ACIT, NEW DELHI vs. SMT. SRAVANTHI KODURU, NEW DELHI

The appeal is preferred by the department against order dated 27.10.2015 passed by the Ld. CIT (Appeals)-18, New Delhi for assessment year 2009-10 wherein, vide the impugned order, the Ld. CIT (Appeals) has deleted penalty of Rs. 46,15,157/- imposed u/s 271(1)(c) of the Income Tax Act, 1961 (hereinafter referred ‘The Act’). The C.O. is preferred by the assessee.

Reliance was placed on the judgment of Hon’ble Delhi High Court in the case of CIT vs. Zoom Communications Pvt. Ltd., 327 ITR 51 (Delhi) to support the case of the Revenue. It was submitted that had the return of the assessee not picked up for scrutiny assessment, the assessee’s wrong claim would not have been detected and it would have meant loss to the revenue. It was submitted that it was a clear case of filing of inaccurate 3

(C.O. No. 87/Del/2016) particulars because the amount which had been confirmed by the Ld. CIT (Appeals) had not been spent within a period of 3 years from the date of transfer of the capital asset and the house under construction was not fit for habitation even during the course of assessment proceedings. It was prayed that the penalty deleted be restored.

(C.O. No. 87/Del/2016) the circumstances of the case, the Income-tax Appellate Tribunal was right in law in holding, when the conditions laid down in sub- section (1) of section 54F and the Board Circular No. 667, dated October 18, 1993[1993] 204 ITR (St.) 103), clearly stated that the purchase/construction is to be completed within stipulated time is not mandatory for claiming exemption under the Act?" The court answered the question thus: “In the second question of law formulated, a reference is made to the Board Circular No. 667, dated October 18, 1993 ([1993] 204 ITR (St.) 103). On a reading of the Circular, we are of the view that the Circular would not in any way advance the case of the Revenue to come to the conclusion that in order to have the benefit under section 54F of the Income-tax Act, the construction should have been completed.” Thus, essentially, although, the assessee has accepted the quantum disallowance, it does not automatically qualify for the imposition of penalty. The Ld. CIT (Appeals) has, in any case, allowed an amount of Rs.3.0 crore paid to the builder towards cost of the unit. The reason for not allowing the exemption on the balance is not that the claim of the assessee was false but because the amount was not actually spent by the developer within the stipulated time. The Ld. CIT (A), while partially upholding the disallowance, held that any 5

(C.O. No. 87/Del/2016) residential unit became habitable only when the interiors got completed and in its absence the unit was not habitable.

6.1 Further, it is also a settled law that penalty is not automatically leviable in each and every case where the quantum addition has been confirmed. The Hon’ble Supreme Court, in the case of Hindustan Steel Ltd. v. State of Orissa 83 ITR 26, had laid down the position of law by holding that the Assessing Officer is not bound to levy penalty automatically simply because the quantum addition has been sustained. Also in case of CIT v. Khoday Eswara (83 ITR 369) (SC), incidentally reported in same ITR Volume, it is held that penalty cannot be levied solely on basis of reasons given in original order of assessment. The Hon’ble Supreme Court has recently reiterated the law in case of Dilip N. Shroff v. Jt. CIT [2007] 291 ITR 519 by holding in Para 62 that finding in assessment proceedings cannot automatically be adopted in penalty proceedings and the authorities have to consider the matter afresh from different angle. The statute requires a satisfaction on the part of the Assessing Officer. He is required to arrive at a satisfaction so as to show that there is primary evidence to establish that the assessee had concealed the amount or furnished inaccurate particulars and this onus is to be discharged by the Department. While considering whether the assessee has been 6

(C.O. No. 87/Del/2016) able to discharge his burden the Assessing Officer should not begin with the presumption that he is guilty. Since the burden of proof in penalty proceedings varies from that in the assessment proceedings, a finding in the assessment proceedings that a particular receipt is income cannot automatically be adopted, though a finding in the assessment proceedings constitutes good evidence in the penalty proceedings. In the penalty proceedings the authorities must consider the matter afresh as the question has to be considered from a different angle. It is important to keep in mind the fundamental legal proposition that Assessment proceedings are not conclusive.

Assessment proceedings and penalty proceedings are separate and distinct. Findings in Assessment proceedings don’t operate as res judicata in penalty proceedings. For this proposition reliance is placed on the decision in CIT vs. Dharamchand L. Shah (1993) 204 ITR 462 (Bom). In Vijay Power Generators Ltd vs. ITO (2008)6 DTR 64 (Del) it was held that “It is well settled that though they constitute good evidence do not constitute conclusive evidence in penalty proceedings.”

During penalty proceedings, there has to be reappraisal of the very same material on the basis of which the addition was made and if further material is adduced by the assessee in the course of the penalty proceedings, it is all the more necessary that such further 7

(C.O. No. 87/Del/2016) material should also be examined in an attempt to ascertain whether the assessee concealed his income or furnished inaccurate particulars. Thus, under penalty proceedings assessee can discharge his burden by relying on the same material on the basis of which assessment is made by contending that all necessary disclosures were made and that on the basis of material disclosed there cannot be a case of concealment of income or furnishing inaccurate particulars of income. Further if there is any material or additional evidence which was not produced during assessment proceedings same can be produced in penalty proceedings as both assessment and penalty proceedings are distinct and separate. In CIT vs. M/s Sidhartha Enterprises (2009) 184 Taxman 460 (P & H)(HC) it was held that the judgment in Dharmendra Textile cannot be read as laying down that in every case where particulars of income are inaccurate, penalty must follow. Even so, the concept of penalty has not undergone change by virtue of the said judgment. Penalty is imposed only when there is some element of deliberate default.

6.2 At this juncture it may be apposite to refer to the decision of the Hon’ble Supreme Court in the case of CIT v. Reliance Petroproducts (P.)

Ltd. [2010] 322 ITR 158/189 Taxman 322, wherein the court while interpreting the provisions of section 271(1)(c) of the Act, has held 8

(C.O. No. 87/Del/2016) that a glance at the said provision would suggest that in order to be covered by it, there has to be concealment of the particulars of the income of the assessee. Secondly, the assessee must have furnished inaccurate of his income. In the facts of that case, the court found that it was not a case of concealment of the particulars of the income, nor was it the case of the revenue either. However, the counsel for the revenue suggested that by making an incorrect claim for the expenditure on interest, the assessee had furnished inaccurate particulars of income. The court observed that it had to only see as to whether in that case, as a matter of fact, the assessee had given inaccurate particulars. The court noted that as per Law Lexicon, the meaning of the word "particular" is a detail or details (in the plural sense); the details of a claim, or the separate items of an account.

Therefore, the word "particular" used in section 271(1)(c) would embrace the meaning of the details of the claim made. The court further observed that in Webster's Dictionary, the word "inaccurate" has been defined as: "not accurate, not exact or correct; not according to truth; erroneous; as an inaccurate statement, copy or transcript."

The court observed that reading the words "inaccurate" and "particulars" in conjunction, they must mean the details supplied in the return, which are not accurate, not exact or correct, not according 9

(C.O. No. 87/Del/2016) to truth or erroneous. The court noted that it was an admitted position that no information given in the return was found to be incorrect or inaccurate. It was not as if any statement made or any detail supplied was found to be factually incorrect and accordingly, held that, prima facie, the assessee could not be held guilty of furnishing inaccurate particulars. The court repelled the contention raised by the counsel for the revenue that "submitting an incorrect claim in law for the expenditure on interest would amount to giving inaccurate particulars of such income". The court held that in order to expose the assessee to the penalty unless the case is strictly covered by the provision, the penalty provision cannot be invoked. By any stretch of imagination, making an incorrect claim in law cannot tantamount to furnishing inaccurate particulars. Therefore, it is obvious that it must be shown that the conditions under section 271(1)(c) must exist before the penalty is imposed. The court further observed that there can be no dispute that everything would depend upon the return filed because that is the only document, where the assessee can furnish the particulars of his income. With regard to the provisions of section 271(1)(c ) of the Act pertaining to penalty, the Hon’ble Apex Court has authoritatively laid down that making of a claim by the assessee which is not sustainable will not tantamount to 10

(C.O. No. 87/Del/2016) furnishing inaccurate particulars. In CIT vs. Reliance Petroproducts Pvt. Ltd. 322 ITR 158 (SC), the Hon’ble Apex Court has held as follows:

“A glance at this provision would suggest that in order to be covered, there has to be concealment of particulars of the income of the assessee. Secondly, the assessee must have furnished inaccurate particulars of his income. The present is not a case of concealment of income. That is not the case of the Revenue either. However, the Ld. Counsel for the revenue suggested that by making incorrect claim for the expenditure on interest, the assessee has furnished inaccurate particulars of income. As per Law Lexicon, the meaning of the word "particular" is a detail or details (in plural sense); the details of a claim, or the separate items of an account. Therefore, the word "particulars" used in the section 271 (1) (c) would embrace the meaning of the details of the claim made. It is an admitted position in the present case that no information given in the return was found to be incorrect or inaccurate. It is not as if any statement made or any detail supplied was found to be factually incorrect. Hence, at least, prima facie, the assessee cannot be held guilty of furnishing inaccurate particulars. The learned counsel argued that "submitting an incorrect claim in law for the expenditure on interest would amount to giving inaccurate particulars of such income." We do not think that such can be the interpretation of the concerned words. The words are plain and simple. In order to expose the assessee to the penalty unless the case is strictly

(C.O. No. 87/Del/2016) covered by the provision, the penalty provision cannot be invoked. By any stretch of imagination, making an incorrect claim in law cannot tantamount to furnishing inaccurate particulars.”

6.3 In the present appeal, the assessee has submitted the full particulars. There is no dispute that she has not paid the amount to the builder or that she has made a false or inflated claim. Thus, the case definitely does not fall either of the two limbs of concealment or furnishing of inaccurate particulars under the main provision. Coming to examine the case under explanation 1 to 271(1)(c), we have to examine whether the case in question falls within the other two limbs viz. clause (A) and (B) and effect thereof. Clause (A) applies when an assessee fails to furnish explanation or when an explanation is found to be false. Clause (B) applies to cases where explanation is offered but the assessee is not able to substantiate the explanation. In such cases, we have to examine two conditions: (1) Whether the assessee has been able to show that his explanation was bona fide; (2) whether the assessee had furnished and disclosed facts and material relating to computation of his income. Onus of establishing that the assessee satisfies the two conditions is on the assessee. Both the conditions have to be satisfied. In case the assessee satisfies the (C.O. No. 87/Del/2016) twin conditions, penalty is not be imposed. As far as the explanation to the section 271(1)(c) is concerned, the assessee has stated all the facts and there is no allegation that she has not furnished the full facts and materials. She had stated that she had reasonable grounds to hold the view that she was entitled to deduction under section 54F, as she had done everything under her control and invested the consideration for a residential house.

Although the explanation could not be substantiated, the explanation could not be said to be lacking in bona fide. It is also seen that the assessee had filed return for the assessment year 09-10 in July 2009 whereas the house was to be reconstructed within the outer limit by January 2011. Thus, the assessee cannot be accused of furnishing inaccurate particulars of income as at the time of filing return of income she had no idea that the house she was investing in will not get completed within the stipulated time. The quantum disallowance has, any way, been accepted by the assessee and the tax due thereon has also been paid. In our considered opinion, on the facts of the case, a case of furnishing of inaccurate particulars of income is not made out. Accordingly, respectfully following the ratio of the judgments as stated in the preceding paragraphs, we find no reason to interfere with the 13

(C.O. No. 87/Del/2016) findings of the Ld. CIT (A) on the issue and we uphold his order deleting the penalty.

Order pronounced in the open court on 16.01.2019.