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Income Tax Appellate Tribunal, SMC BENCH, PUNE
Before: SHRI D. KARUNAKARA RAO, AM
PER D. KARUNAKARA RAO, AM:
This appeal filed by the assessee is directed against the order of Commissioner of Income Tax (Appeals)-5, Pune dated 09.12.2016 for the Assessment Year 2003-04.
Briefly stated relevant facts include that the assessee is a firm engaged in the business of Promoters and Builders. There was search action on the Bharat Jain group of cases on 10-08-2006. Search resulted in seizure of certain loose papers including some diaries from the residence of Shri Bharat Babulal Jain. These diaries are owned by Shri Bharat Babulal Jain and they are written in his own hand-writing. They relate to the various business concern including the business concern of the assessee under consideration. The contents in these
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diaries are written in coded language. Special Audit u/s.142(2A) of the
Act was ordered by the CIT. Based on the references made by the
Special Auditor. At the end of assessment proceedings u/s.143(3) r.w.s.
147 of the Act, the AO made addition of Rs.28 lakhs as undisclosed
income of the assessee firm for the year under consideration. Penalty
proceedings u/s.271(1)(c) are initiated. The satisfaction recorded by the
AO while initiating the penalty proceedings reads as under :
“As discussed above, I am satisfied that assessee has concealed income from the ambit of taxation. Therefore penalty proceedings u/s.271(1)(c) of I.T. Act are initiated.”
The explanation given by the assessee was found unsatisfactory and
therefore, the AO levied the penalty of Rs.10,29,000/- vide his order
dated 01-03-2016. The satisfaction recorded by the AO while levying the
penalty reads as under :
“06. In view of the above discussion, and after considering the facts and circumstances of the case as discussed in the preceding paras, I am satisfied that the assessee has furnished inaccurate particulars of its income and rendered itself liable for penalty u/s.271(1)(c) of the I.T. Act…”
Aggrieved with the levy of penalty, the assessee carried the matter
before the CIT(A). The CIT(A) after considering the submissions of the
assessee eventually confirmed the penalty levied by the AO.
Aggrieved with the order of CIT(A), the assessee has filed the
present appeal before the Tribunal contesting the penalty confirmed by
the CIT(A) with the following grounds :
“1. That on facts and circumstances of the case, the Ld.CIT(A) has erred in confirming the penalty u/s.271(1)(c) of the Act on addition of Rs.18,00,000/- on account of cash introduced by partners u/s.68 of the I.T. Act.
That on facts and circumstances of the case, the Ld.DIT(A) has erred in confirming the penalty u/s.271(1)(c) of the Act on addition of
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Rs.10,00,000/- on account of expenses incurred towards purchase of land/TDR. 3. The appellant craves to add, amend, alter, substitute, modify any or all the above grounds of appeal, if necessary, on the basis of submissions to be made at the time of personal hearing.”
Before me, there is none to represent the case of the assessee
despite service of notice. Acknowledgement is placed on record.
However, on perusing the facts and the orders of the Revenue, I am of
the opinion that the case can be heard with the assistance of Ld. DR for
the Revenue.
Ld. DR for the Revenue relied on the orders of the AO/CIT(A).
After hearing the Ld. DR for the Revenue and on perusing the
orders of the Revenue which eventually led to levy of penalty
u/s.271(1)(c) of the I.T. Act, 1961, I find need to adjudicate the issue on
the satisfaction recorded by the AO. I have perused the satisfaction
recorded by the AO while initiating/levying penalty u/s.271(1)(c) of the
Act. I find AO initiated the penalty proceedings stating that “assessee
has concealed income from the ambit of taxation” and levied penalty
stating “assessee has furnished inaccurate particulars of its income”.
Thus, it is apparent that AO was not having clarity as to under which
limb of Section 271(1)(c), penalty has to be levied. Therefore, it is a case
where the AO did not have clarity of thought and AO suffered from
ambiguity in his mind with regard to the applicable limb of clause (c) of
section 271(1) of the Act to the facts of the case. Therefore, we find the
penalty order of the AO falls short of legal requirement on the issue of
recording of satisfaction. Such penalty order is unsustainable in law
legally. This view was already taken by the Pune Bench in a series of
cases. The manner of initiating and levying of penalty without making
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reference to the specific limb of clause (c) is unsustained. AO is under
obligation to specify the correct limb at the time of initiation as well as at
the time of levy of penalty. Therefore, the penalty levied by the AO is
unsustainable on technical grounds. This view of mine is fortified by the
judgment of Hon’ble jurisdictional High Court in the case of CIT Vs. Shri
Samson Perinchery (2017) 392 ITR 04 (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.
Further, we find, in a recent case, the Mumbai Bench of the
Tribunal in the case of Sachin Manohar Deshmukh Vs. ACIT – ITA
No.3767/Mum/2016, dated 23-03-2018 has dealt with an identical
issue and quashed the penalty order of the AO. The operational para
No.12 of the order of the Tribunal is extracted here as under :
“12. We have given a thoughtful consideration to the issue before us, and after deliberating on the facts are of the considered view that now when the A.O after recording his satisfaction had initiated the penalty proceedings in the body of the assessment order for furnishing inaccurate particulars and concealment of income, therefore, putting the assessee to notice and calling upon him to explain as to why penalty may not be imposed on him under Sec. 271(1)(c) for concealment of income or furnishing of inaccurate particulars of income, followed by imposing of penalty under Sec. 271(1)(c) in his hands for „furnishing of inaccurate particulars of income‟, can in no way be construed as having fairly put the assessee to notice as regards the default/defaults for which penalty was sought to be imposed in his hands. We are of the considered view that a failure on the part of the A.O to clearly put the assessee to notice as regards the default/defaults for which penalty under Sec. 271(1)(c) is sought to be to be imposed on him, has to be visited with and accorded the same treatment as in a case where the A.O had failed to strike off the irrelevant default in the ‘Show cause’ notice, because, in both the situations the assessee is not informed and rather is left guessing of the default/defaults for which he is being proceeded against for. We thus in the backdrop of our aforesaid observations are of a strong conviction that as the A.O had clearly failed to discharge his statutory obligation of fairly putting the assessee to notice as regards the default/defaults for which he was being proceeded against, therefore, are of the considered view that the penalty under Sec. 271(1)(c) of Rs.12,14,140/- imposed by the A.O in
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clear violation of the mandate of Sec. 274(1) of the Act, cannot be sustained. We thus not able to persuade ourselves to subscribe to the imposition of penalty by the A.O, therefore, set aside the order of the CIT(A) who had upheld the same. The penalty of Rs.12,14,140/-imposed by the A.O under Sec.271(1)(c) is quashed in terms of our aforesaid observations.”
In view of the above deliberation on this issue and without going
into the merits of the penalty, I am of the opinion that the penalty order
is liable to be quashed. Consequently, the order of CIT(A) confirming the
penalty is set-aside. I therefore, direct the AO to delete the penalty.
Accordingly, the grounds raised by the assessee are allowed.
In the result, appeal of the assessee is allowed.
Order pronounced on this 15th day of June, 2018.
Sd/- (D.KARUNAKARA RAO) लेखा सद� / ACCOUNTANT MEMBER पुणे / Pune; िदनांक Dated : 15th June, 2018. Satish आदेश की !ितिलिप अ#ेिषत/Copy of the Order is forwarded to : अपीलाथ� / The Appellant; 1. ��थ� / The Respondent; 2. आयकर आयु�(अपील) / The CIT(A)-5, Pune 3. आयकर आयु� / The Pr.CIT-4, Pune 4. िवभागीय �ितिनिध, आयकर अपीलीय अिधकरण, पुणे “SMC” 5. / DR ‘SMC’, ITAT, Pune; गाड# फाईल / Guard file. 6.
आदेशानुसार/ BY ORDER,स स�ािपत �ित //True Copy// //True Copy// Senior Private Secretary आयकर अपीलीय अिधकरण ,पुणे / ITAT, Pune