R.K. Panda, AM

1. This appeal filed by the Revenue is directed against the order dated 18-03-2010 of the CIT(A)-II, Nashik relating to Assessment Year 2000-01. Facts of the case, in brief, are that the assessee is a partnership firm engaged in the business of steel trading. A search and seizure action u/s. 132(1) of the Income Tax Act was conducted by the Department in the Agarwal Group of cases of Nashik wherein the residential and business premises of the partners of the assessee firm along with various other assessees were covered. In the instant case the original return of income was filed by the assessee firm on 20-10-2000 declaring total loss at Rs. 18,19,178/-. Consequent to the search and seizure action the AO issued notice u/s.153A and in response to the same the assessee firm filed return of income on 16-10-2006 declaring loss of Rs. 27,13,140/-. Subsequently the assessee firm filed a revised return declaring total loss of Rs. 14,96,654/-. In the said return it was mentioned that the revised return was filed to correct the unrecorded sales, cash shortage, asset and liabilities written off to show the correct income. The AO completed the assessment u/s.153A/ 143(3) accepting the total loss of Rs. 14,96,654/-declared by the assessee in the revised return. Subsequently the AO issued notice u/s.271(1)(c) of the Income Tax Act on the amount of Rs. 14,68,591 being indirect income shown by the assessee in the revised return of income. The details of such Rs. 14,68,591/-declared by the assessee as indirect income are as under :

a.

Cash declared

Rs. 3,75,000/

b.

Creditors written off

Rs. 9,96,710/

c.

Unrecorded sales

Rs. 1,02,881/

According to the AO since the assessee had concealed the particulars of income while filing return of income u/s.139(1) and since the said income was also not shown in the return of income filed in response to notice issued u/s.153A, therefore, the provisions of section 271 are attracted. He accordingly levied penalty of Rs. 5,65,406/-u/s. 271(1)(c) of the Income Tax Act.

2. Before the CIT(A) it was argued that the AO completed the assessment u/s. 153A r.w.s. 143(3) of the Income Tax Act accepting the returned loss of Rs. 14,96,654/-without making any addition. It was further argued that no penalty is leviable u/s. 271(1)(c) of the Income Tax Act on the income declared in the return of income filed in response to notice u/s. 153A of the Income Tax Act. Various other decisions were also brought to the notice of CIT(A) to the proposition that no penalty u/s. 271(1)(c) is leviable under the facts and circumstances of the case.

2.1 On the basis of the arguments advanced by the assessee the learned CIT cancelled the penalty levied by the AO by holding as under :

I have carefully considered the penalty order of the AO and the contentions raised by the appellant. The contention of the appellant that penalty is not leviable on the amount offered to tax in the return filed in response to notice u/s. 153A of the Act is also supported by the decision of the Honble jurisdictional Pune Tribunal, in the case of Smt. Sarla M. Ahuja in ITA No. 1301/PN/2007 reported at Pune Chartered Accountants Society Journal, February, 2008, Page No. 31 to 35, wherein it has been held that "At this stage it is also pertinent to note that by virtue of provisions contained in Section 153A of the Act, assessment proceedings pending on the date of search shall stand abated and in that view of the matter the income declared by the assessee in the return filed in response to notice u/s. 153A cannot be the subject matter of imposing penalty u/s. 271(1)(c) while completing the assessment u/s. 153A(b) of the Act". In the concluding Para No. 15, the Honble ITAT, Pune laid down as under :

We therefore hold that no penalty u/s. 271(1)(c) is to be levied in respect of income, which has already been declared by the assessee in the return filed in response to notice u/s. 153A of the Act. The AO shall delete the penalty to that extent.

In the case of the appellant, the AO has levied penalty on the income of Rs. 14,68,591/-offered to tax in the return of income filed in response to notice u/s. 153A of the Act. Therefore the ratio laid down by the Honble Jurisdictional Tribunal in the above mentioned case is squarely applicable to the facts of the case of the appellant. Further, it was also argued by the Authorised Representative of the appellant that in the absence of any decision of the Honble High Court or Special Bench of Tribunal in favour of the Revenue on similar issue, this decision of the Honble Jurisdictional Tribunal is binding on CIT(A). This proposition of law is also supported by the decision of Honble Bombay High Court in the case of Bank of Baroda Vs. H.C. Shrivastava : 256 ITR 385 . Respectfully following the above mentioned decisions relied on by the Authorised Representative of the appellant, the penalty u/s. 271(1)(c) of the Act levied by the AO on the amount of Rs. 14,68,591/-offered to tax in the return of income filed in response to notice u/s. 153A of the Act is cancelled.

2.2 Aggrieved with such order of the CIT(A), the Revenue is in appeal before us with the following grounds :

1. The learned CIT(A) erred in deleting the penalty levied by the Assessing Officer u/s. 271(1)(c) of the Income Tax Act at Rs. 4,65,407/-by relying on the decision of the Honble ITAT, Pune in the case of Smt. Sarla M. Ahuja in ITA No. 1301/PN/2007 which was not applicable.

The learned CIT(A) erred in deleting the penalty levied by the Assessing Officer u/s. 271(1)(c) of the Income Tax Act at Rs. 5,65,407/-overlooking the fact that the IAT, Pune Bench "A", Pune had, on a similar issue pertaining to the cases of Kalantri and Thakkar Groups of Nashik, decided the matter in favour of the department (in ITA Nos. 1004, 1005, 1006 & 1008/PN/2009) following the decision of the Third Member Bench of ITAT, Ahmedabad in the case of ACIT Vs. Kirit Dahyabhai Patel (121 ITD 159).

The learned CIT(A) erred in overlooking the fact that in the instant case there was clear cut non satisfaction of Explanation 5(2) to Section 271(1)(c) and as such penalty was leviable.

3. At the time of hearing the learned counsel for the assessee filed the following legal ground to support the order of the CIT(A) which reads as under :

The learned AO erred in initiating penalty u/s. 271(1)(c) without recording satisfaction in the assessment order. Since no satisfaction being recorded by the AO in the assessment order as to any concealment on the part of the Assessee or furnishing of any inaccurate particulars of income, the penalty levied is bad in law and it is prayed that the same may be quashed on the same ground.

3.1. Referring to the decision of the Honble Bombay High Court in the case of B.R. Bamasi Vs. CIT reported in : 83 ITR 223 and in the case of CIT Vs. Hazaremal Nagji reported in : 46 ITR 1168 Bom. she submitted that the above ground being purely legal in nature and since it goes to the root of the matter, therefore, the same should be admitted which is being raised in support of the decision of the learned CIT(A) deleting the penalty u/s. 271(1)(c) of the Income Tax Act

4. After hearing both the sides, the legal ground raised by the assessee is admitted for adjudication. Before deciding the issue on merit, we would like to decide the legal ground first. It is the submission of the learned counsel for the assessee that since no satisfaction was recorded in the assessment order for initiating penalty u/s. 271(1)(c) of the Income Tax Act for concealment of any income or furnishing of any inaccurate particulars of income by the assessee, therefore, the AO was not justified in levying penalty u/s. 271(1)(c) of the Income Tax Act. We find the AO in his order passed u/s. 153A r.w.s. 143(3) dated 31-10-2007 at Page 4 of the order has mentioned as under :

Issued Show Cause Notice u/s. 271(1)(c) of the Income Tax Act.

4.1 We find the order of the learned CIT(A) deleting penalty is dated 18-03-2010. We find provisions of section 271(1B) reads as under :

[(1B) Where any amount is added or disallowed in computing the total income or loss of an assessee in any order of assessment or reassessment and the said order contains a direction for initiation of penalty proceedings under clause (c) of sub-section (1), such an order of assessment or reassessment shall be deemed to constitute satisfaction of the Assessing Officer for initiation of the penalty proceedings under the said clause (c).]

4.2. The above provision was inserted by the Finance Act, 2008 with retrospective effect from 01-04-1989. Therefore, in view of insertion of sub section (1B) to provisions of section 271(1)(c) of the Income Tax Act by the Finance Act, 2008 with retrospective effect from 01-04-89, such order containing the issue of Show Cause Notice u/s. 271(1)(c) of the Income Tax Act, in our opinion, shall be deemed to constitute satisfaction of the AO for initiation of the penalty proceedings u/s. 271(1)(c) of the Income Tax Act. We, therefore, do not find any force in the additional ground raised by the assessee. Accordingly, the same is dismissed

5. Now coming to the merits of the case, we find the learned CIT(A) cancelled the penalty levied by the AO by relying on the decision of the Pune Bench in the case of Smt. Sarla M. Ahuja vide ITA No. 1301/PN/2007. At the time of hearing of the appeal before us the learned DR filed a copy of the order of the Tribunal in the case of Kalntri Thakkar Group of Nashik vide ITA No. 1004/PN/2009 to ITA No. 1008/PN/2009 and other connected appeals vide consolidated order dated 05-02-2010 and submitted that the Tribunal has dismissed the appeal filed by the assessee and confirmed the penalty levied by the AO u/s. 271(1)(c) of the I.T. Act under identical facts and circumstances. Since this decision was not available before the CIT(A) at the time of hearing of the appeal before him, therefore, we deem it proper to restore this issue to his file for fresh adjudication. Needless to say the learned CIT(A) shall give adequate opportunity of being heard to the assessee and decide the issue afresh and in accordance with law. We hold and direct accordingly. In the result, the grounds raised by the Revenue are allowed for statistical purposes.

Pronounced in the open court on this the 17th day of July 2012