M/S. KANKOO PAINTS PVT. LTD.,PUNE vs. DEPUTY COMMISSIONER OF INCOME-TAX,

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ITA 1123/PUN/2016Status: DisposedITAT Pune03 October 2018AY 2009-105 pages

In favour of the assessee: the assessee's appeal was allowed. From the AI summary of this appeal.

AI SummaryAllowed

What did the Tribunal hold?

The Tribunal held that the AO failed to record valid satisfaction and specify the correct limb of Section 271(1)(c) during the initiation and levy of penalty, rendering the penalty order unsustainable in law.

What were the facts?

The assessee company engaged in paint manufacturing made purchases from suspected hawala dealers. The AO initiated penalty proceedings under Section 271(1)(c) for concealing and furnishing inaccurate particulars of income, which was confirmed by the CIT(A).

What were the issues?

Whether the penalty levied under Section 271(1)(c) is valid when the AO fails to record proper satisfaction and specify the limb of the section invoked.

Which sections of the Income-tax Act were involved?

Section 271(1)(c),Section 147

AI-generated summary — verify with the full judgment below

Cases cited in this judgment(2)Show list

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Income Tax Appellate Tribunal, “B” BENCH, PUNE

Before: SHRI D. KARUNAKARA RAO, AM & SHRI VIKAS AWASTHY, JM

For Appellant: Smt. Deepa Khare
For Respondent: Shri Sudhendu Das
Hearing: 01.10.2018Pronounced: 03.10.2018

आदेश आदेश / ORDER आदेश आदेश

PER D. KARUNAKARA RAO, AM :

This appeal is filed by the Assessee against the order of CIT(A)-7, Pune, dated 05-02-2016 for the Assessment Year 2009-10.

2.

Briefly stated relevant facts of the assessee include that it is a company engaged in the business of manufacturing of Industrial Paints and Thinners. Assessee filed the return of income on 19-09-2009 declaring total income of Rs.1,11,68,411/-. Based on the information received from DG Investigation, Pune, regarding the Hawala transactions, the AO issued notice u/s.148 dated 22-03-2013 on the assessee. It was noticed by the AO that the assessee made purchases from couple of suppliers who are in the suspected list of Hawala dealers, the details of which are given below :

Sr.No. Name of the party Amount supplying bogus bills 1 International trade agency 20,280/- 2 Namrata Trading Co. 4,29,520/-

In response to notice u/s.148, assessee filed revised return showing the

amount of Rs.4,49,800/- and the same was accepted by the Department

proposing no addition. However, the AO made addition of Rs.1,21,114/- on

account of exempt income since the same is unsupported by any

documentary evidence. Penalty proceedings u/s.271(1)(c) were initiated for

concealing and furnishing inaccurate particulars of income. Eventually,

the AO levied the penalty of Rs.1,94,054/- on both the items (i.e.

Rs.4,49,800 and Rs.1,21,114/-) mentioned above.

3.

In the First Appellate proceedings, the CIT(A) confirmed the penalty

levied by the AO. Contents of Para Nos. 9 and 9.2 of the order of CIT(A) are

relevant. Aggrieved with the same, the assessee filed the present appeal

before the Tribunal challenging the confirmation of penalty with the

following grounds :

“1. The Ld.CIT(A) Pune has erred in confirming the penalty of Rs.1,94,054/- levied u/s.271(1)(c) as it is bad in law & against the facts and circumstance of the case.

2.

The Ld.CIT(A) Pune failed to consider the fact that A.O. has not brought any evidence to show that the assessee has consciously concealed any particular of income or gave inaccurate particulars of income & so as to justify levy of penalty u/s.271(1)(c) of the I.T. Act, 1961.

3.

(a) A.O. as well as CIT(A) failed to prove that there was a deliberate & malafide intention being concealing the income by the assessee.

(b) There is no finding either by the A.O. or by CIT(A) that the explanation offered by the assessee or given on behalf of assessee is false or not bonafide or it is not a plausible explanation.

4.

The appellant may be permitted to amend or alter any of the above ground of appeal or add a new ground of appeal any time before the hearing of appeal or during the course of appeal hearing.”

4.

At the outset, in the proceedings before us, Ld. Counsel for the

assessee raising the oral ground relating to recording of satisfaction by the

AO at the time of initiation of penalty proceedings, and submitted that this

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

order as well as during the levy of penalty u/s. 271(1) of the Act.

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 and

confirmed by the CIT(A) 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.

5.

Per Contra, Ld. DR for the Revenue relied on the orders of AO/CIT(A).

6.

On hearing both the parties on the issue of applicability of limb,

satisfaction thereof in matters relating to penalty u/s.271(1)(c) of the Act,

we find the AO made addition of Rs.1,21,114/- invoking the provisions of

section 147 of the Act and initiated the penalty proceedings saying

“assessee has concealed the particulars of its income by furnishing

inaccurate particulars thereof”. Contents of Para No.4.6 of the

assessment order are relevant. While making the assessment as per the

revised return of income, the AO noticed that the revision was required

considering the need for offering additional income of Rs.4,49,800/- on

account of alleged bogus purchases. In this regard, the penalty was

initiated vide the contents of Para No.3.1 of the assessment order by stating “therefore, it is clear that the assessee has concealed and furnished

inaccurate particulars of his income.” Subsequently, the penalty was

levied on the said additional income for the default “assessee has

concealed income to the extent of Rs.4,49,800/- by way of claiming bogus

purchases and of Rs.1,21,114/- by way of claiming excess expenses which

are required to have been disallowed under rule 8D of the I.T. Rule by

furnishing inaccurate particulars of its income and made itself liable

for levy of penalty u/s.271(1)(c) of the Act...........” (Para No.6 of the penalty

order). Considering the above facts, we are of the opinion that this is a case

where the AO invoked both the limbs at the time of initiation as well as

levying the penalty. Thus, the satisfaction suffers from ambiguity in the

mind of the AO.

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

appropriate limb of clause (c) of section 271(1) of the Act 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.

7.

Since we have allowed the oral ground raised by the assessee, in our

view, adjudication of grounds raised by the assessee in the appeal on

merits becomes an academic exercise. Therefore, the said ground is

dismissed as academic.

8.

In the result, appeal of the assessee is partly allowed on

technicalities.

Order pronounced on this 03rd day of October, 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 : 03rd October, 2018. Satish

आदेश देश क� क� �ितिलिप �ितिलिप अ�ेिषत अ�ेिषत/Copy of the Order is forwarded to : देश देश क� क� �ितिलिप �ितिलिप अ�ेिषत अ�ेिषत

अपीलाथ� / The Appellant; 1. ��यथ� / The Respondent; 2. आयकर आयु�(अपील) / The CIT(A)-7, Pune. 3. आयकर आयु� / The Pr.CIT-6, Pune. 4. िवभागीय �ितिनिध, आयकर अपीलीय अिधकरण, पुणे “बी 5. बी बी” / DR ‘B’, बी ITAT, Pune; गाड� फाईल / Guard file. 6. आदेशानुसार/ BY ORDER,स आदेशानुसार आदेशानुसार आदेशानुसार

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

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