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Income Tax Appellate Tribunal, MUMBAI BENCH “C” MUMBAI
Before: SHRI JOGINDER SINGH & SHRI N.K. PRADHAN
ORDER PER N.K. PRADHAN, A.M. The captioned appeals filed by the assessee are directed against the order of the Commissioner of Income Tax (Appeals)-3, Mumbai and arise out of the penalty made u/s 271(1)(c) of the Income Tax Act 1961 (the ‘Act’). As common issues are involved, we are proceeding to dispose them off through a consolidated order for the sake of convenience.
Preeti Jhangiani 2 & 5448/Mum/2014 Assessment Year: 2006-07 2. The grounds of appeal filed by the assessee read as under:
The Ld. CIT (Appeals) erred in upholding the action of the ITO in treating the appellant to be in default u/s 271 (1)(c) of the Act in respect of addition of Rs.16,01,149/- sustained by tribunal read with order in MA dated 27-06-12 and recalled order dated 16-03-11. 1.1 The Ld. CIT (Appeals) in upholding the Levy of penalty did not appreciate the method of accounting followed in respect of advance received against professional income and accepted in past. 1.2 The Ld. CIT (Appeals) in upholding the penalty did not appreciate that the addition was agreed to on concession given by the appellant. 1.3 The Ld. CIT (Appeals) in the face of his having held that the appellant had fully disclosed all particulars pertaining to the advance received, erred in holding that the decisions relied upon by the appellant particularly the decisions of the Apex Court in Reliance Petro Products Pvt. Ltd. and of Jurisdictional High Court in the case of Nalin P. Shah and Estate of late E. F. Dinshaw were distinguishable on facts. 1.4 The Ld. CIT (Appeals) in confirming the penalty erred in holding that explanation to section 271 (1)(c) applied to the facts in the instant case. 1.5 The order of Ld. CIT (Appeals) confirming the appeal is diametrically opposite to his own conclusion in order dated 02-06-14 passed on the same day for assessment year 2007-08.
The assessee files an additional ground stating that the order under appeal is bad in law in as much as the limb of section 271(1)(c) under which the assessee was considered to be in default while initiating proceedings u/s 271(1)(c) was not stated.
Preeti Jhangiani 3 & 5448/Mum/2014
As the above additional ground raised
by the assessee is a pure question of law we admit it for adjudication.
5. Briefly stated, the facts the case are that the assessee filed her return of income for the AY 2006-07 on 30.10.2006 declaring total income of Rs.6,99,052/-. The Assessing Officer (AO) completed the assessment u/s 143(3) on 30.12.2008 determining the total income at Rs.49,39,430/-. The AO found that as per the tax audit report, the assessee was following cash method of accounting whereas in her balance sheet she had shown advances of Rs.35,75,000/-. The assessee had contended before the AO that the advances received were in the nature of booking for the following years. The AO was not convinced with above reply as the assessee was following cash method of accounting. Further the AO made disallowance on account of commission paid of Rs.5,60,000/- as the assessee had not made TDS on it. The AO thus made a disallowance of the above sum u/s 40(a)(ia).
6. Aggrieved by the order of the AO, the assessee filed an appeal before the Ld. CIT(A). We find that the Ld. CIT(A) has confirmed the addition of Rs.35,75,000/- made by the AO on account of advances received and also the disallowance of Rs.5,60,000/- made by the AO u/s 40(a)(ia).
7. In further appeal, the ITAT ‘C’ Bench, Mumbai in the case of the assessee for the impugned assessment year (ITA No. 5211/Mum/2009)
Preeti Jhangiani 4 & 5448/Mum/2014 passed an order dated 16.03.2011. In respect of the addition of Rs.35,75,000/-, the Tribunal held as under: “6. We have considered the rival arguments made by both the parties, perused the orders of the Assessing Officer and the CIT(A) and the paper book filed on behalf of the assessee. There is no dispute to the fact that the assessee is an actress and derives income from advertisement, modeling, music album and acting. There is also no dispute to the fact that the assessee follows cash system of accounting. In cash system of accounting all the receipts during the year has to be treated as income of the year and all the payments for and expenses are to be treated as expenditure of the year. The surplus or deficit shall be treated as income or loss of the year. In such a system, there is no question of receipt in advance or outstanding liability. Merely because the assessee was following some wrong system of accounting, the same, in our opinion, cannot be legalized; especially in an assessment framed u/s 143(3); it cannot perpetuate a wrong method of accounting. 6.1 It is the alternative contention of the ld counsel for the assessee that the actual advance of Rs. 16,01,049/- received during the year may be added to the gross receipt. In our opinion, if that is done, then the amount which has not been offered to tax in the preceding year has to be brought to tax in that year. We, therefore, direct the Assessing Officer to consider the advance received during the year as part of the income. At the same time, he is directed to take consequential measures by reopening the assessment and bring to tax the amount received as advance in the respective preceding years. We hold and direct accordingly. The issue in the grounds of appeal no.1 is accordingly partly allowed.”
Preeti Jhangiani 5 & 5448/Mum/2014 7.1 In respect of the disallowance of Rs.5,60,000/- made by the AO u/s 40(a)(ia), the Tribunal held as under: “9. We have considered the rival arguments made by both the parties, perused the orders of the Assessing Officer and the CIT(A) and the paper book filed on behalf of the assessee. There is no dispute to the fact that the assessee has debited an amount of Rs. 5,60,000/ as commission as per Income & Expenditure account for the year ending 31.3.2006. There is also no dispute to the fact that an amount of Rs.3 lacs has been shown as commission outstanding in the balance sheet as on 31.3.2006. We find the Assessing Officer disallowed the entire commission of Rs. 5,60,000/- on the ground that the assessee has not deducted tax at source from such commission which has been upheld by the CIT(A). It has been mentioned earlier in the preceding paragraph 6 that in cash system of accounting, only the amount received during the year has to be taken as income of the year and the payments relating to expenditure made during the year are to be treated as expenditure for the year. Therefore, only the amount, which has been paid during the year on account of commission, has to be allowed as allowable expenditure. Since the assessee has claimed commission of Rs. 5,60,000/- out of which an amount of Rs. 3 lacs is shown as outstanding; therefore, the assessee first of all should not have claimed the commission which is payable. Therefore, out of Rs. 5,60,000/-, Rs.3 lacs is disallowed being wrong claim made by the assessee, who follows cash system of accounting. 9.1 So far as the remaining amount of Rs. 2,60,000/- is concerned, in our opinion, the provisions of sec. 194H are not applicable to the assessee since her gross receipts during the year is Rs. 30,92,000/-, which is below the prescribed limit of Rs. 40 lacs for an individual for attracting Preeti Jhangiani 6 ITA No. 5447 & 5448/Mum/2014 the provisions of sec. 194H. We, therefore, sustain the disallowance of Rs. 3 lacs out of the commission disallowed at Rs. 5,60,000/-. The 2nd issue in the grounds of appeal is accordingly partly allowed.”
8. Subsequently, miscellaneous applications were filed both by the assessee and Revenue against the above order of the Tribunal. We find that the ITAT ‘C’ Bench, Mumbai vide its order dated 27.06.2012 (MA No. 520 & 83/Mum/2011) allowed both the miscellaneous applications.
9. Thereafter, the ITAT ‘C’ Bench, Mumbai in its order dated 11.01.2013 (ITA No. 5211/Mum/2009) considered the following grounds of appeal filed by the assessee:
3. Ground Nos. 1& 2 read as under: “1. “Ld. CIT(A) erred in rejecting the claim of the assessee that the addition of Rs.35,75,000/- being advances received was made without verification of facts and evidences.
2. Ld. CIT(A) erred in rejecting the claim of the assessee that the provisions of S. 194H were not applicable to the payments made by the assessee as commission of Rs.5,60,000/- in view of the facts and circumstances peculiar to the profession of the assessee.” It would be relevant to quote the order of the Tribunal at length and the same is produced below: “4. In respect of Ground No.1 of appeal, Id A.R. submitted that assessee is an actress. He referred page 56 of PB and submitted that a sum of Rs.19,73,951/- has been brought forward from earlier years. He submitted that it was only an advance and the addition could not be made. He further submitted that only a sum of Rs.16,01,0491-/ was received in assessment Preeti Jhangiani 7 & 5448/Mum/2014 year under consideration and it too was an advance for the performance of assessee’s activities. He submitted that no activities were performed by assessee and hence, total aggregate amount of Rs.35,75,000/- will be considered as advance and same will be adjusted as and when assessee performs the function. During the course of hearing, ld A.R. admitted that assessee is following cash system of accounting. In reply to a query from the Bench, Id A.R. submitted that even if on receipt basis addition has to be made considering as income of the assessee, only a sum of Rs.16,01,049/- could be considered as Income of the assessee i.e. the amount received by her in the assessment year under consideration. During the course of hearing Ld. A.R. conceded that the brought forward amount of Rs.19,73,951/- had not been taxed in earlier years. Ld. A.R. conceded that assessee could not furnish details in respect of which of the activities to be performed by the assessee, the said advances were received and have been adjusted till date. Ld. A.R. also conceded that in view of the fact that said advance is brought forward from the last 3-4 years and also that the said advance was to be adjusted against the activities to be performed by her, in the absence of the details, he has no objection if the said same amount is considered as income of the assessee in the assessment year. Ld. D.R. submitted that if the said aggregate amount of Rs.35,75,000/- is assessed as income of the assessee for the assessment year under consideration, he has nothing to say except relying on orders of authorities below.
5. In view of above submissions of Id. representatives of parties and particularly that Id. A.R. has submitted that he has no objection in taxing the said aggregate amount of Rs.35,75,000/- as Income of the assessee for assessment year under consideration, we uphold the order of Id CIT(A) and reject ground No.1 taken by the assessee.
6. At the time of hearing, in respect of Ground No.2, Id A.R. submitted that assessee paid TDS on above amount under dispute in subsequent year(s) and assessee got credit for that. Therefore, said ground is not pressed for. Ld. Preeti Jhangiani 8 & 5448/Mum/2014 D.R. has no objection to above submission of Ld. AR. Hence, Ground No. 2 of appeal taken by assessee is rejected.”
10. Then the AO passed order u/s 271(1)(c) on 27.03.2012 on concealed income of Rs.21,61,049/- (Rs.16,01,049/- plus Rs.5,60,000/- by referring tp the order dated 16.03.2011 of the ITAT ‘C’ Bench, Mumbai. The minimum penalty thus imposed by him comes to Rs.7,27,410/-. In appeal, the Ld. CIT(A) vide order dated 16.06.2014 confirmed the penalty on the addition of Rs.16,01,049/-. However, he deleted the penalty levied on the addition of Rs.5,60,000/-.
Before us, the Ld. counsel of the assessee submits that the AO while issuing notice u/s 274 r.w.s. 271(1)(c) has not deleted the inappropriate words and paragraphs of “have concealed the particulars of your income or furnished inaccurate particulars of such income”. In support of his contentions he relied on the decision in (i) Meherjee Cassinath Holdings Pvt. Ltd. vs. ACIT (ITA No. 2555/Mum/2012), (ii) Jehangir HC Jehangir vs. ACIT (ITA No. 1261/Mum/2011), (iii) Shri Chandru K. Mirchandani (ITA No. 5368/Mum/2014), (iv) Amit Tandon vs. DCIT (ITA No. 2688/Mum/2013), (v) CIT vs. SSA’S Emerald Meadows [2016] 73 taxmann.com 241 (Karnataka) and (vi) CIT vs. SSA’S Emerald Meadows [2016] 73 taxmann.com 248 (SC).
Per contra the Ld. DR relies on the judgment of the Hon’ble Bombay High Court in CIT vs. Smt. Kaushalya and Others (1995) 216 ITR 660 (Bom).
Preeti Jhangiani 9 & 5448/Mum/2014
We have heard the rival submissions and perused the relevant materials on record. The fact remains that in the assessment order dated 30.12.2008, the AO has initiated penalty proceedings u/s 271(1)(c) for furnishing inaccurate particulars of income. In the penalty order dated 27.03.2012, he has imposed penalty on the reason that the assessee has furnished inaccurate particulars of her income for the year under consideration. In the case of Smt. Kaushalya and Others (supra), the Hon’ble Bombay High Court held: “9. We will first take up the show-cause notice dated March 29, 1972, pertaining to the assessment years 1968-69 and 1969-70. The assessment orders were already made and the reasons for issuing the notice under section 274 read with section 271(1)(c) were recorded by the Income-tax Officer. The assessee fully knew in detail the exact charge of the Department against him. In this background, it could not be said that either there was non-application of mind by the Income-tax Officer or the so-called ambiguous wording in the notice impaired or prejudiced the right of the assessee to reasonable opportunity of being heard. After all, section 274 or any other provision in the Act or the Rules, does not either mandate the giving of notice or its issuance in a particular form. Penalty proceedings are quasi-criminal in nature. Section 274 contains the principle of natural justice of the assessee being heard before levying penalty. Rules of natural justice cannot be imprisoned in any straight-jacket formula. For sustaining a complaint of failure of the principles of natural justice on the ground of absence of opportunity, it has to be established that prejudice is caused to the concerned person by the procedure followed. The issuance of notice is an administrative device for informing the assessee about the proposal to levy penalty in order Preeti Jhangiani 10 & 5448/Mum/2014 to enable him to explain as to why it should not be done. Mere mistake in the language used or mere non-striking of the inaccurate portion cannot by itself invalidate the notice. The entire factual background would fall for consideration in the matter and no one aspect would be decisive. In this context, useful reference may be made to the following observation in the case of CIT v. Mithila Motor's (P.) Ltd. [1984] 149 ITR 751 (Patna) (head note): Under section 274 of the Income-tax Act, 1961, all that is required is that the assessee should be given an opportunity to show cause. No statutory notice has been prescribed in this behalf. Hence, it is sufficient if the assessee was aware of the charges he had to meet and was given an opportunity of being heard. A mistake in the notice would not invalidate penalty proceedings." The above issue has been succinctly dealt by the Hon’ble Bombay High Court in CIT vs. Samson Perincherry (ITA No. 953, 1097, 1154 & 1226 of 2014). The Hon’ble High Court held as under: “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 order 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.” In view of the above judgments of the Hon’ble Jurisdictional High Court we are not adverting to the order of the Tribunal relied on by the Ld. counsel mentioned at para 11 hereinbefore. We also mention that in Preeti Jhangiani 11 & 5448/Mum/2014 SSA’S Emerald Meadows (supra), the SLP filed by the Revenue has only been dismissed by the Hon’ble Supreme Court. 13.1 Respectfully following the judgment of the Hon’ble Bombay High Court in Smt. Kaushalya and Others (supra) and Samson Perincherry (supra), we dismiss the ground raised
by the Ld. counsel of the assessee that the AO while issuing notice u/s 274 r.w.s. 271(1)(c) has not deleted the inappropriate words and paragraphs of “have concealed the particulars of your income or furnished inaccurate particulars of such income”.
14. However, we find that the AO has levied penalty on the addition of Rs.16,01,049/- vide order dated 27.03.2012. The same has been adjudicated by the Ld. CIT(A) vide order dated 16.06.2014. The AO has taken into account the order of the ITAT dated 16.03.2011. As mentioned hereinbefore the Tribunal has passed a subsequent order dated 11.01.2013. This has not been taken into account either by the AO or the Ld. CIT(A). In view of the above, we set aside the order of the Ld. CIT(A) dated 16.06.2014 and restore the matter to file of the AO to examine the issue afresh and pass an order after following the order of the ITAT dated 11.01.2013 extracted at para 9 hereinbefore and giving reasonable opportunity of being heard to the assessee.
15. In the result, the appeal is partly allowed.
Preeti Jhangiani 12 & 5448/Mum/2014 ITA No. 5448/MUM/2014 Assessment Year: 2008-09 16. The grounds of appeal filed by the assessee read as under:
1. The Ld. CIT (Appeals) erred in upholding the action of the ITO in treating the appellant to be in default u/s 271 (1)(c) of the Act in respect of addition of Rs.1,50,000/- (Rs.35,00,000- Rs.33,50,000/-) made in the assessment order and sustained by Ld. CIT (Appeals) in appeal on the advance received against professional income. 1.1 The Ld. CIT (Appeals) in upholding the levy of penalty did not appreciate the method of accounting followed in respect of advance received against professional income and accepted in past. 1.2 The Ld. CIT (Appeals) in upholding the penalty based on his order for assessment year2006-07, passed on the same day. 1.3 The Ld. CIT (Appeals) in the face of his having held that the appellant had fully disclosed all particulars pertaining to the advance received, erred in holding that the decisions relied upon by the appellant particularly the decisions of the Apex Court in Reliance Petro Products Pvt. Ltd. and of Jurisdictional High Court in the case of Nalin P. Shah and estate of late E. F. Dinshaw were distinguishable on facts. 1.4 The Ld. CIT (Appeals) in confirming the penalty erred in holding that explanation to section 271 (1)(c) applied to the facts in the instant case. 1.5 The order of Ld. CIT (Appeals) confirming the appeal is diametrically opposite to his own conclusion in order dated 02-06-14 passed on the same day for assessment year 2007-08.
17. The assessee files an additional grounds stating that the order under appeal is bad in law in as much as the limb of section 271(1)(c) under which the assessee was considered to be in default while initiating proceedings u/s 271(1)(c) was not stated.
Preeti Jhangiani 13 & 5448/Mum/2014