PRIYAA MOHAN GURNANI,NAVI MUMBAI vs. ITO CENTRAL CIRCLE 5 (2), MUMBAI

A.Y. Date of order by CIT(A) 2010-11 2011-12 2012-13 2013-14 28/11/2024 2014-15 2015-16 2016-17 The Ld.AR submitted that the issues raised by assessee in all the above appeals are identical and on similar facts and circumstances. Considering the submissions of the assessee, consolidated orders is passed for all the year under consideration. For the sake of convenience grounds relating to assessment year 2010-11 is reproduced as under: “GROUND NO. 1: LEVY OF PENALTY U/S 271(1)(c) OF RS. 49,219/- (a) The Id. CIT(A) erred in law and on facts in confirming the levy of penalty u/s. 271(1)(c), for concealment of income, by Id. AO of Rs.

& 535,536/Mum/2025; A.Y. 2010-11 to 2016-17 Priyaa Mohan Gurnani 49,219/- being 100% of the tax on notional income of Rs. 2,27,625/- representing the annual letting value determined by AO and further erred in levying penalty u/s 271(1)(c) in respect of a search assessment u/s 143(3) r.w.s. 153A ignoring that; i. AO had failed to recompute the Annual Letting Value as per the direction of ITAT and was yet to give effect to the Order of ITAT. ii. provisions of S. 271(1)(c) were inapplicable to the case of search assessments, iii. the addition was made vide an order u/s 153A, iv. the addition was in respect of such income for which no incriminating material was available, V. the addition was not sustainable in law, vi. the penalty was initiated without specifying any charge in the assessment order or penalty notices or penalty orders, vii. the appellant was prevented by a reasonable cause, viii. the order passed was beyond the time permissible u/s 275, ix. passing an order dt. 15.03.2022 u/s. 271(1)(c) in respect of the proceedings which had been time barred by operation of law and provisions of S. 275 of the Income Tax Act, x. levying penalty u/s. 271(1)(c) simply by relying on the order of assessment without examining the facts afresh in penalty proceedings, xi. the appellant had requested the Id. AO for extension of time pending the adjudication of appeal on merits of the case by the ITAT, xii. levying the penalty @ 100% of tax when there had been no concealment of income and appellant had furnished accurate particulars of income, xiii. ignoring the fact that the appellant had determined the total income as per the provisions of the Income Tax Act, xiv. by simply relying on the finding in the assessment order without in any manner applying his mind as to whether in the & 535,536/Mum/2025; A.Y. 2010-11 to 2016-17 Priyaa Mohan Gurnani assessment order could be construed to represent any concealment of income, XV. without determining whether the assessee had furnished any inaccurate particulars of income or concealed income xvi. ignoring that the appellant had neither furnished accurate particular of income and nor had concealed any income, xvii. without identifying one of the two offences for which he proposed to levy penalty and informing the same to your appellant for responding to the same and further erred in passing the order of penalty once again by not identifying one of the two offences and instead levy penalty for allegedly concealing the particulars of income by furnishing inaccurate particulars of income, xviii. in initiating penalty proceedings without recording his satisfaction in the assessment order or in notice that the facts recorded in assessment satisfied him to initiate penalty proceedings. xix. levying the penalty without giving any opportunity to your appellant to present the case on merits as to why penalty be not levied, xx. ignoring the explanations furnished by the appellant in good faith vide letter dt. 16.10.2024, 19.11.2024 and 22.11.2024 in response to the Show Cause Notice dt. 10.10.2024 and 08.11.2024 (b) Your appellant strongly submits that the appellant had furnished accurate particulars of income for the year under consideration. (c) Your appellant prays that the penalty of Rs. 49,219/- levied u/s. 271(1)(c) of the Act be deleted.

GROUND NO. 2: VIOLATION OF PROVISION OF S. 275

(a) The Id. CIT(A) erred in law and on in facts in confirming the order of penalty passed by AO in violation of limitation u/s 275 of the Act.

& 535,536/Mum/2025; A.Y. 2010-11 to 2016-17 Priyaa Mohan Gurnani (b) Your appellant submits that the provisions of s. 275 required an AO to pass the order within the time prescribed under the law on passing the order by CIT(A) on merit of the case. (c) Your appellant prays that an order passed in specific violation of s. 275 be quashed.

GROUND NO. 3: SERIOUS VIOLATION OF NATURAL JUSTICE AND OF S. 274 AND S. 275

(a) The Id. CIT(A) erred in law in confirming the order of the AO in gross violation of the provisions of natural justice; i. by denying any opportunity to your appellant to present the case on merits, ii. by not giving effect to the order of ITAT on merits of the case, iii. in not giving any opportunity to show cause on merits as to why penalty shall not be levied. (b) Your appellant submits that the Id. AO has grossly violated the provisions of natural justice, (c) Your appellant pleads that a penalty order passed in violation of the provisions of natural justice be quashed.” Brief facts of the case are as under: 2. A search and seizure action was taken up on Gurnani group on 04.02.2016.The assessment order u/s 143(3) r.w.s 153A of the Act was passed on 26.12.2018, wherein the Ld. AO made an addition of Rs.69,090/- on account of deemed rent on immovable property. In the assessment order, the Ld.AO initiated penalty proceeding under section 271(1)(c) of the Act. Against the quantum addition, the assessee filed appeal before the Ld.CIT(A), who confirmed the addition. The assessee then appealed against the quantum addition before this Tribunal.

& 535,536/Mum/2025; A.Y. 2010-11 to 2016-17 Priyaa Mohan Gurnani 2.1 This Tribunal by way of common order dated 8.11.2023 passed for AY 2010-11 to A.Y.2016-17 while deciding quantum appeal of the assessee this Tribunal upheld the addition as well as assumption of jurisdiction u/s 153A to be valid. However, direction was given to the Ld.AO to allow expenditure like municipal taxes etc., against the ALV computed. 2.2 In the mean time the Ld.AO initiated penalty proceedings, once the quantum addition was confirmed by the Ld.CIT(A). The Ld.AO served upon the assessee notice u/s 271(l)(c) r.w.s. 274 dated 28.12.2018 and 31/01/2022 seeking an explanation, as to why penalty 27l(1)(c) should not be levied for the additions/disallowance made in the passed u/s l53A r.w.s. 143(3). 2.3 The Ld.AO passed penalty order dated 02/03/2022 u/s 271(l)(c) by levying penalty of Rs.23,901/- being 100% of tax sought to have been allegedly concealing the particulars of income. Similar orders were passed by the Ld.AO levying penalty under section 271(1)(c ) for all the years under consideration. Against the penalty orders passed by the Ld.AO, the assessee preferred appeal for all the assessment years under consideration before the Ld.CIT(A).

& 535,536/Mum/2025; A.Y. 2010-11 to 2016-17 Priyaa Mohan Gurnani 3.1 It was submitted that the Ld.AO made addition on account of notional rent. The assessee thus submitted that no penalty could be levied, as there is no concealment of income or furnishing of inaccurate particulars of income within the meaning of section 271(1)(c) of the Act. The assessee relied on the decision of Hon’ble Supreme Court in case of CIT vs. Reliance Petoproducts Pvt. Ltd reported in (2010) 322 ITR 158, in which it is held that, mere making of a claim which is unsustainable in law cannot be treated as furnishing of inaccurate particulars of income and as such will not attract the penalty proceedings which is u/s.271(1)(c ) of the Act. 3.2 The Ld.CIT(A) after considering the submission of the assessee, confirmed the penalty levied for all year under consideration by passing separate orders. Aggrieved by the order of the Ld.CIT(A), the assessee is in appeal before this Tribunal.

4.1 Without prejudice, on merits of levy, he submitted that, the ownership of the immovable property and its details were available in the balance sheet as investments, which is already on record. He submitted that, the assessee has offered the rent received during the years under consideration as income form & 535,536/Mum/2025; A.Y. 2010-11 to 2016-17 Priyaa Mohan Gurnani house property on actual receipt of rent and for other period vacancy allowances was claimed. For certain period when the properties remained vacant, the Ld.AO computed notional rent. The Ld.AR submitted that it is not a case of concealment of particulars as per section 271(1)(c) of the Act. In support of this contention, the Ld.AR relied on the decision of coordinate bench of this Tribunal in case of Shah Rukh Khan reported in 66 ITR 168. 4.2. On the contrary, the Ld.DR relied on the orders passed by authorities below. We have perused submissions advanced by both sides in light of records placed before us. 5.1 Before considering the arguments advanced by the Ld.AR, it is necessary to understand the circumstances under which the provisions of section 271(1)( c) and 271 AAB would be applicable post amendment. "271.Failure to furnish returns, comply with notices, concealment of income, etc. (1) If the Assessing Officer or the Commissioner (Appeals) or the Commissioner in the course of any proceedings under this Act, is satisfied that any person- …………. (c) has concealed the particulars of his income or furnished inaccurate particulars of such income, he may direct that such person shall pay by way of penalty,- (iii) in the cases referred to in clause (c), in addition to any tax payable by him, a sum which shall not be less than, but which shall not exceed three times, the amount of tax sought to be evaded by reason of the concealment of particulars of his income or the furnishing of inaccurate particulars of such income Explanation 1.-Where in respect of any facts material to the computation of the total income of any person under this Act,- (A) such person fails to offer an explanation or offers an explanation which is found by the Assessing Officer or the Deputy Commissioner (Appeals) or the Commissioner (Appeals) to be false, or & 535,536/Mum/2025; A.Y. 2010-11 to 2016-17 Priyaa Mohan Gurnani (B) such person offers an explanation which he is not able to substantiate and fails to prove that such explanation is bonafide and that all the facts relating to the same and material to the computation of his total income have been disclosed by him, then, the amount added or disallowed in computing the total income of such person as a result thereof shall, for the purposes of clause (c) of this sub-section, be deemed to represent the income in respect of which particulars have been concealed.

Penalty where search has been initiated. 271AAB. (1) The Assessing Officer 3[or the Commissioner (Appeals)] may, notwithstanding anything contained in any other provisions of this Act, direct that, in a case where search has been initiated under section 132 on or after the 1st day of July, 2012 but before the date on which the Taxation Laws (Second Amendment) Bill, 2016 receives the assent of the President, the assessee shall pay by way of penalty, in addition to tax, if any, payable by him,— (a) a sum computed at the rate of ten per cent of the undisclosed income of the specified previous year, if such assessee— (i) in the course of the search, in a statement under sub-section (4) of section 132, admits the undisclosed income and specifies the manner in which such income has been derived; (ii) substantiates the manner in which the undisclosed income was derived; and (iii) on or before the specified date— (A) pays the tax, together with interest, if any, in respect of the undisclosed income; and (B) furnishes the return of income for the specified previous year declaring such undisclosed income therein; (b) a sum computed at the rate of twenty per cent of the undisclosed income of the specified previous year, if such assessee— (i) in the course of the search, in a statement under sub-section (4) of section 132, does not admit the undisclosed income; and (ii) on or before the specified date— (A) declares such income in the return of income furnished for the specified previous year; and (B) pays the tax, together with interest, if any, in respect of the undisclosed income; (c) a sum computed at the rate of sixty per cent of the undisclosed income of the specified previous year, if it is not covered by the provisions of clauses (a) and (b). (1A) The Assessing Officer 4[or the Commissioner (Appeals)] may, notwithstanding anything contained in any other provisions of this Act, direct that, in a case where search has been initiated under section & 535,536/Mum/2025; A.Y. 2010-11 to 2016-17 Priyaa Mohan Gurnani 132 on or after the date on which the Taxation Laws (Second Amendment) Bill, 2016 receives the assent of the President, the assessee shall pay by way of penalty, in addition to tax, if any, payable by him,— (a) a sum computed at the rate of thirty per cent of the undisclosed income of the specified previous year, if the assessee— (i) in the course of the search, in a statement under sub-section (4) of section 132, admits the undisclosed income and specifies the manner in which such income has been derived; (ii) substantiates the manner in which the undisclosed income was derived; and (iii) on or before the specified date— (A) pays the tax, together with interest, if any, in respect of the undisclosed income; and (B) furnishes the return of income for the specified previous year declaring such undisclosed income therein; (b) a sum computed at the rate of sixty per cent of the undisclosed income of the specified previous year, if it is not covered under the provisions of clause (a). (2) No penalty under the provisions of section 270A or clause (c) of sub- section (1) of section 271 shall be imposed upon the assessee in respect of the undisclosed income referred to in sub-section (1) or sub-section (1A). (3) The provisions of sections 274 and 275 shall, as far as may be, apply in relation to the penalty referred to in this section. Explanation.—For the purposes of this section,— (a) "specified date" means the due date of furnishing of return of income under sub-section (1) of section 139 or the date on which the period specified in the notice issued 5[under section 148 or under section 153A, as the case may be,]for furnishing of return of income expires, as the case may be; (b) "specified previous year" means the previous year— (i) which has ended before the date of search, but the date of furnishing the return of income under sub-section (1) of section 139 for such year has not expired before the date of search and the assessee has not furnished the return of income for the previous year before the date of search; or (ii) in which search was conducted; (c) "undisclosed income" means— (i) any income of the specified previous year represented, either wholly or partly, by any money, bullion, jewellery or other valuable article or thing or any entry in the books of account or & 535,536/Mum/2025; A.Y. 2010-11 to 2016-17 Priyaa Mohan Gurnani other documents or transactions found in the course of a search under section 132, which has— (A) not been recorded on or before the date of search in the books of account or other documents maintained in the normal course relating to such previous year; or (B) otherwise not been disclosed to the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner before the date of search; or (ii) any income of the specified previous year represented, either wholly or partly, by any entry in respect of an expense recorded in the books of account or other documents maintained in the normal course relating to the specified previous year which is found to be false and would not have been found to be so had the search not been conducted. 5.2. From a bare perusal of the above provisions, it is clear that, there is a specific provision to initiate penalty in a case where search is initiated based on the cutoff date mentioned in respective section. In the present facts of the case, search was initiated in case of assessee on 04/02/2016, penalty has to be initiated under section 271AAB, since the search date falls between 1/06/2012 to 15/06/2016([i.e. date on which the Taxation Laws (Second Amendment) Bill, 2016 received the President’s assent].

Now the question arises is, whether all assessment years under consideration stands covered under section 271AAB, as submitted by the Ld.AR.

5.3. From the plain reading of section 271AAB, it is clear that where a search u/s.132(1) was initiated on or after the 1st day of July, 2012, penalty is livable on the undisclosed income at the rate and conditions specified under section 271AAB(1) for the & 535,536/Mum/2025; A.Y. 2010-11 to 2016-17 Priyaa Mohan Gurnani specified previous year. Further, the section also defines the term "specified previous year" as under:- "specified previous year" means the previous year— (i) which has ended before the date of search, but the date of furnishing the return of income under sub-section (1) of section 139 for such year has not expired before the date of search and the assessee has not furnished the return of income for the previous year before the date of search; or (ii) in which search was conducted; 5.4. Applying the above definition to the assessment years under consideration, the assessment year in which penalty is to be levied under section 271AAB is assessment year 2016-17 as it falls under the second limb of the definition. It is also noted that there is no undisclosed income declared by the assessee as contemplated under section 271AAB.

5.5. Be that as it may, section 271AAB starts with non obstante clause and excludes applicability of section 271(1)(c), if the undisclosed income pertains to the specified previous year. The Ld.AR in his written submission has not considered the definition of specified previous year under explanation to sub clause(3) which is clear on the aspect of applicability of section 271AAB only to the year that satisfies the conditions mentioned therein. Accordingly, we do not find merit in the argument of the Ld.AR that, section 271AAB will be applicable to all the assessment years under consideration.

Based on the above, we hold that, penalty levied under section 271(1) (c ) for assessment year 2016-17 is bad in law, void ab initio and deserves to be quashed.

& 535,536/Mum/2025; A.Y. 2010-11 to 2016-17 Priyaa Mohan Gurnani 6. In respect of the remaining assessment years, in our opinion, penalty has been rightly initiated under section 271(1) (c ) of the Act.

6.1 We have also considered the without prejudice argument advanced by the Ld.AR regarding the penalty being wrongly levied under section 271(1) (c ) of the Act.

7.2 It is clear from the bare reading of section 271(1)(c) of the Act that, the words used are 'has concealed the particulars of income' or furnished 'inaccurate particulars of such income'. In case of concealment, the phrase 'particulars of income' has been used. Thus penal provision would operate when there is a failure to disclose fully or truly all the particulars. So when any fact material to the determination of an item as income or material to the correct computation is not filed or that which is filed is not accurate, then the assessee would be liable to penalty under section 271(1)(c) of the Act. The expression 'has concealed the particulars of income' has not been defined Act. According to Law Lexicon, the word "conceal" means: "to hide or keep secret. The word 'conceal' is con + ceal which implies to hide. It means to hide or withdraw from observation; to cover or keep from sight; to prevent the discovery of ; to withhold knowledge of. 7.3 The offence of concealment is, thus, a direct attempt to hide an item of income or a portion thereof from the knowledge of the income-tax authorities. In the present facts of the case, the assessee did not conceal any particulars of the income. Assessee had furnished all details and it was within the knowledge of the authorities that the assessee had not received rent from some & 535,536/Mum/2025; A.Y. 2010-11 to 2016-17 Priyaa Mohan Gurnani properties either for the entire year or partly. In fact the assessee claimed vacancy allowance during the period where the properties remained vacant either for entire year of partly during the year. The vacancy allowance was not allowed by the Ld.AO against which ALV was computed based on the rent received by the assessee in past against such properties .The penalty is levied on the such notional rent computed in respect of the immovable property that remained vacant. It is noted that the assessee had offered the rental income that was received from properties that were rented out. We refer to the decision of Hon’ble Supreme Court in case of CIT vs. Reliance Petoproducts Pvt. Ltd(supra). Hon’ble Court held that:

7.4. We note that the above ratio is clearly applicable to the facts of the present case. Respectfully following the view of Hon’ble Supreme Court in case of CIT vs. Reliance Petoproducts Pvt. Ltd(supra), we are of the view that in present facts of the case, for assessment years 2010-11 to 2015-16, penalty initiated under section 271(1)(c ) for alleged concealment is bad in law and liable to be quashed.

& 535,536/Mum/2025; A.Y. 2010-11 to 2016-17 Priyaa Mohan Gurnani Accordingly, grounds raised by the assessee raised for all assessment years under consideration stands allowed. In the result the appeal filed by the assessee stands allowed. Order pronounced in the open court on 27/03/2025