SHRI AJAY MAYOR,,AHMEDABAD vs. THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-1(2),, AHMEDABAD

Ld. CIT(A) failed to appreciate that ld. AO failed to record proper satisfaction as to penalty for concealment of income or furnishing inaccurate particulars of income and without proper satisfaction penalty order required to be quashed. It be so held now.

Ld. CIT(A) ought to have considered that amount received on dissolution of trust is capital receipt whereas it is treated as revenue in nature so dispute is debatable in nature and accordingly no penalty can be leviable. Asst. Year –2013-14 - 2–

Ld. CIT(A) failed to appreciate that in “Schedule FA” in return of income, appellant has disclosed in column by selecting “YES” and this shows bona fide on the part of the assessee and accordingly penalty is required to be deleted. It be so held now.”

The brief facts of the case are that the Assessing Officer initiated penalty proceedings against the assessee under section 271(1)(c) of the Income-tax Act, 1961 ("the Act") on the ground that the assessee had furnished inaccurate particulars of income and had concealed the particulars of income. During the course of assessment proceedings, the Assessing Officer observed that the assessee had received a sum of Rs.2,43,93,238/- from Mimosa Trust, a foreign trust established by Mr. Harry Holzman and administered by Pirunico Trustees (Jersey) Ltd. The Assessing Officer observed that the said amount received by the assessee was taxable in India and accordingly brought the same to tax under the provisions of the Act. According to the Assessing Officer, the assessee had not properly disclosed the said receipt in the return of income and therefore had furnished inaccurate particulars of income. On this basis, penalty proceedings under section 271(1)(c) were initiated and the Assessing Officer imposed a penalty of Rs.82,91,261/- holding that the assessee had concealed income and furnished inaccurate particulars in respect of the amount received from the foreign trust.

Aggrieved by the penalty order, the assessee preferred an appeal before the Commissioner of Income Tax (Appeals) and challenged the imposition of penalty. The assessee contended that there was full disclosure of the amount received from Mimosa Trust in the return of income and in the notes accompanying the return. It was submitted that the receipt was treated by the assessee as a capital receipt and the complete particulars of the transaction had been furnished before the Assessing Officer during the assessment Asst. Year –2013-14 - 3– (Ahmedabad SB), wherein it was held that mere rejection of a claim made by the assessee does not automatically lead to the conclusion that the assessee has concealed income or furnished inaccurate particulars. The assessee also relied upon the decision in the case of Shri Prakashchandra S. Soni HUF vs. ACIT, ITA Nos. 1445 and 1597/Ahd/2014, wherein the Tribunal held that penalty cannot be levied where the addition itself is made under a different head of income than what was originally considered by the Assessing Officer. The assessee further contended that the notice issued under section 274 read with section 271(1)(c) was defective since it did not specify whether the penalty proceedings were initiated for concealment of income or for furnishing inaccurate particulars, and therefore reliance was placed on the decision in CIT vs. SSA’s Emerald Meadows (2016) 73 taxmann.com 241 (SC).

The CIT(Appeals), however, was not convinced with the explanations furnished by the assessee and rejected the arguments raised. The CIT(Appeals) observed that the amount received by the assessee from Mimosa Trust was clearly taxable in India under the provisions of the Act and that the assessee had failed to disclose the complete details of the transaction in the relevant columns of the return of income, particularly in the Ajay Mayor vs. DCIT Asst. Year –2013-14 - 4–

The assessee is in appeal before us against the order passed by CIT(Appeals) dismissing the appeal of the assessee.

Before us, the ld. counsel for the assessee drew our attention the relevant pages of the Paper-Book and submitted that vide letter dated 09.03.2018 addressed to the Assessing Officer, the assessee had made full Asst. Year –2013-14 - 5–

In response, Ld. DR placed reliance on the observations made by CIT(Appeals) in the appellate order.

We have heard the rival contentions and perused the material on record.

The issue before us is with respect to the levy of penalty under section 271(1)(c) of the Act on account of the amount received by the assessee from Mimosa Trust, which according to the Assessing Officer was liable to tax and Ajay Mayor vs. DCIT Asst. Year –2013-14 - 6–

At the outset, we observe it is an undisputed fact emerging from the record that the assessee had made disclosure regarding the receipt from Mimosa Trust in the return of income as well as in the notes accompanying the return. The assessee had taken a specific legal position that the amount received from the foreign trust represented a capital receipt and therefore was not chargeable to tax in India. It is also evident from the material placed on record that during the course of assessment proceedings the assessee furnished complete details of the said receipt and explained the nature and source of the transaction before the Assessing Officer. Therefore, the addition made by the Assessing Officer cannot be said to have arisen on account of any suppression of facts or non-disclosure of material particulars by the assessee.

It is well settled that penalty proceedings under section 271(1)(c) of the Act are distinct from assessment proceedings and the mere fact that an addition has been made in the assessment order does not automatically lead to the conclusion that the assessee has concealed income or furnished inaccurate particulars. The Hon’ble Supreme Court in the case of CIT vs. Asst. Year –2013-14 - 7–

Further, we also find merit in the contention of the assessee that the issue regarding taxability of the receipt from Mimosa Trust itself was a highly debatable issue. The learned counsel for the assessee has brought to our notice that the Ahmedabad Bench of the Tribunal in the assessee’s own case had referred the issue of taxability of such receipts to a Special Bench of the Tribunal in view of the conflicting judicial views on the subject. The Mumbai Bench of the Tribunal in Dwarka Prasad vs. ITO, ITA Nos. 4591 & 4592/Mum/2016 had taken a view that distribution out of the corpus of a trust constitutes a capital receipt and is not liable to tax in the hands of the beneficiary. The fact that the Tribunal itself considered it necessary to refer the issue to a Special Bench demonstrates that the taxability of such receipts is a contentious and debatable issue on which divergent views exist. When the underlying issue itself is debatable and subject to interpretation of law, it cannot be said that the assessee had either concealed income or furnished inaccurate particulars so as to warrant the levy of penalty.

In this regard, reference may also be made to the decision of the Ahmedabad Special Bench of the Tribunal in Gujarat Credit Corporation Asst. Year –2013-14 - 8–

Further support for this view can also be drawn from the decision of the Hon’ble Supreme Court in Price Waterhouse Coopers Pvt. Ltd. vs. CIT (2012) 348 ITR 306 (SC) wherein the Court held that where the assessee has disclosed all material facts and the error arises on account of a bona fide interpretation or inadvertent mistake, the same would not attract penalty under section 271(1)(c) of the Act.

Considering the totality of the facts and circumstances of the case, it is evident that the assessee had made full disclosure of the transaction and had taken a legal view based on professional advice that the amount received from the foreign trust constituted a capital receipt not liable to tax. The issue itself being debatable and having been referred to a Special Bench of the Tribunal further reinforces the bona fide nature of the claim made by the assessee. In such circumstances, the essential ingredients required for invoking the provisions of section 271(1)(c) of the Act are absent.

Accordingly, in view of the judicial principles laid down by the Hon’ble Supreme Court in CIT vs. Reliance Petroproducts (P.) Ltd. (322 Asst. Year –2013-14 - 9– 18. Accordingly, the Assessing Officer is directed to delete the penalty of Rs.82,91,261/- levied under section 271(1)(c) of the Income-tax Act, 1961. 19. In the result, the appeal of the assessee is allowed. This Order is pronounced in the Open Court on 13/03/2026 (NARENDRA P. SINHA) JUDICIAL MEMBER Ahmedabad; Dated 13/03/2026