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Income Tax Appellate Tribunal, “I” BENCH, MUMBAI
PER MAHAVIR SINGH, JM:
These cross appeal are arising out of the order of Commissioner of Income Tax (Appeals)-2, Mumbai, [in short CIT(A)] in appeal No. THN/CIT(A) -2/476/2014-15 dated 15-01-2016. The Assessment was
ITA No.1835/Mum/2016 & CO No. 26/Mum/2018 framed by the Deputy Commissioner of Income Tax, Circle 3, Thane (in short DCIT/ AO) for the assessment year 2011-12 order dated 20-03-2014 under section 143(3) of the Income Tax Act, 1961 (hereinafter ‘the Act’). The penalty was levied by the Deputy Commissioner of Income Tax, Circle-3, Thane under section 271(1)(c) of the Act vide order dated 11-09- 2014.
At the outset the learned Counsel for the assessee stated that the assessee’s CO has raised a specific jurisdictional issue that the AO has is levying penalty without a specific charge for which the penalty proceedings are initiated against the assessee. For this assessee has raised following 2 grounds: -: -
“1. On the facts and iii the circumstances of the case and in law, the ld. C.I.T. (A) has rightly deleted the penalty u/s. 271(1)(c) of the Income-tax Act. 1961 and the same should be upheld.
On the facts and in the circumstances in the case and in law, the Ld. AO erred in initiating penalty proceedings u/s. 271(1)(c) of the Income-tax Act. 1961 without specifying the specific charge for which the penalty proceedings are being initiated against the assessee.”
However, the learned Counsel for the assessee stated that this CO is a time barred by 59 days and for this assessee has file condonation petition dated 02-02-2018 supported by affidavit. The learned Counsel for the assessee stated that the assessee received copy of form No. 36 along with grounds of appeal filed by department only on 08-11-2017. It was stated that the assessee engaged authorized representative on 15- 11-2017 but relevant papers were provided to the authorized representative only recently. The authorized representative after going
ITA No.1835/Mum/2016 & CO No. 26/Mum/2018 through the documents advised to file memorandum of cross objection and accordingly, assessee filed memorandum of cross objection on 05- 02-2018 instead of filing on 14-02-2017, thereby delay of 59 days. The assessee in condonation petition stated that the following reason:-
“6. While going through the documents, it came to the notice of the Authorized Representative that a ground with respect to initiation of penalty proceedings u/s. 271(1)(c) of the Act was required to be taken. It was advised by the Authorized Representative to file a memorandum of cross objection on an immediate basis, raising the issue of legality of initiation penalty proceedings u/s 271(1)(c) of the Act to safeguard the legal interest of the assessee. In the process of filing memorandum of cross-objection there has been delay of 56 days which the assessee most respectfully prays to the Hon'ble Bench to condone the delay and to take into consideration the legal issue raised in the memorandum of cross-objection and decide the appeal accordingly. The affidavit of the assessee explaining the circumstance in which the delay occurred is enclosed herewith.”
When this was confronted to the learned Sr. DR, he objected to the condonation. We have gone through the reasons stated and find the plea of assessee is quite reasonable that the cross objection was filed after going through the necessary documents as advised by the authorized representative. Hence, we condone the delay and admit the cross objection which was filed after going through the necessary documents as advised by the assessee authorized representative.
ITA No.1835/Mum/2016 & CO No. 26/Mum/2018 5. Brief facts are that the assessee Sai Anand Construction is a partnership firm engaged in the business of redevelopment of slum rehabilitation scheme under the government SDR scheme and constructing buildings. The AO required the assessee to explain how the cost of construction is adopted at the rate of 1555 per sq. ft by the assessee. On this the assessee filed revised calculation and submitted the rate of 2484 Per sq. ft. applied to area of 2105 sq. ft. of the shop and it comes to Rs. 52,28,820/-. The AO added back this amount and penalty proceedings are initiated under section 271(1)(c) of the Act and for this he noted in assessment order that “penalty proceedings u/s 271(1)(c) of the IT Act are separately initiated as the assessee has concealed the particulars of income by furnishing inaccurate particulars of income.” The AO also initiated he penalty proceedings of interest income at Rs. 1880/- and for this also he initiated the penalty proceedings by stating that “The said interest income has not been offered in the return of income. Consequently, penalty proceedings u/s 271(1)(c) read with section 274 were also initiated for concealment of income or furnishing of inaccurate particulars of income and a show cause notice dated 20.03.2014 was issued.” The AO issued notice under section 274 of the Act for initiation of penalty proceedings and consequently the penalty was levied vide order dated 11.09.2014 under section 271 (1)(c) r.w.s. 274 of the Act. The AO issue show cause notice, whereby he stated that, “the entirety of circumstances reasonably point to the conclusion that the amount added represents income of the assessee and that the assessee has consciously or deliberately concealed its income or furnished inaccurate particulars of income” and finally the AO levied the penalty for concealment of income vide Para 4 as under:-
“4. The contention of the assessee is perused. A justification that the assessee had not concealed any income or had not submitted any wrong
ITA No.1835/Mum/2016 & CO No. 26/Mum/2018 particulars is not accepted as the same discrepancies came to light only after selection of case into scrutiny. Had the case not been selected for scrutiny assessment, the income to the extent of disallowance made would have been escaped. So also the assessee should have been rectified its mistakes which were occurred while determining the total taxable income by filing revised return of income. However, the assessee failed to do so. The assessee never bothered to rectify the mistakes by filing revise return of income and ignored the facts deliberately. With regard to the disallowance of the interest received on advances to the sister concerns, since the AR of the assessee himself agreed for the said disallowance The above mentioned additions have been done on the basis of mistakes emerged during the assessment proceedings. The assessee in its reply quoted several judgements which are totally different from the facts and circumstances of the present case. The said judgements however deal with the fact that the AO must ascertain first if the conditions exist for imposing penalty u/s 271(1)(c). Since mistakes have been accepted during the assessment proceedings and the said mistakes never been tried to be rectified before scrutiny assessment as such by the assessee, clearly laid to form a belief that the assessee had always tried to ignore the mistakes thereby concealing its income by furnishing inaccurate particulars of income. The facts and circumstances of the case laws cited by the assessee in its reply are different from the present case therefore the same are clearly distinguishable.
ITA No.1835/Mum/2016 & CO No. 26/Mum/2018 The entirety of circumstances reasonably point to the conclusion that the amount added represents income of the assessee and that the assessee has consciously or deliberately concealed its income or furnished inaccurate particulars of income.
Considering the facts of the case and provisions of Explanation-i to section 271(1)(c), I am satisfied that the assessee has concealed the income or furnished inaccurate particulars of such income. Therefore, according to me the case of the assessee is a fit case for levy of penalty u/s 271(1)(c) of the I. T. Act, 1961. The minimum and maximum penalty leviable is at 100% being Rs. 16,16,288/- and at 300% being Rs. 48,48,864/- respectively. Keeping in view of the facts of the case, I levy minimum penalty of Rs. 16,16,288/-, which I feel would meet the ends of justice. This order is passed after taking prior approval from Addl. CIT, Range-3, Thane vide his letter no. THN/Jt.CIT/Rg-3/ Penalty/14-15/487 dated 10.09.2014”.
Now before us, the learned Counsel for the assessee argued that notice issued by AO under section 274 in a performance, it does not tick any charge on which the penalty under section 271(1)(c) of the Act was to be levied. Accordingly, the AO is not sure about specific charge. But vide order dated 11-09-2014 under section 271(1)(c) r.w.s. 274 of the Act the AO, retreated that the assessee has concealed the particulars of income and also furnished inaccurate particulars of income and for that the relevant finding in Para 4 is that the “Penalty proceedings u/s 271(1)(c) of the IT Act are separately initiated as the assessee has concealed the particulars of income by furnishing inaccurate particulars
ITA No.1835/Mum/2016 & CO No. 26/Mum/2018 of income.” The AO has also relied on explanation 1 to section 271(1)(c) and also levied the penalty for furnishing of inaccurate particulars of income. In view of the above facts, the learned Counsel for the assessee stated that assessee’s case is squarely covered by the decision of Hon’ble Bombay High Court in the case of CIT vs Samson Perinchery (2013) 392 ITR 4 (Bom.)
On the other hand, the learned Dr. heavily relied on the decision of Bombay High Court in the case of Maharaj Garage & Company vs. CIT Income Tax Reference No. 21 of 2008 order dated 22.08.2017 dated 28- 08-2017. The learned Sr. Departmental Representative heavily relied on Para 16 of the order which reads as under: -
“16. It is not in dispute that a reasonable opportunity of being heard in the matter, as required by Section 274 of the said Act was given to the assessee before imposing the penalty by the Income Tax Officer. The assessee furnished his explanation, which has been taken into consideration in the order. The mandatory requirement of obtaining the previous approval of the Inspecting Assistant Commissioner was followed. The penalty imposed by the Income Tax Officer was reduced by the Appellate Authority. There was no arbitrary exercise of discretion and the reasons are recorded after taking into consideration the explanation submitted by the assessee. The exercise of jurisdiction in respect of quantum of penalty is neither unjust nor beyond jurisdiction. The questions of law at serial Nos.1 and 3 are, therefore, answered in the negative.”
ITA No.1835/Mum/2016 & CO No. 26/Mum/2018 6. We have heard the rival contentions and gone through the facts and circumstances of the case. The facts of the case are that for the relevant previous year relevant to this AY 2011-12 the assessee has capitalized commercial space in the building Sai Tirth Tower constructed by the assessee firm itself. The assessee executed agreement for sale between itself i.e. both the seller and the purchaser being itself, for a sum of ₹ 32 lacs, which was computed by applying average cost of construction of the total project to the area of the shop. The assessee while filing return of income for AY 2013-14 informed the AO about the omission that while accounting for the same the assessee erroneously credited the firm as a creditor instead of crediting the sales account. The assessee accordingly admitted this income in AY 2013-14. The assessee also admitted this income during the course of assessment proceedings in the relevant AY 2011-12. Accordingly, the AO made addition of this commercial space at ₹ 52,28,820/-. We find that the CIT(A) on merits has considered this issue and deleted the penalty by observing in para 10 and 11 as under:-
“10. In my opinion, the case is covered by the decision of the Hon'ble Supreme" Court in the case of C.I.T. Ahmedabad Vs. Reliance Petroproducts Pvt..Ltd. 12010] 189 Taxman 322. In the case of Reliance Petroproducts (supra) return declaring loss of Rs.26,54,554/- was filed. Assessment was finalized under Section 143(3) of the Act whereby the total income was determined at Rs.2,22,688/-. In the case of Reliance Petroproducts, during assessment, addition in respect of interest expenditure of the amount of Rs.28,77,242/ under Section 14A was made. In the consequent penal proceedings under section 271(1)(c) of the Act, the assessee was held to be liable to pay the penalty
ITA No.1835/Mum/2016 & CO No. 26/Mum/2018 amounting to Rs.11,37,949/-. Before the Hon'ble Supreme Court it was argued on behalf of the Department that the claim of the interest expenditure was totally without legal basis having regard to the provisions of Section 36(1)(iii) and Section 14A and was made with the ma/a fide intentions. The Hon'ble Supreme Court did not accept the above contention. It was held by the Hon'ble Supreme Court that "by any stretch of imagination, making an incorrect claim in law cannot tantamount to furnishing inaccurate particulars." The Hon'ble Court pointed out that its judgment in the case of Dilip N. Shroff Vs. Joint Commissioner of Income Tax, Mumbai & Anr. [2007(6) SCC 329] was upset by its later decision in Union of India Vs. Dharamendra Textile Processors [2008 (13) SCC 369] only on the point of mens rea. Otherwise, no fault was found with the reasoning in the decision in Dilip N. Shroff Vs. joint Commissioner of Income Tax, Mumbai & Anr. (supra), where the Court explained the meaning of the terms "conceal" and inaccurate". It was pointed out in the case of Dilip N. Shroff (supra) that the term "inaccurate particulars" was not defined anywhere in the Act and, therefore, it was held that furnishing of an assessment of the value of the property may not by itself be furnishing inaccurate particulars. It was further held that the assessee must be found to have failed to prove that his explanation is not only not bona fide but all the facts relating to the same and material to the computation of his income were not disclosed by him. It was then held that the explanation must be preceded by a finding as to how and in what
ITA No.1835/Mum/2016 & CO No. 26/Mum/2018 manner, the assessee had furnished the particulars of his income. The Hon'ble Supreme Court in Reliance Petroproducts case did not accept the contention of the Department that the Assessing Officer had correctly reached the conclusion that since the assessee had claimed excessive deductions knowing that they are incorrect; it amounted to concealment of income in the following words :-
We do not agree, 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 the 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 Section 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 Assessing Officer for any reason, the assessee will invite penalty under Section 271(1)(c). That is clearly not the intendment of the Legislature.
I find that in the instant case, the assessee had furnished all the details regarding the asset either at the time of filing of return by including it as a capital asset and thereafter by informing the assessing
ITA No.1835/Mum/2016 & CO No. 26/Mum/2018 officer of the accounting mistake even before the assessing officer had discovered the same. In fact, the assessee had requested that the aforesaid amount should be included in its taxable income. These facts, by themselves, have not been found to be inaccurate or incorrect. Thus, the action of the assessee cannot be considered as concealment of income on the part of the assessee. It cannot be stated that merely because the assessee had not filed a revised return, incorrect particulars of income had been filed. The assessee had made a valuation which was substituted by another value by the assessing officer. This is clearly a case of difference of opinion which is covered by the case of Reliance Petroproducts (supra) and other cases discussed in para No.8 above. Although it is true that direct evidence may not be available in every case to show that the assessee had an intention to conceal income or evade payment of taxes, yet the same should be proved as a natural corollary from the facts and circumstances established on record. There is no presumption of concealment which can enable the assessing officer to levy penalty in the instant case. The assessing officer has also not been able to point out as to the manner in which inaccurate particulars were filed by the assessee. The claim of the assessee was bona fide and penal consequences cannot be visited upon the assessee because the same has not been accepted by the assessing officer. When there are two views possible on a particular aspect, merely because the view of the assessee was not accepted, would not make the assessee exigible for levy of penalty. A
ITA No.1835/Mum/2016 & CO No. 26/Mum/2018 mere disallowance or addition does not automatically lead to levy of penalty. Penalty can be levied only if material facts have been suppressed or inaccurate particulars of a particular income has been filed by the assessee. Penalty is not leviable in cases of genuine or bona fide mistakes which is the case in these proceedings. The averment of the assessee that this was a bona fide mistake brought about inadvertence on the part of the Accountant, has not been faulted with. Under these circumstances, I hold that the expression "particulars of income" do not extend merely to interpretation of law but also to such facts which have been undisputedly brought to the notice by the assessing officer even before it was detected by him.”
We, on merits agree with the findings of the CIT(A) that in the given facts and circumstances the assessee under bonafide belief committed a mistake and offered the income in AY 2013-14 as well as in AY 2011-12 during the course of assessment proceedings. We find that the CIT(A) has rightly relied on the Hon’ble Supreme Court in the case of CIT vs. Reliance Petro Product Pvt. Ltd. (2010) 189 Taxman 322 (SC).
Even otherwise the assessee has raised the legal contention that the AO has not raised specific charge for levying this penalty and in the penalty order the AO is confused about both the charges i.e. for concealing the particulars of income as well as for furnishing of inaccurate particulars of income as discussed above.
We find from the facts of the case that the penalty order passed by the AO under section 271(1)(c) of the Act is on account of both the charges i.e. for concealment of particulars of income as well as for
ITA No.1835/Mum/2016 & CO No. 26/Mum/2018 furnishing of inaccurate particulars of income in relation to estimation of business income in regard to the cost of construction is adopted at the rate of 1555 per sq. ft by the assessee. Even the initiation is on the charge for concealment of income by furnishing of inaccurate particulars of income.
As regards to the specific charge, we find that the AO while levying penalty under section 271(1)(c) of the Act in his discussion clearly stated that the expression used in section 271(1)(c) of the Act “furnishing of inaccurate particulars of income” and “ concealing the particulars of income” are two distinct term but according to him both lead to the same effect. He acknowledged that making bogus claim of expenses/ expenditure/ deduction / excess claim of depreciation amounts to furnish of inaccurate particulars income and therefore false claim of expenditure would amount to concealing the particulars of income or deliberate in furnishing inaccurate particulars of such income. Accordingly, we find that this issue is covered by Hon’ble Bombay High Court in the case of CIT vs. Samson Perinchery (Bom) in ITA No. 1154 of 2014 and dated 05-01- 2017. Hon’ble Bombay High Court in the case of Samson Perinchery (supra) wherein relying on the decision of the Karnataka High Court in the case of CIT vs. Manjunath Cotton & Ginning Factory [2013] 359 ITR 565 (Karnataka) observed as under: -
“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.
ITA No.1835/Mum/2016 & CO No. 26/Mum/2018 Therefore, the Assessing Officer should be clear as to which of the two limbs under which penalty is 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 Performa, without having striking out irrelevant clauses therein. This indicates non application of mind on the part of the Assessing Officer while issuing the penalty notice.”
Even this issue has been considered by Hon’ble Supreme Court in the case of T. Ashok Pai Vs. CIT (2007) 292 ITR 11 (SC), wherein it is held as under: -
“22. 'Concealment of income' and 'furnishing of inaccurate particulars' carry different connotations. Concealment refers to deliberate act on the part of the assessee. A mere omission or negligence would not constitute a deliberate act of suppressio veri or suggestio falsi..”
In the given facts of the case, we find that the AO has levied the penalty on both the charges i.e. concealment of particulars of income as well as for furnishing of inaccurate particulars of income. Hon’ble Supreme Court in the case of T. Ashok Pai (supra) has considered the issue and observed that concealment of particulars of income and furnishing of inaccurate particulars of income are different charges and the AO before imposing the penalty under section 271(1)(c) of the Act
ITA No.1835/Mum/2016 & CO No. 26/Mum/2018 apprise the assessee of precise charge brought against him. He must be told distinctly whether he is guilty of having concealed the particulars of his income or having furnished inaccurate particulars of income thereof. The case law cited by the learned Sr. DR of Bombay High Court, Nagpur Bench in the case of Maharaj Garage & Company (supra) is altogether on different subject i.e. giving opportunity to assessee before granting approval by the higher authority to the order imposing penalty under section 271(1)(c) of the Act. Hon’ble High Court, Nagpur Bench has discussed the issue in Para 14 and 15 as under: -
“14 We have gone through the several decisions cited before us by the learned counsels appearing for the assessee and the Department of Income Tax. The decisions cited by Shri Dewani for the assessee are not on the provision of Section 271 of the Income Tax Act, as it existed when the order of penalty was passed. It is not possible for us to accept the contention that wherever the Act prescribes the requirement of obtaining previous approval, the compliance of the principles of natural justice of being heard in the matter is called for. No such universal principle can be laid down and it depends upon the language of the provision and the object and purpose of it. We, therefore, hold that the requirement of following the principles of natural justice before granting approval cannot be imported in the proviso below Section 271(1)(c)(iii) of the Income Tax Act. The questions of law at serial Nos.2 and 4 are, therefore, answered in the negative.
The requirement of Section 274 of the Income Tax Act for granting reasonable opportunity of being
ITA No.1835/Mum/2016 & CO No. 26/Mum/2018 heard in the matter cannot be stretched to the extent of framing a specific charge or asking the assessee an explanation in respect of the quantum of penalty proposed to be imposed, as has been urged. The assessee was supplied with the findings recorded in the order of reassessment, which was passed on the same date on which the notice under Section 271(1)(c) was issued, initiating the proceedings of imposing the penalty. The assessee had sufficient notice of the action of imposing penalty. We, therefore, do not find either any jurisdictional error or unjust exercise of power by the authority.”
From the above judgment of Hon’ble Bombay High Court, it is clear that the case does not pertain to levy of penalty on specific charge but it relates to obtaining of prior approval from High Authority for levy of penalty. In view of these facts and circumstances, we are of the view that the assessee cannot be exigible to penalty for concealment under section 271(1)(c) of the Act without apprising him of being specific charge whether the charge is for concealment of particulars of income or for furnishing of inaccurate particulars of income. Accordingly, this issue of assessee’s CO is allowed and the appeal of Revenue on merits is also dismissed.
In the Result, the appeal of assessee’s CO is allowed and Revenue’s appeal is dismissed.
Order pronounced in the open court on 17-04-2018.
Sd/- Sd/- (RAJESH KUMAR) (MAHAVIR SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER Mumbai, Dated: 17-04-2018 Sudip Sarkar /Sr.PS
ITA No.1835/Mum/2016 & CO No. 26/Mum/2018
Copy of the Order forwarded to: 1. The Appellant 2. The Respondent. 3. The CIT (A), Mumbai. 4. CIT BY ORDER, 5. DR, ITAT, Mumbai 6. Guard file. //True Copy// Assistant Registrar ITAT, MUMBAI