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Income Tax Appellate Tribunal, “B” BENCH, PUNE
Before: SHRI D. KARUNAKARA RAO, AM & SHRI VIKAS AWASTHY, JM
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.
Grounds raised by the assessee are extracted here as under : “The Grounds of Appeal stated below are WITHOUT PREJUDICE to each other. 1. The Learned CIT (A) erred in confirming levy of penalty of Rs. 66,100 u/s. 271(1) (c) of the Act. On the facts and in the circumstances of the case the penalty so levied by the AO and confirmed by the learned CIT (A) be cancelled. 2. The Learned CIT (A) failed to appreciate that suspicion howsoever grave could not take the place of proof and consequently no penalty in the absence of any cogent material/evidence re; concealment of income, could be justified. 3. The Learned CIT (A) ought to have appreciated that penalty proceedings are independent of assessment proceedings and as such mere addition in the assessment (which is also under dispute in appeal pending
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.”
Briefly stated relevant facts include that the assessee is an
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.
In the First Appellate proceedings, regarding the addition of Rs.9
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.
Aggrieved with the order of CIT(A) the assessee is in appeal before
us with the grounds extracted above.
4 ITA No.498/PUN/2015 Shri Dalichand H. Oswal (Jain)
Before us, at the outset, Ld. Counsel for the assessee referring to
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.
Per Contra, Ld. DR for the Revenue relied on the orders of
AO/CIT(A).
We heard both the parties on this specific legal issue, i.e. recording
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.
In the result, appeal of the assessee is 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.