M/S. P.S. ASSOCIATES,JAIPUR vs. ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE-3, JAIPUR

vkns'k@ ORDER PER VIJAY PAL RAO, J.M.

These three appeals by the assessee are directed against the composite order of ld. CIT (A)-4, Jaipur dated 28th September, 2018 arising from penalty order passed under section 271(1)(c) of the IT Act for the assessment years 2006-07 to 08-09 respectively. The assessee has raised common grounds in these appeals except the quantum of penalty. The ground raised for the assessment year 2006-07 are reproduced as under :-

“ 1. In the facts and circumstances of the case and in law the ld. CIT (A) has erred in confirming the penalty amounting to Rs. 1,63,770/- imposed by ld. AO u/s 271(1)(c) of the Income Tax Act, 1961. The action of ld. CIT (A) is illegal, unjustified, arbitrary and against the facts of the case. Relief may please be granted by deleting the said penalty of Rs. 1,63,770/-.

2. In the facts and circumstances of the case and in law the ld. CIT (A) has erred in confirming the penalty u/s 271(1)(c) imposed by ld. AO without specifically pointing out whether the penalty was proposed on concealment of particulars of income or for furnishing inaccurate particulars of income. The action of the ld. CIT (A) is illegal, unjustified, arbitrary and against the facts of the case. Relief may please be granted by quashing the penalty imposed u/s 271(1)(c).

Assessment Year Undisclosed income (Rs.) 2006-07 5,30,000/- 2007-08 4,68,000/- 2008-09 1,45,000/- Total 11,43,000/- In response to the notice issued under section 153A of the Act for these three assessment years, the assessee filed its return of income on 13th March 2014 and offered the undisclosed income surrendered during the post search enquiry for these three years. The AO while completing the assessment under section 153C read with section 143(3) of the Act has accepted the returned income wherein the assessee offered the undisclosed income total amounting to Rs. 11,43,000/- for these three assessment years. The AO initiated the penalty proceedings under section 271(1)(c) and levied the penalty vide order dated 18th September, 2014 as under :-

Assessment Year Penalty levied u/s 271(1)(c) 2006-07 1,63,770/- 2007-08 1,43,210/- 2008-09 44,810/- Total 3,51,790/- Aggrieved by the action of the AO, the assessee filed the appeal before the ld. CIT (A) and contended that due to bonafide belief, the assessee could not file any return of income as the assessee was under the impression that the income earned from the transaction of purchase and sale of land/property was used in the business itself by purchasing another property and, therefore, it was not the income liable to tax.

The ld. CIT (A) did not accept the said explanation of the assessee and confirmed the levy of penalty under section 271(1)(c) of the Act.

3. Before us, the ld. A/R of the assessee has reiterated his contention as raised before the ld. CIT (A) and submitted that due to bonafide belief the assessee could not file the return of income under section 139(1). However, the assessee has offered the income from the transactions of purchase and sale of land/property once the assessee realized that the income tax return shall be required to be filed. He has further submitted that the AO has not made any addition but returned income was accepted by the AO while completing the assessment under section 153C. All the members of the AOP were the family members/friends. They were individually involved in investment activity in real estate. The members were accommodating each other for making available the funds. The AOP after selling of particular land/property again made fresh investment out of sale proceeds of the earlier investment. Therefore, the assessee was under the impression that no tax is payable if the sale proceeds are again invested in real estate. The ld. A/R has contended that under this bonafide belief the assessee did not file the return of income on the capital gain earned on the transaction of real estate. He has further submitted that the Explanation 5A to section 271(1)(c) can be invoked only when there is a concealment of income or furnishing of inaccurate particulars of income.

In support of his contention he has relied upon the decision of Hon’ble Supreme Court in case of Price Waterhouse Coopers Pvt. Ltd. vs. CIT, 348 ITR 306 (SC) and submitted that if the assessee has committed an error due to bonafide belief then the penalty under section 271(1)(c) cannot be levied. He has also relied upon the decision in case of CIT vs. Reliance Petro Products P. Ltd., 322 ITR 158 (SC) and submitted that any claim which is not acceptable as per the provisions of the Act would not lead to concealment of income or furnishing inaccurate particulars of income. The ld. A/R has also relied upon the decision in case of Motilal Padampat Sugar Mills Co. Ltd. vs. State of Uttar Pradesh, 118 ITR 326 (SC) and submitted that everyone is not presumed to know the law. There is no such maxim known to the law. Therefore, if the assessee under the bonafide belief has not offered the income to tax, the same would not amount to concealment of particulars of income or furnishing inaccurate particulars of income.

Hence the explanation of the assessee that the assessee was under bonafide belief is without any basis. He has relied upon the orders of the authorities below and submitted that the case is fully covered under Explanation 5A to section 271(1)(c) of the Act.

Further, the explanation of the assessee being bonafide mistake or belief can be considered if there is a reasonable basis for believing that the income earned by the assessee is not liable to tax. The assessee has not explained any basis for such bonafide belief that the income earned by the assessee is not liable to tax. The only explanation of the assessee in this case is that the entire income was reinvested in making purchases in real estate. Even if that fact is accepted, it would not give rise to any belief much less the bonafide belief that the income earned by the assessee from the activity of real estate business is not liable to tax. This is not a case of mistake in filing the return of income either not including some income or making some incorrect claim of deduction in the return of income but the transactions were duly recorded in the books of account. The assessee has neither shown that these transactions were duly recorded in the books of account regularly maintained nor has filed any return of income for all these years and, therefore, it is not a stray instance of not filing of return for a particular assessment year but the assessee did not file return of income for these assessment years. Therefore, a persistent default on the part of the assessee for not filing the return of income rules out the possibility of any bonafide or inadvertent mistake or belief as claimed by the assessee. The Explanation 5A to section 271(1)(c) creates a deeming fiction regarding concealment of particulars of income or furnishing inaccurate particulars of income irrespective of the fact that the assessee has declared in the return of income after search. Therefore, all the conditions as stipulated under Explanation 5A to section 271(1)(c) are satisfied in the case of the assessee and consequently the said Explanation is applicable in respect of the income which was disclosed only after search and seizure action and based on seized material. The ld. CIT (A) has considered this issue in para 5 of the impugned order as under :-

“ 5. I have perused the order of AO and common submissions made by the Authorized Representative. The appellant has not filed his regular return u/s 139(1) of the Act. The appellant disclosed additional income on account of Capital Gain income which was offered in the return filed u/s 153A. The AO accepted the return filed u/s 153A and assessed at the same income. Subsequently the AO imposed penalty u/s 271(1)(c). I find that in the instant case the Explanation 5 is squarely attracted. Same is to be referred as under :

[Explanation 5A. – Where, in the course of a search initiated under section 132 on or after the 1st day of June, 2007, the assessee is found to be the owner of – (i) Any money, bullion, jewellery or other valuable article or thing (hereafter in this Explanation referred to as assets) and the assessee claims that such assets have been acquired by him by utilizing (wholly or in part) his income for any previous year; or (ii) Any income based on any entry in any books of account or other documents or transactions and he claims that such entry in the books of account or other documents or transactions represents his income (wholly or in part) for any previous year, Which has ended before the date of search and, -

(a) Where the return of income for such previous year has been furnished before the said date but such income has not been declared therein; or (b) The due date for filing the return of income for such previous year has expired but the assessee has not filed the return, Then, notwithstanding that such income is declared by him in any return of income furnished on or after the date of search, he shall, for the purposes of imposition of a penalty under clause © of sub-section (1) of this section, be deemed to have concealed the particulars of his income or furnished inaccurate particulars of such income.] Therefore, when the assessee’s case is covered by the said Explanation 5A, then the decision relied upon by the assessee will not help the case of the assessee as it is neither a case of bonafide mistake nor a case of bonafide belief but it is a continues default on the part of the assessee for not filing even return of income despite the activity in the real estate and earning the income therefrom. Accordingly, we do not find any error or illegality in the impugned order of the ld. CIT (A).

Order pronounced in the open court on 11/04/2019.