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Facts
The assessee purchased an immovable property and the assessment was reopened to examine the source of purchase. Although no addition was made for the property purchase, an addition was made for short-term capital gains on the sale of another property. Subsequently, a penalty was imposed for concealment of income related to these capital gains.
Held
The Tribunal held that the addition for short-term capital gains was not the basis for the original notice issued under Section 148, which was for examining the source of immovable property purchase. Citing the jurisdictional High Court's ruling, the Tribunal found the addition itself legally untenable and consequently deleted the penalty.
Key Issues
Whether the penalty imposed for concealment of income is justified when the addition made was not the basis for the original notice of reopening and is otherwise legally untenable.
Sections Cited
250, 1961, 271(1)(c), 148, 143(3), 147, 274
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Income Tax Appellate Tribunal, ‘B’ BENCH, CHENNAI
Before: SHRI GEORGE GEORGE KAND SHRI S.R. RAGHUNATHA
O R D E R
PER GEORGE GEORGE K, VICE PRESIDENT:
This appeal at the instance of the assessee is directed against CIT(A) / NFAC, order dated 09.07.2024, passed under section 250 of the Income Tax Act, 1961 (hereinafter called ‘the Act’). The relevant Assessment Year is 2012-13.
There is a delay of 73 days in filing this appeal. The assessee has filed a petition for condonation of delay along with affidavit stating therein the reasons for belated filing of this appeal. On perusal of the aforesaid reasons in the condonation application, we are of the view that there is sufficient cause for belated filing of this appeal and no latches can be attributed to the assessee. Hence, we condone the delay in filing this appeal and proceed to dispose off the appeal on merits.
The solitary issue that raised by the assessee in this appeal is whether the CIT(A) is justified in confirming penalty imposed u/s.271(1)(c) of the Act amounting to Rs.40,125/-.
The brief facts of the case are as follows:- The assessee is an individual. For the assessment year 2012- 13, return of income was filed on 05.08.2013. The assessee in the impugned assessment year had purchased an immovable property for a consideration of Rs.60 Lakhs. The assessment was reopened by issuance of notice u/s.148 of the Act, to examine source of purchase of property. In response to notice issued u/s.148, the assessee filed return of income on 25.04.2019 declaring total income of Rs.4,71,870/-. The assessment was completed u/s.143(3) r.w.s.147 of the Act on 09.12.2019. In the said reassessment, no addition was made with regard to inadequate source of purchase of immovable property. However, AO made an addition of Rs.2,08,843/- as short term capital gains on sale of one property. Accordingly, assessment was completed on total income of Rs.6,80,713/-. In the assessment order, AO initiated penalty proceedings u/s.271(1)(c) of the Act for concealment of income of short term capital gains. The AO issued show cause notice u/s.274 r.w.s. 271(1)(c) of the Act for imposition of penalty. The assessee submitted his reply vide letter dated 11.05.2021. However, submissions of the assessee was rejected and that the AO imposed penalty u/s.271(1)(c) of the Act amounting to Rs.40,125/- for concealment of income on the short term capital gains which was brought to tax in the reassessment order dated 09.12.2019.
Aggrieved, by imposition of penalty amounting to Rs.40,125/-, the assessee filed an appeal before First Appellate Authority. The CIT(A) confirmed the imposition of penalty and dismissed appeal of the assessee.
Aggrieved by order of the CIT(A), in confirming imposition of penalty u/s. 271(1)(c) of the Act, assessee has filed present appeal before the Tribunal. The Ld.AR submitted that notice u/s.148 of the Act has been issued for examining source of purchase of immovable property. It was submitted by the Ld.AR that however, no addition was made on account of purchase of the immovable property in the reassessment completed on 09.12.2019. The addition that was made in the reassessment competed was with regard to short term capital gains of sale of property [unconnected with purchase of property] for a sum of Rs.2,08,843/-. It was submitted by Ld.AR that when no addition has been made for the reasons recorded for reopening of the assessment, AO cannot make addition on some other new issues which was not the basis for reasons recorded for reopening of assessment. In this context, Ld.AR has relied on judgement of the Hon’ble Jurisdictional High Court in the case of M/s. Tractors and Farm Equipment Limited Vs. ACIT (2018) 409 ITR 369 (Mad). It was further contended by the Ld.AR that when the addition itself is not legally tenable based on the dictum laid down by the Hon’ble Jurisdictional High Court, imposition of penalty on the same u/s.271(1)(c) of the Act is not justified.
The Ld.DR supported the orders of the AO and CIT(A).
We have heard the rival submissions and perused material on record. The Hon’ble Jurisdictional High Court in the case of M/s. Tractors and Farm Equipment Limited Vs. ACIT (supra) had categorically held that if a notice has been issued u/s.148 of the Act to make addition / disallowance of a particular income which has escaped assessment and as a matter of fact, has not escaped assessment, it is not open to the AO to independently assess some other income. It was further held by the Hon’ble High Court that if AO intends to do so, a fresh notice u/s.148 necessarily have to be issued to bring to tax the said new income.
In the instant case, notice has been issued u/s.148 to examine source of purchase of immovable property made by the assessee. However, in the reassessment completed, no addition has been made with regard to purchase of immovable property. On the contrary, addition has been made on short term capital gains on Rs.2,08,843/- on sale of another property. Therefore, in the light of the judgement of the Hon’ble Jurisdictional High Court the very addition of Rs.2,08,843/- which was not the basis for issuance of notice u/s.148 could not have been made. The fact of the matter that assessee has not filed an appeal as against the quantum assessment is immaterial. The assessment and penalty is independent of each other. However, the basis of imposition of penalty is on addition/disallowance made in the assessment order. When the addition itself is legally not tenable, in light of the Hon’ble Jurisdictional High Court judgement in the case of M/s. Tractors and Farm Equipment Limited Vs. ACIT (supra), the penalty based on said addition will have no legs to stand and it is hereby deleted. It is ordered accordingly.
- 6 - ITA No.3167//CHNY/2024
In the result, appeal filed by the assessee is allowed.
Order pronounced in the open court on 19th February, 2025.