Sub-clause (iii) of section 271(1)(c) provides mechanism for quantification of penalty. It contemplates that the assessee would be directed to pay a sum in addition to taxes, if any, payable him, which shall not be less than but which shall not exceed three times the amount of tax sought to be evaded by reason of concealment of income and furnishing of inaccurate particulars of income. In other words, the quantification of the penalty is depended upon addition made to the income of the assessee. Since basis for visiting the assessee with penalty has been extinguished by quashing the assessment order itself by the Tribunal in the appeal of assessee vide order dated 31/5/2016 (supra), the impugned penalty in the present case has no leg to stand.
FULL TEXT OF THE ITAT JUDGMENT
These two appeals by the Revenue are against two separate orders of ld.CIT(A)-3, Ahmedabad both dated 15.9.2016 passed for the assessment years 2007-08 and 2008-2009. Both the appeals are disposed of by this common order.
2. In both the assessment years, the only grievance of the Revenue is that the ld.CIT(A) has erred in deleting penalty imposed under section 271(1)(c) of the Income Tax Act of Rs.31,52,453/- for the Asstt.Year 2007-08; and Rs.91,67,077/- for the Asstt.Year 2008-09.
3. We take facts from ITA No.3042/Ahd/2016 for the Asstt.Year 2007-08 for convenience of adjudication. Briefly stated facts, leading to imposition of penalty under section 271(1)(c) are that a search under section 132 of the Income Tax Act was conducted at the residential premises of Shri Vikas R. Patel on 4.3.2010 wherein certain documents alleged to be belonging to the assessee were found and seized. From the seized materials, an MOU dated 7-4-2007 pertaining to land bearing P.No.32 of T.P. No.29 of Survey No.217/1 and 216/2 admeasuring 2472 square meters (2956 sq.yards) at Chandlodiya was noticed by the AO. As per the said MOU, Shri Amit K. Patel, Shri Narendra R. Patel and the assessee agreed to purchase the said plot of land from and Shri Brijesh S. Patel, Shri Mahendra D. Patel at the rate of Rs.10,171/- per square yard. As per the statement of Shri Vikas R. Patel recorded during the course of search, an amount of Rs.2.5 crores in cash was made for the above land dealing. Consequently, the AO taking cognizance of section 153C set the assessment proceedings in motion and notice under section 153C of the Act was issued after recording satisfaction note. In response to that the assessee filed return of income on 24.10.2011 declaring total income of Rs.96,910/-. Thereafter, notices under section 143(2)/142(1) were issued on various dates and ultimately assessment under section 143(3) r.w.s. 153C of the Act was passed on 28.12.2011 determining total income at Rs.57,58,111/- after taking into consideration unexplained investment in the land of Rs.18,87,067/- and protective addition of Rs.37,74,134/- on account of unexplained cash flow, as observed by the AO in the assessment order at para no.4.1 and 4.2. Assessee could not succeed before the First Appellate Authority. The AO simultaneously initiated penalty proceedings under section 271(1)(c) of the Act.
4. The issue of validity of proceedings under section 153C was challenged before the Tribunal by the assessee in IT(SS)A.No.258 to 260/Ahd/2013 and Others, and the Tribunal after elaborate discussion quashed assessment framed under section 143(3) r.w.s. 153C of the Act; consequently addition made by the assessee stood cancelled.
5. Before us, the ld.counsel for the assessee submitted that since entire assessment framed by the AO for the Asstt.Years 2007-08 and 2008-09 have been quashed by the Tribunal on legal ground, and the AO failed to record his satisfaction for initiating proceedings under section 153C, order passed under section 271(1)(c) has no merit for The ld.CIT(A) has rightly cancelled the impugned penalty, and therefore, his order may be confirmed. The ld.DR on the other hand relied upon the order of the AO.
6. We have considered rival contentions and gone through the record and the order of the Tribunal passed in the quantum appeal of the assessee. We find that the ld.AO has taken cognizance of section 153C of the Act in the case of assessee for the assessment years 2007- 08 and 2008-09. The action under section 153C could be taken against the assessee if any material was found during the course of search belonging to the assessee, and in the assessment proceedings of the searched persons, the AO of the searched person is satisfied with material found during the course of search belongs to other person and demonstrate escapement of income. On the basis of that, satisfaction action against other person can be taken in 153C proceedings. While adjudicating this aspect in the quantum appeal of the assessee, the Tribunal recorded a finding that no satisfaction was recorded in this The relevant part of the Tribunal’s order at page no.30 reads as under:
“1. We draw support from our above extracted decision on the very issue to conclude that the Revenue has failed in proving the fact that the Assessing Officer recorded any satisfaction whether common or separate in case of the searched person Shri Vikas R. Patel before initiating section 1 53C proceedings under challenge. We are of the opinion that this inaction on part of the Assessing Officer violates law mandating recording of satisfaction as settled by hon’ble supreme court in case of Manish Maheshwari as well as that of Lalitkumar M. Patel (supra). We accordingly quash the impugned assessments framed in cases of all the three assessees in assessment years 2007-08 and 2008-09.
First assesses Shri Anil R. Darji succeeds in his appeal IT(SS)A 258 and 259/Ahd/2013. The Revenue’s appeals in cases of the other two assessees i.e. Shri Amit K. Patel and Shri Narendra R. Patel IT(SS)A Nos. 254 & 256/A hd/2013 are dismissed and CO Nos. 211 & 213/A hd/2013; respectively challenging validity of section 1 53C proceedings are accepted on the legal issue. This renders all other submissions on ‘belonging to’ aspect and merits as having been rendered in fructuous.”
7. In view of above order of the Tribunal quashing the assessment order for the assessment years 2007-08 and 2008-09 impugned addition on which penalty under section 271(1)(c) of the Act gets extinguished. Further sub-clause (iii) of section 271(1)(c) provides mechanism for quantification of penalty. It contemplates that the assessee would be directed to pay a sum in addition to taxes, if any, payable him, which shall not be less than but which shall not exceed three times the amount of tax sought to be evaded by reason of concealment of income and furnishing of inaccurate particulars of income. In other words, the quantification of the penalty is depended upon addition made to the income of the assessee. Since basis for visiting the assessee with penalty has been extinguished by quashing the assessment order itself by the Tribunal in the appeal of assessee vide order dated 31/5/2016 (supra), the impugned penalty in the present case has no leg to stand. The ld.CIT(A) has rightly deleted the penalty. Both appeals of the Revenue are dismissed.
6. In the result, appeals of the Revenue are dismissed.
Order pronounced in the Court on 10th May, 2018 at Ahmedabad.