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Income Tax Appellate Tribunal, “G” BENCH, MUMBAI
Before: SHRI OM PRAKASH KANT, AM & MS. KAVITHA RAJAGOPAL, JM
O R D E R Per Kavitha Rajagopal, J M: This appeal has been filed by the Revenue and the cross objection by the assessee, challenging the order of the learned Commissioner of Income Tax (Appeals) (‘ld.CIT(A) for short), National Faceless Appeal Centre (‘NFAC’ for short) passed u/s.250 of the Income Tax Act, 1961 (‘the Act'), pertaining to the Assessment Year (‘A.Y.’ for short) 2010-11.
CO No.35/Mum/2023 (A.Y. 2010-11) Late Gordhandas S. Goradia 2. The Revenue has challenged the solitary ground of deletion of penalty levied u/s. 271(1)(c) of the Act by the ld. CIT(A) on the ground that the quantum pertaining to the long term capital gain (LTCG for short) has already been deleted by the Tribunal.
The brief facts are that the assessee is a co-owner in Arthur and Jenkens Salt Work and had filed his return of income dated 23.11.2010, declaring total income at Rs.167,26,51,378/-. The assessee’s case was selected for scrutiny and the assessment order dated 19.03.2013 was passed u/s. 143(3) of the Act where the Assessing Officer (A.O. for short) determined the total income of the assessee at Rs.205,23,58,025/- by making an addition on account of short term capital gain (STCG for short) of Rs.14,30,00,691/- and LTCG of Rs.37,82,75,956/-. The A.O. also initiated penalty proceeding u/s. 271(1)(c) of the Act and vide order dated 29.03.2017 levied a penalty of Rs.5,13,60,978/- after considering the deduction of Rs.15,37,79,684/- being the relief given by the ld. CIT(A) in an appeal filed by the assessee against the quantum order.
The assessee then challenged the penalty order before the ld. CIT(A) who restricted the penalty to the extent of addition of STCG amounting to Rs.14,41,964/- on the ground that the Tribunal has deleted the addition on account of LTCG amounting to Rs.22,44,96,272/- and had confirmed the addition on STCG amounting to Rs.14,41,964/-.
Aggrieved by the said order, the Revenue is in appeal before us, challenging the order of the ld. CIT(A) in restricting the penalty to the addition on STCG for the reason that the department is in appeal before the Hon'ble Jurisdictional High Court against the order of the Tribunal deleting the addition made on LTCG.
CO No.35/Mum/2023 (A.Y. 2010-11) Late Gordhandas S. Goradia 6. The assessee in a cross objection before us challenging the order of the ld. CIT(A) in partly confirming the penalty levied by way of cross objection on the ground that the A.O. has failed to struck off the irrelevant limb u/s. 271(1)(c) of the Act in the notice issued to the assessee. The assessee has also challenged the ground that under section 271(1)(c) of the Act penalty was levied on a debatable issue which does not attract levying of penalty. As the ground no. 1 raised by the assessee on the legal issue goes to the very root of the penalty order, it is trite that we decide this issue before getting into the merits of the case.
The learned Authorised Representative (ld. AR for short) for the assessee contended that the ITAT vide its order dated 01.11.2017 had deleted the addition made on LTCG and had confirmed the addition of Rs.14,30,691/- as STCG from portfolio management services which according to the ld. AR is a debatable issue whether the same pertains to business income or capital gain. The ld. AR stated that there are various decisions which reiterate the proposition that the penalty cannot be levied on a debatable issue. The ld. AR further contended that the notice u/s. 274 r.w.s. 271(1)(c) of the Act dated 19.03.2013 was issued by the A.O. without striking out the irrelevant limbs specified u/s. 271(1)(c) of the Act, i.e., whether the penalty is levied for concealment of particulars of income or for furnishing inaccurate particulars of such income. The ld. AR relied on the various decisions in support of the contention of the assessee.
The learned Departmental Representative (ld. DR for short) for the Revenue, on the other hand, controverted the contention of the ld. AR and stated that the assessee has suo moto disallowed an amount of Rs.6.92 crores which addition was not deleted by the CO No.35/Mum/2023 (A.Y. 2010-11) Late Gordhandas S. Goradia Tribunal and, hence, the ld. DR submitted that the penalty should be levied on the assessee atleast to the extent of the disclosure amount made by the assessee.
We have heard the rival submissions and perused the materials available on record. It is observed that the assessee has LTCG from sale of development rights in which the assessee was said to be holding 50% less hold rights and the balance 50% was held by the assessee’s son Shri Mahesh G. Garodia, pertaining to a land to the extent of around 500 acres, which includes land covered under Coastal Regulation Zone (CRZ) where the development in such areas can be made only with prior approval of the government authorities. The assessee has taken only 50% of the sale proceeds of Rs.471 crores instead of Rs.521 crores for the reason that as per the development agreement, the developer will be liable to pay the assessee a maximum amount of Rs.50 crores or less depending upon the percentage of the land covered under CRZ to be developed along with the other piece of land. The A.O. had made an addition of 50% of Rs.50 crores as the year of taxability of the impugned amount was not precise. It is also observed that the assessee had invested in funds with ICICI Prudential Portfolio Management Scheme which information was unavailable with the legal heir of the assessee after his demise. It is also said that the PMS office has refused to give the said details to the legal heirs of the assessee unless the probate of the assessee is furnished. The assessee contended that he was unable to file the income from this source due to the said fact. For this reasons, the A.O. had levied penalty u/s. 271(1)(c) of the Act. It is further observed that the Tribunal in had deleted the quantum addition on LTCG on Rs.22,44,96,272/- and had confirmed the STCG of Rs.14,41,968/-.
CO No.35/Mum/2023 (A.Y. 2010-11) Late Gordhandas S. Goradia 10. The ld. CIT(A) in an appeal filed by the assessee challenging the order passed u/s. 271(1)(c) of the Act held that as the addition on LTCG was deleted, the penalty pertains to that also stands deleted and had confirmed only to the extent of the addition made on STCG and had directed the A.O. to recalculate the amount pertaining to the addition confirmed by the ITAT. The Revenue had challenged the deletion of the penalty on account of LTCG stating that the said order has been challenged by the Revenue before the Hon'ble Jurisdictional High Court. The assessee, on the other hand, by way of cross objection had challenged the ld. CIT(A)’s order confirming the penalty on account of STCG on the basis of the Tribunal order.
On perusal of the notice dated 19.03.2013 issued by the A.O. u/s. 274 r.w.s. 271 of the Act, we have observed that the A.O. has failed to strike out the irrelevant limb of the impugned notice as to whether the same was issued for concealment of particulars of income or for furnishing of inaccurate particulars of such income. As the issue of non- striking out of the irrelevant limb in the notice is no longer res integra and has been widely covered by the various decision of the Tribunal and the Hon'ble Bombay High Court, we are of the considered opinion that the non striking out of the irrelevant limb would vitiate the penalty proceedings initiated by the A.O. The assessee has relied on the decision of the Hon'ble Jurisdictional High Court in the case of Mohd. Farhan A. Shaikh v. ACIT [2021] 434 ITR 1 (Bom)(Full Bench), wherein it was held that the penalty proceeding will be vitiated if the A.O. has failed to strike out the irrelevant limb of the statutory notice.
CO No.35/Mum/2023 (A.Y. 2010-11) Late Gordhandas S. Goradia 12. By respectfully following the above decision, we hold that the penalty levied by the A.O. ought to be deleted. Though the assessee has relied on the other grounds that the penalty cannot be levied on a debatable issue, we have not gone into the merits of the penalty order as the penalty has been deleted on the legal ground which goes into the root of the case and, hence, these grounds become academic in nature. We, therefore, delete the impugned penalty levied by the A.O. on the legal ground raised by the assessee.
Hence, the ground raised by the Revenue in its appeal is dismissed and the grounds raised by the assessee in the cross objection are partly allowed.
As the facts in Cross Objection No. 35/Mum//2023 are identical with that of the facts in , the above observation applies mutatis mutandis to the cross objection filed by the assessee.
In the result, the appeal filed by the Revenue is dismissed and the Cross Objection filed by the assessee is allowed.
Order pronounced in the open court on 30.05.2023