PRAJ INDUSTRIES LTD.,PUNE vs. DEPUTY COMMISSIONER OF INCOME-TAX,

PER D. KARUNAKARA RAO, AM :

This appeal is filed by the assessee against the order of CIT(A)-11, Pune, dated 30-09-2015 for the Assessment Year 2006-07.

engaged in the business of erection and commission and sub contract work

and fabrication of engineering goods. Assessee filed the return of income

on 28-11-2006 declaring total loss of Rs.16,28,35,695/-. In response to

notice u/s.147 of the Act, assessee filed return of income on 20-12-2012

declaring total income at Rs.20,11,24,204/-. Subsequently, the said return

was revised declaring income of Rs.20,25,46,504/-. There was search

action on the assessee. Assessee disclosed additional income of

Rs.3,91,04,244/-. During the search action u/s.132(4) on 03-04-2012, a

laptop used by Shri Anirudh Phadke was seized and a statement was

recorded. Based on the cash inflow and outflow statements available in the

laptop, AO proceeded to make addition of Rs.1.10 crores as income from

undisclosed sources. AO also made addition of Rs.4,61,638 u/s.14A

r.w.Rule 8D of the I.T. Rules, 1962. Eventually, AO determined the income

of the assessee at Rs.21,40,08,142/- u/s.147 r.w.s. 143(3) of the Act.

Further, AO also initiated penalty proceedings u/s.271(1)(c) of the Act and

levied penalty of Rs.1,68,65,088/- on the assessee.

penalty of Rs. 3,91,04,244/- on the additional income disclosed in the

return filed in response to notice u/s.148 of the Act. While doing so, CIT(A)

opined that assessee had indulged into debiting sham or inflated purchased

in its books of account and assessee admitted the said allegations.

However, CIT(A) deleted quantum addition of Rs.1,10,00,000/- and the

penalty levied on the said addition.

extent of additional income, the assessee is in appeal before us with the

grounds as well as the additional grounds extracted above.

attention to the contents of Para 3 of the assessment order and submitted

that this is a case where penalty of Rs.3,91,04,244/- on the additional

income disclosed by the assessee. AO initiated the penalty proceedings for

‘concealing the particulars of income’. Further, bringing our attention to

Para No.5 of the penalty order dt 29-09-2014, Ld. Counsel for the assessee

submitted that penalty is levied for ‘furnishing inaccurate particulars’.

Therefore, Ld. Counsel for the assessee submitted initiating the proceedings

on one limb of clause (c) section 271(1) and levying the penalty on the other

limb of clause (c) is bad in law and unsustainable. To this proposition, he

relied on the decision 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.

AO/CIT(A) is justified in levying the penalty as the assessee has offered the

additional income during the search and filed the revised return

consequent to search and no explanation whatsoever has been offered.

Therefore, Ld. DR prayed for confirming the orders of the authorities below.

of the Revenue on the issue of initiation and levy of penalty u/s.271(1)(c) of

the I.T. Act, 1961. We have considered the submissions made by the Ld.

Counsel for the assessee on the additional grounds (legal in nature).

relating to recording of satisfaction by the AO. In this connection, we

proceed to extract the relevant lines from Para 3 of the assessment order

and Para No.5 of the penalty order and the same reads as under :

“Para 3 of the assessment order : 3. During search action, assessee has made disclosure of additional income of Rs.3,91,04,244/-. Subsequently, notice u/s.148 was issued in response assessee filed return declaring disclosure of Rs.3,91,04,244/- declared during search action. Thus, to this extent, assessee has concealed the particulars of income. It is pertinent to note here that said income has been disclosed by the assessee due to search action only. Had there been no search action, this income would not have been disclosed by the assessee and the same would have escaped assessment. Therefore, penalty proceedings u/s.271(1)(c) of the Act is initiated separately. Para 5 of the penalty order :

From the above, it is clear that the AO initiated the penalty

proceedings for the offence of ‘concealing the particulars of income’ and

levied the same for “furnishing inaccurate particulars”. 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. Initiation of penalty proceedings is made for one

limb and the penalty was levied for other limb. 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 and confirmed by the CIT(A) 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 as

well as the judgment of Hon’ble Karnataka High Court in the case of CIT

Vs. Manjunatha Cotton and Ginning Factory (supra). Accordingly, the

additional ground No.1 raised by the assessee is allowed.

Considering the same, we find adjudication of other grounds raised

by the assessee becomes an academic exercise. Therefore, the said

grounds are dismissed as such.

Order pronounced on this 05th day of April, 2018.

Sd/- Sd/- (SUSHMA CHOWLA) (D.KARUNAKARA RAO) �ाियक सद� / JUDICIAL MEMBER लेखा सद� / ACCOUNTANT MEMBER पुणे / Pune; �दनांक Dated : 05th April, 2018. Satish

आदेश क� आदेश क� �ितिलिप �ितिलिप अ�ेिषत अ�ेिषत/Copy of the Order is forwarded to : आदेश आदेश क� क� �ितिलिप �ितिलिप अ�ेिषत अ�ेिषत

अपीलाथ� / The Appellant; 1. ��यथ� / The Respondent; 2. आयकर आयु�(अपील) / The CIT(A)-11, Pune 3. आयकर आयु� / The CIT-11, Pune 4. िवभागीय �ितिनिध, आयकर अपीलीय अिधकरण, पुणे “ए” / 5. DR ‘A’, ITAT, Pune; गाड� फाईल / Guard file. 6.

आदेशानुसार आदेशानुसार/ BY ORDER,स आदेशानुसार आदेशानुसार

स�यािपत �ित //True Copy// //True Copy// Senior Private Secretary आयकर अपीलीय अिधकरण ,पुणे / ITAT, Pune