MS. LEELA MONDAL,NORTH 24 PARGANAS vs. I.T.O, WD -50(2), KOLKATA, KOLKATA

IN THE INCOME TAX APPELLATE TRIBUNAL “A” BENCH: KOLKATA [Before Shri N. V. Vasudevan, JM & Shri M. Balaganesh, AM]

I.T.A No.2383/Kol/2013 Assessment Year: 2008-09 Ms. Leela Mondal (PAN: AFDPM0772M) Vs. Income-tax Officer, Wd-50(2), Kolkata. (Appellant) (Respondent)

Date of hearing: 19.05.2016 Date of pronouncement: 01.06.2016

For the Appellant: ShriH. K. Mridha, Advocate For the Respondent: Shri S.S. Alam, JCIT, Sr. DR

ORDER Per Shri M. Balaganesh, AM: This appeal by assessee is arising out of order of CIT(A)-XXXII, Kolkata vide Appeal No. 66/XXXII/11-12/50(2)/Kol dated 30.07.2013. Assessment was framed by ITO, Ward-50(2), Kolkata u/s. 143(3) of the Income tax Act, 1961 (hereinafter referred to as the “Act”) for AY 2008-09 vide his order dated 29.12.2010.

2 ITA No.2383/K/2013 Ms. Leela Mondal AY 2008-09 support of the said contention, reliance has been placed on the decision of Bharatiya Janata Party Vs Dy CIT (2002) 258 ITR (AT) 1 (Del) wherein it was held that "Redemption of Mutual fund on maturity does not constitute transfer". Accordingly it was claimed that income arising from 'Redemption of Mutual funds' is exempted from tax. Rejecting the above explanation filed by the assessee the ld. AO treated the said exempted income as short Term Capital Gain and added the income to total income and taxed thereon at special rate @ 10% u/s. 111A of the Act. No appeal has been preferred against this order by the assessee. Therefore, that addition has become final. Thereafter, the AO has initiated the penalty proceedings u/s. 271(1)(c) of the Act. The assessee was asked to explain, vide penalty notice dated 29.12.2010 as to why penalty u/s. 271(1)(c) of the act should not be imposed. In reply, the assessee offered explanation that the income which once disclosed in the return and added to the total income and taxed thereon, there is no concealment and question of penalty u/s. 271(1)(c) could not be raised. The AO did not accept the explanation offered by the assessee and levied penalty on the taxed amount of Rs.6,51,937/- out of Rs.10,86,573/- (which was shown as exempted income in the return form). The Ld. CIT(A) upheld the levy of penalty. Aggrieved, assessee is in appeal before us on the following grounds:

“1. That the Ld. CIT(A) erred in dismissing the appeal against the order of penalty u/s. 271(1)(c) without considering the material facts and regular particulars. 2. That as the order of the Ld. CIT(A) devoid of merit, bad in law, the same should be quashed and your appellant given such relief as prayed for.”

“ The Assessing Officer did not accept the explanation offered by the assessee and taxed the difference of Rs. 1,40,000/- as Short Term Capital Gain. No appeal was preferred and the addition had become final. Thereafter the Assessing officer initiated the penalty proceedings u/s 271(1)(c) of the Income-tax Act, 1961, and levied penalty. The Tribunal reduced the penalty. On further appeal to the High Court:

3 ITA No.2383/K/2013 Ms. Leela Mondal AY 2008-09 'Held, that the assessee had shown "Long Term Capital Gain" and claimed exemption but transaction has been disclosed in the return. There was no concealment of income and penalty could not be imposed.' Decision of this case: "When the assessee has disclosed the transaction which is the basis for capital gains tax and through wrongly claimed exempted from the capital gains tax, but that cannot be a case of penalty under section 271(1)(c) of the Income-tax Act 1961. If it has claimed any exemption after disclosing the relevant basic facts and under ignorance of the provisions of the Act of 1961, and not offered that amount for tax, in such cases, penalty should not be imposed. In such cases rather it is the duty of the Assessing Officer to ask for further details and tax the income if it is liable to tax and that has been done in this case. In view of these facts on record, we see no reason to sustain the order of the Tribunal. The order of the Tribunal is set aside and penalty is cancelled. The appeal stands allowed accordingly." 5. The Ld. AR also placed reliance on the decision of Hon’ble Supreme Court in the case of Pricewaterhouse Coopers Pvt. Ltd. Vs. CIT reported in 348 ITR 306 (SC), wherein it was held as under:-

“In this case the Tax Audit Report was filed along with the return and in unequivocally stated that the provision for payment was not allowable under section 40A(7) of the Act. The assessee however file to add back the sum in its computation of income. Moreover it was not even noticed by the assessing Officer who framed the original assessment order. In these circumstances the Supreme court held that the contents of the Tax Audit Report suggest that there is no question of the assessee concealing its income. There is also no question of the assessee furnishing any inaccurate particulars. It was held: “It appears to us that all that has happened in the present case is that through a bonafide and inadvertent error, the assessee while submitting its return, failed to add the provision for gratuity to its total income. This can only be described as a human error which we are all prone to make.” This decision of the Supreme Court skirted the issue of mensrea which is already covered by the larger bench’s decision and laid special emphasis on the fact that the assessee had mentioned the exact amount and had also mentioned that it is not allowable as a deduction. Under these circumstances the benefit of bona fide mistake was allowed to the assessee.” 6. The Ld. DR argued that in the instant case the assessee had filed inaccurate particulars of income and hence, the levy of penalty is exigible in this case.

4 ITA No.2383/K/2013 Ms. Leela Mondal AY 2008-09 LTCG Rs. 2,89,620/- , STCG Rs.7,96,953/- (excluding Security Transaction Tax of Rs.12,341) and this fact has also been reflected in the Assessment Order-

" As per the written submission the assessee earned L TCG for an amount of Rs.289,620/-; STCG for an amount of Rs. 7,96,953/- and dividend from Mutual Funds for an amount of Rs.13,833/-" It is clear that in course of assessment proceedings the assessee had co-operated with the Learned AO. The Ld. AO taxed the STCG of Rs. 6,51,937/- which includes Security Transaction Tax of Rs.12,341/-. It is not in dispute that the break up of STCG of Rs. 6,51,937/- was furnished before the Learned AO. The Learned AR claimed that the deeming fiction of Explanation 1 to section 271(1)(c) applies only with respect to "facts material to the computation of income" and not with the computation per se. The fiction does not apply where the controversy is regarding the legality of the claim made by the assessee. Further, when the assessee offers an explanation in discharge of the onus cast upon him by Explanation 1 to section 271(1)(c), the A.O. must consider the explanation objectively and unless he finds the same against the human probabilities or unless there are any real inconsistencies or factual errors in such an explanation, the AO ought to accept the same. We only find that there is a mistake of understanding the provisions of law inasmuch as the Ld. AR was confused between the ‘Mutual Fund’ and ‘an investor of mutual fund’. The assessee had entertained a bona fide belief that income derived from redemption of mutual fund was eligible for exemption u/s. 10(23D) of the Act. This factual misinterpretation and misunderstanding of the provisions of the I. T. Act proves a telling instance about the ignorance of the provisions of the Act. But it is bona fide understanding of the assessee that cannot be doubted with. It only amounts to sheer ignorance of law. However, the belief of the assessee seems to be bonafide and that cannot be doubted with. It is well settled that ‘Ignorantia juris non excusat’ meaning ‘ignorance of law is of no excuse’. However, this maxim has been duly considered by the Hon’ble Apex Court in the case of Motilal Padampat Sugar Mills Co. Ltd vs State of Uttar Pradesh & Ors reported in (1979) 118 ITR 326 (SC) wherein it was observed that :- there is no presumption that every person knows the law. It is often said that every one is presumed to know the law, but that is not a correct statement ; there is no such maxim known to the law. Over a hundred and thirty years ago , Maula J. pointed out in Martindale v Falkner

5 ITA No.2383/K/2013 Ms. Leela Mondal AY 2008-09 (1846) 2 CB 706 : “ There is no presumption in this country that every person knows the law : it would be contrary to common sense and reason if it were so.” Scrutton L.J. also once said : “ It is impossible to know all the statutory law, and not very possible to know all the common law. ” But it was Lord Atkin who, as in so many other spheres, put the point in its proper context when he said in Evans vs Bartlam (1937) AC 473 :” …. The fact is that there is not and never has been a presumption that every one knows the law. There is the rule that ignorance of the law does not excuse, a maxim of very different scope and application.” It is, therefore, not possible to presume, in the absence of any material placed before the court , that the appellant had full knowledge of its right to exemption so as to warrant an inference that the appellant waived such right by addressing the letter dt 25th June , 1970 . We, accordingly, reject the plea of waiver raised on behalf of the State Government. 9. We find that the plea of the assessee is bona fide and also find that the AO had levied penalty for filing inaccurate particulars of income in respect of short term capital gains of Rs.6,51,937/- and levied penalty of Rs.60,173/- thereon. But the Ld. CIT(A) had confirmed the levy of penalty on the ground of concealment of income. Hence, there is a basic difference on the charge attributed on the assessee by the revenue. In these circumstances, penalty could not be imposed on the assessee. In this regard, we place reliance on the decision of Hon’ble Karnataka High Court in the case of CIT Vs. MANJUNATHA COTTON AND GINNING FACTORY & Ors. reported in (2013) 359 ITR 565 (Kar.), wherein it was held as under:

The final conclusion of the Hon’ble Court was as follows:-

“63. In the light of what is stated above, what emerges is as under: a) Penalty under Section 271(1)(c) is a civil liability. b) Mens rea is not an essential element for imposing penalty for breach of civil obligations or liabilities. c) Willful concealment is not an essential ingredient for attracting civil liability. d) Existence of conditions stipulated in Section 271(1)(c) is a sine qua non for initiation of penalty proceedings under Section 271. e) The existence of such conditions should be discernible from the Assessment Order or order of the Appellate Authority or Revisional Authority. f) Even if there is no specific finding regarding the existence of the conditions mentioned in Section 271(1)(c), at least the facts set out in Explanation 1(A) & (B) it should be discernible from the said order which would by a legal fiction constitute concealment because of deeming provision. g) Even if these conditions do not exist in the assessment order passed, at least, a direction to initiate proceedings under Section 271(l)(c) is a sine qua non for the Assessment Officer to initiate the proceedings because of the deeming provision contained in Section 1(B). h) The said deeming provisions are not applicable to the orders passed by the Commissioner of Appeals and the Commissioner.

6 ITA No.2383/K/2013 Ms. Leela Mondal AY 2008-09 i) The imposition of penalty is not automatic. j) Imposition of penalty even if the tax liability is admitted is not automatic. k) Even if the assessee has not challenged the order of assessment levying tax and interest and has paid tax and interest that by itself would not be sufficient for the authorities either to initiate penalty proceedings or impose penalty, unless it is discernible from the assessment order that, it is on account of such unearthing or enquiry concluded by authorities it has resulted in payment of such tax or such tax liability came to be admitted and if not it would have escaped from tax net and as opined by the assessing officer in the assessment order. l) Only when no explanation is offered or the explanation offered is found to be false or when the assessee fails to prove that the explanation offered is not bonafide, an order imposing penalty could be passed. m) If the explanation offered, even though not substantiated by the assessee, but is found to be bonafide and all facts relating to the same and material to the computation of his total income have been disclosed by him, no penalty could be imposed. n) The direction referred to in Explanation IB to Section 271 of the Act should be clear and without any ambiguity. o) If the Assessing Officer has not recorded any satisfaction or has not issued any direction to initiate penalty proceedings, in appeal, if the appellate authority records satisfaction, then the penalty proceedings have to be initiated by the appellate authority and not the Assessing Authority. p) Notice under Section 274 of the Act should specifically state the grounds mentioned in Section 271(1)(c), i.e., whether it is for concealment of income or for furnishing of incorrect particulars of income q) Sending printed form where all the ground mentioned in Section 271 are mentioned would not satisfy requirement of law. r) The assessee should know the grounds which he has to meet specifically. Otherwise, principles of natural justice is offended. On the basis of such proceedings, no penalty could be imposed to the assessee. s) Taking up of penalty proceedings on one limb and finding the assessee guilty of another limb is bad in law. t) The penalty proceedings are distinct from the assessment proceedings. The proceedings for imposition of penalty though emanate from proceedings of assessment, it is independent and separate aspect of the proceedings. u) The findings recorded in the assessment proceedings in so far as "concealment of income" and "furnishing of incorrect particulars" would not operate as res judicata in the penalty proceedings. It is open to the assessee to contest the said proceedings on merits. However, the validity of the assessment or reassessment in pursuance of which penalty is levied, cannot be the subject matter of penalty proceedings. The assessment or reassessment cannot be declared as invalid in the penalty proceedings.” (emphasis supplied) 10. The reliance placed by the Ld. AR on the decision of Pricewaterhouse Coopers Pvt. Ltd supra is well founded wherein it was held that “It appears to us that all that

7 ITA No.2383/K/2013 Ms. Leela Mondal AY 2008-09 has happened in the present case is that through a bonafide and inadvertent error, the assessee while submitting its return, failed to add the provision for gratuity to its total income. This can only be described as a human error which we are all prone to make ”.

Sd/- Sd/- (N. V. Vasudevan) (M. Balaganesh) Judicial Member Accountant Member

Dated : 1st June, 2016

Jd.(Sr.P.S.) Copy of the order forwarded to:

APPELLANT – Smt. Leela Mondal, Vill-Baluigachhi, P.O. Kashimipul, 1. Dist. North 24 Pgs., Pin-743734 Respondent –ITO, Ward-50(2), Kolkata. 2 The CIT(A), Kolkata 3. 4. CIT , Kolkata 5. DR, Kolkata Benches, Kolkata

/True Copy, By order,

Asstt. Registrar.