M/S ABHIJIT CONSTRUCTION CO.,NAGPUR vs. A,C.I.T CENT CIR. 1(4), NAGPUR

PER AMARJIT SINGH, J.M.

The assessee has filed the present appeals against the impugned order dated 22nd July 2016, passed by the learned Commissioner

(Appeals)–3, Nagpur, for the assessment year 2007–08 and 2008–09

respectively, confirming penalty of ` 30,74,550 for the assessment

year 2007–08 and ` 35,14,875 for the assessment year 2008–09,

imposed by the Assessing Officer under section 271(1)(c) of the

Income Tax Act, 1961 (for short "the Act").

common issues arising out of identical set of facts and circumstances,

therefore, as a matter of convenience, these appeals were heard

together and are being disposed off by way of this consolidated order.

However, in order to understand the implication, it would be necessary

to take note of the facts of one appeal. We are, accordingly, narrating

the facts, as they appear in the appeal in ITA no. 495/Nag./2016, for

assessment year 2007–08.

total income to the tune of ` 15,44,910, for the assessment year

2007–08. A search and seizure action under section 132(1) was

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conducted on 14th October 2011, by the Investigation Wing in the

Abhijit Group of cases. The assessee being one of the members of this

group was also covered under section 132(1) of the Act by virtue of

authorization. Subsequent to the action under section 132(1) of the Act, statutory notices under section 153A(1)(a) was issued on 11th

December 2012, which was served upon the assessee. Contesting the

action of the Assessing Officer, the assessee filed return of income dated 3rd May 2013, under section 153A of the Act declaring total

income of ` 2,05,44,910, including disclosure of ` 1,90,00,000

admitted during the search. The assessee had also filed original return of income on 1st November 2007 under section 139(1) declaring total

income of ` 15,44,910. The Assessing Officer concluded the

assessment under section 143(3) r/w section 153A of the Act on 31st

December 2013, assessing income at ` 2,05,83,440. The Assessing

Officer also initiated penalty proceedings under section 271(1)(c) of

the Act imposing penalty of ` 30,74,550, observing as under:–

“The assessee group has paid huge amount of money over and above the amount recorded in the books of account for purchase of land for construction of residential as well as commercial units. During the course of search operation, documents showing the evidence with regards to the payment of 'on money' on purchase of land has been found and seized from the residence of Shri Abhijit Majumdar at Plot No. 20, High Court Society, SBI Road, Govind Nagar, Khamla, Nagpur and inventorised at item no. 1 of Annexure - "B". The page nos. 30 and 31 of item 1 of Annexure "B” seized is a receipt issued by Shri O.G. Bajaj of Devison Estates Pvt. Ltd. In these seized documents, payments are recorded mentioning the dates as well as amounts. The two parties have also authenticated

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by putting their signatures on these documents. It is also mentioned in the documents that the payments are made through cheques and cash. "Ch" is mentioned for cheque payment and "C" is mentioned for cash payments. The total of payments made is 388.25 between 06.09.2006 to 29.09.2009. Out of this total payment of 388.25, payments to the tune of 188.25 is recorded against "C" which means cash payments and to the tune of 200 is recorded against aCh" which means cheque payments. These pages are crucial as it contains the entries about the payment of considerable cash to 'OGB/DE Pvt Ltd" by Abhijit Construction Company. The notings in these pages are very clear as it states that the cash is received from Abhijit Construction Co. for sale of Plot no. 2, Khasra No. 81/1 of mouza Somalwada, Nagpur. The pages also contain the signatures of Shri Abhijit Majumdar and the recipient. The scanned copies of these two pages are placed in the following pages.” (seized document has been scanned by the A.O. on page–3 and 4 of the penalty order).”

assessee carried the matter before the learned CIT(A), who confirmed

the penalty imposed by the Assessing Officer. Being aggrieved the

assessee is in further appeal before us.

before us that the show cause notices issued are vague and are bad in

law and, consequently, the penalty levied thereupon is unjustified. He

submitted that the present issue in dispute is covered in favour of

assessee by following decisions:–

i) ITA No.1154 of 2014 in the case of Shri Samson Perinchery vide order dated 05.01.2017.

ii) ITAT order in ITA No.4168/Mum/2013 in the case of Siddhi Home Makers vide order dated 28.04.2017.

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271(1)(c) has been levied in respect to additional income declared in

the return of income filed under section 153A of the Act. He further

submitted that the income declared in the return filed under section

153A of the Act has been accepted. The assessee is engaged in the

business of real estate and purchase of land by assesse is in respect to

stock in trade. On money payment on purchase of land is primarily in

respect to item of revenue expenditure allowable at the hands of

assesse. No real income accrued at the hands of assesse and no

increase in capital of assesse. Merely because assesse agree to pay tax

in respect to such sums same cannot be visited with penalty under

section 271 (1)(c). The additional Income has been assessed merely

because such sums have been offered for taxation in the return filed

under section 153A. Seized documents are no conclusive evidence for

imposing penalty at the hands of assessee. Seized documents were

not verified with third parties to bring any corroborative evidence on

record. No income is assessable in respect to same in the absence of

any independent verification of same. Income returned under section

153A of IT Act 1961 has been regularized by assessment framed u/s

143(3) r/w section 153A of the Act. Assessee agreed to pay tax to buy

peace and avoid litigation. Assessee has not claimed that entry in

document represents its income. Explanation 5A is not applicable in

the case of assessee hence, the assessee cannot be visited with

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penalty under section 271(1)(c) of the Act. Penalty exigible only in

respect to addition which has been made to the income returned under

section 153A of the Act 1961. In view of above, no penalty ought to

have been levied under section 271(1)(c) of the Act. The learned

Counsel for assessee further submitted that the amendment to

Explanation 5A of section 271(1)(c) of the Act received the ascent of the President on 13th August 2009. Pre-amended provision of

Explanation 5A applies to the case where assessee has not filed any

return of income for respective assessment years under section 139(1)

of the Act. He submitted that the levy of penalty under section

271(1)(c) is not mandatory. Considering the facts and

circumstances in the case of assessee, no penalty under section

271(1)(c) ought to have been levied. In support of the contentions,

the learned Counsel for assessee relied upon the decision of the

Hon’ble Supreme Court in Hindustan Steel Ltd. v/s State of Orissa, 82

ITR 26 (SC). The learned Counsel submitted that the assessee has

filed return of Income under section 139(1) of Act for the assessment years 2007–08 and 2008–09 on 1st November 2007 and 30th

November 2008 respectively. The original return of income filed before 13th August 2009 i.e., prior to amended Explanation 5A. Amended to

Explanation 5A is not applicable in the case of assesse. In support of

this contention, the learned Counsel relied upon the decision of the

Hon’ble Supreme Court in CIT v/s Onkar Saran & Sons, 194 ITR 001

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(SC) and the decision of the Hon’ble Jurisdictional High Court in CIT

V/s Samson perinchery (2017) 392 ITR 4 (Bom.).

on the order of the authorities below for both the years under

consideration.

available on record, we find that in assessee’s case, the income

offered by the assessee in the return of income and the income which

was assessed in the assessment completed under section 153A is

same. We also noticed that the assessee is engaged in the activity of

real estate and income offered in the return is in relation to

expenditure which is allowable as business expenditure in the hands of

assessee. The income offered to tax has been regularized in the

assessment framed under section 153A r/w section 143(3) of the Tax

Act. It is also seen that in assessee’s case, notice issued for imposition

of penalty under section 271(1)(c) of the Act is in cyclostyle proforma

notice where no specific charge to show as to whether the penalty is

exigible for concealment of income or furnishing inaccurate particulars

of income is to be levied at the hands of assessee. The aforesaid legal

issue has been considered by the Co–ordinate Bench of the Tribunal,

Mumbai, rendered in the case of Siddhi Home Makers, vide order

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dated 28th April 2017, in ITA no. 4168/Mum./2013, wherein the

Tribunal held as under:–

“We have carefully considered the rival submissions with regard to the preliminary plea of the assessee in terms of which the validity of the proceedings initiated under section 271(1)(c) of the Act has been sought to be challenged. The sum-and-substance of the point raised by the assessee is that the notice issued by the Assessing Officer under section 274 r.w.s. 271(1)(c) of the Act dated 30/12/2010 does not reflect an appropriate application of mind, inasmuch as, the notice has been issued in a standard proforma where the irrelevant portion has not been struck off. At the time of hearing, Ld. Representative for the assessee has referred to the notice issued under section 274 r.w.s. 271(1)(c) of the Act dated 30/12/2010 in this regard. Factually speaking, it is clearly emerging that the notice has been issued in a standard proforma and the irrelevant limb of section 271(1)(c) of the Act has not been struck off. Notably, the penalty provisions of section 271(1)(c) of the Act are attracted where the assessee has concealed the particulars of income or furnished inaccurate particulars of such income. It is also a well accepted proposition that the aforesaid two limbs of section 271(1)(c) of the Act carry different meanings. Therefore, it was imperative for the Assessing Officer to strike- off the irrelevant limb so as to make the assessee aware as to what is the charge made against him so that he can respond accordingly. The Hon'ble Karnataka High Court in the case of Manjunatha Cotton & Ginning Factory (supra) observed that the levy of penalty has to be clear as to the limb under which it is being levied. As per Hon'ble High Court, where the Assessing Officer proposed to invoke first limb being concealment, then the notice has to be appropriately marked. The Hon'ble High Court held that the standard proforma of notice under section 274 of the Act without striking of the irrelevant clauses would lead to an inference of non-application of mind by the Assessing Officer. The Hon’ble Supreme Court in the case of Dilip N. Shroff vs. JCIT, 291 ITR 519(SC) has also noticed that where the Assessing Officer issues notice under section 274 of the Act in the standard proforma and the inappropriate words are not deleted, the same would postulate that the Assessing Officer was not sure as to whether he was to proceed on the basis that the assessee had concealed the particulars of his income or furnished inaccurate particulars of income. According to the Hon’ble Supreme Court, in such a situation, levy of penalty suffers from non-application of mind. In the background of the aforesaid legal position and, having regard to the manner in which the Assessing Officer has issued notice under section 274 r.w.s. 271(1)(c) of the

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Act dated 30/12/2010 without striking off the irrelevant words, the penalty proceedings show a non-application of mind by the Assessing Officer and is, thus, unsustainable. We hold so.”

supra squarely applies to facts in assessee’s case and respectfully following

the same, we hold that the penalty levied under section 271(1)(c) by the

Assessing Officer and confirmed by the learned Commissioner (Appeals) is

not sustainable on the aforesaid legal ground also. We also find that the

Hon’ble Jurisdictional High Court in Shri Samsung Perinchery, 392 ITR 4

(Bom.) has taken a similar view and the ratio laid down therein fully support

the submission of assessee. The ratio laid down by Hon’ble Jurisdictional

High Court applies with full force to the facts in assessee’s case and

considering the same, penalty imposed is not sustainable in the eyes of law.

Considering the totality of facts and circumstances in case of assessee we are

of considered opinion that the penalty levied is unjustified and is directed to be

cancelled. The grounds of appeal are allowed.

is allowed.

ITA no.496/Nag./2016 – A.Y. 2008–09

adjudication in this appeal relates to imposition of penalty by the

Assessing Officer under section 271(1)(c) of ` 35,14,875. Since the

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assessee being same and the facts and circumstances of the present

case is similar to the issue decided in assessee’s own case for

assessment year 2007–08 cited supra, except variation in figures,

therefore, following our decision given in Para–7 and 8 above, we set

aside the impugned order passed by the learned Commissioner

(Appeals) and cancel the penalty under section 271(1)(c) for the year

under consideration also. The grounds raised by the assessee are

allowed.

and 2008–09 are allowed.

Order pronounced in the open Court on 28.06.2017

Sd/- Sd/- P.K. BANSAL AMARJIT SINGH VICE PRESIDENT JUDICIAL MEMBER

NAGPUR, DATED: 28.06.2017

Copy of the order forwarded to:

(1) The Assessee; (2) The Revenue; (3) The CIT(A); (4) The CIT, Nagpur City concerned; (5) The DR, ITAT, Nagpur; (6) Guard file. True Copy By Order Pradeep J. Chowdhury Sr. Private Secretary

(Dy./Asstt. Registrar) ITAT, Nagpur