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Income Tax Appellate Tribunal, “D” Bench, Mumbai
Before: Shri B.R. Baskaran (AM)& Sandeep Gosain (JM)
O R D E R Per B.R. Baskaran (AM) :-
Both the appeals filed by the respective assessees are directed against the orders passed by the learned CIT(A)-21, Mumbai in their respective hands and both the appeals relate to A.Y. 2008-09. Both the assessees are aggrieved by the decision of the learned CIT(A) in confirming the penalty levied u/s. 271(1)(c) of the Act for AY 2008-09.
2 M/s. Shreechand Builders & Shreechand Builders & Developers
Since the facts relating to levy of penalty are identical in nature in both the cases, both the appeals were heard together and are being disposed of by this common order, for the sake of convenience.
Facts relating to the issues are stated in brief. Both the assessees are engaged in the business of construction and development of house properties. Both the assessee claimed deduction u/s. 80IB(10) of the Act in the year under consideration. The assessments in the hands of assessee named M/s. Shreechand Builders & Developers Pvt. Ltd. was completed u/s. 143(3) of the Act on 27.12.2010 rejecting the claim for deduction u/s. 80IB(10) of the Act. The assessment in the case of M/s. Shreechand Builders Pvt. Ltd. was reopened u/s. 148 of the Act and completed u/s. 143(3) read with section 147 of the Act rejecting the claim for deduction u/s. 80IB(10) of the Act. Both the assessees preferred appeals before the learned CIT(A) but could not succeed. Subsequently, the Assessing Officer levied penalty u/s. 271(1)(c) of the Act at ` 17,55,000/- in the hands of M/s. Shreechand Builders Pvt. Ltd. and at ` 15,90,000/- in the hands of M/s. Shreechand Builders & Developers Pvt. Ltd. In effect, the penalty was levied in both the cases on the addition relating to rejection of claim u/s 80IB(10) of the Act. Both the assessees challenged their respective penalty orders by filing the appeal before the learned CIT(A). However, the learned CIT(A) confirmed the penalty levied in both the cases. Hence, they have filed the appeals before us challenging the order passed by the learned CIT(A).
Both the assessees have raised legal ground before the Tribunal which are identical in nature. The legal ground raised in the case of M/s Shreechand Builders P Ltd reads as under:-
Under the facts and circumstances of the assessee’s case and under the law, the learned.AO failed to record the satisfaction on account of initiation of penalty proceedings u/s. 271(1)(c) of the Act, 1961 in his assessment order u/s. 143(3) r.w.s. 147 of the Income Tax Act 1961
3 M/s. Shreechand Builders & Shreechand Builders & Developers passed on 27.12.2010 and hence, the penalty order u/s. 271(1)(c) of the Act passed on 21.3.2014 is liable to be quashed.
Both the parties advanced their respective arguments on the legal ground referred above. The Learned AR submitted that the Assessing Officer did not initiate the penalty proceedings during the course of assessment order and also did not record any satisfaction relating thereto in the assessment order. Learned AR invited our attention to substantiate his submissions to the copy of assessment order. In the absence of recording any satisfaction, learned AR contended that the impugned penalty proceeding is not sustainable in law in both the cases. In this regard, he placed reliance on the decision rendered by Hon'ble Andhra Pradesh High Court in the case of Lotus Construction (370 ITR 475).
On the contrary, learned Departmental Representative placed reliance on the provisions of section 271(1B) of the Act and accordingly opposed the legal ground raised by the assessee.
We have heard the rival contentions and perused the record. We also noticed that the Assessing Officer, in both the cases did not indicate that he is initiating penalty proceedings u/s. 271(1)(c) of the Act nor did he record anything to show that he was satisfied about the default committed in terms of sec. 271(1)(c) of the Act. We have also gone through the provisions of section 271(1B) of the Act. The said provision states that if assessment order contains a direction for initiation of penalty proceedings u/s. 271(1)(c) of the Act, such an order of assessment or reassessment shall be deemed to constitute satisfaction of the Assessing Officer for initiation of the penalty proceedings u/s. 271(1)(c) of the Act. Interpreting sec. 271(1B) of the Act, the Hon’ble Allahabad High Court has held in the case of CIT Vs. Triveni Engineering and Industries Ltd (369 ITR 660) as under:- “In order that the deeming fiction in sub-section (1B) must apply, two requirements must be fulfilled. The first requirement is that an amount must have been added or disallowed in computing the total income or loss
4 M/s. Shreechand Builders & Shreechand Builders & Developers of an assessee in any order of assessment or reassessment. The second is that the order of assessment or reassessment must contain a direction for the initiation of penalty proceedings under clause (c) of sub-section (1) of section 271. Where both the conditions aforesaid are fulfilled, the order of assessment must be deemed to constitute satisfaction of the Assessing officer for initiating penalty proceedings under clause (c).”
Identical view was expressed by Hon'ble AP High Court in the case of Lotus Construction (supra), wherein it was held as under:- “Basically section 271(1) itself indicates that the satisfaction or decision to initiate proceedings must arise in the course of the proceedings. Added to that, sub-section (1)(b) (sic. (1B)) of section 271 of the Act mandates that the intention or satisfaction to initiate proceedings must be evident from the other of assessment itself, meaning thereby that such satisfaction need not be supported with other reasons. In Chennakesava’s case (349 ITR 196)(AP), this court held that the absence of any mention in the order of assessment that proceedings under section 271(1)(c) would be initiated makes the initiation of such proceedings, untenable.”
We have already noted that the Assessing Officer did not record any direction for initiation of penalty proceedings or did he mention anything about the penalty proceedings u/s. 271(1)(c) of the Act. Under these set of facts, we are of the view that there is merit in the legal ground urged by the assessee as the same gets support from the decisions discussed above. Accordingly, we hold that the impugned penalty orders passed by the Assessing Officer in the hands of both the assessees are not sustainable in law, in which case the impugned orders passed by Ld CIT(A) are liable to be quashed. Accordingly, we quash the impugned orders passed by the tax authorities in the hands of both the parties.
Since, we have quashed the orders on the legal issue discussed above, we do not find it necessary to dispose of the other grounds urged by the assessee.
5 M/s. Shreechand Builders & Shreechand Builders & Developers
In the result, appeals of both the assessees are allowed. Order has been pronounced in the Court on 12.4.2017.