MEETA H GANDHI,MUMBAI vs. ITO 26 (2)(2), MUMBAI

आदेश / O R D E R PER PAVAN KUMAR GADALE - JM:

“1. On the facts, in the circumstances of the case and in law the Ld. CIT(A) has erred in sustaining the penalty of Meeta H. Gandhi, Mumbai - 2 - Rs. 49000/- levied by the AO without considering the facts on record. 2. The impugned penalty is sustained on the basis of perverse finding. 3. the appellant prays your honors to crave leave to add, amend, alter, delete, modify and or change any of the grounds of appeal, which are independent, and without prejudice to each other.

2. The brief facts of the case are that the assessee’s assessment was completed u/s 143(3) of the Act on 04.12.2006 determining total income of Rs. 4,09,750/- as against returned income of Rs.1,59,752/-.Subsequently, the assessee has preferred an appeal with the first appellate authority and the CIT(A) has confirmed the addition as the assessee could not able to establish the identity of donor. Further, the assessee has filed an appeal with the Hon’ble ITAT, whereas, the Hon’ble Tribunal has directed the A.O to examine the donor and decide the matter afresh. Subsequently the assessment was completed u/s 143(3)r.w.s.254 of the Act on 29.12.2011 assessing the total income of Rs. 4,09,752/- including the gift of Rs. 2,50,000/- treated as income from undisclosed sources. The A.O. has initiated penalty proceedings u/s 271(1)(c) of the Act Meeta H. Gandhi, Mumbai - 3 - and issued Notice. The assessee has filed the explanations on 15.09.2015 mentioning that the assessee has disclosed full and correct particulars of income and the donors gift was genuine supported with confirmations, but the A.O has treated the gift under income from other sources.Since the submissions of the assessee are not satisfactory, the A.O. has applied the provisions of Sec. 271(1)(c) of the Act and levied minimum penalty of Rs. 49,000/-. Aggrieved by the penalty order of the A.O, the assessee has preferred an appeal with the CIT(A) and the CIT(A) has confirmed the penalty order. Aggrieved by the order, the assessee has filed an appeal with the Hon’ble Tribunal.

3. At the time of hearing, none appeared on behalf of the assessee and heard the submissions of the Ld.DR and perused the material on record. We find that the A.O. in the assessment proceedings has made addition of gift received from the donor under income from other sources. We find that the assessee is in the second round of litigation, before the Ld.CIT(A) and has filed explanations in the penalty appeal that the donor had personally attended the income tax Meeta H. Gandhi, Mumbai - 4 - office but statement could not be recorded due to non availability of the officer and again could not reappear due to ill Health. But the assessee has submitted the income tax return of the donor, bank statement financial statements, and Affidavit. The A.O. has disbelieved the facts and made addition and also levied the penalty. We find the penalty is not a gateway for every addition made in the assessment order.We rely on the decision of Hon’ble Karnataka High Court in CIT Vs. Manjunatha Cotton and ginning factory (2013) 359 ITR 565 and the principles as under:

“In the case of CIT Vs. Manjunatha Cotton and Ginning Factory, Karnataka High Court has laid down the following Principles for levy of penalty Under section 271(1)(c) of the Income Tax Act, 1961 :- (a) Penalty under Section 271(l)(c) is a civil liability. (b) Mens rea is not an essential element for imposing penalty for breach of civil obligations or liabilities. (c) Wilful concealment is not an essential ingredient for attracting civil liability. (d) Existence of conditions stipulated in Section 271(l)(c) is a sine qua non for initiation of penalty proceedings under Section 271. (e) The existence of such conditions should be discernible from the Assessment Order or order of the Appellate Authority or Revisional Authority.

(f) Even if there is no specific finding regarding the existence of the conditions mentioned in Section 271(l)(c), at least the facts set out in Explanation 1(A) & (B) it should be discernible from the said order which would by a legal fiction constitute concealment because of deeming provision. (g) Even if these conditions do not exist in the assessment order passed, at least, a direction to initiate proceedings under Section 271(l)(c) is a sine qua non for the Assessment Officer to initiate the proceedings because of the deeming provision contained in Section 1(B). (h) The said deeming provisions are not applicable to the orders passed by the Commissioner of Appeals and the Commissioner. (i) The imposition of penalty is not automatic. (j) Imposition of penalty even if the tax liability is admitted is not automatic. (k) Even if the assessee has not challenged the order of assessment levying tax and interest and has paid tax and interest that by itself would not be sufficient for the authorities either to initiate penalty proceedings or impose penalty, unless it is discernible from the assessment order that, it is on account of such unearthing or enquiry concluded by authorities it has resulted in payment of such tax or such tax liability came to be admitted and if not it would have escaped from tax net and as opined by the Assessing Officer in the assessment order. (l) Only when no explanation is offered or the explanation offered is found to be false or when the assessee fails to prove that the explanation offered is not bonafide, an order imposing penalty could be passed. (m) If the explanation offered, even though not substantiated by the assessee, but is found to be bonafide and all facts relating to the same and material to the computation of his total income have been disclosed by him, no penalty could be imposed. (n) The direction referred to in Explanation IB to Section 271 of the Act should be clear and without any ambiguity. (o) If the Assessing Officer has not recorded any satisfaction or has not issued any direction to initiate penalty proceedings, in Meeta H. Gandhi, Mumbai - 6 - appeal, if the appellate authority records satisfaction, then the penalty proceedings have to be initiated by the appellate authority and not the Assessing Authority. (p) Notice under Section 274 of the Act should specifically state the grounds mentioned in Section 271(l)(c), i.e., whether it is for concealment of income or for furnishing of incorrect particulars of income (q) Sending printed form where all the ground mentioned in Section 271 are mentioned would not satisfy requirement of law. (r) The assessee should know the grounds which he has to meet specifically. Otherwise, principles of natural justice is offended. On the basis of such proceedings, no penalty could be imposed to the assessee. (s) Taking up of penalty proceedings on one limb and finding the assessee guilty of another limb is bad in law. (t) The penalty proceedings are distinct from the assessment proceedings. The proceedings for imposition of penalty though emanate from proceedings of assessment, it is independent and separate aspect of the proceedings. (u) The findings recorded in the assessment proceedings insofar as “concealment of income” and “furnishing of incorrect particulars” would not operate as res judicata in the penalty proceedings. It is open to the assessee to contest the said proceedings on merits. However, the validity of the assessment or reassessment in pursuance of which penalty is levied, cannot be the subject matter of penalty proceedings. The assessment or reassessment cannot be declared as invalid in the penalty proceedings.

Meeta H. Gandhi, Mumbai - 7 - and direct the Assessing officer to delete the penalty and allow the grounds of appeal of the Assessee.