SHRI MAHESH VASUDEV MALHOTRA,THANE vs. ITO, WARD-2(3), THANE

This is an appeal preferred by the assessee against the order of the Ld. Commissioner of Income Tax (Appeals)-01, Mumbai dated 10.07.2019 for the assessment year 2009-10 against the penalty levied u/s 271(1)(c) of the Income Tax Act, 1961 (hereinafter “the Act”).

The main grievance of the assessee is against the action of the Ld. CIT(A) in confirming the action of the AO levying penalty of Rs.79,178/- u/s 271(1)(c) of the Act. 3. The brief facts of the case are noted by the AO is as under: - “During the course of Survey u/s 133A(4)(b), of the 1.T. Act 1964 on 10.09.2008, statement on oath of the assessee was recorded and the assessee has declared additional income of Rs. 4,00,000/- over and above the regular income for Asstt. Year 2009-10. However, ongoing through the profit and loss account, it is seen that after crediting Rs. 4,00,000/- which the assessee has declared during the course of 2 A.Y. 2009-10 Mahesh Vasudev Malhotra. survey, to the profit and loss account on the total receipts of Rs. 15,11,740/- net profit is shown at Rs. 242.0526 4 worked out to 16.05%. During the course of assessment proceedings, assessee’s representative was asked as to why Rs. 4,00,000/- is credited to the Profit & loss account when the assessee himself has declared during the course of survey that Rs. 4,00,000- /will be declared as an additional income over and above the regular income to which the assessee’s representative agreed for addition of Rs. 4,00,000/- over and above the regular income. The additional income declared during the course of Survey u/s 133A(1)(b) of 1.T. Act 1961 was added to the total income on agreed basis. As the assessee has concealed / furnished inaccurate particulars of his income, penalty proceedings u/s 271(1)(a) of I.T. Act 1961 were initiated and after giving note vide order dated 26.06.2012 penalty was levied at Rs.79,178/-.” 4. Aggrieved by the action of the AO the assessee preferred an appeal before the Ld. CIT(A) who was pleased to confirm the same, aggrieved the assessee is before us. 5. None appeared for the assessee, however after hearing the Ld. DR and after having carefully going through the record, we note that the assessee during the survey conducted on 10.09.2008 u/s 133A(1)(b) of the Income Tax Act (hereinafter “the Act”) had declared/offered Rs.4 lakhs. However the AO noted that while filing the return of income (ROI), the assessee had filed the profit & loss account wherein the assessee had credited Rs.4 lakhs which assessee declared during course of survey, which was included in the total turnover of Rs.15,11,740/- and the net profit was shown at 3 A.Y. 2009-10 Mahesh Vasudev Malhotra. Rs.2,43,652/- which action of assessee according to the AO worked out to be N.P. of only 16.05%. The AO confronted the assessee as to why the declared amount during the survey (Rs.4 lakhs) was not offered for taxation as additional income rather than routing it through the profit & loss account and showing only very less amount as income. According to the AO, in response, the assessee agreed and offered Rs. 4 Lakhs for taxation, therefore Rs.4 Lakhs was added as additional income and the total income was the computed at Rs.5,84,360/- (return of income Rs.1,84,360/-). Thereafter, the penalty was initiated u/s 271(1)(c) of the Act and notice u/s 271(1)(c) of the Act dated 15.12.2011 was issued to the assessee (refer page no. 22 of the P.B). A perusal of the notice shows that the AO has not striken down either of the limb of Section 271(1)(c) i.e. (i) have concealed the particulars of income and/or furnished inaccurate particulars of such income (ii) furnished inaccurate particulars of such income. So the penalty show cause notice issued by the AO puts the assessee to notice as to why penalty should not be levied on both the faults as stated (supra). The assessee in this appeal has challenged the invalid notice as its ground no. 2. We note that the AO by issuing such a notice asked the assessee to show cause for both the faults has been found to be bad in law which vitiate the penalty levied. For that we note the decision of the Hon’ble Karnataka High Court in the case of CIT vs Manjunatha Cotton and Ginning Factory reported in (2013) 359 ITR 565 (Kar) and the Department’s SLP against it has been dismissed by the Hon’ble Supreme Court. Therefore, following the same itself the penalty levied 4 A.Y. 2009-10 Mahesh Vasudev Malhotra. is bad in law. We also find that Hon’ble Karnataka High Court in the case of CIT Vs. SSA’s Emerald Meadows, reported in (2016) 73 taxmann.com 241 (Kar) endorsed the same view in Manjunatha Cotton and Ginning Factory (supra) and held as under:- “3. The Tribunal has allowed the appeal filed by the assessee holding the notice issued by the Assessing Officer under section 274 read with Section 271(1)(c) of the Income Tax Act, 1961 (for short ‘the Act’), to be bad in law as it did not specify which limb of Section 271(1)(c) of the Act, the penalty proceedings had been initiated i.e., whether for concealment of particulars of income or furnishing of inaccurate particulars of income. The Tribunal, while allowing the appeal of the assessee, has relied on the decision of the Division Bench of this Court rendered in the case of CIT Vs. Manjunatha Cotton & Ginning Factory (2013) 359 ITR 565/218 Taxman 423/35 taxmann.com 250(Kar).

In our view, since the matter is covered by judgment of the Division Bench of this Court, we are of the opinion, no substantial question of law arises in this appeal for determination by this Court. The appeal is accordingly dismissed.”

Further, we note that the penalty emanates from the assessment order passed by the AO dated 15.12.2011 u/s 143(3) of the Act wherein the AO has added at Rs. 4 Lakhs on the sole basis of the admission made by the assessee during the survey conducted on the assessee on 10.09.2008. The AO in the assessment order has categorically stated that “during the course of survey u/s 133A(1)(b) of the Act on 10.09.2008, statement on oath of the assessee was recorded and the assessee had declared additional income of Rs.4 Lakhs” and based on the statement, the AO made the addition of Rs.4 Lakhs based 5 A.Y. 2009-10 Mahesh Vasudev Malhotra. on which the penalty has been levied u/s 271(1)(c) of the Act. The Hon’ble Supreme Court in the case of CIT Vs. S. Khader Khan Sons 352 ITR 480 (SC) has held that the Section 133A does not empower any income tax authorities to examine any person of oath, hence any such statement does not have any evidentiary value and any such admission made during survey against by itself be made the basis of an addition. Since the quantum addition of Rs.4 Lakhs has been made based on the sole statement/admission of the assessee during survey which was recorded on oath, the foundation on which the addition made itself is fragile. Therefore, the penalty levied u/s 271(1)(c) of the Act on such a foundation cannot be sustained and therefore on the aforesaid reason as well as invalid notice, we direct the AO to delete the penalty levied on the assessee.