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Uttam Value Steels Limited vs. ACIT (ITAT Mumbai)
September, 25th 2017

S. 271(1)(c) penalty: Voluntary disclosure of Rs. 557.50 crores. Entire law on levy of penalty discussed in the context of declaration made during survey, bogus purchases, bogus share capital, accommodation entries, non-application of mind by the AO etc. All important judgements incl Kaushalya 216 ITR 660 (Bom), MAK Data 358 ITR 593 (SC) explained/ ditinguished

13. It was submitted by learned AR that decision of the Bombay High Court in CIT v Smt Kaushalya(Supra) is not appl icable to the facts of the present case for following reasons:

– The issue is now decided by the Apex Court in Commissioner of Income-tax v. SSA’S Emerald Meadows [2016] 73 taxmann.corn 248 (SC) wherein it is clearly held that there is no merit in the petition. The SLP was against the order of Karnataka High Court in

-CIT v. SSA’S Emerald Meadows [2016] 73 taxmann.corn 241 (Kar.) wherein the High Court affirmed decision of Tribunal, relying on decision of CIT v Manjunath Cotton and Ginning Factory (2013) 359 ITR 565(Karn) holding that notice issued by Assessing Officer under section 274 read with section 271 (1 )( c) was bad in law, as it did not specify under which limb of section 271(1)(c) penalty proceedings had been initiated, i.e., whether for concealment of particulars of income or furnishing of inaccurate particulars of income. Hence, the ratio laid down in CIT v Manjunath(Supra) has been confirmed by the Supreme Court.

– In the case of CIT v Manjunath(Supra) one of the appeals disposed off was Veerabhadrappa Sangappa & Co ITA NO 5020 of 2009 [Pg no 577] where the issue involved was identical. SLP against said appeal was dismissed. Order of SLP was submitted at the time of hearing.

– The Bombay High Court in CIT vs. Samson Perinchery ITA NO 1154 of 2014 dtd5/1/2017 (Bom)(HC) after considering decision of CIT v Manjunath(Supra) has held that failure by the AO to specify in the s. 274 notice whether the penalty is being initiated for ‘furnishing of inaccurate particulars of income’ or for ‘concealment of income’ is fatal. It reflects nonapplication of mind and renders the levy of penalty invalid. Hence, decision in CIT v Samson (Supra) which is a later decision will have higher precedence value over CIT v Smt Kaushalya [Supra].

-When there are two conflicting decisions of the same higher court of equal strength and later decision has not considered earlier decision then lower court must follow the decision which lays down the law more elaborately and accurately as held in Amar Singh Yadav v Shanti Devi & Ors AIR 1987 Pat 191. As Bombay High Court in CIT vs. Samson Perinchery (Supra) has followed Karnataka High court in CIT v Manjunath(Supra) which has ultimately been upheld by the Apex Court as pointed out above, the decision of Bombay High Court in CIT vs. Sarnson Perinchery (Supra) has to be followed.

– Without prejudice to above the Bombay High Court in CIT v Smt Kaushalya [1995] 216 ITR 660 (Bom)(HC) has held that the SC cannot be vague. In the facts of the present case penalty is initiated in Asst order and confirmed in penalty order for twin charges ie concealment of income as well as furnishing inaccurate particulars of income. This is impermissible as held in Mangalam Drugs & Organics Ltd v DCIT ITA No. 5454/M/2011 AY 04-05 DTD 24/912015 (MUm)(Trib).

69. It is a well-settled proposition in law that levy of penalty u/s. 271(1)(c) of the Act is permitted only on those counts on which the same was initiated and satisfaction was recorded. In other words, penalty cannot be levied on a ground which is not specified in the assessment order while initiating the penalty and for which satisfaction has not been recorded. In support of this view, reliance is placed upon the binding judgement of the jurisdictional High Court in the case of CIT v. Acme Associates [2016] 76 242. In this case, noticing that the aggregate area of two flats bought by a couple through a joint agreement exceeded 1,000 sq. It, the claim for deduction u/s. 80-IB(10) of the Act was disallowed by the Assessing Officer. Simultaneously, proceedings u/s. 271(1)(c) of the Act were initiated for furnishing ‘inaccurate information/concealing of income’. The appeal filed in quantum proceedings was withdrawn as during its pendency the assessee was served with notice u/s. 153A of the Act consequent to search u/s. 132 of the Act. Thereafter, the Assessing Officer levied penalty u/s. 271(1)(c) of the Act on the very ground for which proceedings under this provision were initiated. However, in the appeal filed there against, it was confirmed on a different ground, namely, that during the search the assessee had disclosed that the project in respect of which the deduction was claimed was not completed before the due date, i.e. 31.03.2008. This order, however, was overturned in second appeal. In the appeal filed u/s. 260A of the Act at the instance of the revenue, the Hon’ble jurisdictional High Court was pleased to uphold the order impugned in the following words:

“9. It is undisputed position before us that initiation of penalty under Section 271 (1)(c) of the Act by the Assessing Officer is on the ground of area of flat being sold in excess of 1000 sq. ft. being concealed It was this ground that the Respondent -assessee is required to offer explanation during penalty proceedings to establish that the claim as made in the return of income was not on account of furnishing of inaccurate particulars of income or concealment of income vis-a-vis of selling flat having area of 1000 sq. ft. The Assessing Officer under the Act also considered the Respondent -assessee ‘5 explanation in the context in which the penalty proceedings were initiated and did not rightly place any reliance upon the subsequent events. In an appeal from the order of the Assessing Officer, the CIT (A) could not have imposed penalty on a new ground which was not the basis for initiation of penalty. The appeal before the CIT (A) was with regard to issue of penalty under Section 271(1)(c) of the Act only on the ground on which the penalty proceedings were initiated in the assessment order”


Case Law

ITA / Citation


CIT v. Manjunatha Cotton & Ginning Factory

I359 ITR 565) (Kar)


CIT v. SSA’s Emerald Meadows

73 241 (Kar)(HC)


CIT v. SSA’s Emerald Meadows

(73 248)(SC)


CIT v. Samson Perinchery

(ITA 1154, 953, 1097, 1226 / 2014, order dated January 5, 2017)(Bom HC)


M/s. Wadhwa Estate & Developers India Pvt. Ltd., vs. ACIT

ITA 2158/Mum/2016 order dated February 02, 2017 (TMum)


Dr. Sarita Milind Darave v. ACIT

ITA No.2187/Mum/2014, order dated 21, 2016)(TMum)


Sejal P. Savla v. ACIT

ITA 3282/Mum/2015 order dated August 10, 2016 (TMum)


ACIT v. Dipesh M. Panjwani

ITA No.6330,5878,6328,6188/M/2012, order dated March 18, 2016)(TMum)


Sanghavi Savla Commodity Brokers P Ltd. vs ACIT

ITA No. 1746/Mum/2011


Parinee Developers Pvt Ltd vs ACIT

ITA No.6772/M/2013, order dated September 11, 2015)(T.Mum)


Shri Hafeez S Contractor vs ACIT

ITA No. 6222/Mum/2013


H Lakshminarayana vs ITO

61 373 (Bang-Trib)


Tulip Mines pvt. Ltd., v. DCIT

ITA No.2407/Kol/2013, order dated October 7, 2016)


Suvaprasanna Bhatacharya vs ACIT

ITA No.1303/Kol/2010


DCIT v Ittina Properties Pvt Ltd.

ITA No.36/Bang/2014


A.R. Chadda v. ACIT

(80 ITD 56) (T Del)(TM)


CIT vs Steel Centre

51 127 (Kar-HC)


CIT vs Manjunathan Cotton & Ginning Factor

359 ITR 565 (Kar-HC)


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