Bank and FDR Account/Bonds. The assessing authority has also mentioned in the assessment order that the assesee has also earned non-taxable share of profit from partnership firm Chandak Infratech, where he is a partner. It has further mentioned in the assessment order that the assessee offered to tax on the income of Rs.4 crores and accordingly, the assessment is completed at the total income as indicated hereinabove of Rs.4,16,39,320/- under Section 143(3) of the Act. We find that while passing the assessment order under Section 143(3), the assessing authority has not initiated the penalty proceedings under Section 271(1)(c) of the Act.
20. Section 271 provides the procedure in case of failure to furnish return, comply with notice, concealment of income etc. Sub clause (c) of Section 271(1) provides that if the assessing authority in the course of any proceedings under the Income Tax 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."
21. In the present case, the regular assessment proceedings are being carried out under Section 143(3), which is a proceeding of assessment as so stipulated under Section 143 and sub section (3) of Section 143 provides the procedure to be adopted by the assessing authority during the course of the assessment proceedings.
22. Section 271AAB provides the procedure for penalty where the search has been initiated. In the present case, admittedly a search and seizure operation is carried out in which the assessees have surrendered the amount of Rs.4 crores each (Rs.4 lakh each by all the three assessees) and therefore, in view of the provisions of Section 271AAB the assessees are required to pay, by way of, penalty in addition to tax, if any, a sum computed @ 10% of undisclosed income of the specified period or previous years. In the case where the assessee in the course of search in a statement (under Section 4 of Section 132) admits the undisclosed income and specified manner in which such income has been derived, than the provisions of Section 271AAB automatically attracts and the proceedings are to be carried out/completed.
23. We have noticed that the penalty notice has been issued under Section 274 read with section 271. Section 274 provides that no order imposing a penalty shall be made unless the assessee has been heard or has been given a reasonable opportunity of being heard. In the instant case the penalty notice issued clearly indicates that the opportunity of being heard is provided to the assessee and therefore, the penalty notices has been issued under Section 274 read with section 271 calling upon the assessee to show cause in writing or in person which fulfill the requirement of Section 274 of the Act.
24. In the present case, the provisions of Section 271AAB are fully applicable as of the conditions so stipulated or attracts as a search has been initiated under Section 132 and during the course of search the statement of the assessee has been recorded under sub section (4) of Section 132, in which the assessees admit undisclosed income and specifies the manner in which such income has been derived.
25. We have gone through the contents of the penalty notice and we find that in the penalty notice, which has been issued under Section 274 read with section 271, the assessing authority has clearly indicated that the proceedings under Section 271AAB being initiated and the reply to the show cause notice in writing on or before the date so as indicated will be considered before any such order is made under Section 271 AAB.
26. We find the substance in the submission of the learned counsel for the department and we noticed that the orders passed by the CIT (Appeals), affirming the orders of the penalty, are fully justified where the CIT (Appeals) has recorded a categorical finding with regard to the statement of Sri Kamal Kishore Chandak during the search and the issuance of the penalty notices under Section 271AAB, which is relevant. We have noticed that this fact has not been considered by the Tribunal.
27. In this regard, we may reproduce the relevant finding of CIT (Appeals) hereinbelow :
"From the above provisions, it may be seen that the AO may impose the penalty under this section if following ingredients are fulfilled.
1.
Search action u/s 132 of the Income Tax Act, 1961 should be initiated u/s 132 on or after 01.06.2012.
2.
The assessee has made disclosure of undisclosed income during the course of search action, has paid the tax together with interest and has filed return of income.
3.
The assessee substantiates the manner in which he has earned the undisclosed income.
From the analysis of the above Provisions of Act, it is clear that action of imposition of penalty u/s 271AAB(a) is independent of the enquiries made and subsequent additions made during course of assessment proceedings. In other words, this penalty is not based upon the facts gathered during course of assessment proceeding. It is dur to this reason, in my opinion, satisfaction of the AO is not required to be recorded by AO during assessment proceedings or at the time of completion of the proceedings. Thus, initiation of the penalty after the completion of assessment proceeding is not vitiated by law.
The Ld. A.Rs have also challenged that the caption of the notice mentioned only Section 271 and not 271AAB. In this respect, the copy of notice has been produced by the Ld. A.R. before me. It is seen that the Ld. A.R. is correct in observing that the section of penalty has not been correctly mentioned by the AO in the caption. However, the AO will get the benefit of section 292BB of the Income Tax Act, 1961 because firstly, the assessee has raised no objection before the AO in this regard. Secondly, last line of the notice clearly mentions section 271AAB. Thirdly, the assessee has given reply to said notice which shows that the assessee fully comprehended the implication of the notice that it is for section 271AAB.
The assessee has also challenged that the principles of natural justice has not followed by the AO. The detailed submissions of A.R. in this regard has already been reproduced above. The A.R. did not produce any evidence to show that he was not given proper opportunity of hearing. It is clear from the penalty order that the AO has given penalty notice and which was also replied by the assessee. Therefore, in my opinion, principle of natural justice has not been violated. Thus in view of above discussion penalty imposed by AO u/s 271AAB of the Act is confirmed."
28. Since admittedly, no proceeding under Section 271(1)(c) are initiated by the assessing authority during the course of the assessment proceeding under Section 143(3), the impugned penalty proceedings under Section 271AAB are fully justified and are initiated in accordance with law. We find that the order of the ITAT cannot sustain, therefore, the same is set aside and the penalty orders under Section 271AAB passed by the assessing authority, confirmed by the CIT (Appeals), are affirmed and are restored.
29. The appeals filed by the Revenue are allowed.
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