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ITA Nos. 2439 & 2473/PN/2012, A.Y. 2007-08 Aggrieved by the order dated 30-06-2011 levying penalty u/s. 271(1)(c), the assessee preferred appeal before the Commissioner of Income Tax (Appeals). Before the Commissioner of Income Tax (Appeals), the assessee inter alia raised the ground that addition of `65,62,669/- has been made u/s. 69C of the Act on account of unexplained expenditure and `3,70,00,000/- u/s. 68 as unexplained cash credits which does not confirm to any legal provision or accounting principle. The Assessing Officer should have granted the benefit of telescoping to the assessee in respect of above additions. The Commissioner of Income Tax (Appeals) partly accepted the appeal of the assessee by the directing the Assessing Officer to give the benefit of telescoping while computing penalty. Against, the findings of Commissioner of Income Tax (Appeals) now, both, the Revenue and the assessee are in appeal before the Tribunal.
3. The Revenue has assailed the findings of Commissioner of Income Tax (Appeals) by raising following grounds :
1. "On the facts and it the circumstances of the case, the Ld. CIT(A) has erred in giving direction to the Assessing Officer to re-compute the undisclosed income for levying penalty u/s. 271(1)(c) after giving telescopic benefit on negative cash balance of ``65,62,669/- although question of benefit of telescopy does not arise;
2. The Appellant prays that the order of the Ld. CIT(A) be vacated and the of the AO's order may be restored.
10. The second addition on which penalty has been levied is with respect to `65,62,669/- u/s. 69C of the Act. The Commissioner of Income Tax (Appeals) has granted the benefit of telescoping by observing as under :
"9. Now coming to the computation of penalty @ 100% of the tax sought to be evaded at Rs.1,46,63,195/- on the undisclosed income determined in the assessment order at Rs.4,35,62,669/-, it is noted that undisputedly the same suffers from some defects. The AO has computed the aforesaid income after disallowing undisclosed expenses available in the seized documents u/s 40A(3) and u/s 40(a)(ia) and also without giving the telescopic benefit of shortage of Rs.65,62,669/- (receipt over expenses in this year). However the appellant has claimed in their letter dtd. 17/7/2012, which has been further elaborated in their letter dtd. Nil filed on 20/7/2012, that the computation of the undisclosed income on which penalty can be held to be leviable was ITA Nos. 2439 & 2473/PN/2012, A.Y. 2007-08 defective. This claim of the appellant has been carefully considered, and I am of the considered view that even though the appellant has accepted the finding given in the assessment order by not filing any appeal, it is an admitted fact that application of sec.40A(3) and sec.40(a)(ia) are issues on which different Courts have different views and therefore it will be incorrect to include the impact of these disallowances for computing the penalty u/s 271(1)(c). Similarly the issue of granting telescopic benefit atleast in respect of the same assessee for the same assessment year has to be considered. The AO has not given any reason in the assessment order for not granting this benefit in a manner which can justify levy of penalty for denial of such benefits. In view of the above I am of the opinion that the computation of penalty is faulty. The income sought to be evaded on which the penalty has been levied @ 100% requires reworking. The appellant has submitted a computation as per which the net undisclosed income, which on the principle discussed above, can be accepted, for computing the penalty or the income sought to be evaded, has been shown at Rs.1,90,91,256/-. I find the same to be acceptable. However, the AD is directed to verify this computation on the materials available on record and if the computation of Rs.1,90,91,256/- is found to be correct after excluding the disallowances of expenses made u/s 40A(3) and u/s 40(a)(ia) and granting telescopic benefit as discussed above, then the aforesaid sum of Rs.1,90,91 ,256/- has to be taken as the undisclosed income sought to be evaded on which penalty u/s 271(1)(c) @ 100% should be computed. The appellant has computed this penalty on the aforesaid principle, without prejudice to their claim for full relief at Rs.64,26,115/-. The AO can verify the computation and reduce the penalty accordingly. Aforesaid grounds 1 to 10 are treated as partly allowed."
One of the contention of the assessee before the First Appellate Authority was to grant the benefit of telescoping in penalty proceedings in respect of the additions made during assessment. The Commissioner of Income Tax (Appeals) rejecting the contentions of the assessee on merits and accepting the alternate submissions of the assessee granted the benefit of telescoping. Neither the ld. AR nor the ld. DR could substantiate the error in the findings of Commissioner of ITA Nos. 2439 & 2473/PN/2012, A.Y. 2007-08 Income Tax (Appeals) in extending the benefit of telescoping. Thus, we uphold the benefit of telescoping granted by the Commissioner of Income Tax (Appeals). Accordingly, the solitary ground raised by the Department in appeal and the submissions of the assessee assailing penalty on addition made u/s. 69C are dismissed.