DCIT CIRCLE-7, PUNE vs. THAKUR HASARAM MULCHANDANI, PUNE

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH “A”, PUNE BEFORE SHRI S. S. GODARA, JUDICIAL MEMBER AND SHRI DR. DIPAK P. RIPOTE, ACCOUNTANT MEMBER आयकर अपील सं. / ITA No.55/PUN/2020 िनधा�रण वष� / Assessment Year: 2015-16 DCIT, Circle-7, Pune. Vs. Thakur Hasaram Mulchandani, Flat No.1, Building No.1, Sukhasagar Terrace, Sadhu Vaswani Chowk, Opp. GPO, Pune- 411001. PAN : AAXPM9871G Appellant Respondent Revenue by : Shri Arvind Desai Assessee by : Shri Hari Krishan Date of hearing : 13.06.2022 Date of pronouncement : 20.06.2022 आदेश / ORDER PER S. S. GODARA, JM: This Revenue’s appeal for assessment year 2015-16 arises against the CIT(A)-5, Pune’s order dated 15.10.2019 passed in case no. PN/CIT(A)-5/DCIT, Cir. 7, Pune/10020/2018-19 involving proceedings u/s 271(1)(c) of the Income Tax Act, 1961; in short the Act. Heard both the parties. Case files perused. 2. The Revenue’s sole substantive grievance raised herein challenges correctness of the CIT(A)’s action reversing the penalty

2 ITA No.55/PUN/2020 in issue amounting to Rs.98,14,140/- levied by the Assessing Officer in his order dated 04.05.2018. The CIT(A)’s detailed discussion to this effect reads as under :- “4.3 I have carefully perused the penalty order and the submission of the appellant as above. I find the penalty order that the main contentions of the AO for levy of penalty u/s. 271(1)(c) were that the appellant had filed the return of income not truly and correctly and deduction u/s. 54/54F on account of long term capital gains was wrongly claimed besides the expenses on account of commission paid wrongly to one Mr. Kevin Leslie Lewis in the return of income and computation of total income filed by the appellant on 16.02.2016, which were disallowed by the AO in the assessment completed u/s. 143(3) on 30.11.2017. The AO had enquired about the veracity and genuineness of the claim of deduction and expenses so made by the appellant and found the same to be inadmissible. As regards the excess claim of commission of Rs. 7,00,000/-, the appellant contended before the AO that he had received the amount of Rs.7,00,000/- from Mr. Kevin Leslie Lewis as earnest money against the property sold at Yerwada, who had also incurred improvement expenditure from appellant's account on appellant's behalf and therefore it was inadvertently claimed as compensation of Rs. 97,00,000/-, though the actual compensation was given at Rs. 90,00,000/-. The earnest money of Rs. 7,00,000/- which was returned by the appellant, was inadvertently claimed as expenses/compensation paid to him. Therefore, during assessment proceedings, the appellant had voluntarily offered the same as his income for inclusion with the total income. The appellant also contended before the AO during assessment proceedings and also penalty proceedings that it was due to a mistake made by the tax consultant, that such wrong claim was made in the return of income and there was no deliberate attempt for making such claim. It was also contended that the appellant had paid the entire tax and interest on such income offered for taxation during assessment proceedings. The Assessing Officer however held that the facts of the wrong claim of deduction u/s. 54 and excess expenses on account of compensation/commission were in the knowledge of the appellant during filing of return of income and therefore in the return of income itself there was furnishing of inaccurate particulars of income and hence it was a fit case for levy of penalty u/s. 271(1)(c) of the Act. While holding so, the AO had relied on the decision of Hon'ble Supreme Court in the case of Mak Data Pvt. Ltd. (supra) contending that the disclosure made voluntarily could not absolve the appellant from levy of penalty u/s. 271(1)(c) of the Act. Though the appellant had cited a number of decisions in the submission made before him contending that penalty was not leviable in his case in view of the various decisions so cited, the AO in this regard in para 3.9 of the

3 ITA No.55/PUN/2020 penalty order merely stated that in view of the facts of the case of the appellant the said decisions were not applicable in appellant's case. The Assessing Officer accordingly could not accept the appellant's explanation made during the penalty proceedings as quoted in para 2 of the penalty order above and had levied minimum penalty of Rs. 98,14,141/-. 4.4 In the submission made by the appellant during appellate proceedings as quoted above, the appellant more or less re-iterated the identical submission/contention made during assessment proceedings and also during penalty proceedings. I will first deal with the issue of excess loss claimed by the Appellant in the return, which was subsequently withdrawn. Briefly after stating the facts as above, the appellant contended that his Consultant while computing the capital gains in the case of the Development Agreement of land located at S. No. 662, Village Wagholi had inadvertently claimed the loss of Rs. 11,64,514/- through oversight. Since the development agreement was for consideration in kind in the form of constructed flats, the said consideration was taken at Rs. Zero and the stamp duty valuation of the said property was shown at Rs. 28,35,486/-, which was acquired at a cost of Rs. 40,00,000/- and hence a loss of Rs.11,64,514/- was computed while arriving at the income from capital gains from the impugned transaction of the said property. The appellant also affirmed that he had not received any flat in the form of built up area, which was yet to be received at a future date and, therefore, he could not value the same while computing the income from capital gains. When the above facts were realized by the appellant during the scrutiny assessment proceedings and the appellant found that he was liable to capital gains tax u/s. 45(2) of the Act, he had voluntarily withdrawn his claim of capital loss of Rs. 11,64,514/- for the year under consideration, which had been raised due to the reasons as mentioned above, through wrong appreciation of the facts. It was re-iterated that the appellant had accepted and agreed for the addition owing to such wrong claim of deduction u/s. 54 of the Act and so also the capital loss for the reasons as stated above and had paid the entire tax and interest thereon, thereby furnishing the photo copy of Form No. 26AS and the evidences of challans. The appellant contended that due to the clerical mistake of the consultant in filing the return of income which was bona-fide and not mala-fide mistake, such deduction/expenses were claimed and the AO without considering the above facts properly had levied penalty for furnishing of inaccurate particulars of income. It was pleaded by the Appellant further that he had already declared in the return of income all the particulars of capital gains and also books of accounts of the Appellant had reflected the said transaction and therefore it could not be said that any inaccurate particulars of income were furnished in the return of income. It was also contended that the appellant had cooperated to the assessment proceedings and there was no conscious breach of law and further that the AO could not detect any concealment during the course of assessment proceedings. The appellant further relied on the decisions cited before the AO during penalty proceedings.

4 ITA No.55/PUN/2020 In addition, further judicial decisions were relied upon by the appellant summarizing the contents in the said cases as quoted in the appellant's submission. The said cases which were not relied upon before the AO are (i) Addl. CIT Vs. Premchang Garg (2009) 123 TTJ (Del-ITAT) (TM) 433; (ii) CIT Vs. Manjunath Katan & Ginning Factory (2013) 92 DTR (Kar) 111; (iii) ITO Vs. Rakesh Kumar Gupta, ITA No. 2690/Del/2009 (ITAT-Delhi); (iv) Munnalal R. Halwai Vs. ITO, ITA Nos. 253, 254 & 259/ PNJ/ 2013 (ITAT- Panaji; (v) M/s. NSE IT Ltd. Vs. DCIT, ITA No. 5935/Mum/2014 (ITAT-Mumbai); (vi) Amruta Organics Pvt. Ltd. Vs. DCIT, ITA No. 1121/PN/2011 (ITAT-Pune); (vii) DCIT Vs. National Textile Corporation, ITA No.5757/Del/2015. In all the above cases, the penalty levied was held to be bad-in-law and hence deleted either holding that the voluntary offer of income could not constitute the concealment of income or where agreed addition was made and the assessee had paid tax and interest, in absence of any material on record to show the concealment of income, it could not be inferred that such addition was on account of concealment of income or when the transactions were recorded in books of accounts and the income was offered/ surrendered to tax, in absence of details at the time of survey no penalty could be levied or when the assessee did not prefer appeal against the assessment order and had voluntarily suo- moto agreed for addition, no penalty was attracted. The appellant therefore considering the facts as above and also the judicial decisions cited, requested to delete the penalty so levied by the AO. 4.5 I find that the appellant has demonstrated with facts and figures as detailed above that there was neither concealment of income nor furnishing of inaccurate particulars of income in his case owing to his disclosure made by surrendering the wrong claim of deduction u/s. 54/54F of the Act in the return of income filed and also the excess expense claimed of commission/compensation of Rs. 7,00,000/- on account of earnest money returned back to Mr. Kevin Leslie Lewis. The appellant had disclosed all the materials pertaining to the transactions of the impugned property sold in the return of income filed by the appellant. It was due to the wrong appreciation of the facts by the appellant's consultant that the appellant was supposed to get the consideration in the form of constructed flats, he had shown the consideration at Rs. 0/- though the stamp duty valuation of the impugned property at S. No. 662, Village Wagholi put under development agreement was Rs. 28,35,486/-, the cost of which was Rs. 40,00,000/- and the loss was claimed by the appellant at Rs. 11,46,514/-. Therefore, when subsequently on realization of such mistake committed by the appellant, he had come forward for offering the income on account of inadvertent claim of deduction u/s. 54/54F of the Act, the same cannot be construed in form and substance as deliberate and mala-fide furnishing of inaccurate particulars of income within the provisions of section 271(1)(c) of the Act. I find that the appellant had furnished all the relevant facts pertaining to the sale of the impugned property and receiving the consideration on account of such sale and also had shown the same in the return of income and

5 ITA No.55/PUN/2020 computation of income. It was due to the advice of the consultant and for his inadvertence and mistake for the wrong appreciation of the facts as above, in the computation of total income, the appellant had claimed the deduction u/s. 54/54F of the Act on the entire income from capital gains of Rs.4,16,30,700/-. As regard the excess claim of commission/ compensation allegedly paid to Mr. Kevin Leslie Lewis of Rs. 7,00,000/-, I find that the total transactions with the said person were made of Rs. 97,00,000/- (i.e. Rs. 90,00,000/- on account of compensation and Rs. 7,00,000/- on account of earnest money repaid by the appellant). This being so, there could have been an apparent mistake of claiming the entire such payment made to him by the appellant as commission/compensation by the consultant who had prepared the return and computation of total income. The fact that the amount of Rs. 7,00,000/- was the earnest money earlier given by Mr. Lewis to the appellant, which was repaid by the appellant to him, might have remained to be seen by the consultant as well as by the appellant while filing the return of income and preparing the accounts for computation of long term capital gains. This claim of excess expense in this regard, in my opinion, when surrendered by the appellant by realizing such wrong claim, initially made due to inadvertence, cannot be held as furnishing of inaccurate particulars of income, as has been held by the AO while levied penalty u/s. 271(1)(c) of the Act. I further find that the AO had totally ignored the various judicial decisions cited and relied upon by the appellant and had supported his levy of penalty on the decision of the Hon'ble Supreme Court in the case of Mak Data Pvt. Ltd. Vs. CIT (supra) which has held that the voluntary disclosure/surrender of income does not absolve the assessee from levy of penalty u/s. 271(1)(c) of the Act. I find that the said decision was given by the Hon'ble Apex Court on the facts of surrendering the income arising out of search/survey action u/s 132(1)/133A of the Act in the case of the said assessee and its sister concern namely M/s Marketing Services when it was revealed that "certain documents comprising of share application forms, bank statements, memorandum of association of companies, affidavits, copies of Income Tax Returns and assessment orders and blank share transfer deeds duly signed had been impounded. From the facts of the case it is seen that the Hon'ble Court found that the documents which were impounded during survey action in a sister concern revealed the concealed particulars of income in the case of the said assessee and when the same was confronted by the AO by issuing a show cause notice, the assessee had come forward to declare the income generated out of the said impounded documents added by the AO as concealed income, on which penalty u/s.271(1)(c) was levied. The facts of the case of the appellant under consideration are totally different. The appellant in this case had already disclosed the material facts of sale of an asset in the return of income and computation of total income describing the detailed transactions of the impugned property sold and had claimed certain deduction i.e. u/s.54/54F of the Act on the presumption that he had invested in farm house under construction and therefore he was eligible to such deduction claimed. As regards the excess expenses, the appellant had

6 ITA No.55/PUN/2020 claimed the same in the accounts furnished before the AO and also in the return with a bona-fide belief that he had paid the amount of Rs.97,00,000/- as compensation/ commission for the transaction of the impugned land mis-reading the fact that the amount of Rs.7,00,000/- included therein was the earnest money returned to the said person. When all these facts and wrong claim of deduction u/s.54/54F of Rs.4,16,30,700/- and excess expenses claimed by the appellant were confronted with him, the appellant initially had defended his claim and thereafter had offered the said amounts as his income. Therefore, on the facts of the case of the appellant, it is crystal clear that no such additional documents/ evidences had been found or detected by the AO during assessment proceedings or prior, from which the element of concealing the particulars of income or of furnishing of inaccurate particulars of income by the appellant could be said in possession of the AO so that the same could attract the penal provisions of section 271(1)(c) of the Act. The only case referred to by the AO in the penalty order, therefore, cannot be applied on the facts of the case of the appellant. On the other hand, the various judicial decisions cited by the appellant, on which the AO remained completely silent may be discussed, as I find relevance in some of the said cases for deciding whether the AO had rightly initiated penalty proceeding and had rightly levied penalty under the said section, wherein it was held that mere disallowance made and so also the addition made on surrender of income would not attract the levy of penalty u/s. 271(1)(c) of the Act. Some of such decisions, have already been cited by the appellant in his written submissions made before the AO during penalty proceedings and further during appellate proceedings, are as below: - (i) Price Water House Cooper Pvt. Ltd. Vs. CIT(2012) 348 ITR 306 (SC) In this case it was held as below:- "The contents of the Tax Audit Report suggest that there is no question of the assessee concealing its income. There is also no question of the assessee furnishing any inaccurate particulars. It appears to us that all that has happened in the present case is that through bona-fide and inadvertent error, the assessee while submitting its return, failed to add the provision for gratuity to its total income. This can only be described as a human error which we are all prone to make. The caliber and expertise of the assessee has little or nothing to do with the inadvertent error. That the assessee should have been careful cannot be doubted, but the absence of due care, in a case such as the present, does not mean that the assessee is guilty of either furnishing inaccurate particulars or attempting to conceal its income." (ii) CIT Vs. Reliance Petro Products (P) Ltd. (2010) 322 ITR 158(SC): The Hon'ble Supreme Court in this case held as below: -

7 ITA No.55/PUN/2020 "As the assessee had furnished all the details of its expenditure as well as income in its return, which details, in themselves, were not found to be inaccurate nor could be viewed as concealment of income on its part. It was up to the authorities to accept its claim in the return or not. Merely because the assessee had claimed the expenditure, which claim was not accepted or was not acceptable to the Revenue, that by itself would not, in our opinion, attract the penalty under s. 271(1)(c). If we accept the contention of the Revenue then in case of every return where the claim made is not accepted by AO for any reason, the assessee will invite penalty under s. 271(1)(c). That is clearly not the intendment of the legislature." (iii) CIT Vs. Manjunath Cotton & Ginning Factory (2013) 92DTR (Kar) 111: (2013) 359 ITR 565 (Kar) In this case the Hon'ble Karnataka High Court inter-alia held as below: - "36. The levy of penalty is not a matter of course. It has to be found that the assessee concealed any income. Where there is no concealment, or no material for concealment, no penalty can be imposed. But where the assessee has concealed income, any subsequent act of voluntary disclosure would not affect the imposition of penalty. The mere addition to the taxable income would not automatically lead to an order of penalty. Further, the levy of penalty is not an automatic concomitant of the assessment. Therefore, safeguards have been provided for in the Act itself to see that penalties are levied only in appropriate cases. (iv) Munnalal R. Halwai Vs. ITO, ITA No. 253, 254 & 259/ PNJ/2013 (ITAT- Panaji) In this case the Hon'ble ITAT held that when the transactions were recorded in the books of accounts and were surrendered and offered to tax at the time of survey, in absence of any details, the penalty could not be levied. 4.6 During the Appellate proceedings on 06.08.2019, the appellant further filed two decisions of Hon'ble Mumbai ITAT and Hon'ble Pune ITAT contending that the same were applicable on the facts of the case of the appellant. The said cases are as below: - i. Amruta Organics Pvt. Ltd. Vs. DCIT, Circle-1, Nashik, ITA No. 1121/PN/2011 dated 22/03/2013 for AY 2007-08. ii. M/s. NAC IT Ltd. Vs. DCIT-8(2), Mumbai, ITA No. 5935/ Mum/2014 dated 28/03/2018 for AY 2015-16. 4.7 In the submission made by the appellant dated 27.09.2019, the appellant, against the query raised about the AO's contention in para 3.7 of the penalty order regarding documents filed making wrong claim particularly regarding the certificate issued by Mr. Pradeep Lonkar, Village Development Officer about completion of the residential house

8 ITA No.55/PUN/2020 and his subsequent denial of having such house in the impugned land in the statement recorded u/s. 131 by the AO during penalty proceedings, has submitted that such issue of recording of statement had been done and attempt made to establish the appellant's documents false, much after the disclosure made by the appellant during assessment withdrawing the claim of deduction u/s. 54 and 54F of the Act, which was initially claimed in the return at the instance of the Accountant/ Tax Consultant, for his professional wrong advice, for which the Appellant could not be held guilty of furnishing inaccurate particulars of income. The submission and contention of the appellant in this regard cannot be brushed aside. The appellant also cited a number of decisions in support of his contention that as he furnished/ disclosed all materials in the return of income and there was neither any concealment of income nor furnishing of inaccurate particulars of income, no penalty could be levied in his case by the AO. Since the entire submission dated 27.09.2019 has been quoted above, the cases cited in the said submission are not separately addressed herein. I find the contention of the appellant is not devoid of merit and to which I am inclined to agree. 4.8 The appellant summarily contended in the submission as below:- "a. The appellant had disclosed all material facts relating to the purchase and sale of the impugned property in the return of income filed for A.Y. 2015-16 and there was neither any concealment of income nor furnishing of any inaccurate particulars of his income for which penalty proceeding could be initiated or penalty levied; b. The appellant was wrongly advised by the Accountant/ Tax Consultant who had prepared the Return and Computation of Income and made such claim of deduction u/ss. 54 and 54F, the legal provisions of which were not in the knowledge of the appellant; c. The appellant had declared the entire income owing to such wrong claim made due to mistake or error of the Accountant/ Tax Consultant vide his submission before Assessing Officer on 23/11/2017 once understood, much before the statement of Shri Pradeep Lonkar, Village Development Officer on 09/04/2018 recorded during penalty proceedings, without allowing the appellant the cross- examination to him, which was made the main basis for imposition of penalty by the Assessing Officer; d. The appellant had no mala-fide intention of not declaring the income and pay tax. In fact, as soon as the appellant realized his mistake, he had withdrawn his claim of deduction u/ss. 54 & 54F of the Act and offered the entire amounts for taxation and paid tax and interest on the same. It was due to wrong advice of Accountant/ Tax Consultant that such deduction was claimed in the return and tax was not paid;

9 ITA No.55/PUN/2020 e. The appellant had co-operated with both the Assessing Officers during assessment and Penalty proceedings, which are apparent from the orders passed by the Ld. Assessing Officers; f. The appellant has cited a number of judicial decisions in support of his contention that penalty could not be levied u/s.271(1)(c) in appellant's case for the facts detailed above." 4.9 The above submission of the appellant is apparently found to be acceptable. In a recent decision, the Hon'ble Pune Tribunal following the decisions of the Hon'ble Supreme Court in the case of Price Water House Cooper Pvt. Ltd. Vs. CIT (supra) and CIT Vs. Reliance Petro Products (P) Ltd.(supra) wherein brought forward business loss of Rs.33,69,239/- was wrongly claimed by the said assessee, added by the AO and penalty imposed u/s.271(1)(c) on such disallowance, while deleting the penalty, held in para 7 of the order as below: - "We have perused the case records and heard the rival contentions. In this case, impugned penalty has been levied on the assessee for "furnishing inaccurate particulars of income". We have perused the copies for return for assessment year 2009- 10 filed before us in the paper book wherein all the details of loss carried forward has been reflected by the assessee to the tune of Rs. 33,69,239/-. Non filing of revised return is hypothetical assumption by the Department that the assessee intends to conceal the income which is however not demonstrated by any evidence on record. Hence this cannot be accepted. Once penalty has been imposed for furnishing inaccurate particulars of income in the case of the assessee as facts demonstrated there is no lapse by the assessee on the count. We take guidance from the following binding judgment of the Hon'ble Supreme Court of India: (i) Price Water House Cooper Pvt. Ltd. Vs. CIT (2012) 348 ITR 306 (SC) (ii) CIT Vs. Reliance Petro Products (P) Ltd. (2010) 322 ITR 158 (SC) On the basis of the above referred judicial pronouncements and on examination of facts on records, we set aside the order of the Ld. CIT(A) and direct the Assessing Officer to delete the penalty from the hands of the assessee." 4.10 The appellant has further cited a number of decisions contending that in his case no penalty u/s. 271(1)(c) could be levied in view of the facts in the case of the appellant. Having said so, as stated above, some important decisions can be applied with the facts of the case of the appellant as discussed above. In view of above and considering the facts of the case of the appellant in totality with reference to the judicial decisions cited above by the undersigned, it is held that in the case of the appellant, it could not be said that the appellant had furnished inaccurate particulars of income which had warranted levy of penalty u/s. 271(1)(c) of the Act. Therefore, the penalty levied by the

10 ITA No.55/PUN/2020 AO of Rs. 98,14,141 /- is deleted. Ground Nos. 1(a) to (c) raised by the appellant are accordingly allowed.” 3. Mr. Desai vehemently argued during the course of hearing that the CIT(A) has erred in law and on facts in deleting this impugned penalty pertaining to the three quantum issues of section 54 deduction, commission and short term capital loss; respectively which is a clear cut instance of furnishing inaccurate particulars of income u/s 271(1)(c) of the Act. 4. The assessee has drawn strong support from the CIT(A)’s foregoing detailed discussion. 5. We have given our thoughtful consideration to the foregoing rival stands and find no merit in the Revenue’s argument. It emerges first of all that the impugned penalty pertains to two issues of section 54 deduction amounting to Rs.4,23,30,700/- and excess commission claim of Rs.7,00,000/- regarding which the assessee had indeed reinvested its sale consideration from transfer of the capital assets in purchasing land qua the former and paid due commission (since held to be excessive only than a bogus claim altogether); respectively. This is a clear cut case therefore wherein a deduction was claimed but could not be proved by satisfying all the ingredients u/s 54 resulting in the corresponding quantum disallowance. Suffice to say, hon’ble apex court’s landmark

11 ITA No.55/PUN/2020 decision in Reliance Petro Products (P) Ltd. (supra) has settled the law that each and every disallowance/addition made in quantum proceedings does not ipso facto attract the impugned penal provision as both proceedings are parallel in nature. We draw strong support therefrom to affirm the CIT(A)’s action deleting the impugned penalty. Ordered accordingly. 6. This Revenue’s appeal is dismissed in above terms. Order pronounced on this 20th day of June, 2022. Sd/- Sd/- (DR. DIPAK P. RIPOTE) (S. S. GODARA) ACCOUNTANT MEMBER JUDICIAL MEMBER पुणे / Pune; �दनांक / Dated : 20th June, 2022. Sujeet (DOC) आदेश क� �ितिलिप अ�ेिषत / Copy of the Order forwarded to : अपीलाथ� / The Appellant. 1. ��यथ� / The Respondent. 2. 3. The CIT(A)-5, Pune. 4. The Pr. CIT-4, Pune. िवभागीय �ितिनिध, आयकर अपीलीय अिधकरण, “A” ब�च, 5. पुणे / DR, ITAT, “A” Bench, Pune. गाड� फ़ाइल / Guard File. 6. आदेशानुसार / BY ORDER, // True Copy // Senior Private Secretary आयकर अपीलीय अिधकरण, पुणे / ITAT, Pune.