KALPESH B JAIN,MUMBAI vs. ITO 14(1)(2), MUMBAI

This appeal by the assessee is directed against the order of CIT(A) - 29, Mumbai dated 11/03/2015 confirming levy of penalty under section 271(1)(c) of the Income Tax Act 1961 ( in short “the Act”).

Shri N.M.Porwal appearing on behalf of the assessee submitted that the assessee is engaged in business of trading in cloths. In scrutiny assessment proceedings, the Assessing Officer made addition of Rs.19,84,400/- under section 69A of the Act on account of cash deposits in assessee’s bank account with Cosmos Co-operative Bank, Pune. The assessee explained that the cash deposits to the tune of Rs.19,60,000/- were made by one Shri Jawaharlal Jain at Hyderabad and the remaining amount of Rs.24,400/- were deposited by assessee from own source. Subsequently, Shri Jawaharlal Jain died, his son Shri Kishan J. Jain furnished an affidavit before the Assessing Officer that the amount was deposited by his father in the saving bank account of the assessee with Cosmos Co-operative Bank. However, the Assessing Officer disbelieved the affidavit and the contentions of the assessee and made addition of Rs.19,84,400/- and also initiated penalty proceedings under section 271(1)(c) of the Act on the aforesaid addition. The assessee filed appeal before CIT(A) against the addition, but was unsuccessful. Thereafter, the assessee filed second appeal before the Tribunal in ITA No.6142/Mum/2011. The Tribunal vide order date 17/05/2018 restricted the addition to the extent of peak credit in the bank account. The Assessing Officer while giving effect to the Tribunal order confirmed addition only to the extent of Rs.2,99,810/-. The ld.Authorized Representative of the assessee submitted that since substantial addition has been deleted by the Tribunal penalty levied under section 271(1)(c) of the Act on the said addition is not sustainable.

We have heard the submissions made by rival sides and have perused the orders of authorities below. The assessee has challenged levy of penalty on two counts; (i)since substantial addition made in quantum proceedings have been deleted by the Tribunal, the penalty does not survive, (ii) the penalty has been levied on a charge other than for which satisfaction was recorded.

The ld.Authorized Representative of the assessee has further raised legal ground that penalty has been levied on a charge other than for which satisfaction has been recorded. A perusal of the assessment order dated 19/12/2010 passed under section 143(3) shows that penalty under section 271(1)(c) of the Act has been initiated for ‘concealment of income’, whereas penalty has been levied by Assessing Officer vide order dated 31/03/2013 for furnishing ‘inaccurate particulars of income’ and concealment of income’. The Hon’ble Bombay High Court in the case of CIT vs. Samson Perinchery(supra) has held that penalty can be imposed only on the ground for which penalty proceedings have been initiated. The relevant extract of the observation of the Hon’ble Court reads as under:-

In the instant case since the penalty has also been levied on a charge other than for which satisfaction has been recorded, we find merit in the legal contentions raised by the assessee during the course of arguments before us. The ambiguity in the mind of Assessing Officer with regard to charge for levy of penalty under section 271(1)(c) of the Act is apparent from the penalty order. Thus, in the light of the facts of the case and the decision of Hon'ble’ble Jurisdictional High Court, penalty order is unsustainable and is liable to be quashed. The subsequent proceedings arising there from are vitiated and hence, are also liable to be quashed. We hold and direct accordingly.

In the result, appeal of the assessee is allowed.