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Income Tax Appellate Tribunal, PUNE BENCH “A”, PUNE
Before: SHRI D.KARUNAKARA RAO, AM & SHRI VIKAS AWASTHY, JM
आदेश आदेश / ORDER आदेश आदेश
PER D. KARUNAKARA RAO, AM :
This is the appeal filed by the assessee against the order of CIT(A)-7, Pune, dated 16-02-2016 for the Assessment Year 2004-05.
Assessee raised the following grounds of appeal : ““The following grounds are taken without prejudice to each other- On facts and in law, 1. The learned CIT(A) erred in holding that the penalty order passed by the learned A.O. was within limitation without appreciating that the said order passed was barred by limitation and hence, the same should be declared null and void. 2. The learned CIT(A) erred in confirming the levy of penalty of Rs. 476,150/- u/s.271(1)(c) of the Income Tax Act.
The learned CIT(A) erred in holding that the assessee company has made an incorrect claim of deduction u/s. 35D and hence, the learned A.O. was justified in levying the penalty on the said disallowance.
The learned CIT(A) failed to appreciate that the assessee company had not furnished any inaccurate particulars of income and hence, there was no reason to levy the penalty. 5. The learned CIT(A) erred in not appreciating that the claim of deduction u/s. 35D was a legal claim and simply because the claim was not accepted did not mean that the assessee had filed inaccurate particulars of income. 6. The appellant craves leave to add, alter, amend or delete any of the above grounds of appeal.”
2.1 Assessee also raised the following additional ground in the
appeal:
“1. The assessee submits that the penalty levied u/s.271(1)(c) be held to be null and void since the penalty order as well as the notice u/s.274 r.w.s.271(1)(c) was issued without proper application of mind. The assessee submits that the additional ground raised is legal in nature and as all the facts are on record, the assessee requests for admission of the above ground.”
2.2 On considering the additional ground raised by the assessee
being legal in nature, the said ground is admitted for adjudication.
Briefly stated relevant facts are that the assessee is a joint
venture company and is engaged in the business of manufacturing of
tractors and allied activities. Assessee filed the return of income on 29-
10-2004showing loss of Rs.32,34,62,680/-.During the year, assessee
increased the authorised share capital from Rs.150 crores to Rs.175
crores. During the course of assessment, the AO noticed that assessee
made a claim u/s.35D of the Act on account of preliminary expenditure
amounting to Rs.23,83,565/-. AO is of the opinion that claim of
Rs.10,23,135/- pertains to prior period expenses and claims of
Rs.13,60,430/- pertains to post period. Eventually, AO disallowed the
said claim of the assessee (expenses incurred towards ROC filing fees,
stamp duty for increasing the share capital). AO also disallowed certain
other expenses viz., (1) product development expenses (2) payment to
John Deere India Pvt.Ltd. (3) deferred tax equalisation liability and (4)
Information Technology charges. At the end of assessment proceedings
u/s.143(3) of the Act, AO assessed the returned loss at
Rs.18,40,64,600/- as against loss of Rs.32,34,62,680/-. Penalty
proceedings u/s.271(1)(c) are also initiated separately for furnishing
inaccurate particulars of income and levied penalty of Rs.4,76,150/-
@100% of tax sought to be evaded.
In the First Appellate proceedings, the CIT(A) upheld the penalty
to Rs.4,76,150/- levied by the AO.
Aggrieved with the order of CIT(A), the assessee is in appeal before
us with the grounds as well as additional ground (legal in nature)
extracted above.
Before us, on the legal issue raised by way of additional ground,
Ld. Counsel for the assessee referring to the notice dated 27-12-2006
issued by the AO u/s.274 r.w.s. 271(1)(c) of the Act submitted that the
AO issued the notice without striking off the particular limb of section
271(1) of the Act. For the sake of completeness, the same is extracted
as under :
“*have concealed the particulars of your income or.................. furnished inaccurate particulars of income.”
6.1 Ld. Counsel also referred to Para No.6 of the penalty order dated
28-01-2013 and the same reads as under :
“6. In view of the above, I am convinced that the assessee has concealed income of Rs.13,60,430/- by furnishing inaccurate particulars and made itself liable for levy of penalty u/s.271(1)(c) of the I.T. Act, 1961. . . . . . . . .”
Ld. Counsel for the assessee submitted that the AO failed to strike off
the particular limb of section 271(1) of the Act and therefore, the
penalty levied u/s.271(1)(c) of the Act is to be held as null and void and
prayed for quashing of the same. In support of this legal ground, he
relied on various decisions of Pune Benches of the Tribunal, judgment
of Hon’ble jurisdictional High Court in the case of CIT Vs. Shri Samson
Perinchery dated 05-01-2017 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.
On the other hand, Ld DR for the Revenue relied on the orders of
the AO/CIT(A).
We heard both the sides on this issue and perused the orders of
the Revenue and considered the decisions relied on by the Ld. Counsel
for the assessee. We find the AO vide assessment order dated
27-12-2006 has initiated the penalty proceedings holding as under :
“3.1................... Penalty proceedings u/s.271(1)(c) are separately initiated for “furnishing of inaccurate particulars of income.”
However, the AO vide penalty order dated
28-01-2013 has levied the penalty stating that “assessee has
concealed income of Rs.13,60,430/- by furnishing inaccurate
particulars”. Therefore, on the issue of satisfaction of the AO, we find
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. This view was already taken by the Pune
Bench in a series of cases. The manner of initiating and levying of
penalty without making 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 ours get strength by the judgment of Hon’ble jurisdictional High
Court in the case of CIT Vs. Shri Samson Perinchery as well as the
judgment of Hon’ble Karnataka High Court in the case of CIT Vs.
Manjunatha Cotton and Ginning Factory (supra).
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 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 discussion, we hold that the orders of AO/
CIT(A) are required to be set-aside on the legal ground of recording of
satisfaction by the AO. We therefore direct the AO to delete the penalty.
Accordingly, the additional ground raised by the assessee is allowed.
Consequently, adjudication of original grounds raised by the
assessee on merits become academic and therefore, the said grounds
are dismissed as academic.
In the result, appeal of the assessee is partly allowed.
Order pronounced in the open court on this 30th day of May, 2018.
Sd/- Sd/- (VIKAS AWASTHY) (D. KARUNAKARA RAO) �याियक �याियक सद�य �याियक �याियक सद�य सद�य /JUDICIAL MEMBER लेखा सद�य लेखा लेखा सद�य लेखा सद�य सद�य / ACCOUNTANT MEMBER सद�य
पुणे Pune; �दनांक Dated : 30th May, 2018 सतीश
आदेश आदेश क� आदेश आदेश क� क� �ितिलिप क� �ितिलिप �ितिलिप अ�ेिषत �ितिलिप अ�ेिषत अ�ेिषत/Copy of the Order forwarded to : अ�ेिषत
अपीलाथ� / The Appellant 1. ��यथ� / The Respondent 2. 3. The CIT(A)-7, Pune 4. The Pr.CIT-6, Pune िवभागीय �ितिनिध, आयकर अपीलीय अिधकरण, “A Bench” Pune; 5. गाड� फाईल / Guard file. 6.
आदेशानुसार आदेशानुसार आदेशानुसार/ BY ORDER,स आदेशानुसार
स�यािपत �ित //True Copy// Senior Private Secretary आयकर अपीलीय अिधकरण ,पुणे / ITAT, Pune