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Income Tax Appellate Tribunal, “C” BENCH: KOLKATA
Before: Shri A. T. Varkey, JM & Dr. A. L. Saini, AM]
Date of hearing: 02.01.2017 Date of pronouncement: 13.01.2017 For the Appellant: Shri S. M. Surana, Advocate For the Respondent: Shri BaniBrata Dutta, JCIT, Sr. DR ORDER
Per Dr. A. L. Saini, AM:
The captioned appeal filed by the assessee pertaining to Assessment Year 2008-09, is directed against the order passed by the Ld. CIT(A), Central-II, Kolkata in appeal no. 93/CC-XVIII/CIT(A)C-II/11-12, dated 13.11.2013, which in turn arises out of assessment order passed by the DCIT, Central Circle-XVIII, Kolkata u/s. 153A/143(3) of the Income- tax Act, 1961 (hereinafter referred to as the “Act”), dated 31.12.2010. Penalty order u/s. 271(1)(c) of the Act was passed by DCWT, Central Circle-XVIII, Kolkata.
The facts of the case qua the assessee are that in the case of the assessee a search and seizure operation u/s. 132 of the Act was conducted in the M/s. Kaushalya Infrastructure Group of cases on 26/27.03.2009 and on subsequent dates. This included search also at the residence of the assessee. During the course of search, the search party found out some material where the search party seen that M/s. Kaushalya Infrastructure Group companies had paid higher amount than cost of land to Abu Mansoor Ali and his associates i.e. Mamud Ali Mondal and Arepan Bibi. Such excess amounts were never given back to the M/s. Kaushalya Infrastructure Group companies but as can be seen from the ledger accounts of Abu Mansur Ali and his associates, maintained by the companies, that in the end all the excess amounts, be it small or big, as standing in the accounts of the associates, were transferred to the account of Abu Mansur Ali in the books of the companies. The argument of the assessee was that there is no element of profit in the said transactions. Based on this incriminating document the AO made the addition and he has initiated the penalty proceedings u/s. 271(1)(c) of the Act and levied penalty u/s. 271(1)(c) of the Act. When passing the penalty order u/s. 271(1)(c) of the Act the AO has observed the following:
After reminder dated 20.06.2011, which was served on same date the assessee submitted in reply to the penalty notice on 27.06.2011. In his reply, he mainly stated that the addition was made in the relevant period on the basis of estimation and as such it cannot be termed as suppression of income and form basis for imposition of penalty u/s.271(1)(C) of the I. T. Act, 1961 and hence requested to drop the proceedings. . The submission of the assessee has been carefully perused but the same cannot be accepted for the following reasons: • The assessee did not file his return of income voluntarily but filed in response to notice u/s.153A on7.l0.2010 which was belated and also after the completion of search operation. In fact return for assessment year 2008-09 should ideally have been have been filed within 30.09.2008 and latest by 31.03.2010. It is true that there is an element of estimation involved in the assessment u/s.143(3). But that was done under compelling circumstance. As already discussed, the assessee did not maintain any proper books of accounts. Neither could the assessee quantify the total land involvement by filing any supporting evidences. Even quantification of the same could not be gathered from the Kaushalya Group of Companies by issuance of notices u/s.133(6). Seized documents AMA/1 to AMA/7also revealed incomplete and haphazard picture of assessee's land dealings for the relevant period and finally there was no basis of the preparation of the accounts filed along with the return of income. So, those accounts were rightly rejected at the stage of assessment. Besides, no disclosure was made by the assessee during search operation. So, the method applied for determining the assessee's total income at the assessment stage i.e. by applying a certain percentage on the gross receipts by the assessee from the Kaushalya Group of Companies was the only reasonable method which could be applied under the given circumstance. In the reply to the penalty show cause notice the assessee has not raised any objection regarding the method of computation of total income, adopted in the assessment order, but has only objected against the percentage (1.35) applied. Butat the assessment stage he could not also justify the reason for adopting the percentage at 1.32. Here a very vital aspect should be mentioned against that the assessee did not file any appeal against the assessment order. In view of the above discussion, the submission filed by the assessee is not accepted. As such penalty u/s.271(I)(c) is imposed in this case as per calculation made hereunder: Total income assessed as per order u/s.153A/I43(3) dated 31/12/2010, subsequently rectified vide order u/s.154 dated 28.03.2011 ….. Rs. 14.16.514/- Tax on total income, E.Cess and Surcharge …. Rs. 4,35,357/- Considering the facts that at the assessment stage, the assessee cooperated with this office in respect of various requisitions etc., I decide to restrict the quantum of penalty to 100% of tax sought to be evaded, which comes to Rs.4,35,3571-.
Aggrieved from the penalty order of the AO, the assessee filed an appeal before the Ld. CIT(A) who has also confirmed the penalty observing the following:
“5.1 On perusal of Explanation 5A of section 271(1)( c) substituted by the Finance (No.2) Act, 2009 applicable with retrospective effect from 01.06.2007, it is apparent that in a case of an assessee where the search is initiated on or after 1st day of June, 2007 and such an assessee is found to be the owner of any money, bullion, jewellery or other valuable article or thing or having any income based on any entry in any books of account or other documents and relates to any previous year which has ended before the date of search and where the return of income for such previous year has been furnished before the said date but such income has not been declared therein or the due date of filing of return for such previous year has expired but the assessee has not filed the return, then, notwithstanding that such income is declared by him in any return of income furnished on or after the date of search, he shall, for the purpose of imposition of penalty u/s. 271(l)(c), be deemed to have concealed the particulars of his income or furnished inaccurate particulars of such income. In the case of appellant, there is no dispute that the search was conducted after 01.06.2007 and the income relates to the previous year which has ended before the date of search. The appellant did not file return of income for such previous year. Under the circumstances, even if the appellant has declared the undisclosed income in the return filed u/s. 153A, he will be deemed to have concealed the particulars of his income for the purpose of imposition of penalty. As per Explanation 5A to section 271(1)(c), noimmunity has been provided from the penalty if the undisclosed income was declared u/s 132(4) in the course of search proceedings as providedearlier by Explanation 5 of this section. Though, in the case of appellant, he did not disclose any income u/s 132(4) of the Act. In view of above, I am of the opinion that the AO was justified in imposing the penalty u/s. 271(1)(C) of the Act. His action is in accordance with the provisions of the Act. Hence, the penalty imposed by the AO u/s. 271(1)(C) amounting to Rs.4,35,357/- is confirmed. The ground no. 1 to 4 are dismissed.”
Not being satisfied with the order of the Ld. CIT(A) the assessee is in further appeal before us and has taken the following grounds: “
1. For that the order of the Ld. CIT(A) is arbitrary, illegal and bad in law.
2. For that the Ld. CIT(A) erred in confirming the penalty when the tax payer filed the return before the due date provided in his case under Explanation-(3) to section 271(1)(C) and the provisions of sec. 271(1)(C) were not applicable since the tax payer was not an assessee within the meaning of the provisions of Income Tax Act, 1961 at the time of search.
3. For that in view of the provisions contained in I.T. Act, 1961 making clear distinction between the word "Person" and word "Assessee" the tax payer was not liable to the penalty under sec. 271(1)(c).
4. For that the Ld. CIT(A) erred in confirming the action of the AO in imposing penalty u/s. 271(1)(c) of Rs. 4,35,357/- being 100% of the tax on assessed income when even otherwise the assessee satisfied the conditions of 271(1)(c).
5. For that the Ld. CIT(A) erred in confirming the penalty by treating the total income as undisclosed income ignoring the returned income which was more or less equal to the returned income.
6. For that the Ld. CIT(A) erred in confirming the action of the AO in imposing penalty when the undisclosed income was admitted during the course of search the manner of deriving the undisclosed income from land dealings was substantiated and the CIT(A) erred in assuming that the taxes were not paid on the assessed income.
4 Abu Mansur Ali, AY. 2008-09 7. For that the Ld. CIT(A) erred in confirming the action of the AO in imposing penalty when the additions to the return income was made only on estimate basis not on the basis of any seized document. 8. For that on the facts and circumstances of the case the order of the CIT(A) be modified and the assessee be given the relief prayed for.”
The Ld. AR for the assessee has submitted before us that assessee filed the return of income before the due date provided in his case under Explanation 3 to section 271(1)(c) of the Act. The Ld. AR for the assessee also pointed out that the provisions of section 271(1)(c) of the Act were not applicable to the assessee under consideration, since the assessee was not a tax payer at the time of search. The Ld. AR for the assessee pointed out that there is difference between the word ‘person’ and the word ‘assessee’. Section 2(7) of the Act defines the term ‘assessee’ as follows: “(7) "assessee" means a person by whom any tax or any other sum of money is payable under this Act, and includes— (a) every person in respect of whom any proceeding under this Act has been taken for the assessment of his income or assessment of fringe benefits or of the income of any other person in respect of which he is assessable, or of the loss sustained by him or by such other person, or of the amount of refund due to him or to such other person ; (b) every person who is deemed to be an assessee under any provision of this Act ; (c) every person who is deemed to be an assessee in default under any provision of this Act”
Section 2(31) of the Act defines the term ‘person’ as follows:
“(31) "person" includes— (i) an individual, (ii) a Hindu undivided family, (iii) a company, (iv) a firm, (v) an association of persons or a body of individuals, whether incorporated or not, (vi) a local authority, and (vii) every artificial juridical person, not falling within any of the preceding sub-clauses. Explanation.—For the purposes of this clause, an association of persons or a body of individuals or a local authority or an artificial juridical person shall be deemed to be a person, whether or not such person or body or authority or juridical person was formed or established or incorporated with the object of deriving income, profits or gains;”
The Ld AR for the Assessee has stated that after going through section 2(7) of the Act, the definition of ‘assessee’ and section 2(31) of the Act the definition of ‘person’ it is 5 Abu Mansur Ali, AY. 2008-09 very much clear that assessee under consideration was not an assessee at the point of search. The assessee under consideration never filed the return of income before the search and at the time of search also he was not assessee. Therefore, the Ld. CIT(A) has wrongly confirmed the penalty u/s. 271(1)(c) of the Act of Rs.4,35,357/-. However, it is also important to note here that the assessee had admitted during the course of search and seizure regarding the undisclosed income. The assessee has suo moto admitted before the search party about his undisclosed income. The Ld. AR for the assessee also mentioned that in the case of assessee under consideration the addition was made by the AO passed on the estimate and not on the basis of seized documents. Ld. AR for the assessee has also invited our attention to the show cause notice issued by the AO for the year under consideration u/s. 274 of the Act in the provided form, to point out that the irrelevant portion viz., ‘furnishing inaccurate particulars of income’ or ‘concealed particulars of income’ was not struck off by the AO although the ld. DR has contended in this regard that the relevant portion in the penalty notice having been ticked by the AO. The Ld DR also stated that it is clear that the other part of the notice was not invoked by AO and there was thus no infirmity in the notice issued by the AO u/s. 274 of the Act. But the Ld. AR for the assessee relied on the coordinate bench decision of this Tribunal in the case of Subhaprasanna Bhattacharya Vs. ACIT in ITA No. 1303/Kol/2010 cited by the Ld. AR for the assessee had an occasion to consider a similar issue in the identical facts, situation and the order passed by the AO imposing penalty u/s. 271(1)(c) of the Act was held to be invalid by the Tribunal relying on the decision of the Hon’ble Karnataka High Court in the case of CIT Vs. Manjunatha Cotton & Ginning Factory reported in 359 ITR 565. The Ld. AR for the assessee has also relied on the decision of the Coordinate bench of this Tribunal passed in ITA No. 2490/Kol/2003, AY 2008-09 dated 03.06.2016 where similar facts have been discussed.
On the other hand, the Ld. DR for the revenue has primarily reiterated the stand taken by the AO which we have already noted in our earlier para and is not being repeated for the sake of brevity.
Having heard the rival submissions and perused the material available on record, we are of the view that there is merit in the submission of the assessee, as the proposition
6 Abu Mansur Ali, AY. 2008-09 canvassed by the Ld. AR for the assessee are supported by the facts narrated by him above. The Ld. AR for the assessee has clearly explained before us that the assessee has admitted the undisclosed income suo moto during the course of search. In the case under consideration, the AO had made the addition based on the estimate and not based on the seized documents. When the addition is based on the estimate the penalty cannot be levied. In addition to this, the ld. AR for the assessee relied on the judgment of the jurisdictional ITAT in the case of Shri Suresh Karmakar Vs. DCIT in ITA No. 2490/Kol/2013, AY 2008- 09 dated 03.06.2016 where he has pointed out that the AO did not tick the relevant para of the notice of the penalty u/s. 274 of the Act, therefore, the assessee did not know for which reason he is being penalized. Hence, following the decision of the Hon’ble Karnataka High Court cited supra, we are of the view that the penalty imposed by the AO and confirmed by the ld. CIT(A) needs to be deleted. Accordingly, we delete the penalty u/s. 271(1)(c) of the Act.
In the result, the appeal filed by the assessee, is allowed.
Order pronounced in the open court on 13.01.2017