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Income Tax Appellate Tribunal, KOLKATA ‘A’ BENCH, KOLKATA
Before: Shri P.M. Jagtap & Shri S.S. Viswanethra Ravi
Per Shri P.M. Jagtap, A.M..: These two appeals are preferred by the Revenue against two separate orders of ld. Commissioner of Income Tax (Appeals)-XXI, Kolkata, both dated 14.10.2016, whereby the penalties imposed by the Assessing Officer under section 271(1)(c) of the Income Tax Act, 1961 for assessment years 2006-07 and 2007-08 amounting to Rs.3,76,15,923/- and Rs.7,29,657/- were cancelled by him and the same are being disposed of by a common order along with the corresponding Cross Objections filed by the assessee being C.O. Nos. 12 & 13/KOL/2017 .
The assessee in the present case is an individual, who is regularly assessed to tax. On 26.09.2011, he furnished a declaration before the Director General of Investigation, Kolkata. In the said declaration claimed to be filed voluntarily, the assessee admitted that he had maintained a Bank Account with HSBC in Switzerland, which was not disclosed in his books of account. It was stated by the assessee that the said Bank account was closed by him sometime back and the amount of US Dollars 9,53,187 equivalent to Rs.4,43,23,196/- lying therein was recently brought back to India. The assessee agreed to surrender the said amount as his undisclosed income for the assessment year 2012-13 and also paid tax thereon amounting to Rs.1,36,95,868/- on 28.09.2011. Pursuant to the said declaration, a notice under section 131 was issued by the Director General of Investigation, Kolkata requiring the assessee to appear personally on 30.09.2011. In response to the said notice, the assessee appeared on 30.09.2011 and in his statement recorded on that date, he reiterated the stand taken in the declaration filed on 26.09.2011. Thereafter the assessee filed his return of income for A.Y. 2012-13 on 26.07.2012, wherein he declared the amount of Rs.4,43,23,196/- as his income under the head “income from other sources”. The said return was duly processed by the Assessing Officer under section 143(1) on I.T.A. Nos. 93 & 94/KOL./2017 Assessment year: 2006-2007 & 2007-2008 & C.O. Nos. 12 & 13/KOL/2017 (in & 94/KOL/2017) Assessment Years: 2006-2007 & 2007-2008 Page 3 of 12 10.05.2013 thereby accepting the income offered by the assessee on account of the amount lying in his overseas undisclosed Bank account as his income for A.Y. 2012-13.
Meanwhile, the Assessing Officer noted from the information received by the Government of India from a foreign Government by virtue of provisions for exchange of information under the Bilateral Double Taxation Avoidance Agreement that the assessee had operated a Bank account in Switzerland with HSBC Bank and there were deposits made in the said Bank account during the previous year relevant to A.Ys. 2006-07 & 2007-08. Since the said Bank account was not disclosed by the assessee in the returns of income filed regularly for A.Ys. 2006-07 and 2007-08, he reopened the assessments for the said two years and issued notices to the assessee under section 148 for Assessment years 2006-07 and 2007-08 on 08.03.2013 and 12.03.2013 respectively after recording the reasons. Although the assessee filed a letter stating that the returns of income originally filed by him for both the years under consideration may be treated as the returns filed in compliance to the notices issued under section 148, he raised certain objections challenging the reopening of assessments. The Assessing Officer did not find merit in the said objections and overruling the same, he proceeded to complete the assessments under section 147/143(3) for both the years under consideration vide orders dated 04.03.2015 and 31.03.2015. In the assessments so made, additions of Rs.4,17,95,469/- and Rs.8,10,731/- were made by the Assessing Officer to the total income of the assessee for assessment years 2006-07 and 2007-08 respectively on account of undisclosed investment in HSBC, Switzerland. He also initiated penalty proceedings under section 271(1)(c) of the Act for both the years under consideration.
In response to the show-cause notices issued by the Assessing Officer during the course of penalty proceedings, it was submitted on I.T.A. Nos. 93 & 94/KOL./2017 Assessment year: 2006-2007 & 2007-2008 & C.O. Nos. 12 & 13/KOL/2017 (in & 94/KOL/2017) Assessment Years: 2006-2007 & 2007-2008 Page 4 of 12 behalf of the assessee, inter alia, that he had made voluntary declaration of his foreign Bank account before the Income Tax Department much prior to the initiation of assessment proceedings for assessment years 2006-07 and 2007-08. It was also submitted by the assessee that the said Bank account having been closed and the entire amount lying therein having been brought back into India in the previous year relevant to assessment year 2012-13, the amount was surrendered as his undisclosed income by the assessee for A.Y. 2012-13 and after disclosing the same in the return of income for that year, the tax due thereon was also paid by the assessee. This explanation of the assessee was not found acceptable by the Assessing Officer. According to him, irrespective of the source of income or the route through which the same might have come to the possession of the Department, the fact that remained undisputed was that the assessee had maintained an account with HSBC, Switzerland, which was an undisclosed, concealed offshore account. He held that the assessee by evading tax had generated income in the form of money either in Indian or foreign currency and had sourced the investment and transaction in violation of law or provision of Income Tax Act, 1961. As regards the disclosure made by the assessee in his return of income for A.Y. 2012-13, he held that it was not understandable as to how the assessee declared the income earned in A.Y. 2006-07 and 2007-08 as apparent from his Bank account with HSBC, Switzerland in A.Y. 2012-13 and paid tax thereon. The Assessing Officer held that it was thus a clear case of concealment of income by the assessee for both the years under consideration, i.e. A.Y. 2006-07 & 2007-08 and accordingly penalties of Rs.3,76,15,923/- and Rs.7,29,657/- were imposed by him for A.Y. 2006-07 and 2007-08 being 300% of the tax sought to be evaded by the assessee in respect of his income representing undisclosed investment made in HSBC, Switzerland.
The penalties imposed by the Assessing Officer under section 271(1)(c) for both the years under consideration were challenged by the I.T.A. Nos. 93 & 94/KOL./2017 Assessment year: 2006-2007 & 2007-2008 & C.O. Nos. 12 & 13/KOL/2017 (in & 94/KOL/2017) Assessment Years: 2006-2007 & 2007-2008 Page 5 of 12 assessee in the appeals filed before the ld. CIT(Appeals). During the course of appellate proceedings before the ld. CIT(Appeals), various contentions were raised by the assessee challenging the validity of initiation of the penalty proceedings as well as the consequent orders passed under section 271(1)(c). The assessee also strongly relied on the declaration filed before the Director General of Investigation, Kolkata on 26.09.2011 to contend that the said declaration having been filed by him voluntarily declaring the entire amount lying in his undisclosed Bank account with HSBC Switzerland for A.Y. 2012-13 before initiation of any action or issue of any notice by the Income Tax Department, there was no case of concealment of particulars of his income by the assessee or filing of inaccurate particulars of such income attracting the provisions of section 271(1)(c). The ld. CIT(Appeals) found merit in the latter part of the arguments of the assessee and accepting the same, he cancelled the penalties imposed by the Assessing Officer for both the years under consideration for the following identical reasons given in his impugned orders:- “I have considered findings of the Ad in the penalty order and the written submission filed by the AR during the appellate proceeding. I find that it is a unique case wherein the assessee has made suo moto declaration before the Income Tax Authorities regarding its foreign bank account before initiation of any action or issue of notice by the Income Tax Department for the same to the assessee. In this case notice u/s 148 was issued to the assessee by the AO on 27-03-2012 about the foreign bank account and deposits therein. But the fact is that the assessee had suo moto written a letter to DGIT (Inv) Kolkata on 26-09-2011 in which it was stated by the assessee as under:
"I had an account with HSBC Switzerland along with my wife, Mrs Kavita Poddar and son, Mr Yash Wardhan Poddar, I have decided now to disclose the said account to the Income Tax Department and pay tax in order to buy peace and avoid protracted litigation.
The amount maintained at HSBC Switzerland was closed some time back and the money kept outside has recently been brought back to India. I shall introduce the said money in my
I.T.A. Nos. 93 & 94/KOL./2017 Assessment year: 2006-2007 & 2007-2008 & C.O. Nos. 12 & 13/KOL/2017 (in & 94/KOL/2017) Assessment Years: 2006-2007 & 2007-2008 Page 6 of 12 books and pay tax now. Since I have decided to come clean and pay tax voluntarily. I hope no penal action would be taken against me, my wife and my son.
I would further like to mention that my wife, Mrs Kavita Poddar and son, Mr. Yash Wardhan Poddar were only the joint account holders and authorized signatories but the money kept abroad was solely belonging to me and consequently the disclosure is being made in my name".
I further find that the assessee suo moto made payment of Rs.1,36,95,868/- as tax liability on 28-09-2011. The AO issued notice u/s 148 for the same bank account and same deposits in that account on 27-03-2012 for AYs 2006-07 & 2007-08. The AO had issued such notice on the basis of certain information in his possession regarding deposits made in the foreign bank account of the assessee during those assessment years. Later on assessment orders were passed by the AO for the AYs 2006- 07 & 2007-08 on 04-03-2015 (which are not subject matter under this appeal filed by the assessee). In the assessment order penalty proceeding u/s 271(l)(c) was initiated and the AO levied penalty @ 300% in the penalty order passed on 31- 03-2015.
Here it is clear that the HSBC account was opened on 09-06- 2005 i.e. in FY 2005-06. Therefore, so far as assessment orders passed taking the peak amount in FYs 2005-06 & 2006-07 on the basis of deposits made in FYs 2005-06 & 2006-07 and making addition for the same in the hands of the assessee in AYs 2006-07 & 2007-08 are justified, but now the question is whether it is justified to levy penalty u/s 271(1)(c ) for the same when the assessee had suo moto declared its HSBC bank account and deposits therein to the Income Tax Department much before initiation of any action or issue of any notice for the same. During the penalty proceeding the AO was fully aware of the fact that the assessee had already disclosed this foreign bank account before the DGIT(lnv) Kolkata in September, 2011 and had fully paid due taxes thereon in September,2011 itself. The AO was also aware that the assessee had in good faith acted upon and the said disclosure was included in the return of income for AY 2012-13. As the sum of US $ 953187(US $ 935230 for AY2006-07 + US $ 17956 for AY 2007-08) was voluntarily offered for taxation before the Income Tax Department (and due taxes were also paid), before initiation of any action or issue of any notice by the Income Tax Department, in that case where is the scope of charging
I.T.A. Nos. 93 & 94/KOL./2017 Assessment year: 2006-2007 & 2007-2008 & C.O. Nos. 12 & 13/KOL/2017 (in & 94/KOL/2017) Assessment Years: 2006-2007 & 2007-2008 Page 7 of 12 the assessee for concealment or filing of inaccurate particulars as required u/s 271(1)(c) of the I.T. Act, 1961.
Keeping in view facts discussed in above paragraphs, I am of this view that in this particular case levy of penalty u/s 271(1)(c ) of the I.T. Act, 1961 is not justified. Here, it would not be out of context to mention that this case is a unique case where the assessee has suo moto made a declaration before the DGIT(Inv) Kolkata regarding its HSBC account and deposits made therein. Not only that the assessee has also paid full taxes on its own before initiation of any action or issue of any notice for this bank account and deposits made therein. Accordingly, assessee's appeal on grounds no 1 to 4 are allowed”.
The ld. CIT(Appeals) thus accepted the arguments raised by the assessee on the imposition of penalties under section 271(1)(c) for both the years under consideration on merit and without going into the preliminary issues raised by the assessee challenging the validity of the initiation of penalty proceedings as well as the consequent penalty orders passed under section 271(1)(c), he cancelled the penalties imposed by the Assessing Officer under section 271(1)(c) for both the years under consideration. Aggrieved by the orders of the ld. CIT(Appeals), the Revenue has preferred these appeals before the Tribunal, while the assessee has also filed his Cross Objections.
We have heard the arguments of both the sides and also perused the relevant material available on record. In his Cross Objections, the assessee has raised a preliminary issue challenging the validity of the penalty orders passed by the Assessing Officer on the ground that in the absence of any specific mention in the show-cause notices issued under section 274 of the Act for the years under consideration by the Assessing Officer as to whether the asseessee is guilty of having “furnished inaccurate particulars of income” or of having “concealed particulars of such income”, the initiation of penalty proceedings itself was bad in law and the penalty orders passed in pursuance thereof are liable to be I.T.A. Nos. 93 & 94/KOL./2017 Assessment year: 2006-2007 & 2007-2008 & C.O. Nos. 12 & 13/KOL/2017 (in & 94/KOL/2017) Assessment Years: 2006-2007 & 2007-2008 Page 8 of 12 quashed. In support of the case of the assessee on this preliminary issue, ld. counsel for the assessee has relied, inter alia, on the decision of the Hon’ble Karnataka High Court in the case of CIT & Another –vs.- Manjunatha Cotton & Ginning Factory reported in 359 ITR 565 and submitted that the said decision has been consistently followed by this Tribunal to cancel the penalties imposed under section 271(1)(c) in several cases, where the notice under section 274 has been found to be issued in the printed form without striking off the irrelevant portion, viz. “furnished inaccurate particulars of income” or “concealed particulars of such income”. He has also invited our attention to the show-cause notices issued by the Assessing Officer in the present case for both the years under consideration under section 274 in the printed form to point out that there is a similar infirmity in the said notices, inasmuch as, the irrelevant portion was not struck off by the Assessing Officer and this position clearly evident from the said notices has not been disputed even by the ld. D.R. He, however, has contended that the notice issued under section 274 cannot be read in isolation and it has to be read with the assessment order to find out the exact charge levelled by the Assessing Officer against the assessee. We are unable to accept this contention of the ld. D.R. As held by the Hon’ble Karnataka High Court in this regard in the case of Manjunatha Cotton & Ginning Factory (supra), the findings recorded in the assessment proceedings in so far as “concealment of income” and “furnishing of incorrect particulars” would not operate as res judicata in the penalty proceedings and it is open to the assessee to contest the said proceedings on the merits. Hon’ble High Court further held that notice under section 274 of the Act should specifically state the grounds mentioned in section 271(1)(c), i.e. whether it is for concealment of income or for furnishing of incorrect particulars of income and sending printed form where all grounds are mentioned in section 271 would not satisfy the requirement of law. Explaining further, it was observed by the Hon’ble Karnataka High Court that the person who is accused of the conditions mentioned in section 271 should be made known about the I.T.A. Nos. 93 & 94/KOL./2017 Assessment year: 2006-2007 & 2007-2008 & C.O. Nos. 12 & 13/KOL/2017 (in & 94/KOL/2017) Assessment Years: 2006-2007 & 2007-2008 Page 9 of 12 grounds on which they intend imposing penalty on him as section 274 makes it clear that the assessee has a right to contest such proceedings and should have full opportunity to meet the case of the Department and show that the conditions stipulated in section 271(1)(c) do not exist as such he is not liable to pay penalty. It was held that the practice of the Department sending a printed form where all the grounds mentioned in section 271 are mentioned would not satisfy the requirement of law, inasmuch as the principles of natural justice is offended if the show-cause notice is vague and on the basis of such notice, no penalty could be imposed on the assessee. It is pertinent to note here that a similar view as expressed in the case of Manjunatha Cotton & Ginning Factory (supra) was reiterated by the Hon’ble Karnataka High Court in the case of SSA’s Emerald Meadows (ITA No. 380 of 2015 dated 23.11.2015) and the Special Leave Petition filed by the revenue against the judgment of the Hon’ble Karnataka High Court in the case of SSA’s Emerald Meadows has been dismissed by the Hon’ble Supreme Court vide order dated 05.08.2016.
It is well settled position of law that the penalty under section 271(1)(c) is leviable if the Assessing Officer is satisfied that the assessee has concealed particulars of his income or furnished inaccurate particulars of such income. As held by the Hon’ble Supreme Court in the case of Dilip N. Shroff [91 taxman 218], the two expressions “concealment of particulars of income” and “furnishing of inaccurate particulars of income” are different connotations and 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 under section 271(1)(c) so that he can defend accordingly. If the notice issued under section 274 is issued by the Assessing Officer in the standard printed proforma without striking out the irrelevant clause like in the present case, the same, in our opinion, cannot convey to the assessee as to which of the charges he has to respond and such notice issued by the Assessing Officer without
I.T.A. Nos. 93 & 94/KOL./2017 Assessment year: 2006-2007 & 2007-2008 & C.O. Nos. 12 & 13/KOL/2017 (in & 94/KOL/2017) Assessment Years: 2006-2007 & 2007-2008 Page 10 of 12 application of mind is liable to treated as vague on the basis of which no penalty can be imposed on the assessee as held by the Hon’ble Karnataka High Court, inter alia, in the case of SSA’s Emerald Meadows (supra) and Manjunatha Cotton & Ginning Factory (supra). Even the Hon’ble Bombay High Court in the case of Samsung Perinachery (ITA No. 1154, 953, 1097 and 1126 of 2014 dated 05.01.2017) has taken a similar view while upholding the decision of the Tribunal that the notice issued under section 274 by the Assessing Officer in the standard format without striking off the irrelevant portion was bad in law and the order passed in pursuance of such notice imposing penalty under section 271(1)(c) was liable to be cancelled being invalid.
Keeping in view the legal position emanating from the various judicial pronouncements discussed above, we are of the view that the notices issued by the Assessing Officer under section 274 in the present case for both the years under consideration not being in accordance with law, the penalty orders passed by him in pursuance thereof are liable to be cancelled being invalid. We accordingly uphold the impugned orders of the ld. CIT(Appeals) cancelling the penalties imposed by the Assessing Officer under section 271(1)(c) for both the years under consideration although on different grounds.
It is observed that the penalties imposed by the Assessing Officer under section 271(1)(c) for both the years under consideration were cancelled by the ld. CIT(Appeals) vide his impugned order by accepting the stand of the assessee on merit that the declaration made by the assessee surrendering his undisclosed income representing the amount lying in the overseas Bank account with HSBC Switzerland on 26.09.2011 without initiation of any action or issuance of any notice issued by the Income Tax Department was voluntary showing the bonafide of the assessee. In this regard, the ld. D.R. has submitted before us that the matter relating to the leakage of information regarding the undisclosed
I.T.A. Nos. 93 & 94/KOL./2017 Assessment year: 2006-2007 & 2007-2008 & C.O. Nos. 12 & 13/KOL/2017 (in & 94/KOL/2017) Assessment Years: 2006-2007 & 2007-2008 Page 11 of 12 Bank accounts maintained by the Indian residents by one of the employees of HSBC Switzerland was already reported in Print Media well before the declaration made by the assessee on 26.09.2011 and, therefore, the said declaration made by the assessee cannot be said to be voluntary as held by the ld. CIT(Appeals). The ld. counsel for the assessee, on the other hand, has narrated the sequence of the relevant events in details and contended that going by the said sequence as well as keeping in view that the declaration made by the assesese on 26.09.2011 was without any specific detection by the Department and was without any initiation of action or issue of notice by the Department was a voluntary one made suo motu by the assessee as rightly held by the ld. CIT(Appeals). He has also raised one more contention in support of the assessee’s case by relying on the relevant provisions of the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015 whereby the assessees were given the opportunities of declaring the value of an undisclosed assets located outside India and pay tax thereon @ 60%. The contention as raised by the ld. counsel for the assessee in this regard is that any assessee as per the said Act thus could get away by paying tax @60% on the value of an undisclosed asset located outside India in the year 2015, while the assessee in the present case even after declaring his undisclosed asset located outside India in the year 2011 itself and finally paying tax on such value along with interest thereon, as the corresponding income was ultimately charged to tax in his hands in A.Ys. 2006-07 and 2007-08 could not avail the immunity provided in the said Act introduced in 2015. He has contended that the assessee having declared the income on account of undisclosed asset located outside India voluntarily in the year 2011 itself and having paid tax thereon along with interest thus is put in an adverse position as compared to the other assessees who did not make such declaration and finally got the benefit of the Act introduced in 2015. He has contended that going by the spirit of Rule of Equality before law, the benefit of immunity provided in the 2015 Act thus should be extended to the assessee and the orders of the ld.
I.T.A. Nos. 93 & 94/KOL./2017 Assessment year: 2006-2007 & 2007-2008 & C.O. Nos. 12 & 13/KOL/2017 (in & 94/KOL/2017) Assessment Years: 2006-2007 & 2007-2008 Page 12 of 12 CIT(Appeals) cancelling the penalties imposed under section 271(1)(c) are liable to be upheld on this ground also. Even though these arguments raised by the ld. counsel for the assessee in support of the assessee’s case on the issue of imposition of penalty under section 271(1)(c) on merit appear interesting, we refrain ourselves from considering the same on merits and giving any decision thereon as the same have become virtually infructuous as a result of our decision rendered hereinabove on the preliminary issue cancelling the penalty orders passed by the Assessing Officer under section 271(1)(c) by holding the same to be invalid.
In the result, the appeals filed by the Revenue are dismissed, while the Cross Objections filed by the assessee are allowed. Order pronounced in the open Court on September 22, 2017.