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Income Tax Appellate Tribunal, ‘’B’’ BENCH, AHMEDABAD
आयकर अपील�य अ�धकरण, अहमदाबाद �यायपीठ IN THE INCOME TAX APPELLATE TRIBUNAL, ‘’B’’ BENCH, AHMEDABAD BEFORE, SHRI WASEEM AHMED, ACCOUNTANT MEMBER And Ms. MADHUMITA ROY, JUDICIAL MEMBER आयकर अपील सं./ITA No. 2585/AHD/2015 �नधा�रण वष�/Asstt. Year: 2009-10
Shri Bhaveshbhai N. Patel, Income Tax Officer, 24, Shivdarshan Society, Vs. Ward-9(2), Nr. Navyug School, Ahmedabad Naroda, Ahmedabad-382330.
PAN: AERPP0095D
(Applicant) (Respondent) Assessee by : Shri Tej Shah, A.R Revenue by : Shri Lalit P. Jain, Sr.DR सुनवाई क� तार�ख/Date of Hearing : 12/09/2019 घोषणा क� तार�ख /Date of Pronouncement: 25/10/2019 आदेश/O R D E R PER WASEEM AHMED, ACCOUNTANT MEMBER:
The captioned appeal has been filed at the instance of the Assessee against the order of the Learned Commissioner of Income Tax (Appeals)-7, Ahmedabad [Ld. CIT in short], dated 15/07/2015 arising in the matter of assessment order passed under s. 143(3) of the Income Tax Act, 1961 (here-in-after referred to as "the Act") dated 02/12/2011 relevant to Assessment Year (AY) 2009-10.
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The captioned appeal filed by assessee against the order of the learned CIT (A) in which the penalty levied by the AO u/s 271(1)(c) of the Act was confirmed.
The assessee is an individual engaged in business of civil construction and also a partner in a firm namely M/s Om Developers. The assessee in the return of income inter-alia failed to disclose STCG in computation of total income amounting Rs. 41,39,180/- on sale of land which, among other items, was added to the total income of the assessee.
Aggrieved assessee filed an appeal before ld. CIT (A) and agreed to the addition made by the AO on account of STCG for Rs. 41,39,180.00. Accordingly the same was confirmed by the learned CIT (A).
In view of the confirmation of addition by learned CIT (A), the AO issued SCN to assessee for imposing the penalty on account of furnishing inaccurate particulars and concealment of income.
In response, the assessee submitted that STCG was omitted to offer to tax due to over sight and it was not intentional/deliberate. The assessee further claimed that such income was admitted to buy the peace of mind and to avoid the litigation. As such, mere admission of income does not attract penalty u/s 271(1)(c) of the Act. The assessee in support of his contention submitted various pronouncement of different Hon’ble Courts as detailed under: 1. Dilip N Shroff Vs. JCIT (2007) 291 ITR 519 (SC) 2. Ashok Patel Vs. CIT (2007) 292 ITR 11 (SC) 3. National Textile v CIT 249 ITR 125 (Gujarat) 4. CIT vs Baroda Tin Works (1996) 221 ITR 661 (Gujarat) and various ITAT judgments 7. However the AO held that assessee agreed to offer tax only after the same was confronted to him during assessment proceedings. The AO also held that
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assessee did not press the issue at appellate stage which signifies that he has deliberately filed inaccurate particular in order to conceal income. Thus mere acceptance to the addition does not debar him from levy of penalty. Accordingly, the AO imposed penalty of Rs. 12,58,450/ equal to 100% of tax payable on STCG.
Aggrieved by the order of the AO, assessee preferred appeal before CIT (A).
The assessee before CIT (A) contended that the, provision of section 271(1)(c) of the Act applies where assessee failed to give proper and detailed explanation or explanation given by assessee is found to be false. But in given case he has provided detail explanation before AO and explanation given by him was not found to be false. Assessee further submitted that non-disclosure of income with respect to sale of land was under the bona-fide mistake.
However the learned CIT (A) held that the assessee was not able substantiate his claim of bona-fide mistaken and confirmed the penalty imposed by the AO.
Being aggrieved by the order of the ld. CIT-A, the assessee is in appeal before us.
The ld. AR before us filed a paper book running from pages 1 to 7 and submitted that the assessee was under the bona-fide belief that the impugned land being agricultural was not subject to tax. The ld. AR in support of his contention referred to the affidavits filed by the assessee and the accountant.
On the other hand, the ld. DR vehemently supported the order of the authorities below.
We have heard the rival contentions of both the parties and perused the materials available on record. The scheme of section 271(1)( c) of the Act visualizes situations to levy penalty in the manner as detailed below: Page 3 of 8
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i. The assessee has concealed income or ii. The assessee has furnished inaccurate particulars of income. iii. In addition to these two situations, penalty can also be imposed, inter alia, when assessee is deemed to have concealed particulars of income under Explanation 1 to section 271(1)(c) of the Act. This explanation provides that the assessee will be deemed to have concealed particulars of income wherein respect of any facts material to the computation of the total income of any person under this Act,
a) When the assessee fails to provide an explanation, b) When the assessee provides an explanation which is found to be false, OR c) When the assessee provides an explanation which he fails to substantiate and d) He fails to prove that the explanation was bona fide and e) That all the facts necessary for the same and material for computation of income have been duly disclosed by the assessee. 12.1 In the case on hand, the assessee indeed has not disclosed the income on account of the sale of land being capital gain. However, we find that the assessee before the AO during the quantum proceedings has claimed that he failed to offer the same under the bona-fide belief that the income from the sale of the land being agricultural land was not subject to tax. The relevant extract of the order of the AO reads as under: “In response to the same, the assessee vide letter dtd. 1/12/2011 stated that since the land was agricultural land, he was under the belief that gain from the transfer was not under the ambit of capital gain. However, he has agreed to pay tax on the Short Term Capital Gain so arisen as a result of the said transfer.”
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12.2 Similarly, the assessee before the AO during the penalty proceedings submitted that all the documents and details relating to the transfer of the land were furnished to the accountant but the accountant due to oversight failed to disclose such income in the return. 12.3 The ld. AR in support of assessee’s contention filed the documents which are placed on record as detailed under: i. Affidavit of the assessee ii. Affidavit of the accountant iii. Papers of the land 12.4 However, the AO without pointing out any defect in the submission of the assessee has concluded that the assessee has furnished inaccurate particulars and concealed his income deliberately as per the provisions of section 271(1)(c) of the Act. The AO in support of his decision also relied on the judgment of Hon’ble Supreme Court in the case of union of India versus Dharmendra textiles processors reported in 306 ITR 277. 12.5 Similarly, the learned CIT (A) confirmed the order of the AO after placing reliance on the judgment of Hon’ble Delhi High Court in the case of CIT versus MAK DATA LTD. reported in 31 taxmann.com 35 and CIT versus Zoom communication private Ltd reported in 327 ITR 510. 12.6 From the preceding discussion, we note that the explanation furnished by the assessee has not been found false by any of the authorities below. Thus it is inferred that, the assessee under the bona fides belief did not offer the income from the sale of agricultural land being exempted from tax. 12.7 The expression 'concealment of income' has not been defined in the Act, but the natural meanings of the expression 'concealment' are 'to keep from being seen, found, observed, or discovered'. It would, therefore, follow that the expression concealment of income, in its natural sense and grammatical meaning,
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implies an income is being hidden, camouflaged or covered up so as it cannot be seen, found, observed or discovered. That is certainly not the situation before us as there was no defect pointed out by the authorities below in the submission filed by the assessee before them. In holding so we find support and guidance from the judgment of Hon’ble Gujarat High Court in the case of CIT (TDS) Vs. Indian Petrochemicals Corporation Ltd reported in 56 Taxmann.com 334 wherein it was held as under: “11. Considering the aforesaid factual aspects and in view of the principle rendered in Eli Lilly and Co. (I) P. Ltd. case (supra), we are of the opinion that the assessee acted under the bona fide belief that the gift coupons, being in the nature of mementos to commemorate conferment of awards, were not in the nature of payment of salary. The salary of employees comes from the revenue of the PSU and when huge amount of TDS is made from regular salary, we see no reasons as to why, a Central Government PSU, will commit default to pay TDS on such small payment.”
12.8 Similarly, it cannot be alleged that the assessee acted with malice to avoid the tax in view of the fact that the accountant committed the mistake in not including the impugned income in the income tax return filed by the assessee. This fact can be verified from the affidavit furnished by him which is available on record. It is settled law that the penalty proceedings are distinct from the assessment proceedings. Therefore the addition made during the assessment proceedings does not authorize the AO ipso facto to levy the penalty under section 271(1)(c) of the Act. As such the AO is under the obligation to carry out the necessary verification before reaching to the conclusion that the assessee has furnished any inaccurate particular of income or concealed the particulars of income. In the instant case, the penalty was initiated on account of the addition made for not disclosing the income on the sale of the land. However, the assessee claimed that all the details and documents were furnished to the accountant for preparing the return of income but the accountant failed to consider the short- term capital gain of the assessee. There was the affidavit of such accountant available on record to the effect that he failed to account for the income on the sale of land. The AO was aware of the details of such an accountant. But the AO Page 6 of 8
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without verifying the genuineness of the affidavit furnished by the accountant has levied the penalty merely on the ground that such income was treated as unexplained income during the quantum proceedings. As such the penalty proceedings being distinct and separate from the assessment proceedings, the AO is under the obligation to carry out the fresh verification as held by the Hon’ble Gujarat High Court in the case of National Textiles Vs. CIT reported 249 ITR 125. The relevant extract of the judgment is extracted below: “In the instant case, the cash credits were not satisfactorily explained by evidence and documents. The parties who had advanced the alleged temporary loans were neither disclosed with their particulars nor any supporting documents were on record. Only two entries were explained. The accountant who had arranged the loan was not produced stating that he had left the service and relations with him were strained. On this state of accounts and evidence in the quantum proceedings, the department was justified in treating the cash credits as income of the assessee but merely on that basis by recourse to Explanation 1, penalty under section 271(1)(c) could not have been imposed without the department making any other effort to come to a conclusion that the cash credits could in no circumstances had been amounts received as temporary loans from various parties. The assessee in the quantum proceedings failed to produce the accountant but the department also in penalty proceedings made no effort to summon him. Applying the test (ii) discussed above, therefore, it was a case where there was no circumstance to lead to a reasonable and positive inference that the assessee’s case, that the cash credits were arranged as temporary loans, was false. The facts and circumstances were equally consistent with the hypothesis that it could have been sundry loans in small amounts obtained from different parties. Therefore, even taking recourse to Explanation 1, the circumstance or state of evidence on which the cash credits were treated as income, could not by themselves justify imposition of penalty without anything more on record produced by the assessee or the department. It was, accordingly, held that the Tribunal was not justified in law in confirming the penalty levied under section 271(1)(c).”
In view of the above, we hold that the AO cannot just levy the penalty merely on the ground that the additions were made during the quantum proceedings. As such the AO has to carry out necessary verification by issuing the notice to the parties before levying the penalty. In view of the above, we are of the opinion that no penalty can be levied under section 271(1)(c) of the Act for
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the reasons as stated above. Hence the ground of appeal of the assessee is allowed.
In the result the appeal of the assessee is allowed.
Order pronounced in the Court on 25/10/2019 at Ahmedabad.
-Sd- -Sd- (Ms MADHUMITA ROY) (WASEEM AHMED) JUDICIAL MEMBER ACCOUNTANT MEMBER (True Copy) Ahmedabad; Dated 25/10/2019 Manish आदेश क� ��त�ल�प �े�षत/Copy of the Order forwarded to : 1. अपीलाथ� / The Appellant 2. ��यथ� / The Respondent. 3. संबं�धत आयकर आयु�त / Concerned CIT 4. आयकर आयु�त(अपील) / The CIT 5. �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण / DR, ITAT, 6. गाड� फाईल / Guard file. आदेशानुसार/BY ORDER,
उप/सहायक पंजीकार (Dy./Asstt.Registrar) आयकर अपील�य अ�धकरण, अहमदाबाद / ITAT, Ahmedabad 1. Date of dictation : 15-10-2019 2. Date on which the typed draft is placed before the Dictating Member - 3. Date on which the approved draft comes to the Sr.P.S./P.S. - 4. Date on which the fair order is placed before the Dictating Member for Pronouncement ……………….. 5. Date on which the file goes to the Bench Clerk .. : 25-10-2019 6. Date on which the file goes to the Head Clerk……………………………. 7. The date on which the file goes to the Assistant Registrar for signature on the order…………………….. Date of Despatch of the Order……………
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