DR. M. GANDHIMATHY,TRICHY vs. DCIT, CIRCLE - 1, TRICHY

This appeal filed by the assessee is directed against the order of the ld. Commissioner of Income Tax (Appeals) 1, Trichy, dated 08.05.2020 relevant to the assessment year 2014-15 passed under section 271(1)(c) of the Income Tax Act, 1961 [“Act” in short].

Brief facts of the case are that the assessee, a medical practitioner, filed her return of income for the assessment year 2014-15 on 14.08.2015 declaring an income of ₹.17,50,780/-. This case was selected for limited scrutiny under CASS for the reason of large investment in property as compared to total income. Accordingly, notice under section 143(2) of the Act was issued on 28.07.2016. Subsequently, a notice under section 142(1) of the Act dated 20.09.2016 was issued to the assessee calling for the purchase deed of the property and the source for the purchase amount of ₹.4,87,25,000/- on or before 29.09.2016. On perusal of the purchase deed, the Assessing Officer noted that the assessee along with her husband, both holding equal share have purchased property in Trichy Town, No. 102, Salai Road, Trichy 3, New Ward “M”(D), New Blok-2, New T.S. No. 71/B an extent of 9235 sq.ft. of site together with Madras Terraced Building for a purchase consideration of ₹.4,87,25,000/-. Regarding the source for the ½ share in the above property, the assessee had shown loan from HDFC to the tune of ₹.1,25,00,000/- (½ share) and loan from Sundaram Finance to the tune of ₹.1,00,00,000/- (½ share). Further the assessee had shown loan obtained from seven persons and also produced confirmation letters from the above parties. The Assessing Officer recorded sworn statements from the loan creditors as produced by the assessee under section 131(3) of the Act. After considering sworn statement and other details, the Assessing Officer has completed the assessment under section 143(3) of the Act dated 26.12.2016 assessing total income of the assessee at ₹.47,40,780/- after making disallowance of ₹.29,90,000/- under section 68 of the Act.

On being aggrieved, the assessee is in appeal before the Tribunal. The ld. Counsel for the assessee has submitted that during the course of penalty proceedings, the assessee has submitted vide her reply to the penalty notice that the loan creditors were threatened with due penal consequences if the statement given by them is proved or otherwise and forcefully recorded the statements from the loan creditors. It was further submission that the assessee has stated in her reply that the assessee was not allowed to cross examine the loan creditors. However, the Assessing Officer has not heeded to the reply of the assessee and proceeded to levy penalty of 150% of the tax sought to be evaded at ₹.13,85,870/- and prayed for deleting the penalty levied under section 271(1)(c) of the Act.

On the other hand, the ld. DR supported the orders of authorities below.

We have heard both the sides, perused the materials available on record and gone through the orders of authorities below. The assessee is a medical practitioner and purchased a property for a consideration of ₹.4,87,25,000/- with her husband. Regarding the source for the ½ share in the above property, the assessee had shown loan from HDFC to the tune of ₹.1,25,00,000/- (½ share) and loan from Sundaram Finance to the tune of ₹.1,00,00,000/- (½ share). Further the assessee had shown loan obtained from seven persons and also produced confirmation letters from the above parties. The Assessing Officer recorded sworn statements from the loan creditors as produced by the assessee under section 131(3) of the Act. After considering sworn statement and other details, the Assessing Officer has completed the assessment by adding six loan credits of ₹.29,90,000/- and the assessee paid the taxes. Subsequently, the Assessing Officer initiated penalty proceedings and levied penalty under section 271(1)(c) of the Act on the ground that the assessee has concealed the income and furnished inaccurate particulars. On appeal, the ld. CIT(A) confirmed the penalty levied under section 271(1)(c) of the Act on the ground that the assessee has not carried the matter in appeal against quantum addition. In this case, during the course of assessment proceedings, the assessee has produced confirmation letters and also produced loan creditors before the Assessing Officer. The Assessing Officer has recorded sworn statements from the loan creditors. On the basis of the sworn statement, the Assessing Officer came to a conclusion that the borrowals are not genuine. On perusal of the penalty order, we find that the assessee has submitted vide her reply to the penalty notice that the loan creditors were threatened with due penal consequences if the statement given by them is proved or otherwise and forcefully recorded the statements from the loan creditors. It was further submission that the assessee has stated in her reply that the assessee was not allowed to cross examine the loan creditors. In the assessment order, the Assessing Officer has not mentioned that the assessee was allowed to cross examine the loan creditors. Since the Assessing Officer passed the assessment order and penalty order are different, to have a pragmatic approach and to meet the ends of natural justices, before concluding the penalty proceedings, the Assessing Officer should have allowed the assessee to cross examine the loan creditors, which was not done so. Moreover, we find that the observations of the ld. CIT(A) that the assessee has not carried the matter in appeal against quantum addition, cannot be a reason for confirming the penalty levied under section 271(1)(c) of the Act. Under the above facts and circumstances, we are of the considered opinion that it is not a fit case to levy penalty under section 271(1)(c) of the Act and accordingly, the penalty levied under section 271(1)(c) of the Act is deleted.

In the result, the appeal filed by the assessee is allowed. Order pronounced on 15th February, 2023 at Chennai.