By TIOL News Service

MUMBAI, OCT 31 2016: THE issue is - Whether in an appeal from the order of the AO, it is permissible for the CIT(A) to imposed penalty on a new ground which was not the basis for initiation of penalty. NO IS THE VERDICT.

Facts of the case:

The assessee is in the business of Real Estate Development. For the A.Y 2005-06, the assessee had filed its return declaring a income of Rs.2.04 crores, after claiming 100% deduction u/s 80IB(10). The AO however 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 (built up area). Consequently, he disallowed the deduction claimed u/s 801B(10) while initiating penalty proceedings u/s 271(1)(c) on the aforesaid ground for furnishing inaccurate information/concealing of income. During pendency of the appeal before the CIT(A), the Officers of the Revenue initiated a search action u/s 132 on the assessee group and 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 pending before CIT(A). Thereafter, the AO imposed penalty upon the assessee u/s 271(1)(c) of Rs.74,85,091/- on the very ground on which he 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. On appeal, the CIT(A) confirmed the penalty order, however on a new ground that during search proceedings, the assessee had made disclosure that the project in respect of which Section 801B(10) was being claimed was not completed before the due date i.e. 31 March 2008.

On appeal, the High Court held that,

1. It is undisputed position before us that initiation of penalty u/s 271(1)(c) by the AO is on the ground of area of flat being sold in excess of 1000 sq.ft. being concealed. It was this ground that the assessee is required to offer explanation during penalty proceedings to establish that the claim as made in the return was not on account of furnishing of inaccurate particulars of income or concealment of income visavis of selling flat having area 1000 sq.ft. The AO 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 AO, 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.

2. Although the powers of CIT(A) are coterminus 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, question as proposed does not give rise to any substantial question of law.

(See 2016-TIOL-2661-HC-MUM-IT)