MUSTAFA ABDULLA ARODIA,MUMBAI vs. PR CIT 31, MUMBAI

This is an appeal filed by the assessee against the order passed by CIT-31, Mumbai dated 24/03/2017 u/s.263 for the A.Y. 2011-12. 2. The grounds taken by the assessee reads as under:-

Rival contentions have been heard and record perused. In the order passed u/s.263, the Principal CIT observed that AO has wrongly dropped the penalty proceedings u/s.271(1)(c) vide order dated 25/07/2014 despite categorical finding of concealment of particulars of income in the assessment order thereby rendering the order erroneous in so far as it was prejudicial to the interest of the Revenue in view of Clause (a) to Explanation -2 of Sub-section 1 of Section 263 of the Act. Accordingly, the order passed by the AO dropping the penalty proceedings u/s.271(1)(c) was set aside and penalty was levied. The precise observation of CIT was as under:- 7. In the instant case, the assessee failed to offer the capital gains of Rs. 19,95,778/- against surrender of tenancy rights in his return of income nor could prove that the explanation was bona fide, therefore, I am satisfied that the assessee had not only furnished inaccurate particulars and thereby concealed the particulars of income as the capital gain income was not reported and Explanation I to section 271(l)(c) of the Act was applicable. The amount added in computing the total income of the assessee, for the purposes of clause (c) of sub-section (1) of section 271(1) is deemed to represent the income in respect of which particulars have been concealed. Thus, failure to invoke Explanation 1 to section 271(l)(c) and thereby not imposing penalty u/s 271(l)(c) has rendered the order dated 25.07.20.14 erroneous in so far as it is prejudicial to the interest of the revenue since the law applicable has not been applied. Penalty under section 271(l)(c) is now held to be a civil liability for the loss of revenue and mens rea is not an essential ingredient to invoke the provisions of section 271(l)(c) of the Act. The Act has been amended w.e.f. 01/6/2002 and has provided that apart from Assessing Officer and Commissioner (Appeals), the Commissioner is also empowered u/s 271(l)(c) of the Act to record satisfaction and initiate/levy of penalty. Thus, the view that if Commissioner is not empowered by Section 271(l)(c) of the Act to record satisfaction on his own, he cannot direct the Assessing Officer in this regard would no longer be relevant for the assessment year under consideration. Thus, Shri Mustafa Abdulla Arodia the order u/s 271(l)(c) of the Act is hereby modified and in view of sub- section (1) of section 263 enabling the undersigned to pass such'order as the circumstances of the case justify. I am satisfied that the assessee had not only furnished inaccurate particulars and thereby concealed the particulars of his income but has also not filed satisfactory explanation now so as to justify that Explanation 1 to section 271(l)(c) of the Act is not applicable. However, considering the facts and circumstances of the case, minimum penalty on the basis of the tax sought to be evaded is hereby imposed u/s 271(l)(c) of the IT. Act, 1961. The Assessing Officer is directed to compute the tax sought to be evaded and the minimum penalty imposable (which has been worked out at Rs.41,11,131/- ) and issue the necessary notice of demand and challans after working out the quantum of penalty.

We have gone through the orders of the authorities below and found that addition was made by the AO on account of long term capital gain. Such additional income in the form of long term capital gain was accepted by the assessee and taxes there on was paid. Thereafter AO also initiated penalty proceedings u/s.271(1)(c) for concealment of particulars of income. Thereafter, AO passed order dated 25/07/2014 wherein penalty so initiated was dropped. Thereafter, CIT invoked his power u/s.263 and held that AO was not justified in drooping the penalty, accordingly, order so passed by AO was held to be erroneous as well as prejudicial to the interest of revenue.

It was contended by learned AR that addition was not made by the Pr. CIT. Hence, in view of the amended provisions of Sec.271(1)(c) the levy of penalty by the CIT by invoking Powers u/s. 263 is in excess of his jurisdiction. 6. As per learned AR under the amended provisions of section 271(1)(c) of the Act, after 01.06.2002, the Ld. PCIT can levy the penalty Shri Mustafa Abdulla Arodia only for those issues which was decided by him. Meaning thereby until and unless Ld. PCIT himself gets satisfied during the invocation of powers u/s. 263 for quantum assessment proceedings, he cannot pass an order under section 263 r.w.s. 271(l)(c) of the Act. He further contended that even though the order was not passed specifically u/s. 263 r.w.s. 271(l)(c), the concrete nature of the order was same only. Reason being, at page no. 14 / para 7, rather than directing the AO to levy the penalty he himself reached at conclusion that the penalty required to be levied and accordingly penalty of Rs.4,11,313/- was levied on the assessee. 7. With regard to the merit of CIT’s action for levying penalty u/s. 271(1)(c), it was submitted that in the case of assessee, quantum assessment proceedings, the wrong claim of section 54F was admitted by the assessee due to inadvertent mistake of the accountant in filing return of income and addition was made by the AO. The Ld. PCIT has not invoked any powers for said proceedings and directly levied the penalty u/s. 271(l)(c) is illegal and against the provisions of the section. Reason being PCIT has not recorded any satisfaction in the course of quantum proceedings. 8. For the above proposition, reliance was placed on the following judicial pronouncements. Shri Raikumar Jain vs. ACIT In - For A.Y.2004-05 -Order dated 07.09.2012 - Hydrabad Tribunal Identical Facts of the case: This appeal by the assessee is directed against the order of the CIT- IV, Hyderabad passed u/s. 263 of the Act dated 29.3.2012. 2. The grievance of the assessee in this appeal is with regard to assumption of jurisdiction by the CIT u/s. 263 of the Income- tax Act, Shri Mustafa Abdulla Arodia 1961 and thereby holding that dropping of penalty proceedings u/s. 271(1)(c) of the Act is erroneous and prejudicial to the interest of revenue.

Further it was held by the Gujarat High Court in the case of CIT vs. Parmanand M. Patel (278 ITR 3) that the CIT is not empowered to record satisfaction by invoking s. 271(1)(c) of the Act and if he is not entitled to do so, on his own, he cannot do it by directing the assessing authority. The Court observed that in other words, what the CIT himself cannot do. he cannot get it done through the assessing authority by exercising revisional powers. In view of the above discussion, the direction of the CIT to AO to levy penaltv u/s 271(1)(c) of the Act is vacated 18. In the result, appeal of the assessee is allowed.