SMT. PUNITA LAL,GURGAON vs. ACIT, NEW DELHI

1. That the Commissioner of Income Tax(Appeals) erred on facts and in law in not holding that the impugned order dated 24.07.2014 levying penalty of Rs. 18,35,000/- under Section 271(1)(c) of the Income Tax Act, 1961 (‘the Act’) is without jurisdiction, bad in law and void-ab-initio. 1.1 That the Commissioner of Income Tax(Appeals) erred on facts and in law in not appreciating that the impugned penalty order was passed without recording proper satisfaction in the assessment Section 143(3) of the Act, which is sine qua non for assuming of jurisdiction. 1.2 That the Commissioner of Income Tax(Appeals) erred on facts and in law in confirming the levy of penalty solely on the basis of findings given in the assessment order, without appreciating that penalty proceedings are separate and independent from assessment proceedings and consequently, the impugned penalty order is bad in law. Without prejudice

The facts in brief are that the assessee filed return of income for the year under consideration on 12/09/2011 declaring income of Rs. 1,92,99,900/-. The case was selected for scrutiny and notice under section 143(2) of the Act was issued and served within the stipulated time period. The assessee was working as General Manager with a Division of Pepsi Foods Private Limited. The Assessing Officer observed from the form No. AS-26, which is maintained on Income Tax Department, that total receipts during the year under consideration was of Rs. 2,53,08,932/- whereas in the Income Tax Return total receipt of Rs. 1,92,99,900/- was only shown. During the course of scrutiny, the assessee explained that the employer gave a revised form No. 16 on 14/10/2011 i.e. after filing of income tax return, in which the perquisites was shown at Rs. 62,61,522/- whereas in the original form No. 16, the perquisites value was shown at Rs. 6,69,283/-. The revised form No. 16 contained perquisites related to ‘ESOP’ of ‘PepsiCo USA’ exercised and sold during the year under consideration. Thus, the Assessing Officer (AO) made addition for the difference amount of perquisites of Rs. 55,92,239/-. The Assessing Officer also made addition of Rs. 3,20,718/- under the head ‘Short-Term Capital Gain’ for sale of the said ‘ESOP’, addition for amount of Foreign Dividend Income of Rs. 4,69,537/- and interest income of Rs. 41,760/- received from HSBC, which was not shown by the assessee in the original return of income. The assessee did not prefered appeal against the order of the Assessing Officer. The Assessing Officer initiated penalty proceedings under section 271(1)(c) of the Act in respect of all the four additions made in the assessment order. After providing opportunity of hearing to the assessee, the Assessing Officer levied a penalty of Rs. 18,34,714/-. Aggrieved, the assessee filed appeal before the ld. Commissioner of Income-tax(Appeals), who upheld the penalty levied by the AO. Aggrieved, the assessee is in appeal before us.

At the outset of hearing, ld. Authorized Representative the assessee submitted not to press the ground No. 1.1 of the appeal, thus, same is held as infructuous and dismissed. 4. Rest of the grounds of the assessee revolves around levy of penalty under section 271(1)(c) of the Act. 5. The learned Authorised Representative of the assessee submitted that the assessee had suo-motu paid tax on the additional income even before the case was taken up for scrutiny. Further, he submitted that since the return was filed Rs. 1,29,430/- on 16/03/2012 and Rs. 1,870/- on 02/02/2012 and the balance was already deducted at source by the employer while issuing revised form No.

Further, he submitted that there was no fault of the assessee in not including the income in the return of income and that was for the reason of inability to file revised return due to technical reasons that a belated return cannot be revised and assessee was not having any intention to conceal the income considering the total taxes paid by her. Referring to the pages 30 to 31 of the paper book, the Ld. AR submitted that the particulars in respect of the additional income were already informed to the Assessing Officer vide letter dated 22/10/2013 during the course of scrutiny proceedings. The Ld. AR drawn our attention to page No. 24 of the paper book and submitted that the income as per Form No. 26 AS was duly reconciled with the revised computation of income filed by the assessee. The Ld. AR argued that all the information was duly furnished before the Assessing Officer and tax was also duly paid before the Assessing Officer could raise the issue and thus the explanation submitted by the assessee was bona fide and, therefore, no penalty could be levied in the facts of the assessee. In support of the proposition that no penalty under section 271(1)(c) of the Act was leviable in case of voluntary surrender of income before detection by the Assessing Officer, the ld. Authorized Representative relied on the following case laws: 1. Quammer-uddin and sons versus CIT 129 ITR 703 (Delhi High Court) 2. CIT versus blue Star Ltd 357 ITR 669 (Bombay High Court) 3. CIT versus Sunil Chand Gupta, of 2009 (Allahabad High Court) 6. Further, in support of the proposition that no penalty under section 271(1)(c) of the Act could be levied in case of voluntary surrender of income by the assessee on detection of bona fide/inadvertent mistake by the assessee, the ld. AR relied on the following case laws:

CIT versus Manjunatha cotton and ginning factory 359 ITR 565 (Karnataka High Court) 2. CIT versus Sania Mirza 259 CTR 386 (Andhra Pradesh High Court) 3. CIT versus Saket Aggarwal 147 ITD 686 (Delhi Tribunal) 7. On the contrary, ld. DR relied on the order of the lower authorities and submitted that the assessee not only exercised the option of ESOP but also sold the same during the year but omitted to declare the same in the return of income, which amounted to concealment of income and, therefore, the assessee is liable for the penalty under section 271(1)(c) of the Act. 8. We have heard the rival submissions and perused the material on record. As regard to ESOP, the ld. Commissioner of Income-tax(Appeals) in the impugned order has held that (i) the assessee was fully aware of the ESOP related transaction which had taken place in the month of March 2011 and the payments credited in the assessee’s bank account, as such there was no reason as to why the assessee could not have paid the tax by way of advance tax or self- assessment tax before filing the return of income, therefore, the assessee had mala fide intention of evading tax by nondisclosure of perquisites value associated with ESOP shares. (ii) the case of the assessee was picked up for scrutiny on 07/08/2013 whereas the assessee filed revised Form No. 16 along with revised computation of income with the request to rectify the assessment on 22/10/2013 (iii) the explanation offered by the assessee in respect of nondisclosure of income was without bona fide reasons and the expression offered by the assessee in this regard lacked strength. (iv) regarding nondisclosure of bank interest and foreign dividend the situation remained same as the assessee had always a detailed information regarding accrual of income under those heads but for mala fide reasons the same were not disclosed in the return of income filed. (v) the assessee is a well-paid executive working with PepsiCo and had the benefit of advice of competent tax consultant (vi) the assessee failed to substantiate the explanations and also failed to prove that such explanation was bona fide and all material facts to computation of taxable income were disclosed by her. 9. Before us, the ld. AR has countered the above findings of the learned Commissioner of Income-tax(Appeals). As regard to the first finding that the ESOP and subsequent sale and credit of money in her bank account, the ld. AR submitted that this inadvertent mistake happened due to incorrect Form No. 16 supplied by the employer and there was no intention to conceal income or furnish inaccurate particulars on the part of the assessee because as and when the mistake came to her notice on the receipt of a revised Form No. 16 from the employer, the assessee paid the due taxes suo-motu, thus, there was no malafide intention on the part of the assessee. Regarding second finding of the learned CIT(A), that the revised computation was filed after taking the case under scrutiny, the learned AR submitted that no query was raised by the Assessing Officer in respect of additional income prior to the revised computation of income filed by the assessee and, therefore, it was not a case where the additional income was detected by the Assessing Officer and thereafter the assessee admitted the same, but it is a case where the assessee first offered the additional income suo-motu, which was subsequently assessed by the Assessing Officer. As regard to the finding of the ld. CIT(A) that the explanation offered by the assessee was without bonafide reasons, the ld. AR submitted that not only the assessee submitted revised computation of income but also paid the due taxes on the additional income before it came to the notice of the AO and therefore the assessee demonstrated the bonafide reason behind the mistake. As regard to the finding of the ld. CIT(A) in respect of the other income of interest and dividend, the ld. AR repeated same arguments. As regard to the finding of the ld. CIT(A), that the assessee is a well paid executive of a large MNC and could have taken assistance of consultants, the ld. AR submitted that mistake was due to the incorrect Form No. 16 received from the employer and it was not having any relation with the executive of a large company. The finding of the Ld. CIT(A) that the assessee failed to substantiate the explanation and failed to prove bonafide was opposed by the learned AR that the assessee had already submitted revised computation of income and paid taxes on such additional income before being detected or noticed by the Assessing Officer and, therefore, the assessee has already submitted bonafide explanation for the mistake.

In view of the above submissions of the ld. AR ,we are of the opinion that the assessee has offered the explanation in respect of the fact material to the computation of income and such explanation was not found to be false. We also find that the explanation furnished by the assessee is bonafide and all facts material to the computation of income has been disclosed by the assessee in the explanation furnished by her, and thus the case of the assessee is not falling under the explanation 1(A) or 1(B) of the section 271(1)(c) of the Act.

In the case of Qummar-ud-din and Sons (supra), the income declared in the return of income was found to be less than the income reflected in profit and loss account which was filed in the course of scrutiny proceedings and the penalty levied under section 271(1)(c) of the Act was upheld by the Tribunal. On raising a substantial question of law whether the Tribunal was right in holding that there was a concealment of income by the assessee and penalty was validly imposed, the Hon’ble jurisdictional High Court held that the assessee had filed a voluntarily return on its own then in all probability no proceeding would have been initiated against the assessee and the question of law was answered against the Revenue. In the case of the assessee in hand, also the revised computation of income and tax was paid voluntary by the assessee and therefore facts of the cited case are similar to the case in hand.

In the case of CIT versus Blue Star Ltd (supra) the Tribunal recorded a finding of fact that amounts were offered to tax suo-motu by the respondent assessee and not consequent to detection by the Revenue, therefore, the Hon’ble High Court dismissed the appeal of the Revenue challenging the deletion of penalty under section 271(1)(c) of the Act. In the case of assessee in hand also the taxes were paid before being noticed by the Assessing Officer, and thus the ratio of the cited case is applicable over the facts of the case in hand.

In the case of Commissioner of income tax versus Sunil Chand Gupta (supra), the Hon’ble High Court of Allahabad had that on being intimated by the DDIT (Inv.), the assessee paid a difference in amount of tax on the transactions and surrendered the income in response to the return filed under section 148 of the Act, the conduct of the assessee was found to be bonafide and, therefore, no penalty for concealment of particulars of income was leviable.

In the case of CIT versus Manjunath Cotton and ginning factory (supra) the Hon’ble Karnataka High Court discussed in detail the circumstances set out in Explanation-1 to the section 271(1)(c) of the Act , which justifies levy of penalty. The relevant part of the judgment is reproduced as under: “31. After insertion of Explanation 1 to Section 271(l)(c), the law on concealment and penalty has become stiffer. The explanation as it stands now is a complete code having the following features: (1) Every difference between reported and assessed income needs an explanation. (2) If no explanation is offered, levy of penalty may justified. (3) If explanation is offered, but is found to be false, penalty will be exigible. (4) If explanation is offered and it is not found to be false, penalty may not be leviable,— (a) such explanation is bona fide. (b) the assessee had made available to the Assessing Officer all the facts and materials necessary in computation of income." 32. Therefore the Explanation I understood in the proper context, in particular, clause (c) of Sub-section (1) of Section 271 makes the intention of the Legislature manifest. It clearly sets out when penalty is leviable and when penalty is not leviable. The condition precedent for levying the penalty is the satisfaction of the authority that there is a concealment of the particulars of the income or inaccurate particulars are furnished to avoid payment of tax. Once the authority comes to such conclusion, the law mandates that before imposing penalty, the assessee must be heard. The assessee is given the opportunity to offer his explanation. Once such an opportunity is given and the assessee fails to offer the explanation or offers explanation which is found to be false, then the penalty will follow as prescribed under Clause (iii) of clause (c) of sub-section (1) of Section 271. Where the assessee offers an explanation and substantiate the explanation, the question of imposing penalty would not arise. Even in cases where he fails to substantiate the explanation, but if he proves that explanation offered is a bona fide one and all the facts relating to the same and material to the computation of his total income has been disclosed by him, then, in law, a discretion is vested with the authority