SADBHAVNA DEVLOPERS,SURAT vs. THE DEPUTY COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE-2, SURAT

Sadbhavana Developers Vs. ITO, Central Circle-2, Surat / ITA No.479/SRT/2018 for A.Y. 2013-14 Page 1 of 8

आयकर अपील�य अ�धकरण,सुरत �यायपीठ, सुरत IN THE INCOME TAX APPELLATE TRIBUNAL SURAT BENCH, SURAT BEFORE SHRI MAHAVIR PRASAD, JUDICIAL MEMBER AND SHRI O.P.MEENA, ACCOUNTANT MEMBER आ.अ.सं./I.T.A.No.479/SRT/2018 �नधा�रण वष�/Assessment Year : 2013-14 Sadbhavana Developers, Vs. The Income Tax Officer, Shop No.47, 2nd Floor, Sweet Home Central Circle-2, Surat. and Sweet House, Rajwadi Parti Plot, Amroli, Surat – 395 009. [PAN: ACAFS 8340 R] अपीलाथ� Appellant ��यथ�/Respondent �नधा�रती क� ओर से /Assessee by Shri Rasesh Shah – CA राज�व क� ओर से /Revenue by Shri P.S.Choudhary –Sr.DR

21.06.2019 सुनवाई की तारीख/ Date of hearing: उ�घोषणा क� तार�ख/Pronouncement on: 15.07.2019 आदेश /O R D E R PER O.P.MEENA, AM: This appeal filed by the Assessee is directed against the order of 1. Learned Commissioner of Income Tax (Appeals)-4, Surat dated 15.06.2018 for assessment year 2013-14.

The grounds raised by the assessee read as under : 2. “1. On the facts and circumstances of the case and as per law on the subject, the learned assessing officer has erred in levying penalty u/s.271(1)(c) and ld. ICT(A) has erred in confirming the penalty when assessing officer had not specified in the notice u/s.271(1)(c) r.w.s. 274 whether the penalty was leviable for concealment of income or for furnishing inaccurate particulars thereof.

Sadbhavana Developers Vs. ITO, Central Circle-2, Surat / ITA No.479/SRT/2018 for A.Y. 2013-14 Page 2 of 8

Sadbhavana Developers Vs. ITO, Central Circle-2, Surat / ITA No.479/SRT/2018 for A.Y. 2013-14 Page 3 of 8

a default by furnishing inaccurate particulars of its income and thereby concealed the income to the extent of Rs.23,89,100/-, and He, therefore, imposed a penalty of Rs.7,38,232/- u/s.271(1)(c) of the Income Tax Act, 1961 being 100% of the tax sought to be evaded.

Being aggrieved, the assessee filed this appeal before the 4. ld.CIT(A). The ld.CIT(A) uphold the penalty imposed by the Assessing Officer by holding relying on the Apex Court in the case of CIT Vs. K.P.Madhusudhanan 246 ITR 99 and MAK Data P. Ltd. (2013) 38 taxmann.com 448 (SC).

Being aggrieved, the assessee filed this appeal before Tribunal. 5. The ld.Counsel for the assessee referred para 4 of the assessment order and submitted that penalty u/s.271(1)(c) were initiated for concealment of income by furnishing inaccurate particulars of income and accordingly show cause notice was issued without striking of one out of two limbs i.e. for concealment of income or for furnishing of inaccurate particulars of income. Therefore, the Assessing Officer was initiated penalty on both counts without striking of the word “and/or”. The ld.Counsel further referred para 7 of the penalty order and stated that the Assessing Officer has observed that the assessee has furnished inaccurate particulars of income and thus concealed income by not showing the token booking amounting to Rs.23,89,100/- in the return of income. The Assessing Officer further observed that the Explanation(1) of section 271 of the Income Tax Act is clearly applicable in the case of the assessee for furnishing inaccurate particulars of income and concealing the income for

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which it is liable for penalty u/s.271(1)(c) of the Act. Thus, while passing the final order the Assessing Officer has to record a categorical finding and satisfaction whether such penalty is being imposed for concealment of income or furnishing inaccurate particulars has held by the Hon'ble Gujarat High Court in the case of Snita Transport Pvt. Ltd., (2014) 12 taxmann.com 54 (Guj) and the Assessing Officer has finally imposed penalty on deemed concealment of particulars of his income and furnished or furnishing inaccurate particulars thereon, thus, the Assessing officer has not specified and arrived at a conclusion whether he has imposed penalty for concealment of income or for inaccurate particulars of such income. Hence, penalty levied by the Assessing Officer are not in accordance with law and needs to be deleted. The ld.Authorised Representative further placed reliance in the case of Shri AllahrakhuBabubhai Memon Vs. ITO, Ward-1, Navsari in ITA No.2238/Ahd/2016 for A.Y. 2012-13 (PB-25) dated 15.11.2011 of ITAT Surat Bench and also in the case of Shri Rajesh Pransukha HUF Vs. ITO, in ITA No.2239/Ahd/2014 dated 31.05.2019 of ITAT Surat Bench and submitted that the issue is squarely covered by the aforesaid decisions of the Tribunal. On the other hand, the ld.Senior Departmental Representative 6. relied upon the orders of the Lower Authorities.

We have heard the rival submissions and perused the material 7. available on record. We are of the considered opinion that while imposing penalty under section 271(1)(c), the Ld. AO has to record a categorical

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finding whether such penalty is being imposed for concealment of income or for furnishing of inaccurate particulars of income. Though, in the show- cause notice, the AO may use language of “and/or” in between concealment of income or furnishing of inaccurate particulars of income, but while passing final order, he has to record a categorical finding and satisfaction whether such penalty is being imposed for concealment of income or furnishing of inaccurate particulars. In the present cases, the Assessing Officer failed to record this categorical finding. In support of this contention, learned Counsel took us through the penalty orders as well as the assessment orders to show that the Assessing Officer did not spell out these specific thought processing, whether he, wished to visit the assessee with penalty for concealment of income or for furnishing of inaccurate particulars.

Further, the ld.Counsel for the assessee has placed reliance in the 8. case of Allarakhu Babubhai Memon v. ITO Ward-1, Navsari [I.T.A.No. 2388/Ahd/2016 A.Y. 2012-12 dated 15.11.2018] where the Co-ordinate Bench has observed as under : “4. We have duly considered reveal contentions and gone through records carefully. Hon’ble Gujarat High Court has considered this aspect in the case of Snita Transport (supra). Reference to para 9 of this judgement is worth to note. It reads as under: 9. Regarding the contention that the Assessing Officer was ambivalent regarding under which head the penalty was being imposed namely for concealing the particulars of income or furnishing inaccurate particulars, we may record that though in the assessment order the Assessing Officer did order initiation of penalty on both counts, in the ultimate order of penalty that he passed, he clearly held that levy of penalty is sustained in view of the fact that the assessee had concealed the particulars of income. Thus

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insofar as final order of penalty was concerned, the Assessing Officer was clear and penalty was imposed for concealing particulars of income. In light of this, we may peruse the decision of this Court in case of Manu Engineering Works (supra). In the said decision, the Division Bench came to the conclusion that language of "and/or" may be proper in issuing a notice for penalty, but it was incumbent upon the Assessing Authority to come to a positive finding as to whether there was concealment of income by the assessee or whether any inaccurate particulars of such income had been furnished by them. If no such clear cut finding is reached by the authority, penalty cannot be levied. It was a case in which in final conclusion the authority had recorded that "I am of the opinion that it will have to be said that the assessee had concealed its income and/or that it had furnished inaccurate particulars of such income." It was in this respect the Bench observed that "Now the language of "and/or" may be proper in issuing a notice as to penalty order or framing of charge in a criminal case or a quasi- criminal case, but it was incumbent upon the IAC to come to a positive finding as to whether there was concealment of income by the assessee or whether any inaccurate particulars of such income had been furnished by the assessee. No such clear cut finding was reached by the IAC and, on that ground alone, the order of penalty passed by the IAC was liable to be struck down." 5. A perusal of above paragraph would indicate that the Hon`ble High Court found that found that user of expression “and /or “in between concealment of income of furnishing of inaccurate particulars of income while inviting explanation of the assessee, may not be procedural irregularity or fatal to the proceedings, but if the AO failed to record a finding , while visiting the assessee with penalty, then that would be fatal to the proceedings itself. In other words, while passing final order, the AO has to record a specific finding exhibiting the fact that penalty is being imposed for furnishing inaccurate particulars or concealment of income. In the light of above, let us take note of Shri Allarakhu Babubhai Memon. It reads as us under:- 6. In the circumstances, the assessee has failed to offer any plausible explanation, I am satisfied that the assessee has willfully, knowingly and without reasonable cause, furnished inaccurate particulars of its income and thus, tried to conceal the income so as to if the payment of taxes thereon. Thus, Explanation 1 to section 271 of the Income Tax Act, 1961 is clearly applicable to the case of the assessee for furnishing inaccurate particulars of income and concealing the income for which it is liable for penalty u/s. 271(1)(c) of the Income Tax Act, 1961. I, therefore, levy a minimum penalty @100% of Rs. 98,910/-

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as against the maximum penalty leviable @ 300% of Rs. 2,96,730/- in this case. 6. A perusal of the above finding would indicate that in the first two lines, he wished to impose penalty for furnishing inaccurate particulars of income. Thereafter, he invoked Explanation 1 to section 271(1)(c) which provides that if any addition is being made to the total income of the assessee, for which the assessee failed to give any explanation of his explanation was not found to be false, then qua that addition it will be deemed that the assessee has concealed income. Both these situations are contradictory to each other in the above order. Therefore, this order is not sustainable in view of the decision of Hon`ble Gujarat High Court cited supra. Similar finding in para- 6 are being recorded in the case of other to assessees. In view of the above discussion, penalty in the case of each assessee and not sustainable. We allow the three appeals, and delete penalty imposed by the AO. 21. In the present case, we find that the AO has of observed that in para 7 of penalty order it is for the assessee to prove the circumstances stated in Explanation that his failure to return the correct income was not the fraud or neglect. If fails to do so, he shall be deemed to have concealed the particulars of his income or furnished inaccurate particulars thereof and consequently liable for penalty as contemplated u/s. 271(1)(c) of the Act. In paragraph 8 of the penalty order, the AO observed that “in view of above facts and circumstances of the case and legal position, I am satisfied that the assessee has committed a default by furnishing inaccurate particulars of income and thereby concealed the income to the extent of Rs.41,02,567/- therefore, liable to pay by way of penalty u/s. 271(1)(c) of I.T. Act.” Thus these finding of the AO would show that the AO has invoked Explanation to section 271(1)(c) which provides that if any additions have been made to the total income of the assessee, for which the assessee failed to give any explanation or his explanation was not found to be false, then qua that addition will be deemed that the assessee has concealed income. However, in para the 8 of penalty order, the learned AO recorded a finding that the assessee has committed a default by furnishing inaccurate particulars of income and thereby concealed the income to the extent of Rs.41,02,567/- therefore, liable to pay by way of penalty u/s. 271(1)(c) of I.T. Act.” Thus, the both the situations are contradictory to each other in the above

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order. Therefore, the above order is not sustainable in law in the light of ratio laid down by the Hon'ble Gujarat High Court in the case of CIT v. Manu Engg. Works [1980] 122 ITR 306 (Guj) and Snita Transport (P) Ltd. v. ACIT [2014] 42 taxmann.com 54 (Gujarat) and Co-ordinate Bench of Tribunal of Ahmedabad in the case of Allarakhu Babubhai Memon v. ITO Ward-1, Navsari [I.T.A.No. 2388/Ahd/2016 A.Y. 2012-12 dated 15.11.2018] (supra). Therefore, we delete the penalty so levied.” In view of foregoing discussion and respectfully following the 9. decision of Co-ordinate Bench as discussed above and Hon'ble High Court the grounds of appeal of the assessee are allowed. In the result, appeal of the assessee is allowed. 10.

The order is pronounced by listing the case on the Notice Board 11. under Rule 34(4) of Income Tax Appellate Tribunal Rules, 1963.

Sd/- Sd/- (MAHAVIR PRASAD) (O.P.MEENA) (�याियकसद�यतथा/JUDICIAL MEMBER) (लेखासद�यकेसम� /ACCOUNTANT MEMBER) सुरत/ Surat, �दनांक Dated: 15th July, 2019/S.Gangadhara Rao, Sr.PS Copy of order sent to- Assessee/AO/Pr. CIT/ CIT (A)/ ITAT (DR)/Guard file of ITAT. By order / / TRUE COPY / / Assistant Registrar, Surat