REKHA BHUPENDRA DALAL,MUMBAI vs. DCIT OSD-II CEN RG 7, MUMBAI

Assessee by : Shri Vipul Joshi- Advocate Revenue by : Shri M.C. Omi Ningshen (DR) Date of hearing : 29.05.2017 Date of Pronouncement : 29.05.2017 Order Under Section 254(1) of Income Tax Act PER PAWAN SINGH, JUDICIAL MEMBER: 1. This appeal by assessee under section 253 of the Income-tax Act (the Act) is directed against the order of ld. Commissioner of Income Tax (Appeals)-40 [the CIT(A)], Mumbai dated 23.01.2013 for the Assessment Year 2007-08. The solitary ground of appeal raised by assessee is that “If ld. CIT(A) erred in confirming the penalty levied u/s 271(1)(c) of the Act in respect of exemption claimed u/s 54 of the Act”.

2. Brief facts of the case are that the assessee filed return of income for relevant AY on 31.10.2007 declaring total income of Rs. 1,42.170/-. The assessee has shown to have earned ‘Income from Business & Profession’ and from ‘Income from Other Sources’. The assessee claimed Long Term Capital Gain (LTCG) of Rs. Rekha Bhupendra Dalal 44,68,390/- and claimed exemption u/s 54 of the Act. The assessment was completed on 17.11.2009 u/s 143(3) of the Act accepting the return of income.

Subsequently, a search u/s 132 of the Act was conducted on 31.05.2008 in the premises of Shri Vinod Faria and Milan Dalal. On the basis of incriminating material found in the search, the assessment was reopened on 24.11.2010. No revised return was filed in response to the notice u/s 148 of the Act. The assessment was completed u/s 143(3) r.w.s. 147 of the Act on 28.12.2011. In the re-opening assessment the Assessing Officer (AO) disallowed the exemption claimed u/s 54F of the Act. Thus, the Capital Gain of Rs. 44,68,390/- was brought to tax. No further appeal was filed by assessee against the quantum assessment.

The AO thereafter initiated the penalty proceeding u/s 271(1)(c) of the Act. The notice under section 274rws271(1) ( c) was issued on 18.12.2011. The assessee filed reply to the show-cause notice vide reply dated 21.02.2012. In the reply, the assessee contended that she agreed to purchase a flat in the building which was constructed at Borivali and builder has agreed to give possession within three years. It was only on account of the fact that the building was delayed and the assessee did not get possession within time, the facts that she could not get the possession of flat, was beyond her control. The claim of exemption was made on genuine belief. It was further contended that assessee disclosed all particular in the return of income and there was no concealment. The contention of assessee was not accepted by AO levied the penalty @ 100% on the tax sought to be evaded vide order dated 27.06.2012. On appeal before the ld. CIT(A), the order was sustained. Further, aggrieved by the order of AO, this appeal is filed before us. - Rekha Bhupendra Dalal

The assessee had agreed to purchase a Flat which was under construction at Pluto Building No.2, Borivali (W), Mumbai expecting that construction would be completed within three years on the bonafide and genuine belief, the assessee claimed exemption u/s 54 of the Act in her return of income. The return of income was accepted after scrutiny assessment u/s 143(3) on 17.11.2009. The case of assessee was re-opened u/s 148 of the Act wherein the exemption was disallowed.

No further appeal was filed by assessee as building was not completed within three years of sale of Flat. At the time of making claim, the assessee was under genuine belief that construction of the building would be completed within three years and the assessee would be entitled to exemption u/s 54 of the Act. It was further argued that no particular of income was concealed, assessee disclosed all particular in her return of income. The disallowance was made by AO, as the building was not completed within three years. The ld AR prayed that the assessee prayed that no penalty lie against the assessee as the claim of the assessee was not found to be false. It was further argued that the similar penalty order was passed against one of the co-owner Smt. Veena Milan Dalal on disallowance of claim u/s 54. The said co-owner also invested the LTCG in the same building which was under Rekha Bhupendra Dalal construction. The AO levied the penalty on similar facts against Smt. Veena Milan Dalal. On appeal before the ld. CIT(A), the penalty was completed by ld. CIT(A)- 40 vide order dated 07.11.2014. However, the similar order was sustained against the assessee. In the alternative argument the ld. AR of the assessee argued that while issuing notice u/s 274 r.ws. 271(1)(c) of the Act. The AO not specified the specific charge whether the penalty is initiated for concealment of income or filing inaccurate particulars. The ld. AR of the assessee argued that non-striking of relevant clause shows a non-application of mind by AO. The ld. AR of the assessee further relied upon the decision of Hon’ble Bombay High Court in CIT v/s Hiralal Doshi (383 ITR 19(Bom.), CIT v/s Bennett Coleman & Co. Ltd. [2013] 33 taxmann.com 227 (Bom.), decision of Hon’ble Apex Court in CIT v/s Reliance Petroproducts (P.) Ltd. [(2010) 322 ITR 158 (SC)], Price Waterhouse Coopers (P.)

Ltd. v/s. CIT – [(2012) 304 ITR 306 (SC)], DIT(IT) v/s. Asia Attractive Dividend Stock Fund- [2013) 35 taxmann.com 265 (Bom)], CIT v/s. Somany Evergreen Knits Ltd. [(2013) 352 ITR 592 (Bom)] and the decision of Mumbai Tribunal in Meherjee Cassinath holdings Pvt. Ltd. v/s. ACIT in dated 28.04.2017. On the other hand, ld. DR for the Revenue supported the order of authorities below. The ld. DR for the Revenue further argued that the AO levied the penalty on both limbs of section 271(1)(c) of the Act. It was further argued that assessee furnished inaccurate particular of income and thus, concealed the income.

It was further argued that mere non-striking out the relevant charge in the notice u/s 274 r.w.s. 271(1)(c) is not fatter. The ld. DR for the Revenue further argued that it was a fit claim for levying the penalty. - Rekha Bhupendra Dalal

271(1)(c) of the Act. The AO issued a notice on standard Performa without striking out the relevant clause. Thus, the notice refers to both the limbs of section 271(1)(c) of the Act for concealment of particular of income as well as furnishing inaccurate particulars of income, the non-striking of the irrelevant limb of the said notice does not convey to the assessee as to which of the two charges, it has to respond. The ld. AR of the assessee had demonstrated that non-striking of relevant clause shows a non-application of mind by AO. - Rekha Bhupendra Dalal

“8. We have carefully considered the rival submissions. Sec. 271(1)(c) of the Act empowers the Assessing Officer to impose penalty to the extent specified if, in the course of any proceedings under the Act, he is satisfied that any person has concealed the particulars of his income or furnished inaccurate particulars of such income. In other words, what Sec. 271(1)(c) of the Act postulates is that the penalty can be levied on the existence of any of the two situations, namely, for concealing the particulars of income or for furnishing inaccurate particulars of income. Therefore, it is obvious from the phraseology of Sec. 271(1)(c) of the Act that the imposition of penalty is invited only when the conditions prescribed u/s 271(1)(c) of the Act exist. It is also a well accepted proposition that 'concealment of the particulars of income' and 'furnishing of inaccurate particulars of income' referred to in Sec. 271(1)(c) of the Act denote different connotations. In fact, this distinction has been appreciated even at the level of Hon'ble Supreme Court not only in the case of Dilip N. Shroff (supra) but also in the case of T. Ashok Pai, 292 ITR 11 (SC). Therefore, if the two expressions, namely 'concealment of the particulars of income' and 'furnishing of inaccurate particulars of income' have different connotations, it is imperative for the assessee to be made aware as to which of the two is being put against him for the purpose of levy of penalty u/s 271(1)(c) of the Act, so that the assessee can defend accordingly. It is in this background that one has to appreciate the preliminary plea of assessee, which is based on the manner in which the notice u/s 274 r.w.s. 271(1)(c) of the Act dated 10.12.2010 has been issued to the assessee- company. A copy of the said notice has been placed on record and the learned representative canvassed that the same has been issued by the Assessing Officer in a standard proforma, without striking out the irrelevant clause. In other words, the notice refers to both the limbs of Sec. 271(1)(c) of the Act, namely concealment of the particulars of income as well as furnishing of inaccurate particulars of income. Quite clearly, non-striking-off of the irrelevant limb in the said notice does not convey to the assessee as to which of the two charges it has to respond. The aforesaid infirmity in the notice has been sought to be demonstrated as a reflection of non-application of mind by the Assessing Officer, and in support, reference has been made to the following specific discussion in the order of Hon'ble Supreme Court in the case of Dilip N. Shroff (supra):-

- Rekha Bhupendra Dalal

"83. It is of some significance that in the standard proforma used by the Assessing Officer in issuing a notice despite the fact that the same postulates that inappropriate words and paragraphs were to be deleted, but the same had not been done. Thus, the Assessing Officer himself was not sure as to whether he had proceeded on the basis that the assessee had concealed his income or he had furnished inaccurate particulars. Even before us, the learned Additional Solicitor General while placing the order of assessment laid emphasis that he had dealt with both the situations.

particulars of income. The Hon'ble Gujarat High Court quashed the penalty since the basis for the penalty proceedings disappeared when it was held that there was no suppression of income. The Hon'ble Kerala High Court has struck down the penalty imposed in the case of N.N.Subramania Iyer Vs. Union of India (supra), when there is no indication in the notice for what contravention the petitioner was called upon to show cause why a penalty should not be imposed. In the instant case, the AO did not specify the charge for which penalty proceedings were initiated and further he has issued a notice meant for calling the assessee to furnish the return of income. Hence, in the instant case, the assessing officer did not specify the charge for which the penalty proceedings were initiated and also issued an incorrect notice. Both the acts of the AO, in our view, clearly show that the AO did not apply his mind when he issued notice to the assessee and he was not sure as to what purpose the notice was issued. The Hon'ble Bombay High Court has discussed about non-application of mind in the case of Kaushalya (supra) and observed as under:-

"....The notice clearly demonstrated non-application of mind on the part of the Inspecting Assistant Commissioner. The vagueness and ambiguity in the notice had also prejudiced the right of reasonable opportunity of the assessee since he did not know what exact charge he had to face. In this back ground, quashing of the penalty proceedings for the assessment year 1967-68 seems to be fully justified."

In the instant case also, we are of the view that the AO has issued a notice, that too incorrect one, in a routine manner. Further the notice did not specify the charge for which the penalty notice was issued. Hence, in our view, the AO has failed to apply his mind at the time of issuing penalty notice to the assessee."

- Rekha Bhupendra Dalal