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Income Tax Appellate Tribunal, SURAT (SMC
Before: SHRI DR. A. L. SAINI
आदेश / O R D E R PER DR. A. L. SAINI, AM: Captioned appeal filed by the assessee, pertaining to Assessment Year (AY) 2013-14, is directed against the order passed by the Learned Commissioner of Income Tax (Appeals), [in short “the ld. CIT(A)”], National Faceless Appeal Centre (in short ‘the NFAC’), Delhi, dated 04.07.2023, which in turn arises out of a penalty order passed by Assessing Officer under section 274 r.w.s. 271(1)(c) of the Income Tax Act, 1961 (hereinafter referred to as “the Act”), dated 29.06.2016.
The grounds of appeal raised by the assessee are as follows: “1) The ld. CIT(A) has erred in law and on facts in confirming the action of the ld. AO of levying penalty u/s 271(1)(c) of the Act to the tune of Rs.68,319/- in respect of long term capital gain suo moto offered for taxation during the course of assessment proceedings by the Appellant. 2) The ld. CIT(A) has erred in law and on facts in confirming the action of the ld. AO of levying penalty u/s 271(1)(c) of the Act on the basis of ITA.580/SRT/2023/AY.2013-14 Yash B. Tamakuwala invalid and improper show cause notice issued under section 274 read with section 271 of the Act. 3) Each Ground of appeal
is without prejudice to the other grounds of the appeal. 4) The Appellant craves leave to add, amend, alter, modify, substitute, delete, change or vary all or any of the Ground of Grounds of Appeal.”
3. Succinctly, the factual panorama of the case is that assessee before us is an Individual. The assessee filed return of income for assessment year (AY) 2013-14 on 09.07.2013, declaring total income at Rs.4,00,000/-. The assessment was completed u/s 143(3) of the Income Tax Act, on 04.12.2015, determining total income at Rs.7,41,600/-. On verification of return of income and computation of income, it was noted by the Assessing Officer that the assessee has not shown any income under the head capital gain. On verification of submission made by the assessee, it was noted by Assessing Officer that the assessee during the financial year (FY) 2012-13, has switched out from the ‘Templeton India Short Term Income Retail Plan- Growth’(debt fund) Mutual fund and switched into the ‘Templeton India Corporate Bond Opportunities Fund – Growth’ Mutual fund. It was noted by the assessing officer from the Mutual fund statement that the investment was made in Templeton India Short Term Capital Income Retail Plan-Growth’ on 30.06.2011 for Rs.65,00,000/- and at the time of switching out from the fund i.e. on 19.11.2012, value was Rs.73,96,372/-. The assessing officer noted that switching of mutual fund from one fund to another fund is nothing but a transaction of sale and purchase. Therefore, it is a fact that above transaction resulted generation of capital gain. The computation of capital gain made by the AO, is as under: Cost of acquisition Rs.65,00,000/- Cost after indexation Rs.70,54,777/- [65,00,000 x (852/785) Capital Gain Rs.3,41,595/-
ITA.580/SRT/2023/AY.2013-14 Yash B. Tamakuwala Therefore, Assessing Officer noted that willful omission (Had the assessee`s income not been scrutinized, the assessee’s income of Rs.3,41,595/- would have escaped assessment) by the assessee, is in contravention of set principles of law and would attract the penalty under section 271(1) (c ) of the Act and therefore, assessing officer stated that penalty proceedings u/s 271(1) (c ) of the Act, for furnishing inaccurate particulars of income and concealment of income should be initiated separately.
During penalty proceedings, the assessee submitted its reply, which is reproduced below: “At the outset, I take this opportunity to correct one inadvertent and unintentional error which took place while filing my return of income for the AY.2013-14. Kindly note that during the current previous year I switched out from the ‘Templeton India Short Term Income Retail Plan-Growth’ Mutual Fund and switched into the ‘Templeton India Corporate Bong Opportunities Fund- Growth’ Mutual Fund which resulted into long term capital gain of Rs.3,41,595/-. Please further note that I was under a bonafide belief of the time of filing my Return of Income that the STT has been paid in regard to the aforesaid transaction and hence the impugned long term capital gain of Rs.3,41,595/- is exempt. With a view to rectifying the above unintentional and bonafide error, I have prepared the revised computation of total income enclosed at pages no.4 & 5 and have also paid due tax and interest totaling to Rs.92,940/- considering that the above long term capital gain is chargeable to tax. A copy of the challan evidencing the above payment of tax and interest totaling to Rs.92,940/- is enclosed at page no.6” In view of the above facts and evidences, your goodself will find that there was only an inadvertent error on my part as a result whereof the long term capital gain was omitted to be included in the total income and the tax thereon was omitted to be paid at the time of filing the return of income and that there was no malafide intention to defraud the revenue.”
ITA.580/SRT/2023/AY.2013-14 Yash B. Tamakuwala 5. However, the Assessing Officer rejected the contention of the assessee and noted that assessee purported to prepare a revised computation of total income and filed during assessment proceedings, will not absolve him from liability to penalty under section 271(1)(c) of the Act. In light of facts narrated above and discussed in the assessment order, the assessing officer noted that it is beyond doubt that the assessee has concealed its income by furnishing inaccurate particulars and thereby committed a default which is punishable u/s 271(1)(c) of the Income Tax Act, 1961. Therefore, Assessing Officer stated that he has satisfied that the assessee firm has furnished inaccurate particulars of its income with an intention to conceal its income to the extent of Rs.3,41,595/- and hence, this is a fit case for levy of penalty as per the provisions of section 271(1)(c) of the Income Tax Act, 1961. Therefore, Assessing Officer imposed a penalty of Rs.68,319/- u/s 271(1)(c) of the Act.
Aggrieved by the order of the Assessing Officer, the assessee carried the matter in appeal before the ld. CIT(A), who has confirmed the action of the Assessing Officer, observing as follows: “In the present penalty appeal neither the appellant nor his AR could have furnished/uploaded any evidence in support of is claim raised in grounds of appeal how the AO’s act was erred in law and facts without having established the factum of concealment of particulars of income in as such as penalty was made on the basis of findings of the AO in the assessment stage. Neither the appellant nor his AR could have furnished/uploaded any evidence in support of his claim raised in 2nd grounds of appeal how the AO’s action being erroneous in facts and in law in imposing penalty when the addition made by the AO stand accepted by the appellant. In view of above discussion I am unable to found any evidence and logic in support of appellant’s grounds that the addition made by the AO was bad in law. Rather the submission of the appellant vis-à-vis grounds of appeal is treated as ambiguous and baseless in as much as the appellant has accepted the basic addition of Rs.3,41,595/- being capital gain arises during the year under consideration, without filing any appeal against the assessment order dated 24.12.2019 in where the penalty proceeding u/s 271(1)(c) was actually initiated and observation of the AO was recorded ITA.580/SRT/2023/AY.2013-14 Yash B. Tamakuwala in para 4.3 of assessment order that amount of capital gain would have been escaped assessment had the case not being selected for scrutiny. In view of the discussion in preceding paragraphs, I find that AO was justified in imposing penalty of Rs.68,319/- for concealment of income u/s 271(1)(c) of the I.T. Act, and no further interference is required over AO’s order. Considering above the impugned penalty stands confirmed.”
7. Aggrieved by the order of ld. CIT(A), the assessee is in appeal before this Tribunal.
The Ld. Counsel for the assessee submitted that notice issued by the Assessing Officer is defective and does not specify as to on which limb the penalty was imposed therefore, penalty levied by Assessing Officer may be deleted.
9. On merit, Ld. Counsel for the assessee submitted that assessee has suo moto offered income during the assessment proceedings therefore, there is no concealment of income, on the part of the assessee, hence no penalty should be imposed.
On the other hand, the Ld. DR for the Revenue has primarily reiterated the stand taken by the Assessing Officer, which we have already noted in our earlier para and is not being repeated for the sake of brevity.
I have heard the rival arguments made by both the sides and perused the material available on record. I note that Assessing Officer issued a penalty notice u/s 271(1)(c) of the Act, which is reproduced below:
ITA.580/SRT/2023/AY.2013-14 Yash B. Tamakuwala
ITA.580/SRT/2023/AY.2013-14 Yash B. Tamakuwala 12. I have gone through the above notice issued by Assessing Officer u/s 271(1)(c) of the Act, and noted that Assessing Officer has not ticked any limb for initiation of penalty. There are two limbs in the penalty notice viz: (1) “conceal the particulars of income” and (ii) “furnishing inaccurate particulars of income”. The Assessing Officer has not ticked any of the limbs. Considering the assessee`s facts, the penalty u/s 271(1)(c) of the Act can not be imposed on both the limbs. Hence, notice issued by the Assessing Officer u/s 271(1)(c) of the Act, is defective. In order to levy the penalty u/s 271(1)(c) of the Act, it is the duty of the Assessing Officer, to inform the assessee, by way of issuing notice, that on what account, he is going to penalize the assessee, whether on account of “concealment of income” or on account of “furnishing inaccurate particulars of income”. Therefore, I note that penalty notice is defective; hence penalty imposed by the Assessing Officer has no leg to stand. For this, I rely on the judgment of the Surat Tribunal in Ruchit Dineshbhai Doshi vs. ITO, in order dated 25.07.2023, wherein it was held as follows:
“8. I have considered the submissions of both the parties and have gone through the orders of the lower authorities carefully. I have also deliberated on the various case laws relied upon by the ld. AR of the assessee. I find that the Assessing Officer while passing the assessment order, treated the long term capital gain as unexplained credit on the basis of report of Investigation Wing that the assessee transacted in the share of Shreya Chemicals which is a penny stock company. It is an admitted fact that no further appeal was filed by assessee in the quantum assessment. I find that while passing the assessment order, the Assessing Officer initiated penalty for concealment of income. The Assessing Officer before passing the assessment order, issued show cause notice dated 27/11/2019 and 03/12/2019. In both the notices, the Assessing Officer mentioned “you have concealed the particulars of income or furnished inaccurate particulars of such income”. However, while passing the penalty order dated 11/01/2022, the penalty was levied but no ITA.580/SRT/2023/AY.2013-14 Yash B. Tamakuwala specific charge was referred by the Assessing Officer. The Assessing Officer concluded that “I am satisfied that it is fit case for levy of penalty under Section 271(1)(c) of the Act”. I find that the Hon'ble Jurisdictional High Court in New Sorathia Engineering Co. Vs CIT (Supra) held that where there was no clear cut finding in the penalty order or the order of CIT(A) whether there was concealment of income or furnishing inaccurate particulars of income, penalty was not sustainable. The Hon'ble High Court also relied on earlier decision of CIT Vs Manu Engineering Works (1980) 122 ITR 306 (Guj). Thus, in view of the aforesaid factual and legal discussion when there is no specific finding in the penalty order I do not find any justification in upholding the levy of penalty as has been held by the Hon'ble Jurisdictional High Court in New Sorathia Engineering Co. Vs CIT (Supra).
Further I find that the Hon'ble Bombay High Court in a recent decision in Gangalron & Steel Trading Co. Vs CIT (2022) 135 taxmann.com 244 (Bombay) held that where show cause notice did not indicate whether there was concealment of particulars of income or furnishing of incorrect particulars of such income, same would vitiate penalty proceedings. Thus, in view of aforesaid factual and legal discussion, I direct to delete the penalty levied under Section 271(1)(c) of the Act. In the result, grounds of appeal
raised by the assessee are allowed.”
13. I note that Hon'ble Bombay High Court in the case of Mohd. Farhan A Shaikh vs. Deputy Commissioner of Income-tax, Central Circle-1, Belgaum [2021] 125 taxmann.com 253 (Bom)/[2021] 280 Taxman 334 (Bom)/[2021] 434 ITR 1 (Bom)[11.03.2021] wherein the penalty u/s 271(1)(c) was deleted on account of defective notice u/s 271(1)(c). The Hon'ble Bombay High Court held that assessment order clearly records satisfaction for imposing penalty on one or other, or both grounds mentioned in section 271(1)(c), a mere defect in notice not striking off irrelevant matter would vitiate penalty proceedings. Based on these facts and circumstances, I delete the penalty under section 271(1)(c) of the Act.
ITA.580/SRT/2023/AY.2013-14 Yash B. Tamakuwala 14. Since I have deleted the penalty under section 271(1)(c) of the Act, on technical ground (notice being defective), hence I do not adjudicate the grounds raised by the assessee on merit.
In the result, appeal filed by the assessee is allowed.
Order is pronounced on 29/12/2023 in the open court.