SRI P A USMAN ,SULLIA vs. THE INCOME TAX OFFICER WARD-1 , PUTTUR

First we shall take up appeal in ITA No.888/B/2019, where the assessee has challenged the levy of penalty u/s 271B of the Act. The brief facts of the case are that the assessee is a Civil Contractor and filed the return of income on 18-06-2015 disclosing total income of Rs.4,86,930/-. Subsequently, the Return of income was processed u/s 143(1) of the Act and was selected for limited scrutiny under CASS and notice u/s143(2) and 142(1) of the IT Act were issued. In compliance the Ld. AR of the assessee appeared and filed the details as called for. The AO on verification of details found that there is mismatch of contract receipts disclosed by the assessee and required details of contract receipts, bank accounts, statements, books of accounts. Whereas the assessee has gross receipts below Tax audit limit for compulsory audit u/s 44AB of the IT Act and disclosed rate income at 5.26% of contract receipts. Since the details were not supported in respect of claims and no documentary evidence was filed in support of expenses the business income is estimated by the AO at 9% of the gross receipts and income from unaccounted

Aggrieved by the order, assessee has filed an appeal before the ld.CIT(A), whereas the Ld.CIT(A) in the appellate proceedings considering the grounds of appeal and submissions filed by the assessee observed that the assessee could not explain the reasonable cause for failure to get the books of accounts audited and obtain Audited report under the provisions of section 44AB of the IT Act and confirmed the penalty levied u/s 271B of the IT Act, and dismissed assessee’s appeal. Aggrieved by the order, the assessee filed an appeal before the Tribunal.

The ld. AR argued that the Ld.CIT(A) has erred in confirming the penalty without considering the submissions and the explanations filed in the course of appellate proceedings. The ld.AR further submitted that turnover has exceeded the limits due to addition by the AO. The turnover of the assessee for the FY: 2013-14 was Rs.80,56,300/- which does not exceed the limit prescribed for mandatory Audit u/s 44AB of the IT Act and furnishing of Audit report. The Ld.AR contention that the turnover exceeded the limit of

We have heard the rival submissions and perused the material on record. The sole crux of the disputed issue is in respect of levy of penalty u/s 271B of the Act, where due to addition the turnover of the assesee has increased the prescribed limit of Rs.1.00 Crore applicable for the assessment year 2014-15 where the AO has estimated income @9% on Rs.1,16,80,868/-. The Ld.AR submitted that the assessee has disclosed the turnover of contract receipts and filed the return of income on 18-06-2015 and referred paper book page-5 wherein in the income and expenditure account, the contract receipts are disclosed at Rs.80,56,300/- which is not disputed by the revenue. We found that the assessee has disclosed the turnover as

Now we shall take up appeal in ITA No.889/B/2019, where the assessee has challenged the levy of penalty u/s 271(1)(C) of the Act and validity of the notice. The AO subsequent to passing the assessment order dated 13-12-2016 issued show cause notice for levying penalty u/s 271(1)(C) of the Act. The AO considering the material on record and findings in the assessment order found that inspite of providing opportunity, the assessee has not filed the explanations and hence relied on information available on record and levied penalty u/s 271(1)(C) of the Act,Rs.1,43,000/- vide order dated 29-05-2017.

Aggrieved by the AO’s order, the assessee has filed appeal before the CIT(A), whereas the ld.CIT(A) has confirmed the penalty and dismissed assessee’s appeal. Aggrieved by the CIT(A)’s order, the assessee is in appeal before the Tribunal.

We heard the rival submissions and perused the material on record and the orders of the lower authorities. The only prima facie issue being the Assessing Officer has passed the order u/s 271(1)(c) of the Act levying penalty and assessee has challenged the issue of notice u/s 274 of the Act. We found, the Hon’ble Apex Court dismissed the Special Leave Petition filed by the Revenue against the judgment of the Hon’ble Karnataka High Court in ITA No.380 of 2015 dated 23/11/2015 in the case of CIT vs. M/s.SSA’s Emerald Meadows where an identical issue was decided in favour of the assessee. We consider it proper to refer to the operative part of the decision of the Hon’ble High Court of Karnataka in the case of M/s. SSA’s Emerald Meadows (supra) which is as under:

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 COMMISSIONER OF INCOMETAX -VS- MANJUNATHA COTTON AND GINNING FACTORY (2013) 359 ITR 565. 4 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.”

We are of the opinion that penalty provisions u/s 271(1)(c) of the Act are attracted where the assessee has concealed the particulars of income or furnished inaccurate particulars of such income. It is well accepted proposition that the aforesaid two limbs of section 271(1)(c) of the Act carry different meaning. Therefore, it was imperative for the AO to strike off irrelevant limb so as to make the assessee aware as to what is the charge made against him and so that he can respond accordingly. Further, the Hon’ble High Court of Karnataka in the case of CIT vs. Manjunatha Cotton Ginning Factory (2013) 359 ITR 565 observed that the levy of penalty has to be clear as to the limb under which it is being levied. As per the Hon’ble High Court, where the AO proposes to invoke the first limb being the concealment then, notice has to be appropriately marked. Further, the Hon’ble High Court has held that the standard proforma of notice u/s 274 of the Act, without striking of the relevant clauses would lead to inference of non-application of mind by the AO. In the present case, the AO is not sure whether he was to proceed on the basis that the assessee has concealed the particulars of his income

In the result, the assessee appeal in ITA No.888(B)/2019 and ITA No.889/B?2019 are allowed.