S.S. ENTERPRISES,MUMBAI vs. ITO 16(2)(4), MUMBAI

The captioned appeal by assessee for Assessment Year [AY] 2007-08 assails the order of Ld. Commissioner of Income Tax (Appeals)-27 [CIT(A)], Mumbai dated 28/01/2014 qua confirmation of penalty u/s 271(1)(c) for Rs.3,85,610/- and enhancing the same further by Rs.8,41,500/- u/s 251(2) of the Income Tax Act, 1961. None has appeared on behalf of assessee despite being provided with sufficient opportunity of being heard and therefore, we proceed to decide the appeal on the basis of material available on record and after hearing the Ld. DR.

Briefly stated, the assessee, being resident firm, was subjected to an assessment u/s 143(3) of the Income Tax Act for the impugned AY vide Assessing Officer [AO] order dated 31/12/2009 wherein the total income of the assesse was determined at Rs.33,28,370/- after certain adjustments / disallowances as against loss return of Rs.5,04,030/- filed by the assesse on 29/02/2008. The assesse claimed interest of Rs.29,15,213 against income from house property against which it could produce evidences only to the extent of Rs.11,45,603/- which ultimately led to an addition of Rs.13,32,397/- under the head ‘Income from house property’. Resultantly, penalty proceedings u/s 271(1)(c) were initiated in the quantum assessment for filing of inaccurate particulars of income and the assessee was saddled with a penalty of Rs.3,85,610/- vide AO penalty order dated 28/03/2012. Aggrieved, the assessee contested the penalty before Ld. CIT(A) who not only confirmed the penalty but also enhanced the same by Rs.8,41,500/- u/s 251(2) against certain addition u/s 68 for Rs.25 Lacs. Aggrieve, the assessee is in appeal before us. 3. The Ld. DR placed reliance on the conclusions reached by Ld. CIT(A) and contended that the assessee accepted the quantum additions and therefore, rightly saddled with impugned penalties. However, per query from the bench, the Ld. DR fairly conceded that the penalty was not initiated by the AO for additions made u/s 68. S.S.Enterprises Assessment Year:2007-08 4. We have heard the rival contentions and perused the relevant material on record. So far as the penalty of Rs. 3,85,610/- is concerned, we find no reason to interfere with the order of Ld. CIT(A) as the onus to substantiate the claim of interest expenditure squarely lied on the assessee and he has failed to discharge the same. The assessee was under an obligation to offer true and correct income to the revenue and could claim only legitimate expenditure / deductions as statutorily admissible to him. Therefore, Ground Numbers 1 to 3 of assessee’s appeal stands dismissed. 5. However, we find that a fresh penalty of Rs.8,41,500/- has been levied by Ld. CIT(A) for addition of Rs.25 Lacs made u/s 68. A perusal of the original assessment order reveals that the AO has not initiated the penalty against this addition and therefore, prima facie, took a conscious decision not to initiate the penalty against this addition. In the present case, the Ld. DR has stated that the assessee has accepted the quantum additions and did not contest the same before Ld. CIT(A) and therefore, no proceedings thereof are pending before the Ld. CIT(A). It is judicially settled that the order initiating the penalty proceedings has to be different order and has to be passed by the person, who has made the additions / assessment in the hands of the assessee. In case the said person is CIT(A), then he is competent to initiate the penalty proceedings and also competent to levy the penalty by passing separate order. However, Ld. CIT(A) is not competent to initiate and levy the penalty by the same order while deciding the appeal against the order levying penalty passed by the AO. Therefore, Ld. CIT(A) in the present case has exceeded the jurisdiction and therefore, was not competent to levy the penalty in such a manner. Accordingly, we delete the enhanced penalty of Rs.8,41,500/- and therefore, allow Ground Number 4 to 6 of assessee’s appeal, being alterative and connected grounds. S.S.Enterprises Assessment Year:2007-08 6. In nutshell, the assessee’ appeal stands partly allowed.