QURESH ZOEB MERCHANT,MUMBAI vs. DY. COMMISSIONER OF INCOME TAX, CIRCLE 27 2, MUMBAI

On the facts and circumstances of the 1. On the facts and circumstances of the case and in law, the Ld. CIT(A), erred in case and in law, the Ld. CIT(A), erred in confirming the penalty of Rs.73,79,908/ confirming the penalty of Rs.73,79,908/- levied by the Ld. Assessing Officer ("AO") levied by the Ld. Assessing Officer ("AO") under section 270A of the Act. under section 270A of the Act.

On the facts and circumstances of the case and in law, the CIT(A) erred in 2. On the facts and circumstances of the case and in law, the CIT(A) erred in 2. On the facts and circumstances of the case and in law, the CIT(A) erred in confirming the penalty proceeding initiated by the AO on the basis of defective notice y proceeding initiated by the AO on the basis of defective notice y proceeding initiated by the AO on the basis of defective notice issued under section 274 wherein limb/charge of levy of penalty under section 270A issued under section 274 wherein limb/charge of levy of penalty under section 270A issued under section 274 wherein limb/charge of levy of penalty under section 270A was not clearly specified, rendering the penalty proceedings invalid in law. was not clearly specified, rendering the penalty proceedings invalid in law. was not clearly specified, rendering the penalty proceedings invalid in law.

On the facts and circumstan 3. On the facts and circumstances of the case, the Ld. CIT(A) and the Ld. AO failed to ces of the case, the Ld. CIT(A) and the Ld. AO failed to provide sufficient opportunity to present the case. Since the principles of natural provide sufficient opportunity to present the case. Since the principles of natural provide sufficient opportunity to present the case. Since the principles of natural justice are violated the penalty order is bad in law and ought to be quashed. justice are violated the penalty order is bad in law and ought to be quashed. justice are violated the penalty order is bad in law and ought to be quashed.

On the facts and circumstances of 4. On the facts and circumstances of the case, the Ld. CIT(A) and the Ld. AO failed to the case, the Ld. CIT(A) and the Ld. AO failed to appreciate that provisions of section 56(2)(x) are not applicable on the merits of the appreciate that provisions of section 56(2)(x) are not applicable on the merits of the appreciate that provisions of section 56(2)(x) are not applicable on the merits of the case and hence penalty levied ought to have been deleted. case and hence penalty levied ought to have been deleted.

Without prejudice to above, on the facts and circumstances of the case and in law, dice to above, on the facts and circumstances of the case and in law, dice to above, on the facts and circumstances of the case and in law, the CIT(A) erred in confirming the penalty levied by AO under section 270A(8) of the the CIT(A) erred in confirming the penalty levied by AO under section 270A(8) of the the CIT(A) erred in confirming the penalty levied by AO under section 270A(8) of the Act without appreciating that the present case does not involve any misreporting of Act without appreciating that the present case does not involve any misreporting of Act without appreciating that the present case does not involve any misreporting of income in this case within the meaning of section 270A(9) of the Act. se within the meaning of section 270A(9) of the Act.

Without prejudice to above, on the facts and circumstances of the case, the Ld. 6. Without prejudice to above, on the facts and circumstances of the case, the Ld. 6. Without prejudice to above, on the facts and circumstances of the case, the Ld. CIT(A) and the Ld. AO failed to appreciate Appellant is a co CIT(A) and the Ld. AO failed to appreciate Appellant is a co-owner of the property owner of the property and hence penalty, if any, should hav and hence penalty, if any, should have been restricted to his share only. e been restricted to his share only.

The brief facts of the case are that consequent to the assessment The brief facts of the case are that consequent to the assessment The brief facts of the case are that consequent to the assessment proceedings for A.Y. 2018 proceedings for A.Y. 2018-19, wherein an addition of Rs.1,10,09,000/ 19, wherein an addition of Rs.1,10,09,000/- was made under section 56(2)(x) of the Act on account of difference between the made under section 56(2)(x) of the Act on account of difference between the made under section 56(2)(x) of the Act on account of difference between the purchase consideration and stamp purchase consideration and stamp duty valuation of two flats, the Assessing duty valuation of two flats, the Assessing Officer initiated penalty proceedings under section 270A of the Act stating Officer initiated penalty proceedings under section 270A of the Act stating Officer initiated penalty proceedings under section 270A of the Act stating under-reporting and misreporting of income. According to the Assessing reporting and misreporting of income. According to the Assessing reporting and misreporting of income. According to the Assessing Officer, the assessee had failed to record the correct value of i Officer, the assessee had failed to record the correct value of investment and, nvestment and, therefore, penalty under section 270A(8) read with section 270A(9)(b) of the therefore, penalty under section 270A(8) read with section 270A(9)(b) of the therefore, penalty under section 270A(8) read with section 270A(9)(b) of the Act was leviable. The Assessing Officer observed that since the assessee had not Act was leviable. The Assessing Officer observed that since the assessee had not Act was leviable. The Assessing Officer observed that since the assessee had not submitted any satisfactory explanation during the penalty proceedings, the submitted any satisfactory explanation during the penalty proceedings, the submitted any satisfactory explanation during the penalty proceedings, the Assessing Officer treated the case as one of misreporting of income and levied g Officer treated the case as one of misreporting of income and levied g Officer treated the case as one of misreporting of income and levied penalty of Rs.73,79,908/-. .

Aggrieved, the assessee preferred an appeal before the CIT(Appeals). Aggrieved, the assessee preferred an appeal before the CIT(Appeals). Aggrieved, the assessee preferred an appeal before the CIT(Appeals). Before the CIT(A), the assessee challenged the addition made under section Before the CIT(A), the assessee challenged the addition made under section Before the CIT(A), the assessee challenged the addition made under section 56(2)(x) of the Act and contended that the agreement for purchase of flats was of the Act and contended that the agreement for purchase of flats was of the Act and contended that the agreement for purchase of flats was entered into in 2011, that the Assessing Officer ought to have referred the entered into in 2011, that the Assessing Officer ought to have referred the entered into in 2011, that the Assessing Officer ought to have referred the valuation to the DVO and that the provisions of section 270A of the Act were valuation to the DVO and that the provisions of section 270A of the Act were valuation to the DVO and that the provisions of section 270A of the Act were wrongly invoked since the additio wrongly invoked since the addition was made only by application of deeming n was made only by application of deeming provisions. The assessee placed reliance on several judicial precedents to provisions. The assessee placed reliance on several judicial precedents to provisions. The assessee placed reliance on several judicial precedents to contend that there was neither any concealment nor any misreporting of income. contend that there was neither any concealment nor any misreporting of income. contend that there was neither any concealment nor any misreporting of income. However, the CIT(A) held that penalty proceedings were independent of However, the CIT(A) held that penalty proceedings were indep However, the CIT(A) held that penalty proceedings were indep assessment proceedings and observed that the assessee had failed to furnish any assessment proceedings and observed that the assessee had failed to furnish any assessment proceedings and observed that the assessee had failed to furnish any explanation either during assessment or penalty proceedings. The CIT(Appeals) explanation either during assessment or penalty proceedings. The CIT(Appeals) explanation either during assessment or penalty proceedings. The CIT(Appeals) further held that the penalty order clearly specified the charge under section further held that the penalty order clearly specified the charge under section further held that the penalty order clearly specified the charge under section 270A(8) read with section 270A(9)(b) of the Act and accordingly confirmed the ead with section 270A(9)(b) of the Act and accordingly confirmed the ead with section 270A(9)(b) of the Act and accordingly confirmed the penalty of Rs.73,79,908/- and dismissed the appeal.

The assessee is in appeal before us against the order passed by The assessee is in appeal before us against the order passed by The assessee is in appeal before us against the order passed by CIT(Appeals) dismissing the appeal of the assessee. CIT(Appeals) dismissing the appeal of the assessee.

We have heard the rival contentions and perused the material available on ard the rival contentions and perused the material available on ard the rival contentions and perused the material available on record. The learned counsel for the assessee submitted that in the quantum record. The learned counsel for the assessee submitted that in the quantum record. The learned counsel for the assessee submitted that in the quantum proceedings, the co-ordinate Bench ordinate Bench of ITAT in the case of Mustafa Zoeb Mustafa Zoeb Merchant Vs. ITO in ITA No. 6890/Mum/2025 for Merchant Vs. ITO in ITA No. 6890/Mum/2025 for AY 2018-19 19 has already restored the additions made under section 56(2)(x) of the Act to the file of the restored the additions made under section 56(2)(x) of the Act to the file of the restored the additions made under section 56(2)(x) of the Act to the file of the Assessing Officer for de novo consideration. The Counsel for the assessee Assessing Officer for de novo consideration. The Counsel for the assessee Assessing Officer for de novo consideration. The Counsel for the assessee submitted that since the very foundation on which penalty under section 270A of submitted that since the very foundation on which penalty under section 270A o submitted that since the very foundation on which penalty under section 270A o the Act has been levied no longer survives and the quantum issues are yet to the Act has been levied no longer survives and the quantum issues are yet to the Act has been levied no longer survives and the quantum issues are yet to attain finality, the penalty proceedings should also be restored to the file of the attain finality, the penalty proceedings should also be restored to the file of the attain finality, the penalty proceedings should also be restored to the file of the Assessing Officer to be decided afresh after completion of the assessment Assessing Officer to be decided afresh after completion of the assessment Assessing Officer to be decided afresh after completion of the assessment proceedings. The learned Departmental Representative fairly left the issue to the arned Departmental Representative fairly left the issue to the arned Departmental Representative fairly left the issue to the discretion of the Bench.

We find considerable merit in the submissions of the assessee. Penalty We find considerable merit in the submissions of the assessee. Penalty We find considerable merit in the submissions of the assessee. Penalty proceedings are consequential to the outcome of the quantum proceedings and proceedings are consequential to the outcome of the quantum proceedings and proceedings are consequential to the outcome of the quantum proceedings and where the additions forming the basis of levy of penalty have been restored to where the additions forming the basis of levy of penalty have been restored to where the additions forming the basis of levy of penalty have been restored to the file of the Assessing Offi the file of the Assessing Officer for fresh adjudication, the penalty proceedings cer for fresh adjudication, the penalty proceedings cannot be sustained independently at this stage. It is well settled that penalty cannot be sustained independently at this stage. It is well settled that penalty cannot be sustained independently at this stage. It is well settled that penalty proceedings are dependent upon the final determination of taxable income and proceedings are dependent upon the final determination of taxable income and proceedings are dependent upon the final determination of taxable income and where the very basis of addition is unsettled, where the very basis of addition is unsettled, the penalty also deserves to be the penalty also deserves to be restored. Reference may be made to the decisions of the Hon'ble Supreme Court restored. Reference may be made to the decisions of the Hon'ble Supreme Court restored. Reference may be made to the decisions of the Hon'ble Supreme Court in K.C. Builders v. ACIT [(2004) 265 ITR 562 (SC)] K.C. Builders v. ACIT [(2004) 265 ITR 562 (SC)] and CIT v. S.P. Viz CIT v. S.P. Viz Construction Co. [(2006) 282 ITR 621 (SC)] Construction Co. [(2006) 282 ITR 621 (SC)], wherein it has been held that , wherein it has been held that where the foundation of the addition is altered or set aside, consequential where the foundation of the addition is altered or set aside, consequential where the foundation of the addition is altered or set aside, consequential penalty cannot survive independently. Similar view has been taken by various penalty cannot survive independently. Similar view has been taken by various penalty cannot survive independently. Similar view has been taken by various Courts that where the quantum matter is restored to the Assessing Officer, the Courts that where the quantum matter is restored to the Assessing Officer, the Courts that where the quantum matter is restored to the Assessing Officer, the penalty proceedings should also be restored for fresh adjudication. ld also be restored for fresh adjudication.

The co-ordinate Bench while disposing of the quantum appeal, has ordinate Bench while disposing of the quantum appeal, has ordinate Bench while disposing of the quantum appeal, has restored the issue to the file of the Assessing Officer for fresh adjudication. restored the issue to the file of the Assessing Officer for fresh adjudication. restored the issue to the file of the Assessing Officer for fresh adjudication. Since a copy of the said order has been placed before us and the operative Since a copy of the said order has been placed before us and th Since a copy of the said order has been placed before us and th directions therein restore the entire matter for de novo consideration, we directions therein restore the entire matter for de novo considerat directions therein restore the entire matter for de novo considerat consider it appropriate to restore the penalty proceedings also to the file of the to restore the penalty proceedings also to the file of the to restore the penalty proceedings also to the file of the Assessing Officer. It would be useful to reproduce Para Assessing Officer. It would be useful to reproduce Para 10 of the order passed of the order passed by ITAT in the assessee’s case while deciding on merits by ITAT in the assessee’s case while deciding on merits in the case of the case of Mustafa Zoeb Merchant (supra), for ready reference: , for ready reference:

We have carefully considered the relevant facts of the case 10. We have carefully considered the relevant facts of the case and find that the and find that the issues in hand were not adjud issues in hand were not adjudicated by both the authorities. The grounds of icated by both the authorities. The grounds of appeal also remained unadjudicated by the ld.CIT(A) who failed to decide the appeal also remained unadjudicated by the ld.CIT(A) who failed to decide the appeal also remained unadjudicated by the ld.CIT(A) who failed to decide the same on merits. In such a situation, we feel that the assessee should be allowed same on merits. In such a situation, we feel that the assessee should be allowed same on merits. In such a situation, we feel that the assessee should be allowed one final opportunity in the interest of justice an one final opportunity in the interest of justice and fairplay though with a cost d fairplay though with a cost for repeated non-compliance and non compliance and non-obedience of statutory notices. obedience of statutory notices.

Accordingly, without expressing any opinion on the merits of the levy of Accordingly, without expressing any opinion on the merits of the levy of Accordingly, without expressing any opinion on the merits of the levy of penalty under section 270A of the Act, we hereby restore the matter to the file of 70A of the Act, we hereby restore the matter to the file of 70A of the Act, we hereby restore the matter to the file of the Assessing Officer with a direction to decide the issue afresh after giving the Assessing Officer with a direction to decide the issue afresh after giving the Assessing Officer with a direction to decide the issue afresh after giving effect to and completing the assessment proceedings pursuant to the directions effect to and completing the assessment proceedings pursuant to the directions effect to and completing the assessment proceedings pursuant to the directions issued in the quantum appeal. Needless issued in the quantum appeal. Needless to state, the Assessing Officer shall to state, the Assessing Officer shall afford adequate opportunity of hearing to the assessee and thereafter decide the afford adequate opportunity of hearing to the assessee and thereafter decide the afford adequate opportunity of hearing to the assessee and thereafter decide the issue in accordance with law. issue in accordance with law.

In the result, the appeal of the assessee is allowed for statistical purposes. In the result, the appeal of the assessee is allowed for statistical purposes. In the result, the appeal of the assessee is allowed for statistical purposes.