B U BHANDARI NAVLAKHA ASSOCIATES,PUNE vs. DEPUTY COMMISSIONER OF INCOME-TAX, CEN CIR- 2(4), PUNE

This assessee’s appeal for AY 2011-12 arises against the CIT(A), Pune-12’s order dated 13.08.2021, passed in case No. ITBA/APL/S/250/2021-22/1034869103(1), involving proceedings under 250 of the Income Tax Act, 1961 in short the Act.

We now advert to the assessee’s sole substantive grievance of imposing section 271(1)(c) penalty of Rs.29,06,389/- as per Assessing Officer’s order dated 29.06.2017 and upheld in the CIT(A)’s order as under :- “Findings: 3.2 I have considered the materials placed before me. Brief facts are that the original return of income was filed by the appellant declaring total income of Rs. 24,67,118/- on 29.06.2011. consequent to search action conducted upon the appellant on 26.02.2014 u/s 132 of the Act, the appellant filed return of income u/s 153C wherein the appellant revised the total income to Rs. 1,18,72,980/-. The AO in the order passed u/s 153C rws 143(3) on 21.12.2016, initiated penalty u/s 271(1)(c) on the additional income of Rs. 94,05,792/-, which was not disclosed in the original return filed u/s 139(1). During the appellate proceedings, the appellant contended that though the show cause notice issued u/s 274 rws 271 (1)(c) on 21.12.2016 contained specific charge of furnishing inaccurate particulars of income, the assessment order is silent on the charge on which penalty u/s 271(1)(c) was initiated. The appellant in support of the argument relied on the judgment of Hon’ble Bombay High Court in the case of Shri Samson Perinchery (supra) and judgment of Hon’ble Karnataka High Court in the case of Manjunatha Cotton & Ginning Factory (supra). 3.2 I have considered the case laws relied upon by the appellant. In a recent judgment of Hon’ble Bombay High Court held by a three member bench of the Hon’ble High Court of Bombay in the case of Mohd. Farhan A. Shaikh vs. DCIT reported in [2021] 125 taxmann.com 253 (Bom.) has discussed in length initiation of penalty proceedings u/s 271 (1)(c). The issue discussed by the Hon’ble High Court was whether the assessment order or the show cause notice of penalty u/s 274 rws 271 (1)(c) should be considered as the starting point of the penalty proceedings u/s 271(1)(c). The Hon’ble court has decided the issue as under: "Question No. 1: If the assessment order clearly records satisfaction for imposing penalty on one or the other, or both grounds mentioned in Section 271(1)(c), does a mere defect in the notice—not striking off the irrelevant matter—vitiate the penalty proceedings? 181. It does. The primary burden lies on the Revenue. In the assessment proceedings, it forms an opinion, prima facie or otherwise, to launch penalty proceedings against the assessee. But that translates into action only through the statutory notice under section 271(1)(c), read with section 274 of IT Act. True, the assessment proceedings form the basis

We have given our thoughtful consideration to Revenue’s vehement contention supporting the impugned penalty. Mr.

We find no merit in the Revenue’s foregoing arguments. We make it clear that the search herein is dated 30.08.2013 whereas the learned lower authorities have invoked section 271(1)(c) Explanation 5 which was applicable only upto the search action carried out on or before 01.06.2007. Mr. Murkunde at this stage sought to apply Explanation 5 to section 271(1)(c) before us. We are afraid that such course of action is hardly available to the department before us in second appellate proceedings u/s 254 of the Act. This is indeed coupled with the fact that the assessment proceedings herein have been completed u/s 153C of the Act only. Be that as it may, we conclude that learned lower authorities have wrongly invoked the statutory provisions itself i.e. Explanation 5 to section 271(1)(c) of the Act in the given facts and circumstances of the case. The impugned penalty stands deleted in very terms therefore.

This assessee’s appeal is allowed in above terms. Order pronounced in the Open Court on 23rd November, 2022.