NADEEM ABDUL SATTAR LAKDWALA,MUMBAI vs. DCIT CEN CIR 36, MUMBAI

This appeal, filed by the assessee, being 30th October, 2013 passed by learned Commissioner of Income Tax (Appeals)- 41, Mumbai (hereinafter called “the CIT(A)”), for the assessment year 2008-09, the appellate proceedings before the learned CIT(A) arising from the penalty order dated 22nd June, 2011 passed by the learned assessing officer ( hereinafter called “ the AO” ) u/s 271(1)(c) of the Income-tax Act,1961 (Hereinafter called “the Act”).

The grounds of appeal raised by the assessee in the memo of appeal filed with the Income-Tax Appellate Tribunal, Mumbai (hereinafter called “the Tribunal”) read as under:-

In this appeal, the assessee is aggrieved by the assessment order of the A.O. in levying of the penalty u/s 271(1)(c) of the Act amounting to Rs. 8,50,918/- vide his order dated 22nd June, 2011, which was confirmed by the appellate order of the learned CIT(A) vide orders dated 30.10.2013. The brief facts of the case are that the assessee had not filed his original return of income u/s. 139(1) of the Act. A Search and seizure operation in the case of the assessee was conducted under Section 132 of the Act in Hicons & Pranay Group of cases including the assessee on 24th February, 2009. Notice under Section 143(2) of the Act dated 5th October, 2009 was issued and served upon the assessee , and the assessee subsequently filed his return of income on 20th October, 2010 declaring a total income of Rs.34,58,710/- and the said ITA 773/Mum/2014 3 return of income was accepted by the A.O. vide his assessment order dated 30th December, 2010 passed u/s 143(3) r.w.s. 153A of the Act. As the assessee had filed return of income only after search action u/s 132 of the Act , penalty proceedings were initiated against the assessee u/s. 271(1)(c) of the Act. During the course of penalty proceedings u/s 271(1)(c) of the Act, show cause notice was issued to the assessee by the AO , whereby the assessee submitted as under:-

In the appellate proceedings before the ld. CIT(A) , the assessee has submitted that the assessee was assessed to tax since long and filing his return of income regularly. The assessee submitted that during the impugned assessment year , the assessee’s personal accounts were audited prior to the due date of filing of return of income, the said return of income could not be filed as the account of the two partnership firms namely Neeta Developers and Choice Construction Chemicals which were under the control and supervision of his other partners were not finalized which has led to the delay in filing of return of income. It was submitted that in the meantime, a search and seizure action was carried out on the premises of his various firms on 24th February, 2009. It was submitted that pursuant to the search, the accounts of the firms were finalized and the assessee was able to ascertain his share of income from the said partnership firms, whereby the return of income was thereafter prepared, but the same could not be filed as he could not arrange for payment of tax due on his income which exceeded Rs.10 ITA 773/Mum/2014 5 lakhs. Finally, the return was filed on 20th October, 2010 disclosing fully his income from all the sources which was accepted by the A.O. without making any further addition. It was submitted that the A.O. imposed penalty u/s. 271(l)(c) of the Act without considering the facts which led to the delay in filing of his return of income, and arrived at the conclusion that the assessee had concealed particulars of income. It was submitted that the A.O. has wrongly relied upon the judgment in the case of Dr. Mohamed Abdul Khadir [2003) 260 ITR 650 (Mad.) . It was submitted that no incriminating material was found which resulted in the concealment of income. The return of income was accepted in toto by the A.O. without any additions being made by the AO. The assessee submitted that there was no intention on the part of the assessee to deliberately conceal any income or not to file the return of income. There was a reasonable cause which led to non filing of the return which was beyond the control of the assessee. There was no intention to conceal his income as he was always filing his returns of income in time and he had got his tax audit conducted before the due date of filing the return. The assessee contended that there was no intention not to file his tax return. The asseessee has placed reliance on the recent decision of the Mumbai bench of the Tribunal in the case of ITO v. Gope M. Rochlani in 2011 wherein it was held that the words "due date" occurring in clause (b) of Explanation 5A to Section 27l(1)(c) of the Act are not to be read as "due date provided in Section 139(1)" but can very well be inferred to mean the date of filing the return of income u/s 139(4) of the Act. The assessee submitted that the return of income was filed on 20th October, 2010, which was within the time prescribed u/s 139(4) of the Act and hence the assessee would get the benefit under clause (b) of Explanation 5A to Section 271(1)(c) of the Act. The ld. CIT(A), however, rejected the contentions of the assessee and held that mens rea is no longer an essential ingredient for the levy of penalty u/s 271(1)(c) of the Act as held by the Hon'ble Apex Court in the case of Union of India & Ors. v. Dharamendra Textile Processors & Ors., reported in 306 ITR ITA 773/Mum/2014 6 277 (SC). Section 271(l)(c) of the Act indicates the element of strict liability on the assessee for the concealment or for giving inaccurate particulars of income while filing the return of income, there was no necessity of proving mens rea, as penalty u/s 271(1)(c) of the Act is a civil liability. Further the additional income declared by the assessee cannot be voluntary in the cases of the firms but consequent to the search and seizure operation whereby incriminating documents regarding unaccounted transactions in which assessee is also a partner was seized. The assessee has not furnished any evidence before the ld. CIT(A). No evidence was brought on record that personal account of the assessee claimed to have been duly audited by 30th September, 2008. The ld. CIT(A) thus in nutshell concluded that the penalty levied by the A.O. u/s 271(1)(c) of the Act amounting to Rs. 8,50,918/- is quite justified in view of the fact that the assessee’s case is fully covered by Explanation 5A to section 271(1)(c) of the Act and accordingly the ld. CIT(A) confirmed the penalty levied by the A.O. u/s 271(1)(c) of the Act, vide appellate orders dated 30.10.2013 passed by learned CIT(A).

Aggrieved by the appellate order dated 30.10.2013 passed by the ld. CIT(A), the assessee is in appeal before the Tribunal.

None appeared on behalf of the assessee, hence, we proceed to dispose of the appeal after hearing the ld. D.R. and material available on record.

The ld. D.R. submitted that no return of income was filed by the assessee u/s 139(1) of the Act. The due date of filing of return u/s 139(1) of the Act was 30th September, 2008. Search and seizure operation was carried out u/s 132 of the Act including the assessee on 24th February, 2009 and notice was issued u/s 143(2) of the Act dated 5th October, 2009. Penalty has been rightly imposed by the A.O. u/s 271(1)(c) of the Act. The ld. D.R. submitted that during the course of search, various incriminating material ITA 773/Mum/2014 7 was found and seized. There was no voluntary disclosures made by the assessee u/s 132(4) of the Act. The ld DR relied upon the orders of learned CIT(A).

We have heard the ld. D.R. and also perused the material available on record. We have observed that the assessee is running proprietary concerns M/s. Reliable Sand and Timber Trader and Reliable Carriers and also partner in different partnership firms namely M/s Choice Construction Chemicals, M/s Hicons Syndicate, M/s Neeta Developers, M/s M.K. Shelter and M/s Skyline Builders. Apart from this, the assesee also derived house property income, income from other sources and capital gains. It is the contention of the assessee before authorities below that accounts of two of the partnership firm’s namely Neeta Developers and Choice Construction Chemicals were not ready and hence the profit could not be determined as the accounts of the firm was not finalized. Hence, the assessee could not file the return of income in time as the share of the assessee from the said firm could not be determined . The assessee submitted before authorities below that there was severe financial crunch due to which taxes could not be paid in time and which has led to the non-filing of return in time. The assessee had belatedly paid the taxes along with the interest, however, evidence could not be brought before the ld. CIT(A) for proving financial difficulties in payment of taxes . The authorities below have invoked Explanation 5A to section 271(1)(c) of the Act which reads as under:-

In the result, appeal filed by the assessee in 2008-09 is allowed for statistical purposes.