RAMA KAPUR,NEW DELHI vs. ACIT, NEW DELHI

This appeal has been filed by the assessee against the order of the CIT (A)-XVIII, New Delhi and pertains to assessment year 2006-

Assessment Year 2006-07 2. Brief facts of the case are that assessment in this case was completed at an income of Rs.37,98,058/- as against the returned income of Rs. 11,54,492/-. Subsequently, penalty proceedings u/s 271(1)(c) of the Act were initiated and it was noted by the assessing officer that assessee had failed to disclose the short term capital gain of Rs.23,25,566/- and when confronted by the Assessing Officer with the same, the assessee had offered the same for taxation. The Assessing Officer further observed that the assessee did not file any revised return, nor was the offer for taxation voluntary. The assessee had contended before the Assessing Officer during the course of penalty proceedings that she was a senior citizen and that she had meagre income from investment till Assessment Year 2005-06. Her husband had passed away on 31.12.04 whereupon his estate had devolved upon her and their two married daughters were both living outside India. It was submitted before the Assessing Officer that during his life time, her late husband was normally attending to her financial and tax matters and after the death of her husband, the estate having devolved upon her, the money was invested in mutual funds on the advice of the person who was assisting her husband during his life 2 Assessment Year 2006-07 time. It was further submitted that soon thereafter, she decided to go out of India and stay with her daughters and the money invested in the mutual funds gave rise to short term capital gains but not being fully conversant either with the nature of transactions or the impact of taxation in terms of short term capital gains, there was a failure on her part to offer this income for tax in the return. It was contended before the Assessing Officer that non-inclusion of the short term capital gain was a genuine mistake on the part of the assessee rather than intent to conceal the particulars of income.

However, the Assessing Officer rejected the assessee’s contentions and held the assessee in default for furnishing inaccurate particulars of income and imposed a penalty of Rs. 7,82,787/- which was later confirmed by the Ld. CIT(A). Now, the assessee is in appeal before ITAT and has raised the following grounds of appeal:-

“1. That on the facts and circumstances of the case the learned CIT (Appeal) erred in confirming the penalty order in respect of penalty of Rs.7,82,787 levied on the assessee u/s 271 (1)(c) of the Act. 2. (i) That the learned CIT (Appeal) erred in not holding that the penalty notice dt. 17.02.2008 issued by the AO was prima-facie an invalid notice as a did not bear the office seal of the officer nor did it convey the default for Assessment Year 2006-07 which penalty proceedings had been initiated and therefore could not result into a valid penalty order. 2. (ii) That the learned CIT (Appeal) erred in not holding that the issue and service of a valid notice u/s 274 of the Act being a substantive question of law could be urged by the assessee at any stage of proceedings and further erred in not disposing off on merit the objections raised by the assessee, because no subsequent notice could validate an inherently invalid notice.

3. That the learned CIT (Appeal) erred in not holding that a mere failure on part of the assessee to substantiate her bona-fide statement narrating all the facts relating to the mistake in reporting of the mutual fund transactions at the time of original return would not be enough to warrant penalty as there was nothing to show that her bona-fide statement was not a correct one.

“My husband, Shri R.C. Kapur died on 31.12.2004. Till his death I functioned as a housewife and all tax matters and Assessment Year 2006-07 other affairs were looked after by him. After his death I had no close relatives to help and I went to Canada to stay with my two married daughters. My income tax returns were filed by Mr. B.K. Anand, Chartered Accountant. I operated a savings account and also, had given money to the Standard Chartered Bank for investment in mutual funds. Though, bank statements had been received no statement of purchase and sale of mutual funds had been sent by Standard Chartered Bank to me. At the time of filing returns whatever papers I had I shared with Mr. Anand and he prepared and filed my return. Since the statement of mutual fund transactions had not been sent by Standard Chartered Bank the information contained therein could not be included in my return. During assessment proceedings I was asked to obtain this statement from the bank and, thereafter, I agreed to the inclusion of capital gains income in my return. I paid tax as demanded thereafter. A heavy penalty was also imposed. I never committed any act of concealment wilfully and the omission was due to my ignorance and lack of experience. I request that I may be forgiven because the omission of not including capital gains in my return was not deliberate but due to lack of experience.”

3.1. Ld. Authorised Representative prayed that the penalty imposed be kindly deleted.

4. In response, the Ld. DR submitted that the assessee had admitted her mistake only after being confronted by the Assessing Officer and the plea of the assessee was just a lame excuse which does not hold good in the eyes of the law. Ld. DR also submitted that ignorance of law was no excuse and the assessee could not take shelter behind such an excuse. Ld. DR further submitted that Assessment Year 2006-07 the assessee had furnished an explanation whose bona fide could not be established. It was further submitted that the assessee’s claim is not supported by any material on record and is just a bald argument. Ld. DR prayed that the penalty be confirmed.

(SC), incidentally reported in same ITR Volume, it is held that penalty cannot be levied solely on basis of reasons given in original order of assessment. The Hon’ble Supreme Court has reiterated the law in case of Dilip N. Shroff v. Jt. CIT [2007] 291 ITR 519 by holding in Para 62 that finding in assessment proceedings cannot automatically be adopted in penalty proceedings and the authorities have to consider the matter afresh from different angle.

The statute requires a satisfaction on the part of the Assessing Officer. He is required to arrive at a satisfaction so as to show that Assessment Year 2006-07 concealed the amount or furnished inaccurate particulars and this onus is to be discharged by the Department. While considering whether the assessee has been able to discharge his burden the Assessing Officer should not begin with the presumption that he is guilty. Since the burden of proof in penalty proceedings varies from that in the assessment proceedings, a finding in the assessment proceedings that a particular receipt is income cannot automatically be adopted, though a finding in the assessment proceedings constitutes good evidence in the penalty proceedings.

In the penalty proceedings the authorities must consider the matter afresh as the question has to be considered from a different angle.

It is important to keep in mind the fundamental legal proposition that Assessment proceedings are not conclusive. Assessment proceedings and penalty proceedings are separate and distinct.

Findings in Assessment proceedings don’t operate as res judicata in penalty proceedings. For this proposition reliance is placed on the decision in CIT vs. Dharamchand L. Shah (1993) 204 ITR 462 (Bom). In Vijay Power Generators Ltd vs. ITO (2008)6 DTR 64 (Del) it was held that “It is well settled that though they constitute good evidence do not constitute conclusive evidence in penalty 7 Assessment Year 2006-07 proceedings.” During penalty proceedings, there has to be reappraisal of the very same material on the basis of which the addition was made and if further material is adduced by the assessee in the course of the penalty proceedings, it is all the more necessary that such further material should also be examined in an attempt to ascertain whether the assessee concealed his income or furnished inaccurate particulars. Thus, under penalty proceedings assessee can discharge his burden by relying on the same material on the basis of which assessment is made by contending that all necessary disclosures were made and that on the basis of material disclosed there cannot be a case of concealment of income or furnishing inaccurate particulars of income. Further if there is any material or additional evidence which was not produced during assessment proceedings same can be produced in penalty proceedings as both assessment and penalty proceedings are distinct and separate. In CIT vs. M/s Sidhartha Enterprises (2009)

184 Taxman 460 (P & H)(HC) it was held that the judgment in Dharmendra Textile cannot be read as laying down that in every case where particulars of income are inaccurate, penalty must follow. Even so, the concept of penalty has not undergone change 8 Assessment Year 2006-07 by virtue of the said judgment. Penalty is imposed only when there is some element of deliberate default.

5.1 Reverting to the facts of the present case, the penalty order is woefully silent on the issue as to how this satisfaction of concealment/furnishing of inaccurate particulars was arrived at.

The Ld. CIT (A) has also not examined the issue in detail but has simply confirmed the penalty by relying on the findings of the AO.

We are of the considered opinion that this kind of finding might be very relevant in quantum proceedings but will not suffice in penalty proceedings. It is undisputed that the assessee is an old lady who was recently widowed and it was for the very first time that she was filing her return of income without being assisted by her husband.

It is equally undisputed that it was not mandatory for her to maintain regular books of accounts. It is equally undisputed that the assessee had accepted the mistake and had provided an explanation which appears plausible but the AO has not recorded a finding that the explanation furnished by the assessee was a false explanation. Thus, the explanation of the assessee, under the circumstances, cannot be said to be not bona fide. It is our considered opinion that, in the given circumstances, a mere 9 Assessment Year 2006-07 omission in offering the capital gains to tax would not ipso facto reflect concealment of income or furnishing of inaccurate particulars of income in terms of Section 271(1)(c) of the Act.

Considering the entirety of the circumstances, in our view the impugned omission was a mistake and does not invite the provisions of Section 271(1)(c) of the Act. We set aside the order of the Ld. CIT (A) and direct the AO to delete the entire penalty.

Order pronounced in the open court on 5th April, 2017.