RAM MIHIR SEN,KOLKATA vs. ITO WD-24(2), KOLKATA, KOLKATA

The Assessee is an individual and a Senior citizen derives income from salary and other sources. The Assessee filed his return declaring his total income at Rs.1,55,490/- and under scrutiny notice u/sec 143(2) of the Act was issued, in response to which, the Assessee filed bank analysis statement, details of investment and mutual funds. The AO found discrepancy in respect of interest on REC Bond, where the Assessee said to have disclosed the said interest at Rs.97,503/- under the head “income from other sources” in his return, but, according to AO it should have been at Rs.1,71,124/-. Under show cause, the Assessee himself agreed to add such amount to his total income, the A.O. completed assessment and to that effect passed an order dt:26-09-2008 u/s. 143(3) of the Act determining the total income at Rs.2,29,106/- and the Assessee paid tax on assessed income.

Thereafter, the AO initiated penalty proceeding U/Sec 271(1)(c) of the Act, wherein the Assessee filed written submissions denying to have concealed any income nor furnished inaccurate particulars of income and filed a challan showing payment of tax on assessed income and urged to drop penalty proceedings sympathetically. The A.O. not satisfied Ram Mihir Sen 2 with the explanation offered by the Assessee and was of the opinion that the Assessee deliberately and wilfully supressed the interest income earned from REC Bond to evade tax and treated the same as concealment of income and furnished inaccurate particulars of income and accordingly imposed penalty of Rs.8,996/- by his order dt:02-03-2009 u/s 271(1)(c) of the Act.

Your assessee had encashed REC Bond interest Rs. 1,59,189/- (not Rs. 1,71,124/-) as claimed by Id. ITO) during the F. Y: 2005-00 of which Rs. 97,875/- is related to the period F. Y. 2004-05-and Rs.61,314/- is related to the period F. Y. 2005-06. Xerox copies enclosed. 3. Your assessee already showed Rs. 97,875/- REC Bond interest in the F. Y. 2004-05 in his return of income for F. Y. 2004-05 and has already paid tax on this income in the F. Y. 2004=-5. Xerox copy enclosed. 4. Ld. ITO by mistake, treated REC Bond income 2005-06 as Rs. 1,71,724/-, instead of Rs. 61,314/- ignoring the fact that the assessee had already shown Rs. 97,875/- as interest income in his return of income for the F. Y. 2004-05.

The CIT-A having examined and considered the written submission found a discrepancy in the computation of total income and that there was no voluntary disclosure by the assessee and confirmed the action of the AO in imposing the penalty.

Before us, in this second appeal, the Ld.AR submits that the AO arbitrarily imposed penalty and the Assessee paid excess tax in original assessment for the year under consideration. The CIT(A) did not consider the submissions and material documents filed before the first appellate proceedings in proper perspective and confirmed the penalty imposed by the AO. The ld.AR prayed to take into consideration the written submissions filed before the CIT-A. He also reiterated the same submissions as made before the CIT-A. The Ld. DR relied on the orders of the authorities below.

Heard rival submissions and perused the material evidence available on record including the paper book as filed by the assessee before us. The contention of the ld.AR is that the assessee encashed two cheques to the extent of Rs.15,09,189 of Rural Electrification Corporation Bonds during the FY 2005-06 relevant to the AY 2006-07 i.e under consideration. We find that out of such amount of interest to the extent of Rs.97,875/- was earned for the period from 29-10-2002 to 31-3-2004, which is verifiable from the Ram Mihir Sen 4 computation of income for the AY 2005-06 placed at page 6 of the P.B. Further, the assessee to support his contention filed the copy of interest warrant dated 31-3-2004 issued by REC [Rural Electrification Corporation Ltd ] to show that the details of bonds purchase, date of allotment and duration for which the interest was earned. Therefore, it is clear from the evidence as available on record that the interest to the extent of Rs.97,875/- was declared by the assessee in the AY 2005-06 and again the same amount was shown as interest earned during the year under consideration. In the assessment proceedings the interest earned from REC Bonds should have been shown as Rs.1,71,124/- instead of Rs.97,503 as shown by the assessee in his return filed for the year under consideration. The AO treated/added the same [Rs.1,71,124/-] as discrepancy found by him ignoring the fact to the extent of Rs.97,875/- as income declared by the assessee in the AY 2005-06 by the assessee. It is pertinent to note, according to AO, that the assessee has not objected to add such amount to his total income. The assessee has also paid tax on such amount as determined by the AO for the year under consideration.

It is observed from the penalty proceedings that the fact of disclosing the amount as shown in the AY 2005-06 was brought to the notice of the AO. Inspite of it, the AO held that the assessee has concealed his income and furnished inaccurate particulars of income. It is also observed from the impugned order dated 1-10-2013 passed by the CIT-A that the assessee brought to the notice of the CIT-A the fact in respect of said interest amount was returned in the AY 2005-06 and the assessee has also paid tax thereon. The assessee has agitated the mistake of the AO on ignoring the said fact while imposing the impugned penalty u/s. 271(1) ( c) of the Act. It is clear that the assessee has filed the evidence before the authorities below regarding penalty proceedings. But, however, neither the CIT-A nor AO could appreciate the fact in the circumstances of the case. It is relevant to note that the proceedings of assessment and penalty are independent to Ram Mihir Sen 5 each other. Any new evidence/material can be produced before the penalty proceedings and non consideration of such evidence and the penalty thereon, is liable to be cancelled.

In the present case, the assessee filed the required evidence before the CIT-A to show that the interest amount to the extent of Rs.97,365/- was shown in the AY 2005-06. But, the CIT(A) did not consider the same in the right perspective. The assessee has also filed the computation of income relating to the AY 2005-06, where it is clearly reflected the amount shown on REC Bonds in the computation of income for A.Y 05-06, which is placed at page 6 of the P.B. Therefore, both the authorities did not consider the evidence of the assessee in support of his contention. Thus, the order of penalty is liable to be quashed.

In respect of another contention of the AO is that the assessee agreed to add such amount as found by the him as discrepancy and the assessee did not prefer any appeal before the higher authorities and It would not be sufficient for the authorities below either to initiate penalty proceeding or to impose penalty. In our view that the assessee has offered explanation, which has been substantiated by way of material/evidences before the authorities, which is found to be bonafide relating to computation of total income. Therefore, no penalty in this regard can be imposed. Therefore, in view of the discussion above, the penalty imposed and as confirmed by the CIT-A is hereby cancelled. Accordingly, the grounds raised by the assessee are allowed.

In the result, the appeal filed by the assessee is allowed.