NEMICHAND PUSHMAL MODI,,NASHIK vs. INCOME-TAX OFFICER,,

Briefly stated relevant facts are that the assessee is an individual and derives income from salary and income from other sources. Search and seizure action under section 132(1) of the Income Tax Act, 1961 (in short „the Act‟) was conducted on 21.05.2009 at the residential premises of assessee. Notice under section 153A of the Act was served upon the assessee and in response thereto, he filed return of income for the year under consideration declaring total income of Rs.27,13,090/-

During the first appellate proceedings, the assessee contended that the Assessing Officer has not struck down the inappropriate portion of the notice issued under section 274 of the Act and hence, the notice issued was invalid and consequential penalty imposed needs to be deleted. However, the CIT(A) dismissing the grounds of assessee upheld the levy of penalty.

Aggrieved with the order of CIT(A), the assessee is in appeal before us.

Mentioning the fact that the Assessing Officer levied penalty of Rs.8,52,053/-, the learned Counsel for the assessee submitted that this

The learned Departmental Representative for the Revenue relied on the orders of Assessing Officer and CIT(A).

We have heard both the parties on this limited legal issue relating to ambiguity at the time of initiation of penalty proceedings under section 271(1)(c) of the Act. We have also perused the contents of para 6 of the assessment order, where the following satisfaction is given by the Assessing Officer: “6. …..Since the additional income of Rs.24,99,280/- is disclosed by the assessee as result of search action, the penalty proceedings u/s 274 r.w.s. 271(1)(c) are separately initiated”

The above satisfaction of the Assessing Officer does not make a reference to any of the limbs of said clause (c) to section 271(1) of the Act. Further, we have also perused the penalty order dated 29.08.2013 and found the Assessing Officer did not have clarity as to which of the limb applies to the facts of this case. In this regard, we perused the contents of para 7 and the relevant lines are extracted hereunder: “7. I am satisfied that the assessee has without any reasonable cause, furnished an inaccurate particulars of income and thereby concealed her income to the extent of Rs.24,99,280/- ….”

From the above, it is evident both the limbs of clause (c) to section 271(1) of the Act are referred conjointly by „and thereby‟. In our view, in this kind of satisfaction as well as conclusion of Assessing Officer falls short of the requirement of the law.

We find that the Hon‟ble Bombay High Court in CIT Vs. Shri Samson Perinchery in Income Tax Appeal No.1154 of 2014 with other Income Tax Appeals Nos.953 of 2014, 1097 of 2014 and 1226 of 2014, judgment dated 05.01.2017 after referring to the decision of the Hon'ble Supreme Court in Ashok Pai Vs. CIT (2007) 292 ITR 11 (SC) and the decision of the Hon‟ble High Court of Karnataka in CIT & Anr. Vs. M/s. Manjunatha Cotton and Ginning Factory (2013) 359 ITR 565 (Kar) has held that satisfaction of the Assessing Officer has to be with regard to one of two breaches mentioned under section 271(1)(c) of the Act, for initiation of penalty proceedings, would not warrant / permit penalty being imposed for other breaches. The Revenue in this regard has strongly emphasized that where the Assessing Officer has recorded satisfaction in respect of both the limbs and also has given notice in respect of both the limbs and where penalty has been levied though on both the limbs, then the same merits to be upheld as it does not violate the provisions of the Act. However, we find no merit in the said stand of learned Departmental Representative for the Revenue. Penalty under section 271(1)(c) of the Act can be levied only in respect of either of two limbs i.e. either for concealment of income or furnishing inaccurate particulars of income. The Assessing Officer after making additions in the hands of assessee has to record satisfaction in this regard as to which limb of section 271(1)(c) of the Act has not been satisfied by the assessee and accordingly, give him show cause notice by recording satisfaction of violating both the limbs and also issuing similar notice is outside the purview of provisions of said section and hence, is not sustainable. The Assessing Officer having failed to record satisfaction with regard to non-fulfillment of one of the limbs and similarly, non-

In the result, appeal of the assessee is allowed.