M/S. KALPANA GLASS FIBRE PVT. LTD.,,PUNE vs. DEPUTY COMMISSIONER OF INCOME-TAX,,

PER D. KARUNAKARA RAO, AM:

This is the appeal filed by assessee against the order of CIT(A)-7, Pune, dated 01-04-2016 for the A.Y. 2010-11.

“1. The Ld. AO erred in levying penalty of Rs.99,164/- and the Ld. CIT(A) erred in approving the same. 2. The Ld. AO erred in holding that the assessee has concealed his income by providing inaccurate particulars of income, and the Ld.CIT(A) erred in confirming the same.

2 ITA No.1403/PUN/2016 M/s. Kalpana Glass Fibre Pvt. Ltd.,

and plastic molders. Assessee filed the return of income on 13-10-2010

declaring loss of Rs.68,82,473/-. Based on the information from the

O/o. the DG Investigation, Pune, AO noticed that the assessee made

purchases from couple of firms, namely Gururaj Enterprises –

Rs.1,39,277/- and Mercury Enterprises – Rs.1,94,757/- totaling to

Rs.3,33,757/-. As per the information from Sales Tax Department of

Maharashtra Govt, the names of these suppliers are in the list of hawala

bill entries/parties. A notice u/s.148 of the Act was issued and in

response, the assessee submitted the reply and filed the revised retur os

income. AO accepted the same. However, since the assessee revised the

return only after receiving the notice u/s.148 of the Act, AO opined that

the assessee concealed income and furnished inaccurate particulars of

his income. Eventually, the AO assessed the loss at Rs.66,16,020/-.

Penalty proceedings u/s.271(1)(c) was initiated and levied penalty of

Rs.99,165/-. In the First Appellate proceedings, the CIT(A) upheld the

penalty levied by the AO.

the Tribunal with the grounds extracted above.

despite service of notice. Acknowledgement is placed on record.

However, the assessee filed written submissions vide letter dated 18-06-

2018. On going through the written submissions, facts of the case and

the availability of assistance of Ld. DR for the Revenue, we are of the

opinion that the appeal can be taken up for adjudication.

additional ground (legal nature) and the same reads as under :

3 ITA No.1403/PUN/2016 M/s. Kalpana Glass Fibre Pvt. Ltd.,

“3. The penalty proceedings have been initiated on the basis of incurably defective notice, which did not specify whether the penalty proceedings were initiated for filing of inaccurate particulars of income or for concealment of income. As such the entire proceedings are void ab-initio and penalty order accordingly needs to be set-aside.” Your Appellant prays that non-mentioning of this ground was neither willful nor wrongful and prays before your Honour to include this ground as if filed with the original Appeal Memo; a favour for which we shall be ever obliged.

In support of his case, the assessee relied on the following

judgments :

assessee being purely a legal one and all facts are already before the

lower authorities, therefore, the same is admitted for adjudication in the

light of various binding judgments on the same.

of the Revenue authorities and the written submissions filed by the

assessee. On going through the facts of the case, we proceed to

adjudicate the preliminary issue, i.e. recording of satisfaction qua the

limbs of clause (c) of section 271(1) of the Act by the AO. 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 :

4 ITA No.1403/PUN/2016 M/s. Kalpana Glass Fibre Pvt. Ltd.,

“3.2 Assessee’s submission is accepted. However, the assessee has revised the return only after receiving the notice u/s.148 of the Act, meaning thereby, consequent upon detection of undisclosed income by the department. Therefore, I am convinced that the assessee has concealed and furnished inaccurate particulars of his income and I am satisfied that there has been default within the meaning of section 271(1)(c) of the Act. Penalty proceedings u/s.271(1)(c) has, therefore, been initiated separately.

9.1 We also perused the penalty order dated 28-03-2014 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 :

“6. Assessee’s submission as above is duly considered however, the same cannot be accepted on merit. Since the assessee has revised the return only after receiving the notice u/s.148 of the Act, meaning thereby, consequent upon detection of undisclosed income by the department. I am convinced that the assessee has concealed particulars of income of Rs.3,20,920/- by furnishing inaccurate particulars and made itself liable for levy of penalty u/s.271(1)(c) of the Act. I, therefore, direct the assessee to pay a sum of Rs.99,165/- (Ninety Thousand One Hundred and Sixty Five Only) by way of penalty u/s.271(1)(c) of the Act, which is equal to 100% of tax sought to be evaded, the working of which is as under …..”

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 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, 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. The judgment of Hon’ble Karnataka High Court in the case of

CIT Vs. M/s. SSA’s Emerald Meadows (supra) relied on by the assessee

5 ITA No.1403/PUN/2016 M/s. Kalpana Glass Fibre Pvt. Ltd.,

also supports his case. 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/additional 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

आदेश की 'ितिलिप अ)ेिषत / Copy of the Order forwarded to : अपीलाथ� / The Appellant. 1. ��थ� / The Respondent. 2. 3. The CIT(Appeals)-7, PUne 4. The Pr. CIT-6, Pune ि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.