DEPUTY COMMISSIONER OF INCOME-TAX vs. SHRI SOPAN D. PATIL, KOLHAPUR

आदेश आदेश आदेश

PER D. KARUNAKARA RAO, AM :

The Revenue filed the main appeal and the assessee filed the Cross Objection against the order of CIT(A)-12, Pune, dated 23-03-2015 for the Assessment year 2011-12. 2. Grounds raised by the Revenue are as under :

“1 The Ld.CIT(A) erred in holding that penalty in this case should have been levied u/s.271AAA of the Act instead of penalty u/s.271(1)(c) of the Act as the addition of Rs.45,83,982/- was made in respect of false entries in the books of account and, therefore it calls under the definition of undisclosed income as provided in section 271AAA of the Act, without appreciating the fact that the entries were not detected during search action, and therefore, addition in respect of these entries does not fall under undisclosed income as defined in section 271AAA of the Act.

“On facts and in law,

group of companies. There was search u/s.132 of the Act on Shraddha

group on 08-09-2010 wherein the assessee was also covered.

Subsequent to search, a survey u/s.133A of the Act was carried on the assessee at Kolhapur on 06-10-2010. Survey resulted in disclosure of additional income of Rs.90,11,775/- by the assessee for the assessment

year under consideration. In response to notice u/s.153A, assessee

filed the return of income on 30-09-2011 declaring total income of Rs.5,40,66,278/- which includes the additional income of Rs.90,11,775/- disclosed during survey action. During the assessment

proceedings, AO found that assessee made purchases of Rs.20,04,912/-

from Shiv Industries and Rs.25,79,070/- from Maruti Steel Traders

totaling to Rs.45,83,982/-. AO stated that names of the said dealers

have been listed in the Sales Tax scam cases. At the end of the assessment proceedings, AO made addition of Rs.45,83,982/- on account of bogus purchases alleged to have been made by the assessee

u/s.153A r.w.s. 143(3) of the Act. AO initiated the penalty proceedings

stating the following :

“6. . . . . . . . In this case during the assessment proceeding some bogus purchases have been noticed. The assessee has also admitted this fact. Thus there is a concealment of income of Rs.45,83,982/- or furnishing inaccurate particulars. However the same is not result of search findings. This undisclosed income been detected during assessment proceeding. Hence the case is not covered as per meaning given of ‘Undisclosed Income’ in sec.271AAA of I.T. Act, 1961. In view of this penal proceedings u/s.271 r.w.s.271(1)(c) is initiated separately.”

Eventually, penalty of Rs.14,16,452/- has been levied on the assessee

u/s.271(1)(c) of the Act in respect of the addition on account of bogus

purchases.

of section 271AA of the Act and the definition of ‘undisclosed income’

and deleted the penalty made by the AO on account of bogus purchases

by observing as under :

“2.1.5 I have considered the facts, contentions of the learned AO and of the Appellant. The Appellant has stated that for the search initiated after 01-06-2007 and before 01-07-2012, penalty provisions u/s.271AAA are applicable. Further, according to the Appellant, the learned AO has incorrectly stated that the addition made in the assessment order does not fall under the definition of ‘undisclosed income; provided u/s.271AAA. However, the addition of Rs.45,83,982/- being a false entry, it is covered under the clause (ii) of the definition of the ‘undisclosed income’. Therefore, the learned AO could not have levied the penalty u/s.271(1)(c). Therefore, the penalty order passed u/s.271(1)(c) is bad in law and needs to be quashed.

appeal before us with the grounds raised above. Assessee also filed the cross objections with the legal grounds mentioned above.

despite the service of notice on the assessee. However, Ld. DR for the Revenue brought our attention to the Cross objections raised by the assessee and submitted that in this case the penalty proceedings

initiated by the AO in the assessment order falls short of legal

requirement of specifying the limbs of clause (c) of section 271(1) of the Act. Ld. DR mentioned that the addition qua the bogus purchases

rightly attracts the provisions of section 271(1)(c) of the Act. These

purchases are outside the scope of ‘undisclosed income’. As per Ld.

DR, the CIT(A) erroneously deleted the penalty stating that the provisions of section 271AAA are relevant. On this basis, CIT(A)

granted relief on this ground.

Aggrieved with the same, the Revenue is in appeal stating that the provisions of section 271(1)(c) of the Act are appropriate. Per Contra,

the Cross Objection filed by the assessee raises the legal issue relating

to correct limb of clause (c) qua the satisfaction of the AO at the time of initiation of penalty proceedings. Considering the submissions made by the Ld. DR for the Revenue and considering the catena of the orders of the Tribunal on the issue of satisfaction qua the limb of clause (c) of section 271(1) of the Act, we proceed to adjudicate the appeal.

u/s.271(1)(c) of the Act. Revenue argued that the said section is appropriate one. Regarding the limb of clause (c) of section 271(1) of the Act, AO initiated the penalty proceedings stating ‘concealment of income of Rs.45,83,982/- or furnishing inaccurate particulars (contents

of Para No.6 are already extracted in the preceding paragraph). We find

while levying the penalty also, the exact language is used by the AO

(Para No.6 of the penalty order dated 27-09-2013 is relevant). We

proceed to extract the same for the sake of completeness :

“6. Based on the above findings and the facts of the case, the undersigned is of the considered view that the assessee has concealed the income or had furnished inaccurate particulars of such income and is liable for penalty u/s.271(1)(c) of I.T. Act, 1961 …….”

From the above, we find 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 initiation of penalty

proceedings by 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

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. Further, this view of ours get

strength by the 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. Therefore, on this legal issue, the assessee succeeds.

Since we have decided the cross objections raised by the assessee

in favour of the assessee on technical grounds, adjudication of the grounds raised by the Revenue relating to incorrectness of applicability

of section 271AAA of the Act or otherwise, and on merits, of penalty,

become an academic exercise. Therefore, the grounds raised by the Revenue are dismissed as academic.

Order pronounced in the open court on this 11th day of April, 2018. (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 : 11th April, 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

स"यािपत "ित //// //// Senior Private Secretary आयकर अपीलीय अिधकरण ,पुणे / ITAT, Pune