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Income Tax Appellate Tribunal, “A” BENCH : KOLKATA
Before: Hon’ble Sri N.V.Vasudevan, JM & Shri Waseem Ahmed, AM]
Per N.V.Vasudevan, JM
ORDER This is an appeal by the Assessee against the order dated 27.10.2011 of CIT(A)- XXXVI, Kolkata, relating to AY 2006-07.
In this appeal the Assessee has challenged the order of the CIT(A) whereby he confirmed the order of the AO imposing penalty on the Assessee u/s.271(1) (c) of the Income Tax Act, 1961 (Act).
The Assessee is an Advocate by profession. During the previous year his sources of income was income from profession, income under the head “income from House property”, Short term capital gain and Income from other sources (interest on SB Account). The Assessee filed his return of income for AY 2006-07 on 31.10.2006 declaring total income of Rs.88,96,850/-. Along with the return of income, the Assessee filed audit report required to be filed u/s.44AB of the Act, and also audited profit and
2 ITA No.07/Kol/2012 Sri Gautam Kumar Mitra A.Yr.2006-07 loss account and Balance Sheet as on 31.3.2006. A firm of Chartered Accountants by name A.K.Barman & Associates, advised the Assessee in the matter of filing return of income. The said firm furnished the audit report u/s.44AB of the Act together with the audited profit and loss account and balance sheet as on 31.3.2006. In fact the computation of total income, a copy of which is at page-2 of the Assessee’s paper book, was signed not by the Assessee but by the partner of the Chartered Accountants Firm one Mr.Anjan Kumar Barman.
In the assessment proceedings u/s.143(3) of the Act, the Assessee was represented by another firm of Chartered Accountants viz., Ghosal, Basu and Ray, because the services of the earlier Chartered Accountant were no longer available. The first hearing before the AO took place on 24.10.2008. On that date one of the partner of the newly appointed Chartered Accountant’s firm one Mr.B.Majumbdar attended the hearing before the AO on 24.10.2008. In the liability side of the Balance Sheet as on 31.3.2006 there was an item of liability under the head “Secured Loan” Standard Chartered Bank (O/D A/c.) of Rs.25,48,385.37 Ps. The AO called upon the Authorised Representative (A/R) of the Assessee to furnish the details of the OD Account. The Assessee’s A/R vide his letter dated 21.11.2008 stated that the figures appearing in the balance sheet/profit and loss account submitted along with the return of income was not correct and a reconciliation of the said figures was being given. The said reconciliation is given as annexure-1 to this order.
The reconciliation showed that there was in fact no O/D in bank account but there was a favourable bank balance of Rs.25,48,456.33 Ps. The Assessee also gave the revised profit and loss account after rectifying certain mistakes in the earlier profit and loss account. The net effect after carrying out all rectification was that the income of the Assessee stood increased by Rs.19,58,731.46 Ps. The revised profit and loss account so filed by the Assessee is given as an annexure-2 to this order. 2
3 ITA No.07/Kol/2012 Sri Gautam Kumar Mitra A.Yr.2006-07 6. The AO accepted the said reconciliation and added a sum of Rs.19,58,731.81 Ps. to the total income of the Assessee. The following were his observations: 1.1 Reconciliation of Income and Expenditure Account and Balance sheet: During the course of first hearing the authorised representative was requested to file the details of, among others, the overdraft account with Standard Chartered Bank shown in the balance sheet. The authorised representative vide his letter dated 21.11.2008 stated that figures appearing in the balance sheet! income and expenditure account submitted along with the return of income was being reconciled. On 16.12.2008 the authorised representative filed a revised balance sheet and income & expenditure account along with reconciliation with the ones submitted earlier by the assessee. The revised balance sheet showed that the assessee did not have any overdraft as shown in the earlier balance sheet; it was actually a favorable balance in the bank shown as having an overdraft. The revised income and expenditure account reflected an excess of Short Term Capital Gain of Rs. 35,090.59 and profit from sale of a property at Delhi to the tune of Rs. 16,24,800/-. It was further seen that an excess of Rs. 1,12,129/- & Rs. 3,19,176/- were debited to the earlier income & expenditure account towards bank interest and expense on repairs and maintenance. Due to revision the depreciation was increased by Rs. 1,32,463.65 (a revised chart of fixed assets was also submitted. As a whole, the net effect of reconciliation of the Income & Expenditure account was an enhancement of net profit by Rs. 19, 58,731.81. 1.2 Reconciliation of the Income & expenditure account showed that If the assessee concealed his income and also filed inaccurate particulars of Income In respect of capital gain from sale of mutual fund/ immovable property Bank interest expenses on repair and maintenance. Penalty proceedings u/s 271(1) (c) is therefore being initiated separately.
The next issue before the AO was with regard to the income declared by the Assessee under the head “Income from House Property”. The Assessee had let out his property at Mumbai to N/S.BBC World (India) Pvt.Ltd., (BBC). The rent actually received by the Assessee was Rs.42,446/- , including TDS of Rs.6,494/-. The Assessee also received another sum of Rs.4,376 as miscellaneous receipts in the nature of rent. The Assessee in his return of income had declared a sum of Rs.37,321 under head “Income from House Property”. This was arrived at by the Assessee as follows: “Rent Received Rs.53,316 Less: Deduction u/s.24 Rs.15,995 Rs.37,321” The rent received of Rs.53,316/- was arrived at by the Assessee as follows: (a) Amount of rent credited by BBC world (Including TDS of Rs.3,247) Rs.21,223 3
4 ITA No.07/Kol/2012 Sri Gautam Kumar Mitra A.Yr.2006-07 (b) – ditto - Rs.21,223 (c) Amount of TDS for which payment not received during the year, but for which TDS credit claimed Rs. 3,247 (d) - ditto- Rs. 3,247 (e) Miscellaneous receipt Rs. 4,376 Rs.53,316
It can be seen from the above that the Assessee had accounted for as income the TDS in respect of which payment of rent was received as well for rents not received during the year but for which he had taken credit on the basis of certificate received. The Assessee had given all the details of rent received ledger account print out along with the letter dated 21.11.2008 filed before the AO in the course of assessment proceedings.
The AO however found from the TDS certificate issued by M/S.BBC World (India) Pvt.Ltd., that the rent for the property at Mumbai for the previous year was Rs.84,892/-. (which included rent paid as well as rent payable but not paid). The AO was of the view that the rent for the previous year whether received or not ought to be accounted as income from house property. He accordingly computed income under the head “Income from House Property” as follows: Rent received Rs.84,892 Less: deduction u/s.24 (-) Rs.25,468 Rs.59,424 Thus there was an addition of Rs.22,103 to the total income of the Assessee under the head “Income from House Property”.
The next issue before the AO was with regard to explanation with regard to unsecured loans appearing in the revised balance sheet filed in the course of assessment proceedings by the Assessee before the AO. There was unsecured loan in the liability side of the balance sheet of Rs.1,71,67,483/-. The Assessee explained sources of the
5 ITA No.07/Kol/2012 Sri Gautam Kumar Mitra A.Yr.2006-07 secured loans to the extent of Rs.1,49,10,200 as one from his wife Smt.Rina Mitra and another sum of Rs.17,00,000 as loan from Shri Chandranath Mukherjee. With regard to the remaining unsecured loans to the tuen of Rs.5,57,283.43/-, the Assessee did not file any details. The AO therefore added the aforesaid sum as unexplained loan and added the same to the total income of the Assessee u/s.68 of the Act.
The next issue before the AO was with regard to creditors for liabilities shown in the revised balance sheet filed in the course of assessment proceedings by the Assessee before the AO. The Assessee had shown a sum of Rs.97,21,092.75 as creditors. On scrutiny of the details filed by the Assessee in this regard the AO noticed that a sum of Rs.89,33,450 out of the above represented professional fees payable to barristers, audit fee payable, outstanding salaries and wages at the end of the financial year and other liabilities for various expenses. These were liabilities for which the assessee had made provision in the profit and loss account. The Assessee was following cash system of accounting. Under the cash system of accounting, income actually received has to be declared as income and expenses actually incurred could be claimed as deduction. Expenses actually not paid could not be claimed as deduction. The AO therefore called upon the Assessee to show cause as to how the above items of expenditure were claimed as deduction while computing income from profession. The Assessee submitted before the AO that the Assessee ensured deduction of taxes upon receipt of the relevant bills for expenses and deposited the same with Government accounts irrespective of whether payments against the bills were made or not. Since the Tax deducted at source on the aforesaid expenditure which was not paid was deposited into the Government account, the Assessee claimed that it could claim the expenditure in question as deduction even under the cash system of accounting followed by the Assessee.
The AO however rejected the above argument and he held as follows: “13.3. I have very carefully perused the contention of the authorised representative, but, I am afraid, I cannot make myself agree with the same. Section 145 of the I TAct, 61 as it 5
6 ITA No.07/Kol/2012 Sri Gautam Kumar Mitra A.Yr.2006-07 stands amended with effect from 01. 04.1997, unequivocally prescribes that the income chargeable under head "profits and gain of business or profession" has to be computed in accordance with either cash or mercantile system of accounting regularly employed by the assessee. There cannot be any hybrid method followed or allowed. Exceptions are again provided by the statute itself, for example, u/s 43B of the I TAct, 61 wherein it is prescribed that certain deductions mentioned therein would be allowed only on actual payment even if the accounts were prepared on mercantile basis. However, accounts are to be prepared only on the method regularly employed. These provisions regarding method of accounting or statutory exceptions for computation of income, however, do not foul with the provisions of deduction of tax, neither with the provisions regarding allowance of certain expenses only on the basis of TDS. The provision for deduction of tax at source under chapter XVII make a payer of certain natures of payment liable to deduct tax at source at the time of credit in favour of the payee or at the time of payment. whichever is earlier. The provisions do not call for any deduction of tax at source if the payment is not actually made in the cases of assesses who employ cash basis of accounting .Conversely, deduction has to be made at the time of credit even when actual payment is not made when accounts are prepared on mercantile basis. The disallowance under section 40(a) of the I TAct, 61 is to be made if tax is not deducted at the time of payment or credit, whichever is earlier, depending upon assesses own method of accounting. 13.5 Our assessee who followed cash basis of accounting regularly cannot provide for liabilities and was not required to deduct tax at source once payment was not actually made. By deducting tax and depositing the same in the Govt. account, his liabilities with respect to his creditors have only lessened. But according to his own method of accounting he is entitled to deduction of the amount of liabilities ,in computing his income as long as he does not make actual payment. This disallowance is not in terms of section 40(a)(ia) of the I TAct, 61.
13.6 The authorised representative's contention that allowing of an expense was relatable to TDS is not fully acceptable. Disallowance due to non-compliance of TDS provisions can be made only in the cases where TDS provisions are attracted. But, disallowance because of method of accounting followed has to be made even where TDS provisions are not attracted.
13.7 In view of the foregoing discussion I have no other course left open but to disallow the provision for liabilities for expenses to the tune of Rs. 89,33,450/- and add the same back to total income. Since the assessee has concealed this income, penalty proceedings u/s 271(1)(c) is being initiated separately.”
In respect of the aforesaid four additions made in the course of assessment proceedings, the AO initiated penalty proceedings u/s.271(1)( c) of the Act and imposed penalty vide his order dated 30.6.2009 .
7 ITA No.07/Kol/2012 Sri Gautam Kumar Mitra A.Yr.2006-07 14. The explanation of the Assessee in the penalty proceedings on the various additions made in the assessment order were as follows: (i) On the addition of Rs.19,58,731.81 Ps. consequent to the Assessee filing reconciliation figures between the original balance sheet filed along with the return of income and revised balance sheet filed in the course of assessment proceedings, the Assessee drew the attention of the AO to the fact that the same happened owing the errors committed by the erstwhile Chartered Accountant. The same was detected by the Chartered Accountant who represented the Assessee in the assessment proceedings before the AO. The errors were detected and a revised balance sheet showing enhanced income of Rs.19,58,731.81 Ps. was filed by the Assessee voluntarily in the course of assessment proceedings and the same was accepted by the AO without any objection. The Assessee thus pointed out that it was not a case of either concealing particulars of income or furnishing inaccurate particulars of income by the Assessee. (ii) On the addition made of Rs.22,103/- under the head “Income from House Property”, the Assessee pointed out that the TDS certificates were filed by the Assessee in the course of assessment proceedings and it was from those certificates that the AO came to the conclusion that the rent receivable by the Assessee was Rs.84,892 but only rent actually received of Rs.53,316 was declared. The fact that the Assessee had included as income the tax deducted at source for rent receivable but not received in arriving at the rent received would clearly show that there was no intention whatsoever on the part of the Assessee to conceal any particulars of income or to furnish inaccurate particulars thereof. It was only because of the provisions of Sec.22 of the Act which lays down that the annual value of property consisting of any building or lands appurtenant thereto of which the assessee is the owner shall be subject to Income-tax under the head “Income from House Property after claiming deduction under Sec. 24 of the Act and the provisions of Sec. 23(1) of the Act, which provides that the annual value of any property shall be the sum for which the property might reasonably be expected to be let out from year-to-year or the rent actually receivable whichever is lower will be taken as annual value of property that the addition in question was made. It was therefore argued that there was no concealment of particulars of income or furnishing of inaccurate particulars of income. 7
8 ITA No.07/Kol/2012 Sri Gautam Kumar Mitra A.Yr.2006-07 (iii) On the addition of Rs. 5,57,283.43 Ps. being unexplained unsecured loans made u/s.68 of the Act, the Assessee submitted that in respect of addition made u/s.68 of the Act Explanation 1 to Sec.271(1) ( c ) of the Act would not be applicable and no penalty could be imposed in respect of such addition. In this regard the Assessee placed reliance on the decision of the Hon’ble Gujarat High Court in the case of National Textiles Vs. CIT 249 ITR 125 (Guj.). (iv) On the addition of Rs.89,33,450/- the Assessee pointed out that the addition in question was made owing to the method of accounting followed by the Assessee and that the genuineness of these expenses were never in doubt. In respect of such addition there cannot be any inference that the Assessee attempted to conceal particulars of income or furnished inaccurate particulars of income. The Assessee had placed all primarily facts before the AO and also made a bona fide claim how the deduction in question was to be allowed as a deduction. The fact that the same was not accepted in assessment proceedings cannot lead to any adverse inference in so far as penalty u/s.271(1)( c) of the Act. 15. The AO however rejected the contention of the Assessee. Following were the observations of the AO: “5. From the foregoing discussion it is clear that there \was concealment of particulars of income and furnishing of inaccurate particulars of income. The only explanation advanced about this undisputed fact of concealment of particulars of income as well as furnishing of inaccurate particulars of income is that the same was committed by the erstwhile accountant. This explanation can not absolve the assessee of his vicarious responsibility. Moreover. the assessee has not adduced any prima-facie evidence to substantiate the claim that the errors were committed by somebody else. nor has been able to pro.ve that the claim was bona-fide. He has failed to prove that all facts relating to the amounts added back or disallowed which are material to the computation of the total income have been disclosed by him before the intervention from the Revenue. Facts were actually hidden from the view as would be apparent from the distortions later on detected in the original balance sheet and profit and loss account. Penalty u/s 271 (1 )(c) of the Act is therefore innposable as regards concealment amounting to Rs. 19,58,731.81. 6. Regarding the second point of concealment of income from house property. the explanation forwarded is that the addition made in the assessment was not lawful because the assessee followed cash basis accounting, It was stated that the assessee would be filing a petition for rectification u/s 154 in due course.
9 ITA No.07/Kol/2012 Sri Gautam Kumar Mitra A.Yr.2006-07
The explanation furnished by the authorised representative is based on incorrect appreciation of law as regards charging of income. from house property. Section 145 which Provides for either cash or mercantile system of accounting regularly employed by the assessee is applicable in relation to income chargeable under the head 'Profit and Gains of Business or profession' or 'Income from Other sources'. The computation of income from let out house property is to be made as per sections 23(b) & 23(c) which prescribe actual rent received or receivable' as the basis. The assessee’s explanation is therefore unacceptable. It can not therefore be denied that there has been concealment of particulars of income in respect of rent in the original return and penalty u/s 271 (I )(c) is imposable.
Regarding the concealment by introduction of cash credit it has been claimed that penalty u/s 271 (I )(c) is not imposable in view of the ratio decindi of the case of National Textile vs. CIT (2001) reported in 249 ITR 125. I find that the case referred to is not identical. In the quoted case the assessee offered an explanation during the quantum proceedings that certain temporary loans were arranged by asssessee’s former accountant with whom relation later on got strained and that is why the asseessee was unable to furnish even the addresses of the parties. In the case of our assessee, initially unsecured loan was shown at Rs, 62,36,225/- in the original account. On reconciliation of the account the unsecured loan became Rs. 1,71,67,483.43 of which Rs. 5,57,283.43 wins shown as 'loan others'. There were two other loans in respect of which the assessee produced confirmations; but about 'loan others ' the assessee chose to remain silent without offering any explanation about the identity of the loan givers, not to speak of their credit worthiness. Even during the penalty proceedings the assessee did not come forward with any explanation that that actually were some loan givers.
I however that the ratio of the case is really applicable in the case of the assessee to prove the point of concealment by the assessee. I quote from the order- 'in order to justify the levy of penalty two factors must co-exist i) there must be some material or circumstances leading to the reasonable conclusion that the amount does represent the assessee's income. It is not enough for the purpose of penalty that the amount is assessed as income and ii) the circumstances must show that there was animu s, i.e . conscious concealment or act of furnishing inaccurate particulars on the part of the assessee No penalty can be imposed if the facts and circumstances are equally c01lsistemre with the hypothesis that the amount does not represent concealed income as with the hypothesis that it does. If the assessee gives all explanation which is unproved but not disproved, i.e., it is not accepted but circumstances do not lead to reasonable and positive inference that the assessee's case is false , the explanation can not help the Department because there is no material to show that the amount in question was the income of the assessee.’
In the case of our assessee there was no explanation offered which was required to be disproved and all facts and circumstance narrated in para 8.1 lead to the only reasonable conclusion that the. amount represents assessee's income and there was a conscious concealment and act of furnishing inaccurate particulars on the part of the assessee. There
10 ITA No.07/Kol/2012 Sri Gautam Kumar Mitra A.Yr.2006-07 was a deliberate attempt to hide assessee's own income behind the shelter of non existent "others ". Penalty u/s 271(1)(c) is therefore imposable in the case of the assessee. 11. Regarding addition of Rs. 89,33,450/- on the basis of method of accounting regularly followed by the assessee it has been contented that i) mere disallowance of an expense does no t automatically prove that the income has been hidden from view; ii) the assessee does not fall within the mischief of Explanation I to sec 271(1)(c); iii) it would not be justifiable to hold that the explanation offered by the assessee during the course of scrutiny for claiming the expenses could not be substantiated just because the revenue did agree with the same; and the question of proving 'all facts' relating to amounts added back or disallowed did not arise in the case of the assessee because: genuineness of the same is not questioned in the assessment. 12. I have perused the explanation given above but \bold the view that the aforesaid explanations do not take away the assessee from the mischief of penalty u/s 271 (I)(c) of the Act. Let us again recall the circumstances through which the case of the assessee has traversed. Assessee filed his return of income and the accounts in support of the same. At the intervention of the Revenue when the process of scrutiny started the assessee comes out with revised accounts. In the original accounts no creditors for liabilities for expenses were shown. Assessee has been maintaining his accounts consistently on cash basis and it was known to him or his accountant that no expenses which actually remain unpaid were allowable in cash basis of accounting. Even then provisions were made in the accounts and expenses were claimed thereby concealing the actual income according to the method of accounting. Hence, it cannot be viewed as a case of mere disallowance. Rather, it is a clear case of furnishing of inaccurate particulars of income for reducing his income. Considering the facts and circumstances of the issue involved I can not but hold that penalty u/s 271 (1)(c) of the Act is imposable on this issue also. The total tax sought to be evaded by concealment of income of Rs. 1,14,71,568/- [19,58,731.81 + 22,103/- + 5,57,283.43 + 89,33,450/-] was Rs. 34,41,471/-. Considering all facts and circumstances of the case I impose penalty u/s 271(I)(c) @ of 100% of the tax sought to be evaded, i .e. Rs. 34,41,471/- as payable by the assessee .”
On appeal by the Assessee, the CIT(A) confirmed the order of the AO. Hence the present appeal by the Assessee before the Tribunal.
We have heard the submissions of the learned counsel for the Assessee and the learned DR. The learned counsel for the Assessee reiterated submissions as were made before AO/CIT(A). The learned counsel for the Assessee also drew our attention to the show cause notice issued u/s.274 of the Act before imposing penalty and submitted that
11 ITA No.07/Kol/2012 Sri Gautam Kumar Mitra A.Yr.2006-07 the said notice does not specify as to whether the Assessee is guilty of having “furnished inaccurate particulars of income” or of having “concealed particulars of such income”. He pointed out that the printed show cause notice does not strike out the irrelevant portion viz., “furnished inaccurate particulars of income” or “concealed particulars of such income”. He drew our attention to a decision of the Hon’ble Karnataka High Court in the case of CIT Vs. Manjunatha Cotton & Ginning Factory (2013) 218 Taxman 423 (Kar.) wherein it was held that if the show cause notice u/s.274 of the Act does not specify as to the exact charge viz., whether the charge is that the Assessee has “furnished inaccurate particulars of income” or “concealed particulars of income” by striking out the irrelevant portion of printed show cause notice, than the imposition of penalty on the basis of such invalid show cause notice cannot be sustained. Besides the above several judicial pronouncements were cited before us for the proposition that when disclosure is made bona-fide in the course of assessment proceedings and the same is accepted by the AO, no penalty ought to be imposed. The learned DR relied on the order of the revenue authorities.
We have given a very careful consideration to the rival submissions. As far imposition of penalty with regard to the addition of Rs.19,58,732, the sequence of events was that the first hearing before the AO took place on 24.10.2008. On that date one of the partner of the newly appointed Chartered Accountant’s firm one Mr.B.Majumdar attended the hearing before the AO on 24.10.2008. In the liability side of the Balance Sheet as on 31.3.2006 there was an item of liability under the head “Secured Loan” Standard Chartered Bank (O/D A/c.) of Rs.25,48,385.37 Ps. The AO called upon the Authorised Representative (A/R) of the Assessee to furnish the details of the OD Account. The Assessee’s A/R vide his letter dated 21.11.2008 stated that the figures appearing in the balance sheet/profit and loss account submitted along with the return of income was not correct and a reconciliation of the said figures was being given. The reconciliation showed that there was in fact no O/D in bank account but 11
12 ITA No.07/Kol/2012 Sri Gautam Kumar Mitra A.Yr.2006-07 there was a favourable bank balance of Rs.25,48,456.33 Ps. The Assessee also gave the revised profit and loss account after rectifying certain mistakes in the earlier profit and loss account. The net effect after carrying out all rectification was that the income of the Assessee stood increased by Rs.19,58,731.46 Ps.
The AO was of the view that the Assessee cannot absolve himself of the responsibility and accountability just by attributing errors of earlier chartered accountant, that the errors were serious and definitely deliberate and the disclosure of addition income was not made by filing a revised return of income nor was the disclosure voluntary. The AO has also observed that there was no evidence to show that the erstwhile firm of chartered accountants of the Assessee in fact committed error. We are of the view such line of reasoning adopted by the AO for coming to the conclusion that the Assessee was guilty of having concealed particulars of income or furnished inaccurate particulars of income, is not proper. From the sequence of events narrated in the earlier paragraphs from the time the Assessee filed his return of income till the completion of the assessment, it has been the stand of the Assessee that the earlier firm of Chartered Accountants who filed the return of income of the Assessee, had committed errors and omissions in the matter of preparation of the Assessee’s profit and loss account as well the balance sheet besides errors and omissions in the computation of total income filed by the Assessee. The sequence of events and the various circumstances by itself is indicative of the fact a new firm of chartered accountants found several errors and made efforts to present the correct state of affairs. Moreover these explanations given by the new firm of chartered accountants were accepted by the AO and the AO has found no fault in their explanation when concluding the assessment. It is only in the penalty proceedings that the AO has give all the above reasons for imposing penalty on the Assessee. In the given facts and circumstances of the case, we are of the view that the imposition of penalty on the aforesaid addition cannot be sustained and the same is directed to be cancelled. The Hon’ble Supreme Court in the 12
13 ITA No.07/Kol/2012 Sri Gautam Kumar Mitra A.Yr.2006-07 case of Price Waterhouse Coopers (P) Ltd. Vs. CIT (2012) 25 Taxmann.com 400 (SC) was dealing with a case of imposition of penalty u/s.271(1)( c) of the Act when there are bona-fide and inadvertent errors. The Hon’ble Supreme Court held that in such circumstances, no penalty can be imposed. The learned DR however pointed out that in the aforesaid case, the Assessee filed a revised return of income but the Assessee in the present case did not file a revised return of income. In our view the aforesaid distinction sought to be made out by the learned DR cannot be the basis to sustain imposition of penalty. The fact remains that the addition to the total income was not because of any attempt to conceal particulars of income or to furnish inaccurate particulars of income but because of bona-fide and inadvertent error.
As far as imposition of penalty on the addition of Rs.22,103/- to the income under the head “Income from House Property”, the facts narrated by the Assessee in the course of assessment proceedings clearly show that the fact that rent receivable for the Mumbai property for the previous year was a sum of Rs.84,892/- was discernible from the details filed by the Assessee himself in the form of TDS certificate issued by BBC. Therefore there cannot be any complaint of concealment of particulars of income. The basis of the claim made by the Assessee was that income from house property has to be offered to tax on receipt basis only and not on the basis of accrual. The stand taken by the Assessee in this regard is not legally correct in the light of the provisions of Sec.22 and 23 of the Act, which we have discussed in the earlier part of this order. This is claim made by the Assessee though it is rejected cannot be the basis to impose penalty. The Hon’ble Supreme Court in the case of CIT Vs. Reliance Petroproducts Pvt.Ltd. 322 ITR 158 (SC) taken the view that making an incorrect claim will not amount to furnishing inaccurate particulars of income. We are of the view that imposition of penalty on this addition, therefore, cannot be sustained.
14 ITA No.07/Kol/2012 Sri Gautam Kumar Mitra A.Yr.2006-07 21. As far as the addition of Rs. 5,57,283.43 Ps. being unexplained unsecured loans made u/s.68 of the Act is concerned, the Assessee submitted that in respect of addition made u/s.68 of the Act Explanation 1 to Sec.271(1) ( c ) of the Act would not be applicable and no penalty could be imposed in respect of such addition. In this regard the Assessee placed reliance on the decision of the Hon’ble Gujarat High Court in the case of National Textiles Vs. CIT 249 ITR 125 (Guj.). The learned AO has however distinguished the aforesaid decision by pointing out that in the cited decision the Assessee offered an explanation which was neither proved nor disproved and therefore it was case where facts stood not proved. In such a situation alone penalty could be imposed. According to the AO, the Assessee in the present case offered no explanation whatsoever and hence, the imposition of penalty on this addition was justified. The learned counsel for the Assessee has stated before us that these were receipts towards profession expenses shown as outstanding liabilities. The Assessee was unable to compile the necessary details. According to him, this explanation in the light of the fact that such receipts are normal in the profession to which the Assessee belongs, was sufficient to apply the ratio of the decision in the case of National Textiles (supra). We are of the view that the argument put forth by the learned counsel for the Assessee are acceptable and therefore we hold that imposition of penalty on this addition, in the given facts and circumstances of the case, was not warranted.
As far as the addition of Rs.89,33,450 on account of disallowance of expenditure which were not actually paid by the Assessee is concerned, it is clear from the facts of the case that a sum of Rs.89,33,450 out of the expenditure debited in the profit and loss account represented professional fees payable to barristers, audit fee payable, outstanding salaries and wages at the end of the financial year and other liabilities for various expenses. These were liabilities for which the assessee had made provision in the profit and loss account. The Assessee was following cash system of accounting. Under the cash system of accounting, income actually received has to be declared as 14
15 ITA No.07/Kol/2012 Sri Gautam Kumar Mitra A.Yr.2006-07 income and expenses actually incurred could be claimed as deduction. Expenses actually not paid could not be claimed as deduction. The Assessee submitted before the AO that the Assessee ensured deduction of taxes upon receipt of the relevant bills for expenses and deposited the same with Government accounts irrespective of whether payments against the bills were made or not. Since the Tax deducted at source on the aforesaid expenditure which was not paid was deposited into the Government account, the Assessee claimed that it could claim the expenditure in question as deduction even under the cash system of accounting followed by the Assessee. This explanation of the Assessee was rejected by the AO not on the basis that the expenditure in question was not genuine but for the reason that under the system of accounting the deduction could not be allowed. The reasons assigned by the Assessee for claiming this expenditure on the basis of deduction of tax at sources, was also not disbelieved by the AO. In such circumstances we are of the view that the ration laid by the Hon’ble Supreme Court in the case of Reliance Petro products (supra) will support the plea of the Assessee. In the given facts and circumstances of the case penalty ought not to have been imposed even in respect of this addition.
The next argument on behalf of the Assessee was that the show cause notice u/s.274 of the Act which is in a printed form does not strike out as to whether the penalty is sought to be levied on the for “furnishing inaccurate particulars of income” or “concealing particulars of such income”. On this aspect we find that in the show cause notice u/s.274 of the Act the AO has not struck out the irrelevant part. It is therefore not spelt out as to whether the penalty proceedings are sought to be levied for “furnishing inaccurate particulars of income” or “concealing particulars of such income”.
The Hon’ble Karnataka High Court in the case of CIT & Anr. v. Manjunatha Cotton and Ginning Factory, 359 ITR 565 (Karn), has held that notice u/s. 274 of the Act should specifically state as to whether penalty is being proposed to be imposed for 15
16 ITA No.07/Kol/2012 Sri Gautam Kumar Mitra A.Yr.2006-07 concealment of particulars of income or for furnishing inaccurate particulars of income. The Hon’ble High court has further laid down that certain printed form where all the grounds given in section 271 are given would not satisfy the requirement of law. The Court has also held that initiating penalty proceedings on one limb and find the assessee guilty in another limb is bad in law. We are of the view that the aforesaid decision will squarely apply to the facts and circumstances of the present case and the order imposing penalty has to be held as bad in law and liable to be cancelled on this ground as well.
For the reasons given above, we hold that the penalty imposed u/s.271(1)( c) of the Act be cancelled. The appeal of the Assessee is allowed.
In the result, the appeal by the Assessee is allowed. Order pronounced in the Court on 11.05.2016.
Sd/- Sd/- [Waseem Ahmed] [ N.V.Vasudevan ] Accountant Member Judicial Member
Dated : 11.05.2016. [RG PS]
Copy of the order forwarded to:
1.Shri Gautam Kumar Mitra, 100, Mahendra Road, Kolkata-700025. 2. D.C.I.T. Circle-54, Kolkata. 3. CIT(A)-XXXVI, Kolkata 4. CIT-XIX, Kolkata. 5. CIT(DR), Kolkata Benches, Kolkata.