Neelesh Satish Kanade, Pune V. Assistant Commissioner of Income tax,

ITA 2773/PUN/2016

• Counselvise Citation: [2022] 105 COUNSELVISE.COM (IT) 2390 (ITAT-PUNE)
• Duration Of Justice: 5 year(s) 5 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-05-2022
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2006-2007
• Appeal Filed On: 07-12-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RAJESH GAWLI
• Keywords: Search and seizure
• Section: 271(1)(c); 143(3); 153A; 274; 139(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH “B”, PUNE BEFORE SHRI R.S. SYAL, VICE PRESIDENT AND SHRI PARTHA SARATHI CHAUDHURY, JUDICIAL MEMBER ITA No. 2773/PUN/2016 निर्धारण वषा / Assessment Year : 2006-07 Neelesh Satish Kanade, 1073, Bhosale Mystiqa, Model Colony, Pune 411 016 PAN : AGDPK4376L Vs. ACIT, Central Circle-2(1), Pune Appellant Respondent आदेश / ORDER PER R.S. SYAL, VP : This appeal by the assessee is directed against the order passed by the CIT(A)-12, Pune on 06-09-2016 in relation to the penalty imposed by the Assessing Officer u/s 271(1)(c) of the Income-tax Act, 1961 (hereinafter also called `the Act‟) for the assessment year 2006-07. 2. Briefly stated, the facts of the case are that the assessee is engaged in the business of dealings in land and also agency business in land on commission basis. Return of income was furnished u/s 139(1) of the Act declaring total income at Rs.23.15 Assessee by Smt. Deepa Khare Revenue by Shri Rajesh Gawli Date of hearing 11-05-2022 Date of pronouncement 12-05-2022 ITA No.2773/PUN/2016 Neelesh S. Kanade 2 lakh. Search and seizure action was taken against the assessee on 24-02-2008, pursuant to which the assessee filed return u/s.153A for the year under consideration declaring total income of Rs.89.21 lakh. The Assessing Officer (AO) completed the assessment u/s.153A determining total income at Rs.8.50 crore and odd. Penalty proceedings were initiated by means of a mention in the assessment order. Thereafter, penalty order was passed u/s.271(1)(c) on 30-09-2015 levying penalty of Rs.39,54,378/- on two items of additions. The ld. CIT(A) issued enhancement notice by observing that the AO levied penalty with reference to the income returned u/s.153A and in the process omitted to consider the income of Rs.66.06 lakh, being, the difference between the income returned u/s.153A and as originally offered. After considering the assessee‟s reply, he directed the AO `to re-compute the penalty after including the amount o0f Rs.66,06,622/- as concealment of income‟. Aggrieved thereby, the assessee has come up in appeal before the Tribunal. 3. The ld. AR has raised additional grounds reading as under : “1. Whether on the facts and circumstances of the case, the notice for levy of penalty was defective in as much as no specific charge towards either concealing the particulars of income or furnishing of inaccurate particulars of income was ITA No.2773/PUN/2016 Neelesh S. Kanade 3 made out in the notice and whether the penalty was levied on any specific charge as required under the law. 2. Whether on the facts and circumstances of the case, the learned AO rightly levied the penalty under both the limbs in absence of a specific charge either in the notice or in the satisfaction recorded.” 4. The Hon‟ble Supreme Court in National Thermal Power Company Ltd. Vs. CIT (1998) 229 ITR 383 (SC) has observed that “the purpose of the assessment proceedings before the taxing authorities is to assess correctly the tax liability of an assessee in accordance with law. If, for example, as a result of a judicial decision given while the appeal is pending before the Tribunal, it is found that a non-taxable item is taxed or a permissible deduction is denied, we do not see any reason why the assessee should be prevented from raising that question before the tribunal for the first time, so long as the relevant facts are on record in respect of that item”. Answering the question posed before it in affirmative, their Lordships held that on the facts found by the authorities below a question of law arises (though not raised before the authorities) which bears on the tax liability of the assessee and the Tribunal has jurisdiction to examine the same. We are, therefore, admitting such additional grounds. ITA No.2773/PUN/2016 Neelesh S. Kanade 4 5. Espousing the additional grounds for disposal, it is seen that the AO in the assessment order observed that the assessee has filed original return u/s.139 on 31-10-2006 showing total income at Rs.23.15 lakh and hence, penalty u/s.271(1)(c) was, therefore, to be decided with reference to the income declared in the original return. Such income assessed was Rs.8.50 crore. The AO recorded his satisfaction as to “concealment of income/furnishing of inaccurate particulars of income” qua the differential income of Rs.8.27 crore [Rs.8.50 crore as assessed pursuant to return filed u/s.153A minus Rs.23.15 lakh as income originally returned u/s.139(1)]. The penalty was levied with reference to two items of additions, viz., introduction of cash of Rs.32,25,000/- and on- money paid on purchase of lands amounting to Rs.65,53,824/-. The first item is introduction of cash of Rs.32.25 lakh by the assessee in one of his proprietorship concerns. The stand was taken that this amount was withdrawn from another proprietorship concern and taken to the proprietorship concern under consideration. However, on perusal of the relevant records, the AO observed that the opening and closing cash balance in the other proprietorship concern was static at the same level and further ITA No.2773/PUN/2016 Neelesh S. Kanade 5 there were no transactions in that proprietorship concern. Since the amount was not withdrawn from the first proprietorship concern, the assessee could not have genuinely introduced such amount in the second proprietorship concern. This was the basis for the addition, which came to be affirmed up to the Tribunal level. This addition is in the nature of `furnishing of inaccurate particulars of income‟ in terms of section 271(1)(c) of the Act. The second addition, which constitutes the foundation of the penalty, is the payment of on-money on purchases transactions of lands. The AO made addition at Rs.2.94 crore by treating 61% as on-money paid on purchase transactions of lands. The ld. CIT(A) reduced this percentage to 30%. The Tribunal further reduced it to 20%, which led to restricting the addition to Rs.65.53 lakh. This addition is again in the realm of `furnishing of inaccurate particulars of income‟. Thus, both the additions, constituting the bedrock of the penalty, are in the nature of „furnishing of inaccurate particulars of income‟ and not `concealment of particulars of income‟. 6. Now we turn to notice issued by the AO u/s.274 of the Act, a copy of which has been placed at page 3 of the paper book. From such notice, it can be seen that the AO has initiated penalty on the ITA No.2773/PUN/2016 Neelesh S. Kanade 6 ground that the assessee has „concealed the particulars of your income and furnished inaccurate particulars of such income‟. Both the limbs of section 271(1) are present in the notice u/s.274 without striking out the irrelevant limb. This fact has also been recorded in para 4 of the penalty order to the effect that the notice u/s 271(1)(c) read with section 274 was issued: `for concealing the income/furnishing inaccurate on income‟. As against this, the items which led to the imposition of penalty are only in the realm of „furnishing of inaccurate particulars of income‟. The question arises as to whether penalty u/s 271(1)(c) of the Act in such circumstances is sustainable? 7. Recently, the full Bench of Hon‟ble Bombay High Court in Mohd. Farhan A. Shaikh Vs. Dy.CIT (2021) 125 taxmann.com 253 (Bom) has considered this very issue. Answering the question in affirmative, the Full Bench held that a defect in notice of not striking out the irrelevant words vitiates the penalty even though the AO had properly recorded the satisfaction for imposition of penalty in the order u/s 143(3) of the Act. In another judgment, the Hon‟ble Bombay High Court in Pr.CIT Vs. Golden Peace Hotels and Resorts (P.) Ltd. (2021) 124 taxmann.com 248 (Bom) also ITA No.2773/PUN/2016 Neelesh S. Kanade 7 took similar view that where inapplicable portions were not struck off in the penalty notice, the penalty was vitiated. The SLP of the Department against this judgment has since been dismissed by the Hon'ble Supreme Court in Pr.CIT Vs. Golden Peace Hotels and Resorts (P.) Ltd. (2021) 124 taxmann.com 249 (SC). 8. In view of the overwhelming legal position, it is clear that where the charge is not properly set out in the notice u/s 274, viz., both the limbs stand therein without striking off the inapplicable limb, the penalty order gets vitiated. Turning to the facts of the extant case, we find from the notice u/s 274 of the Act that the AO retained both the limbs, whereas penalty was imposed only with reference to one of them. Respectfully following the above Full Bench judgment of the Hon‟ble jurisdictional High Court, we overturn the impugned order on this legal issue and direct to delete the penalty to the extent imposed by the AO. 9. Now we turn to second aspect of the penalty, namely, the enhancement of penalty directed by the ld. CIT(A). During the course of the first appellate proceedings, the ld. CIT(A) observed that the penalty should also have been levied on the additional income offered in the return u/s 153A vis-à-vis the income ITA No.2773/PUN/2016 Neelesh S. Kanade 8 declared in the original return u/s.139(1). He found that the assessee returned income u/s.153A at Rs.89.21 lakh as against the income originally returned at Rs.23.15 lakh, thereby leading to the additional income of Rs.66.06 lakh, which the AO omitted to consider while levying penalty. After issuing enhancement notice and entertaining the objections of the assessee, the ld. CIT(A) directed the AO to enhance the penalty on such differential income. 10. The ld. AR contended that the action of the ld. CIT(A) in enhancing the penalty was improperly founded on wrong factual matrix inasmuch as the AO in his order u/s.143(3) r.w.s.153A categorically recorded satisfaction as to the concealment of income/furnishing of inaccurate particulars of income with reference to the difference between the income finally assessed at Rs.8.50 crore and the income originally filed u/s.139(1) at Rs.23.15 lakh. It was, therefore, emphasised that the ld. CIT(A) went awry in taking note of wrong factual matrix. In the opposition, the ld. DR submitted that the penalty order does neither refer to such additional income nor considered such an amount of income at the time of levy of the penalty. ITA No.2773/PUN/2016 Neelesh S. Kanade 9 11. Having heard the rival submissions and gone through the relevant material on record, it is clear from the language of section 271(1) that the Commissioner (Appeals), inter alia, is also empowered to levy penalty u/s.271(1)(c) of the Act. There can be two situations, viz., one where the CIT(A) enhances the income in the quantum appeal and consequently imposes additional penalty u/s 271(1)(c) and second, where the CIT(A) enhances the penalty already imposed by the AO de hors any enhancement made by him in the quantum proceedings, of course, subject to rider that he cannot travel beyond the penalty order for making the enhancement. Section 271(1)(c) covers the former situation. We are not confronted with such a situation. Section 251(1)(b) governs the second situation, which is obtaining in the extant case. Section 251(1) provides that: `In disposing of an appeal, the Commissioner (Appeals) have the following powers--‟ Then clause (b) dealing with penalty provides: “in an appeal against order imposing penalty, he may confirm or cancel said order or vary it so as either to enhance or to reduce the penalty”. It is clear from the mandate of section 251(1)(b), that CIT(A) has been conferred with a power to enhance the penalty already imposed by AO. Once section ITA No.2773/PUN/2016 Neelesh S. Kanade 10 251(1)(b) empowers CIT(A) to enhance the penalty in unambiguous terms, no fetters can be brought in to check such a power by a claim that CIT(A) cannot enhance the penalty without making enhancement in the income in the quantum appeal. 12. Having found, in principle, that CIT(A) is empowered to enhance the penalty, now we turn to the factual panorama of the case for ascertaining if the penalty was rightly directed to be enhanced. At this stage, it is relevant to mention that the AO initiated penalty without striking out the irrelevant limb of section 271(1)(c), which we have held supra, has the consequence of vitiating the penalty order. Once the penalty order itself does not stand because of wrong issuance of notice u/s.274, the power of enhancement of penalty conferred by section 251(1)(b) automatically becomes meaningless because this provision talks of “vary it so as. . . . . . to enhance. . . . . the penalty.” Varying the penalty for enhancement pre-supposes the existence of some valid penalty which is subject to variation. If the penalty ceases to exist in entirety, it cannot be varied so as to make enhancement. In view of the fact that the penalty imposed by the AO has been held above to be vitiated, there can be no question of any enhancement thereto. ITA No.2773/PUN/2016 Neelesh S. Kanade 11 We, therefore, hold that the ld. CIT(A) was not justified in confirming and further directing to enhance the penalty imposed by the AO u/s.271(1)(c) of the Act. 13. In the result, the appeal is allowed. Order pronounced in the Open Court on 12 th May, 2022. Sd/- Sd/- (PARTHA SARATHI CHAUDHURY) (R.S.SYAL) JUDICIAL MEMBER VICE PRESIDENT प ु णे Pune; ददिधांक Dated : 12 th May, 2022 Satish आदेश की प्रतिलिपि अग्रेपिि/Copy of the Order is forwarded to: 1. अपीऱधर्थी / The Appellant; 2. प्रत्यर्थी / The Respondent; 3. The CIT(A)-12, Pune 4. 5. The Pr.CIT Pune विभागीय प्रविविवि, आयकर अपीलीय अविकरण, पुणे “B” / DR „B‟, ITAT, Pune 6. गार्ड फाईल / Guard file आदेशान ु सार/ BY ORDER, // True Copy // Senior Private Secretary आयकर अपीलीय अविकरण ,पुणे / ITAT, Pune ITA No.2773/PUN/2016 Neelesh S. Kanade 12 Date 1. Draft dictated on 11-05-2022 Sr.PS 2. Draft placed before author 12-05-2022 Sr.PS 3. Draft proposed & placed before the second member JM 4. Draft discussed/approved by Second Member. JM 5. Approved Draft comes to the Sr.PS/PS Sr.PS 6. Kept for pronouncement on Sr.PS 7. Date of uploading order Sr.PS 8. File sent to the Bench Clerk Sr.PS 9. Date on which file goes to the Head Clerk 10. Date on which file goes to the A.R. 11. Date of dispatch of Order. *