ASST CIT CEN CIR 4(1), MUMBAI V. SARANG PROPERTY DEVELOPERS P.LTD, MUMBAI

ITA 1700/MUM/2015

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 0280 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 4 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-08-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: E
• Assessment Year: 2011-2012
• Appeal Filed On: 24-03-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SAURABH KUMAR RAIDR
• Keywords: Bogus purchase; Search and seizure; Principle of natural justice; Wrong claim; Accommodation entries; Tax effect; Bonafide mistake
• Section: 143(3); 27

Judgement Text

, , , , INCOME-TAX APPELLATE TRIBUNAL -IBEN CH MUMBAI , , , BEFORE S/SHRI RAJENDRA,ACCOUNTANT MEMBER AND RAM LAL NEGI,JUDICIAL MEMBER ./I.T.A./1700/MUM/2015, /ASSESSMENT YEAR: 2011-12 ADDL CIT,CENTRAL CIRCLE -4 (1) 4 TH FLOOR, AAYAKAR BHAVAN, M.K. ROAD MUMBAI-400 020. VS. M/S.SARANG PROPERTY DEVELOPERS PVT. LTD. ATTRIUM 215, 10 TH FLOOR, ANDHERI KURLA ROAD, NEXT TO COURTYARD MARIOTT HOTEL, ANDHERI (E), MUMBAI-400 059. PAN:AADCS 6382 B ( /APPELLANT ) ( / RESPONDENT ) ./I.T.A./2325/MUM/2015, /ASSESSMENT YEAR: 2010-11 M/S.SARANG PROPERTY DEVELOPERS PVT. LTD. ATTRIUM 215, 10 TH FLOOR, ANDHERI KURLA ROAD, NEXT TO COURTYARD MARIOTT HOTEL, ANDHERI (E), MUMBAI-400 059. PAN:AADCS 6382 B VS. ADDL CIT,CENTRAL CIRCLE -4 (1) 4 TH FLOOR, AAYAKAR BHAVAN, M.K. ROAD MUMBAI-400 020. ( /APPELLANT ) ( / RESPONDENT ) REVENUE BY: SHRI SAURABH KUMAR RAI-DR ASSESSEE BY: SHRI ANUJ KISNADWALA / DATE OF HEARING: 09.08.2017 / DATE OF PRONOUNCEMENT: 09.08.2017 ,1961 254(1) ORDER U/S.254(1)OF THE INCOME-TAX ACT,1961(ACT) PER RAJENDRA, AM - CHALLENGING THE ORDERS DATED,13/02/2015 AND 21/01/2 015,OF THE CIT(A)-52,MUMBAI,THE ASSESSEE HAS FILED THE APPEALS FOR THE ABOVE-MENTIO NED TWO ASSESSMENT YEARS(AY.S). AS THE ISSUE INVOLVED IN BOTH THE APPEALS IS ALMOST IDENTI CAL I.E. LEVY OF PENALTY UNDER SECTION 271 OF THE ACT.FOR THE AY.2010-11,THE ASSESSEE HAS CHALLEN GED THE PENALTY LEVIED U/S.271(1)(C),WHEREAS FOR THE NEXT AY.THE AO HAS CH ALLENGED THE PENALTY LEVIED U/S.271AAA OF THE ACT. THEREFORE,WE ARE ADJUDICATIN G BOTH THE APPEALS TOGETHER. ITA/2325//MUM/2015,AY.- 2010-11: 2. DURING THE COURSE OF HEARING BEFORE US, THE AUTHOR ISED REPRESENTATIVE(AR) STATED THAT PENALTY LEVIED BY THE AO UNDER SECTION 271(1)(C) FO R THE EARLIER AY.HAS BEEN DELETED BY THE TRIBUNAL VIDE ITS ORDER DATED 28/07/2017 (ITA/4013/ MUM/2015). HE RELIED UPON THE CASES OF SAMSON PERICHERY(392ITR4) AND BAISETTY REVATHI(ITA NO.684 OF 2016 DTD.13.07.2017).THE 1700 & 2325/MUM/15 M/S. SARANG PROPERTY DEVELOPERS PVT.LTD. 2 DEPARTMENTAL REPRESENTATIVE (DR) REFERRED TO THE MATTER OF DHAVAL K JAIN(ITA/996/MUM/2014-AY. 2003-04, DATED 30/09/ 201 6. 3. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL BEFORE US. WE FIND THAT WHILE DECIDING THE APPEAL FOR THE ASSESSMENT YEAR (SUPRA) THE TRIBUNAL HAS DELIBERATED UPON THE ISSUE OF LEVY OF PENALTY UNDER SECTION 271(1)(C) OF THE A CT,AS UNDER: ASSESSEE-COMPANY IS ENGAGED IN THE BUSINESS OF REA L ESTATE DEVELOPMENT. THE EFFECTIVE GROUND OF APPEAL DEALS WITH LEVY OF PENALTY U/S. 27 1(1)(C) OF THE ACT. BRIEF FACTS:- 2. DURING SEARCH AND SEIZURE OPERATION CARRIED IN THE CASE OF KANAKIA GROUP ON 29/03/2011, THE ASSESSEE WAS SUBJECTED TO SEARCH.THE ASSESSING OFFICER (AO)COMPLETED ASSESSMENT U/S. 143(3) R.W.S.153C OF THE ACT ON 28/03/2013 DETERMIN ING INCOME OF THE ASSESSEE AT RS.1.97 LAKHS. DURING THE COURSE OF SEARCH RASESH KANAKIA THE DIRE CTOR OF THE ASSESSEE COMPANY AND CHAIRMAN OF KANAKIA GROUP ADMITTED THAT IT HAD PURC HASED BOGUS BILLS AMOUNTING TO RS. 85. 49 LAKHS,IN HIS STATEMENT RECORDED U/S.132(4) OF TH E ACT ON 24/05/2011 FOR THE YEAR UNDER CONSIDERATION.IT WAS OBSERVED BY AO THAT BOGUS BILL S WERE DEBITED IN THE BOOKS OF THE ASSESSEE,THAT MATERIAL WHATSOEVER WAS RECEIVED BY I T AGAINST ACCOMMODATION BILLS, THAT IT HAD INFLATED COST OF CONSTRUCTION OF THE PROJECT BY DEB ITING BOGUS BILLS IN ITS ACCOUNTS, THAT THE COST OF CONSTRUCTION WAS CARRIED FORWARD AS WORK-IN-PROG RESS(WIP) SINCE THE PROJECT WAS UNDER DEVELOPMENT .AS THE BOOKS OF ACCOUNT OF THE ASSESSE E FOR THE YEAR WERE CLOSED AT THE TIME OF SEARCH SO IT COULD NOT GIVE EFFECT TO SUCH BOGUS PU RCHASES IN THE RELEVANT YEAR IN ITS BOOKS. TO GIVE EFFECT TO THE ADMITTED BOGUS PURCHASES THE ASS ESSEE REDUCED OPENING WIP IN THE AY. 2011-12 BY THE ADMITTED AMOUNT OF BOGUS PURCHASES.T HE CONTENTION RAISED BY THE ASSESSEE WAS ACCEPTED DURING THE ASSESSMENT PROCEEDINGS. THE AO INITIATED PENALTY PROCEEDINGS U/S. 271(1)(C).AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE,DATED 28/03/2013,THE AO HELD THAT THE ASSESSEE HAD DEBITED BOGUS BILLS IN ITS RE GULAR BOOKS OF ACCOUNT, THAT IT WAS FOLLOWING PERCENTAGE METHOD OF ACCOUNTING, THAT DURING THE YE AR UNDER CONSIDERATION THE PROJECT OF THE ASSESSEE WAS NOT COMPLETE, THAT THE ASSESSEE HAD PA SSED BOGUS ENTRIES IN ITS BOOKS, THAT SAME WERE REVERSED IN THE AY.2011-12,THAT IT HAD FURNISH ED INACCURATE PARTICULARS OF INCOME.THE CONTENTION OF THE ASSESSEE THAT BOGUS PURCHASES HAD NOT RESULTED IN ANY ADDITION OF INCOME THAT COULD LEAD TO JUSTIFICATION OF LEVY OF PENALTY WAS NOT ACCEPTABLE,THAT IT HAS PASSED BOGUS ENTRIES IN THE BOOKS, THAT THE BOOKING ITSELF AMOUN TED TO FURNISHING OF INACCURATE PARTICULARS IN RETURN OF INCOME, THAT TAX EFFECT WAS NIL DURING TH E YEAR, THAT THERE WOULD BE TAX EFFECT ON THE TOTAL INCOME/LOSS REALIZED OUT OF THE PROJECT WHEN IT WOULD BE COMPLETE, THAT AT TIME OF COMPLETION OF PROJECT, THE PROFIR/LOSS WOULF BE AFF ECTED BY THE BOGUS BILLS,THAT THERE WAS A WILLFUL ATTEMPT ON THE PART OF THE ASSESSEE TO MAKE FALSE CLAIM, REFERRING TO PROVISIONS OF SECTION 271(1)(C),HE HELD THAT THE ASSESSEE HAD FUR NISHED INACCURATE PARTICULARS OF INCOME. HE LEVIED PENALTY OF RS.26.41 LAKHS IN THAT REGARD. 2.1. THE AO FURTHER FOUND THAT THE ASSESSEE HAD SET ASI DE ALL BROUGHT FORWARD LOSS OF RS.14.59 LAKHS TO THE EXTENT OF NET PROFIT OF RS.4.61 LAKHS, THAT THERE WAS CHANGE IN SHARE HOLDING PATTERN OF THE ASSESSEE,THAT IN VIEW OF THIS PROVISIONS OF SECTION 79 WERE APPLICABLE, THAT THE ASSESSEE WAS NOT ENTITLED TO SET OFF THE CARRIED FORWARD LOS S AGAINST CURRENT YEARS INCOME. HE BROUGHT IT TO THE NOTICE OF THE ASSESSEE AND DIRECTED IT TO FI LE EXPLANATION. ON 25/03/2015, THE ASSESSEE FURNISHED REVISED COMPUTATION OF INCOME WHEREIN IT DID NOT SET OFF THE CARRIED FORWARD LOSSES.THE TAXABLE INCOME WAS ENHANCED TO RS.1.97 L AKHS,THE AO INITIATED PENALTY U/S.271(1)(C)FOR FURNISHING INACCURATE PARTICULARS. AFTER CONSIDERING THE SUBMISSION OF THE ASSESSEE HE LEVIED PENALTY OF RS.81,541/-.THUS,THE TOTAL PENALTY OF RS.27.32 LAKHS(RS.26.41 LAKHS AND RS.81,541/-)WAS LEVIED BY THE AO. 3. AGGRIEVED BY THE ORDER OF THE AO,THE ASSESSEE PREFE RRED AN APPEAL BEFORE THE FIRST APPELLATE AUTHORITY(FAA)AND MADE ELABORATE SUBMISSI ONS.AFTER CONSIDERING AVAILABLE 1700 & 2325/MUM/15 M/S. SARANG PROPERTY DEVELOPERS PVT.LTD. 3 MATERIAL,THE FAA HELD THAT KANAKIA GROUP HAD SURREN DERED TOTAL BOGUS PURCHASES OF RS.38 CRORES AS PER STATEMENT OF THE MD OF THE ASSESSEE C OMPANY IN HIS STATEMENT,RECORDED ON 30/03/2011 U/S. 132(4) OF THE ACT.LATER ON, THE FIG URE OF BOGUS PURCHASES WAS ENHANCED TO RS.39.42 CRORES,WHEN THE MD APPORTIONED THE BOGUS P URCHASES IN DIFFERENT GROUP ENTITIES, THAT OUT OF THE TOTAL BOGUS PURCHASES AN AMOUNT OF RS.5.99 CRORES RELATED TO THE ASSESSEE COMPANY,THAT OUT OF THE SAID AMOUNT A SUM OF RS.85. 49 LAKHS RELATED TO THE YEAR UNDER APPEAL, THAT NO PURCHASES HAD TAKEN PLACE, THAT THE ASSESSE E HAD OBTAINED ACCOMMODATION ENTRIES WITH A VIEW TO JACK UP EXPENSES TO REDUCE TAXABLE PROFIT S AND THE CLOSING WIP, THAT THE PURCHASES WERE DEBITED TO BOOKS OF ACCOUNT I.E. P&L ACCOUNT, THAT SUBSEQUENT TO THE SEARCH THE ASSESSEE HAD REDUCED THE SAME FROM THE CLOSING WIP,THAT IT W AS A CLEAR CASE OF FALSIFICATION OF BOOKS OF ACCOUNT AND JACKING OF EXPENDITURE.THE FAA REFERRED TO EXPLANATION 5A TO SECTION 271(1) (C) AND OBSERVED THAT NO ADDITION WAS MADE BY THE AO WH ILE COMPUTING ASSESSMENT, THAT THE RETURNED INCOME AND ASSESSED INCOME REMAINED SAME,T HAT THE ASSESSEE WAS FOUND TO BE DEBITING BOGUS EXPENDITURE IN HIS BOOKS OF ACCOUNT, THAT CLOSING WIP WAS AKIN TO THE LOSS INCURRED BY ASSESSEE DURING THE YEAR AS ENVISAGED U NDER EXPLANATION 4 TO SECTION 271(1)(C), THAT THE AO HAD RIGHTLY LEVIED PENALTY U/S.271(1)(C ) OF THE ACT. WITH REGARD TO LEVY OF PENALTY IN RESPECT OF CLAIM OF SET OFF OF BROUGHT FORWARD LOSSES,HE OBSERVED THAT THE AO HAD FOUND THAT THERE WAS SUBST ANTIAL CHANGE IN THE SHARE HOLDING PATTERN OF THE ASSESSEE COMPANY DURING THE YEAR,THAT IT WAS NOT ENTITLED TO SET OFF CARRY FORWARD LOSSES AGAINST THE INCOME UNDER APPEAL,THAT THE ASSESSEE H AD FILED REVISED STATEMENT ONLY AFTER AO MADE ENQUIRIES,THAT DURING THE APPELLATE PROCEEDING S THE ASSESSEE HAD CLAIMED THAT IT WAS AN INADVERTENT MISTAKE,THAT THE ASSESSEE WAS NOT KNOWI NG THE LAW,THAT THERE WAS BONAFIDE IGNORANCE ABOUT THE PROVISIONS OF THE ACT,THAT THE ASSESSEE WAS FAIRLY BIG COMPANY DOING BUSINESS AT SIGNIFICANTLY HIGH LEVEL, THAT IT WAS H AVING A FULLFLEDGED ACCOUNTS SECTION AND WAS ADVISED BY PROFESSIONALS,THAT IT COULD NOT CLAIM TH AT IT WAS NOT AWARE OF THE PROVISIONS OF LAW, THAT IT HAD COMMITTED THE SAME MISTAKE TWICE I.E., AT THE TIME OF FILING OF ORIGINAL RETURN AND FILING OF RETURN U/S. 153C OF THE ACT,THAT EVEN IN THE REVISED COMPUTATION THE ASSESSEE HAD SHOWN A PART OF INCOME AT RS.1.97 LAKHS AS AGAINST DISPUTED INCOME OF RS.4.61 LAKHS. IT WAS NOT AN INADVERTENT OR BONAFIDE MISTAKE.UPHOLDING TH E ORDER OF THE AO,THE FAAA REFERRED TO THE CASE OF MAK DATA (358ITR593);ZOOM COMMUNICATI ONS PVT.LTD. (327ITR510) AND LAL CHAND TIRATH RAM(225ITR684).FINALLY,HE UPHELD THE O RDER OF THE AO. 4. DURING THE COURSE OF HEARING BEFORE US, THE AUTHORI SED REPRESENTATIVE(AR)ARGUED THAT THERE WAS NO CHANGE IN INCOME, THAT NO ADDITION WAS MADE TO THE INCOME RETURNED BY THE ASSESSEE, THAT NO PENALTY FOR CONCEALMENT OF INCOME COULD BE LEVIED, THAT INCOME WAS OFFERED FOR THE YEAR UNDER APPEAL, THAT THE CALCULATION MACHINERY W OULD FAIL IN SUCH CASES,THAT THE SECTION SPOKE OF TAX SOUGHT TO BE EVADED, THAT FOR THE PURP OSE INCOME FOR THE CURRENT YEAR HAD TO BE CONSIDERED,THAT IT WAS A SEARCH AND SEIZURE CASE, T HAT NO INCRIMINATING MATERIAL WAS FOUND DURING THE SEARCH,THAT THE AO HAD NOT STRUCK OFF TH E PORTION IN THE PENALTY NOTICE TO INDICATE AS TO WHICH OF THE OMISSIONS THE ASSESSEE HAD COMMITT ED I.E. FURNISHING OF INACCURATE PARTICULARS OR CONCEALING THE INCOME.HE REFERRED TO THE CASES O F NALWA SONS INVESTMENT LTD. (327ITR543); MEHERJEE KASINATH HOLDING PVT.LTD. (IT A/2555/MUM/2012,AY.2008-09, DT.28/4/2017);SURESH P. DEDHIA (IT(SS)A/ 16/MUM/200 9 DATED 03/12/2010 AND DEEPIKA DEV TODIA(ITA/189/MUM/2008-AY.2004-05,DATED 29/7/2011). HE ALSO PRODUCED THE NOTICE ISSUED BY THE AO AND DEMONSTRATED THAT THE AO HAD IN FACT NO STRUCK OFF THE PORTION IN THE PENALTY NOTICE TO INDICATE AS TO WHICH OMISSION THE ASSESSE E HAD COMMITED. THE DEPARTMENTAL REPRESENTATIVE (DR)CONTENDED THAT THE PENALTY WAS LEVIED IN THE YEAR WHEN EXPENSES WERE CLAIMED, THAT THE ASSESSEE HAD BOOKED BOGUS PURCHASES,THAT IT WAS FOLLOWING PERCENTAGE COMPLETION METHOD, THAT BY BOOKING BOGUS PURCHASES THE ASSESSEE HAD IMPLIEDLY EVADED THE TAX,THAT IT HAD COMMITTED AN OFFENCE U/S .271(1)(C)OF THE ACT.HE REFERRED TO THE CASE OF K.P. MADHUSUDAN,DELIVERED BY THE HONBLE APEX CO URT.IN HIS REJOINDER, THE AR REFERRED TO THE CASE OF K.C. BUILDER (265 ITR562) AND STATED TH AT AS THERE WAS NO INCOME IN THE YEAR UNDER CONSIDERATION,SO NO PENALTY WAS LEVIABLE U/S. 271(1)(C)OF THE ACT. 5. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD.WE FIND THAT THE MD OF THE GROUP,DURING THE SEARCH AND SEIZ URE PROCEEDINGS,ADMITTED UNDISCLOSED INCOME ON ACCOUNT OF BOGUS PURCHASE BILLS TAKEN BY VARIOUS ENTITIES OF THE GROUP,THAT THAT THE 1700 & 2325/MUM/15 M/S. SARANG PROPERTY DEVELOPERS PVT.LTD. 4 COST OF CONSTRUCTION WAS CARRIED FORWARD AS WIP,THA T THE AO LEVIED PENALTY ON TWO COUNTS NAMELY BOGUS PURCHASES AND CARRY FORWARD OF LOSSES, THAT THE FAA HAD CONFIRMED THE ORDER OF THE AO. BEFORE PROCEEDING FURTHER,WE WOULD LIKE TO REFER TO THE ORDER OF MEHARJEE CASSINATH HOLDINGS PRIVATE LTD.(SUPRA)WHEREIN THE ISSUE OF NON STRIKIN G OFF RELEVANT PORTION OF THE PENALTY NOTICE HAS BEEN DELIBERATED UPON EXTENSIVELY.WE ARE REPROD UCING THE PORTION DEALING WITH THE ISSUE AND THE FACTS OF THE CASE AND SAME READ AS UNDER: 2.IN THIS APPEAL, THE SOLITARY GRIEVANCE OF THE AS SESSEE IS WITH REGARD TO IMPOSITION OF PENALTY U/S 271(1)(C) OF THE ACT. 3.IN BRIEF, THE RELEVANT FACTS ARE THAT THE APPELLA NT IS A COMPANY INCORPORATED UNDER THE PROVISIONS OF COMPANIES ACT, 1956 AND FOR THE A SSESSMENT YEAR UNDER CONSIDERATION IT DECLARED A TOTAL INCOME OF RS.86,9 4,668/- IN A RETURN FILED ON 29.9.2008, WHICH WAS SUBJECT TO A SCRUTINY ASSESSME NT U/S 143(3) OF THE ACT AND VIDE ORDER DATED 10.12.2010 THE FINAL INCOME HAS BEEN AS SESSED AT RS.1,11,84,640/-. THE RELEVANT ISSUE FOR OUR PURPOSE IS LONG TERM CAPITAL LOSS OF RS.18,19,34,011/- REPORTED BY THE ASSESSEE IN ITS RETURN OF INCOME. T HE SAID LOSS WAS INCURRED BY THE ASSESSEE ON ACCOUNT OF REDEMPTION OF PREFERENCE SHA RES OF A CONCERN, NAMELY SHRI SANTRAM FINANCE LTD. IN THE ASSESSMENT FINALIZED U/ S 143(3) OF THE ACT, THE ASSESSING OFFICER DISALLOWED THE ENTIRE LONG TERM CAPITAL LOS S ON THE GROUND THAT THE TRANSACTION OF REDEMPTION OF PREFERENCE SHARES WAS A BOGUS TRANSACTION AND FURTHER THE ASSESSING OFFICER ALSO DENIED THE CARRY FORWARD OF SAID LOSS. SUBSEQUENTLY, THE ASSESSING OFFICER VIDE ORDER PASSED U/S 271(1)(C) O F THE ACT DATED 29.6.2011 HELD THE ASSESSEE GUILTY OF FURNISHING OF INACCURATE PARTICU LARS OF INCOME QUA THE AFORESAID ISSUE WITHIN THE MEANING OF SEC. 271(1)(C) OF THE A CT. THE ASSESSING OFFICER LEVIED PENALTY U/S 271(1)(C) OF THE ACT @ 100% OF THE TAX SOUGHT TO BE EVADED, WHICH WAS COMPUTED AT RS.5,45,80,203/-. THE CIT(A) HAS SUSTAI NED THE LEVY OF PENALTY, BUT HAS ALLOWED PARTIAL RELIEF BY CORRECTING THE COMPUTATIO N OF PENALTY AND ACCORDINGLY, THE CIT(A) HAS SCALED DOWN THE PENALTY TO RS.4,12,26,24 7/-. IN THIS BACKGROUND, THE RIVAL COUNSELS HAVE MADE THEIR SUBMISSIONS AND THE RELEVA NT MATERIAL HAS BEEN PERUSED. BEFORE WE PROCEED TO REFER TO THE RIVAL CONTENTIONS , IT WOULD BE APPROPRIATE TO BRING OUT THE BACKGROUND IN WHICH THE PENALTY U/S 3 271(1 )(C) OF THE ACT HAS BEEN LEVIED BY THE ASSESSING OFFICER. IN THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTED THAT ASSESSEE HAD REPORTED LONG TERM CAPITAL LOSS OF RS.18,19,34,011/- ON REDEMPTION OF PREFERENCE SHARES OF SHRI SANTRAM FIN ANCE LTD., DETAILED AS UNDER :- XXXX 5. AT THE TIME OF HEARING, THE LEARNED REPRESENTATI VE FOR THE ASSESSEE POINTED OUT THAT THE QUANTUM ASSESSMENT PROCEEDINGS HAVE BECOME FINA L INASMUCH AS ASSESSEE HAS NOT GONE IN APPEAL AGAINST THE ACTION OF THE ASSESSING OFFICER. ANOTHER PERTINENT POINT RAISED BY THE ASSESSEE WAS THAT THE PENALTY NOTICE ISSUED U/S 274 R.W.S. 271 OF THE ACT DATED 10.12.2010, A COPY OF WHICH HAS BEEN PLACED ON RECORD, REVEALS NONAPPLICATION OF MIND BY THE ASSES SING OFFICER INASMUCH AS THE IRRELEVANT PORTION OF THE NOTICE HAS NOT BEEN STRUC K OFF. IT WAS, THEREFORE, CONTENDED THAT THE LEVY OF PENALTY IS ILLEGAL AND DESERVES TO BE SETASIDE. IN SUPPORT OF THE AFORESAID PROPOSITION, RELIANCE HAS BEEN PLACED ON THE FOLLOWING DECISIONS :- I) M/S. SSAS EMERALD MEADOWS, ITA NO. 380/2015 DAT ED 23.11.2015 (HON'BLE KARNATAKA HIGH COURT); II) MANJUNATHA COTTON AND GINNING FACTORY & ORS., 3 59 ITR 565 (KAR.); III) DILIP N. SHROFF, 161 TAXMAN 218 (SC); IV) DR. SARITA MILIND DAVARE, ITA NO. 2187 & 1789/M UM/2014 DATED 21.12.2016; V) SHRI SAMSON PERINCHERY, ITA NO. 4625 TO 4630/MUM /2013 DATED 11.10.2013 XXXX 7... WITH REGARD TO THE PLEA OF ASSESSEE THAT NOT ICE ISSUED U/S 274 R.W.S 271(1)(C) OF THE ACT WAS LEGALLY UNTENABLE, THE LD. CIT-DR PO INTED OUT THAT IN THE ASSESSMENT 1700 & 2325/MUM/15 M/S. SARANG PROPERTY DEVELOPERS PVT.LTD. 5 ORDER ITSELF THE ASSESSING OFFICER IN PARA 4 HAS RE CORDED THAT THE PENALTY U/S 271(1)(C) OF THE ACT WAS INITIATED FOR FURNISHING OF INACCURA TE PARTICULARS OF INCOME. IT WAS, THEREFORE, CONTENDED THAT THE ASSESSMENT ORDER ITSE LF SHOWS DUE APPLICATION OF 8 MIND BY THE ASSESSING OFFICER FOR INITIATION OF PROCEEDI NGS U/S 271(1)(C) OF THE ACT AND THAT THE NOTICE ISSUED U/S 274 R.W.S. 271(1)(C) OF THE A CT DATED 10.12.2010 CANNOT BE SOLELY EXAMINED TO SEE WHETHER THE ASSESSING OFFICER HAS D ULY APPLIED HIS MIND TO THE INITIATION OF PROCEEDINGS U/S 271(1)(C) OF THE ACT. 8. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIO NS. SEC. 271(1)(C) OF THE ACT EMPOWERS THE ASSESSING OFFICER TO IMPOSE PENALTY TO THE EXTENT SPECIFIED IF, IN THE COURSE OF ANY PROCEEDINGS UNDER THE ACT, HE IS SATI SFIED THAT ANY PERSON HAS CONCEALED THE PARTICULARS OF HIS INCOME OR FURNISHE D INACCURATE PARTICULARS OF SUCH INCOME. IN OTHER WORDS, WHAT SEC. 271(1)(C) OF THE ACT POSTULATES IS THAT THE PENALTY CAN BE LEVIED ON THE EXISTENCE OF ANY OF THE TWO SI TUATIONS, NAMELY, FOR CONCEALING THE PARTICULARS OF INCOME OR FOR FURNISHING INACCURATE PARTICULARS OF INCOME. THEREFORE, IT IS OBVIOUS FROM THE PHRASEOLOGY OF SEC. 271(1)(C) O F THE ACT THAT THE IMPOSITION OF PENALTY IS INVITED ONLY WHEN THE CONDITIONS PRESCRI BED U/S 271(1)(C) OF THE ACT EXIST. IT IS ALSO A WELL ACCEPTED PROPOSITION THAT CONCEALME NT OF THE PARTICULARS OF INCOME AND FURNISHING OF INACCURATE PARTICULARS OF INCOME REFERRED TO IN SEC. 271(1)(C) OF THE ACT DENOTE DIFFERENT CONNOTATIONS. IN FACT, THI S DISTINCTION HAS BEEN APPRECIATED EVEN AT THE LEVEL OF HON'BLE SUPREME COURT NOT ONLY IN THE CASE OF DILIP N. SHROFF (SUPRA) BUT ALSO IN THE CASE 9 OF T.ASHOK PAI, 292 ITR 11 (SC). THEREFORE, IF THE TWO EXPRESSIONS, NAMELY CONCEALMENT OF THE PARTICULARS OF INCOME AND FURNISHING OF INACCURATE PARTICULARS OF INCOME HAVE DIFFERENT CO NNOTATIONS, IT IS IMPERATIVE FOR THE ASSESSEE TO BE MADE AWARE AS TO WHICH OF THE TWO IS BEING PUT AGAINST HIM FOR THE PURPOSE OF LEVY OF PENALTY U/S 271(1)(C) OF THE ACT , SO THAT THE ASSESSEE CAN DEFEND ACCORDINGLY. IT IS IN THIS BACKGROUND THAT ONE HAS TO APPRECIATE THE PRELIMINARY PLEA OF ASSESSEE, WHICH IS BASED ON THE MANNER IN WHICH THE NOTICE U/S 274 R.W.S. 271(1)(C) OF THE ACT DATED 10.12.2010 HAS BEEN ISSUED TO THE ASSESSEE COMPANY. A COPY OF THE SAID NOTICE HAS BEEN PLACED ON RECORD AND THE LEARN ED REPRESENTATIVE CANVASSED THAT THE SAME HAS BEEN ISSUED BY THE ASSESSING OFFICER I N A STANDARD PROFORMA,WITHOUT STRIKING OUT THE IRRELEVANT CLAUSE. IN OTHER WORDS, THE NOTICE REFERS TO BOTH THE LIMBS OF SEC. 271(1)(C) OF THE ACT, NAMELY CONCEALMENT OF TH E PARTICULARS OF INCOME AS WELL AS FURNISHING OF INACCURATE PARTICULARS OF INCOME. QUI TE CLEARLY, NON-STRIKING-OFF OF THE IRRELEVANT LIMB IN THE SAID NOTICE DOES NOT CONVEY TO THE ASSESSEE AS TO WHICH OF THE TWO CHARGES IT HAS TO RESPOND. THE AFORESAID INFIRM ITY IN THE NOTICE HAS BEEN SOUGHT TO BE DEMONSTRATED AS A REFLECTION OF NON-APPLICATION OF MIND BY THE ASSESSING OFFICER, AND IN SUPPORT, REFERENCE HAS BEEN MADE TO THE FOLL OWING SPECIFIC DISCUSSION IN THE ORDER OF HON'BLE SUPREME COURT IN THE CASE OF DILIP N. SHROFF (SUPRA):- 83. IT IS OF SOME SIGNIFICANCE THAT IN THE STANDA RD PROFORMA USED BY THE ASSESSING OFFICER IN ISSUING A NOTICE DESPITE THE F ACT THAT THE SAME POSTULATES THAT INAPPROPRIATE WORDS AND PARAGRAPHS WERE TO BE DELETED, BUT THE SAME HAD NOT BEEN DONE. THUS, THE ASSESSING OFFICER HIMSELF WAS NOT SURE AS TO WHETHER HE HAD PROCEEDED ON THE BASIS THAT THE ASSE SSEE HAD CONCEALED HIS INCOME OR HE HAD FURNISHED INACCURATE PARTICULARS. EVEN BEFORE US, THE LEARNED ADDITIONAL SOLICITOR GENERAL WHILE PLACING THE ORDE R OF ASSESSMENT LAID EMPHASIS THAT HE HAD DEALT WITH BOTH THE SITUATIONS . 84. THE IMPUGNED ORDER, THEREFORE, SUFFERS FROM NON-APPLICATION OF MIND. IT WAS ALSO BOUND TO COMPLY WITH THE PRINCIPLES OF NATURAL JUSTICE. (SEE MALABA R INDUSTRIAL CO. LTD. V. CIT [2000] 2 SCC 718] 9. FACTUALLY SPEAKING, THE AFORESAID PLEA OF ASSESS EE IS BORNE OUT OF RECORD AND HAVING REGARD TO THE PARITY OF REASONING LAID DOWN BY THE HON'BLE SUPREME COURT IN THE CASE OF DILIP N. SHROFF (SUPRA), THE NOTICE IN THE INSTANT CASE DOES SUFFER FROM THE VICE OF NON-APPLICATION OF MIND BY THE ASSESSING OF FICER. IN FACT, A SIMILAR PROPOSITION WAS ALSO ENUNCIATED BY THE HON'BLE KARNATAKA HIGH C OURT IN THE CASE OF M/S. SSAS 1700 & 2325/MUM/15 M/S. SARANG PROPERTY DEVELOPERS PVT.LTD. 6 EMERALD MEADOWS (SUPRA) AND AGAINST SUCH A JUDGMENT , THE SPECIAL LEAVE PETITION FILED BY THE REVENUE HAS SINCE BEEN DISMISSED BY TH E HON'BLE SUPREME COURT VIDE ORDER DATED 5.8.2016, A COPY OF WHICH IS ALSO PLACE D ON RECORD. 10. IN FACT, AT THE TIME OF HEARING, THE LD. CIT-DR HAS NOT DISPUTED THE FACTUAL MATRIX, BUT SOUGHT TO POINT OUT THAT THERE IS DUE APPLICATI ON OF MIND BY THE ASSESSING OFFICER WHICH CAN BE DEMONSTRATED FROM THE DISCUSSION IN TH E ASSESSMENT ORDER, WHEREIN AFTER DISCUSSING THE REASONS FOR THE DISALLOWANCE, HE HAS RECORDED A SATISFACTION THAT PENALTY PROCEEDINGS ARE INITIATED U/S 271(1)(C) OF THE ACT FOR FURNISHING OF INACCURATE PARTICULARS OF INCOME. IN OUR CONSIDERED OPINION, T HE ATTEMPT OF THE LD. CIT-DR TO DEMONSTRATE APPLICATION OF MIND BY THE ASSESSING OF FICER IS NO DEFENCE INASMUCH AS THE HON'BLE SUPREME COURT HAS APPROVED THE FACTUM O F NON-STRIKING OFF OF THE IRRELEVANT CLAUSE IN THE NOTICE AS REFLECTIVE OF NO N-APPLICATION OF MIND BY THE ASSESSING OFFICER. SINCE THE FACTUAL MATRIX IN THE PRESENT CASE CONFORMS TO THE PROPOSITION LAID DOWN BY THE HON'BLE SUPREME COURT, WE PROCEED TO REJECT THE ARGUMENTS ADVANCED BY THE LD. CIT-DR BASED ON THE O BSERVATIONS OF THE ASSESSING OFFICER IN THE ASSESSMENT ORDER. FURTHER, IT IS ALS O NOTICEABLE THAT SUCH PROPOSITION HAS BEEN CONSIDERED BY THE HON'BLE BOMBAY HIGH COUR T ALSO IN THE CASE OF SHRI SAMSON PERINCHERY, ITA NOS. 1154, 953, 1097 & 1126 OF 2014 DATED 5.1.2017 (SUPRA) AND THE DECISION OF THE TRIBUNAL HOLDING LE VY OF PENALTY IN SUCH CIRCUMSTANCES BEING BAD, HAS BEEN APPROVED. 11. APART FROM THE AFORESAID, THE LD. CIT-DR MADE A N ARGUMENT BASED ON THE DECISION OF THE HON'BLE BOMBAY HIGH COURT IN THE CA SE OF SMT. KAUSHALYA & OTHERS, 216 ITR 660 (BOM.) TO CANVASS SUPPORT FOR HIS PLEA THAT NON-STRIKING OFF OF THE IRRELEVANT PORTION OF NOTICE WOULD NOT INVALIDATE T HE IMPOSITION OF PENALTY U/S 271(1)(C) OF THE ACT. WE HAVE CAREFULLY CONSIDERED THE SAID ARGUMENT SET-UP BY THE LD. CIT-DR AND FIND THAT A SIMILAR ISSUE HAD COME UP BE FORE OUR COORDINATE BENCH IN THE CASE OF DR. SARITA MILIND DAVARE (SUPRA). OUR COORD INATE BENCH, AFTER CONSIDERING THE JUDGMENT OF THE HON'BLE BOMBAY HIGH COURT IN TH E CASE OF SMT. KAUSHALYA & ORS., (SUPRA) AS ALSO THE JUDGMENTS OF THE HON'BLE SUPREME COURT IN THE CASE OF DILIP N. SHROFF (SUPRA) AND DHARMENDRA TEXTILE PROCESSORS , 306 ITR 277 (SC) DEDUCED AS UNDER :- 12. A COMBINED READING OF THE DECISION RENDERED BY HONBLE BOMBAY HIGH COURT IN THE CASE OF SMT. B KAUSHALYA AND OTHERS (S UPRA) AND THE DECISION RENDERED BY HONBLE SUPREME COURT IN THE CASE OF DI LIP N SHROFF (SUPRA) WOULD MAKE IT CLEAR THAT THERE SHOULD BE APPLICATI ON OF MIND ON THE PART OF THE AO AT THE TIME OF ISSUING NOTICE. IN THE CASE O F LAKHDIR LALJI (SUPRA), THE AO ISSUED NOTICE U/S 274 FOR CONCEALMENT OF PARTICU LARS OF INCOME BUT LEVIED PENALTY FOR FURNISHING INACCURATE PARTICULARS OF IN COME. THE HONBLE GUJARAT HIGH COURT QUASHED THE PENALTY SINCE THE BASIS FOR THE PENALTY PROCEEDINGS DISAPPEARED WHEN IT WAS HELD THAT THERE WAS NO SUPP RESSION OF INCOME. THE HONBLE KERALA HIGH COURT HAS STRUCK DOWN THE PENAL TY IMPOSED IN THE CASE OF N.N.SUBRAMANIA IYER VS. UNION OF INDIA (SUPRA), WHEN THERE IS NO INDICATION IN THE NOTICE FOR WHAT CONTRAVENTION THE PETITIONER WAS CALLED UPON TO SHOW CAUSE WHY A PENALTY SHOULD NOT BE IMPOSED. IN THE INSTANT CASE, THE AO DID NOT SPECIFY THE CHARGE FOR WHICH PENALTY PRO CEEDINGS WERE INITIATED AND FURTHER HE HAS ISSUED A NOTICE MEANT FOR CALLIN G THE ASSESSEE TO FURNISH THE RETURN OF INCOME. HENCE, IN THE INSTANT CASE, THE A SSESSING OFFICER DID NOT SPECIFY THE CHARGE FOR WHICH THE PENALTY PROCEEDING S WERE INITIATED AND ALSO ISSUED AN INCORRECT NOTICE. BOTH THE ACTS OF THE AO , IN OUR VIEW, CLEARLY SHOW THAT THE AO DID NOT APPLY HIS MIND WHEN HE ISSUED N OTICE TO THE ASSESSEE AND HE WAS NOT SURE AS TO WHAT PURPOSE THE NOTICE WAS I SSUED. THE HONBLE BOMBAY HIGH COURT HAS DISCUSSED ABOUT NON-APPLICATI ON OF MIND IN THE CASE OF KAUSHALYA (SUPRA) AND OBSERVED AS UNDER:- .... 1700 & 2325/MUM/15 M/S. SARANG PROPERTY DEVELOPERS PVT.LTD. 7 THE NOTICE CLEARLY DEMONSTRATED NON-APPLICATION OF MIND ON THE PART OF THE INSPECTING ASSISTANT COMMISSIONER. THE VAGUENESS AN D AMBIGUITY IN THE NOTICE HAD ALSO PREJUDICED THE RIGHT OF REASONABLE OPPORTUNITY OF THE ASSESSEE SINCE HE DID NOT KNOW WHAT EXACT CHARGE HE HAD TO F ACE. IN THIS BACK GROUND, QUASHING OF THE PENALTY PROCEEDINGS FOR THE ASSESSM ENT YEAR 1967-68 SEEMS TO BE FULLY JUSTIFIED. IN THE INSTANT CASE ALSO, W E ARE OF THE VIEW THAT THE AO HAS ISSUED A NOTICE, THAT TOO INCORRECT ONE, IN A R OUTINE MANNER. FURTHER THE NOTICE DID NOT SPECIFY THE CHARGE FOR WHICH THE PEN ALTY NOTICE WAS ISSUED. HENCE, IN OUR VIEW, THE AO HAS FAILED TO APPLY HIS MIND AT THE TIME OF ISSUING PENALTY NOTICE TO THE ASSESSEE. 12. THE AFORESAID DISCUSSION CLEARLY BRINGS OUT AS TO THE REASONS WHY THE PARITY OF REASONING LAID DOWN BY THE HON'BLE SUPREME COURT IN THE CASE OF DILIP N. SHROFF (SUPRA) IS TO PREVAIL. FOLLOWING THE DECISION OF OU R COORDINATE BENCH IN THE CASE OF DR. SARITA MILIND DAVARE (SUPRA), WE HEREBY REJECT THE AFORESAID ARGUMENT OF THE LD. CIT-DR. 13. APART FROM THE AFORESAID DISCUSSION, WE MAY ALS O REFER TO THE ONE MORE SEMINAL FEATURE OF THIS CASE WHICH WOULD DEMONSTRATE THE IM PORTANCE OF NON-STRIKING OFF OF IRRELEVANT CLAUSE IN THE NOTICE BY THE ASSESSING OF FICER. AS NOTED EARLIER, IN THE ASSESSMENT ORDER DATED 10.12.2010 THE ASSESSING OFF ICER RECORDS THAT THE PENALTY PROCEEDINGS U/S 271(1)(C) OF THE ACT ARE TO BE INIT IATED FOR FURNISHING OF INACCURATE PARTICULARS OF INCOME. HOWEVER, IN THE NOTICE ISSUE D U/S 274 R.W.S. 271(1)(C) OF THE ACT OF EVEN DATE, BOTH THE LIMBS OF SEC. 271(1)(C) OF THE ACT ARE REPRODUCED IN THE PROFORMA NOTICE AND THE IRRELEVANT CLAUSE HAS NOT B EEN STRUCK-OFF. QUITE CLEARLY, THE OBSERVATION OF THE ASSESSING OFFICER IN THE ASSESSM ENT ORDER AND NON-STRIKING OFF OF THE IRRELEVANT CLAUSE IN THE NOTICE CLEARLY BRINGS OUT THE DIFFIDENCE ON THE PART OF ASSESSING OFFICER AND THERE IS NO CLEAR AND CRYSTAL LISED CHARGE BEING CONVEYED TO THE ASSESSEE U/S 271(1)(C), WHICH HAS TO BE MET BY HIM. AS NOTED BY THE HON'BLE SUPREME COURT IN THE CASE OF DILIP N. SHROFF (SUPRA), THE Q UASI-CRIMINAL PROCEEDINGS U/S 271(1)(C) OF THE ACT OUGHT TO COMPLY WITH THE PRINC IPLES OF NATURAL JUSTICE, AND IN THE PRESENT CASE, CONSIDERING THE OBSERVATIONS OF THE A SSESSING OFFICER IN THE ASSESSMENT ORDER ALONGSIDE HIS ACTION OF NON-STRIKING OFF OF T HE IRRELEVANT CLAUSE IN THE NOTICE SHOWS THAT THE CHARGE BEING MADE AGAINST THE ASSESS EE QUA SEC. 271(1)(C) OF THE ACT IS NOT FIRM AND, THEREFORE, THE PROCEEDINGS SUFFER FROM NON-COMPLIANCE WITH PRINCIPLES OF NATURAL JUSTICE INASMUCH AS THE ASSESSING OFFICE R IS HIMSELF UNSURE AND ASSESSEE IS NOT MADE AWARE AS TO WHICH OF THE TWO LIMBS OF SEC. 271(1)(C) OF THE ACT HE HAS TO RESPOND. 14. THEREFORE, IN VIEW OF THE AFORESAID DISCUSSION, IN OUR VIEW, THE NOTICE ISSUED BY THE ASSESSING OFFICER U/S 274 R.W.S. 271(1)(C) OF T HE ACT DATED 10.12.2010 IS UNTENABLE AS IT SUFFERS FROM THE VICE OF NONAPPLICA TION OF MIND HAVING REGARD TO THE RATIO OF THE JUDGMENT OF THE HON'BLE SUPREME COURT IN THE CASE OF DILIP N. SHROFF (SUPRA) AS WELL AS THE JUDGMENT OF THE HON'BLE BOMB AY HIGH COURT IN THE CASE OF SHRI SAMSON PERINCHERY (SUPRA). THUS, ON THIS COUNT ITSE LF THE PENALTY IMPOSED U/S 271(1)(C) OF THE ACT IS LIABLE TO BE DELETED. WE HO LD SO. SINCE THE PENALTY HAS BEEN DELETED ON THE PRELIMINARY POINT, THE OTHER ARGUMEN TS RAISED BY THE APPELLANT ARE NOT BEING DEALT WITH. 15. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED, AS ABOVE RESPECTFULLY FOLLOWING THE ABOVE ORDER AND CONSIDER ING THE FAILURE OF THE AO TO STRIKE OFF THE RELEVANT PORTION IN THE PENALTY NOTICE WE HOLD THAT THE PENALTY LEVIED BY THE AO AND CONFIRMED BY THE FAA WAS NOT AS PER LAW.SO,REVERSIN G THE ORDER OF THE FAA,WE DECIDE THE ISSUE IN FAVOUR OF THE ASSESSEE. 1700 & 2325/MUM/15 M/S. SARANG PROPERTY DEVELOPERS PVT.LTD. 8 RESPECTFULLY FOLLOWING THE ABOVE,WE DECIDE THE EFFE CTIVE GROUND OF APPEAL IN FAVOUR OF THE ASSESSEE. ITA/1700/MUMBAI/2015-AY.2011-12. 4. AS STATED EARLIER,THE ISSUE FOR THE YEAR UNDER CONS IDERATION IS ABOUT LEVY OF PENALTY UNDER SECTION 271AAA,AMOUNTING RS. 60.19 LAKHS.THE FIRST APPELLATE AUTHORITY HAS DELETED THE PENALTY FOLLOWING THE JUDGEMENT OF MAHENDRA C.SHAH( 299ITR305). 5. THE DR RELIED UPON THE ORDER OF THE FAA.BEFORE US, THE AR SUBMITTED THAT IN THAT YEAR PENALTY WAS LEVIED ON ACCOUNT OF TWO ADDITIONS NAME LY BOGUS BILLS AND REDUCTION IN WORK IN PROGRESS ,II)SALE OF SCRAP, THAT IN THE CASE OF ONE OF THE SISTER CONCERNS,M/S. CENTAUR MERCANTILE PRIVATE LTD. (ITA/1701/MUM/2015,AY. 2011 -12, DATED02/12/2016)IDENTICAL ISSUE WAS DISCUSSED AT LENGTH AND WAS DECIDED IN FAVOUR O F THE ASSESSEE. 6. WE WOULD LIKE TO REPRODUCE THE ORDER OF M/S. CENTAUR MERCANTILE PRIV ATE LTD.( SUPRA) AND IT READS AS UNDER: THIS IS AN APPEAL FILED BY THE REVENUE AGAINST THE ORDER OF CIT(A) FOR THE ASSESSMENT YEAR 2011-2012 IN THE MATTER OF IMPOSITION OF PENALTY OF RS.20,98,992/- U/S. 271AAA OF THE I.T. ACT. 2. WE HAVE HEARD RIVAL CONTENTIONS. BRIEFLY ST ATED, THE FACTS OF THE CASE ARE THAT THE ASSESSEE COMPANY BELONGS TO KANAKIA GROUP OF CASES, WHERE A SEARCH AND SEIZURE ACTION U/S. 132(1) OF THE ACT WAS CARRIED OUT ON 29/3/2011. DUR ING THE COURSE OF SEARCH, IT WAS GATHERED THAT THE ASSESSEE GROUP WAS DEBITING BOGUS PURCHASE S TO THE BOOKS OF ACCOUNTS. THIS FACT WAS ACCEPTED BY SHRI RASESH KANAKIA, MANAGING DIRECTOR OF THE ASSESSEE-COMPANY AND THE MAIN PERSON OF THE GROUP, IN HIS STATEMENT ON OATH U/S. 132(4) ON 30/3/2011. SHRI RASESH KANAKIA FURTHER SURRENDERED AN AMOUNT OF RS.1.84 CRORES, ON ACCOUNT OF SUCH BOGUS PURCHASES DEBITED TO THE BOOKS OF ACCOUNTS IN THE ASSESSMENT YEAR 201 1-12. WE FOUND THAT PENALTY U/S. 271AAA(1) WAS LEVIED BY THE AO IN RESPECT OF CLAIM OF BOGUS PURCHASES OF RS.1,84,48,431/- AND SALE OF SCRAP OF RS.25,41,487/- IN CASH, NOT RE CORDED IN THE BOOKS. WHILE LEVYING THE PENALTY, THE LEARNED AO HAS MENTIONED IN PARA 7 OF THE PENALTY ORDER THAT THE ASSESSEE HAS NOT BEEN ABLE TO SUBSTANTIATE THE MANNER IN WHICH U NDISCLOSED INCOME OF RS.2,09,89,918/- HAD BEEN DERIVED. HE, THEREFORE, LEVIED PENALTY @10% ON THIS AMOUNT, WHICH WORKS OUT TO RS.20,98,992/-. 3. BY THE IMPUGNED ORDER CIT(A) DELETED THE PENALTY AFTER OBSERVING AS UNDER:- XXXXX 'Q.13 DO YOU WANT TO SAY ANYTHING ELSE? ANS. I WOULD LIKE TO BRING TO YOUR NOTICE THE NOTIN G ON SEIZED PAPER NO. 1 TO 7 OF DIARY AS ANNEXURE A 1 SEIZED DURING THE COURSE OF SEARCH ON 29.03.2011 AT THIS OFFICE PREMISES RELATES TO CASH RECEIVED AMOUNTING TO RS.5 3.17,289/- ON SALE OF SCRAP GENERATED AT VARIOUS SITES. THIS WAS REPORTED FROM RESPECTIVE SITE AND THE SAME IS VERY RECENT SOLES. DUE TO THIS, THE SAME REMAINED TO BE ACCOUNTED IN REGULAR BOOKS OF ACCOUNT OF GROUP ENTITY WHO HAS UNDERTAKEN THE PROJ ECT. I SUBMIT THE CHART AS ANNEXURE 4 TO THIS STATEMENT, REFLECTING PROJECT WI SE DETAILS ABOUT SALE OF SCRAP, ALL THE EXPENDITURE INCURRED TILL DATE IN THE RESPECTIV E PROJECT HAS BEEN ADDED TO WORK IN PROGRESS, THE TREATMENT OF THE SALE OF SCRAP WILL B E GIVEN IN THE ACCOUNTS AS ON 31ST MARCH, 2011 AS PER THE ACCOUNTING STANDARD PRESCRIB ED BY THE ICAI. I AM OFFERING THE SAME U/S132(4) IN THE HANDS OF GROUP ENTITY MENTION ED IN THE SAID CHART WITH THE UNDERSTANDING THAT NO PENALTY SHALL BE INITIATED AG AINST THE SAID GROUP ENTITY.' XXXXX 1700 & 2325/MUM/15 M/S. SARANG PROPERTY DEVELOPERS PVT.LTD. 9 13. IN VIEW OF THE ABOVE FACTS, IT MAY BE CONCLUDED THAT THE ASSESSEE EXPLAINED THE MANNER OF EARNING UNDISCLOSED INCOME IN NATURE OF S ALE OF SCRAP AND ALSO SUBSTANTIATED SUCH SALE OF SCRAP, BY RELEVANT ENTRI ES APPEARING IN THE SEIZED DIARY, AS ALSO BY MENTIONING THE NAME OF THE PERSON WHO PURCH ASED THE SCRAP. THEREFORE, IN MY OPINION, THE ASSESSEE HAS FULFILLED THE CONDITIONS LAID DOWN UNDER SUB-SECTION (2) TO SEC.271 AAA, WHICH PROVIDE THE ASSESSEE IMMUNITY FR OM LEVY OF PENALTY U/S.271 AAA. THEREFORE, IN MY OPINION, THE ASSESSEE HAS SUB STANTIALLY' COMPLIED WITH THE PROVISIONS OF SUB SECTION 2 TO SECTION 271 AAA OF T HE ACT. 4.WE HAVE GONE THROUGH THE ORDERS OF THE AUTHORITIE S BELOW AND FOUND THAT DELETION OF SIMILAR PENALTY IMPOSED U/S.271AAA WAS CONFIRMED BY TRIBUNA L VIDE ITS ORDER DATED 10/07/2013 IN I.T.A.NO.6763/MUM/2011 FOR THE ASSESSMENT YEAR 2007 -2008 IN CASE OF GROUP CONCERN OF ASSESSEE M/S. KANAKIA SPACES PVT. LTD., AFTER HAVIN G THE FOLLOWING OBSERVATION. 4. AFTER CONSIDERING THE RIVAL SUBMISSIONS, WE DO N OT SEE ANY REASON TO INTERFERE WITH THE ORDER OF CIT(A). THE ORDER IS IN TUNE WITH THE PRINCIPLES LAID DOWN BY VARIOUS CO- ORDINATE BENCHES AND HIGH COURTS PARTICULARLY WITH REFERENCE TO DISCLOSURE MADE UNDER SECTION 132(4). IN THE CASE OF CIT VS. MAHEND RA C. SHAH (299 ITR 305) THE HON'BLE GUJARAT 4 ITA NO6763/M/11 A.Y.07-08 M/S. KA NAKIA SPACES PVT. LTD. HIGH COURT CONSIDERED SIMILAR STATEMENT UNDER SECTION 13 2(4) TO GRANT IMMUNITY UNDER SECTION 271(1)(C). THE HON'BLE HIGH COURT HELD AS U NDER:- 'WHEN THE STATEMENT IS BEING RECORDED BY THE AUTHOR IZED OFFICER IT IS INCUMBENT UPON THE AUTHORIZED OFFICER TO EXPLAIN THE PROVISIONS OF EXPLANATION 5 IN ENTIRETY TO THE ASSESSEE CONCERNED AND THE AUTHORIZED OFFICER CANNO T STOP SHORT AT A PARTICULAR STAGE SO AS TO PERMIT THE REVENUE TO TAKE ADVANTAGE OF SU CH A LAPSE IN THE STATEMENT. THE REASON IS NOT FAR TO SEEK. IN THE FIRST INSTANCE, T HE STATEMENT IS BEING RECORDED IN THE QUESTION AND ANSWER FORM AND THERE WOULD BE NO OCCA SION FOR AN ASSESSEE TO STATE AND MAKE AVERMENTS IN THE EXACT FORMAT STIPULATED BY TH E PROVISIONS CONSIDERING THE SETTING IN WHICH SUCH STATEMENT IS BEING RECORDED. SECONDLY, CONSIDERING THE SOCIAL ENVIRONMENT IT IS NOT POSSIBLE TO EXPECT FROM AN AS SESSEE, WHETHER LITERATE OR ILLITERATE, TO BE SPECIFIC AND TO THE POINT REGARDING THE CONDI TIONS STIPULATED IN THE SECOND EXCEPTION WHILE MAKING STATEMENT UNDER SECTION 132( 4). EVEN IF THE STATEMENT DOES NOT SPECIFY THE MANNER IN WHICH THE INCOME IS DERIV ED, IF THE INCOME IS DECLARED AND TAX THEREON PAID, THERE WOULD BE SUBSTANTIAL COMPLI ANCE NOT WARRANTING ANY FURTHER DENIAL OF THE BENEFIT.' 4.1 IN THIS CASE, THE ASSESSEE WAS ASKED TO EXPLAIN THE ENTRIES IN THE 'WORK-IN-PROGRESS SHEET' AND ASSESSEE IN THE COURSE OF STATEMENT OFFE RED THE INCOME WITH A PLEA NOT TO INITIATE PENALTY PROCEEDINGS. THE ASSESSEE WAS NOT ASKED ABOUT THE MANNER IN WHICH SUCH INCOME WAS EARNED AND ALSO TO SUBSTANTIATE THE MANNER IN WHICH UNDISCLOSED INCOME WAS DERIVED. THE PROVISION OF CLAUSE-2 OF EX PLANATION-V APPENDED TO SECTION 271(1)(C) ARE SIMILAR TO SECTION 271AAA(2). THE SCO PE AND MEANING HAS BEEN LUCIDLY EXPLAINED BY THE HON'BLE ALLAHABAD HIGH COURT IN TH E CASE OF CIT VS. RADHA KISHAN GOEL (2005)278 ITR 454 (ALL.), WHICH WAS FOLLOWED B Y THE HON'BLE GUJARAT HIGH COURT IN THE ABOVE REFERRED CASE. IN VIEW OF THE AB OVE PRINCIPLES LAID DOWN, WE ARE OF THE OPINION THAT IMMUNITY PROVIDED UNDER S/S.(2) OF SECTION 271AAA IS APPLICABLE AND 5 ITA NO6763/M/11 A.Y.07-08 M/S. KANAKIA SPACES PVT. LTD. ACCORDINGLY, THE ORDER OF CIT(A) DOES NOT REQUIRE ANY MODIFICATION. REVENUE'S GROUNDS ARE REJECTED. 5. IN THE RESULT, REVENUE APPEAL IS DISMISSED. 5. WE HAVE CONSIDERED RIVAL CONTENTIONS AND CAREFUL LY GONE THROUGH THE ODERS OF THE AUTHORITIES BELOW AND FOUND FROM RECORD THAT WITH R ESPECT TO THE DISCLOSURE MADE DURING COURSE OF SEARCH, U/S.132(4) THE ASSESSEE HAS EXPLA INED THE SOURCE OF INCOME AND ALSO PAID TAXES AND INTEREST THEREON AS PER THE FINDING RECOR DED BY THE CIT(A) IN HIS ORDER. WHILE DELETING PENALTY, CIT(A) HAS APPLIED PROPOSITION OF LAW LAID DOWN BY VARIOUS HIGH COURTS AS WELL AS TRIBUNAL AND REACHED TO THE CONCLUSION THAT NON-STATEMENT OF MANNER IN WHICH SUCH INCOME WAS DERIVED WOULD NOT MAKE THE EXPLANATION 5 (2) INAPPLICABLE.' WE ALSO FOUND THAT IN THE GROUP CONCERN, SIMILAR PENALTY LEVIED IN THE YEAR OF SEARCH WAS DELETED BY CIT(A) AND THE ORDER OF THE CIT(A) WAS CONFIRMED BY THE TRIBUN AL VIDE ITS ORDER DATED 10/07/2013 AS 1700 & 2325/MUM/15 M/S. SARANG PROPERTY DEVELOPERS PVT.LTD. 10 REPRODUCED HEREINABOVE. AS THE FACTS AND CIRCUMSTAN CES DURING THE YEAR UNDER CONSIDERATION ARE SAME, WE CONFIRM THE ORDER OF CIT(A). HOWEVER, AO IS AT A LIBERTY TO VERIFY ACTUAL PAYMENT OF TAX AND INTEREST THEREON WITH RESPECT TO THE DISCLOSED INCOME AS PER PROVISIONS OF THE ACT. WE DIRECT ACCORDINGLY. 6. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSE D. RESPECTFULLY FOLLOWING THE ABOVE ORDER OF THE TRIBU NAL,WE DECIDE EFFECTIVE GROUND OF APPEAL IN FAVOUR OF THE ASSESSEE. AS A RESULT,APPEAL FILED BY THE ASSESSEE FOR THE AY 2010-11STANDS ALLOWED AND APPEAL OF THE AO FOR THE AY 2011-12 IS DISMISSED. . . 2010-11 . . . 2011 -12 . ORDER PRONOUNCED IN THE OPEN COURT ON 09 TH AUGUST, 2017. 09 , 2017 SD/- SD/- ( / RAM LAL NEGI ) ( / RAJENDRA ) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI; /DATED : 09 .08 .2017. JV.SR.PS. / COPY OF THE ORDER FORWARDED TO : 1. APPELLANT / 2. RESPONDENT / 3. THE CONCERNED CIT(A)/ , 4. THE CONCERNED CIT / 5. DR G BENCH, ITAT, MUMBAI / , , . . . 6. GUARD FILE/ //TRUE COPY// / BY ORDER, / DY./ASST. REGISTRAR , /ITAT, MUMBAI.