Loading judgment…
Facts
The Revenue filed an appeal against the order of the CIT(A) which quashed the penalty levied under section 270A of the Income-tax Act, 1961. The penalty was imposed for under-reporting income due to misreporting of foreign income. The assessee paid the due taxes after the issuance of notice under section 143(2) but before the issuance of notice under section 142(1).
Held
The Tribunal held that the penalty notice was defective. The Tribunal also noted that the assessee had paid the tax due to delayed receipt of information from the foreign asset fund manager. Considering the facts and circumstances, and relying on previous judicial precedents, the Tribunal held that the penalty was not automatic but discretionary, and in this case, it was not leviable.
Key Issues
Whether the penalty levied under section 270A for under-reporting of income was justified when the tax was paid after detection and notice, and whether the penalty notice was legally valid.
Sections Cited
270A, 143(2), 142(1), 139(1), 250, 158BFA, 273B, 158BC, 273, 270A/274
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, MUMBAI BENCH “A”, MUMBAI
Before: SHRI ANIKESH BANERJEE & SHRI GAGAN GOYAL
O R D E R PER ANIKESH BANERJEE, J.M: Instant appeal of the Revenue was filed against the order of the Learned Commissioner of Income-tax (Appeals)-48, Mumbai [for brevity, „Ld.CIT(A)‟] passed under section 250 of the Income-tax Act, 1961 (in short, „the Act‟), date of order 12.06.2023 for Assessment Year 2017-18.The impugned order was emanated from the order of the Ld.Deputy Commissioner of Income-tax, Central Range-2(4), Mumbai (in short, „the A.O.‟) passed under section270A of the Act date of order23/03/2022.
The department has taken the following grounds of appeal:-
Arun Subrahmanyam “1. Whether on the facts and circumstances of the case and in law, the Ld.CIT(A) was justified in deleting the penalty u/s 270A of the Act of Rs.50,48,116/- being 200% of the amount of tax sought to be evaded on the addition of Rs.1,17,58,561/- made by the AO without appreciating the fact that the assessee had under reported its foreign income by suppression of facts, which amounts to misreporting of income, while filing the return of income u/s 139(1) by failing to report his foreign income and paid the due taxes only after knowing the reasons for limited scrutiny via receipt of notice u/s 143(2) of the Act.”
Brief facts of the case are that the assessee has filed the return of income on 28/03/2018. The case was taken up for scrutiny and notice under section 143(2) was issued on 18/08/2018 and with the identification for examinations were for – (i) foreign bank account; (ii) security transaction; and (iii) foreign assets. After receiving the notice U/s 143(2) of the Act, the assessee paid self-assessment tax amount to Rs.54,15,000/- on dated 03/12/2018. The notice under section 142(1) was issued on 21/11/2019 and the assessee submitted the details, and the due tax was already paid related to its capital gains from share of foreign companies. The assessee revised the computation and filed with details in response to the notice under section 142(1) and the assessment was completed. The Ld.AR initiated the proceedings of penalty under section 270A for under reporting of income in consequence of misreporting of income. Accordingly, the revenue has determined that tax was evaded amount to Rs.25,24,058/- and the penalty was levied @200% of the tax, i.e. Rs.50,48,116/-. The ground of appeal of the revenue is that the assessee had paid the self-assessment tax after detection by the Revenue as well as after issuance of notice under section 143(2). So, the penalty proceeding was validlyinitiated, and the penalty was levied Rs.50,48,116/-. The penalty order is confirmed, and the assesseehad filedan appeal before the CIT(A). After acceptance of the submissions from the assessee, Ld.CIT(A) allowed the ground of the appeal and the penalty under section 270A is quashed. The Revenue aggrieved on that without considering the fact, the Ld.CIT(A) has passed the order. The tax was paid but after the issuance of notice under section Arun Subrahmanyam 143(2) of the Act. On the other hand, the assessee has both the legal and the factual ground in arguments before the bench.
The Ld.DR vehemently argued and first placed that the tax amount of Rs.25,24,058/- was duly paid before issuance of notice under section 142(1) of the Act. But the tax was duly paid after the notice under section 143(2). So, the Revenue has detected primarily the transaction of the assessee related to foreign securities. So, the penalty under section 270A of the Act is justified and is upheld. The Ld.DR submitted a written submission. The extract of the written submission is reproduced below: - “3. Submissions for consideration: Hon'b'c CIT(A) has not appreciated certain facts which were already on record before coming to the conclusion that the taxes due were paid much before the issue of notice u/s 142(1) of the Act. It is pertinent to mention that, vide notice u/s 143(2) of the Act, the assesse was duly communicated, the issues identified for scrutiny. The act of the assesse of paying taxes has taken place only subsequent to identification of the issue regarding foreign income/ share transactions. It is important to mention that the Assessment year involved is 2017-18. i.e. Year ending 31.03.2018 and that assesse has filed return as late as 28.03.2018 and even then the income from LTCG and STCG on foreign shares have not been reflected. The assessee's contention that the statement from Broker was received late, also doesn't hold much water as the difference between the date of end of F.Y concerned and the payment of taxes is 21 months. The same is also compounded by the fact, that the amount of gain is approximately 2.5 times, the total income of the assesse and it's not that the amount involved was insignificant, that the same was inadvertently not included. It is also seen, that the transactions resulting in LTCG have taken place in the month of April 2016(5 transactions) and one in July, 2016, i.e. almost the very first quarter of the K.Y itself. The STCG transactions have taken place during August to .January 201 7. Tt clearly implies that the assesse was well aware of the gains, as the returns have been filed as late as 28.03.2018, more than .18 months after LTCG transaction and almost 15 months for STCG and the amounts have not been included. To summarize, the assessc despite having been in know of substantially high capital gains and filing the return one year after the F.Y. is over, did not include the ineorne from LTCG/STCCj and only after the case was picked for scrutiny and having been made aware of the issue, paid the taxes and hence the reliance on the argument that. " there is force in the Arun Subrahmanyam argument of the learned A.R. that the appellant was not aware of the reasons of notice i//:: 142(1) of the Act, dated 21.11.2019, as he had already paid tax on fon'ian income on 31.12.2018, by the CAT (A) in para 7.3(Page 9) of the appellate order is not proper," From the record itself, it is very clear that payment of taxes was made only subsequent to selection of cases with specific issues identified and accordingly, it is very clear that the assesse had under-reported his income as a consequence of misreporting arid accordingly, it is submitted that the CIT(A) may kindly be set aside as the contentions mentioned, therein, are in absolute contrast to the facts available on record.”
The Ld. AR argued both on merit and on the legal side of the matter. First, Ld.AR started an argument for merit of the case and submitted a written submission which is kept in the record. The Ld.AR in argument mentioned that the assessee paid the tax due to non-receiving of details from its foreign asset fund manager, bank „Julius Baer & Co. Limited‟.So, the assessee was unable to submit the details of gain or lossof the foreign investments. But the assessee was unable to submit any evidence related to upload / handover all the data of foreign asset fund manager to the assessing officer. For that reason, Ld.AR placed that due to non-availability of data form the side of service providers / investment. He further stated that in section 143(2), the issue was correctly determined by the Ld. Assessing Officer. So, the information was not with the Revenue. Before receiving the information from the assesse. The assesse, in good gesture, paid the tax on its transaction amount of Rs.1,05,28,830/- for long term capital gain and Rs.12,29,731/- for short term capital gain. The revised computation was duly filed which is also enclosed in the assessee‟s paper book page 2. The Ld.AR further relied on the order of the Ld.CIT(A). The relevant para of page 9 is duly annexed herewith: - “7.2 In this regard, during the course of appellate proceedings, the Ld. A.R. has argued that at the time of filing of return of income, the said information was not available with the appellant. As the details were provided by the foreign Account Arun Subrahmanyam Fund Manager on a later date, immediately on receipt of information, from Foreign Asset Manager, the appellant paid the tax on such foreign income, as self assessment tax of Rs.54,15,000/- vide challan dtd.31/12/2018 i.e. much before the issue of notice u/s.l42d) of the Act. Moreover, to file revised return had already expired by the time the information was received from Fund Manager. 7.3 Considering these facts, I am in agreement with the Ld.AR that the appellant had already paid the requisite taxes on 31/12/2018, whichwas prior to the date of issue of notice u/s. 142(1) on 21/11/2019. There is force in the argument of the Ld.AR that the appellant was not aware of the reasons of issue of notice u/s.142(1) dated 21/11/2019, as he had already paid tax due on foreign income on 31/12/2018. Looking to the entire facts and circumstances of the issue involved and considering the fact that the appellant had paid the requisite tax much before the issue of notice u/s. 142(1), the appellant cannot be said to have presented mis- representation or suppression of facts, making him liable for levy of penalty u/s.270A of the Act. Accordingly, the AO is directed to delete penalty of Rs.50,48,116/- being 200% of the amount of tax sought to be evaded. Thus, ground of appeal
no.1 is allowed.” So, the assessee has not been in default and there was no misrepresentation of the income. The Ld.AR further argued on the legal issue related to the defective issuance of notice and in penalty order, the proper reason is not mentioned for levying of penalty amount to Rs.50,48,116/-. The copy of notice U/s 270A/274 is annexed in APB page
10. The impugned notice is reproduced as below: - Arun Subrahmanyam
6. The Bench made queries toLd.AR whether the legal issue was already agitated before ld. CIT(A). Ld.AR placed that the issue was already taken before ld. CIT(A) and he invited our attention in page 3 of impugned appeal order. The relevant para is enclosed herewith: - “Grounds of Appeal
3. In this appeal, the appellant has raised the following grounds of appeal for A,Y. 2017-18, which are reproduced as under: - ' ' "1. On the facts and circumstances of the case as well us in law the LearnedA.O. has erred in levying penalty u/s 270A of the LT. Act, reasons assigned by him for doing the same are wrong and insufficient. Appellant contends;that there was no misrepresentation or suppression of the facts on the part of the appellant and the consequently the case is not covered under subsection 9(a) of the IT Act and hence no penalty ought to have been levied. (u/s270A).
2. Appellant craves to leave, add, alter and/or modify the grounds of appeal on or before the date of hearing of appeal."
7. The Ld.AR respectfully relied on the orders of different Tribunals on the High Courts and the cases are mentioned as below: - 7.1. Commissioner of Income Tax vs. Dodsal Ltd., 312 ITR 0112 (Bom), Held: The terminology of s. 158 BFA makes it clear that there is a discretion in the AO to direct payment of penalty. The proviso supports this interpretation. Only if the authority decides to impose penalty then, it will not be less than the lax leviable but shall not exceed three times the tax so leviable. It istherefore. not possible to accept the submission on behalf of the Revenue that once the AO comes to the conclusion that there is a breach of the mandate of s. 158BFA(1)I, then the penalty should be imposed. Merely because the expression used is "shall not be less than the amount of lax leviable or not exceeding three limes the lax", does not result in reading the first part of the: section as mandatory. The proviso to the sub-section makes it clear that there is discretion conferred on the CIT(A)for the reasons which are set out therein. In the instant case, both CIT(A) and Tribunal have recorded reasons /or exercise o/' their discretion. The Revenue has not challenged the said finding of fact as to the exercise of discretionary power. Therefore, theview takenbyTribunal that the section is directory and not mandatorv is upheld. CIT vs. Gwalior Rayon Silk Manufacturing C Ltd. (1992) 104 CTR (SC); 243: (1992) 196 ITR 149 (SC) applied.
Arun Subrahmanyam 7.2. Commissioner of Income Tax Vs. Satyendra Kumar Dosi, 315ITR 0172 (Raj), Held: A bare perusal of section 158BFA(2) goes to show that by virtue of the said provision, the AO or the CIT(A) is vested with the power to direct the assessee to pay the penalty as specified in respect of the undisclosed income determined bythe AO under cl.(c) of s. I58BC; however, the AO or the CIT(A) is not empowered to impose the penalty in respect of the person who fulfils the conditions enumerated in the first proviso to s. 15SBFA. It is to be noticed that in the main provision providing for imposition of penalty, the word "may" has been used. It is settled taw that the penal provision in the taxing statutes shall be construed strictly. From the plain reading of s. 15KI1FA(2), itdoes not appear that in all the cases where the undisclosed income is determined bythe AO under cl.(c) of s.158BC, the imposition of penalty as specified under s. 158BFA .shall follow as a natural consequences thereof. In terms of s. 158 B FA. a discretion is vested with the AO to levy the penalty in respect of the undisclosed income but it cannot be inferred from the said provisionthat the liability for penalty is automatic. OJ course, the proviso to s. 15KBb(2) enumerates the circumstances wherein no penalty is leviable but from that also it cannot be inferred that the absence of the circumstances enumerated willattract the provision of penalty automatically. The contention raised by the counsel on the strength of the provisions ofss. 273B and 158B is also devoid of any merit. Of course, as per the provision of s. 273 R no penalty shall be imposable on the persons or the assessee as the case may he. on their /allure referred lo in the said provisions if lie proves that there was reasonable cause for the said failure.But then, the said provision in no manner leads lo the presumption that in respect of the cases other them covered by s. 2738 for any failure or violation imposition of the penalty is automatic. Each provision of penalty has lobe construed independently keeping in view the language employed therein. For the aforementioned reasons, the Tribunal has committed no error in holding that the provisions of s. 158BFA(2) providing for imposition of penalty in respect of the undisclosed income determined by the AO under cl, (c)ofs. 158BC is discretionary and not mandatory. 7.3. Ch. Suresh Reddy v.ACIT (2009) 120 ITD 428 ((Chennai - Trib.)), “The provisions under section 158BFA(2) gives a scope for exercising discretion of the Assessing Officer. This section which allows the Assessing Officer to impose a penalty begins with the word „may‟ and not „shall‟. In our opinion, the Assessing Officer has a discretion to impose or not to impose the penalty. The words „may direct‟ in section 158BFA(2) do indicate that a discretion is available with the Assessing Officer and CIT(A) to levy penalty even where technically the provisos are attracted.
Arun Subrahmanyam "It appears that the ratio of the above decision will also apply to the provisions of section 270A which are similar to the provisions dealt with in the above decision. Further the discretion is also evident in clause (a) of sub section (6) of Section270A. Section 274 of the Act requires issue of show cause notice and an opportunity of being heard has been granted to the assessee. Certainly, the requirements of issue of notice and providing an opportunity to show cause cannot be empty formalities in levy of penalty in excess of Rs. 20.000 which requires approval of higher authority. This also proves that the levy of penalty is not automatic but discretionary. (b) The Apex Court, in Mansukhlal v. C1T [(1969) 73 ITR 546 (SC)] held that penalty need not be imposed when there is a minor breach of law and having regard to the facts, ends of justice require that the assessee need not be penalized; The Apex Court, in Hindustan Steel Ltd. v. State ofOrissa [(1972) 83 ITR 26 (SC)], held that penalty cannot be levied for a mere technical / venial breach; (c) In view of the facts arid circumstances narrated above and on the basis of legal position we request your honour to consider the case sympathetically and use discretionary power to droop the penalty proceedings.”
We heard the rival submission and considered the documents available on record. The essence of the appeal is that the assessee had paid the tax related to its transactions outside India before the authority. But the tax was paid after issuance of notice under section 143(2) of the Act. The Revenue has recognized the concealment of income during issuance of notice under section 143(2). The assesseehassubstantiated that the income declared late due to delay in receiving of accounts from foreign asset fund manager, bank „Julius Baer & Co. Limited‟. The tax was paid after filing of return but before issuance of notice U/s 143(2) of the Act.The imposition of penalty r.w.s158BFA(2) gives a scope for exercising discretion of the ld. AO. We respectfully relied on the orders of theDodsal Ltd(supra) &Ch. Suresh Reddy(supra). 8.1. In legal issue, the Ld.AR pointed out that no specific determination of penalty is not mentioned during the issuance of notice of penalty under section Arun Subrahmanyam 270A. In fact, the Ld.AO had not mentioned the specific section for levying of penalty to assessee in the notice dated 16/12/2019 issued U/s 270A/274 of the Act. The Ld.DR relied on the order of ld. AO. The ld. AR has placed the order of ITAT- Chennai Bench- B in the case of Chitra Ramanathanv.Income-tax Officer, [2023] 157taxmann.com823 (Chennai - Trib.) “8. On perusal of the penalty order, we find that the Assessing Officer has not recorded what the reply was furnished by the assessee against the show-cause notice issued under section 270A of the Act and why it was not acceptable. Moreover, the Assessing Officer has mentioned any reason for levying penalty at 200%. The Assessing Officer has simply recorded that 200% of penalty has been levied for the tax payable on misreporting of income. When the assessee has furnished his explanation in response to the show-cause notice, it is the duty of the Assessing Officer to consider and record as to why the reply is not acceptable. However, in the penalty order, the Assessing Officer has not discussed anything and simply stated that "the reply of the assessee is considered and is not acceptable" is not correct. Under these facts and circumstances of the case, we are of the opinion that the penalty order passed by the Assessing Officer and confirmed by the ld. CIT(A) cannot survive. Thus, the penalty levied under section 270A of the Act stands deleted.
9. In the result, the appeal filed by the assessee is allowed”.
On perusal of notice U/s 270A/274 we find that notice is defective and not acceptable, followed toChitra Ramanathan(supra). We upheld the impugned appeal order. The appeal of the revenue is dismissed.
In the result, appeal of the revenue is dismissed.