IN THE INCOME TAX APPELLATE TRIBUNAL LUCKNOW BENCH “A”, LUCKNOW BEFORE SHRI SUNIL KUMAR YADAV, JUDICIAL MEMBER AND SHRI. A. K. GARODIA, ACCOUNTANT MEMBER ITA No.209/LKW/2012 Assessment Year:2004-05 Income Tax Officer-II Faizabad v. (Appellant) Appellant by: Respondent by: Date of hearing: Date of pronouncement: Smt. Suman Srivastava Naka Bye Pass Faizabad TAN/PAN:BBOPS8766D (Respondent) Shri. Rajnish Yadav, D.R. Shri. Abhinav Mehrotra, Advocate 27 11 2014 13 01 2015 ORDER PER SUNIL KUMAR YADAV: This appeal is preferred by the Revenue against the order of the ld. CIT(A) deleting the penalty levied under section 271(1)(c) of the Income-tax Act, 1961 (hereinafter called in short “the Act"). 2. The ld. D.R. has placed reliance upon the penalty order; whereas the ld. counsel for the assessee, beside placing reliance upon the order of the ld. CIT(A), has invited our attention that the assessment order was passed under section 147 read with section 144 of the Act and made addition under different heads. Though an appeal was filed before the ld. CIT(A) in quantum, but it was also decided ex-parte, as none appeared on behalf of the assessee. Consequently penalty under section 271(1)(c) of the Act was levied. Even the penalty order was also passed ex-parte, against which an appeal was filed before the ld. CIT(A), but none appeared before the ld. CIT(A). The ld. CIT(A), however, examined the reasonableness in the :-2-: penalty levied by the Assessing Officer and he was of the view that since the assessment was the best judgment assessment and the assessee was not allowed to furnish explanations with regard to the claim made by her, penalty under section 271(1)(c) of the Act is not leviable. The relevant observations of the ld. CIT(A) are extracted hereunder:- “2. While levying the penalty u/s 271(1)(c) of the Act, the AO has treated an amount of Rs. 24',65,409/- as income concealed by the assessment. As mentioned in the order, the said amount of Rs. 24,65,409/- consisted of the following actions/disallowances made in the assessment:(i) Addition on account of opening balance of capital Rs.12,86,483/- (ii) Additional to furniture and fixture treated as unexplained Investment (iii) Addition on building account treated as unexplained Rs.36,240/Rs. 11,42,686/- 2.1 It is further seen that these additions were made in the assessment which was completed u/s 144 of the Act. The AO has not mentioned as to whether or not the appellant disputed the assessment in appeal and if so what was the outcome of such appeal. Thus all the additions made in an exparte assessment have been treated as concealed income. It is also seen that the AO has levied the penalty because the notice issued on 13.05.2008 was not responded by the assessee. 3. On careful consideration, I find that the AO has treated the additions made in the assessment as ipso facto constituting the concealed income. He has not established as to how the additions made on the subjective perception of AO could constitute concealed income so as to entail penalty u/s 271(1)(c) of the Act. While an addition made might hold good for the purposes of assessment it cannot be held to constitute, on that very premise, the concealed income. The AO has also not established that the explanation if any, furnished by the appellant was found to be false. Apparently it is a case where no explanation was furnished and an explanation not :-3-: furnished could not proved to be false. I, therefore, do not find any justification for the levy of penalty in this case and the penalty levied is directed to be cancelled.” 3. The ld. counsel for the assessee has further invited our attention that though in quantum appeal before the ld. CIT(A) assessee has not raised a plea with regard to the validity of assessment framed under section 147 read with 144 of the Act, but the penalty proceedings are independent proceedings in which validity of the assessment framed consequent to the notice issued under section 148 of the Act can be questioned and can also be examined by the concerned authorities. The ld. counsel for the assessee has further invited our attention to the assessment order in which it has been mentioned by the Assessing Officer that notice under section 148 of the Act was issued and duly served upon the husband of the assessee, meaning thereby notice under section 148 of the Act was never served upon the assessee. It is also not clear from the order of the Assessing Officer whether the husband of the assessee was authorized to receive notice under section 148 of the Act from the Assessing Officer on behalf of the assessee. In the absence of all these facts, it cannot be assumed or presumed that notice under section 148 of the Act was duly served upon the assessee, which is a requirement under the law for reopening the assessment under section 147 of the Act. Once it is held that notice under section 148 of the Act is not served upon the assessee, the assessment framed consequent thereto deserves to be annulled and in that situation, penalty under section 271(1)(c) of the Act is also not sustainable in the eyes of law. 4. The ld. D.R. in rebuttal has submitted that the husband of the assessee has been participated in the assessment proceedings and penalty proceedings on behalf of the assessee. Therefore, validity of assessment framed under section 147 read with 144 of the Act cannot be questioned before the second appellate authority. :-4-: 5. Having given a thoughtful consideration to the rival submissions and from a careful perusal of the orders of the authorities below, we find that there is force in the arguments of the ld. counsel for the assessee, as nothing is borne out from the assessment order that notice under section 148 of the Act was ever served upon the assessee. It is also evident from the orders of the lower authorities that the assessee never appeared either before the Assessing Officer or before the first appellate authority, either in the quantum proceedings or penalty proceedings under section 271(1)(c) of the Act. Even in the penalty proceedings, none appeared on behalf of the assessee before the ld. CIT(A). It is also an undisputed fact that assessment is a best judgment assessment and with regard to the best judgment assessment, it has been held by the Hon'ble jurisdictional High Court in the case of CIT vs. Nepani Biri Co. Trust, 55 Taxman 328 that where disallowance of various items claimed by the assessee are made in best judgment assessment and higher income was assessed, penalty under section 271(1)(c) of the Act should not be levied. The relevant observations of the Hon'ble High Court are extracted hereunder:- “On appeal, the AAC deleted in additions to a very large extent. On second appeal, the Tribunal gave further relief. The income of the assessee finally determined stood at Rs.2,22,017. The difference thus, between the income returned and the income assessed was Rs.1,36,561. This sum represented various expenses claimed by the assessee but disallowed by the ITO. Proceedings for penalty under section 271(1)(c) of the Act were taken. The IAC levied a penalty of Rs.1,90,000 on the assessee. On appeal, however, the Tribunal found that no penalty was leviable inasmuch as there was no concealment of income or wilful negligence on the part of the assessee. It opined that certain expenses claimed by the assessee were disallowed by the ITO which led to the difference between the income returned and the income assessed and that in such circumstances the penalty under section 271(1)(c) could not be levied. We see no reason to :-5-: differ from the view taken by the Tribunal which is in accordance with the facts of the case.” 6. In the case of CIT vs. Krishi Tyre Retreading & Rubber Industries, 44 taxmann.com 9, the Hon'ble Rajasthan High Court has held that where addition had been sustained purely on estimate basis and no positive fact or finding had been found so as to even make said addition, no penalty was leviable under section 271(1)(c) of the Act. 7. Keeping in view the totality of the facts and circumstances of the case, we are of the considered opinion that the assessment framed under section 144 of the Act is best judgment assessment without service of valid notice under section 148 of the Act upon the assessee. Though in quantum, the additions were sustained but for those additions penalty under section 271(1)(c) of the Act cannot be levied, as before levying penalty, it has to be established that either the assessee has concealed the particulars of income chargeable to tax or has furnished inaccurate particulars. In the light of this proposition, we have examined the order of the ld. CIT(A) and we find no infirmity therein. Accordingly we confirm his order. 8. In the result, appeal of the Revenue stands dismissed. Order was pronounced in the open court on the date mentioned on the captioned page. Sd/[A. K. GARODIA] ACCOUNTANT MEMBER DATED:13th January, 2015 JJ:1812 Copy forwarded to: Sd/[SUNIL KUMAR YADAV] JUDICIAL MEMBER :-6-: 1. 2. 3. 4. 5. Appellant Respondent CIT(A) CIT DR Assistant Registrar