6. Penalty – CIT(A) could not have imposed penalty on a new ground which was not the basis for initiation of penalty – penalty could be only on the ground on which it was initiated – Not liable for penalty : u/s. 271(1)(c)

CIT vs. Acme Associates. [ Income tax Appeal no 640 of 2014 dated : 17/10/2016 (Bombay High Court)].

[Acme Associates vs. ACIT. [ITA No. 649/MUM/2011; Bench : I; dated 13/09/2013 ; A Y: 2005- 2006.( MUM.)  ITAT ]

The assessee is in the business of Real Estate Development. For the A.Y. 2005-06, the assessee has filed its ROI , declaring a income of Rs. 2.04 crore claiming 100% deduction u/s. 80IB(10). During the course of the assessment proceedings, the AO noticed that two buyers, viz. Ms. Sulbha M. Waghle and Mr. Mangesh G. Waghle had entered into joint agreement for purchase of flats which in the aggregate exceeded 1,000 sq.ft. Consequently, AO disallowed the deduction claimed u/s. 801B(10) and initiated penalty proceedings u/s. 271(1)(c) on the aforesaid ground for furnishing inaccurate information/concealing income.

The assessee carried the issue in appeal to the CIT(A). During pendency of the appeal, a search action u/s. 132 was carried out on the assessee group. Consequent to which, notices u/s.153A were issued to the assessee including one for the subject A Y 2005-06. In the above circumstances, the assessee withdrew its appeal for A.Y. 2005-06 pending before CIT(A). Thereafter, by order dated 30^th March, 2010, the AO imposed penalty upon assessee u/s. 271(1)(c). This was on the very ground on which the AO had initiated penalty proceedings viz. selling of flats to two members of the family which in the aggregate was in excess of 1000 sq.ft. of built up area. Therefore concluding that the Assessee has furnished incorrect particulars of income/concealed particulars of income. Consequently, a penalty was imposed.

Being aggrieved, the assessee carried the order of the AO imposing penalty u/s. 271(1)(c) to CIT(A). The CIT (A) confirmed the penalty imposed by the AO. However, the confirmation was on a completely new and different ground viz. that during search proceedings, the assessee had made disclosure that the project in respect of which deduction u/s. 801B(10) was being claimed was not completed before the due date i.e. 31^st March 2008. Thus confirming the order dated 30^th March, 2010. It is to be noted that CIT(A) in its order did not deal with the issue on which the AO had initiated and confirmed the penalty upon the assessee.

Being aggrieved, the assessee filed a further appeal to the Tribunal. The Tribunal held that the initiation and confirmation of penalty by the AO u/s. 271(1)(c) was not on the ground that the project was not completed by the due date, on which the CIT (A) confirmed the penalty. Thus, the Tribunal held that this could not be done by the CIT(A) as the penalty proceedings were initiated on account of selling flats of an area in excess of 1000 sq.ft. i.e. a ground different from the ground on which the   CIT(A) confirmed the penalty. The order also noted the fact that at the time when the return of income was filed on 31^st October 2005, it was not possible to predict whether the project would be completed on or before the specified date 31^st March 2008. Further, the Tribunal also examined the issue on which the Assessing Officer had imposed penalty, namely, selling of two flats to the members of same family, the area of which in the aggregate exceeded 1000 sq.ft. built up and held that no material was brought on record that assessee had constructed a flat of more than 1000 sq.ft. built up area or that the assessee had sold any unit of more than 1000 sq.ft. It renders a finding of fact that after units had been sold the buyers had joined two flats resulting in a flat in excess of 1000 sq.ft. In the aforesaid view, the Tribunal held that there is no furnishing of inaccurate particulars and/ or concealing of income warranting the imposition of penalty u/s. 271(1)(c).

The Hon. High Court in the revenue appeal held that, it was the original ground on basis of which penalty was initiated, that the assessee was 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 1000 sq.ft. The AO under the Act also considered the assessee’s 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 u/s. 271(1)(c) only on the ground on which the penalty proceedings were initiated in the assessment order. Although the powers of CIT(A) are coterminous with that of the AO, the imposition of penalty could be only the ground on which it was initiated. This is not the case, where the CIT(A) had independently initiated penalty proceedings on a new ground in an order in quantum proceedings in appeal from the Assessment Order. This alone could lead to the imposition of penalty u/s. 271(1)(c) on the new ground. The ground on which the penalty was initiated and penalty imposed by the AO, namely, that the flat had been sold in the project which was in excess of 1000 sq.ft., the Tribunal has recorded a finding of fact that the flats were sold individually by two separate agreements individually to the purchasers in joint names. However, two flats were subsequently joined by the purchasers aggregating the size of two flats to 1000 sq.ft. built up purchased from the assessee. This is finding of fact which has not been shown to be perverse or arbitrary. In the above view, revenue appeal was dismissed.