L & T JOHN DEERE PVT. LTD., (FORMERLY KNOWN AS JOHN DEERE EQUIPMENT P LTD) (NOW MERGED WITH JOHN DEERE (I) P LTD),PUNE vs. ASSISTANT COMMISSIONER OF INCOME-TAX, PUNE

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.

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.

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.

to Rs.4,76,150/- levied by the AO.

us with the grounds as well as additional ground (legal in nature)

extracted above.

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.

the AO/CIT(A).

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).

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.

assessee on merits become academic and therefore, the said grounds

are dismissed as academic.

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