POTLURI PHANENDRA BABU,VISAKHAPATNAM vs. INCOME TAX OFFICER, WARD-3(2), VISAKHAPATNAM

PER S. BALAKRISHNAN, Accountant Member :

The captioned two appeals are filed by the assessee against the orders of the Ld. Commissioner of Income Tax (Appeals)- National Faceless Appeal Centre [Ld. CIT(A)-NFAC] vide DIN & Order No. ITBA/NFAC/S/250/2022-23/1046470694(1), dated 26/10/2022 and ITBA/NFAC/S/250/2022-23/1046470778(1), dated 26/10/2022 arising out of the orders passed U/s. 271(1)(c)

2 of the Income Tax Act, 1961 [the Act] dated 9/9/2021 &

12/9/2021 for the AY 2007-08 and 2012-13 respectively. Since

the assessee has raised identical grounds of appeal in both the

cases, these appeals are clubbed, heard together and disposed off

in this consolidated order. Appeal wise adjudication is given in

the following paragraphs of this order.

2007-08 (ITA No. 241/Viz/2022) are that the assessee filed his

return of income for the AY 2007-08 on 31/3/2009 admitting a

total income of Rs. 4,44,490/-. Subsequently, survey U/s. 133A

was conducted in the case of the assessee on 5/11/2013 wherein

huge investment was found which was not disclosed by the

assessee while filing the return of income. The case was then

reopened U/s. 147 of the Act and the assessment order was

passed on 31/3/2015 u/s. 143(3) r.w.s 147 of the Act

determining the total income at Rs. 56,39,640/-. The Ld. AO

also initiated the penalty proceedings U/s. 271(1)(c) of the Act on

30/03/2015. Aggrieved by the order of the Ld. AO, the assessee

filed an appeal before the Ld. CIT(A) wherein the Ld. CIT(A)

deleted certain additions made by the Ld. AO vide order dated

23/4/2019. The Ld. AO subsequently issued show cause notice

dated 27/7/2021 and in response the assessee furnished a reply

on 5/8/2021. After considering the replies of the assessee, the

Ld. AO levied penalty of Rs. 4,45,924/- U/s. 271(1)(c) of the Act

citing that the Ld. CIT(A) has sustained the addition of Rs.

13,24,790/- as unexplained investment in property. The Ld. AO

considered that the assessee has concealed the income and

therefore it is justified in levying of penalty U/s. 271(1)(c) of the

Act. Aggrieved by the order of the Ld. AO on the penalty

proceedings, the assessee filed an appeal before the Ld. CIT(A)-

NFAC. The Ld. CIT(A)-NFAC considering that the assessee has

not disclosed his true income in the return of income, confirmed

the penalty levied by the Ld. AO and thereby dismissed the

appeal filed by the assessee. Aggrieved by the order of the Ld.

CIT(A)-NFAC, the assessee is in appeal before us by raising the

following grounds of appeal:

“1. The order of the Ld. CIT(A) is contrary to the facts and also the law applicable to the facts of the case. 2. The Ld. CIT (A) ought to have held that the notice issued U/s. 271(1)(c) of the Act is invalid and ought to have quashed the penalty order as void ab initio. 3. The Ld. CIT(A) ought to have quashed the penalty order as barred by limitation. 4. The Ld. CIT(A) is not justified in upholding the penalty of Rs. 4,45,924/- levied by the Assessing Officer U/s. 271(1)(c) of the Act.

4 5. The Ld. CIT(A) ought to have considered that the penalty is not warranted as appellant neither concealed the particulars of income nor furnished inaccurate particulars of income. 6. Any other grounds may be urged at the time of hearing.”

assessee is with respect to levy of penalty U/s. 271(1)(c) of the

Act.

has not concealed any particulars of income and therefore the

levy of penalty U/s. 271(1)(c) of the Act is not justified. The Ld.

AR further submitted that the Ld. CIT(A) while adjudicating the

quantum appeal has given the relief and has only estimated the

disallowance by sustaining the additions to the extent of Rs.

13,24,790/-. The Ld. AR further submitted that since the Ld.

CIT(A) has estimated the sources of funds, it cannot be a ground

to levy penalty U/s. 271(1)(c) of the Act when the assessee has

not concealed any particulars of income or furnished inaccurate

particulars warranting levy of penalty U/s. 271(1)(c) of the Act.

The Ld. AR submitted that since the assessee could not explain

the investment to the satisfaction of the Ld. CIT(A), it shall not be

5 a ground for levy of penalty. He therefore pleaded that the

penalty levied shall be quashed.

Per contra, the Ld. DR submitted that the assessee initially

did not disclose the true particulars while filing the return of

income while it was unearthed during the survey proceedings.

The Ld. DR further submitted that since the assessee has not

disclosed his investment in the return of income it amounts to

concealment of particulars of income and hence the levy of

penalty by the Ld. AO is fully justified. He therefore pleaded that

the order of the Ld. Revenue Authorities be upheld.

available on record and the orders of the Ld. Revenue

Authorities. Admittedly the assessee has not furnished the

investments details while filing the return of income. However,

the assessee, only after the survey operation U/s. 133A of the

Act, admitted the income wherein he admitted that he has made

investment in the properties. It is also found that the Ld. CIT(A)

during the First Appellate Proceedings has accepted the claim of

the assessee regarding the sources of income for the assessee as

well as his wife and has estimated that it would be reasonable to

consider Rs. 10 lakhs as available with the assessee for the

6 purpose of investment. We also find that the Ld. CIT(A) has also

allowed the unexplained cash deposits in the bank account to the

extent of Rs. 28 lakhs as the assessee has satisfactorily

explained the sources for deposits in the bank account. Further,

with respect to the investment in the property to the extent of Rs.

23,24,790/- the Ld. CIT(A) has considered an amount of Rs. 10

lakhs and held it reasonable as it was made from the

accumulated savings of the assessee and his wife, who are the

income tax assessees and regular filers of the return of income.

The Ld. CIT(A) therefore concluded that the assessee has

sufficient sources of income for the purpose of investment in the

properties to the extent of Rs. 10 lakhs and has disallowed an

amount of Rs. 13,24,790/- [Rs. 23,24,790 – Rs. 10,00,000] as

undisclosed. It was also explained by the Ld. AR that the

assessee did not maintain any books of account during the

impugned assessment year as there was no business carried on

by the assessee. It was also explained by the Ld. AR that the

assessee did not contest the various additions with respect to

excess claim of interest on housing loan etc., before the Ld.

CIT(A). The only addition made by the Ld. CIT(A) is with respect

to investment in the property to the extent of Rs. 13,24,790/-

wherein the Ld. CIT (A) has estimated that the assessee has

7 sufficient sources for an amount of Rs. 10 lakhs based on the

income tax returns filed by the assessee and his wife. Since the

addition is made on estimate basis, various judicial

pronouncements have held that penalty cannot be levied when

the addition is estimated. We therefore find that the levy of

penalty based on the addition made by an estimate cannot be a

valid ground and hence it should be deleted. It is ordered

accordingly.

the assessee has raised the similar grounds of appeal to that of

the grounds of appeal raised in his appeal in ITA No.

241/Viz/2022 (AY 2007-08), the only difference is in figures,

which is adjudicated on merits in the above paragraphs of this

order, our decision given on the assessee’s appeal for the AY

2007-08 mutatis mutandis applies to the appeal of the assessee

for the AY 2012-13 also. Accordingly, the grounds raised by the

assessee in his appeal for the AY 2012-13 are allowed.

Pronounced in the open Court on 10TH August, 2023.

Sd/- Sd/- (दु�वू� आर.एल रे�डी) (एस बालाकृ�णन) (DUVVURU RL REDDY) (S.BALAKRISHNAN) �या�यकसद�य/JUDICIAL MEMBER लेखा सद�य/ACCOUNTANT MEMBER Dated : 10.08.2023 OKK - SPS

आदेश क� ��त�ल�प अ�े�षत/Copy of the order forwarded to:- �नधा�रती/ The Assessee – Potluri Phanendra Babu, D.No.2-43-1/2, 1. Sector-11, MVP Colony, Double Road, Visakhapatnam, Andhra Pradesh – 530017. राज�व/The Revenue – Income Tax Officer, Ward-3(2), Infinity 2. Towers, Sankaramatam Road, Visakhapatnam, Andhra Pradesh- 530016. 3. The Principal Commissioner of Income Tax, आयकर आयु�त (अपील)/ The Commissioner of Income Tax 4. �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, �वशाखापटणम/ DR, ITAT, 5. Visakhapatnam गाड� फ़ाईल / Guard file 6. आदेशानुसार / BY ORDER

Sr. Private Secretary ITAT, Visakhapatnam