ITO,CO.WARD-4(3) vs. FROSTAIRE PVT. LTD.,

The Revenue has questioned First Appellate Order whereby the Learned CIT(Appeals) has deleted the penalty of Rs.44 lacs levied under sec. 271(1)(c) of the Income-tax Act, 1961.

The assessee on the other hand has objected the action of the Learned CIT(Appeals) ( C.O. No. 113/Del/2006 ) on the basis that receipt of Rs.95 lacs as share capital money did not constitute income in the hands of the assessee, hence, there was neither concealment of any income nor furnishing inaccurate particulars of its income to attract initiation of penalty proceedings and secondly the show-cause notice was issued without prior recording of mandatory satisfaction and thus initiation of penalty was not valid.

Heard and considered the arguments advanced by the parties in view of orders of the authorities below, material available on record and the decisions relied upon.

The facts in brief are that the Learned CIT(Appeals) has deleted the penalty in question levied by the Assessing Officer on the ground that the addition made on account of unexplained share capital which remained the subject matter of the penalty, has been deleted by the ITAT.

In support of the ground of appeal preferred by the Revenue, the learned Senior DR has basically placed reliance order on the penalty order and has informed that against the order of the ITAT in the quantum appeal, the Revenue has preferred an appeal under sec. 260A of the Income-tax Act, 1961 before the Hon'ble Delhi High Court wherein vide judgment dated 24.8.2012 in and 1638/2006, the issue of addition has been decided in favour of the Revenue. In result, the assessment order on quantum has been restored.

The learned AR on the other hand submitted that penalty proceedings are independent proceedings and in case quantum has been upheld, it does not mean that the assessee will be liable to pay penalty. The requirement of invocation of penal provisions under sec. 271(1)(c) of the Act that there was concealment of particulars of income or furnishing inaccurate particulars thereof on the part of the assessee towards the addition. He submitted that all the necessary information were furnished before the Assessing Officer and the addition on account of unexplained share capital was made by the Assessing Officer on the basis of information received from the Investigation Wing of the Department. The Assessing Officer has made addition with this observation that the assessee failed to furnish information regarding PAN of share applicants consisting of 18 companies/concerns and that none of the share applicants was found existed at the addresses given by the assessee nor had they appeared before the Assessing Officer in response to summons issued to them. Thus, addition of Rs.95 lacs was made by the Assessing Officer on account of unexplained share capital under sec. 68 of the Act. The ITAT thereafter vide order dated 31.10.2001 in had deleted the addition on the basis that payments in respect of share applications were received through account payee cheques and cleared through banking channels. It was held by the ITAT that adverse inference, if any, could be drawn in the hands of the share-holders only and not in the hands of the assessee company. The Revenue went in appeal against the said order and succeeded. The Learned AR pointed out that vide order dated 03.10.2012 in Review Petition No. 578/2012 in ITA No. 1638/2006, the Hon'ble High Court of Delhi has been pleased to make it clear that the common judgment in ITA No. 1638/2006 (in quantum) is not deemed to be conclusive with regard to the assessee’s penalty liability. The matter was accordingly remitted to the ITAT to proceed to determine the merits of the penalty appeal, independently and in accordance with law. All rights and contentions of the parties are kept open.

The Learned AR contended further that while initiating penalty proceedings, the Assessing Officer has not recorded satisfaction which is mandatory in nature and thus there was no valid show-cause notice for levy of penalty under sec. 271(1)(c) of the Act. He submitted that there are two views of the appellate authority on the issue of addition made on account of unexplained share application money, hence, penalty cannot be levied on this basis as well. He placed reliance on the following decisions: i) Jahangir H.C. vs. ITO (2015) – 54 Taxman.com 68 (Bombay High Court);

The learned AR submitted further that against the judgment of Hon'ble High Court in quantum appeal, the assessee has preferred civil appeal (No. 196 of 2015) before the Hon'ble Supreme Court, which has been admitted and is pending for disposal. He submitted that since the appeal has been admitted, hence, it cannot be said beyond doubt that there was concealment of particulars of income or furnishing inaccurate particulars thereof on the part of the assessee to attract penal provisions.

Considering the above submissions, there is no doubt that assessment proceedings and penalty proceedings both are independent to each other and levy of penalty is not an automatic process in consequence to the addition made. Being penal in nature, there is mandatory on the part of the Revenue to establish that there was concealment of particulars of income or furnishing inaccurate particulars thereof on the part of the assessee to attract penalty under sec. 271(1)(c) of the Act. On earlier occasion, the ITAT had upheld the First Appellate Order deleting the penalty on the basis that the assessee had succeeded before the ITAT in quantum and the Assessing Officer had not recorded his satisfaction regarding concealment of particulars of income or furnishing inaccurate particulars thereof while directing for initiation of penal provisions. The Hon'ble Delhi High Court while restoring the addition, as submitted above, has made it clear that it will not affect the right of the party to make their respective submission in the penalty appeal and remitted the matter to the file of the ITAT. However, the assessee has went in civil appeal against the order of the Hon'ble High Court in the quantum appeal and the appeal has been converted to appeal civil 196 of 2015 and is pending for hearing thus it cannot be said at this stage that there was concealment of particulars of income or furnishing inaccurate particulars thereof on the part of the assessee towards the addition made on account of unexplained share capital to attract the penal provisions under sec. 271(1)(c) of the Act against the assessee. We thus hold that the Assessing Officer was not justified in imposing penalty of Rs.44 lacs under sec. 271(1)(c) of the Income-tax Act, 1961 on the addition made by him on account of unexplained share capital which is now subject matter of adjudication before the Hon'ble Supreme Court. The penalty levied thus stands deleted. 9. In result, the appeal preferred by the Revenue is dismissed and the cross objection filed by the assessee is allowed. Order pronounced in the open court on 11 .01.2016 Sd/- Sd/- ( L.P. SAHU ) ( I.C. SUDHIR ) ACCOUNTANT MEMBER JUDICIAL MEMBER Dated: 11 /01/2016 Mohan Lal