SUSHIL K AGARWAL,MUMBAI vs. ASST CIT CIR 122(3), MUMBAI

Brief facts of the case are that the assessee filed its return of income for the relevant assessment year declaring the total income of Rs. 58,46,940/–. The return was processed u/s 143(1) of the Act and ultimately the assessment order was passed u/s 143(3) of the Act, determining the total income of Rs. 86,30,940/-inter alia making an addition of Rs. 27,80,000/-received by the assessee as maturity proceeds of LIC policy (Keymen Insurance Policy) Penalty proceedings were accordingly initiated and after taking into consideration the submissions of the assessee, penalty of Rs 8,59,020/-u/s 271(1)(c) of the Act was imposed by the AO. The penalty order was further confirmed by the Ld. CIT(A) in 1st appeal filed before the CIT(A). The assessee is in appeal before the Tribunal against the impugned order passed by the Ld. CIT(A). The sole grievance of the assessee is that the Ld. CIT(A) has erred in confirming the order of the AO imposing penalty u/s 271(1)(c) of the Act.

Before us the Ld. Counsel for the assessee submitted that the impugned order passed by the Ld. CIT(A) is erroneous as the assessee has neither concealed the particulars of his income nor furnished any inaccurate particulars thereof. The assessee was under the bona fide belief that the amount received on maturity received Life Insurance Policy is exempt from tax u/s 10(10D) of the Act. During the assessment proceedings when the details were submitted only then the assessee came to know from the AO that the amount received on maturity of ‘Keymen Insurance Policy’ was required to be offered for tax during the relevant assessment year. Accordingly, the assessee agreed to pay the tax thereon and did not file any appeal against the assessment order. So, the mistake was bona fide and not intentional. Relying on the ratio laid down by the Hon’ble Supreme court in Price Waterhouse Coopers (P) Ltd. vs. CIT [2012] taxmann.com 400(SC), Hon’ble Delhi High Court in CIT v. Socitex [2012] 24 taxmann.com 309(Delhi) and the decision rendered by the Ahmadabad Bench of the ITAT in Chimanlal Manilal Petal vs. CIT (ITA No 508/Ahd/2010, submitted that in view of the aforesaid decisions, the impugned order is liable to be set aside.

On the other hand, the Ld. departmental representative (DR) relying on the concurrent finding of the authorities below submitted that the assessee’s plea is an afterthought, moreover, the assessee’s plea of ignorance of law cannot be accepted.

We have heard the rival submissions of the parties and also gone through the material on record. As per the settled law assessment and penalty proceedings are two different and independent proceedings as the standard of proof for imposition of penalty is different from that on which an addition of an income on quantum side could be sustained. Although, the findings given in assessment proceedings are relevant and admissible in penalty proceedings yet those findings are not conclusive so far as the penalty proceedings are concerned because the considerations that arise in penalty proceedings are different from those in the assessment. Admittedly, in the present case the assessee did not offer to tax the amount received as maturity benefit of LIC Policy under the bona fide belief that no tax is required to be paid on the amount received by the policy holder on maturity of LIC Policy. Normally the maturity proceeds of LIC Policy are not taxable except those specified in section 10(10D) of the Act. Hence, the assessee acted under bona fide impression that the LIC maturity proceeds are not taxable.

It has been stated that the policy in question was ‘Keymen Insurance Policy’ and this fact escaped the attention of the person who prepared the tax return. In our view, there is merit in the submissions of the assessee. It is not the case of the AO that the assessee has concealed the particulars relating to the LIC Policy. Hence, we are of the view that the assessee has offered a plausible explanation to substantiate his contention and discharged the burden placed upon him under explanation 1 to section 271 of the Act. Hence, in view of the peculiar facts of this case, we are of the considered view that this is not a fit case where penalty can be imposed u/s 271(1)(c) of the Act. We, therefore, set aside the impugned order passed by the Ld. CIT(A) and allow the sole ground of appeal of the assessee and delete the penalty.

In the result, the appeal of the assessee for the AY 2008-09 is allowed.