POPATLAL MOHANLAL CHORDIA,,AURANGABAD vs. ASSISTANT COMMISSIONER OF INCOME-TAX,,

PER D. KARUNAKARA RAO, AM:

This is the appeal filed by assessee against the order of CIT(A)-2, Aurangabad, dated 15.03.2016 for the A.Y. 2008-09.

Total income as per return of income Rs.46,53,919/- Add : 1. As per Para No.3 Rs.6,08,322/- 2. As per Para No.4 Rs.1,08,189/- 3. As per Para No.5 Rs.1,50,000/- 4. As per Para No.6.1 Rs.15,97,820/-

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The Assessing Officer initiated penalty proceedings separately

u/s.271(1)(c) of the Act for furnishing inaccurate particulars of income and

levied penalty of Rs.8,21,508/-.

Sl.No.4,6 & 7 above, the assessee challenged the penalty levied by the AO

on account of capital gains amounting to Rs.56,63,568/-. The break-up is

given as under :

Sr.No. Heads of addition Amount in Rs. 1 Capital gains according to section 50C 15,97,820 2 Capital gains not offered for taxation 27,20,215/- 3 Capital gains not offered for taxation 13,63,533 Total 56,63,568

The CIT(A) after elaborately discussing the issue of capital gains and

considering various judgmental laws partly allowed the appeal of the

assessee. The penalty levied in respect of addition of Rs.13,63,533/- is fully

confirmed and the penalty levied in respect of addition of Rs.6,64,015/- out

of Rs.15,97,820/- is also confirmed. Contents of Para No.28 are relevant

and therefore we proceed to extract the same below :

“28. The penalty provision is to provide remedy for loss of revenue for which the element of “willful” concealment is not essential. This is a case where the assessee had concealed the particulars of income by not offering the same to tax in the A.Y. 2008-09 and had instead offered the same for taxation in the subsequent year. It is inconceivable that the assessee did not know that he had sold the lands during the financial year relevant to the A.Y. 2008- 09. By not including the amount of capital gains in his return of income, the assessee had committed the default of concealment of income. Hence I hold that penalty for concealment has been rightly levied in respect of the transactions resulting in capital gains of Rs.6,64,015/- and Rs.13,63,533/-. Therefore, the assessing officer is directed to delete the penalty in

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respect of difference in valuation resulting in addition of Rs.15,97,820/- and the penalty levied in respect of Rs.6,64,015/- and Rs.13,63,533/- is confirmed.

appeal raising the following grounds :

“1. In the facts and circumstances of the case and in law, the learned CIT[A] has grossly erred in confirming the penalty levied by the learned Assessing Officer u/s.271[1][c] of the I.T. Act 1961 on Capital Gains of Rs.13,63,533.00 arising on transfer of agriculture land at Gat No.142 at Teesgaon, Aurangabad. The impugned order passed by the learned CIT[A] is bad in law, arbitrary, perverse and devoid of merits and hence the impugned penalty confirmed by learned CIT[A] may please be deleted. 2. The appellant craves leave to add, alter, revise, substitute, delete any or all grounds of appeal, if deemed necessary at the time of hearing of the appeal.”

ground relating to recording of satisfaction by the AO submitted that this is

a case where the AO failed to record valid satisfaction in the assessment

order during which the penalty proceedings were initiated. Highlighting the

legal requirement of making a specific reference to the specific limb of

clause (c) of section 271(1) of the Act and relying on various binding

judgments in the case CIT Vs. Shri Samson Perinchery (2017) 392 ITR 4

(Bom.) as well as the judgment of Hon’ble Karnataka High Court in the case

of CIT Vs. Manjunatha Cotton and Ginning Factory 359 ITR 565 Ld.

Counsel demonstrated that the penalty levied by the AO is unsustainable in

law. In this regard, he brought our attention to the assessment order as

well as the penalty order highlighting the above legal deficiencies.

Before proceeding to adjudicate the solitary issue raised by the assessee, we

proceed to admit the oral ground (legal in nature) raised by the assessee

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regarding the recording of proper satisfaction by the AO. In this connection,

we perused the assessment order dated 28-12-2010 and find the

satisfaction recorded by the AO for initiating the penalty proceedings

u/s.271(1)(c) of the Act is relevant for extraction. Therefore, the same is

reproduced as under :

“Assessed u/s.143(3) of the Income Tax Act, 1961. Charge Interest u/s.234B, 234D, 244A, as per Act. Issue penalty show cause notice u/s.271(1)(c) of the Act for furnishing inaccurate particulars of income.”

7.1 In Para Nos. 8.4 and 8.5 of his order, the AO while making additions

on account of capital gains recorded the following satisfaction :

“8.4 I therefore add Rs.27,20,215/- being capital gains on sale of land at Gat No.142 at Tisgaon, Dist. Aurangabad. As assessee has concealed the capital gain and not offered for taxation during the year. Hence penalty proceeding u/s.271(1)(c) is separately initiated. 8.5 …………………. ………………………….. I therefore add Rs.13,63,533/- being capital gain on sale of land at Gat No.142 at Tisgaon, Dist. Aurangabad. As assessee has concealed the capital gain and not offered for taxation during the year. Hence penalty proceeding u/s.271(1)(c) is separately initiated.

7.2 We also perused the penalty order dated 28.03.2013 and find the

satisfaction recorded by the AO for levying the penalty u/s.271(1)(c) of the

Act is relevant for extraction. The said satisfaction reads as under:

“8. In view of the facts mentioned above, I am satisfied that the assessee has furnished inaccurate particulars of his income from capital gain and has concealed his income to the tune of Rs.36,25,368/- as shown above and thereby made himself liable for levy of penalty u/s. 271(1)(c) of the Income Tax Act, 1961. I , therefore, levy a penalty u/s. 271(1)(c) of the Income Tax Act, 1961 of Rs.8,21,508/- which is @100% of tax sought to be evaded, as per calculations ……………….”

From the above, it is evident that at the time of initiation of penalty

proceedings in the assessment, AO mentioned both limbs of clause (c) of

section 271(1) of the Act. This manner of recording of satisfaction suggests

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the existence of ambiguity with reference to applicability of specific limb. Therefore, we are of the opinion that considering the above referred binding judgments such penalty order is unsustainable in law legally. It is a settled legal proposition that the AO is under obligation to specify the correct limb at the time of initiation as well as at the time of levy of penalty. In view of the above deliberation on this issue, without going into the merits of the penalty, we are of the opinion that the penalty order is liable to be quashed on this legal issue. Thus, the order of CIT(A) is set-aside and direct the AO to delete the penalty on technical grounds without going into merits of the case.

Order pronounced on 26th day of September, 2018.

Sd/- Sd/- (िवकास अव थी /VIKAS AWASTHY) (डी. क�णाकरा राव/D. KARUNAKARA RAO) �ाियक सद�/JUDICIAL MEMBER लेखा सद�/ACCOUNTANT MEMBER पुणे / Pune; िदनांक / Dated : 26th September, 2018. Satish

आदेश की 'ितिलिप अ)ेिषत / Copy of the Order forwarded to : अपीलाथ� / The Appellant. 1. ��थ� / The Respondent. 2. 3. The CIT(Appeals)-2, Aurangabad 4. The Pr. CIT-2, Aurangabad. िवभागीय �ितिनिध, आयकर अपीलीय अिधकरण, “बी” ब#च, 5. पुणे / DR, ITAT, “B” Bench, Pune. गाड& फ़ाइल / Guard File. 6.

आदेशानुसार / BY ORDER, // True Copy // Senior Private Secretary आयकर अपीलीय अिधकरण, पुणे / ITAT, Pune.