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Income Tax Appellate Tribunal, HYDERABAD BENCH ‘B-SMC, HYDERABAD
Before: SMT. P. MADHAVI DEVI & SHRI S. RIFAUR RAHMAN
PER S. RIFAUR RAHMAN, AM: This appeal filed by the assessee is directed against the order of CIT(A) – 2, Hyderabad, dated, 31/01/2017 for AY 2009-10, whereby he confirmed the penalty order passed u/s 271(1)(c) of the Income-tax Act, 1961 ( in short ‘the Act’).
Brief facts of the case are, the AO observed that the assessee had not filed return of income for the A.Y. 2009-10. Since the department was in possession of the information that the assessee had taxable income, notice u/s 148 was issued to the assessee on 12.03.2013 and in response to the said notice, the assessee filed a return of income on 27.03.2013 admitting an income of Rs. 8,24,125/-. The said return was taken up for scrutiny and after considering the details submitted, the assessment was completed by making the following additions:
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(i) On verification of the details furnished, it is observed that sale consideration in respect of some of the plots was not considered by the assessee. When this was brought to the notice of the assessee, the additional sale consideration of 7,94,140/- was offered for taxation which was added to the total income.
(ii) The assessee claimed an amount of Rs.5,32,477/- as registration expenses incurred but adduced proof only to the extent of Rs.1,66,355/- and failed to produce documentary proof for the balance amount of Rs.3,66,122/- (5,32,477-1,66,355) which was added to the income returned.
(iii) The assessee claimed an amount of Rs.29,45,425/- as expenditure incurred towards development of the land. It is noticed that the total expenditure was incurred in cash making it difficult to verify the genuineness of the claim. Further, the assessee has stated that he had not maintained books of account and failed to produce the relevant vouchers in respect of the expenditure incurred. Accordingly, 40% of the expenditure of Rs. 11,78,170/- was disallowed and added back for which the assessee has accepted.
2.1 Since, the assessee has concealed the income and, furnished inaccurate particulars of his income, the AO issued penalty notice u/s 271(1)(c) and the assessee was asked to file his objections if any. In response to the penalty notice, assessee's AR filed written submissions. After considering the submissions, the AO rejected the same.
2.2 After considering the issue at length with the provisions of section 271(1)(c) as well as with various case law, the AO levied penalty u/s 271(1)(c) on the income of Rs. 31,62,560/- being the concealed income of the assessee for AY 2009-10, at Rs. 8,79,381/- being 100% of tax on the income sought to be evaded.
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Aggrieved by the order of AO, the assessee preferred an appeal before the CIT(A), who confirmed the penalty levied by the AO by observing, inter-alia, that “I am of the considered view that all the above statutory obligations which were failed to be done by the assessee would go to prove that there is deliberate intention of concealment of income on the part of the assessee and, therefore, the AO’s action in levying penalty of Rs. 8,79,381/- is justified.”
Aggrieved by the order of CIT(A), the assessee is in appeal before us raising the following grounds of appeal:
“1. The Order of the Hon'ble Commissioner of Income Tax, in so far as it is against the appellant, is contrary to the facts of the case and provisions of law. 2. The Hon'ble Commissioner of Income Tax is not justified in sustaining the penalty u/s.271(1)(c) of Rs.8,79,381/-. 3. The Hon'ble Commissioner of Income Tax should have appreciated that the appellant has neither concealed any income nor furnished any inaccurate particulars of income. 4. The Hon'ble Commissioner of Income Tax should have seen that the omission to file the Return within the timeframe contemplated in Section 153 r.w.s.139 was due to reasonable cause and therefore, the Hon'ble Commissioner of Income Tax should not have sustained the penalty levied u/s.271(1)(c) under its Explanation-3. 5. The Hon'ble Commissioner of Income Tax should have seen that the appellant has been filing his Returns regularly from time to time and that he could not file the Return for the year under consideration within the timeframe provided in Section 139 r.w.s.153 though the appellant paid the self-assessment tax in September, 2011, even because the software of the Department did not permit the furnishing of the Return by the appellant during September, 2011.
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The Hon'ble Commissioner of Income Tax should have appreciated that the additions of RS.3,66,122/- by way of disallowance of Stamp Duty and Rs.11,78,170/- by way of Development Expenses are on an estimate and therefore, the Hon'ble Commissioner of Income Tax should not have sustained the penalty U/s.271(1)(c) in respect of these additions. The Hon'ble Commissioner of Income Tax should have seen that the appellant has offered additional income of Rs.7,94,140/- in the course of the assessment on account of a genuine mistake in respect of sale price of some plots, the details of which are not available when the Return was filed by the appellant. Therefore, the Hon'ble Commissioner of Income Tax should not have sustained the penalty levied u/s.271(1)(c) in respect of these amounts. 7. Alternatively, it is contended that the penalty levied U/s.271(1)(c) is highly excessive and arbitrary. For these and other grounds that may be urged at the time of hearing, it is submitted that the Order of the lower authorities be set aside or modified as may be deemed fit. 4.1 The assessee also filed petition for admitting the following additional grounds by stating that the notice issued u/s 274 is illegal in terms of the judgement of the Jurisdiction High Court in CIT Vs. Baisetty Revathi reported in 398 ITR 88 (T&AP). The appellant is therefore filing this petition for raising additional grounds. It is therefore, prayed that the Hon'ble Income Tax Appellate Tribunal be pleased to allow the Appellant to raise the following Additional Grounds.
“(1) It is contended that the Notice U/s. 274 read with Section 271(1)(c) is vague, invalid and illegal in so far as the limbs under which the Assessing Officer initiated the penalty proceedings have not been specified. (2) The Penalty levied deserves to be cancelled pursuant to such defective Notice.”
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The assessee filed written submissions before the Tribunal. As regards the additional grounds, the assessee relied on various cases and, inter-alia, submitted that all the columns of the show cause notice are kept blank without specifying under which charge is the penalty notice issued i.e. whether for concealment or for furnishing of inaccurate particulars of income. This is not made know. The notice is vague and uncertain and is thus illegal. Hence, no penalty can be levied on the basis of such vague, uncertain and illegal notice.
5.1 On merit, the assessee submitted that the AO levied minimum penalty of Rs. 8,79,381/-. Though, the total amount of addition made is Rs. 23,38,432/- penalty was levied on the entire income of Rs. 31,62,560/-., The AO considered that the entire income should be treated as concealed income because the assessee failed to furnish the return within the period specified in sub-section (1) of section 153 of the Act. He, therefore, invoked explanation-3 to section 271(1)(c) and considered the entire assessed income as liable for levy of penalty u/s 271(1)(c) of the Act. He contended that in doing so, the reasonable cause explained by the assessee was not examined or appreciated. The penalty was levied on the assumption that once the return is not filed, the levy of penalty is an automatic consequence.
On the other hand, ld. DR also filed written submissions, which are as under: “1. Ground related to strike off of the inappropriate portion in penalty notice was neither raised before AO nor before CIT(A). 2. Assessee has filed ROI dated 27.3.2013 with income of Rs. 824,125/- for A.Y. 2009-10 in response to notice u/s 148. Assessee has no filed any original return of
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income. Assessee filed ROI only when notice u/s 148 was received by him. So it can be inferred that assessee had not furnished full particulars of income. Assesse 's case is clearly covered by explanation 3 of section 271(1)(c) of the act. Only upon detection by the department during scrutiny proceedings it came to notice that assessee had not offered income in respect of some plots which is in nature of concealment of income. Assessee has also made wrong claim of registration expenses and development expenses which shows that facts disclosed by assessee in ROI were not true and not accurate. Thus it is a clear case of not only concealment of income but also furnishing of inaccurate particulars of income. Under these peculiar circumstances the AO initiated penalty proceedings without striking off either concealment or furnishing inaccurate particulars of income since both are relevant in this case. The assessee also having responded appropriately it cant be said that assessee was not put to notice about the reasons for issuance of notice. 3. Reliance is placed on following case laws- • Honble High Court of Madras in case of Sundaram Finance Ltd[2018] 93 taxmann.com 250. • Hyderabad ITAT Vide ITA No. 1519/Hyd/2016 dated 28.11.2017 in case of Jyothirmoy Yamsani • Honble SC judgement in case of MAK Data Pvt Ltd [2013] 38 taxmann.com • Honble SC judgement in case of K.P.Madhusudhan Vs CIT 2511TR 99 • CIT Vs Zoom Communications 327 ITR 510”
Considered the rival submissions and perused the material on record. It is noticed that assessee has not filed return of income for the AY 2009-10 and it is filed only after serving of notice u/s 148. Since assessee should have filed the return of income as per section 153(1) but filed only after issue of notice u/s 148 after expiry of time allowed u/s 153(1)
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of the Act. Therefore, assessee’s case falls under explanation 3 of section 271(1)(c) of the Act. On the first lap, assessee is chargeable with the penalty u/s 271(1)(c) for the above violation to the extent of income declared u/s 147 of the Act.
7.1 Coming to initiation of penalty proceedings, it is noticed that AO has not issued proper notice as per law. As per the jurisdictional High Court decision in the case of CIT Vs.Baisetty Revathi (supra), the notice issued u/s 274 is illegal. Relying on the above decision, we are inclined to treat the notice issued u/s 274 is improper and illegal. However, we notice that ld. DR has relied on Jyothirmoy Yamsani Case in ITA No. 1519/H/2016 to distinguish the facts on serving of improper notice u/s 274. In the above case, coordinate bench has not considered the defective notice served on the assessee for the reason that AO has clearly discussed the reasons for the penalty proceedings in the original assessment order itself. Whereas, in the present case, AO has not discussed anything about the reasons for initiating proceedings u/s 271(1)(c) in the original assessment order. Therefore, we cannot rely on the above case. Accordingly, the penalty levied is hereby deleted.
7.2 Since, we have held that initiation of penalty proceedings itself is bad in law, penalty levied for violation of Explanation – 3 of section 271(1)(c) cannot be sustained separately. Therefore, penalty levied u/s 271(1)(c) is hereby deleted as we have held that the proceedings itself is bad in law.
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In the result, appeal filed by the assessee is allowed.
Pronounced in the open court on 31st July, 2019.
Sd/- Sd/- (P. MADHAVI DEVI) (S. RIFAUR RAHMAN) JUDICIAL MEMBER ACCOUNTANT MEMBER Hyderabad, dated 31st July, 2019. kv