MAHENDRA G GANDHI,MUMBAI vs. ITO 21(1)(3), MUMBAI

In this appeal assessee has challenged the penalty imposed under section 271(1)(c) of the Act amounting to Rs.2,15,064/-.

Briefly put, the relevant facts are that assessee is an individual who filed his return of income for assessment year 2009-10 declaring a total income of Rs.1,62,430/-. The income so declared comprised of business income on account of retail trade of Rs.2,17,537/- computed on presumptive basis in terms of section 44AF of the Act; and, interest income under the head ‘other sources’ of Rs.18,750/, thereby showing gross total income of Rs.7,89,176/- after reducing the deduction under Chapter –VIA of Rs.73,856/-, net income of Rs.1,62,430/- was declared. The assessment has been finalized at Rs.7,15,320/-, which inter-alia, contains the business income at Rs.2,17,537/- as returned; short term capital gain of Rs.6,96,000/-, which was hitherto not declared in the return of income ; Rs.25,639/- as interest income under other sources, which included Rs.6,889/-, which was hitherto not declared in the return of income; a claim of interest expenditure towards housing loan under the head ‘income from house property’ of Rs.1,50,000/-, which was hitherto not claimed in the return of income and after allowing deduction under Chapter VIA as claimed, the taxable income was arrived at Rs.7,15,320/-. Subsequently vide an order dated 30/05/2012, the Assessing Officer held the assessee guilty of concealing particulars of income as well as furnishing of inaccurate particulars of income within the meaning of section 271(1)(c) of the Act, qua the non-declaring of short term capital gain of Rs.6,96,000/- in the return of income. Accordingly, he has levied a penalty equivalent to 100% of the tax sought to be evaded on such income, which came to Rs.2,15,064/-. This levy has also been affirmed by the CIT(A), which is presently in dispute before the Tribunal.

Before us, the first plea of the assessee was that the non-declaration of such income in the return of income was an inadvertent mistake, which was suo-motu brought out by the assessee in the course of assessment proceedings, and in this context the Ld.Representative for the assessee referred to a communication dated 15/07/2011 addressed to the Assessing Officer, copy of which has been placed in the Paper Book at pages 18-19. It is pointed out that initially a notice under section 142(1) of the Act dated 27/6/2011 was issued calling for various details, which is also placed in the Paper Book at pages 6-8. The Ld. Representative for the assessee pointed out that this mistake was due to non-consideration of entries appearing in the saving bank account, which was an inadvertent mistake. The Ld.Representative for the assessee has also pointed out that so far as the Assessing Officer is concerned, he show caused the assessee on the aspect of sale of property only on 20/10/2011 after which assessee had clarified the position before the Assessing Officer. It was, therefore, contended that it was a case, where the mistake was noted by the assessee himself, which was rectified and does not call for a penalty having regard to the following judgments:-

On this aspect, the Ld. Departmental Representative pointed out that the Assessing Officer had show caused the assessee on 20/10/2011 based on AIR information, that assessee had sold a property for Rs.55.00 lacs on 03/10/2008, which was not declared in the return of income and hence, it was not a case where the disclosure was voluntarily made by the assessee. The Ld. Departmental Representative relied upon the judgment of the Hon'ble Bombay High Court in the case of Samson Maritime Ltd. vs. CIT, in Income Tax Appeal No.1718 of 2014 dated 9th March, 2017 to contend that such a disclosure would attract penalty under section 271(1)(c) of the Act, since it was detected by the Assessing Officer.

On this aspect, we have carefully considered the rival submissions. In the earlier part of this order we have briefly touched upon the manner in which the assessee had filed his computation of income along with the return of income and the assessment thereafter completed by the Assessing Officer. No doubt in the return of income assessee had not declared any short term capital gain, which was assessed by the Assessing Officer at Rs.6,96,000/-, and this has formed the basis subsequently for levy of penalty under section 271(1)(c) of the Act . The question to be examined is as to whether the disclosure by the assessee vide his letter dated 15/07/2011 is made voluntarily or is after detection by the Assessing Officer. In case, if it is found that the disclosure was voluntary, prior to detection by the Revenue, a further question will arise as to whether such a disclosure is bonafide so as to mitigate the rigors of section 271(1)(c) of the Act. For the said purpose, we have perused the copy of notice issued by the Assessing Officer under section 142(1) of the Act dated 27/06/2011 along with its annexure and find that it is a very generalized questionnaire not touching upon any transaction relating to sale of property, whereas in its communication dated 15/07/2011 assessee asserted that after going through the records it was found that certain transactions reflected in the personal saving bank account remained to be declared in the return of income. With the above preface, the assessee made three claims, firstly, he claimed deduction for interest paid on housing loan of Rs.1,74,032/-( limited to Rs.1,50,000/-); secondly interest earned in saving bank account, which was not declared in the return; and thirdly, assessee explained that he had sold the property for a consideration of Rs.55.00 lacs in October, 2008, which was purchased for a sum of sum of Rs.42.00 lacs on 4th Oct. 2007. On the basis of the said communication, it is sought to be canvassed that the disclosure of the sale of property is prior to the show cause notice issued by the Assessing Officer in this regard, which is dated 20/10/2011, copy of which is placed at page 20 of the Paper Book. In this notice, the Assessing Officer drew the attention of the assessee to an AIR information received regarding purchase of property on 04/10/2007 and sale of property for Rs.55.00 lacs on 03/10/2008. No doubt, assessee has disclosed sale of property, which was hitherto not declared in the return of income, only after the notice was issued under section 142(1) of the Act dated 27/06/2011, but to say that the disclosure was only after the detection by the Assessing Officer is factually doubtful. We say so because in the annexure to the notice issued under section 142(1) of the Act dated 27/06/2011, there is no mention of any AIR information with regard to sale of property. Further, in our view, it cannot be the case of the Revenue that the said omission/mistake on the part of the assessee is non-bonafide so as to attract penalty under section 271(1)(c) of the Act. We say so for the reason that while in the communication dated 15/11/2011, which we have noted above, assessee brought out three points, which were hitherto not reflected in the return of income. The other two points namely claim for deduction on account of interest paid on housing loan and interest earned on the saving bank account were accepted by the Assessing Officer in the assessment and on such points no penalty proceedings have been initiated under section 271(1)(c) of the Act. Pertinently, these points were also part of the transactions in the saving bank account, the very same account wherein the transaction of sale of property also has been reflected. Thus, if on two points, the non-reporting/omission/mistake is accepted as bonafide and not exigible for penalty, then under similar circumstances the other point emerging from the same bank account cannot be said to invite penalty under section 271(1)(c) of the Act. In this context, we find that the reliance placed by the assessee on the judgment of Hon'ble Bombay High Court in the case of Bennett Coleman & Co.Ltd. (supra) is apt as the omission to declare the short term capital gain is only an inadvertent mistake and not with a view to hide or conceal the income so as to avoid payment of tax.

Before parting, we may notice that the assessee has raised a plea regarding invalidity of the penalty imposed on the ground that the notice issued under section 274 r.w.s. 271(1) of the Act dated 29/11/2011 is ambiguous. The said plea is rendered academic since the assessee has succeeded in the earlier paras and, therefore, the said plea has not been adjudicated.

In the result, appeal of the assessee is allowed as above.