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Income Tax Appellate Tribunal, “A” BENCH, MUMBAI
AadoSa / O R D E R महावीर स िंह, न्याययक दस्य/ PER MAHAVIR SINGH, JM:
This appeal of assessee is arising out of the order of Commissioner of Income Tax (Appeals)-51, Mumbai [in short CIT(A)], in appeal No. CIT(A)-51/IT-103/2014-15, dated 27.09.2016. The Assessment was framed by the Asst. Commissioner of Income Tax, Central Circle-24 & 26, Mumbai (in short ACIT/ITO/ AO) for the A.Y. 2007-08 vide order dated 28.03.2014 under section 143(3) read with section 153A of the Income 2 Tax Act, 1961 (hereinafter ‘the Act’). The penalty was levied by DCIT, Circle 24 & 26, Mumbai under section 271(1)(c) of the Act vide order dated 28.08.2014.
2. The only issue in this appeal of assessee is against the order of CIT(A) sustaining the levy of penalty under section 271(1)(c) of the Act in regard to peak balance lying in the escrow bank account with HSBC Bank, Geneva, amounting to ₹ 3,99,01,729/-. For this assessee has raised the following 6 effective grounds: - “1. In the facts and circumstances of the case and in law, the learned Commissioner of Income-tax (Appeals) - 51, Mumbai ('CIT(A)') erred in sustaining levy of penalty under section 271(1) (c) of the Income-tax Act, 1961('Act') on Rs. 3,99,01,729 being peak balance lying in the escrow bank account with HSBC Bank, Geneva, not belonging to the appellant which was offered to tax only, to buy peace of mind. The said penalty has been levied without fulfilling the conditions in the said section.
2. The learned CIT(A) while sustaining the penalty failed to appreciate that the basis for levy of penalty is contrary to the facts on record, overlooks the relevant facts and is based on factually incorrect observations and conclusions and material and evidence which are irrelevant to the issue.
3. The learned CIT(A) failed to appreciate that the show cause notice dated 28th March 2014 was issued by the Assessing Officer ('AO') under section 274 read with section 271 of the Act without 3 application of mind thereby vitiating the penalty order.
4. The learned CIT(A) failed to appreciate that with respect to the amount of Rs.3,99,01,729 no satisfaction had been recorded by the AO which is a pre-condition before initiation of penalty proceedings.
The learned CIT(A) failed to appreciate that the amount of Rs.3,99,01,729 did not represent Appellant's income chargeable to tax under the Act. The said amount was offered to tax only with a view to buy peace of mind. Therefore, penalty could not be levied in respect of the same under section 271(c) of the Act.
6. The learned CIT(A) has erred in holding that the Revenue had full proof evidence to show that the amount of Rs.3,99,01,729 was income chargeable to tax in the Appellant's hands in India and that his disclosure in the search proceedings was as a consequence of such information. At the time of search, the search party only had an unsigned/unauthenticated printed piece of paper referred by the search party as 'base note'.”
Briefly stated facts are that a search operation under section 132 of the Act was conducted on the residence and office premise of the assessee by the Income Tax Department on 29.07.2011. This search was inconsequence to information received by Govt. of India from French Government under Double Tax Avoidance Agreement (DTAA) in exercise of its sovereign power that some Indian nationals and residents have 4 foreign bank accounts in HSBC Bank Geneva, Switzerland. This information was received in the form of a document, referred to as base note, wherein various details of accounts holders such as name, date of birth, place of birth, sex, residential address, profession, nationality along with the date of opening of bank account in HSBC Geneva and balance of certain years etc. are mentioned. This information contains the details of assessee. The assessee accepted the foreign bank account and disclose the peak balance mentioned in the bank statement of USD 9,24,292/- as on February, 2007 relevant to this AY 2007-08 equivalent an amount of ₹ 4.5 crores. During the assessment proceedings, the assessee accepted the account with HSBC Bank Geneva vide letter dated 26.12.2013 and 09.01.2014 but refused to sign the consent form. The relevant extract of one of the letters (as reproduced in the assessment order) read as under: - “I have received your above letter dated 2nd January 2014 requiring me to explain and file details enumerated therein. In this regard, I have to state as under:
I had earlier in my letter dated 26.12.2013 filed with you stated that during the course of proceedings conducted under section 132 of the I.Tax Act 1961 on 29.07.2011 at my residence, I had myself voluntarily admitted that a foreign bank account did exist for a short period, which may carry my details.
On being subsequently shown some Xerox copy of a HSBC bank account which showed my name, I had confirmed to the investigating officer on 29.07.2011 that the said account belonged to me.
5 To buy peace of mind, I had offered the peak balance mentioned in the statement of USD 9,24,292 on February 2007 as my income for the assessment year 2007-08 although the funds were not belonging to me and were in the nature of an Escrow account.
I had also explained to the investigating officer that though Xerox copies of five different statements in five different names were shown to me, all being identical copies showing identical balances and identical narrations in respect of the said account with HSBC Bank, all those five statements pertained to only one account and that there were no five different accounts. As I have stated that based on the requirement of the bank, I had provided details of my immediate adult family members and it appears that five but in connection with the same account. I had admitted that the said one account belonged to me only. My explanation was accepted by the investigating wing and thereafter I have paid the income tax along with interest on the said peak balance.
I respectfully further submit that I do not have any records nor can furnish copy of bank statement as requested.
In this regard, I further wish to state that I had already received a similar letter dated 22.07.2013 from ACIT CC 15 & 16 requesting me to furnish duly signed consent from in prescribed Performa and in reply thereto, vide my letter dated 23.07.2013 6 addressed to the additional commissioner of Income Tax, I had already explained the nature of the said account with all relevant facts and circumstances and in view thereof had explained my inability to correspond any further with the said bank. A copy of the said letter dated 22.07.2013 together with a copy of my letter dated 4.11.2011 addressed to Dy. Director of Income Tax, Unit IV (4) along with all its annexures attached to my said reply are enclosed herewith.”
The assessee before AO explained that the said bank account was an escrow account over which assessee did not have any control and the funds in the said bank account was provided by a prospective joint venture personal in lieu of Memorandum Of Understanding (MOU) with Dorchester International Inc. Cyprus. The AO made assessment of the peak balance lying in the bank account for an amount of USD 9,24,293 equivalent to ₹ 4.5 crores. The assessee, himself has disclosed voluntarily a sum of ₹ 3,99,01,729/- in its return of income taking the rate of US Dollar at the rate of ₹ 43.17. But the AO, further, made addition as disclosed by the assessee at 4.5 crores and balance addition of ₹ 50,98,271/- was made by observing in para 7.14 and 7.15 as under: - “7.14 The submission of assessee is duly considered but since the assessee himself had disclosed at the peak balance of USD 9,24,293 equivalent to ₹ 4.5 crores. Even during the post search enquiries the assessee did not communicate about the difference in the rate of Dollars and that he is disclosing only ₹ 3,99,01,729/- at the rate of ₹ 43.17=1USD nor did he give any submission in this 7 regard during assessment proceedings. Only when the difference in the amount declared was noticed by the AO and a show cause notice was given to assessee on this difference, the same was explained as above.
7.15 Accordingly, on the basis of search proceedings and statement of assessee recorded under section 132(4) of the I.T. Act, 1961, it was ₹ 4.5 cr to be disclosed by the assessee, however he has disclosed only 3,99,01,729/- in this return of income, therefore, the difference amount of ₹ 50,98,271/- is added as undisclosed income of assessee for the year under consideration.
(addition ₹ 50,98,271/-)
Penalty proceedings initiated under section 271(1)(c) of the IT Act for filing inaccurate particulars of income leading to concealment of income.”
5. The AO also initiated the proceedings under section 271(1)(c) of the Act for filing of inaccurate particulars of income in the return of income by the assessee leading to concealment of income. The assessee has challenged the addition before CIT(A) on account of the differential amount of ₹ 50,98,271/- in quantum appeal. The CIT(A) in quantum appeal directed the AO to examine whether Telegraphic Transfer (TT) buying rate declared by the assessee is correct or not by observing in Para 6.2 as under: - “6.2 From the perusal of the above rule the assessee's contention that he calculated the 8 exchange rate and resultant amount of declaration as per I T Rules seems to be correct. Further AO also did not find any legal or factual inconsistencies in the assessee's calculation. Only reason for the AO making the addition seems to be that the declaration given by the assessee is Rs.4.5 Cr. which he did not honour and did not intimate DDIT or AO that the declaration works out to Rs. 3.99 Cr. and not 4.5 Cr. Even assuming that the assessee did not intimate the calculation and resultant deduction in declaration to DDIT or AO, that will not debar the assessee in returning the correct income as per the provision of the Act. Anyway the return of income is before the AO and he could have found out any deficiency therein at any time during the assessment proceedings and could have taken corrective action accordingly. The assessee declared an approximate amount of Rs.4.5 Cr.(around 4.5 Cr. was the word used in statement) which he corrected as per IT Rules and I don't find any fault with the same. Even if the assessee declared 4.5 Cr. without using the word "around", assessee is at liberty to tile return of income as per provisions of Act reducing his declaration to 3.99 Cr. Nothing bars AO from finding fault with assessee's return and assess it correctly. Instead AO is not correct in saying that because assessee declared 4.5 Cr he should return 4.5 Cr even if legally his income works out to Rs.3.99 Cr. It is not the case of the AO that assessee actually invested 4.5 Cr. in the foreign bank and not 3.99 Cr. as declared by him in 9 the return. Under these circumstances, I am unable to support AO's argument. After going through the assessee's explanation, statement u/s 132(4) and relevant provisions of the I T Rules, I am of the considered opinion that what was offered to tax by the assessee is peak balance in the account USD 924293 and he declared rupee equivalent of the same in the return filed u/s 153A. However, the AO did not examine whether T.T. buying rate declared by assessee is correct or not. If there is any difference in the T.T. rate as on 3 1.3.2007 furnished by assessee the AO is at liberty to correct the same and recalculate the rupee equivalent of S 924293 as per Rule 115. The matter is remanded to AO for this limited purpose. AO is directed accordingly.”
It was informed by the learned Counsel that this addition has been deleted amounting to ₹ 50,98,271/- by the AO while giving appeal effect to the order of CIT(A).
6. In the meantime, the AO started the penalty proceedings under section 271(1)(c) of the Act for furnishing of inaccurate particulars of income and levied the penalty on the amount of ₹ 4,50,65,679/- comprised of the following three items: - “(i) Rs.3,99,01,729 being rupee equivalent of USD 9,24,293 i.e. peak balance of the funds lying in the escrow bank account, and (ii) Rs.50,98,271 being the difference between the adhoc/ estimated amount of Rs.4,50,00,000 10 stated in the statement made by the Appellant under section 132(4) of the Act and Rs.3,99,01,729 as per (i) above;
(iii) Rs.65,679 being the interest income declared in the original return of income filed on 29-10-2007 erroneously considered for its purpose of levying penalty.”
The AO levied the penalty for furnishing of inaccurate particulars of income by observing in Para 8, 9 and 10 as under: - “8. It is therefore seen that the assessee has not disclosed the sums that he received during the stay in UK for the services rendered and towards the cost of relocation as above. The copies of bank statements have also not been furnished. Therefore, as the assessee has not stated anything regarding the manner in which this income has been earned, they are clearly liable to penalty under section 271(1)(c) for furnishing inaccurate particulars.
9. Further, during assessment proceedings, AO had called for the details of the said bank account vide notices dated 22.07.2013 and 02.01.2014 but the assessee neither furnished any detail nor copies of the HSBC bank account or bank statements. As per the HSBC statements, the sum found at $ 9,24,292 equivalent to ₹ 4.5 cr were earned by the assessee who had not disclosed this in his Return of income. Moreover, the assessee had shown his non- cooperation and lack of compliance to the notices issued as mentioned above as he did not sign the 11 consent waiver form so as to enable the department to gather information from the concerned authorities. Although the assessee has accepted the Foreign Bank account and the sum lying in the account, he did not submit the details of account, did not disclose the manner in which the said amount was earned, neither voluntarily offered for taxation, nor submitted the consent waiver form. Accordingly, the assessee is not entitled to immunity form penalty in the view of the above.
10. Therefore, this is a fit case of filing inaccurate particulars leading to concealed of income amount to 4.5 crores and levy penalty under section 271(1)(c) of the IT Act on account of undisclosed income.”
Aggrieved, assessee preferred the appeal before CIT(A), who also confirmed the penalty to the extent of income of USD 9,24,293/- equivalent to ₹ 3,99,01,729/- but directed the AO to delete the penalty on the item of income already declared for an amount of ₹ 65,679/- and relief granted by the CIT(A) in the quantum appeal of ₹ 50,98,271/- being the difference between the adhoc/ estimated amount of Rs.4.50 crores stated in the statement made by the assessee under section 132(4) of the Act and Rs.3,99,01,729 as per amount offered by assessee in its return of income by observing in Para 11 and 12 as under:-
“11. The above submission made by the assessee and arguments are considered very carefully. It may be pointed out that the assessee filed original return of income declaring income of Rs. 22,49,454 on 29- 10-2007. In the said return of income, the assessee 12 neither disclosed the above foreign bank account nor the income of USD 9,24,293 equivalent to Rs.3,99,01,729. It is only during the course of search when the assessee was confronted with the base note that he chose to offer the said amount to tax. It is clear that but for the search action the amount would have escaped the assessment. It is established beyond doubt that the bank account in which the funds were lying with HSBC, Geneva was in the name of assessee. It may also be pointed out that assessee himself offered the income stashed in the overseas bank account and in such circumstances the entire financial transactions are subject to taxation as per the provisions of income Tax Act 1961. Therefore, the assessee's contention that the said amount is not taxable is devoid of any merit. This action of assessee reveals that the assessee had no intention of disclosing the said amount and only disclosed it when he was confronted with fool proof evidence in the form of base note during search. The assessee, therefore, having not disclosed the said amount has concealed Its income from the income-tax department. Though the assessee contended that this as in the nature of Escrow bank account, it is established fact that the account is in the name of assessee. It is also an established fact that the money was shown lying in the credit of the said account and therefore, I have no hesitation that the assessee deliberately concealed the foreign bank account and the amount therein at the time of filing of original return and 13 hence assesses is liable for concealment penalty u/s. 271(1)(c) of the Assessee is only trying to propose various theories when he was confronted with hard evidence which clearly establishes that there is deliberate concealment of income. The contention of assessee that the declaration is voluntary cannot be accepted as the assessee declared the amount only when he was left with no escape route on being confronted with hard evidence.
To summarize, it can be seen that the assessee has concealed the particulars with respect to taxable income lying in foreign account in the original return of income and chose to come clean only when confronted by the investigation wing. Under the circumstances, I have no hesitation in confirming the action of AO in levying penalty in principle. However, AO is directed to recalculate the concealed income and tax sought to be evaded, keeping in view the assessee's contention with regard to the income declared (of Rs. 65,679/-) in original return and also after reducing the income as per the relief granted in the appellate order (of Rs. 50,98,271/-). Penalty will be recalculated accordingly.”
Aggrieved, now assessee is in appeal before Tribunal.
Before us, the learned Counsel for the assessee Shri Nitesh Joshi narrated the facts. The facts are that the Assessee is in the field of Oil and Gas Sector and related engineering equipment on it global basis and 14 was Managing Director of Equip Engineers India Pvt. Ltd., Director in Contour Engineers Pvt. Ltd. and Zen Equip India Pvt. Ltd. Based on his close involvement in the Oil and Gas sector the Assessee was able to identify a business opportunity for refurbishment of second hand Portable Saturated Diving Systems (PSDS) which thereafter could be leased/ sold to prospective customers with a good margin. Due to close involvement, assessee engaged in the services of a consulting company to identify a business associate with whom the Assessee could carry on the said business as a joint-venture. The Assessee was approached by the Dorchester Group who showed interest in the carrying the business as a joint venture. The Assessee entered into a Memorandum of Understanding (MOU) with Dorchester International Inc. a Cyprus Company (Dorchester) to explore the said business opportunity as a joint-venture (JV), which was remain in force till 28.11.2004 i.e. for 18 months, during which period both parties would endeavour to commence the business of the proposed JV. As per the MOU all costs for setting up and establishing the JV including the initial funds for purchase/refurbishment of PSDS and for running the operation of JV for an initial period of 2 years shall be contributed by Dorchester. The Assessee was under an obligation to identify suitable second hand PSDS and provide the requisite technical services and facilities for refurbishing the same in a cost efficient manner and would also be solely responsible for the management and the operation of the proposed JV. In consideration thereof, Dorchester had agreed to allow to the Assessee sweat equity upto 20% of the total voting capital of the proposed JV. The Assessee confirms that no JV entity had been formed pursuant to the MOU. A Supplementary MOU was entered into between the Assessee and Dorchester, with a view to demonstrate its commitment to the proposed JV and also agreed to deposit in escrow a sum of USD 1 15 million into a separate bank account to be opened which was proposed to be in the name of the Assessee and would he operational till such time as the JV got formalised. It was agreed that after formation of JV and allotment of sweat equity shares to the Assessee, the balance of funds in the said bank account shall be transferred to the JV as contribution of Dorchester. Since, money lying in the said bank account was to be held in escrow it was specifically agreed that the Assessee would be holding the money in trust and shall not be entitled to expend or appropriate any part of the said sum without obtaining the prior permission of Dorchester. Assessee would also issue third party instructions to the bank to allow Dorchester full access to the bank account. It was understood that the funds in the bank account could only be used to promote the interest of the proposed JV and for no other purpose. It was also agreed that if the JV was not formalised and established before 28.11.2004, the parties may decide to terminate the MOU if the Assessee had re-located and based himself in the UK, he would be entitled to draw sums as may be agreed between the parties towards the cost of relocation from the funds lying in the escrow bank account. If the parties decided to terminate the MOU the Assessee would not be entitled to any compensation and the money lying in the escrow account shall be returned to Dorchester with a clear understanding and agreement that the Assessee will have no claim on the said amount except as otherwise agreed. Consequent thereto, an escrow bank account was opened with HSBC Bank in Geneva in the Assessee's name and Dorchester transferred total amount of USD 8,57,000 on 05.12.2003. Therefore, the bank account with HSBC Bank, Geneva, in the Assessee's name was an escrow account. The funds in the said bank account were deposited by Dorchester and not by the Assessee. Further, funds lying in the said bank account could be utilised only for specified purposes and not for the benefit of the Assessee. There 16 was a specific bar on the Assessee to expend or appropriate any part of the said sum without obtaining the permission of Dorchester. The ultimate destination of the said funds was to be as contribution of Dorchester into the JV Company. The only benefit which could be received by the Assessee from the said bank account was for meeting cost of relocation as may be agreed between the parties. However, this stage was not reached as no JV entity was formed and consequently, the Assessee did not relocate himself to UK. The MOU dated 29.05.2003 entered into between the Assessee and Dorchester was terminated. With the termination of the MOU, the escrow bank account with HSBC Bank in Geneva was also closed. They have acknowledged that they have received repayment of the entire fund lying to the credit of the said bank account. They have also confirmed that they have received all the amount remitted by them to the said bank account and have no claim whatsoever against the Assessee. Therefore, the entire amount lying in the said bunk account was paid back to Dorchester upon termination of the MOU and the Assessee has not received any benefit from the same.
Before us, the learned Counsel for the assessee first of all narrated the facts that the penalty, as presently surviving is amounting to ₹ 1,34,53,030/- i.e. relatable to an amount of ₹ 3,99,01,729/- and the issues which arise for consideration before the Tribunal in the present appeal were raised as under: - “a. Whether the notice dated 28.03.2014 issued by the AO under section 274 read with section 271(1)(c) of the Act fulfils the jurisdictional pre- conditions as specified in the said sections and also does it reflect any application or mind.
17 b. Whether it was open to the Commissioner of Income-tax (Appeals) to uphold the levy of penalty for the default of concealment of income when the A.O. had instituted and levied penalty for furnishing of inaccurate particulars of income.
C. Whether any penalty could be levied under section 271(1)(c) of the Act in respect of the amount of Rs.3,99,01,729, when: i. no satisfaction as required by sub-sections (1) and/ or (1B) of section 271 has been recorded by the AO in respect of this amount in the assessment order; ii. the amount of Rs.3,99,01,729 being rupee equivalent of USD 9,24.293 does not represent the Assessee's income but has been offered for tax in the course of search proceedings in view of the pressure created by the investigating team and the surrounding circumstances and only with a view to buy peace of mind? In any event, the non-offering of income to tax was for good and sufficient reasons and, hence, bonafide; iii. The basis for levy of penalty is contrary to the facts on record, overlooks the relevant facts and is based on material and evidence which are irrelevant to the issue. The Assessee also argued that on the facts and in the circumstances of the case, no reasonable person duly briefed in the matter 18 could have ever held that the Assessee is liable to penalty under section 271(1)(c) of the Act for alleged furnishing of inaccurate particulars of income. iv. The base note received by the Government of India from the French Government which forms the basis for levy of penalty on the amount of USD 9,24.293 in the hands of the Assessee could not be relied upon as an evidence because it is a piece of stolen information of which the authenticity has not been tested?”
The learned Counsel for the assessee first of all argued that there is no satisfaction recorded by AO qua the income declared by the assessee in the return of income because no addition on that account was made and there is satisfaction recorded by the AO qua only the addition made on account of quantum of ₹ 50,98,271/- being the difference between the adhoc/ estimated amount of Rs.4.50 crores stated in the statement made by the assessee under section 132(4) of the Act and Rs.3,99,01,729 as per amount offered by assessee in its return of income. He argued that there is no satisfaction recorded by the AO. And also, he argued that the notice issued under section 274 read with section 271 of the Act does not fulfill the preconditions specified in the said sections and also does not reflect any application of mind. It was also contended by the learned Counsel for the assessee the levy of penalty by the AO was for default of furnishing of inaccurate particulars of income whereas the CIT(A) uphold the levy of penalty for the default of concealment of income, it means that authorities below are not sure about the specific 19 charge. On these two issues, the learned Counsel for the assessee relied on the following case laws:-
On the issue of notice invalid 1. CIT vs. Manjunatha Cotton & Ginning Factory -35 taxman 250 (Karnataka) 2. CIT vs. SSA’s Emerald Meadows -73 Taxman 241 (Karnataka) 3. CIT vs. SSA’s Emerald Meadows –(SC) 4. CIT vs. Samson Perinchery – 392 ITR Mumbai High Court 5. Cenzar Industries Ltd. vs. ITO –ITA 1970/Mum/2015 6. Eon Aviation Pvt. Ltd. Vs. DCIT-ITA 3011/Mum/2016 7. Trans Conduct (India) Vs. ACIT – ITA 3198/Mum/2016 8. Tanna Financial Services Pvt. Ltd. Vs. Acit – ITA 206/Mum/2011 9. Kumar Satur Nathani Vs. ACIT – ITA 3942/Mum/2015 10. CIT vs. ACME Associates – 76 Taxmann 242 (HC) On Satisfaction- A jurisdictional Precondition 11. CIT vs. S.V. Angidi Chettiar – 44 ITR 739 (SC) 12. D M Manasvi Vs. CIT (SC)- 86 Taxmann 16 (Bom) 13. CIT vs. Ramcommercial Enterprises Ltd. -167 CTR 0321 (2000) 14. CIT Vs. Racommercial Enterprises Ltd -1 167 CTR 031 (2000) 15. CIT vs. Munish Iron Store (2004) 186 CTR 0321 (2000) 16. Madhushree Gupta Vs. Union of India -183 Taxmann 100 (Delhi) 17. Godrej & Boyce Mfg. Co. Ltd. Vs. DCIT -81 Taxmann 111(SC) 18. Maxopp Investment Ltd. Vs. CIT – 91 Taxmann 162 (Guj) 19. Kirit Dahyabhai Patel Vs. ACIT 80 TAxmann 162 (Guj) 20. CIT Vs. Sun Engineering Works P. Ltd. – 64 Taxmann 442 (SC) The learned CIT- DR, has relied on the following case laws: -
Shri Mahesh M. Gandhi Vs. ACIT
Airen Metals (P) Ltd. Vs. ACIT (2018) 191 TTJ 609 (Jal) 3. Maharaj Garage & Co. vs. CIT (2017) 85 taxmann.com 86 (Bom) 4. Earthmoving Equipment Service Corporation vs. DCIT (2017) 84 Taxmann.com 51 (Mumbai-Trib) 5. Lake Palace Hotels & Motels Ltd. Vs. DCIT (2002) 83 ITD 286 (Jodhpur) 6. CIT vs. Smt. Kaushalya (1994) 75 Taxmann 549 (Bombay) 7. ACIT vs. Dr. Nitin Laxmikant Lad, IN ITA No. 2241 to 2244/PN/2012 8. CIT Vs. Sangmeshwara Associate (2012) 345 ITR 396 (Kar) 9. S. Rajnish Vohra vs. DCIT ITA No. 516/Chd/2012 10. CIT vs. Mussadilal Ram Bharose 165 ITR 14 20 11. M/s Lakshmi Ring Travellers, (Mds)/2011 12. CIT vs. Munish Iron Store (2003) 263 0484 (2004) 13. Mahendra Mital vs. ACiT (2011) 139 TTJ 513 (Mum) 14. Mrs. SArita Kaur Manjeet Singh Chopra V. ITO (2017) 88 Taxmann.com 360 (Pune-Trib) 15. MAK Data (P) Ltd. v. CIT (2013) 358 ITR 593 16. m/S Madhushree Gupta vs. UOI & Anr. (2009) 317 ITR 107 (Delhi) 12. On the other hand, the learned CIT DR, Shri Anadi Verma countered the arguments and stated that there is clear admission by the assessee regarding non disclosure of income under section 132(4) of the Act and accordingly, the concealed income was brought to tax by assessing the peak balance of the assessee maintained with HSBC bank, Geneva, Switzerland. It was argued by him that this was information from sovereign Govt. of France under DTAA about untaxed black money stashed in HSBC bank account of the assessee. It was contended by him that the information was received in the form of “Base Note” with full identificatory details of the assessee. The assessee himself blocked the further inquiry by admission of undisclosed income under section 132 of the Act by offering peak balance of assessee’s HSBC Bank Account lying an amount of USD 9,24,292/- for the AY 2007- 08. The assessee further blocked inquiry by refusing to sign “Consent Waiver Form” as prescribed in secrecy loss of banking of Switzerland. The learned CIT DR referred to the assessee’s letter dated 26.12.2013 and 09.01.2014, wherein he has accepted the bank account with HSBC Bank, Geneva. He referred to the relevant context of the letter, wherein it is stated that, “I had earlier in my letter dated 26.12.2013 filed with you stated that during the course of proceedings conducted under section 132 of the I. Tax Act 1961 on 29.07.2011 at my residence, I had myself voluntarily admitted that a foreign bank account did exist for a short period, which may carry my details. On being subsequently shown some Xerox copy of a HSBC bank account which showed my name, I had confirmed to the 21 investigating officer on 29.07.2011 that the said account belonged to me. To buy peace of mind, I had offered the peak balance mentioned in the statement of USD 9,24,292 on February 2007 as my income for the assessment year 2007-08 although the funds were not belonging to me and were in the nature of an Escrow account.” In view of this admission the learned CIT DR argued that the appeal of assessee is devoid of merits in fact and in law. The scourge of black money in havens of Swiss Bank accounts is well documented and is constantly being pursued with foreign governments, by Central agencies in India and all judicial forums in India too being actively pursued by them.
The learned CIT- DR, has relied on the following case laws: - SN Name 17. Shri Mahesh M. Gandhi Vs. ACIT
Airen Metals (P) Ltd. Vs. ACIT (2018) 191 TTJ 609 (Jal) 19. Maharaj Garage & Co. vs. CIT (2017) 85 taxmann.com 86 (Bom) 20. Earthmoving Equipment Service Corporation vs. DCIT (2017) 84 Taxmann.com 51 (Mumbai-Trib) 21. Lake Palace Hotels & Motels Ltd. Vs. DCIT (2002) 83 ITD 286 (Jodhpur) 22. CIT vs. Smt. Kaushalya (1994) 75 Taxmann 549 (Bombay) 23. ACIT vs. Dr. Nitin Laxmikant Lad, IN ITA No. 2241 to 2244/PN/2012 24. CIT Vs. Sangmeshwara Associate (2012) 345 ITR 396 (Kar) 25. S. Rajnish Vohra vs. DCIT ITA No. 516/Chd/2012 26. CIT vs. Mussadilal Ram Bharose 165 ITR 14 27. M/s Lakshmi Ring Travellers, ITA No. 2083 (Mds)/2011 28. CIT vs. Munish Iron Store (2003) 263 0484 (2004) 29. Mahendra Mital vs. ACiT (2011) 139 TTJ 513 (Mum) 30. Mrs. SArita Kaur Manjeet Singh Chopra V. ITO (2017) 88 Taxmann.com 360 (Pune-Trib) 31. MAK Data (P) Ltd. v. CIT (2013) 358 ITR 593 32. m/S Madhushree Gupta vs. UOI & Anr. (2009) 317 ITR 107 (Delhi) 13. The learned CIT DR also argued that the additional ground/ additional plea proposed to be raised by assessee during the course of hearing cannot be admitted and barred by laches. We noted that the 22 assessee has raised the main ground regarding the penalty levied by AO and confirmed by CIT(A) is void ab-initio being without jurisdiction and assessee has raised original ground qua this i.e. the ground no. 3 and 4. Hence, we are not admitting this objection of the assessee and will adjudicate the ground No. 3 and 4. 14. We have heard rival contentions and gone through the facts and circumstances of the case. We find that in the statement recorded under section 132(4) of the Act, the Assessee had explained the nature a source of funds in the bank account and explain in detail about the business opportunity as identified by him in the year 2002 for which he had entered into a MOU with Dorchester in the year 2003. Reference was also made to the Supplementary MOU which contemplating opening of the escrow bank account in the Assessee's name and deposit of funds into the same by Dorchester. It was clarified that the Assessee had no authority to use nor had any control over the funds lying in the said escrow bank account. Therefore, penalty has been levied under the said section primarily for non-disclosure of certain facts which allegedly showed earning of income abroad, non-co-operation and disclosure was allegedly not voluntary. The learned Counsel for the assessee stated that they failed to appreciate that the Assessee never relocated himself to UK. Further, he had shown that the funds lying in the said bank account could not be regarded as his income and, consequently, no penalty could be levied thereon.
We noted that a search and seizure action was carried out on the Assessee and its group. Despite the search continuing for hours, no incriminating information of any kind was found by the search party. Thereafter, while recording the statement of the Assessee under section 132(4) of the Act, the Assessee was shown photocopy of the bank 23 account statement held in his name with HSBC Bank, Geneva. The assessee made declaration and agreed to offer to tax the peak amount lying in the said escrow bank account and after that the department concluded the search. The assessee before us contended that with a view to stop the mental trauma placed on the Assessee especially because of his and his mother's health as well as the search action at her married daughter's residence and with a view to buy peace of mind, the Assessee agreed to offer the peak amount of USD 9,24,923 to tax (the rupee equivalent of which has been referred to as 4.5 crores in the said statement, while actually as per the exchange rate as prevailing on 31.03.2007 the amount should be Rs.3,99,01,729). In the said statement, the Assessee has also observed that at that point of time he did not remember the exact source of fund and would try to explain as soon as possible. Thereafter, in accordance with the assurance of the investigating team, the search was concluded based on the income as offered by the Assessee. As stated above, the said offer was made by the Assessee with a view to buy peace of mind though the said addition could not stand in law. We noted from the documents that in the statement recorded under section 132(4) of the Act, the Assessee had agreed to explain the nature and source of fund in the bank account, he filed a detailed explanation explaining the business opportunity as identified by him in the year 2002 for which he had entered into a MOU with Dorchester in the year 2003. Reference was also made to the Supplementary MOU which contemplating opening of the escrow bank account in the Assessee's name and deposit of funds into the same by Dorchester. It was clarified that the Assessee had no authority to use nor had any control over the funds lying in the said escrow bank account. Ultimately, no JV could be set-up between the Assessee and Dorchester and the entire funds lying in the said bank account with HSBC Bank was 24 transferred back to them. Therefore, it was explained that the funds lying in the said escrow bank account never belonged to him, nor did he have any control over the said funds. He was holding the same in trust and ultimately the funds were returned to Dorchester without any benefit to the Assessee. In spite of this fact, the Assessee in conformity with his statement made under section 132(4) of the Act, agreed to offer USD 9,24,293 in order to buy peace of mind and avoid any litigation with the Revenue. A request was also made that, consequently, no penalty prosecution or other proceeding be initiated against him.
It was also explained by the assessee that the nature of the account along with the relevant facts and circumstances had already been disclosed to the income-tax department in the course of search proceedings by his letter dated 04.11.2011. He also explained that, he did not have any control over the said bank account which was an escrow account and the circumstances which disabled him from signing the consent waiver form. In any event, he was offering to tax peak of the entire amount lying to the said account and therefore no further information was necessary.
Now, we have to go through the legal issue raised by the assessee regarding satisfaction not recorded by the AO. We noted that this plea raised the assessee is with respect to the amount of ₹ 3,99,01,729/-, there is no penalty initiated by the AO as is clear from the assessment order. The learned counsel for the assessee stated that the penalty is initiated only with respect to the amount added by the AO and he particularly drew our attention to Para 7.15 of the assessment order, which has already been reproduced in this order above but for the sake of brevity, we are reproducing the same again which reads as under: - 25 “7.15 Accordingly, on the basis of search proceedings and statement of assessee recorded under section 132(4) of the I.T. Act, 1961, it was ₹ 4.5 cr to be disclosed by the assessee, however he has disclosed only 3,99,01,729/- in this return of income, therefore, the difference amount of ₹ 50,98,271(1)(c)/- is added as undisclosed income of assessee for the year under consideration.
(addition ₹ 50,98,271/-)
Penalty proceedings initiated under section 271(1)(c) of the IT Act for filing inaccurate particulars of income leading to concealment of income.”
18. From the above, we noted that the AO has initiated penalty proceedings qua the addition amounting to ₹ 50,98,271/- and AO has categorically mentioned that the assessee has disclosed a sum of ₹ 3,99,01,729/- in the return of income and therefore, the differential amount of ₹ 50,98,271/- is being added. We noted that no satisfaction is recorded by the AO qua this amount of ₹ 3,99,01,729/- which is a pre- condition for levy of penalty. The learned Counsel for the assessee drew our attention to the provisions of section 271(1)(1) of the Act and argued that before levying penalty under this section, it is incumbent on the AO that in the course of any proceedings under the Act he has to record satisfaction that the condition for levying penalty are satisfied in the assessee’s case. The learned Counsel for the assessee argued that such satisfaction should be explicitly recorded by the AO and for this purpose he relied on the decision of Hon’ble Supreme Court in the case of CIT vs. 26 S.V. Angidi Chettiar (1962) 44 ITR 739 (SC), wherein Hon’ble Supreme Court held as under: - “The penalty provisions under section 28 would therefore in the event of the default contemplated by clause (a), (b) or (c ) be applicable in the course of assessment of a registered firm. If a registered firm is exposed to liability of paying penalty, by committing any of the defaults contemplated by clause (a), (b ) or (c) by virtue of section 44, notwithstanding the dissolution of the firm the assessment proceedings are liable to be continued against the registered firm, as if it has not been dissolved.
Counsel contended that in any event, penalty for the assessment year 1949-50 could not be imposed upon the assessee firm because there was no evidence that the Income-tax Officer was satisfied in the course of any assessment proceedings under the Income-tax Act that the firm had concealed the particulars of its income or had deliberately furnished inaccurate particulars of the income. The power to impose penalty under section 28 depends upon the satisfaction of the Income-tax Officer in the course of proceedings under the Act; it cannot be exercised if he is not satisfied about the existence of conditions specified in clauses (a), (b) or (c ) before the proceedings are concluded. The proceeding to levy penalty has, however, not to be commenced by the Income-tax Officer before the completion of the assessment proceedings by the Income-tax Officer.
27 Satisfaction before conclusion of the proceeding under the Act, and not the issue of a notice or initiation of any step for imposing penalty is a condition for the exercise of the jurisdiction. There is no evidence on the record that the Income-tax Officer was not satisfied in the course of the assessment proceeding that the firm had concealed its income. The assessment order is dated the 10th of November, 1951, and there is an endorsement at the foot of the assessment order by the Income-tax Officer that action under section 28 had been taken for concealment of income indicating clearly that the Income-tax Officer was satisfied in the course of the assessment proceeding that the firm had concealed its income.”
Further, this decision of Hon’ble Supreme Court was followed in the decision of D M Manasvi Vs. CIT (1972) 86 ITR 557 (SC), wherein also the same position was reiterated by holding as under: - “The fact that notices were issued subsequent to the making of the assessment orders would not, in our opinion, show, that there was no satisfaction of the Income-tax Officer during the assessment proceedings that the assessee had concealed the particulars of his income or had furnished incorrect particulars of such income. What is contemplated by clause (1) of section 271 is that the Income-tax Officer or the Appellate Assistant Commissioner should have been satisfied in the course of proceedings under the Act regarding matters mentioned in the clauses of that sub-section. It is 28 not, however, essential that notice to the person proceeded against should have also been issued during the course of the assessment proceedings. Satisfaction in the very nature of things precedes the issue of notice and it would not be correct to equate the satisfaction of the Income-tax Officer or Appellate Assistant Commissioner with the actual issue of notice. The issue of notice is a consequence of the satisfaction of the Income-tax Officer or the Appellate Assistant Commissioner and it would, in our opinion, be sufficient compliance with the provisions of the statute if the Income-tax Officer or the Appellate Assistant Commissioner is satisfied about the matters referred to in clauses (a) to (c ) of sub-section (1) of section 271 during the course of proceedings under the Act even though notice to the person proceeded against in pursuance of that satisfaction is issued subsequently. We may in this context refer to a decision of five judges Bench of this court in the case of Commissioner of Income- tax v. S.V. Angidi Chettiar [1962] 44 ITR 739 , 745; [1962] Supp. 2 SCR 640 (SC). Shah J., speaking for the court, while dealing with section 28 of the Indian Income-tax Act, 1922, observed :
The power to impose penalty under section 28 depends upon the satisfaction of the Income-tax Officer in the course of proceedings under the Act; it cannot be exercised if he is not satisfied about the existence of conditions specified in clause (a), (b) or (c ) before the proceedings are 29 concluded. The proceeding to levy penalty has, however, not to be commenced by the Income-tax Officer before the completion of the assessment proceedings by the Income- tax Officer. Satisfaction before conclusion of the proceeding under the Act, and not the issue of a notice or initiation of any step for imposing penalty is a condition for the exercise of the jurisdiction.
From the above, it is clear from the recording of satisfaction made by the AO during the assessment proceedings that the assessee has concealed the particulars of income or had furnished inaccurate particulars of such income. Hon’ble Supreme Court has observed that satisfaction in the very nature of thing precedes the issue of such notice and it would not be correct to equate the satisfaction of the AO with the actual issue of notice. It was further observed that the issue of notice is a consequent of the satisfaction of the AO. In the present case, before us there is no satisfaction recorded by the AO with respect to the addition of the amount of ₹ 3,99,01,729/- as the AO has mention with referred to section 271(1)(c) of the Act in the assessment order in the second part of paragraph 7.15 as noted above. A bare perusal of paragraphs 7.12 to 7.15 of the assessment order shows that, therein, the entire emphasis is on the addition of ₹ 50,98,271 because in the statement of the assessee recorded under section 132(4) of the Act the income offered was ₹ 4.50 crores, whereas, additional income offered in the return of income filed pursuant to notice issued under section 153 of the Act was only ₹ 3,99,01,729/-. Hence, we are of the considered view that there is no recording of satisfaction by the AO qua this addition and penalty under 30 section 271(1)(c) will not survive. Hence, we delete the penalty on this count.
The another aspect argued by the learned Counsel for the assessee regarding non-application of mind and validity of notice issued under section 274 read with section 271 of the Act. A bare perusal of the said notice shows that the same has been issued without pointing out the relevant default on the part of the Assessee for which penalty proceedings were initiated. In fact, said notice has been issued in a standard format without striking of the irrelevant part. This clearly discloses complete non- application of mind by the AO before issuing the notice. In the above referred facts and circumstances of the case, the learned Counsel for the assessee argued that penalty has been levied under section 271(1)(c) of the Act, without fulfilling the jurisdictional pre- conditions necessary for issuing a valid show-cause notice and passing of an order under the said section. Further, the conclusion reached by the AO/ CIT(A) is contrary to the facts of the case and overlooking relevant material and evidence thereby rendering the same to be illegal and bad in law.
We are of the view, it is a settled principle of law that before taking any action, including levy of penalty under section 271(l)(c) of the Act, the Assessing Officer should issue a valid show cause notice to the assessee. In the show cause notice, he should specify the default as committed by the Assessee and the reason why he is seeking to levy penalty in respect of the same i.e. whether penalty is sought to be levied for (i) concealment of income or (ii) furnishing of inaccurate particulars of income. If the show cause notice does not disclose these details it implies non application of mind by him and thereby vitiates the very assumption of jurisdiction by the Assessing Officer. In the present case, a bare 31 perusal of the notice dated 28.03.2014 issued by the AO under section 274 read with section 271 of the Act shows that the same has been issued without any application of mind. The said notice has been issued in a standard format without indicating the default on the part of the Assessee and the reason for which penalty proceedings are initiated. The said notice also makes a reference to section 24(1)/22(2)/22(4)/ 23(2)/34 of the Income-tax Act 1922 and sections139(I)/I39(2)/I42(I)/l43(2) and 148 of the Income-tax Act, 1961 without cancelling the irrelevant part in the notice. In view thereof, we are of the view that penalty proceedings have been initiated, in the present ease, without application of mind thereby rendering the initiation of such proceedings and consequent passing of the penalty order under section 271(1)(c) of the Act to be illegal and bad in law. This view of ours is supported by the decision of Hon’ble Bombay High Court in the case of CIT vs. Samson Perinchery [2017] 392 ITR 4 (Bombay), wherein the decision of Karnataka High Court in the case of CIT vs. Manjunatha Cotton & Ginning Factory [2013] 359 ITR 565 (Karnataka) was also considered, same is reproduced as under: - “3 The impugned order of the Tribunal deleted the penalty imposed upon the Respondent Assessee. This by holding that the initiation of penalty under Section 271 (1)(c) of the Act by Assessing Officer was for furnishing inaccurate particulars of income while the order imposing penalty is for concealment of income. The impugned order holds that the concealment of income and furnishing inaccurate particulars of income carry different connotations. Therefore, the Assessing Officer should be clear as to which of the two limbs under which penalty is 32 imposable, has been contravened or indicate that both have been contravened while initiating penalty proceedings. It cannot be that the initiation would be only on one limb i.e. for furnishing inaccurate particulars of income while imposition of penalty on the other limb i.e. concealment of income. Further, the Tribunal also noted that notice issued under Section 274 of the Act is in a standard proforma, without having striked out irrelevant clauses therein. This indicates non-application of mind on the part of the Assessing Officer while issuing the penalty notice.
4 The impugned order relied upon the following extract of Karnataka High Court's decision in CIT v/s. Manjunath Cotton and Ginning Factory 359 ITR 565 to delete the penalty:
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 as case of furnishing of inaccurate particulars. The apex court in the case of Ashok Pai reported in [2007] 292 ITR 11 (SC) at page 33 19 has held that concealment of income and furnishing inaccurate particulars of income carry different connotations. The Gujarat High Court in the case of Manu Engineering reported in 122 ITR 306 and the Delhi High Court in the case of Virgo Marketing P. Ltd., 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.
5. The grievance of the Revenue before us is that there is no difference between furnishing of inaccurate particulars of income and concealment of income. Thus, distinction drawn by the impugned order is between Tweedledum and Tweedledee. In the above view, the deletion of the penalty, is unjustified.
The above submission on the part of the Revenue is in the face of the decision of the Supreme Court in Ashok Pai v/s. CIT 292 ITR 11 [relied upon in Manjunath Cotton & Ginning Factory (supra)] – wherein it is observed that concealment of income 34 and furnishing of inaccurate particulars of income in Section 271(1)(c) of the Act, carry different meanings/ connotations. Therefore, the satisfaction of the Assessing Officer with regard to only one of the two breaches mentioned under Section 271(1)(c) of the Act, for initiation of penalty proceedings will not warrant/ permit penalty being imposed for the other breach. This is more so, as an Assessee would respond to the ground on which the penalty has been initiated/notice issued. It must, therefore, follow that the order imposing penalty has to be made only on the ground of which the penalty proceedings has been initiated, and it cannot be on a fresh ground of which the Assessee has no notice.
7 Therefore, the issue herein stands concluded in favour of the Respondent Assessee by the decision of the Karnataka High Court in the case of Manjunath Cotton and Ginning Factory (supra). Nothing has been shown to us in the present facts which would warrant our taking a view different from the Karnataka High Court in the case of Manjunath Cotton and Ginning Factory (supra).
The learned CIT DR, also relied on the decision of Hon’ble High court in the case of CIT vs. Smt. Kaushalaya 216 ITR 660 (Bom). We noted that Hon’ble Supreme Court in the case of Dilip N Shroff v. CIT 291 ITR 519 (SC) has considered this issue and observed as under: - “83. It is of some significance that in the standard proforma used by the Assessing Officer in issuing a notice despite the fact that the same postulates that 35 inappropriate words and paragraphs were to be deleted, but the same had not been done. Thus, the Assessing Officer himself was not sure as to whether he had proceeded on the basis that the assessee had concealed his income or he had furnished inaccurate particulars. Even before us, the learned Additional Solicitor General while placing the order of assessment laid emphasis that he had dealt with both the situations.
The impugned order, therefore, suffers from non- application of mind. It was also bound to comply with the principles of natural justice. [See Malabar Industrial Co. Ltd. v. CIT [2000] 2 SCC 718].
We have, however, noticed hereinbefore that the Income-tax Officer had merely held that the assessee is guilty of furnishing of inaccurate particulars and not of concealment of income; which finding was arrived at also by the Commissioner of Income-tax and the Income-tax Appellate Tribunal.”