DALICHAND H. OSWAL (JAIN),JALGAON vs. INCOME-TAX OFFICER,

PER D. KARUNAKARA RAO, AM:

This is the appeal filed by assessee against the order of CIT(A)-2,

Nashik, dated 03-02-2015 for the A.Y. 2002-03.

2 ITA No.498/PUN/2015 Shri Dalichand H. Oswal (Jain)

before the Hon'ble ITAT Pune) could not justify the levy of penalty u/s. 271 (1 ) (c). 4. The Learned CIT (A) failed to appreciate that the charge contemplated by Sec. 271(1)(c) must be specific and in the absence thereof order passed by the AO imposing penalty being bad in law could not be upheld. 5. The Learned CIT (A)'s order confirming levy of penalty without disposing of each of the grounds raised is not in accordance with law and as such cannot be upheld. 6. The Learned CIT (A) has erroneously concluded that the appellant had advanced money to Chhoriyas in the past and earned interest thereon when admittedly there was no material on record to support such an inference, and consequently further erred in levying penalty of Rs. 66,100 u/s. 271 (1) (c). 7. General :

7.1 The appellant craves leave to add, amend, alter or delete anyone or more of the grounds of appeals as may be required in the nature and circumstances of the case. 7.2 The appellant prays leave to adduce such further evidence to substantiate his case as the occasion may demand.”

individual. Assessee is employed with Laxmi Irrigation System Pvt. Ltd.

and New Jain Warehousing Corporation, Jalgaon. Assessee derives

income from Salary and Agricultural income. Assessee filed the return of

income on 26-07-2022 declaring total income of Rs.2,04,131/- and

Agricultural income of Rs.7,500/-. There was search and seizure

action u/s.132 of the Act at the residential premises of the Chhoriya

Group of Jalgaon on 22-08-2008. Certain incriminating documents were

seized from the residential-cum-factory premises of Shri Kanhaiyalal D.

Chhoriya. On perusal of the seized document as per Annexure-B item

No.1 to 40 which are rough cash books of Chhoriya Group, it was

noticed that the assessee gave advances to the tune of Rs.9 lakhs to

Chhoriya Group of Jalgaon during the period 01-04-2001 to 31-03-2002.

The said advances were not reflected in the balance sheet. In the

3 ITA No.498/PUN/2015 Shri Dalichand H. Oswal (Jain)

absence of any explanation from the assessee, the AO proceeded to make

addition of Rs.9 lakhs as unexplained advances. AO also added the

interest earned on such advances amounting to Rs.1,86,000/- to the

total income of the assessee. Eventually, the AO determined the income

of the assessee at Rs.12,90,131/- as against the income of Rs.2,04,131/-

returned by the assessee.

lakhs made by the AO on account of unexplained advances, the CIT(A)

gave relief to the assessee stating that the amount in question belonged

to A.Y. 2001-02 and therefore, the said amount should have been added

in the year in which it was introduced. Regarding the addition of

Rs.1,86,000/- made by the AO on account of interest, the CIT(A) noted

that the assessee received an amount of Rs.2,16,000/- (Rs.18,000/- per

months x 12 months) and therefore, the said amount represents

unaccounted income. Thus, the CIT(A) restricted the addition to

Rs.2,16,000/-. Eventually, the AO after giving effect to the order of

CIT(A) levied penalty of Rs.66,096/-. The details are given below :

Tax on assessed income including Concealed income Rs.4,20,131 Rs.1,02,040/- Less : Tax on income excluding concealed Income (Assessed income –Concealed income) (i.e. Rs.4,20,131 – Rs.2,16,000 = Rs.2,04,131/- Rs.35,944/- ------------------- Tax sought to be evaded Rs.66,096/- -------------------

The CIT(A) after considering the written submissions of the assessee

dated 19-01-2015 confirmed the penalty levied by the AO.

us with the grounds extracted above.

4 ITA No.498/PUN/2015 Shri Dalichand H. Oswal (Jain)

Ground No.4 (legal in nature) 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.

AO/CIT(A).

of proper satisfaction by the AO. We perused the order of the AO 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 :

“9. . . . . . . . . . . . . .Penalty proceedings u/s.271(1)(c) are separately initiated for both the above additions.”

8.1 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 :

5 ITA No.498/PUN/2015 Shri Dalichand H. Oswal (Jain)

“6. Under the set of circumstances of facts of the case, I have been left with no option but to levy penalty in respect of addition made of Rs.26,50,000/- as unexplained cash credits u/s.68 of the Act. Thus, I am satisfied that the assessee has furnished inaccurate particulars of his income and concealed the particulars of income. Thus, this is a fit case for levy of penalty u/s.271(1)(c) of the I.T. Act, 1961. Therefore, assessee is liable for levy of penalty u/s.271(1)(c) of the Act, 1961 for furnishing of inaccurate particulars of his income. I, therefore, levy a minimum penalty of Rs.66,096/-, i.e. 100% of tax sought to be evaded as against maximum penalty leviable at Rs.1,98,288/-, i.e. 300% of the tax sought to be evaded.”

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

proceedings in the assessment, AO did not specify any limb of clause (c)

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

suggests the existence of ambiguity with reference to applicability of

specific limb. There is no harmony between the initiation of penalty

proceedings and at the time of levying the penalty. Therefore, we are of

the opinion that considering the above referred binding judgments such

penalty order is unsustainable in law legally. 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, 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. Accordingly, the grounds of appeal raised by the assessee

are allowed.

Order pronounced on 18th day of July, 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 : 18th July, 2018. Satish

6 ITA No.498/PUN/2015 Shri Dalichand H. Oswal (Jain)

आदेश की 'ितिलिप अ)ेिषत / Copy of the Order forwarded to : अपीलाथ� / The Appellant. 1. ��थ� / The Respondent. 2. 3. The CIT(Appeals)-2, Nashik 4. The Pr. CIT-2, Nashik 5. िवभागीय �ितिनिध, आयकर अपीलीय अिधकरण, “बी” ब#च, 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.