IN INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH: E : NEW DELHI) BEFORE SHRI I.C. SUDHIR, JUDICIAL MEMBER AND SHRI PRASHANT MAHARISHI, ACCOUNTANT MEMBER ITA Nos. 7034 to 7038/Del/2014 Assessment Years: 2006-07 to 2010-11 M/s. M.G. Contractors Pvt. Ltd. Vs. DCIT, Central Circle-I, 603, Ring Road Mall, Faridabad Near Deepali Chowk, Rohini New Delhi (PAN: AAACM9786A) (Appellant) (Respondent) Assessee by : Sh. P.C. Yadav, Adv. Department by : Sh. P. DAM Kanunjna, Sr. DR Date of hearing : 24.06.2016 Date of pronouncement: 19 .09.2016 ORDER PER I.C. SUDHIR, J.M. 1. In all these appeals preferred by assessee, action of Learned CIT(Appeals) in sustaining penalty levied under sec. 271(1)(c) of Income- tax Act, 1961 at Rs.8,53,281 in assessment year 2006-07, Rs.73,54,710 in 2 assessment year 2007-08, Rs.6,81,615 in assessment year 2008-09, Rs.49,48,020 in assessment year 2009-10 and Rs.10,56,756 in assessment year 2010-11 has been questioned. 2. Heard and considered arguments advanced by parties in view of orders of authorities below, material available on record and decisions relied upon. 3. relevant facts are that search & seizure operation was conducted at premises of assessee and its group company on 18.02.2011. In response to notice issued under sec. 153A, assessee furnished return of income along with year-wise bifurcation of Rs.10 crores surrendered by assessee immediately after completion of search. Assessing Officer framed assessments under sec. 153A accepting returns of income filed for assessment years under consideration. Assessing Officer thereafter initiated penalty proceedings under sec. 271(1)(c) of Income-tax Act, 1961 and levied penalty for assessment years under consideration. aggrieved assessee approached first appellate authority but could not succeed. action of learned CIT(Appeals) in upholding penalty levied by Assessing Officer for these assessment years has been questioned by assessee before ITAT. 4. In support of ground, Learned AR has furnished following submissions in shape of written synopsis: 1. It is submitted that on 18.02.2011, search and seizure action was conducted at premises of assessee and its group companies. It is pertinent to mention here that neither any money, bullion, jewellery or other valuable article or thing was found nor any income based on any entry in books of assessee was assessed u/s 153A of Act. Certain lose sheets admittedly were found but same were ignored by AO in assessment proceedings. 2. It is submitted that on 22.02.2011 that is within four days, immediately after completion of search, assessee filed letter with AO and offered lump sum surrender of Rs 10 Crore. contents of this letter are reproduced in assessment order. It is submitted that this letter was filed much before issuance of any summon, notice, questionnaire from investigation wing of revenue, whose functions are to scrutinize seized material and preparation of 3 Appraisal Report. It is has been mentioned in this letter that this surrender has been made to buy peace of mind as well as gesture of cooperation towards department and subject to condition that no penal action under any provisions of IT Act would be taken against assessee. Out of surrender of Rs 10 Crore amount of Rs 8, 45, 00,000/- was surrendered in hands of assessee and balance of amount was surrendered in hands of one of director namely K.C.Mittal. 3. It is submitted that thereafter AO after receiving material from investigating wing issued notice of 153A on 22.02.2013. assessee, in response to notices of 153A, has filed its ROI along with year wise bifurcation of Rs 10 Crore as mentioned on Page 3 of AO s order. chart is reproduced hereunder for ready reference. Asst. Year Returned Income Amount Total Pg of PB Surrender Returned Income 2006-07 3,83,07,350/- 25,35,000/- 4,08,42,350/- 51 OF PB 2007-08 6,24,10,990/- 2,18,50,000/- 8,42,60,990/- 52 OF PB 2008-09 6,56,34,655/- 20,25,000/- 6,76,59,655/- 53 OF PB 2009-10 5,44,67,459/- 1,47,00,000/- 6,91,67,459/- 54 OF PB 2010-11 14,49,33,102/- 31,39,500/- 14,80,72,602/- 55 OF PB 2011-12 11,62,83,424/- 4,02,50,500/- 15,65,33,924/- Total 8,45,00,000/- 57,36,04,456/- 4 4. Thereafter, AO has issued notice u/s 143(2) along with questionnaire of 142(1). In this questionnaire AO has simply asked assessee about entries mentioned in seized Annexure-A-2, A-3, A-4, A-5, A-6 and A-7 and A-9. 5. It is submitted that in response to above assessee vide its letter dated 20.03.2013, intimated that said notings in all diaries had been written merely for reference purpose only and has nothing to do with actual working of company. assessee, however just to honour surrender, has offered proportionate amount belonging to each year as its Income as depicted in above chart. 6. It is submitted that AO after analyzing all facts and circumstances accepted amount of income offered by assessee for various years and has framed assessment on returned income. It is crucial to reproduce final observation of AO at Page No-4 of Assessment Order. above contention of assessee has been considered and found to be acceptable since assessee has honoured surrender made during course of search 7. Thereafter, AO vide notice dated 28.03.2013, initiated penalty proceedings against assessee copies of notices are at Page No-1-5 of PB. Assessee filed its reply before AO, wherein it has been contended that there is no concealment at all and assessee does not fall under rigors of explanation 5A of Income Tax Act-1961. However contentions of assessee were discarded and penalty for all years are levied by AO. 8. Action of AO has been affirmed by CIT (A) and now assessee is in appeal. Submissions of assessee in respect of ground number 1 & 4:- 9. Penalty is void-ab-initio:-It is submitted that in instant case perusal of notice issued by AO under section 274 of ITA Act would show that he has not struck off irrelevant clause of notice, meaning thereby AO has not 5 apprise assessee about specific charge, under which assessee has been held guilty of penal action. It is submitted that these types of notices are severely criticized by various high courts and apex court in following judgments and ultimately penalty has been quashed. Reference can be made to following decisions. a. Ramila Ben Vs ACIT 60 TTJ 171(Ahmadabad) b. CIT Vs Mannu Engg. 122 ITR 306(Guj) c. Dillip N Sherrof reported in 291 ITR 519(SC)- Wherein these kind of notices are severely criticized by Apex Court. d. Smt Rita Saudhrey reported in 146 taxation 59(Del) e. Manjunath Cotton Mills reported in 359 ITR 0565(Kar).-Recent Decision. 10. It is pertinent to mention here that in case of Manjunath (Supra) also income was surrendered as result of survey and penalty was levied u/s 271(1)(C) of Act. However, Hon ble (Karnataka) High Court after referring to decision of T.Ashok Pai (SC) 292 ITR 11 (SC) has held as under:- Concealment, furnishing inaccurate particulars of income are different. Thus Assessing Officer while issuing notice has to come to conclusion that whether is it case of concealment of income or is it case of furnishing of inaccurate particulars. Apex Court in case of Ashok Pai reported in 292 ITR 11 at page 19 has held that concealment of income and furnishing inaccurate particulars of income carry different connotations. Gujrat High Court in case of MANU ENGINEERING reported in 122 ITR 306 and Delhi High Court in case of VIRGO MARKETING reported in 171 Taxmn 156, has held that levy of penalty has to be clear as to limb for which it is levied and position being unclear penalty is not sustainable. Therefore, when Assessing Officer proposes to invoke first limb being concealment, then notice has to be appropriately marked. Similar is case for furnishing inaccurate particulars of income. standard proforma without striking of relevant clauses will lead to inference as to non-application of mind 6 11. It is submitted that above decision has been followed by various benches of ITAT, for example recently Calcutta bench of ITAT in following cases, which were also covered under explanation 5A of section 271(1)(C) of Act, has followed verdict of Manjunath cotton and has quashed penalty proceedings after observing that notice of penalty u/s 274 was not specific in as much as AO has not struck off irrelevant clauses of notice. a. Thakur Prasad Sao in ITA No1534/Cal/2013 dated 23.03.2016( Copy in Decisions Paper Book) b. Ramesh Prasad Sao in ITA No-997/Kol/2011 dated 03.02.2016( Copy in decisions PB) c. Parmeshwari Devi- Copy of decision is annexed in Paper book-Delhi Bench 12. In view of above it is submitted that penalty levied by AO deserve to be deleted on this ground alone. Submissions of assessee in respect of ground 2 & 3 are as under:- 13. Without prejudice to contentions raised in ground number 1 and 4, it is submitted that bare reading of provisions of explanation 5A of section 271(1)(C) made it clear that for invoking same, framing of assessment u/s 153A, on basis of incriminating material found in course of search, is sine- qua-non particularly for those years for which no proceedings are pending on date of search. 14. It is submitted that clause (a) of explanation 5A is not at all applicable in present case, and as per clause (b) presence of any income based on any entry in books of accounts or other documents is condition precedent. Admittedly in present case no income, based on any entry in books of assessee, has been detected in course of assessment proceedings. 7 15. It is next submitted that provisions of Explanation 5A are deeming and penal provisions therefore they are to be construed in stricter manner and nothing can be imported in statute which is not there in section. 16. It is submitted that it is admitted fact that nothing was found in search which has been corroborated by AO with surrender of assessee during course of assessment proceedings. It is submitted that recently Hon ble Mumbai Bench of ITAT in case of Sejal Exports (India) in ITA No 5724/Del/2014, under similar set of facts has held that AO is duty bound to corroborate surrender with seized material and if this exercise has not been done then explanation 5A cannot be invoked- (See Decisions Paper Book Page-E Para-9). Further assessee seeks to rely on following judgments a. Ajay Traders Vs DCIT ITA No-296/Del/2014- Copy in decisions Paper Book b. Financial Technologies- Copy enclosed in decisions paper book. 17. It is relevant to mention here that in case of Sejal Exports also assessee has made surrender after search action, in that case statement of assessee was also recorded at time of search. Submissions of assessee in respect of ground Number- 5, 6& 7 of Appeal 20 It is next submitted that had assessee would have retracted surrender even additions were not tenable in assessment u/s 153A, as no incriminating material has been unearthed during course of search. If that be so then penalty cannot be levied at all. 21 It is submitted that Ld CIT(A) has failed to appreciate that search was conducted in 2011, letter offering surrender was made in 2011 itself(within four days) and assessment was framed in 2013, which means department was in 8 possession of alleged incriminating material for almost two years, and if department was of view that surrender made is eyewash then it would have refused to accept surrender and would have framed assessment on basis of material gathered in search. However, additions were made solely relying on surrender made by assessee. Therefore, now revenue cannot allege concealment or furnishing of inaccurate particulars. Acceptance of surrender for purpose of assessment without corroborating with seized material and refusal of surrender for levying penalty is not permissible. 22 Ld CIT(A) has failed to appreciate that there are two Circulars of Board namely circular number 286 of 2003 and 286 of 2013, which prohibits confessional statement and directs authorities to concentrate on documentary evidence- Copy of circulars is there in Decisions Paper book. Therefore additions made contrary to directions of board are not tenable in law. Reliance can be placed on following judgments a. CIT Vs Best Plastics reported in 295 ITR 256(Del)- Authored by Hon ble T.S.Thakur ji b. CIT Vs Nayana P Dedhia reported in 270 ITR 572(AP) c. Aggrwal Farms Vs ITO 85 TTJ 723(Del) 23 It is next submitted that CIT-(A) has failed to appreciate that no assessments were pending (except for AY 2010-11) on date of search and hence quantum additions were not at all tenable in eyes of law had assessee would have retracted surrender. Further it is now well settled law that addition under new provisions can only be made, on basis of some incriminating material found in search in respect of those years, assessment of which were not pending on date of search. statement alone dehors any material cannot be treated as incriminating material (Delhi High Court in Rajpal Bhatia 333 ITR 315). Further reference can be made to following decisions a. CIT Vs Kabul Chawala reported in 380 ITR 573(Del). b. CIT Vs Kurele Paper reported in 380 ITR 571(Del). 9 24 It is submitted that so far as AY 2010-11 would concern CIT (A) has failed to appreciate that in this year AO has failed to corroborate surrender with any documentary evidence and further failed to scrutinize regular items also and hence in this year also quantum was not tenable. 25 Bona-fide surrender: It is submitted that it is admitted fact that surrender was made dehors, any statement or any material or any questionnaire, issued by investigation wing of department or by AO. Therefore, it can be said that surrender was bona-fide and same was made as gesture of cooperation towards department in bona-fide manner. 26 It is next submitted that surrender was made before commencement of post search proceeding, under bona-fide belief that if, there would be delay or surrender would have been made after issuance of questionnaire or summon from investigation wing then it would not be treated as voluntary surrender and hence it can be said that assessee has made surrender under bona-fide belief that he will immunity from penalty u/s 271(1)(C), which are discretionary provisions. If he made surrender before detection of any unrecorded transactions. 27 It is next submitted that Chairman of assessee Company was not aware of guidelines of CBDT, in which guidelines it has been prescribed that no surrender would be obtained from any assessee and if any surrender would be obtained it will be taken adversely. There are two circulars of board namely one of 2003 and one of 2014. See Page No- 60-62 of Decisions Paper book. This fact and position of law would also prove that surrender was bona fide and made in order to cooperate with department. 28 It is next submitted that there are decisions of ITAT & High Courts, wherein referring to these circulars, even additions have been deleted. Therefore, it can be 10 said that even after lapse of 2 years, from date of surrender and filing of ROI in 2013. Assessee has obliged his surrender and cooperates with department under bona-fide belief that he will be exonerated from penalty, if we will cooperate with department. Premsons decision- 29 Further assessee seeks to rely on judgment of Suresh Chand Mittal reported in 251 ITR 9(SC) larger bench. In this case it has been held in categorical terms that surrender made by assessee upon persistent queries of AO, in search matter should be treated as bona fide surrender. It is submitted that so far as case of present assessee is concerned facts are on better footage. Further assessee seeks to rely on following decisions. a. CIT Vs Harkaran Das Ved pal- 336 ITR 8(Del) b. CIT Vs Shri Ramdas Motors reported in 238 ITR 177(AP) 30 It is next submitted that provisions of section 271(1)(C) are discretionary provisions as is evident from fact that legislature has used expression may and same are not automatically invoke able in each and every case. In context reliance can be placed on decision of Hon ble Hyderabad Bench in case of K. Dheedar Ahmed reported in 97 ITD 240(Hyd) wherein Hon ble Bench after referring to decision of Hon ble Apex Court in case of Hindustan Steel Ltd. Vs State of Orrisa reported in 83 ITR 26(SC) has held that at least in some exceptional cases, discretion vested in officer should be used to drop proceedings . reference can also be made to decision of Hon ble Delhi High Court in case of CIT Vs Maya Rani Reported in 92 ITR 394(Del), wherein it has been held by Jurisdictional High Court that word may used in section 271(1) means that authorities have discretion either to levy or not to levy penalty. 11 31 It is submitted that present is not case of any entry provider who indulge in money laundering type activities rather case of reputed assessee who is filing ROI every year and declaring substantial income every year. And has obliged his promise in way that he has included surrendered income in its ROI and has paid taxes on same. assessee has not gone for loop holes, with help of which he would have gone tax free. Therefore it is submitted that discretion provided u/s 271 (1) (c) ought to be have been exercised in this case. Further assessee seek to rely on following judgments a. Shri P.V.Ramna Reddy ITA No-1852-1857/Hyd/2011- Wherein it has been held that section 271(1)(C) is discretionary provision and cannot be invoked where income is surrendered and assessment has been made on such surrender. Copy of decision is attached in PB Submissions of assessee in respect of Ground number 8 are as under:- 32 It is submitted that provisions of section 153A are non-obstantive provisions they exclude operation of section 139(1), meaning thereby return filed in pursuance to notice of 153A would replace original return filed under section 139(1) of Act. And concealment of income has to be seen with reference to fresh return filed in pursuance to notice of 153A of Act. 33 It is submitted that if there is no difference in returned income( filed in response to notice of 153A) and assessed income then no penalty under section 271(1)(C) would be leviable as held in following judgments, wherein it has been held that return filed in pursuance to notice of 153A would replace original return and concealment has to be judge with reference to new return a. Prem Arrora, vide it s order dated 09-03-2010 in ITA No 4702 of 2010- Copy in decisions Paper Book 12 b. Sejal Export ITA No 5724 of 2012 Mumbai- Copy in decisions Paper Book 23 Explanation of assessee not proved to be false:-It is next submitted that during course of assessment proceedings and penalty proceedings assessee has tendered explanation in respect of alleged seized material. assessee explained that figures mentioned on these documents are rough jottings and has no bearing on working of Company. It is interesting to note down that this explanation of assessee has also been accepted by AO categorically in order of assessment. However he has levied penalty on ground that explanation 5A cannot be ignored. However revenue has not brought any material on record to prove that explanation of assessee is false or any income has been assessed on basis of any entry mentioned in seized documents. 24 It is submitted that, as per decision of Reliance petrochemicals reported in 322 ITR 158(SC) inaccurate particulars have to be seen with reference to documents annexed with ROI. And if they are correct or there is no material on record to show that details furnished by assessee are not correct then penalty under section 271(1)(C) is not leviable. 25 It is submitted that accounts of assessee are audited and no adverse remarks have been made by auditors in this regard. Therefore, it is incorrect to say that assessee had furnished inaccurate particulars of his income. Therefore as per judgment of Reliance Petro Chemicals it is not case where assessee has furnished any inaccurate particulars of his income. Had AO detected some more amount and have added same to income of assessee or AO could have pointed out some fallacy in particulars of assessee then situation would have been completely different 26 It is submitted that recently Hon ble Lucknow Bench of tribunal in case of Star International Vs ACIT reported in 308 ITR (AT) 33(Luk) has held 13 that there has to be some positive material on record collected and referred to by AO which would show that either assessee has concealed particulars of his income or has furnished inaccurate particulars of his income. Hon ble Bench further held that there has to be something for comparison to prove that what was claimed by assessee was false or inaccurate. 27 In view of above it is most humbly prayed that penalty imposed may be deleted. 5. Learned Senior DR on other hand has placed reliance on orders of authorities below. He submitted that assessee had surrendered Rs.10 crores as undisclosed income due to incriminating documents found during course of search. He submitted that declaration of income was made only after search thus it is clear in view of Explanation-5A to sec. 271(1)(c) of Act that there was concealment of particulars of income and furnishing inaccurate particulars thereof on part of assessee towards income surrendered to attract levy of penalty under sec. 271(1)(c) of Act. 6. Learned AR rejoined with submissions that there was no incriminating material found during course of search and assessment was already framed under sec. 143(3) of Act well before date of search and only in assessment year 2010-11, assessment was pending on date of search. In assessment year 2010-11 as well, no corroborative evidence was there to justify addition made in assessment framed under sec. 153A of Act. He submitted that acceptance of returns of income for assessment years under consideration filed in response to notice issued under sec. 153A of Act itself suggests that assessments have been framed on basis of surrendered income and it was not based upon incriminating material found during course of search. surrender was made immediately after completion of search itself suggests that it was voluntary action on part of assessee. 14 7. We have considered rival arguments made by both sides, perused orders of Assessing Officer and CIT(A) and Paper Book filed on behalf of assessee. We have also considered various decisions cited before us. learned counsel for assessee drew out attention to show cause notice issued u/s. 274 of Act before imposing penalty and submitted that said notice doe s not specify as to whether assessee is guilty of having furnished inaccurate particulars of income or of having concealed particulars of such income . He pointed out that show cause notice does not strike out irrelevant portion viz., furnished inaccurate particulars of income or concealed particulars of such income . He further drew attention to assessment order also stating that there is no charge specified in assessment order itself. He drew our attention to decision of Hon'ble Karnataka High Court in case of CIT v. Manjunatha Cotton & Ginning Factory (2013) 218 Taxman 423 (Kar.) wherein it was held that if show cause notice u/s. 274 of Act does not specify as to exact charge viz., whether charge is that assessee has furnished inaccurate particulars of income or concealed particulars of income by striking out irrelevant portion of pointed show cause notice, then imposition of penalty on basis of such invalid show cause notice cannot be sustained. To examine this argument of ld. AR we firstly examine facts for assessment year 2006- 2007, assessment under section 153A (1) (b) of income tax act was framed on 28/03/2013 wherein returned income under section 153A is accepted as assessed income. While initiating penalty proceedings under section 271 (1) (C), Ld. assessing officer in assessment order has stated that assessee has not disclosed this income is Suo Moto but for search this income would not have been unearthed. Hence he was satisfied that penalty under section 271 (1) (C) read with expression 5A of income tax act has to be initiated for which notice under section 271 (1) (C) is being issued separately. Then he went on to say that :- However as discussed above, I am satisfied that assessee is liable for facing penalty proceedings under section 271 (1) ( c) of income tax act 1961 read with explanation 5A thereto, with regards to addition of Rs. 15 2535000/- as detailed above and accordingly penalty proceedings are being initiated separately for issue of notice under section 274 of act. Further at end of assessment order it has been stated that in respect of income is disclosed to tax/additions made separate notice under section 274 read with section 271 (1) ( c ) is issued in respect of all disclosures/additions above. first contention raised by Ld. authorized representative is that in notice issued there is no reference about whether show cause is for furnishing of inaccurate particulars of income or concealment of income. Therefore he submitted that when charge made against assessee is twin charge notice is not valid notice for levy of penalty. Even if para No. 8 of penalty order is seen where it is mentioned as under :- 8. provisions of section 271 (1) (C) read with explanation 5A are clearly attracted as assessee has concealed particulars, furnished inaccurate particulars of its income for previous year 2005 06. From above it is apparent that even at time of initiation of penalty proceedings as well as at time of levy of penalty, Ld. assessing officer is not sure whether he is levying penalty for furnishing of inaccurate particulars of its in income or concealment of income. learned counsel for assessee drew out attention to show cause notice issued u/s. 274 of Act before imposing penalty and submitted that said notice doe s not specify as to whether assessee is guilty of having furnished inaccurate particulars of income or of having concealed particulars of such income . He pointed out that pointed show cause notice does not strike out irrelevant portion viz., furnished inaccurate particulars of income or concealed particulars of such income . He drew our attention to decision of Hon'ble Karnataka High Court in case of CIT v. Manjunatha Cotton & Ginning Factory (2013) 218 Taxman 423 (Kar.) wherein it was held that if show cause notice u/s. 274 of Act does not specify as to exact charge viz., whether charge is that assessee has furnished inaccurate particulars of income or concealed particulars of income 16 by striking out irrelevant portion of pointed show cause notice, then imposition of penalty on basis of such invalid show cause notice cannot be sustained. Hon ble Karnataka High Court in case of CIT & Anr. v. Manjunatha Cotton and Ginning Factory, 359 ITR 565 (Karn), has held that notice u/s. 274 of 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. Hon ble High court has further laid down that certain printed form where all grounds given in section 271 are given would not satisfy requirement of law. Court has also held that initiating penalty proceedings on one limb and find assessee guilty in another limb is bad in law. It was submitted that in present case, aforesaid decision will squarely apply and all orders imposing penalty have to be held as bad in law and liable to be quashed. Hon ble Karnataka High Court in case of CIT & Anr. v. Manjunatha Cotton and Ginning Factory (supra) has laid down following principles to be followed in matter of imposing penalty u/s.271(1)(c) of Act. 63. In light of what is stated above, what emerges is as under : (a) Penalty under section 271(1)(c) is civil liability. (b) Mens rea is not essential element for imposing penalty for breach of civil obligations or liabilities. (c) Willful concealment is not essential ingredient for attracting civil liability. (d) Existence of conditions stipulated in section 271(1)(c) is sine qua non for initiation of penalty proceedings under section 271. (e) existence of such conditions should be discernible from assessment order or order of appellate authority or revisional authority. (f) Even if there is no specific finding regarding existence of conditions mentioned in section 271(1)(c), at least facts set out in Explanation 1(A) and 1(B) it should be discernible from said order which would by legal fiction constitute concealment because of deeming provision. (g) Even if these conditions do not exist in assessment order passed, at least, direction to initiate proceedings under section 271(1)(c) is sine qua non for Assessing Officer to initiate proceedings because of deeming provision contained in sub-section (1B). 17 (h) said deeming provisions are not applicable to orders passed by Commissioner of Income-tax (Appeals) and Commis sioner. (i) imposition of penalty is not automatic. (j) imposition of penalty even if tax liability is admitted is not automatic. (k) Even if assessee has not challenged order of assessment levying tax and interest and has paid tax and interest that by itself would not be sufficient for authorities either to initiate penalty proceedings or impose penalty, unless it is discernible from assessment order that, it is on account of such unearthing or enquiry concluded by authorities it has resulted in payment of such tax or such tax liability came to be admit ted and if not it would have escaped from tax net and as opined by Assessing Officer in assessment order. (l) Only when no explanation is offered or explanation offered is found to be false or when assessee fails to prove that explanation offered is not bona fide, order imposing penalty could be passed. (m) If explanation offered, even though not substantiated by assessee, but is found to be bona fide and all facts relating to same and material to computation of his total income have been disclosed by him, no penalty could be imposed. (n) direction referred to in Explanation 1(B) to section 271 of Act should be clear and without any ambiguity. (o) If Assessing Officer has not recorded any satisfaction or has not issued any direction to initiate penalty proceedings, in appeal, if appellate authority records satisfaction, then penalty proceedings have to be initiated by appellate authority and not assessing authority. (p) Notice under section 274 of Act should specifically state grounds mentioned in section 271(1)(c), i.e., whether it is for concealment of income or for furnishing of incorrect particulars of income (q) Sending printed form where all grounds mentioned in section 271 are mentioned would not satisfy requirement of law. (r) assessee should know grounds which he has to meet specifically. Otherwise, principles of natural justice is offended. On basis of such proceedings, no penalty could be imposed to assessee. (s) Taking up of penalty proceedings on one limb and finding assessee guilty of another limb is bad in law. (t) penalty proceedings are distinct from assessment proceedings. proceedings for imposition of penalty though emanate from proceedings of assessment, it is independent and separate aspect of proceedings. (u) findings recorded in assessment proceedings in so far as "concealment of income" and "furnishing of incorrect particulars" would not 18 operate as res judicata in penalty proceedings. It is open to assessee to contest said proceedings on merits. However, validity of assessment or reassessment in pursuance of which penalty is levied, cannot be subject matter of penalty proceedings. assessment or reassessment cannot be declared as invalid in penalty proceedings. [underline supplied by us] It is clear from aforesaid decision that on facts of present case that show cause notice u/s. 274 of Act is defective as it does not spell out grounds on which penalty is sought to be imposed. Even assessment order is also silent on this aspect. Therefore in complete assessment proceedings as well as penalty proceedings against assessee that whether it has furnished inaccurate particulars of income or has concealed particulars of income. provisions of penalty proceedings cannot be distinctly applied in assessments related to search and other regular assessment. Therefore principles laid down by decision of Hon ble Karnataka High Court also squarely applies to facts of present case even though exploration 5A of section 271(1)(C) is invoked. Similar view has been taken by other coordinate benches in following decisions:- 1) DCIT Central circle versus Shaym Sundar Dhanuka 1869 1870/KOL/2013 2) Smt. Champa Goel Vs ACIT ITA No 696/Chd/2012 3) Nisheeth Kumar Jain versus ACIT ITA 961 964/KOL/2013 4) Harishkumar Sarogi V DCIT ITA No 1222-1226/Kol/2011 & 1496- 1499/Kol/2011 Following decision of Hon ble Karnataka High Court, we hold that orders imposing penalty in all assessment years have to be held as invalid and consequently penalty imposed is cancelled. Secondly these facts are undisclosed that assessments for assessment years under consideration have been framed under sec. 153A of Act accepting returns of income on surrendered amounts filed by assessee in response to notice issued under sec. 153A of Act as under :- Sr No AY Returned income u/s Assessed income 19 153.A 1 2006-07 40842350 40842350 2 2007-08 84260990 84260990 3 2008-09 67659655 67659655 4 2009-10 69167459 69167459 5 2010-11 148072602 148072602 In present case income is offered by appellant on ad hoc basis without co-relating amount of year wise disclosure without any corroborating evidence. above disclosure has been accepted by Ld. assessing officer without referring to any incriminating material pertaining to respective years. Ld. assessing officer as well as 1st appellate authority has also not referred to any material based on which disclosure is made and assessed by Ld. assessing officer. In view of this it is apparent that disclosure is without any material but merely on statement of appellant. In our view, there may be several reasons for making surrender by assessee and merely on this basis inference beyond doubt cannot be drawn that there was concealment of particulars of income or furnishing inaccurate particulars thereof on part of assessee towards surrendered income to attract penal provisions under sec. 271(1)(c) of Act. In present case, vide letter on 22.2.2011 i.e. immediately after completion of search, assessee has offered lump sum surrender of Rs.10 crores well before issuance of any summons, notice, questionnaire from investigation wing of Revenue, with this submission that surrender was made to buy peace of mind as well as gesture of cooperation towards department and subject to condition that no penal action under any provisions of Income-tax Act, 1961 would be taken against assessee. Further Hon ble Gujarat High Court in case of Kirit Dayabhai patel V ACIT (ITA 1181 of 2010) has held as under 13. Considering facts and circumstances of case and also considering decisions relied upon by learned senior advocate for appellant, we are of considered opinion that view taken by Tribunal is erroneous. CIT(A) rightly held that it is not relevant whether any return of income was filed by assessee prior to date of search and whether any income was undisclosed in that return of income. In view of specific provision of Section 153A of I.T. Act, return of income filed in response to notice under Section 153(a) of 20 I.T. Act is to be considered as return filed under Section 139 of Act, as Assessing Officer has made assessment on said return and therefore, return is to be considered for purpose of penalty under Section 271(1)(c ) of I.T. Act and penalty is to be levied on income assessed over and above income returned under Section 153A, if any. Similar are facts in case of Sajal Exports (India) vs. ACIT (supra) wherein Assessing Officer had completed assessment under sec. 153A by accepting additional income so offered by assessee, Assessing Officer initiated penalty proceedings under sec. 271(1)(c) of Act and levied penalty relying upon Explanation-5A to section 271(1)(c) of Act, Learned CIT(Appeals) also upheld penalty. ITAT deleted penalty with this observation as very fact that partner of assessee agreed to offer lump sum figure of Rs.12 crores shows that there is no one to one relationship between documents found and income surrendered, i.e., it was lump sum surrender to take care of all deficiencies, if any. In respect of year under consideration also, additional income surrendered by assessee has not been linked by Assessing Officer to any of seized documents. What we notice from discussion made in penalty order is that there were some documents evidencing payment of salary and loans in cash. With regard to same, employee of assessee admitted that salary and loans have been paid in cash. partners of assessee firm also after consulting employees, admitted same. However, there is no discussion about quantum of salary/loan paid in cash out of which, how much was accounted and how much was unaccounted, so that one can decipher about undisclosed income, if any, that can be gathered from those documents . ITAT held that Assessing Officer should make specific reference to documents based upon which undisclosed income was assessed by him and validity of order of penalty must be determined with reference to information, facts and material in hands of authority imposing penalty at time order was passed. It was held that Assessing Officer did not refer to any of documents or material found during course of search from which 21 impugned undisclosed income was found out, hence tax authorities could not have placed reliance on Explanation-5A to sec. 271 of Act without making specific reference to documents, which reveal about concealment of income i.e. conditions prescribed in Explanation 5A has not been satisfied. Similar view as expressed by ITAT in case of Sejal Exports (India) (supra), discussed in above paragraph, has been expressed by Delhi Bench of ITAT in case of Pawan Kumar Gupta vs. ACIT (supra). ITAT in that case has held that concealment of income has to be seen with reference to addition brought to tax over and above income returned by assessee in response to notice issued under sec. 153A and therefore, once return of income under sec. 153A is accepted by Assessing Officer, it can neither be case of concealment of income nor furnishing inaccurate particulars of such income. In present case, it is evident from assessment order that Assessing Officer has reproduced in assessment order, surrender letter written by assessee to Joint Director of Income Tax (Investigation). On basis of said letter Assessing Officer has noted that assessee had made only lump sum surrender of Rs. 10 crores and no bifurcation whatsoever based on seized documents or on basis of financial years was submitted by assessee. Regarding Annexures A-2, A-3, A-4, A-5, A-6, A-7 and A-9 which were diaries seized during course of search contained certain payments made by assessee company spreading out in different financial years starting from financial year 2006-07 to 2010-11, assessee explained that notings in all diaries are written merely for reference purpose only and there was no continuity in entries that have been recorded in diaries and that said diaries contain many other figures which had no significance to actual working of assessee company. assessee contended further that just to honour surrender made during course of search and in order to avoid unnecessary litigation assessee had surrendered entries in these diaries in past years also. Assessing Officer has thereafter recorded that above contention made by assessee has been considered and found to be acceptable since assessee has honoured surrender made during course of search. 22 Assessing Officer has justified levy of penalty under Section 271(1)(c) of Act on basis that assessee had not disclosed income suo motu but for search, this income would not have been unearthed. It is thus evident from assessment order itself that additions in assessments framed under section 153A of Act have been made on basis of surrender made by assessee without linking additions surrendered with any incriminating documents or any corroborative evidence in support. We thus respectfully following above cited decisions hold that Assessing Officer was not justified in invoking penal provisions under Section 271(1)(c) of Act for levy of penalty on additions made by accepting return of income filed by assessee as in such situation inference beyond doubt cannot be drawn that there was concealment of particulars of income or furnishing of inaccurate particulars thereof on part of assessee towards additions made by accepting returns of income filed by assessee. Hon ble Supreme Court in case of CIT Vs. Suresh Chandra Mittal (supra) has been pleased to hold that once revised returns have been regularized by Revenue explanation of assessee that he has declared additional income to buy peace and to come out of vexed litigation could be treated as bona fide and penalty under Section 271(1)(c) was not leviable, though assessee had surrendered additional income by way of revised returns after persistent queries by Assessing Officer. This decision also supports case of present assessee, rather it is on better footing as assessee in present case had made surrender immediately after search and before issuance of any notice and had declared surrendered income in returns of income accepted by Assessing Officer. Besides, CBDT has time and again vide its Circulars No. 286 of 2003 and 286 of 2013 prohibited assessing authorities to make assessment solely on basis of confessional statements of assessee and to concentrate on documentary evidence. very purpose behind it is that in case of retraction from its statements by assessee, case of Revenue should not fail. We thus while setting aside orders of authorities below direct Assessing Officer to delete penalty questioned http://www.itatonline.org 23 in above ground of appeals for assessment years under consideration. ground is accordingly allowed. 8. In result, all appeals of assessee are allowed. Order pronounced in open court on 19.09.2016. -Sd/- -Sd/- (PRASHANT MAHARISHI ) (I.C. SUDHIR ) ACCOUNTANT MEMBER JUDICIAL MEMBER Dated: 19/09/2016 Mohan Lal/Rk/ak keot Copy forwarded to: 1) Appellant 2) Respondent 3) CIT 4) CIT(Appeals) 5) DR: ITAT ASSISTANT REGISTRAR M/s. M.G. Contractors Pvt. Ltd. v. DCIT, Central Circle-I, Faridabad