DCIT, CHENNAI vs. SHRI RASHMIKANT VENILAL MEHTA, CHENNAI

The assessee has filed appeals for the assessment year 2009-10 challenging the addition made by the Assessing Officer in the reassessment proceeding and also penalty levied under Section 271(1)(c) of the Income-tax Act, 1961 (in short 'the Act'). The Revenue has filed appeals for the assessment years 2010-11 and 2011-12 wherein the CIT(Appeals) deleted the penalty levied under Section 271(1)(c) of the Act. Therefore, we heard both the appeals of the assessee and Revenue together and disposing of the same by this common order.

Let’s first take assessee’s appeal in I.T.A. No. 1822/Chny/2016.

Shri M. Sri Lisha Stebila Theras, the Ld.counsel for the assessee, submitted that the assessee is engaged in the business of manufacturing and trading in bullion and jewellery. According to the Ld. counsel, there was a survey in the premises of the assessee under Section 133A of the Act on 12.08.2010. During the year under consideration, the assessee borrowed unsecured loan from close relatives and also third parties. According to the Ld. counsel, the assessee paid 18% interest to the close relatives. However, the interest paid to third parties was only at the rate of 12%. According to the Ld. counsel, the bank, at the relevant point of time, charged interest at the rate of 17.25% for the loan availed against security of property and stocks. Apart from the interest of 17.25%, the bank charged expenditure and processing fee. Therefore, according to the Ld. counsel, ultimately the bank interest at the relevant point of time came to nearly 21%. Therefore, according to the Ld. counsel, the interest paid to the close relatives at the rate of 18% is reasonable, hence, the Assessing Officer is not justified in disallowing the part of the interest paid by the assessee.

On the contrary, Shri AR.V. Sreenivasan, the Ld. Departmental Representative, submitted that in respect of loan borrowed from third parties, who are not relatives, the assessee paid interest at the rate of 12%. However, only to the close relatives, the assessee has paid interest at the rate of 18%. Both the loans borrowed from close relatives and third parties are unsecured loans. Therefore, according to the Ld. D.R., there was no reason to distinguish the rate of interest. In the absence of special reason for payment of interest at the rate of 18% to the close relatives, according to the Ld. D.R., the CIT(Appeals) has rightly confirmed the order of the Assessing Officer.

We have considered the rival submissions on either side and perused the relevant material available on record. The assessee paid interest for the unsecured loan borrowed from the close relatives. In respect of the loan borrowed from third parties, the assessee paid interest at the rate of 12%. There was no reason for paying higher rate of interest to the close relatives. The contention of the assessee is that the interest charged by the bank at the relevant point of time was 17.25% and after considering the expenses and other charges levied by the bank, the rate of interest comes to 21%. This may be relevant in case the assessee has not borrowed loan from third parties. When the loan was availed from third parties at the rate of 12%, there is no reason why the assessee preferred to borrow loan from close relatives and paid interest at the rate of 18%. Therefore, this Tribunal is of the considered opinion that the CIT(Appeals) has rightly found that the excess payment has to be disallowed. Therefore, this Tribunal do not find any reason to interfere with the order of the lower authority and accordingly the same is confirmed.

Now coming to penalty appeal for the assessment year 2009-10 in I.T.A. No.1823/Chny/2016.

Shri M. Sri Lisha Stebila Theras, the Ld.counsel for the assessee, submitted that the assessee originally filed the return of income on 21.09.2009 admitting a total income of ₹8,02,340/-. The assessee also filed revised return on 27.08.2010 admitting a total income of ₹13,52,338/- after including a sum of ₹5,50,000/- received on sale of shares. The above said ₹5,50,000/- was inclusive of ₹72,300/- incurred by the assessee on brokerage, commission, etc. Ultimately, the income of ₹4,77,700/- was admitted. Thereafter the assessee filed another revised return on 29.10.2010 excluding the sum of ₹5,50,000/- since the profit on sale of shares was exempted under Section 10(38) of the Act. According to the Ld. counsel, since the profit on sale of the shares was exempted under Section 10(38) of the Act, it was excluded in the revised return. However, the entire facts were available before the Assessing Officer. Therefore, according to the Ld. counsel, levy of penalty under Section 271(1)(c) of the Act is not justified.

On the contrary, Shri AR.V. Sreenivasan, the Ld. Departmental Representative, submitted that during the course of survey operation under Section 133A of the Act, a statement of cash payment was found on account of transaction in the shares of 21st Century Finance. The statement indicates the transaction of ₹52.5 lakhs in cash. After detection of this transaction during the course of survey operation, according to the Ld. D.R., the assessee declared ₹5.5 lakhs as undisclosed income in the revised return filed on 27.08.2010. Had the Department not detected the sale and purchase of shares, according to the Ld. D.R., the assessee would not have disclosed the same. Therefore, the additional income offered by the assessee in the revised return filed on 27.08.2010 is only consequent to the survey conducted by the Department in the premises of the assessee. Hence, according to the Ld. D.R., the CIT(Appeals) has rightly found that the assessee has deliberately concealed the income of ₹5,50,000/-, therefore, the CIT(Appeals) has rightly confirmed the penalty levied by the Assessing Officer.

We have considered the rival submissions on either side and perused the relevant material available on record. In the original return filed by the assessee, the profit on sales of shares was not disclosed. After the survey operation, the assessee disclosed ₹5,50,000/- which included the expenditure of ₹72,300/-. By way of another revised return, the assessee excluded ₹5,50,000/- claiming that the same was exempted under Section 10(38) of the Act. The question arises for consideration is whether there was any concealment of income or furnishing of inaccurate particulars of such income? The assessee was under the bonafide belief that the profit on sale of shares was exempted under Section 10(38) of the Act. The Revenue claims that the assessee would not have disclosed the profit on sale of shares but for the survey operation conducted in the premises of the assessee. The fact remains that there was an omission to disclose the transaction of shares in the original return. After the survey, the assessee disclosed the same in the revised return filed on 27.08.2010.

In the second revised return on 29.10.2010, the assessee again excluded the same on the ground that it was exempted under Section 10(38) of the Act. Therefore, there was a confusion in the mind of the assessee whether the profit earned on the transaction on sale has to be offered or not. This confusion is because of interpretation of provisions of Income-tax Act. The assessee bonafidely believed that the profit on sale of shares is exempted from taxation. Even if there was omission, this Tribunal is of the considered opinion that such an omission cannot be construed as concealment of income or inaccurate particulars of such income. In view of the judgment of Apex Court in Price Waterhouse Coopers Pvt. Ltd. v. CIT (2012) 348 ITR 306, it is an inadvertent omission to disclose the income. This Tribunal is of the considered opinion that there cannot be any levy of penalty under Section 271(1)(c) of the Act. In view of the above, we are unable to uphold the orders of the authorities below. Accordingly, both the orders of the authorities below are set aside and the penalty levied by the Assessing Officer is deleted.

Now coming to the Revenue’s appeals for assessment years 2010-11 and 2011-12.

Shri AR.V. Sreenivasan, the Ld. Departmental Representative, submitted that the assessee had not filed returns of income for those years. After the survey, according to the Ld. D.R., the assessee filed the return of income disclosing the unaccounted stock over and above the jewellery entered in the books of account.

On the contrary, Shri M. Sri Lisha Stebila Theras, the Ld.counsel for the assessee, submitted that the Assessing Officer levied penalty for the assessment years 2010-11 and 2011-12. The assessee had not filed return of income initially. After the survey, according to the Ld. counsel, the assessee filed the return of income disclosing the income found during the course of survey operation. The returned income was admitted by the Assessing Officer without any further addition. According to the Ld. counsel, the return was filed within the time limit prescribed under the provisions of Income-tax Act even though it was filed after the survey. Therefore, according to the Ld. counsel, there cannot be any penalty under Section 271(1)(c) of the Act, hence, the CIT(Appeals) has rightly deleted the penalty.

We have considered the rival submissions on either side and perused the relevant material available on record. No doubt, the Department found some unaccounted stock during the course of survey operation. But, the fact remains that the assessee has disclosed the same in the original return filed subsequent to the survey, within the prescribed time under the provisions of Income- tax Act. Therefore, it cannot be said that there was concealment of income or furnishing of inaccurate particulars of such income. The assessee has filed return of income disclosing the stocks found during the course of survey operation in the original return within the time limit prescribed under provisions of the Income-tax Act. This Tribunal is of the considered opinion that there cannot be any concealment of income or furnishing of inaccurate particulars of such income, therefore, the CIT(Appeals) has rightly deleted the penalty. Therefore, this Tribunal do not find any reason to interfere with the order of the lower authority and accordingly the same is confirmed.

In the result, the assessee’s appeal in I.T.A.