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Income Tax Appellate Tribunal, JAIPUR BENCHES, JAIPUR
Before: SHRI KUL BHARAT, JM & SHRI VIKRAM SINGH YADAV, AM vk;dj vihy la-@ITA No. 58/JP/2016
आयकर अपीलीय अधिकरण] जयपुर न्यायपीठ] जयपुर IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES, JAIPUR Jh dqy Hkkjr] U;kf;d lnL; ,oa Jh foØe flag ;kno] ys[kk lnL; ds le{k BEFORE: SHRI KUL BHARAT, JM & SHRI VIKRAM SINGH YADAV, AM vk;dj vihy la-@ITA No. 58/JP/2016 fu/kZkj.k o"kZ@Assessment Year : 2011-12 cuke Dinesh Kumar Vijay, The ITO, Vs. A-131, Janta Colony, Ward 5(2), Jaipur. Jaipur. LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: ABWPV7268G vihykFkhZ@Appellant izR;FkhZ@Respondent fu/kZkfjrh dh vksj ls@ Assessee by : Shri Arpit Vijay (C.A.) jktLo dh vksj ls@ Revenue by : Shri R.A. Verma (Addl. CIT) lquokbZ dh rkjh[k@ Date of Hearing : 27/09/2017 mn?kks"k.kk dh rkjh[k@Date of Pronouncement: 04/10/2017 vkns'k@ ORDER
PER: VIKRAM SINGH YADAV, A.M. This is an appeal filed by the assessee against the order of ld. CIT (A)-II, Jaipur dated 20.11.2015 for A.Y. 2011-12. The ground of appeal taken by the assessee is as under:- “1. Under the facts and circumstances of the case the ld. CIT(Appeal) is not justified in confirming the penalty of Rs. 1097566/- levied u/s 271(1)(c) of the I.T. Act, 1961 for concealment of income and furnishing inaccurate particulars thereof.”
ITA No. 58/JP/2016 Dinesh Kumar Vijay Vs. ITO, Jaipur
At the start of the hearing, the ld AR submitted that the assessee wishes to take the following additional ground of appeal is as under:- “The initiation of proceedings u/s 271(1)(c) of the Income Tax Act, 1961 is not valid as the AO did not strike off the inappropriate portion of the notice. The AO ought to have struck off the inappropriate portion and indicated to the appellant the applicable portion in the notice.”
After hearing both the parties, the additional ground being a purely legal ground, the same was admitted for adjudication.
Briefly the facts of the case are that the assessee has sold a flat No. 1 in the building known as ‘Ramesh Mahal’ at Mumbai during the year under consideration. However, the assessee did not disclose income by way of long-term capital gains in his original return of income filed on 06.01.2012. During the assessment proceedings, the assessee’s A/R stated that as the return was a belated one, the same was not eligible for rectification. He further stated that the assessee suffered huge losses in business and was mentally disturbed due to which the assessee failed to disclose the transaction of the sale of immovable property and submitted a revised computation of total income incorporating capital gains of Rs 53,25,629. The AO computed the long term capital gains with a minor adjustment of Rs 2,362 as under: Sale consideration Rs. 1,50,00,000/- Less: Transfer expenses Rs. 37,500/- Rs. 1,49,62,500/- Less: Indexed cost 2
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F.Y. 2005-06 3180320 x 497- Rs. 45,49,713 Cost of improvement F.Y. 2005-06 2650000 x711/497- Rs. 37,91,046 Cost of improvement F.Y. 2009-10 1150000 x711/632- Rs. 12,93,750 Rs. 96,34,509 Long term Capital Gain Rs. 53,27,991
Further, penalty proceedings u/s 271(1)(c) of the Income-tax Act, 1961 were initiated separately for furnishing inaccurate particulars of income by the assessee and concealing his income.
We now refer to the relevant findings of the Ld. CIT(A) which are under challenge before us. The same are reproduced as under:- “3.3 I have perused the facts of the case, the penalty order and the submissions of the appellant. In this case penalty has been levied on the transaction of sale of a house property which was not disclosed in the return of income filed. The facts show that a notice u/s 143(2) had been issued on 27.09.2012 which remained uncompelled. Thereafter, notice u/s 142(1) along with queries was issued on 03.09.2013 which was duly served on the assessee. Again there was no compliance and a show cause notice was issued for non-compliance. Finally on 27.12.2013, the assessee’s AR has appeared and submitted a revised computation of income after a lapse of 1 year and 3 months from date of first notice of leaving. In the revised computation the AR surrendered the income by way of long term capital gain on sale of a flat in Mumbai.
Further, in penalty proceedings before the Assessing Officer it was pleaded that the assessee was suffering from a serious disease and was mentally disturbed from the Financial Year 2011 3
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onwards. The spouse is a housewife and there was no competent person in the family to look after the business affairs. Under such circumstances the wife has approached some unskilled person for filing the relevant return who filed the same on the basis of incomplete and ad hoc information. He also stated that it was not in the knowledge of the spouse and the person filing the return that the assessee had sold some flat in Mumbai during the relevant previous year. Affidavits of the wife and Mr. Rajesh Vijay, who filed the return of income of the assessee have filed. This main emphasis was on the fact that the assessee had made a voluntary disclosure and hence no penalty was leviable. He further relied on certain case laws for the proposition that disclosure being voluntary, the penalty should not be imposed.
In the present proceedings before me the AR has largely reiterated the same submissions as before the Assessing Officer. The issue to be examined is whatever the disclosure is voluntary or not.
It is seen that during assessment proceedings there has been non-compliance to the notices and assessee has responded only after notice dated wherein specific query regarding the details of immovable properties has been made. Further, while at the time of assessment due to losses in business but no mention of return being filed by wife and unskilled person was made.
The AR in his submission states, ‘after receipt of notice u/s 143(2) the AR of the appellant examined the Bank Statement and other relevant records and it has come to his knowledge that a flat of Mumbai has been sold during the relevance previous year which has not been disclosed in the relevant return of income’ which means that but for the notice making a specific query regarding the immovable properties, this transaction would never have been disclosed to the department. It has been observed in the case of Deepak Construction Company vs. CIT 164 4
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Taxmann.com 334 (Gujarat) “After the notice dated 24.02.1986 was served upon the assessee, he came out of his slumber, started acting honest and submitted the revised return. It was not the case of the assessee either before the Assessing Officer or before the Tribunal that much before service of the show- cause notice, honesty prevailed upon him and to the call of good conscience, he filed the revised return. The revised return in fact, was a reaction to the notice issued by the Assessing Officer on 24.02.1986.”
The assessee has further claimed that it has offered bonafide explanation. The fact of assessee being mentally disturbed has not been supported by any evidence at any stage. The factor of return being filed by the wife and ‘unskilled’ person is stated for the first time at the time of penalty proceedings. In the cases cited by the AR, the facts are distinguishable.
The Apex Court in the case of MAK Date has clearly held that plea of the assessee like ‘voluntary disclosure, buy peace, avoid litigation to explanation its conduct’ are not recognized by the statue under the Explanation 1 to section 271(1)(c). It is trite laws that voluntary disclosure does not release the assessee from the mischief of penal proceedings under section 271(1)(c). The law does not provide that when an assessee makes a voluntary disclosure of his concealed income, he has to be absolved from penalty. Further, it was observed that it is the statutory duty of the assessee to record all its transactions in the books of account, to explain the source of payments made by it and to declare its true income in the return of income filed by it from year to year. In the light of the above observations of the Hon’ble Court, it is clear that the assessee, has neither made a voluntary disclosure nor recorded its transactions properly in its books of account and also not declared the same in the return filed by it. Further the substantial leg between the notice specifically calling for the details of property and the disclosure by the assessee also shows 5
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that the disclosure was because no other escape was available to the assessee.
It is also important to note that but for the detection of this transaction in the assessment proceedings, in consequence to the specific notice, issued by the Assessing Officer, the undisclosed income would not have got unearthed at all. Reliance is place on the following observations in the case of 60 taxmann.com 352 (Madras) in the case of Lanxess India (P) Ltd.,
In view of the discussion as above, since the disclosure made by the assessee cannot be said to be voluntary and also no reasonable cause could be demonstrated by the assessee the penalty levied u/s 271 (1)(c) is confirmed.”
During the course of hearing, the ld. AR submitted that the assessee during the relevant previous year deriving income from trading of precious and semi-precious stones. The assessee filed his return of income on 06.01.2012 declaring total income of Rs. 1,58,970/-. The case was selected for scrutiny vide notice dated 27.09.2012 and a query letter was issued on 03.09.2013 for furnishing of basis/general details. The assessee in response to first query letter dated 03.09.2013 filed the requisite details on 27.12.2013 and submitted that during the relevant period due to adverse business conditions the assessee was mentally disturbed and could not disclose the transaction of sale of immovable property in the return of income. The assessee on the same day along with other details filed revised computation of total income incorporating therein capital gain of Rs. 53,25,629/-. The AO after minor adjustments of Rs. 2,362/- accepted the capital gain of Rs. 53,27,991/- as disclosed by the assessee and made addition of the
ITA No. 58/JP/2016 Dinesh Kumar Vijay Vs. ITO, Jaipur
same to returned income. The AO simultaneously initiated penalty proceedings u/s 271(1)(c) of IT Act 1961, for furnishing inaccurate particulars of income and concealment of income and vide impugned order dated 27.08.2014 levied penalty of Rs. 10,97,566/-.
In penalty proceedings, it was submitted by the ld AR that the assessee vide letter dated 21.04.2014 submitted that during the relevant period, the assessee was suffering from serious diseases of mental disturbance and wife of the assessee under such adverse circumstances without having any specific knowledge about the sale of relevant flat situated at Mumbai, filed his return of income on the basis of adhoc and incomplete information. The assessee in support of his contention submitted the affidavits of his wife and Sh. Rajesh Vijay who filed the relevant return of income. The appellant not being well did not observed his return of income till the date of receipt of relevant notice u/s 143(2) of IT Act, 1961. After receipt of notice u/s 143(2), the AR of the appellant examined the bank statement and other relevant records and it came to his knowledge that a flat at Mumbai has been sold during the relevant previous year which has not been disclosed in the return of income. Therefore, the assessee voluntarily without having any query from the AO, disclosed all the relevant facts relating to the sale of said flat and filed revised computation of total income before the AO on the first hearing of the case.
It was further submitted that the assessee has submitted a bonafide explanation for not disclosing the capital gain in the return of income and substantiated the same by furnishing affidavits of his wife 7
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and Sh. Rajesh Vijay who filed the relevant return of income. The explanation of the assessee duly supported by affidavits of his wife and Shri Rajesh Vijay has not been found to be false or otherwise controverted by the AO. The AO has rejected the explanation of the assessee simply for the reason that the revised computation of income has been given during the course of assessment proceedings after issue of legal notices and show cause notice. In the case of the assessee no notice has been issued except formal notice dated 27.09.2012 u/s 143(2) for selecting the case for scrutiny, notice dated 03.09.2013 u/s 142(1) for furnishing general and basic details and notice dated 14.11.2013 to show cause for non compliance of notice dated 03.09.2013. The assessee has disclosed the relevant capital gain before any investigation and detection on the part of the AO. The additional income of capital gain voluntarily disclosed during the course of assessment proceedings even after issue of notice u/s 143(3) and general query letter u/s 142(1), cannot be characterized as concealed income and penalty cannot be levied in respect of the same u/s 271(1)(c) of IT Act, 1961.
The assessee also relied on the following decisions:- • Hon’ble Delhi High Court in the case of CIT vs. Harnarain, I.T.A. No. 2072 of 2010. • ACIT vs. Ashok Raj Nath (2013) 33 Taxmann.com 588 (Delhi- Trib.) • Qudai International vs. ITO [2009] 13 MTC 622 (Luck Trib) • Sharada Tukaram Bhor vs. ACIT (Mumbai tribunal ) (ITA No. 1871 and 1872 Mum/2014 dated 20.01.2017) 8
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Regarding additional ground of appeal, it was submitted that the AO while issuing the notice u/s 274 r.w. section 271(1)(c) of IT Act 1961, has not specified whether the assessee has concealed the particulars of income or furnished inaccurate particulars of such income. Therefore the notice u/s 274 r.w. section 271(1)(c) of IT Act 1961, issued for initiation of penalty proceedings is not valid. In support, reliance was placed on decision of Hon’ble Karnataka High Court in case of Manjunatha Cotton (359 ITR 565), Hon’ble Rajasthan High Court in case of Sheveta constructions Co. Pvt ltd (DB Appeal No. 534/2008 dated 6.12.2016), Hyderabad Bench of ITAT vide order dated 04.01.2017 in the case of Shri Nilaya A.R. Projects (ITA No. 1572/Hyd/2013) and in the case of Syed Tajamul Pasha (ITA No. 1364/ Bang/2015 dated 22.02.2016).
The ld DR is heard who has vehemently argued the matter and supported the order of the lower authorities.
We have heard the rival contentions and purused the material available on record. Firstly, regarding the additional ground of appeal where the assessee has challenged the initiation of the penalty proceedings u/s 271(1)(c) for the sole reason that the AO didn’t strike off the inappropriate portion of the notice and which shows a complete non application of mind on the part of the AO. In support, the ld AR drawn our reference to the decision of the Hon’ble Karnataka High Court in case of Manjunatha Cotton (supra), the relevant Para 59-61 of which reads as under:
ITA No. 58/JP/2016 Dinesh Kumar Vijay Vs. ITO, Jaipur
“59. As the provision stands, the penalty proceedings can be initiated on various ground set out therein. If the order passed by the Authority categorically records a finding regarding the existence of any said grounds mentioned therein and then penalty proceedings is initiated, in the notice to be issued under Section 274, they could conveniently refer to the said order which contains the satisfaction of the authority which has passed the order. However, if the existence of the conditions could not be discerned from the said order and if it is a case of relying on deeming provision contained in Explanation 1 or in Explanation 1(B), then though penalty proceedings are in the nature of civil liability, in fact, it is penal in nature. In either event, the person who is accused of the conditions mentioned in Section 271 should be made known about the grounds on which they intend imposing penalty on him as the Section 274 makes it clear that assessee has a right to contest such proceedings and should have full opportunity to meet the case of the Department and show that the conditions stipulated in Section 271(l)(c) do not exist as such he is not liable to pay penalty. The practice of the Department sending a printed form where all the ground mentioned in Section 271 are mentioned would not satisfy requirement of law when the consequences of the assessee not rebutting the initial presumption is serious in nature and he had to pay penalty from 100% to 300% of the tax liability. As the said provisions have to be held to be strictly construed, notice issued under Section 274 should satisfy the grounds which he has to meet specifically. Otherwise, principles of natural justice is offended if the show cause notice is vague. On the basis of such proceedings, no penalty could be imposed on the assessee.”
ITA No. 58/JP/2016 Dinesh Kumar Vijay Vs. ITO, Jaipur
"60. Clause (c) deals with two specific offences, that is to say, concealing particulars of income or furnishing inaccurate particulars of income. No doubt, the facts of some cases may attract both the offences and in some cases there may be overlapping of the two offences but in such cases the initiation of the penalty proceedings also must be for both the offences. But drawing up penalty proceedings for one offence and finding the assessee guilty of another offence or finding him guilty for either the one or the other cannot be sustained in law. It is needless to point out satisfaction of the existence of the grounds mentioned in Section 271(l)(c) when it is a sine qua non for initiation or proceedings, the penalty proceedings should be confined only to those grounds and the said grounds have to be specifically stated so that the assessee would have the opportunity to meet those grounds. After, he places his version and tries to substantiate his claim, if at all, penalty is to be imposed, it should be imposed only on the grounds on which he is called upon to answer. It is not open to the authority, at the time of imposing penalty to impose penalty on the grounds other than what assessee was called upon to meet. Otherwise though the initiation of penalty proceedings may be valid and legal, the final order imposing penalty would offend principles of natural justice and cannot be sustained. Thus once the proceedings are initiated on one ground, the penalty should also be imposed on the same ground. Where the basis of the initiation of penalty proceedings is not identical with the ground on which the penalty was imposed, the imposition of penalty is not valid. The validity of the order of penalty must be determined with reference to the information, facts and materials in the hands of the authority imposing the penalty at the time the order was 11
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passed and further discovery of facts subsequent to the imposition of penalty cannot validate the order of penalty which, when passed, was not sustainable. “61. The Assessing Officer is empowered under the Act to initiate penalty proceedings once he is satisfied in the course of any proceedings that there is concealment of income or furnishing of inaccurate particulars of total income under clause (c). Concealment, furnishing inaccurate particulars of income are different. Thus the Assessing Officer while issuing notice has to come to the conclusion that whether is it a case of concealment of income or is it a case of furnishing of inaccurate particulars. The Apex Court in the case of Ashok Pai reported in 292 ITR 11 at page 19 has held that concealment of income and furnishing inaccurate particulars of income carry different connotations. The Gujrat High Court in the case of MANU ENGINEERING reported in 122 ITR 306 and the Delhi High Court in the case of VIRGO MARKETING reported in 171 Taxman 156, has held that levy of penalty has to be clear as to the limb for which it is levied and the position being unclear penalty is not sustainable. Therefore, when the Assessing Officer proposes to invoke the first limb being concealment, then the notice has to be appropriately marked. Similar is the case for furnishing inaccurate particulars of income. The standard proforma without striking of the relevant clauses will lead to an inference as to non- application of mind."
From the above, it is evident that Hon'ble Karnataka High Court has held that the person who is accused of the offences as stated in Section 271(1)(c) should be made known about the grounds on which 12
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they intend imposing penalty on him as the Section 274 makes it clear that assessee has a right to contest such proceedings and should have full opportunity to meet the case of the Department and show that the conditions stipulated in Section 271(l)(c) do not exist as such he is not liable to pay penalty. The grounds for levy of penalty are thus linked to the adherence to the principles of natural justice and it was held that such principles of natural justice should not be offended. It was further held that the penalty u/s 271(l)(c) can be levied for two specific offences; one is concealing the particulars of income and second for furnishing of inaccurate particulars of income. The Assessing Officer cannot initiate penalty proceedings for one offence and then finally levy the penalty for another offence, because in such circumstance the assessee will not get proper opportunity to explain the charge levelled against him. The Hon’ble High Court has also noticed that the facts of some cases may attract both the offences and in some cases there may be overlapping of these two offences, but in such cases the initiation of penalty proceedings should also be for both the offences. In the instant case, the assessee has been issued a show-cause notice dated 21.02.2014 along with the passing of the assessment order dated 21.02.2014 where the assessee was made aware of initiation of the penalty proceedings against him for both the offences and an opportunity was provided to him to present his case before the AO. Infact, the assessee availed off this opportunity and a written explanation was furnished before the AO on 21.04.2014 to drop the penalty proceedings. In our opinion, under the facts of the assessee's case, it may attract both the offences, i.e., the concealment of income as well as furnishing of inaccurate particulars of income and therefore, 13
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the Assessing Officer rightly initiated the penalty proceedings for both the offences. Since the initiation of penalty proceedings included both the offences and the show-cause notice also included both the offences, the assessee got the adequate opportunity to explain both the offences and therefore, there is no illegality in levying the penalty. It is not a case where the notice was issued for one offence and the penalty is levied for another offence. Therefore, in our opinion, the above decision of Hon'ble Karnataka High Court in the case of Manjunatha Cotton & Ginning Factory (supra) does not support the case of the assessee.
In case of Sheveta Construction (Supra), the substantial question of law for consideration before the Hon’ble Rajasthan High Court was whether penalty for alleged concealment of income or furnishing inaccurate particulars of income be levied when legality of assessment proceedings itself is subjudice before the Hon’ble High Court and the question to that effect has already been admitted in quantum appeal. In the present case, the assessee has not moved any appeal against the assessment order even before the ld CIT(A) and therefore, there is no question of assessment proceedings being subjudice before the Hon’ble High Court. Accordingly, the decision of the Hon’ble High Court in case of Sheveta Construction doesn’t support the case of the assessee.
It is therefore a case where the satisfaction has been recorded for both the limbs of section 271(1)(c) and finally, the penalty has been levied for violation of both the limbs of section 271(1)(c) of the Act. The initiation of penalty proceedings has happened by recording of satisfaction in the assessment order and the issuance of notice u/s 274 14
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is thus in continuation of recording of such satisfaction and has thus to be read along with the assessment order and not disjoint of the assessment order. It is not a case where the penalty has been initiated for one limb and finally levied in respect of another limb. The AO has been consistent in his approach and his action doesn’t reflect any non- application of mind. In light of above discussions, we therefore donot feel there is any infirmity in the initiation of penalty proceedings as contended by the ld AR. The additional ground of appeal is thus dismissed.
The next question that arises is once such an opportunity is given to the assessee, where the assessee fails to offer the explanation or offers explanation which is found to be false, then the penalty will follow as prescribed under Clause (iii) of clause (c) of sub-section (1) of Section 271. Where the assessee offers an explanation and substantiate the explanation, the question of imposing penalty would not arise. Even in cases where he fails to substantiate the explanation, but if he proves that explanation offered is a bona fide one and all the facts relating to the same and material to the computation of his total income has been disclosed by him, then, in law, a discretion is vested with the authority not to impose penalty.
In penalty proceedings, the assessee vide letter dated 21.04.2014 submitted that during the relevant period, the assessee was suffering from serious diseases of mental disturbance and wife of the assessee under such adverse circumstances without having any specific knowledge about the sale of relevant flat situated at Mumbai, filed his 15
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return of income on the basis of adhoc and incomplete information. The assessee in support of his contention submitted the affidavits of his wife and Sh. Rajesh Vijay who filed the relevant return of income. Subsequently, during the course of assessment proceedings, all relevant facts relating to the sale of flat and a revised computation of income determining long term capital gains along with details of taxes and interest deposited thereon was filed. The said explanation of the assessee along with the contents of the affidavits have not been found to be false or controverted by the Revenue authorities. In the peculiar facts and circumstances of the case where the assessee was incapacitated to file his return of income due to his ill-health and incomplete return was filed which was subsequently revised by way of filing revised computation of income along with payment of taxes during the course of assessment proceedings, it shows the bonafide of the assessee and accordingly, cannot be made subject to levy of penalty u/s 271(1)(c) of the Act.
In the result, the assessee’s appeal is allowed. Order pronounced in the open court on 04/10/2017 Sd/- Sd/- ¼dqy Hkkjr ½ ¼foØe flag ;kno½ (Kul Bharat) (Vikram Singh Yadav) U;kf;d lnL;@Judicial Member ys[kk lnL;@Accountant Member Tk;iqj@Jaipur fnukad@Dated:- 04/10/2017. *Santosh. आदेश की प्रतिलिपि अग्रेf’ात@ब्वचल वf जीम वतकमत वितूंतकमक जवरू 1. vihykFkhZ@The Appellant- Dinesh Kumar Vijay, A-131, Janta Colony, Jaipur. 16
ITA No. 58/JP/2016 Dinesh Kumar Vijay Vs. ITO, Jaipur 2. izR;FkhZ@ The Respondent- ITO Ward 5(2), Jaipur. 3. vk;dj vk;qDr@ CIT 4. vk;dj vk;qDr@ CIT(A) 5. विभागीय प्रतिनिधि] आयकर अपीलीय अधिकरण] जयपुर@क्त्ए प्ज्Aज्ए Jंपचनत. 6. xkMZ QkbZy@ Guard File {ITA No. 58/JP/2016} vkns'kkuqlkj@ By order,
सहायक पंजीकार@Aेेज. त्महपेजतंत