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Income Tax Appellate Tribunal, “B” BENCH KOLKATA
Before: SHRI A. T. VARKEY, JM &DR. A.L.SAINI, AM
O R D E R
Per Dr. Arjun Lal Saini, AM:
The captioned appeal filed by the assessee, pertaining to Assessment Year 2006-07, is directed against the order passed by the Ld. CIT(A), Asansol in Appeal No.202/CIT(A)/Asl/Cir-1/Bwn/13-14 dated 17.10.2014, which in turn arises out of a penalty order passed by the Assessing Officer u/s 271(1)(c) of the Income Tax Act, 1961 ( herein after referred to as the ‘Act’), dated 30.04.2013.
The said appeal filed by the assessee in for A.Y.2006-07, is barred by limitation by 267 days. The assessee has moved a petition requesting the Bench to condone the delay. We heard the party on this preliminary issue. The Counsel for the assessee has submitted before us that assessee provided his PutulJash Assessment Year: 2006-07 village address to Department, where he does not reside, and the order was served on village address therefore he could not get the copy of order timely. In addition to this, he got injuryin right knee and hospitalized for a long period. Having regard to the reasons given in the petition, we condone the delay and admit the appeal for hearing.
The assessee has raised the following grounds of appeals: 1.That on the facts and in the circumstances of the case, the ld. CIT(A) acted unlawfully in upholding the penalty of Rs.11,10,000/- levied u/s.271(l)(c) of the Act without considering that there was no contravention of the statutory provisions in this regard and his purported findings to the contrary, therefore, are arbitrary, erroneous, illogical, unwarranted and not sustainable in law. 2.That the Ld. C.I.T.(A) failed to appreciate that the assessment proceeding by itself cannot be a ground for imposing penalty u/s.27l(l)(c) inasmuch as the creditors by appearing in person before the Ld. A.O. have confirmed the loan transactions, the same were duly recorded in the accounts of the assessee and the ld. revenue authorities entirely on suspicion presumed alleged deliberate planning and design behind receiving such loan by the assessee. 3.That the Ld. C.I.T.(A) erred in not having considered that the assessments of four of the creditors were made U/s. 143(3) of the Act accepting the loans provided to the assessee and hence there could not be a case of concealment of income in the given circumstances of the case and that being so his action in upholding the penalty was uncalled for and bad in law. 4.That the Ld. C.I.T.(A) illogically endorsed the A.O's wrong assumption that there was concealment of particulars of income by filing inaccurate particulars of income without conceiving that particulars about a thing which is concealed cannot be furnished, meaning thereby that either there can be concealment or there can be furnishing of inaccurate particulars and both the instances cannot occur simultaneously. 5.That on the facts & circumstances of the instant case, the Ld. C.I.T.(A) erred in not having appreciated that non-satisfaction of the Ld. A.O. regarding the statutory prescription contained in sec. 68 of the Act relating to identity, genuineness of transaction and creditworthiness of the loan creditors, which were confirmed by the higher authorities in the quantum proceedings, cannot be a criterion for assuming justification for imposing Page | 2 PutulJash Assessment Year: 2006-07 penalty and that being so, his action in upholding penalty of Rs.11,10,000/- uls.271(1)(c) is wholly arbitrary and bad in law. 6.That the Ld. C.I.T.(A) erred in not having appreciated in proper perspective that the appellant had furnished all available evidences and explanation in support of the loans received through banking channel to discharge her burden under the deeming provisions of sec. 68 of the Act and non-acceptability of such explanation cannot extend to infringement to s.271(1)(c). 7.That without any prejudice to the above, the instant case does not fall within the parameters of Explanation 1 to s. 271(1)(c), in particular Clause- B, inasmuch as the explanation of the appellant was not found to be false which was substantiated by furnishing all the desired material in respect of the transaction and hence upholding the penalty by the Ld. C.I.T.(A) was altogether erroneous, which was based on extraneous parameters not genuine to the issue. 8.That as the order of Ld. C.I.T.(A) on the above issues suffers from illegality and is devoid of any merit, the same should be quashed and your appellant be given such relief as prayed for. 9) That the appellant craves leave to amend, alter, modify, substitute, add to, abridge and/ or rescind any or all of the above grounds. 4.Although, in this appeal the assessee has raised a multiple grounds of appeal, but at the time of hearing the main grievance of the assessee has been confined to the issue that the ld. CIT(A) acted unlawfully in upholding the penalty of Rs.11,10,000/- levied u/s.271(l)(c) of the Act, andfailed to appreciate that the assessment proceeding by itself cannot be a ground for imposing penalty u/s.27l(l)(c) of the Act and either there can be concealment or there can be furnishing of inaccurate particulars and both the instances cannot occur simultaneously. 4.1The brief facts qua the issue are that assessee filed his return of income on 09.01.2007 declaring total income of Rs.1,09,670/-. The return was selected for scrutiny and the assessment order u/s143(3) of the I.T Act was passed on 29.12.2008 assessing the total income at Rs35,64,700/-. During the assessment year under consideration, the assessee raised unsecured loans from 25 persons ranging between Rs.1,20,000/- and Rs.1,80,000/-, aggregating to Rs.34,55,000/-, Page | 3 PutulJash Assessment Year: 2006-07 through account payee cheques issued by each of the creditors from their respective bank accounts. These loans were duly reflected in the balance sheet of the assessee filed along with the return of income. During assessment proceedings, in support of such receipt of loans,the assessee submitted various evidences, such as, names & addresses of each of the loan creditors, copies of their returns of income for the assessment year under reference, their bank details from which cheques were issued, and confirmations etc. On being asked, the assessee produced 17 creditors in person before the Ld. A.O., whose statements confirming the transactions were also recorded. Four creditors were exempted from personal appearance as their scrutiny assessments for the impugned assessment year were completed by their Assessing Officers. Other two creditors being female although did not appear in person before the Ld. A.O but confirmed the transactions. However, the addition was made by the Assessing Officer on account of bogus sundry loans of Rs.34,55,000/-, claimed to have been received by the assessee from various persons. During the assessment proceedings the Assessing Officer had found that these alleged loans were actually the income of the assessee who had routed these money through various bank accounts in her books giving it the colour of loans received from various persons. As per perception of AO,since the assessee had filed inaccurate particulars of income and used colourable device to coat the undisclosed income as alleged loans and tried to conceal the income, therefore the penalty proceedings u/s 271(1)(c) of the Act were initiated. 4.2 Against the addition made by the Assessing Officer in the assessment order on account of bogus sundry loans at Rs.34,55,000/-, the assessee filed an appeal Page | 4 PutulJash Assessment Year: 2006-07 before the CIT(A). The CIT(A) after considering the assessee’s submission, remand report submitted by the Assessing Officer and assessee’s counter-reply to the remand report, held that the Assessing Officer was correct in treating the sundry loans to be bogus. 4.3 Thereafter, the assessee being aggrieved with the order of the ld. CIT(A) filed an appeal before the Hon’ble Income Tax Appellate Tribunal, Kolkata. The Hon’ble Income Tax Appellate Tribunal, Kolkata, after hearing the rival submissions and going through the facts and circumstances of the case dismissed the assessee’s appeal and upheld the order of the lower authorities. The Assessing Officer observed that since penalty proceedings u/s271(1)(c) of the Act were initiated during the assessment proceedings and the Hon’ble Income Tax Appellate Tribunal, Kolkata has confirmed the assessment order, therefore, the Assessing Officer issued a show cause notice for levy of penalty. 4.4.In response to the show cause notice issued to impose penalty u/s 271(1)(c) of the Act, the assesseesubmitted before AOthat he took interest free loans from 25 persons to the tune of Rs.34,55,000/- by cheque. And 17 out of all the creditors were personally verified by the Ld. A.O. where they accepted the fact stating that they had given the loan to the assessee through cheque. Still the AO opined it to be a concealed scenario and added the loan amount to the total income of the assessee and imposed the penalty of Rs.11,10,000/- U/s 271(1) ( C) of the Act.
5. Aggrieved by the order of the Assessing Officer u/s 271(1)(c) of the Act, the assessee filed an appeal before the CIT(A) who has confirmed the penalty imposed by the Assessing Officer u/s 271(1)(c) of the Act. The Ld. CIT(A) held that this was a clear case of furnishing inaccurate particulars of income being Page | 5 PutulJash Assessment Year: 2006-07 making entry in books of accounts by planning, organizing and creating evidence by which identity of men,of absolute no means, are used to build a facade of lending interest free loans of large amounts and thereafter producing the same before Assessing Officer. The production of such evidence before Assessing Officer in the form of filing return of income and thereafter justifying the same, during assessment proceedings is nothing but a case of furnishing of inaccurate particulars of income. The Ld. CIT(A) held that the order of the Assessing Officer, had analyzed the facts correctly and based on this, a clear satisfaction was recorded in accordance with law. Therefore, the ld. CIT(A) held that it is the case of furnishing of inaccurate particulars of income which Assessing Officer has come to a clear conclusion after analysing all aspects. 5.1 During the appellate proceedings, the assessee submitted that Assessing Officer had initiated the suspicious penalty proceedings u/s 271(1)(c) of the Income Tax Act, 1961 on the charge of concealment upon the assessee. The assesseealso pointed out that the ld. Assessing Officer had conjugated both the offences of "concealment" and "furnishing inaccurate particulars" i.e guilty of both the offences which are poles apart and the issue of furnishing inaccurate particulars was not made a ground of issuing notice u/s 271(1)(c) of the I.T Act, 1961 on 29.12.2008, at all, which is nevertheless cited as an invalid arrangement for imposing penalty. The assessee submitted that the penalty can be imposed for “concealment of income” and “furnishing of inaccurate particulars of income”. The ld. CIT(A) did not accept the objections raised by the assessee as the term “concealment of income” figures in heading to section and the phrase “furnishing of inaccurate particulars of sub income” figures in the sub-section 1(c). The ld. Page | 6 PutulJash Assessment Year: 2006-07 CIT(A) held that there was no conflict in any manner in the order of penalty in recording “concealment of income” and “furnishing of inaccurate particulars of income”. Therefore, the ld. CIT(A) did not accept the assessee’s submissions. Before the ld. CIT(A), the assessee also submitted that four persons (Shri NarugopalJash, Shri NityanandaJash, Shri MadhusudanJash and Shri JagannathJash) had their assessment made by their Assessing Officer u/s 143(3) and has accepted their returns as correct. Copy of the order was produced and it was stated that this being the case the claimed transaction is true. But after going through these assessment order, the ld. CIT(A) held that there was no finding on genuineness of claimed transaction with assessee. If there was a finding that a payment transaction is bogus then income has to be reduced provided assessment is made by analyzing income and expenditure. But reduction of income is not part of assessment process unless a valid claim is made by the assessee himself. Therefore, the ld. CIT(A) held that these assessment orders of four persons, are not going to aid assessee in any manner from rigours of penalty u/s 271(1)(c). The assessee also made submissions before the ld. CIT(A) that 17 persons were appeared before Assessing Officer out of 25 persons. Therefore the loans must be treated as genuine. However the ld. CIT(A) rejected the submissions of the assessee stating that mere appearance does not prove that entry is true. Therefore, the ld. CIT(A) after rejecting the submissions of the assessee, upheld the penalty imposed by the Assessing Officer u/s 271(1)(c) of the Income Tax Act at Rs.11,10,000/-.
The Ld. Counsel for the assessee has submitted before us as thatduring the assessment year under consideration, the assessee raised unsecured loans Page | 7 PutulJash Assessment Year: 2006-07 from 25 persons ranging between Rs.1,20,000/- and Rs.1,80,000/-, aggregating to Rs.34,55,000/-, through account payee cheques issued by each of the creditors from their respective bank accounts. These loans were duly reflected in the balance sheet of the assessee filed along with the return of income. During assessment proceedings, in support of such receipt of loans, the assessee submitted various evidences, such as, names & addresses of each of the loan creditors, copies of their returns of income for the assessment year under reference, their bank details from which cheques were issued, confirmations etc. On being asked, the assessee produced 17 creditors in person before the Ld. A.O., whose statements confirming the transactions were also recorded. Four creditors were exempted from personal appearance as their scrutiny assessments for the impugned assessment year were completed by their Assessing Officers. Other two creditors being female although did not appear in person before the Ld. A.O but confirmed the transactions. All these facts have been duly elicited in the assessment order. The Counsel submitted that the issue of furnishing inaccurate particulars was never a ground for issuing show-cause notice u/s. 271(1)(c)/274 of the Act. However, while concluding in the impugned order imposing penalty u/s.271(1)(c) of the Act, the Ld. A.O. added both the offences of "concealment" and "furnishing inaccurate particulars". The Ld. A.O. based on the approval of the addition made u/s. 68 of the Act in the quantum assessment by the Hon'ble Tribunal held the assessee is liable for both the offences of "concealment of income" and "furnishing of inaccurate particulars of income" by recording satisfaction as under: “The assessee has filed inaccurate particulars of income by conspiring with some other persons. The assessee had brought her undisclosed income to the books in the guise of unsecured loans which is nothing but the Page | 8 PutulJash Assessment Year: 2006-07 concealment of income. Therefore, in view of the above discussion and facts of the case under consideration, I hereby levy a penalty of Rs.11,10,000/- u/s. 271(1)(c) of the I T Act, 1961." The ld Counsel pointed out that assessee is not liable for both the offences of "concealment of income" and "furnishing of inaccurate particulars of income" and hence the show cause notice issued by the AO to impose the penalty is wrong. For that Ld Counsel relied on the following judgments: (i). Hon'ble I.T.A.T., Kolkata in the case of Mr. Amar Roy vs. ITO ITA Nos.2531 to 2536/Kol/2013, order dated 03.05.2014. In the said case, based on some information received from ADIT(Inv), Kolkata, the assessment was reopened u/s. 147 of the Act and assessed as such. On the basis of the additions made in the assessment order u/s.143(3)/147 of the Act, the A.O. in that case issued show- cause notice u/s. 274 of the Act which did not contain any specific charge against the assessee as to whether the assessee was guilty of having concealed particulars of income or having furnished inaccurate particulars of income. The Ld. C.I.T.(A) confirmed the penalty. On further appeal, the Hon'ble Tribunal allowed the appeals of the assessee by holding that imposition of penalty on defective show-cause notice without specifying the charge against the assessee cannot be sustained. The relevant portion of the said order is as under: “9. We have already observed that the shout cause notices issued in the present appeals u/s 274 of the Act do not specify the charge against the assessee as to whether it is for concealing particulars of income or furnishing inaccurate particulars of income. The show cause notice u/s 274 of the Act does not strike out the inappropriate words. In these circumstances, we are of the view that imposition of penalty cannot be sustained. The plea of the ld Counsel for the assessee which is based on the decisions referred to in the earlier part of this order has to be accepted. We therefore, hold that imposition of penalty in the present appeals cannot be sustained and the same are directed to be cancelled.” (ii) The same view has been affirmed by Karnataka High Court in the case of CIT v. Manjunatha Cotton & Ginning Factory (2013) 359 ITR 565 (Kar.) The ld Counsel further submitted that in the assessment order u/s. 143(3) of the Act followed by show-cause notice u/s.274 of the Act, charge recorded against the Page | 9 PutulJash Assessment Year: 2006-07 assessee for initiating penalty proceeding u/s.271(1)(c) of the Act was only "concealment of income". However, while concluding in the impugned order imposing penalty u/s.271(1)(c) of the Act, the ld. A.O. added both the offences of "concealment" and "furnishing inaccurate particulars". Therefore, on the above facts of the case and order of this Hon'ble Tribunal directly on the issue, referred to above, it is submitted that the penalty levied of Rs. 11,10,000/- u/s. 271(1)(c) of the Act on the basis of defective notice be directed to be annulled.The ld Counsel pointed out that the Hon’ble Gujarat High Court in the cases of CIT vs. LakhdhirLalji, 85 ITR 77 (Guj.) and New SorathiaEngg. Co. vs. ClT, 282 lTR 642 (Guj.) has held that in order to impose penalty-, the charge of "concealment of particulars of income" or "furnishing of inaccurate particulars of income" must be specific because if the proceedings have been initiated on the charge of "concealment of income" then penalty cannot be levied on the charge of "furnishing of inaccurate particulars of income" and vice versa. It is necessary for the Ld. A.O. to state with no uncertain terms whether penalty is being levied for concealment of income or for furnishing inaccurate particulars of income. In the absence of a clear finding in the penalty order, the same would be bad in law. Identical view has also been taken by Hon'ble I.T.A.T., Amritsar in the case of Mehnga Ram Sharma, 26 DTR 386 (ITAT, Amr), which are as follows: “ln view of the above, the penalty imposed u/s. 271(1)(c) of the Act based upon the addition made in quantum proceeding and approval of the same in appeal on preponderance of probabilities is against the established norms duly acknowledged by several judicial pronouncements and that being so, the reasons cited by the revenue authorities to reject the explanation given by the assessee were in the realm of surmises, conjectures and suspicions and the penalty imposed of Rs.11,39,851/- u/s. 271(1)(c) of the Act on such erroneous and illegal acts is liable to be quashed.” In addition to this, the ld. Counsel for the assessee has also relied on the following judgments: (i) Income Tax Appellate Tribunal “B” Bench, Ahmedabad in the case of M/s. Blessing Construction V/s. ITO, Ward – 3(2), Surat dated 05/06/2015 held as under:
PutulJash Assessment Year: 2006-07 4.We have heard both the parties and perused the materials placed before us. It is a settled law that assessment proceedings and penalty proceedings are separate and independent. The ITAT has sustained the addition of Rs.10,00,000/- on the ground that the assessee could not prove the creditworthiness of the creditors. The ITAT also noticed that there was a cash deposit in the account of all the creditors immediately before the issue of cheque to the assessee. Therefore, considering the preponderance of the probability and also considering the decisions of Hon'ble Apex Court in the cases of Durga Prasad More vs. CIT (1971) 82 ITR 540 (SC) and SumatiDayal vs. CIT (1995) 214 lTR 801(SC), sustained the addition. However, we find that the assessee had produced the confirmation of all the creditors. All the creditors are assessed to Income-tax and they were produced before the Assessing Officer. They also accepted before the Assessing Officer having advanced the money to the assessee. The facts in the case of all the creditors are more or less same; therefore, we discuss herein below the evidences furnished by the assessee in the case of one creditor viz. Taraben A. Mehta from whom the assessee borrowed Rs.2,00,000/-. At page No.13, Taraben has given the source of the deposit of Rs.2,00,000/- in her bank account. The sources included opening balance and also the refund of loan and advance which was given in the preceding year. At page No.14, there is an acknowledgement of the filing of return for Assessment Year 2005-06 in which she disclosed the income of Rs.81,120/-. At page No.15, there is computation of income in which the creditor disclosed the income from business as well as income from other sources (interest income). At page No.16, there is balance-sheet of Taraben in which loan given to assessee i.e. Blessing Construction - Rs.2,00,000 / - has been disclosed. At page Nos. 17 & 18, there is confirmation from Taraben. At page No.19, there is copy of her bank account and at page No.20, there is her copy of account from assessee's books for Financial Year 01.04.2006 to 31.03.2007 in which the loan is refunded by cheque. Similar evidences were produced by the assessee in the case of other creditors. After considering all these evidences, we are of the opinion that merely because the Assessing Officer or the ITAT did not consider these evidences to be sufficient for the purpose of explaining the cash credit u/s 68, it will not automatically lead to levy of penalty u/ s 271(1)(c). The consideration in the assessment proceedings and the penalty proceedings are different. The addition can be sustained on preponderance of probabilities but where the assessee has given sufficient evidences with regard to credit in his books of accounts and such evidences or explanations have not been found to be false merely because the same is not accepted in assessment proceedings, the levy of penalty may not be justified. After considering the facts of the case as well as the explanation of the assessee and the evidences produced by the assessee, we are of the opinion that it is not a fit case for levy of penalty u/ s 271(1)(c). Accordingly, the penalty levied u/ s 271(1)(c) is cancelled.” (ii) In the High Court of Karnataka At Bengaluru dated 23rd November 2015 in the case of CIT, Bangalore & ITO, ward-6(3), Bangalore V/s. M/s. SSA’s Emerald Meadows Page | 11 PutulJash Assessment Year: 2006-07 3. The Tribunal has allowed the appeal filed by the assessee holding the notice issued by the Assessing Officer u/s 274 read with section 271(1)(c) of the Income Tax Act, 1961 (for short ‘the Act”) to be bad in law as it did not specify whichlimb of section 271(1)(c) of the Act, the penalty proceedings had been initiated i.e., whether for concealment of particulars of income or furnishing of inaccurate particulars of income. The Tribunal, while allowing the appeal of the assessee, has relied on the decision of the Division Bench of this Court rendered in the case of Commissioner of Income Vs. Manjunatha Cotton and Ginning Factory (2013) 359 ITR 565. In view of the above decided precedents, the ld Counsel submitted that the penalty imposed in the case of the assessee u/s. 271(1)(c) of the I.T. Act, 1961 for the assessment year 2006-07 being devoid of any merit and against the accepted position in law, therefore it may be deleted.
On the other hand, the ld DR for the Revenue has primarily reiterated the stand taken by the Assessing Officer , which we have already noted in our earlier para and is not being repeated for the sake of brevity. 8.Having heard the rival submissions, perused the materials available on record, we are of the view that it is settled position of law, that assessment proceedings and penalty proceedings are separate and independent. In the instant case, the Income Tax Appellate Tribunal has sustained the addition of Rs.34,55,000/- on the ground that the assessee could not prove the creditworthiness of unsecured loans. However, we find that the assessee had explained the unsecured loans that these loans were raised by the assessee through account payee cheques issued by each of the creditors from their respective bank accounts. These loans were duly reflected in the balance sheet of the assessee filed along with the return of income. During assessment proceedings, in support of such receipt of loans, the assessee submitted various evidences, such as, names & addresses of each of the loan creditors, copies of their returns of income for the assessment year under Page | 12