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Income Tax Appellate Tribunal, ‘C’ BENCH, BENGALURU
O R D E R
Per PAVAN KUMAR GADALE, JM:
1. The assessee has filed appeal against the order of the CIT(A) passed u/s 271(1)(c) and 250 of the Income-tax Act,1961 ['the Act'].
The assessee has raised the following grounds of appeal:
1. “The orders of the authorities below in so far as levying penalty u/s 271[1][c] of the Act against the appellant are opposed to law, equity, weight of evidence, probabilities, facts and circumstances of the case.
Page 2 of 7 2. The learned CIT[A] is not justified in upholding the penalty of Rs. 68,468/- levied u/s. 271[1][c] of the Act in respect of the addition made towards unexplained purchases of Rs. 3,10,420/- sustained by the Hon'ble CIT[A] under the facts and in the circumstances of the appellant's case.
3. The learned CIT[A} failed to appreciate that the appellant has neither concealed any income nor furnished inaccurate particulars of income in respect of the above addition made to warrant levy of penalty and therefore, the penalty levied u/s.271[1][c] of the Act requires to be cancelled.
4. Without prejudice to the above, the penalty levied is highly excessive and liable to be reduced substantially.
For the above and other grounds that may be urged at the time of hearing of the appeal, your appellant humbly prays that the appeal may be allowed and Justice rendered and the appellant may be awarded costs in prosecuting the appeal and also order for the refund of the institution fees as part of the costs.”
The assessee has also raised the additional grounds as under:
“The order of penalty passed u/s 271[1][c] of the Act is bad in law as the notice issued under section 274 rws 271 of the Act is not discernable as to whether the penalty proceedings is initiated for furnishing of inaccurate particulars of income or concealment of income under the facts and in the circumstances of the appellant's case and therefore, the impugned order passed deserves to be cancelled.
2. For the above and other grounds that may be urged at the time of hearing of the appeal, your appellant humbly prays that the appeal may be allowed and Justice rendered.”
Brief facts of the case are that the assessee is engaged in the business of trading in granites blocks and processing of Page 3 of 7 granites, whereas the financial year 2004-05 is the first year of business and the return of income for the assessment year 2005-06 was filed on 17/01/2006 declaring loss of Rs.2,61,530/- and the return of income was processed u/s 143(1) of the Act. Subsequently the case was selected for scrutiny and notice u/s 143(2) and 142(1) of the Act were issued. In compliance, the learned AR appeared from time to time and produced books of account and bank account details. The Assessing Officer (AO), on verifying the financial statements and Books of account found that the assessee has obtained loan from Karnataka Bank Ltd. and withdrawals from the Bank were used for some other business purpose but were reflected as cash receipts in the cash book.
5. The assessee filed letter dated 24/12/2007 referred at para.3.1.1. of the assessment order. Whereas the AO, considering the facts and the details of cash purchases and the provisions of section 40(A)(3) r.w. rule 6DD made disallowance u/s 40A(3) and also unaccounted purchases and assessed the total income of Rs.7,69,300/- vide order u/s 143(3) dated 31/12/2007. But the assessment order was set aside u/s 263 order and the AO, as per the directions of the CIT u/s 263, passed the assessment order u/s 143(3) r.w.s. 263 of the Act dated 28/12/2010. On appeal to the CIT(A), the CIT(A) deleted
Page 4 of 7 the addition of Rs.8,18,902/- whereas in respect of unaccounted cash purchases, the CIT(A) has sustained the addition to the extent of Rs.3,10,420/-. Subsequently, the AO has initiated penalty proceedings and issued notice u/s 274 r.w.s. 271(1)(c) of the Act.
The AO is of the opinion that the CIT(A) has sustained the addition of unaccounted purchases of Rs.3,10,420/- and the assessee has set up granite factory and started production in the financial year 2004-05. The assessee being lady, with the help of manager and husband of the assessee, the factory operations are managed. There is no proper maintenance of records and the books of account are maintained on the basis of payments. During the period May 2004 to October 2004, no purchases were recorded in the books of account and also no payments. Whereas AO made an addition on technical ground of non-maintenance of proper records and also the first year of operations. In the penalty proceedings, AO has not accepted the assessee’s explanations and came to unilateral conclusion that the assessee has suppressed the closing stock which reduces the income and purchases are made outside the books of account. Finally, AO, considering the fact of addition in the assessment proceedings, levied penalty of 100% i.e. of Rs.68,468/- and passed the order dated 30/03/2013. On Page 5 of 7 appeal, the CIT(A) found that none appeared on the date of hearing and based on written submissions filed on record, the CIT(A) has confirmed the penalty and dismissed the assessee’s appeal.
Aggrieved by the order, the assessee has filed appeal before the Tribunal. Before us, the learned AR submitted that the CIT(A) is not justified in upholding the penalty and argued on the additional ground that the AO has not applied his mind and referred to the copy of the notice u/s 274 r.w.s. 271(1)(c) of the Act dated 31/12/2007 where the AO has initiated penalty proceedings for concealment of income and furnishing of inaccurate particulars of income. Further, the learned AR emphasized that addition in assessment proceedings shall not give rise to automatic levy of penalty as the circumstances and reasonable cause has been explained and prayed for quashing of notice issued u/s 274 r.w.s. 271(1)(c) of the Act and relied on judicial decision. Contra, learned DR relied on the orders of the lower authorities.
We heard the rival submissions and perused the material on record. The only disputed issue prima facie is in respect of levy of penalty u/s 271(1)(c) of the Act. The contention of the learned AR is that the AO has passed the penalty order without application of mind and referred to page 39 & 40 of the paper
Page 6 of 7 book where notice u/s 274 r.w.s. 271(1)(c) dated 31/12/2007 is enclosed. On perusal of the notice at page 40, as demonstrated by the learned AR, the AO has initiated penalty proceedings both for concealment of particulars of income and furnishing of inaccurate particulars of such income. We are of the opinion that penalty proceedings are attract ed only 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 and the AO should be clear as to the limb under which penalty is being levied. When the AO proposes to invoke the first limb being concealment of income, notice has to be appropriately marked. But in the present case, as demonstrated before us, we found that the AO has marked the concealment of particulars of income and furnishing of inaccurate particulars of income. It is imperative and clear that the AO is not sure on which limb the penalty is being levied. Therefore, we considering the facts and legal position and passing of penalty order u/s 271(1)(c), found that there is no application of mind by the AO as he has marked both limbs of notice which is bad in law. Accordingly, we set aside the order of the CIT(A) and cancel the penalty
Page 7 of 7 order dated 31/12/2007 and allow the grounds of appeal of the assessee.
In the result, the assessee’s appeal is allowed.
Order pronounced in the open court on 30th April, 2019.