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Order u/s.254(1)of the Income-tax Act,1961(Act) लेखा सद�य सद�य राजे�� राजे�� केकेकेके अनुसार अनुसार PER RAJENDRA, AM- लेखा लेखा लेखा सद�य सद�य राजे�� राजे�� अनुसार अनुसार Challenging the order, dated 28/03/2014, of the CIT(A)-41,Mumbai the assessee and the Assessing Officer(AO)have filed cross appeals for the year under consi - deration.The effective ground of appeal, raised by the AO and the assessee is about deleting/upholding the penalty levied u/s. 271(1)(c) of the Act.
Brief Facts:
2.Assessee,an individual,deriving income from salary,capital gains and other sources,filed his return of income on 31/07/2008,declaring total income at Rs. 12.96 lakhs.The AO completed the assessment, u/s.143(3)of the Act,on 03/12/ 2010,determining the income of the assessee at Rs. 84.20 lakhs. During the assessment proceedings,the AO found that’ FDR Maturity Proceeds/Nakul
3581&4682/M/14-SureshGandhi Bafan’,amounting Rs.1,78,33,969/-was added to capital account, that the FDR was not appearing in the balance sheet of the last year i.e. as on 31/03/2007. He directed the assessee to file explanation in that regard.The assessee,vide his letter dated 30/11/2010/stated that the credited amount represented the maturity proceeds of Kotak Life Insurance Policy taken by him. He directed the assessee to find full details about the said Policy.After considering a submissions of the assessee,the AO held that the Policy was subscribed on 20/09/2004,that its maturity period was 10 years, that the assessee surrendered it after paying three instalments,that the investment was just like fixed deposit, that the assessee had admitted a typographical error in that regard. Referring to the provisions of the section 10(10 D) of the Act,he held that the section did not allow exemption on sum received on pre-mature termination and withdrawal, that the income on from said Policy was to be added to the income of the assessee.After considering the amount received on maturity of the policy and the investment made by the assessee,he held that Rs.58,33,996/-was the income of the assessee for the year under consideration. He also initiated penalty proceedings as per the provisions of section 271(1)(c)of the Act for furnishing inaccurate particulars of the income.
2.a.He further noticed that the assessee had two properties namely flats at Manju Apartment and at Guide,that he had treated the flat at Manju apartment as self occupied property,that flat at Guide, purchased on 09/11/2005, was not offered for 2
3581&4682/M/14-SureshGandhi taxation.Accordingly,he determined the annual letting value at the rate of 85% of the investment of Rs.1,87,89,058/-which worked out to Rs.11.17 lakhs after allowing deduction u/s. 24 (a) of the Act. For furnishing inaccurate particulars of income,penalty proceedings were initiated on that account also.
In the appellate proceedings, before the First Appellate Authority (FAA), both the additions made by the AO were confirmed.
3.In reply to the penalty notice, issued by the AO, the assessee stated that he had filed an appeal before the Tribunal challenging the order of the FAA, that he had not concealed any particulars of income or had not furnished any inaccurate particulars, that addition made by the AO could not be construed as furnishing of inaccurate particulars,that mere addition of a sum as income during the assessment proceedings should not result in automatic levy of penalty.After considering the submission of the assessee,the AO held that the balance sheet of the assessee initially had shown the credit of Rs.1.78crores in the capital account,that the narration of this credit entry was given as FDR maturity, that when details were called for the assessee submitted that it was receipt of Life Insurance Policy and not FDR receipt, that the amount received on premature termination of insurance policy was not exempt u/s.10 of the Act, that even after knowing the provisions the assessee had not offered the receipt as income. Invoking the provisions of section 3581&4682/M/14-SureshGandhi 271(1)(c),for concealing the particulars of income,the AO levied a penalty of Rs. 23.62 lakhs,vide his order dated 22/03/ 2013.
4.Aggrieved by the order of the AO,the assessee preferred an appeal before the FAA and made elaborate submissions and relied upon several cases.After considering the submission of the assessee and the penalty order,the FAA held that mens rea was no longer an essential ingredient for levy of penalty u/s. 271 (1)(c),that the objective behind the section was to provide remedy for loss of revenue and that such a penalty was a similar ability that the evidences gathered at the stage of assessment proceedings was prima facie material in penalty proceedings, that if the assessee would not produce any evidence to disprove the facts gathered during the assessment proceedings the AO would be justified in living penalty u/s. 271(1)(c).Referring to the Explanation 1 to the section he held that initial owners was on the assessee to prove that his case did not fall within the preview of explanation.With regard to the addition of Rs.58.50 lakhs, he held that Explanation1(A) to section 271(1)(c)was not applicable,that the assessee had offered an explanation in that regard,that the explanation on account of surrender value of life insurance policy was not found to be false, that there was an inadvertent typographical error in the capital account enclosed with the return of income,that during the assessment proceedings the assessee had furnished supporting documentary evidences and proved that the sum received represented 4
3581&4682/M/14-SureshGandhi surrender value of life insurance policy,that the assessee had offered a plausible explanation with regard to premature termination of Kotak Life Insurance Policy,that it was not the case of the AO that exclusion furnished by the assessee was not bona fide,that it was only that the assessee had made a claim for exemption of the aforesaid amount u/s.10(10D) of the Act that was not accepted by the AO owing to difference of opinion arising from different legal interpretation of the said exemption provision.Referring to the case of Reliance Petroproducts (P)
Ltd.(322ITR158) of the Hon’ble Supreme Court, he held that AO was not justified in living penalty in respect of the addition of Rs. 58.50 lakhs.
4.1.With regard to non-disclosure of annual value of flat at the Guide, amounting to Rs.11.17 lakhs,the FAA held that no oral or written submissions were made on behalf of the assessee in the course of appellate proceedings, that the assessee owned two properties, that he is entitled to exercise the option to specify the house property which was to be treated as self occupied property u/s. 23(4)(a) of the Act,that the assessee had to offer to tax the annual value of the other flat as same was let out, that the assessee could not treat both the flats as self occupied in contravention of the provisions of the Act, that no fault could be found with the action of the AO in bringing to tax the annual value of one of the flats at Rs. 11.17 lakhs and also levying penalty u/s. 271(1)(c) on account of non-disclosure of the said income from house property in the return of income for the year under 5
3581&4682/M/14-SureshGandhi consideration,that the assessee had failed to prove that his failure to offer the said annual value to tax under the head income from house property in the return of income was bona fide.
5.During the course of hearing before us,the Departmental Representative (DR) supported the order of the FAA with regard to penalty levied for non-disclosure of house property income.With regard to surrender of life insurance policy, he relied upon the order of the AO.
The Authorised Representative(AR) stated that the Tribunal had decided the quantum appeals,filed by the assessee and the AO.s for the assessment years 2007- 08 and 2008-09 (ITA.s.2915& 6523/Mum/2011-AY.2007-08 and ITA/ 5743/ Mum/2011 – AY.2008 – 09, dated 22/05/ 2015).We find that while deciding the appeal, filed by the AO, for the AY.2007-08(ITA/6523/Mum/2011),the Tribunal had held that it was not a fit case for levy of penalty, that it was a debatable issue.
Respectfully, following the said order of the Tribunal, the reverse the order of the FAA and decide the issue in favour of the assessee.
6.We further find that the Tribunal had, while adjudicating the appeal filed by the assessee for the AY.2008 – 09 (supra) dealt with the issue of addition of Rs. 58.50 lakhs, that it had allowed the quantum appeal filed by the assessee with regard to surrender of life insurance policy. As the addition confirmed by the FAA has been 3581&4682/M/14-SureshGandhi deleted by the Tribunal, so, in our opinion penalty would not survive. In the appellate proceedings, the FAA has deleted the penalty.Confirming his order,we decide the effective ground of appeal against the AO.