Sopan D.Patil, Kolhapur V. Deputy Commissioner of Income tax, Pune

CO 26/PUN/2017

• Counselvise Citation: [2018] 123 COUNSELVISE.COM (IT) 3737 (ITAT-PUNE)
• Duration Of Justice: 10 month(s) 23 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 11-04-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 09-04-2018
• Assessment Year: 2011-2012
• Appeal Filed On: 18-05-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Bogus purchase; Initiation of penalty proceedings
• Section: 143(3)

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A, PUNE . , , BEFORE SHRI D.KARUNAKARA RAO, AM AND SHRI VIKAS AWASTHY, JM . / ITA NO.783/PUN/2015 / ASSESSMENT YEAR : 2011-12 DCIT, CENTRAL CIRCLE-2(1), PUNE . /APPELLANT VS. SHRI SOPAN D. PATIL, ATHARVA PLAZA, OPP. WANLESS HOSPITAL, KAWALA NAKA, KOLHAPUR 416003 PAN : ABLPP1975F . / RESPONDENT C.O.NO.26/PUN/2017 (ARISING OUT OF ITA NO.783/PUN/2015) ASSESSMENT YEAR 2011-12 SHRI SOPAN D. PATIL, ATHARVA PLAZA, OPP. WANLESS HOSPITAL, KAWALA NAKA, KOLHAPUR 416003 PAN : ABLPP1975F . CROSS OBJECTOR VS. DCIT, CENTRAL CIRCLE-2(1), PUNE . APPELLANT IN THE APPEAL ASSESSEE BY : NONE REVENUE BY : SHRI AJAY MODI, JCIT / DATE OF HEARING : 09.04.2018 / DATE OF PRONOUNCEMENT: 11.04.2018 / ORDER PER D. KARUNAKARA RAO, AM : THE REVENUE FILED THE MAIN APPEAL AND THE ASSESSEE FILED TH E CROSS OBJECTION AGAINST THE ORDER OF CIT(A)-12, PUNE, D ATED 23-03-2015 FOR THE ASSESSMENT YEAR 2011-12. 2 2. GROUNDS RAISED BY THE REVENUE ARE AS UNDER : 1 THE LD.CIT(A) ERRED IN HOLDING THAT PENALTY IN THIS CASE SHOULD HAVE BEEN LEVIED U/S.271AAA OF THE ACT INSTEAD OF P ENALTY U/S.271(1)(C) OF THE ACT AS THE ADDITION OF RS.45,83,982/- WAS MA DE IN RESPECT OF FALSE ENTRIES IN THE BOOKS OF ACCOUNT AND, THEREFORE IT C ALLS UNDER THE DEFINITION OF UNDISCLOSED INCOME AS PROVIDED IN SECTION 271AAA OF THE ACT, WITHOUT APPRECIATING THE FACT THAT THE ENTRIES WERE NOT DET ECTED DURING SEARCH ACTION, AND THEREFORE, ADDITION IN RESPECT OF THESE ENTRIES DOES NOT FALL UNDER UNDISCLOSED INCOME AS DEFINED IN SECTION 271A AA OF THE ACT. 2. THE LD.CIT(A) ERRED IN HOLDING THAT PENALTY IN T HIS CASE SHOULD HAVE BEEN LEVIED U/S.271AAA OF THE ACT INSTEAD OF P ENALTY U/S.271(1)(C) OF THE ACT AS THE SEARCH ACTION IN THIS CASE WAS IN ITIATED AFTER 01-06- 2007, WITHOUT APPRECIATING THE FACT THAT MERELY INI TIATION OF SEARCH AFTER 01-06-2007, DOES NOT AUTOMATICALLY MAKE A CASE FOR IMPOSITION OF PENALTY U/S.271AAA. FOR IMPOSITION OF PENALTY, UNDISCLOSED INCOME, AS DEFINED IN THAT SECTION, SHOULD BE ASSESSED IN THE HANDS OF THE ASSESSEE. 3. THE LD.CIT(A) OVERLOOKED THE FACT THAT PENALTY U /S.271(1)(C) OF THE I.T. ACT WAS LEVIED BY THE AO ON ACCOUNT OF CONCEAL MENT AND FURNISHING INACCURATE PARTICULARS OF INCOME, DETECTED DURING T HE COURSE OF REGULAR ASSESSMENT PROCEEDINGS AND NOT DURING THE COURSE OF SEARCH ACTION AND THUS THIS INCOME DOES NOT FALL UNDER THE AMBIT OF U NDISCLOSED INCOME AS DEFINED IN THE PROVISIONS OF SECTION 271AAA OF THE ACT. 4. THE LD.CIT(A) DID NOT APPRECIATE THE FACT THAT T HE AO LEVIED PENALTY U/S.271(1)(C) OF THE I.T. ACT ON ACCOUNT OF BOGUS TRANSACTION DONE BY THE ASSESSEE, DETECTED BY THE AO DURING THE COUR SE OF REGULAR ASSESSMENT PROCEEDINGS ON THE BASIS OF INFORMATION DERIVED FROM LIST THE VAT SCAM DEALERS AND WAS DULY ACCEPTED BY THE ASSES SEE AND HENCE, THE PENALTY LEVIED U/S.271(1)(C) OF THE ACT WAS TOT ALLY JUSTIFIED. 5. THE ORDER OF LD.CIT(A) MAY BE VACATED AND THAT O F THE ASSESSING OFFICER BE RESTORED. 6. THE APPELLANT CRAVES LEAVE TO ADD, ALTER, AMEND AND MODIFY ANY OF THE GROUNDS OF APPEAL. 3. THE CROSS OBJECTIONS RAISED BY THE ASSESSEE ARE AS UNDER : ON FACTS AND IN LAW, 1. THE ASSESSEE SUBMITS THAT WITHOUT PREJUDICE TO HIS STAND THAT NO PENALTY COULD BE LEVIED U/S.271(1)(C) IN HIS CASE F OR THIS YEAR, IN CASE, IT IS HELD THAT THE PENALTY COULD NOT BE LEVIED U/S .271(1)(C) FOR THIS YEAR, IT IS SUBMITTED THAT SINCE THERE IS NO PROPER SATISFACTION RECORDED BY THE AO WHILE INITIATING THE PENALTY PROCEEDINGS, THE PENALTY ORDER PASSED U/S.271(1)(C) IS NULL AND VOID. 2. THE ASSESSEE SUBMITS THAT THE NOTICE ISSUED U/S.274 R.W.S. 271(1)(C) WAS WITHOUT PROPER APPLICATION OF MIND AND HENCE, T HE PENALTY ORDER PASSED U/S.271(1)(C) IS BAD IN LAW AND THE PENALTY LEVIED MAY KINDLY BE DELETED. 3. THE RESPONDENT CRAVES LEAVE TO ADD, ALTER, AMEND OR DELETE ANY OF THE ABOVE CROSS OBJECTIONS. 3 4. BRIEFLY STATED RELEVANT FACTS ARE THAT ASSESSEE IS AN INDIVIDUAL AND MAINLY ENGAGED IN THE WORK OF SUB-CONTRACTING WORK FOR S HRADDHA GROUP OF COMPANIES. THERE WAS SEARCH U/S.132 OF THE AC T ON SHRADDHA GROUP ON 08-09-2010 WHEREIN THE ASSESSEE WAS ALSO CO VERED. SUBSEQUENT TO SEARCH, A SURVEY U/S.133A OF THE ACT WAS CARRIED ON THE ASSESSEE AT KOLHAPUR ON 06-10-2010. SURVEY RESULTED IN DISCLOSURE OF ADDITIONAL INCOME OF RS.90,11,775/- BY THE ASSESSEE FOR THE ASSESSMENT YEAR UNDER CONSIDERATION. IN RESPONSE TO NOTICE U/S.153 A, ASSESSEE FILED THE RETURN OF INCOME ON 30-09-2011 DECLARING TOTAL INC OME OF RS.5,40,66,278/- WHICH INCLUDES THE ADDITIONAL INCOME OF RS.90,11,775/- DISCLOSED DURING SURVEY ACTION. DURING THE ASSESSMENT PROCEEDINGS, AO FOUND THAT ASSESSEE MADE PURCHASES OF R S.20,04,912/- FROM SHIV INDUSTRIES AND RS.25,79,070/- FROM MARUTI STEEL TR ADERS TOTALING TO RS.45,83,982/-. AO STATED THAT NAMES OF THE SA ID DEALERS HAVE BEEN LISTED IN THE SALES TAX SCAM CASES. AT THE EN D OF THE ASSESSMENT PROCEEDINGS, AO MADE ADDITION OF RS.45,83,982/- ON ACCOUNT OF BOGUS PURCHASES ALLEGED TO HAVE BEEN MADE B Y THE ASSESSEE U/S.153A R.W.S. 143(3) OF THE ACT. AO INITIATED THE PENALT Y PROCEEDINGS STATING THE FOLLOWING : 6. . . . . . . . IN THIS CASE DURING THE ASSESSMEN T PROCEEDING SOME BOGUS PURCHASES HAVE BEEN NOTICED. THE ASSESSEE HAS ALSO ADMITTED THIS FACT. THUS THERE IS A CONCEALMENT OF INCOME OF RS.45,83,982/- OR FURNISHING INACCURATE PARTICULARS. HOWEVER THE SAME IS NOT RESULT OF SEARCH FINDINGS. THIS UNDISCLOSED INCOME BEEN DETE CTED DURING ASSESSMENT PROCEEDING. HENCE THE CASE IS NOT COVER ED AS PER MEANING GIVEN OF UNDISCLOSED INCOME IN SEC.271AAA OF I.T. ACT, 1961. IN VIEW OF THIS PENAL PROCEEDINGS U/S.271 R.W.S.271(1)(C) IS I NITIATED SEPARATELY. EVENTUALLY, PENALTY OF RS.14,16,452/- HAS BEEN LEVIED ON THE ASSESSEE U/S.271(1)(C) OF THE ACT IN RESPECT OF THE ADDITION ON ACCOUN T OF BOGUS PURCHASES. 4 5. IN THE FIRST APPELLATE PROCEEDINGS. CIT(A) DISCUSSED THE PROVISIONS OF SECTION 271AA OF THE ACT AND THE DEFINITION OF UNDISCLOSE D INCOME AND DELETED THE PENALTY MADE BY THE AO ON ACCOUNT OF B OGUS PURCHASES BY OBSERVING AS UNDER : 2.1.5 I HAVE CONSIDERED THE FACTS, CONTENTIONS O F THE LEARNED AO AND OF THE APPELLANT. THE APPELLANT HAS STATED THAT FOR THE SEARCH INITIATED AFTER 01-06-2007 AND BEFORE 01-07-2012, P ENALTY PROVISIONS U/S.271AAA ARE APPLICABLE. FURTHER, ACCORDING TO T HE APPELLANT, THE LEARNED AO HAS INCORRECTLY STATED THAT THE ADDITION MADE IN THE ASSESSMENT ORDER DOES NOT FALL UNDER THE DEFINITION OF UNDISCLOSED INCOME; PROVIDED U/S.271AAA. HOWEVER, THE ADDITION OF RS.45,83,982/- BEING A FALSE ENTRY, IT IS COVERED UNDER THE CLAUSE (II) OF THE DEFINITION OF THE UNDISCLOSED INCOME. THEREFORE, THE LEARNED A O COULD NOT HAVE LEVIED THE PENALTY U/S.271(1)(C). THEREFORE, THE PENALTY ORDER PASSED U/S.271(1)(C) IS BAD IN LAW AND NEEDS TO BE QUASHED . 2.1.6 . .. .. 2.1.7 IT IS THE FACT THAT THE SEARCH ON THE APPELL ANT WAS CONDUCTED ON 17-10-2010. THERE WAS ALSO SURVEY U/S .133A CARRIED OUT ON THE APPELLANT ON 06-10-2010. HOWEVER, THE ASSES SMENT ORDER WITH THE ADDITION ON WHICH, THE PENALTY IS LEVIED, IS PA SSED U/S.153A IN CONSEQUENCE TO THE SEARCH BUT NOT U/S.143(3), WHIC H COULD HAVE BEEN FRAMED IN CONSEQUENCE TO THE SURVEY. HENCE, FOR TH E SEARCH INITIATED AFTER 01-06-2007, SECTION 271AAA BEING A SPECIFIC PENALTY PROVISION SECTION, IT WILL PREVAIL OVER A GENERAL PENALTY PROVISION OF SE CTION OF 271(1)(C). PROVISIONS OF THE SECTION 271(1)(C) MAY BE CONSIDER ED ONLY, IF THE PROVISIONS OF THE SECTION 271AAA DOES NOT ADDRESS A SITUATION. 2.1.8 IN THIS CASE, THE ADDITION PERTAINS TO THE B OGUS PURCHASE MADE FROM THE PERSONS, WHICH HAVE PROVIDED ACCOMMOD ATION ENTRIES TO THE APPELLANT. THEREFORE, THE ENTRIES OF THE PURCH ASES TOTALING RS.45,83,982/- IN THE APPELLANTS BOOKS OF ACCOUNT ARE FALSE AND HENCE, IT WILL FALL UNDER THE CLAUSE (II) OF THE DEFINITION O F THE UNDISCLOSED INCOME PROVIDED IN THE SECTION 271AAA. ACCORDINGLY, THE L EARNED AO OUGHT TO HAVE INITIATED AND LEVIED THE PENALTY U/S.271AAA. THE PENALTY LEVIED U/S.271(1)(C) CANNOT BE SUSTAINED. ACCORDINGLY, I QUASH THE PENALTY ORDER PASSED U/S.271(1)(C) LEVYING PENALTY OF RS.14,16,45 2/-. 6. AGGRIEVED WITH THE ORDER OF CIT(A) REVENUE FILED THE PRES ENT APPEAL BEFORE US WITH THE GROUNDS RAISED ABOVE. ASSESS EE ALSO FILED THE CROSS OBJECTIONS WITH THE LEGAL GROUNDS MENTIONED ABOVE. 7. AT THE OUTSET, THERE IS NONE TO REPRESENT THE CASE OF THE ASSESSEE DESPITE THE SERVICE OF NOTICE ON THE ASSESSEE. HOWEVER, LD. DR FOR THE REVENUE BROUGHT OUR ATTENTION TO THE CROSS OBJECTIONS RAISED BY THE 5 ASSESSEE AND SUBMITTED THAT IN THIS CASE THE PENALTY PR OCEEDINGS INITIATED BY THE AO IN THE ASSESSMENT ORDER FALLS SHORT OF LEGAL REQUIREMENT OF SPECIFYING THE LIMBS OF CLAUSE (C) OF SECTION 271(1) OF THE ACT. LD. DR MENTIONED THAT THE ADDITION QUA THE BOGUS PURCHASES RIGHTLY ATTRACTS THE PROVISIONS OF SECTION 271(1)(C) OF THE A CT. THESE PURCHASES ARE OUTSIDE THE SCOPE OF UNDISCLOSED INCOME . AS PER LD. DR, THE CIT(A) ERRONEOUSLY DELETED THE PENALTY STATING TH AT THE PROVISIONS OF SECTION 271AAA ARE RELEVANT. ON THIS BASIS, C IT(A) GRANTED RELIEF ON THIS GROUND. AGGRIEVED WITH THE SAME, THE REVENUE IS IN APPEAL STATING T HAT THE PROVISIONS OF SECTION 271(1)(C) OF THE ACT ARE APPROPRIATE. P ER CONTRA, THE CROSS OBJECTION FILED BY THE ASSESSEE RAISES THE LEGA L ISSUE RELATING TO CORRECT LIMB OF CLAUSE (C) QUA THE SATISFACTION OF THE AO AT THE TIME OF INITIATION OF PENALTY PROCEEDINGS. CONSIDERING THE SUBMISSIONS MADE BY THE LD. DR FOR THE REVENUE AND CONSIDERING THE CATENA O F THE ORDERS OF THE TRIBUNAL ON THE ISSUE OF SATISFACTION QUA THE LIMB OF CLAU SE (C) OF SECTION 271(1) OF THE ACT, WE PROCEED TO ADJUDICATE THE APPEAL. 8. AFTER HEARING THE LD. DR FOR THE REVENUE AND ON PERU SING THE ORDERS OF THE REVENUE, WE FIND THIS IS A CASE WHERE, ON TH E FACTS THE PENALTY IS IMPOSED ON THE ASSESSEE ON ACCOUNT OF BOGUS PURCHASES U/S.271(1)(C) OF THE ACT. REVENUE ARGUED THAT THE SAID SEC TION IS APPROPRIATE ONE. REGARDING THE LIMB OF CLAUSE (C) OF SECTION 271(1) OF THE ACT, AO INITIATED THE PENALTY PROCEEDINGS STATING CONCEALMENT OF INCOME OF RS.45,83,982/- OR FURNISHING INACCURATE P ARTICULARS (CONTENTS OF PARA NO.6 ARE ALREADY EXTRACTED IN THE PRECEDING PARA GRAPH). WE FIND WHILE LEVYING THE PENALTY ALSO, THE EXACT LANGUAGE IS USED B Y THE AO (PARA NO.6 OF THE PENALTY ORDER DATED 27-09-2013 IS RELEV ANT). WE PROCEED TO EXTRACT THE SAME FOR THE SAKE OF COMPLETENESS : 6 6. BASED ON THE ABOVE FINDINGS AND THE FACTS OF TH E CASE, THE UNDERSIGNED IS OF THE CONSIDERED VIEW THAT THE ASSE SSEE HAS CONCEALED THE INCOME OR HAD FURNISHED INACCURATE PARTICULARS OF SUCH INCOME AND IS LIABLE FOR PENALTY U/S.271(1)(C) OF I.T. AC T, 1961 . FROM THE ABOVE, WE FIND IT IS A CASE WHERE THE AO DID NOT HAVE CLARITY OF THOUGHT AND AO SUFFERED FROM AMBIGUITY IN HIS MIND WITH REGARD TO THE APPLICABLE LIMB OF CLAUSE (C) OF SECTION 271(1) OF THE ACT TO THE FACTS OF THE CASE. THEREFORE, WE FIND THE INITIATION OF PENALTY PROCEEDINGS BY THE AO FALLS SHORT OF LEGAL REQUIREMENT ON T HE ISSUE OF RECORDING OF SATISFACTION. SUCH PENALTY ORDER IS UNSUSTAINA BLE IN LAW LEGALLY. THIS VIEW WAS ALREADY TAKEN BY THE PUNE BENCH IN A SERIES OF CASES. THE MANNER OF INITIATING AND LEVYING OF PENALTY WITHOU T MAKING REFERENCE TO THE SPECIFIC LIMB OF CLAUSE (C) IS UNSUSTAINED. AO IS UNDER OBLIGATION TO SPECIFY THE CORRECT LIMB AT THE TIME OF INITIATIO N AS WELL AS AT THE TIME OF LEVY OF PENALTY. THEREFORE, THE PENALTY LEV IED BY THE AO IS UNSUSTAINABLE ON TECHNICAL GROUNDS. FURTHER, THIS VIEW OF O URS GET STRENGTH BY THE JUDGMENT OF HONBLE JURISDICTIONAL HIGH CO URT IN THE CASE OF CIT VS. SHRI SAMSON PERINCHERY DATED 05-01-2017 AS WELL AS THE JUDGMENT OF HONBLE KARNATAKA HIGH COURT IN THE CA SE OF CIT VS. MANJUNATHA COTTON AND GINNING FACTORY 359 ITR 565. TH EREFORE, ON THIS LEGAL ISSUE, THE ASSESSEE SUCCEEDS. SINCE WE HAVE DECIDED THE CROSS OBJECTIONS RAISED BY TH E ASSESSEE IN FAVOUR OF THE ASSESSEE ON TECHNICAL GROUNDS, ADJUDICATI ON OF THE GROUNDS RAISED BY THE REVENUE RELATING TO INCORRECTNESS OF APPLICABILITY OF SECTION 271AAA OF THE ACT OR OTHERWISE, AND ON MERITS, OF PENALTY, BECOME AN ACADEMIC EXERCISE. THEREFORE, THE GROUNDS RAI SED BY THE REVENUE ARE DISMISSED AS ACADEMIC. 7 9. IN THE RESULT, CROSS OBJECTION FILED BY THE ASSESSEE IS ALLOWED AND THE APPEAL FILED BY THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 11 TH DAY OF APRIL, 2018. SD/- SD/- (VIKAS AWASTHY) (D. KARUNAKARA RAO) /JUDICIAL MEMBER / ACCOUNTANT MEMBER PUNE; DATED : 11 TH APRIL, 2018 / COPY OF THE ORDER FORWARDED TO : / BY ORDER, //TRUE COPY// //TRUE COPY// SENIOR PRI VATE SECRETARY , / ITAT, PUNE 1. / THE APPELLANT 2. / THE RESPONDENT 3. THE CIT(A)-12, PUNE 4. CIT-12, PUNE 5. , , A BENCH PUNE; 6. / GUARD FILE.