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Income Tax Appellate Tribunal, ‘B’BENCH,
Before: Shri Waseem Ahmed & Shri S.S.Viswanethra Ravi & A.Y: 2008-09
Shri S.S. Viswanethra Ravi, JM :-
This appeal by the Revenue is against the order of the Commissioner of Income Tax (Appeals), XIV, Kolkata dated 11- 12-2013 for the assessment year 2008-09.
The only effective issue in this appeal is to be decided as to whether the CIT-A justified in cancelling the penalty u/s. 271(1) (c) of the Act of Rs. 90,59,691/- being wrongly claimed by the assessee u/s. 54-F of the Act towards long term capital gains on sale of shares.
IT A No. 438/Kol/14 Bijay Kumar Agarwal 1
The brief facts of the case that the assessee is an individual and derived his income from salary, business, capital gain and other sources. The Assessee filed his return of income through online on 30-09-2008 showing total income at Rs.2,90,77,164/-. Under scrutiny, notice u/s. 143(2) of the Act was issued. In response to which, the ld.AR of assessee before the AO appeared and produced the details/documents in support of the return filed. The AO found that the assessee derived long term capital gain of Rs. 6,40,68,848/- on sale of shares and claimed deduction of Rs.4,25,00,000/- u/s. 54F of the Act. In support of his claim, the assessee submitted that he invested Rs. 4 crores in a property (Flat on the 2nd floor and 3rd floor covering built up area of 7500 sq.ft) situated at 23A, Chowdhury Avenue, Kolkata-19. The assessee has also submitted and produced before the AO the agreement dated 10- 03-2008. On perusal of the same, the AO found that the assessee paid only Rs.2 crores in the F.Y relevant to AY under consideration and balance of Rs. 2 crores was paid on 17-09- 2008. The AO was of view that the assessee did not purchase, own and possess of said property and found that the claim of benefit u/s. 54F was only to avoid taxes thereon. The AO initiated penalty proceedings by issuing a notice u/sec 274 r/w 271(1)(c) of the Act and having not satisfied with the explanation, for such avoidance and furnishing inaccurate particulars of income, the AO imposed penalty of Rs. Rs. 90,59,691/-.
The same was challenged before the CIT-A. The CIT-A after considering the various submissions of assessee cancelled the impugned penalty by observing/stating as under:- IT A No. 438/Kol/14 Bijay Kumar Agarwal 2
7.2 After a careful examination of written arguments of the learned AR and perusal of impugned order of penalty, 1 find that the assessee , earned long term capital gains of Rs.6, 40, 64, 316/-, earned on sale of shares of M/s. Haraparvati Realtors Private Limited. The assessee claimed a deduction of Rs.3,99, 51,,338/- u/s 54F of the Act on account of investment in a duplex residential flat at 23A Ashoutosh Choudhury Avenue, Kolkata 700019 vide an agreement for sale dated 10-03-2008 entered into with M/s Tirupati Homes Private Limited. The appellant paid Rs.2 crore on 10.03.2008 and Rs.2 crore on 17.09.2008 on account of the purchase of the sai4 flat. The assessing officer rejected the said claim as he found some discrepancies in the Boucher and the agreement, and that the assessee did not take possession of the said flat. I find that the assessee sold his right/title and interest in the said flat on 27.12.2011 for a consideration of Rs.6 crore and offered the income on such transfer to tax in Assessment Year 2012- 2013. The appeal against the assessment order for the year under consideration was withdrawn after the assessee sold the new capital asset. I find that the assessing officer (AO) imposed penalty for "furnishing inaccurate particulars". On going through the facts of the case I find that the assessee had made a claim for deduction in the return of income. The claim was supported by agreement for sale for purchase of residential property. The assessee had made payment for the said flat. Subsequently, the assessee had sold the said flat and therefore the assessee withdrew his appeal against 'the assessment order. I find that the fact that the assessee did not get the possession of the flat or there being some differences in the description of the flat in the Boucer is not material in deciding this issue. It is well settled in law that, penalty is to be examined with respect to the return of income filed by the assessee. In the case of the assessee the return of income s filed disclosing the claim of Section 54F of the Act. The claim of e assessee was duly supported by the purchase agreement of a residential flat and the assessee made substantial payment for the flat (more than 90%). I do not find any condition in the Act that the assessee must get the possession of the flat before the due date of filing of return in order to claim deduction u/s 54F of the Act. Rather the Act gives the assessee time upto two years for the purchase of flat and three years from the capital gains for purchase of an under construction flat under the said section. I therefore find that the assessee sold the Oat in Assessment Year 2012-2013 and paid taxes on the said income also. Thus, the purchase and sale of the fiat cannot be disputed for some minor differences in the Boucher as mentioned by the Assessing Officer (A). The claim of Section 54F of the Act made on the date of filing of the return of income was as per law and merely because the assessee withdrew his appeal because of transfer of the new capital asset. The Hon'ble Apex Court in CIT v. Reliance Petro products (P.) Ltd. [2010] 322 ITR 158, after considering various decisions including Dilip N. Shroff v Jt.CIT [2007] 291 ITR 519/161 Taxman 218 (SC) and Union of India v.Dharmendra Textile Processors [2008] 306 ITR 277 / 174 Taxman 571 (SC) concluded that a mere making of a claim, which is not sustainable in law, by itself, will not amount to furnishing inaccurate particulars regarding the Income of the assessee. The mere disallowance of claim will not amount to filing of "inaccurate particulars of income". It can at best be a "wrong claim" not "a false claim". In view of the foregoing, I am of the opinion that mere erroneous claim in the absence of any concealment or furnishing of inaccurate particulars, is no ground for levying penalty, especial when there is nothing on record to show that the explanation offered by the assessee was not bonafide or any material particulars were concealed or furnished inaccurate. In these circumstances, I have no hesitation in cancelling the penalty of Rs.90,59,691 imposed u/s. 271(1) ( c) of the Income Tax Act, 1961. I, therefore, annul the impugned order of penalty passed under section 271(1) (C) of the I.T Act, 1961 by the Assessing Officer (AO). “
IT A No. 438/Kol/14 Bijay Kumar Agarwal 3
Before us the ld. DR relied on the order of the AO in imposing the impugned penalty.
On the other hand, the ld.AR of the assessee submits that the case under consideration is covered by the decision of the Hon’ble Karnataka High Court in the case of CIT & Anr. v. Manjunatha Cotton and Ginning Factory, 359 ITR 565 (Karn), and also by the order of the Tribunal in the case of Suvaprasanna Bhattacharya Vs. ACIT, Cir-55, Kolkata in ITA No. 1303/Kol/2010 dated 06-11-2015 which considered decision of the Hon’ble Karnataka High Court supra and passed detailed order on the said issue.
Heard the rival submissions and perused the material available on record. The question before us is as to whether the penalty order passed by the AO is in pursuance of the law laid down by the Hon’ble Karnataka High Court supra. The Hon’ble Karnataka High Court in the case of CIT & Anr. vs Manjunatha Cotton and Ginning Factory, 359 ITR 565 (Karn), has held that notice u/s. 274 of the Act should specifically state as to whether penalty is being proposed to be imposed for concealment of income or for furnishing inaccurate particulars of income. Further as submitted by the Ld.AR the aforesaid decision will squarely be applicable to the present case and the order imposing penalty have to be held as bad in law and liable to be quashed.
As rightly pointed out by the Ld.AR, the co-ordinate bench of Kolkata Tribunal in the case of Suvaprasanna Bhattacharya Vs. ACIT by an order dated 06-11-2015 considered the Judgment of Hon’ble Karnataka High Court supra the relevant portion of which reproduced hereunder:
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The next argument that the show cause notice u/s.274 of the Act which is in a printed form does not strike out as to whether the penalty is sought to be levied on the for “furnishing inaccurate particulars of income” or “concealing particulars of such income”. On this aspect we find that in the show cause notice u/s.274 of the Act the AO has not struck out the irrelevant part. It is therefore not spelt out as to whether the penalty proceedings are sought to be levied for “furnishing inaccurate particulars of income” or “concealing particulars of such income”.
8.1 The Hon’ble Karnataka High Court in the case of CIT & Anr. v. Manjunatha Cotton and Ginning Factory, 359 ITR 565 (Karn), has held that notice u/s. 274 of the Act should specifically state as to whether penalty is being proposed to be imposed for concealment of particulars of income or for furnishing inaccurate particulars of income. The Hon’ble High court has further laid down that certain printed form where all the grounds given in section 271 are given would not satisfy the requirement of law. The Court has also held that initiating penalty proceedings on one limb and find the assessee guilty in another limb is bad in law. It was submitted that in the present case, the aforesaid decision will squarely apply and all the orders imposing penalty have to be held as bad in law and liable to be quashed.
8.2 The Hon’ble Karnataka High Court in the case of CIT & Anr. v. Manjunatha Cotton and Ginning Factory (supra) has laid down the following principles to be followed in the matter of imposing penalty u/s.271(1)(c) of the Act.
“NOTICE UNDER SECTION 274
As the provision stands, the penalty proceedings can be initiated on various ground set out therein. If the order passed by the Authority categorically records a finding regarding the existence of any said grounds mentioned therein and then penalty proceedings is initiated, in the notice to be issued under Section 274, they could conveniently refer to the said order which contains the satisfaction of the authority which has passed the order. However, if the existence of the conditions could not be discerned from the said order and if it is a case of relying on deeming provision contained in Explanation-1 or in Explanation-1(B), then though penalty proceedings are in the nature of civil liability, in fact, it is penal in nature. In either event, the person who is accused of the conditions mentioned in Section 271 should be made known about the grounds on which they intend imposing penalty on him as the Section 274 makes it clear that 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. The practice of the Department sending a printed farm where all the ground mentioned in Section 271 are mentioned would not satisfy requirement of law when the consequences of the assessee not rebutting the initial presumption is serious in nature and he had to pay penalty from 100% to 300% of the tax liability. As the said provisions have to be held to be strictly construed, notice issued under Section 274 should satisfy the grounds which he has to meet specifically. Otherwise, principles of natural justice is offended if the show cause notice is vague. On the basis of such proceedings, no penalty could be imposed on the assessee.
Clause (c) deals with two specific offences, that is to say, concealing particulars of income or furnishing inaccurate particulars of income. No doubt, the facts of some cases may attract both the offences and in some cases there may be overlapping of the two offences but in such cases the initiation of the penalty proceedings also must be for both the offences. But drawing up penalty proceedings for one offence and finding the assessee guilty of another offence or finding him guilty for either the one or the other cannot be sustained in law. It is needless to point out satisfaction of the existence of the grounds mentioned in Section 271(1)(c) when it is a sine qua non for initiation or proceedings, the penalty proceedings should be confined only to those grounds and the said grounds have to be specifically stated so that the assessee would have the opportunity to meet those grounds. After, he places his version and tries to substantiate his claim, if at all, penalty is to be imposed, it should be imposed only on the grounds on which he is called upon to answer. It is not open to the authority, at the time of imposing penalty to impose penalty on the grounds other than what assessee was called upon to meet. Otherwise though the initiation of penalty proceedings may be valid and legal, the final order imposing penalty would offend principles of natural justice and cannot be sustained. Thus once the proceedings are initiated on one ground, the penalty should also be imposed on the same ground. Where the basis of the initiation of penalty proceedings is not identical with the ground on which the penalty was imposed, the imposition of penalty is not valid. The validity of the order of penalty must be determined with IT A No. 438/Kol/14 Bijay Kumar Agarwal 5
reference to the information, facts and materials in the hands of the authority imposing the penalty at the time the order was passed and further discovery of facts subsequent to the imposition of penalty cannot validate the order of penalty which, when passed, was not sustainable.
The Assessing Officer is empowered under the Act to initiate penalty proceedings once he is satisfied in the course of any proceedings that there is concealment of income or furnishing of inaccurate particulars of total income under clause (c). Concealment, furnishing inaccurate particulars of income are different. Thus the Assessing Officer while issuing notice has to come to the conclusion that whether is it a case of concealment of income or is it a case of furnishing of inaccurate particulars. The Apex Court in the case of Ashok Pai reported in 292 ITR 11 at page 19 has held that concealment of income and furnishing inaccurate particulars of income carry different connotations. The Gujarat High Court in the case of MANU ENGINEERING reported in 122 ITR 306 and the Delhi High Court in the case of VIRGO MARKETING reported in 171 Taxman 156, has held that levy of penalty has to be clear as to the limb for which it is levied and the position being unclear penalty is not sustainable. Therefore, when the Assessing Officer proposes to invoke the first limb being concealment, then the notice has to be appropriately marked. Similar is the case for furnishing inaccurate particulars of income. The standard pro forma without striking of the relevant clauses will lead to an inference as to non- application of mind.”
The final conclusion of the Hon’ble Court was as follows:-
“63. In the light of what is stated above, what emerges is as under: a) Penalty under Section 271(1)(c) is a civil liability. b) Mens rea is not an essential element for imposing penalty for breach of civil obligations or liabilities. c) Willful concealment is not an essential ingredient for attracting civil liability. d) Existence of conditions stipulated in Section 271(1)(c) is a sine qua non for initiation of penalty proceedings under Section 271. e) The existence of such conditions should be discernible from the Assessment Order or order of the Appellate Authority or Revisional Authority. f) Even if there is no specific finding regarding the existence of the conditions mentioned in Section 271(1)(c), at least the facts set out in Explanation 1(A) & (B) it should be discernible from the said order which would by a legal fiction constitute concealment because of deeming provision. g) Even if these conditions do not exist in the assessment order passed, at least, a direction to initiate proceedings under Section 271(l)(c) is a sine qua non for the Assessment Officer to initiate the proceedings because of the deeming provision contained in Section 1(B). h) The said deeming provisions are not applicable to the orders passed by the Commissioner of Appeals and the Commissioner. i) The imposition of penalty is not automatic. j) Imposition of penalty even if the tax liability is admitted is not automatic. k) Even if the assessee has not challenged the order of assessment levying tax and interest and has paid tax and interest that by itself would not be sufficient for the authorities either to initiate penalty proceedings or impose penalty, unless it is discernible from the assessment order that, it is on account of such unearthing or enquiry concluded by authorities it has resulted in payment of such tax or such tax liability came to be admitted and if not it would have escaped from tax net and as opined by the assessing officer in the assessment order. l) Only when no explanation is offered or the explanation offered is found to be false or when the assessee fails to prove that the explanation offered is not bona fide, an order imposing penalty could be passed. m) If the explanation offered, even though not substantiated by the assessee, but is found to be bona fide and all facts relating to the same and material to the computation of his total income have been disclosed by him, no penalty could be imposed. IT A No. 438/Kol/14 Bijay Kumar Agarwal 6
n) The direction referred to in Explanation IB to Section 271 of the Act should be clear and without any ambiguity. o) If the Assessing Officer has not recorded any satisfaction or has not issued any direction to initiate penalty proceedings, in appeal, if the appellate authority records satisfaction, then the penalty proceedings have to be initiated by the appellate authority and not the Assessing Authority. p) 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 q) Sending printed form where all the ground mentioned in Section 271 are mentioned would not satisfy requirement of law. r) The assessee should know the grounds which he has to meet specifically. Otherwise, principles of natural justice is offended. On the basis of such proceedings, no penalty could be imposed to the assessee. s) Taking up of penalty proceedings on one limb and finding the assessee guilty of another limb is bad in law. t) The penalty proceedings are distinct from the assessment proceedings. The proceedings for imposition of penalty though emanate from proceedings of assessment, it is independent and separate aspect of the proceedings. u) 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. It is open to the assessee to contest the said proceedings on merits. However, the validity of the assessment or reassessment in pursuance of which penalty is levied, cannot be the subject matter of penalty proceedings. The assessment or reassessment cannot be declared as invalid in the penalty proceedings.” (emphasis supplied)
It is clear from the aforesaid decision that on the facts of the present case that the show cause notice u/s. 274 of the Act is defective as it does not spell out the grounds on which the penalty is sought to be imposed. Following the decision of the Hon’ble Karnataka High Court, we hold that the orders imposing penalty in all the assessment years have to be held as invalid and consequently penalty imposed is cancelled.
In the present case, the notice dt: 29-12-2010 at page no. 6 of paper book issued to Assessee by the AO U/Sec 274 r/w 271 of the Act does not specifically show on which ground the penalty is sought to be imposed, therefore the law laid down by the Hon’ble High Court supra and followed by Co-ordinate Bench of ITAT, Kolkata in the case of Suvaprasanna Bhattacharya supra is applicable to the facts of the present appeal, in view of the same, we hold that the order dt: 30-07-2012 passed by the AO levying penalty is not valid. Respectfully following the order above, we cancel the penalty of Rs. 90,59,691/- levied u/s. 271(1) (c) of the Act by the Assessing Officer.
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In the result, the appeal of revenue is dismissed.
ORDER PRONOUNCED IN OPEN COURT ON 28-02-2017
Sd/- Sd/- Waseem Ahmed S.S. Viswanethra Ravi Accountant Member Judicial Member
Dated 28 /02/2017
Copy of the order forwarded to: The Appellant/Department :The ACIT, Cir-27, 8th Floor, 1. 169 AJC Bose Road, Kolkata-14. 2 The Respondent/Assessee- Shri Bijay Kumar Agarwal C/o L.K Bohania & Co. Anand Jyoti, 41 N.S Road, 4th Floor, Room No. 404, Kolkata-1. 3 /The CIT(A)
The CIT DR, Kolkata Bench 5.
Guard file.
**PP/SPS True Copy, By order, Asstt Registrar
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