M/S. JAI SALASAR BALAJI PVT. LTD.,KOLKATA vs. DCIT, CC-XIII, KOLKATA, KOLKATA

This is an appeal by the Assessee against the order dated 23.09.2014 of C.I.T.(A)-Central-II, Kolkata relating to A.Y.2009-10.

Sale of Scrap as per SCHEDULE-5 2008-09 4,479,491 show cause notice, disclosing the same to avoid litigation and to buy peace, without admitting any irregularities.

Misc (Net) to cover up 2008-09 55,682 probable errors & omissions 4,600,000 It is not disputed that for the relevant assessment year 2009-10 the return of income was filed u/s 139(1) of the Act prior to the search and the income declared in the course of search had not been included in such return of income. However, after the search notice u/s 153A of the Act was issued to the assessee and the return filed in response to the said notice the assessee had declared a sum of Rs.46 lakhs which was surrendered as undisclosed income in the course of search u/s 132 of the Act. The AO brought to tax a sum of Rs.46 lakhs in the year passed u/s 153A of the Act. He initiated penalty proceedings against the assessee u/s 271(1)(c) of the Act r.w. Explanation to section 5A of the Act for imposing penalty.

In the penalty proceedings, the assessee took a stand that the surrender was voluntary and with a view to purchase peace and therefore no penalty should be imposed. The AO however imposed penalty on the ground that but for the search u/s 132 of the Act the income in question would not have been offered to tax by the 3 M/.s Jai Salasr Balaji Pvt. Ltd. A.Yr.2009-10 assesee and accordingly the AO imposed penalty on the assesee which is 100% of the tax sought to be evaded.

On appeal by the assessee the CIT(A) confirmed the order of AO and in doing so the CIT(A) also placed reliance on Explanation 5A to section 271(1)(c) of the Act. The following were the observations of CIT(A) :- “5.1 On perusal of Explanation SA of section 271(1)(c) substituted by the Finance (No.2) Act, 2009 applicable with retrospective effect from 01.06.2007, it is apparent that in a case of an assessee where the search is initiated on or after 1st day of June, 2007 and such an assessee is found to be the owner of any money, bullion, jewellery or other valuable article or thing or having any income based on any entry in any books of account or other documents and relates to any previous year which has ended before the date of search and where the return of income for such previous year has been furnished before the said date but such income has not been declared therein, then, notwithstanding that such income is declared by him in any return of income furnished on or after the date of search, he shall, for the purpose of imposition of penalty u/s. 271(1)(c), be deemed to have concealed the particulars of his income or furnished inaccurate particulars of such income. In the case of appellant, there is no dispute that the search was conducted after 01.06.2007 and the income relates to the previous year which has ended before the date of search. The appellant had filed its return of income u/s 139(1) of the Act for such previous year but did not declare such income therein. Under the circumstances, even if the appellant company has declared the undisclosed income in the return filed u/s 153A, it will be deemed to have concealed the particulars of its income for the A.Y. 2009-10 for the purpose of imposition of penalty. As per Explanation SA to section 271(1)(c), no immunity has been provided from the penalty if the undisclosed income was declared u/s 132(1) in the course of search proceedings as provided e:arlier by Explanation 5 of this section. The appellant has argued that the additional income of Rs.46 lakhs was declared voluntarily. However, I am of the opinion that it is not true because the additional income was declared in consequence to the search operation and by that time the appellant had already filed its return u/s 139(1) without disclosing the income in the said return. In view of above, I am of the opinion that the AO was justified in imposing the penalty u/s,271(1)(c) of the Act.”

Aggrieved by the order of CIT(A) the assessee has preferred the present appeal before the Tribunal.

The ld. Counsel for the assessee drew our attention to the decision of the Hon’ble Karnataka High Court in the case of CIT vs. SSA’s Emerald Meadows in ITA No.380 of 2015 dated 23.11.2015 wherein the Hon’ble Karnataka High Court following its own decision in the case of CIT vs Manjunatha Cotton and Ginning factory (2013) 359 ITR 565 took a view that imposing of penalty u/s 271(1)(c) of the Act is bad in law and invalid for the reason that the show cause notice u/s 274 of the Act does not specify the charge against the assessee as to whether it is for concealment of particulars of income or furnishing of inaccurate particulars of income. The ld. Counsel further brought to our notice that as against the decision of the Hon’ble Karnataka High Court the revenue preferred an appeal in SLP in CC No.11485 of 2016 and the Hon’ble Supreme Court by its order dated 05.08.2016 dismissed the SLP preferred by the department. The ld. Counsel also brought to our notice the decision of the Hon’ble Bombay High Court in the case of CIT vs Shri Samson Perinchery in ITA No.1154 of 2014 dated 05.01.2017 wherein the Hon’ble Bombay High Court following the decision of the Hon’ble Karnataka High Court in the case of CIT vs Manjunatha Cotton and Ginning factory (supra) came to the conclusion that imposition of penalty on defective show cause notice without specifying the charge against the assessee cannot be sustained. Our attention was also drawn to the decision of ITAT in the case of Suvaprasanna Bhattacharya vs ACIT in ITA No.1303/Kol/2010 dated 06.11.2015 wherein identical 4 5 M/.s Jai Salasr Balaji Pvt. Ltd. A.Yr.2009-10 proposition has been followed by the Tribunal. The Ld. DR relied on the order of the CIT(A).

We have considered the rival submissions. We have already observed that the show cause notice issued in the present case u/s 274 of the Act does not specify the charge against the assessee as to whether it is for concealing particulars of income or furnishing inaccurate particulars of income. The show cause notice u/s 274 of the Act does not strike out the inappropriate words. In these circumstances, we are of the view that imposition of penalty cannot be sustained. The plea of the ld. Counsel for the assessee which is based on the decisions referred to in the earlier part of this order has to be accepted. We therefore hold that imposition of penalty in the present case cannot be sustained and the same is directed to be cancelled.

In the result the appeal of the assessee is allowed. Order pronounced in the Court on 03.05.2017. Sd/- Sd/- [Dr.Arjun Lal Saini] [ N.V.Vasudevan ] Accountant Member Judicial Member Dated : 03.05.2017. [RG PS] Copy of the order forwarded to: