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Before: Shri S.S. Viswanethra Ravi
This appeal of the assessee arises out of the order of the Learned CITA in Appeal No. 91/CIT(A)XVI/IT/29(2)/05-06 dated 25-09-2006 for the Asst Year 1994-95 passed against the order of assessment framed by the Learned AO u/s 271(1)(c ) of the Income Tax Act, 1961 (hereinafter referred to as the ‘Act’).
Shri. Sunil Surana, ACA,DISA, the Learned AR argued on behalf of the assessee and Shri.Pinaki Mukherjee, JCIT, the Learned DR argued on behalf of the revenue.
The only issue to be decided in this appeal as to whether the penalty u/s 271(1)(c ) of the Act is leviable in the facts and circumstances of the case.
The brief facts of this issue is that the assessee firm is engaged in the business of manufacturing and sale of gold , silver jewellery and ornaments. There was a search in the premises of the assessee firm on 13.10.1993. During the course of search, the valuables such as jewellery , cash , silver utensils and articles were found by the search party, among others. The partners of the assessee firm made a disclosure u/s 132(4) of the Act before ADIT (Inv.) on the date of search together with the respective application as below:- Investment in stock in trade 50,000 Investment in Pawn Broking business 4,10,000 Investment in loose stones 2,20,000 Investment in Silver Utensils 1,20,000 8,00,000 In the assessment, an addition of Rs. 9,45,824/- was made by the Learned AO as below:- Disclosure on account of stock 50,000 Investment towards pawn broking business 4,98,924 Unrecorded investment towards Acquisition of loose stones 2,20,000 Unrecorded investment towards Acquisition of Silver Utensils 1,76,900 9,45,824 Penalty proceedings u/s 271(1)(c ) of the Act were initiated by the Learned AO in respect of the addition made in the sum of Rs. 9,45,824/-. This Tribunal had deleted the penalty levied for a sum of Rs 8 lacs while disposing off this appeal in 19.12.2013. While disposing off the said appeal, the Ground Numbers 4,5 & 6 were not adjudicated by this tribunal and on a Miscellaneous Application from the assessee to that effect, the appeal was recalled to consider the three grounds ie Grounds 4 to 6 raised by the assessee. The recalled appeal is at present before us for consideration of Grounds 4 to 6 raised by the assessee.
The Learned AR argued that the addition has reached finality in the following manner:-
Disclosure on account of stock Rs. 50,000 Sustained by CITA Investment towards pawn broking business Rs.4,98,924 CITA deleted Rs. 88,924/- Unrecorded investment towards Acquisition Rs.2,20,000 Sustained by CITA of loose stones Unrecorded investment towards Acquisition Rs.1,76,900 CITA deleted Rs. 56,900/- of Silver Utensils
The Learned AR argued that ultimately the addition in the sum of Rs. 8,00,000/- was sustained by Learned CITA in respect of the aforesaid items. The Learned AR argued that no second appeal was preferred by the revenue against the relief granted by the Learned CITA as stated above and accordingly no penalty u/s 271(1)(c ) also could lie on the same.
5.1. Apart from the above, two independent additions were made by the Learned AO and relief granted by the Learned CITA towards the same are as below:-
Interest earned as ascertainable from seized Rs. 70,000 CITA deleted Rs.25,000 Documents Concealed investment towards pawn Rs1,00,000 Sustained by CITA broking
Hence ultimately, the additions were confirmed by Learned CITA to the tune of Rs. 1,45,000/-. These additions were upheld by this tribunal in quantum proceedings. Against this tribunal order on quantum, the assesee challenged further appeal before the Calcutta High Court and the appeal was admitted involving substantial question of law. The Learned AR argued that admittedly no penalty was initiated by the Learned AO in his assessment order as could be evident from the said order itself in respect of these independent two additions. But the Learned AO levied the penalty u/s 271(1)(c ) of the Act for the same though not initiated by him in the assessment proceedings. He relied on the decision of the Karnataka High Court rendered in the case of CIT vs Manjunatha Cotton and Ginning Factory reported in (2013) 359 ITR 565 (Kar) and on the decision of Madhyapradesh High Court in the case of Addl CIT vs Nihalchand Badrilal reported in (1982) 135 ITR 519 (MP) in support of this contentions. In response to this, the Learned DR argued that the point of penalty not initiated but imposed by the Learned AO is not raised by the assessee before the lower authorities and accordingly pleaded that the same shall not be entertained at this stage. In defence, the Learned AR assailed the argument of the Learned DR by referring to ground no.2 raised by the assessee before the Learned CITA which is on the impugned issue.
We have heard the rival submissions and perused the materials available on record. The facts stated supra are not disputed by both the parties and hence are not reproduced herein for the sake of brevity. We find that the Learned AO had made two independent additions in the sum of Rs. 1,70,000/- and out of which a sum of Rs. 1,45,000/- got sustained upto tribunal on quantum proceedings. We find from the records that the Learned AO had not initiated any penalty proceedings u/s 271(1)(c ) of the Act in respect of the said additions of Rs. 1,45,000/- but proceeded to levy penalty which in our opinion is not in accordance with law. In this regard, the reliance of the Learned AR on the case law of Madhyapradesh High Court in the case of Addl CIT vs Nihalchand Badrilal reported in (1982) 135 ITR 519 (MP) is well placed. In the said case, their Lordships have held as below:- “It is well settled that when the matter is referred to the IAC by the ITO under section 274(1), the IAC has no jurisdiction to impose a penalty on a ground different from that on which the ITO had started the penalty proceedings, nor can he take into account any further concealment discovered by himself. In the instant case, penalty proceedings were initiated by the ITO, as had been found by the Tribunal, on the ground that cash credit was added by the ITO to the income of the assessee was income from undisclosed sources and as the assessee had concealed that income, he was liable to a levy of penalty. The IAC having found that there was no concealment of the income of cash credit, he had no jurisdiction to enlarge the scope of the penalty proceedings by referring to the original return.
Therefore, the Tribunal was justified in vacating the penalty levied under section 271(1)(c). Note: The case was decided in favour of the assessee”.
We also find that the reliance on the decision of Karnataka High Court in the case of CIT vs Manjunatha Cotton and Ginning Factory reported in (2013) 359 ITR 565 (Kar) wherein at page 603 , their Lordships had laid down various principles for levy of penalty and one such principle in clause (s) is as follows:- “(s) Taking up of penalty proceedings on one limb and finding the assessee guilty of another limb is bad in law”.
6.1. It is well settled that the penalty proceedings are distinct and separate from assessment proceedings and just because an addition has been sustained in quantum proceedings, levy of penalty is not automatic. What has to be seen is whether there was a bonafide belief and bonafide explanation given by the assessee. If it is so, no penalty could be levied u/s 271(1)(c ) of the Act.
6.2 Moreover, we also find that the additions sustained by this tribunal in quantum proceedings in the sum of Rs. 1,45,000/- has been admitted by the Hon’ble Calcutta High Court as involving substantial question of law. Hence we hold that no penalty could be levied u/s 271(1)(c ) of the Act in respect of issues involving substantial question of law as no allegation could be raised on the assessee with regard to concealment of income or furnishing of inaccurate particulars of income and the issue involved is highly debatable in nature. Reliance in this regard is placed on the decision of Mumbai Tribunal in the case of Advaita Estate Development P Ltd vs ITO reported in (2013) 027 ITR (Trib) 0112, wherein it was held as below:-
“Where the substantial question of law was admitted by High Court in quantum proceedings against which concealment penalty had been levied, it became apparent that the issue regarding addition was certainly debatable and therefore, order of CIT(A) was set aside and impugned penalty was deleted”.
In view of the aforesaid facts and circumstances and the judicial precedents relied upon hereinabove, we hold that no penalty u/s 271(1)(c ) of the Act could be levied on the assessee and accordingly the grounds 4 to 6 raised by the assessee are allowed.
In the result, the appeal of the assessee is allowed. THIS ORDER IS PRONOUNCED IN OPEN COURT ON 8 / 10/2015