RITA HEMCHAND GANDHI,MUMBAI vs. INCOME TAX OFFICE. INT TAX WARD 2(3)(1), MUMBAI

Brief facts of the case are that assessee is a non-resident and did not file her regular return of income. Case of the assessee was taken up for proceedings u/s. 147 r.w.s. 148 of the Act. In response to notice u/s. 148, assessee filed her return on 24.04.2021 reporting Rita Hemchand Gandhi, AY 2015-16 total income at ₹ 60,83,333/-. Ld. Assessing Officer issued notice u/s. 142 (1) alongwith questionnaire against which assessee submitted the details as required. Ld. Assessing Officer noted that clarification and explanation filed by the authorised representative of the assessee is taken on record and has been examined. With these remarks and on the basis of the merits available on record, Ld. Assessing Officer assessed the total income of the at ₹ 60,83,333/-, i.e., at total income reported by her in the return filed in response to notice u/s.148 of the Act. Thus, returned total income is equal to the assessed total income.

In the impugned assessment order, nowhere the Ld. Assessing Officer has recorded any satisfaction about the initiation of penalty proceeding. The said impugned assessment order is a small order containing six paragraphs and is reproduced for ease of reference, so as to underscore the fact that there is no recording of satisfaction for the initiation of penalty proceedings at the time of passing of the assessment order. In the said assessment order, there is no direction to issue notice u/s. 274 r.w.s. 271(1)(c) for taking up penalty proceedings. It is important to take note of the fact that impugned assessment order is dated 03.03.2022 and the penalty show cause notice is dated 30.03.2022, as noted by the Ld. Assessing Officer in the penalty order in paragraph 2. The assessment order reads as under:- “In the instant case, status of the assessee is a non resident and had not filed his return of income for A.Y.2015-16. Further, the case was re-opened under section 147 of the Income Tax Act, 1961 (herein after referred to be as the Act') after recording the following reasons for reopening the case.

The case was reopened u/s.147 and a notice u/s.148 was issued and served on 30.03.2021, after duly recording the reasons for the same and obtaining necessary sanctions from the concerned authority. In response to the same the assessee has filed his ROI on 24.04.2021 declaring total income of Rs.60,83,333/-. Subsequently notice u/s 143(2) of the I.T Act, 1961 was issued to the assessee on 26.11.2021.

Thereafter, notice u/s.142 (1) of the I.T Act, 1961 along with questionnaire dated 29.11.2021, and 12.02.2022 were issued and duly served on the assessee. In compliance of the statutory notice, the assessee has submitted the Rita Hemchand Gandhi, AY 2015-16 details which are placed on record. The clarification and explanation filed by authorized representative is taken on record and has been examined the same.

Subsequently, in response to the penalty show cause notice, assessee furnished her detailed explanation by stating that there is no concealment nor furnishing of inaccurate particulars. According to the assessee, all the relevant documents and information asked for were furnished and the assessment order was passed accepting the income as declared in the return filed by the assessee. In the assessment so completed, no addition to the total income was made which according to her demonstrates that accurate particulars in the return of income were filed, there being no concealment of particulars of income nor furnishing of any inaccurate particulars of income.

Ld. Assessing Officer referred to Explanation 1 to Section 271(1)(c) and Explanation 3 to hold that assessee has concealed her Rita Hemchand Gandhi, AY 2015-16 income. According to him, discrepancy in respect of taxable income of the assessee was detected only during the course of scrutiny proceedings which otherwise would have escaped assessment and therefore this amounts to concealment of income. He, further referred to clause (c) of Explanation 4 for computing the amount of tax sought to be evaded and levied a penalty of ₹ 1,52,084/-. Aggrieved, assessee went in appeal before the Ld. CIT(A).

Before the Ld. CIT(A), assessee made her submissions through e- proceedings. Ld. CIT(A) concurred with the views of the Ld. Assessing Officer and confirmed the penalty so imposed. He, thus dismissed appeal of the assessee. Aggrieved, assessee is in appeal before the Tribunal.

Before us, Ld. Counsel strongly submitted that there is no recording of any satisfaction by the Ld. Assessing Officer in the body of the assessment order dated 03.03.2022 for initiation of penalty proceedings u/s. 271(1)(c). 9.1. According to him, the said section requires that if the Assessing Officer in the course of any proceedings under the Act, is satisfied that any person has concealed the particulars of his income or furnished inaccurate particulars of such income, he may direct that such person shall pay by way of penalty, a sum mentioned in the said section. Thus, the satisfaction to be arrived at by the Assessing Officer has to be in the course of any proceedings under the said Act, about the concealment of particulars of income or furnishing of inaccurate particulars of such income. Once the assessment order has been passed without recording of any satisfaction on the initiation of penalty proceedings, the Assessing Officer attains the status of functus officio. Further, the notice issued by the Ld. Assessing Officer for initiating the penalty proceedings is dated 30.03.2022 which is much after the date of passing of the impugned assessment order. Moreover, Rita Hemchand Gandhi, AY 2015-16 the assessment has been completed by accepting the returned income, there being no addition or disallowance made by the Assessing Officer to the returned income. Therefore, there is no amount of any tax sought to be evaded by the assessee and thus there is no occasion for the Assessing Officer to impose any penalty, 10. Per contra, Ld. Sr. DR supported the views taken by the Ld. Assessing Officer and confirmed by the Ld. CIT(A).

We have heard the rival contentions and perused the material on record. Admittedly, it is a fact on record that the impugned assessment order dated 03.03.2022 does not contain recording of any satisfaction by the Assessing Officer to initiate penalty proceedings on either concealment of particulars of income or furnishing of inaccurate particulars of income in the assessment carried by him. For ease of reference, the said impugned assessment order is reproduced in the above paragraph. It is also a fact on record that the first notice was issued by the Assessing Officer for initiating the penalty proceedings only on 30.03.2022, i.e., much after passing of the impugned assessment order. At the time of issuing this notice for initiating penalty proceedings, the status of Assessing Officer was functus officio, since there was no proceeding which was pending under the Act as required u/s. 271(1)(c). 11.1. We also take note of the fact that though assessee had not filed her original return of income but total income reported by her in the return filed in response to notice u/s.148 has been accepted by the Assessing Officer as such and the assessed total income is equal to the returned total income of the assessee. There being no addition or disallowance made by the Assessing Officer, in the assessment completed u/s.147 of the Act. 11.2. From paragraph 5.2 of the penalty order, we note that the Assessing Officer himself has observed that as per section 271(1)(c), if Rita Hemchand Gandhi, AY 2015-16 the Assessing Officer in course of any proceedings under the aforesaid Act, is satisfied that any person has concealed the particulars of his income or furnished inaccurate particulars of such income, he may direct that such person shall pay by way of penalty, a sum mentioned in the said section. We also note that Ld. Assessing Officer has referred to Explanation 1 to section 271(1)(c) which in fact deals only with concealment of particulars of income for offering of explanation by the assessee. Further, by resorting to clause (c) below Explanation 4 to section 271, Ld. Assessing Officer has arrived at the amount of tax sought to be evaded on the total income assessed which is equal to the returned income, reduced by the amount of advance tax, tax deducted at source and self assessment tax paid by the assessee. The said computation of tax sought to be evaded is reproduced as under:

Considering the above factual observations, the penalty proceedings initiated by the Assessing Officer and the penalty so imposed thereafter is not in accordance with the provisions of the law as contained in section 271(1)(c) of the Act. Reading of section clearly indicates that the assessment order should contain a direction/satisfaction for initiation of penalty proceedings. It is a settled law that in the absence of recording of satisfaction and giving any direction for the initiation of penalty proceedings which must be in the course of any proceedings under the Act, penalty proceedings cannot be proceeded with. Accordingly, the penalty proceedings

In the result, appeal of the assessee is allowed.