IN THE ITAT LUCKNOW BENCH (THIRD MEMBER)
Jai Narain Upadhyay
V/s.
Assistant Commissioner of Income-tax-II
IT APPEAL NO. 318 (LKW.) OF 2011
[ASSESSMENT YEAR 2001-02]
MAY 4, 2012
ORDER
Sunil Kumar Yadav, Judicial Member
This appeal is preferred by the assessee against the order of the ld. CIT(A) confirming the penalty of Rs. 30,600 under section 271(1)(c) of the Income-tax Act, 1961 (hereinafter referred in short “the Act”).
2. Briefly, the facts borne out from the record are that return of income showing total income of Rs. 1,85,810 was furnished on 23.10.2001. On 30.10.2002 a second return showing total income of Rs. 2,85,810 was furnished, in which an amount of Rs. 1 lakh, which had been claimed as gift (exempt income) in the original return, was surrendered as unexplained income. The second return filed on 30.10.2002 was not considered to be a valid revised return as the original return was not filed within the time prescribed under section 139(1) of the Act. According to the Revenue around February, 2002 the Department discovered that a racket of bogus gifts had been in operation in Kanpur and on receipt of specific information that the assessee was a beneficiary, proceedings under section 147 of the Act were initiated and assessment was made. In the course of assessment, the Assessing Officer required the assessee to establish the genuineness of the credit appearing in its bank account which the latter failed to do. The Assessing Officer accordingly concluded that the second return was not a valid return in the eyes of law and the assessee has concealed the particulars of income which had been brought back by him in the garb of alleged gift. The Assessing Officer also initiated penalty proceedings under section 271(1)(c) of the Act and imposed a penalty of Rs. 30,600.
3. Penalty was challenged before the ld. CIT(A) with the submission that the assessment was made on 28.3.2005 in which penalty was initiated. A reply to the notice for penalty was submitted on 7.4.2005. The assessee met with an accident and died on 16.4.2005. Another notice of penalty was issued on 13.9.2005 in the assessee’s name. A letter was submitted to the Assessing Officer on 19.9.2005 conveying that the assessee had died. No notice was addressed or issued by the Assessing Officer to the Legal Heir of the assessee. Penalty was imposed on 30.9.2005. It was also contended that it was mandatory to issue notice to the Legal Heir and if the order is passed without following the requirement, it is bad in law. In support of his contention, the ld. counsel for the assessee relied upon the judgment in the following cases:-
1. ITO v. Bibhuti Mishra [1985] 13 ITD 158 (Patna).
2. Shaikh Abdul Kadar v. ITO [1958] 34 ITR 451 (MP).
3. Jai Prakash Singh v. CIT [1978] 111 ITR 507 (Gau.)
4. On merit also, it was contended before the ld. CIT(A) that the assessee has voluntarily declared the additional income of Rs. 1 lakh by filing the revised return, therefore, no adverse inference can be drawn that the assessee has either concealed income or has furnished inaccurate particulars of such income which warrants the Assessing Officer to levy penalty under section 271(1)(c) of the Act, The ld. CIT(A) re-examined the issue but was not convinced with the explanations of the assessee. With regard to non-service of penalty notice upon the Legal Heir of the assessee, the ld. CIT(A) has held that the death of the assessee was not timely informed, therefore, the Assessing Officer could not fulfill the requirement of law. The relevant observations of the ld. CIT(A) in this regard are extracted hereunder:-
“1.2.1 The assessee’s submission has been considered. Law allows the proceeding to be continued in the hands of the legal heir after the death of the assessee. In this case, the assessee is reported to have died on 16.4.2005 but the fact of his death was not communicated to the AO. It was communicated to him only on 19.09.2005 in response to the fresh show cause issued by him (in the name of the assessee). Since the last date for conclusion of the penalty proceeding was 30.09.2005, the AO was not left with hardly any time to do the necessary enquiry, serve notice in the name of the legal heir, hear her and then take a decision. No doubt, law requires that the AO should identify the legal heir/s and issue notice/s to him/them before taking any decision in the matter. But, since the assessee’s death was not notified to him in time, the AO could not have possibly followed this requirement in letter and spirit. An officer is not expected to do the impossible. Since income tax proceedings are subject to law of limitation, the failure to issue notice to the legal heir may at best be treated as a procedural irregularity and not nullity. Moreover, it is noticed that the penalty order is made in the name of “Late Sri Jai Narain Upadhya. L/H Smt. Kusum Upadhyay”. This shows that the order was made in her name. Moreover, since the reply furnished by her vide her letter dt. 19.09.2005 was considered before taking a decision in the matter, she was effectively heard. In view of this, the challenge to the validity of penalty on the ground discussed above is rejected.”
5. On merit, the ld. CIT(A) has relied upon the averments of the Assessing Officer made in the penalty order that there was a racket of bogus gifts in operation in Kanpur and the assessee was one of the beneficiaries of it and when the assessee has realized that he may be caught, he came forward and filed voluntary return declaring receipt of gift as additional income.
6. Aggrieved, the assessee has preferred an appeal before the Tribunal with the submission that the penalty order under section 271(l)(c) of the Act is not sustainable in the eyes of law on two counts. First is that no valid notice for levying penalty was ever served upon the Legal Representative of the assessee. Imposition of penalty under section 271(l)(c) of the Act is a quasi criminal proceeding and it cannot be done without affording proper opportunity of being heard to the aggrieved parties. He again placed reliance upon the following judgments:-
1. Bibhuti Mishra (supra)
2. Shaikh Abdul Kadar (supra)
3. Jal Prakash Singh (supra)
7. On merit, the ld. counsel for the assessee has submitted that the assessee has filed the return on 30.10.2001 declaring total income at Rs. 1,85,810. Later on second return showing total income of Rs. 2,85,810 was furnished in which an amount of Rs. 1 lakh, which has been claimed as gift in the original return, was surrendered as unexplained. Second return could not be treated as a valid revised return by the Assessing Officer because the first return was not filed within the period prescribed under section 139(1) of the Act. But in any case, the assessee has declared the additional income and paid the taxes thereon before any detection by the Revenue in this regard. The Revenue has placed the story of racket of bogus gift, but nothing was brought on record before reopening the assessment by issuing notice under section 148 of the Act on 19.3.2004. Since the assessee has already declared the additional income and paid taxes thereon, it cannot be said on a subsequent date that there is an income chargeable to tax has escaped assessment. Therefore, even reopening of the assessment under section 147 of the Act was not valid. In a situation where an assessee has already declared the additional income, the same cannot be called to have been concealed subsequently by reopening the assessment. The Revenue has made out a case that the assessee has received gift of Rs. 5 lakhs from Shri Babu Ram Gupta on the basis of information received from the Investigation Wing, but in fact the assessee received a cheque amounting to Rs. 1 lakh only from Shri Babu Ram Gupta. Therefore, whatever information received by the Revenue was also not correct. Since the assessee has already declared the additional income before detection by the Revenue, the additional income declared by the assessee cannot be treated to be a concealed income or furnishing of inaccurate particulars of such income which warrants the Assessing Officer to initiate penalty proceedings under section 271(l)(c) of the Act.
8. The ld. D.R., on the other hand, has placed heavy reliance upon the order of the ld. CIT(A).
9. Having given a thoughtful consideration to the rival submissions and from a careful perusal of record, we find that the first return of income was not filed by the assessee within the period prescribed under section 139(1) of the Act. Therefore, the second return filed by the assessee declaring the additional income on account of receipt of gift cannot be considered to be a valid revised return under section 139(5) of the Act. But, in any case the assessee has come forward and declared the additional income and paid taxes thereon. Now the question arises where the assessee himself has declared additional income by filing return of income and paid taxes thereon; whether penalty under section 271(1)(c) of the Act can be levied for concealment of income or furnishing of inaccurate particulars of such income. In this regard, we have carefully examined the relevant provisions of section 271(l)(c) of the Act and we find that for levying penalty under section 271(l)(c) of the Act, the Assessing Officer has to be satisfied that the person has concealed the particulars of his income or furnished inaccurate particulars of such income. Certain Explanations have also been inserted in this provision dealing with certain situations whether the additional income can be considered as deemed concealed income. But the present situation was not dealt with under any of the Explanations. We however examined the total prospectus of the case and we find that the Revenue has taken a stand that they have received certain information in the year 2002 that a racket of bogus gift was in operation in Kanpur and the assessee was also one of the beneficiaries. But, in this regard nothing is placed on record to substantiate that the Revenue has received information from the Investigation Wing with respect to the assessee and the Revenue has questioned the assessee about the bogus gift.
10. Undisputedly, return was filed by the assessee on 23.10.2001. Second return declaring additional income on account of receipt of gift was filed on 30.10.2002 and paid taxes thereon. Since October 2002 till 19.3.2004, neither any notice under section 148 of the Act was issued nor any action was taken by the Revenue. Moreover, nothing is placed on record by the Revenue to substantiate that they have received some information with regard to the bogus gift received by the assessee though they have reopened the assessment by issuing notice under section 148 of the Act on 19.3.2004 and framed the assessment on the additional income declared by the assessee. It is also evident from record that according to the Revenue they received information about receipts of gift of Rs. 5 lakhs from Shri. Babu Ram Gupta but in fact the assessee received gift of Rs. 1 lakh only from Shri Babu Ram Gupta. During the course of assessment proceedings, the assessee has furnished explanation as to why it could not obtain confirmation. Even if the stand taken by the Revenue is considered to be correct, it would not match the corresponding entries in the books of account of the assessee.
11. We have also examined another aspect with regard to the validity of the penalty order. Undisputedly assessment was completed on 28.3.2005 and in response to show-cause notice for penalty, reply of the assessee was submitted on 7.4.2005. On 16.4.2005 the assessee met with an accident and died. Another penalty notice was issued on 13.9.2005 and in response thereto, the Assessing Officer was informed vide letter dated 19.9.2005 that the assessee had died on 16.4.2005. Thereafter no notice was issued by the Assessing Officer to the Legal Heirs of the assessee and penalty was imposed on 30.9.2005. The penalty proceedings are considered to be quasi-criminal proceedings by the Hon’ble Apex Court and various High Courts and such proceedings should be concluded after affording proper opportunity of being heard to the assessee. In the instant case when the assessee was expired, proper opportunity of being heard should have been afforded to the Legal Representative of the assessee. But the fact is that even notice was not served upon the Legal Representative of the assessee and penalty order was passed in the name of the assessee through his wife, Smt. Kusum Upadhyay without affording her any opportunity to represent the assessee before the Assessing Officer. We are, therefore, of the view that penalty order was passed without affording any opportunity to the Legal Heir of being heard and to attend their case. Even the L.Rs were not brought on record by the Assessing Officer.
12. So far as merit of penalty is concerned, we find that the original return was processed under section 143(1) of the Act and notice under section 148 of the Act for reopening the assessment was issued on 19.3.2004, Before reopening of the assessment, the assessee on his own filed the second return of income declaring receipt of gift of Rs. 1 lakh as income from other sources and paid taxes thereon by filing a return on 30.10.2002. Nothing has been brought on record to substantiate that the assessee has filed second return when the concealment of income was detected by the Revenue. It is also evident from record that assessment was also reopened on the basis of the additional income declared by the assessee as income escaped assessment whereas the assessee has voluntarily declared the income and paid taxes thereon. Since the assessee has already declared additional income before reopening of the assessment, the additional income declared by the assessee cannot be called to be concealed income which warrants the Assessing Officer to levy penalty under section 271(l)(c) of the Act.
13. We have also carefully examined the judgment of the Hon’ble jurisdictional High Court in the case of CIT v. Km. Sonali Jain [2012] 21 taxmann.com 494 (All.) in which the additional income was declared by filing a revised return, and the penalty was levied on the additional income by the Revenue under section 271(l)(c) of the Act. While deleting the penalty, their Lordships of the jurisdictional High Court have held that there is no primary evidence to establish that the assessee has concealed her income or furnished inaccurate particulars.
14. On a careful perusal of the facts of the case, we are of the view that under the given facts and circumstances, penalty under section 271(l)(c) of the Act is not sustainable in the eyes of law. We, therefore, set aside the order of the ld. CIT(A) and delete the penalty.
15. In the result, appeal of the assessee is allowed.
B.R. Jain, Accountant Member – Unable to agree with the order proposed by learned Judicial Member, I proceed to write my own order as under.
2. Briefly, the facts are that the appellant filed belated return of income on 23/10/2001 declaring an income of Rs. 1,65,610/- as his income from salaries, house property and interest etc. The assessee thereafter on 30/10/2002 furnished another return declaring income of Rs. 2,85,810/-. In this return the assessee also included receipt of Rs. 1,00,000/- as his income claiming the same to be the amount of gift received from Shri Babu Ram Gupta. On the basis of information on record that income of assessee has escaped assessment, notice u/s 148 of the Act was issued on 19/03/2004 In response thereto, the assessee stated that the return already filed on 30/10/2002 may be treated as compliance to the said notice. In the assessment proceedings the Assessing Officer did not treat the return dated 30/10/2002 as a valid revised return u/s 139(5) of the Act as this return was filed by the assessee disclosing his concealed income and not that the assessee had discovered any omission or any wrong statement in the return required to be filed u/s 139(1) of the Act. In the assessment proceedings the statement of assessee was recorded on oath on 11/03/2005 and the assessee could not lead any evidence to prove the genuineness of the transaction of gift. The assessee, however, stated that he was in need of money so being a friend Shri Babu Ram Gupta had given gift cheque of Rs. 1,00,000/- but when he asked to give in writing for income tax purposes, he showed his inability in this regard and thus the amount of Rs. 1,00,000/- was surrendered by him for his inability to prove the transaction. The Assessing Officer in the absence of any documentary evidence having been brought on record to show that this was a gift received by the assessee, took it that the return subsequently filed on 30/10/2002 was not a return filed in a bona fide manner. He, therefore, taking it the income of Rs. 1,00,000/- as the concealed income of the assessee completed the assessment at an income of Rs. 2,90,808/- and also initiated penalty proceedings u/s 271(1)(c) of the Act for furnishing inaccurate particulars of income with reference to original return leading to concealment of income.
3. In response to show-cause notice the appellant filed his reply on 07/04/2005 and thereafter in response to another show cause notice dated 13/09/2005 issued in the name of the appellant assessee, his widow participated in the proceedings and informed that her husband Late Shri Jai Narain Upadhyay has expired in a road accident on 16/04/2005 and also relied on the reply dated 07/04/2005 and also certain case laws as are reproduced in the penalty order. The same came to be duly considered by the Assessing Officer. The case laws so relied were found to be different on facts and not applicable to the facts of the assessee’s case before him.
4. The Assessing Officer was of the opinion that the concealment has to be reckoned viz-a-viz the original return of income. In this case there was no valid revised return u/s 139(5) of the Act. The subsequent return filed by the assessee on 30/10/2002 was a return to declare his concealed income. The surrender made by the assessee in this return was neither voluntary nor in good faith but was as a result of investigation made by Revenue. The assessee has done concealment in this case after meticulously planning the act of taking bogus gift and filing the income tax return on 23/10/2001 which was belated and surrendering income subsequently on 30/10/2002 by Rs. 1,00,000/- was pursuant to enquiries made by DI(Inv.), Kanpur. Reference has also been made to the following case laws:
(1) Hon’ble Madras High Court in the case of Sivagaminatha Moopanar & Sons v. CIT [1964] 52 ITR 591 (Mad.) where it has been held as under:
“If an assessee, therefore makes a false return knowing it to be false, the fact that he subsequently discloses the true particulars of income Chartered Accountant not prevent the application of the section which is intended to punish fraud or continuing on the part of assessee indeed to such a case, it would not even be open to the assessee to submit revised return.”
(2) Hon’ble Guwahati High Court in the case of Sunanda Ram Deka v. CIT [1994] 210 ITR 988 where it has been held as under:
“Mere filing of revised return is not sufficient to bring it within ambit of section 139(5). The further requirement is that the omission or mistake in the original return must be due to bona fide inadvertence of mistake on part of assessee.”
(3) Hon’ble Allahabad High Court in the case of Addl. CIT v. Radhey Shyam [1980] 123 ITR 125/[1979] 1 Taxman 29 wherein it has been held as under:
“It thus appears to us that in order to avoid imposition of penalty contemplated by section 271(1)(c) by reason of the revised return, the revised return itself must fulfil the perquisite or sub section 5 of section 139. In other words it must fell within the ambit of that provision. If it cannot be said that an assessee was justified in filing of a revised return, then the assessee will not be entitled to get the revised return to be taken into consideration for the purpose of imposition of penalty. A revised return may suppliant of original return or replace and substitute it, provided that the provisions of section 139(5) were fulfilled.”
5. The Assessing Officer therefore found that the explanation of the assessee was not bona fide and held that the assessee had concealed the particulars of taking gift of Rs. 1,00,000/- from the racket involving gift scam and about the credit entry of Rs. 1,00,000/- he furnished inaccurate particulars in original return filed on 23/10/2001. It was thus a failure on the part of the assessee to furnish full and all material facts necessary for his assessment in his original return and the assessee has failed to produce any documents or the donors for cross-examination. He, therefore, imposed minimum penalty of Rs. 33,600/- u/s 271(1)(c) of the Act for furnishing inaccurate particulars leading to concealment of income and calculating the same on the basis of 100% of the tax sought to be evaded on such income of the assessee.
6. The learned CIT(A) confirmed the penalty imposed by the Assessing Officer. Assessee has placed reliance on three judgments i.e. Bibhuti Mishra (supra), Shaikh Abdul Kadar (supra) and Jai Prakash Singh (supra) challenging validity of penalty by the same stood rejected on the ground that there has been a failure on the part of the assessee himself in not bringing the legal heirs on record in time and secondly the order was made in the name of the legal heir after considering her reply dated 19/09/2005.
7. On merit he found that the Department had detected the bank account through which the bogus gifts have been channelized and it is only thereafter the assessee filed a subsequent return on 30/10/2002 disclosing his concealed income of Rs. 1,00,000/-. This was not a return filed on account of discovering of any omission or wrong statement therein. The original return of income filed on 23/10/2001 was a belated return and as such the subsequent return dated 30/10/2002 was not a return of income u/s 139(5) of the Act. Elaborately discussing the issue and concurring with the findings by way of a speaking order as were also reached by the Assessing Authority, he confirmed the imposition of penalty and dismissed the grounds raised in appeal as well as the appeal filed by the assessee.
8. Heard parties with reference to material as well as case laws brought on record. Admittedly, the widow of the deceased Smt. Kusum Upadhyay who has also preferred an appeal before this Appellate Tribunal had participated in the penalty proceedings before the Assessing Officer notwithstanding the fact that notice was issued in the name of the dead person. No other legal heir has been brought on record by the appellant. Since the widow of the deceased had already participated in the proceedings notwithstanding the fact that notice was issued in the name of the dead person, the defect in the notice stands automatically cured. This view finds support from the judgment by Hon’ble M.P. High Court in the case of Smt. Kaushalyabai v. CIT [1999] 238 ITR 1008. On these peculiar facts the judgment sought to be relied on behalf of the appellant requiring this Tribunal to treat the penalty order passed without affording any opportunity to the legal heir of being heard becomes purely academic. I also do not find this case of a penalty imposed on the dead person. The widow having participated in the proceedings, this cannot be taken as a case of denial of opportunity and any defect in the notice has to be taken as cured in the light of the aforesaid judgment of Hon’ble M.P. High Court. The plea so raised as well as ground No, 3 in appeal stand rejected.
9. On merit I find that the assessee has failed to furnish material facts for computation of income in the original return filed by him. No material is shown to have been adduced for the receipt of the aforesaid amount of Rs. 1,00,000/- and its particulars as gift are also not shown to have been disclosed in the original return of income filed by the assessee. Neither the donor was produced nor any confirmation and documentary evidence for substantiating his explanation has been filed in the penalty proceedings. Admittedly, the original return of income filed on 23/10/2001 is a belated return and the subsequent return filed on 30/10/2002 is not a valid return u/s 139(5) of the Act. The disclosure of Rs. 1,00,000/- as his income in the subsequent return is not found to be a voluntary disclosure. The appellant has not brought any record to show that how he is known to the said Shri Babu Ram Gupta and how he claims him to be his friend. The element of love and affection as well as the friendship has not been explained. Merely a claim of his being a friend has been made without substantiating the same by any documentary evidence or bringing on record any circumstantial material or record to prove his claim. The explanation thus given by him lacks total faith and is not found bona fide. The judgment rendered by Hon’ble Allahabad High Court in the case of Km. Sonali Jain (supra), placed on record by the assessee, is also not found applicable to the peculiar case of the appellant before us as in the case before the Hon’ble High Court the respondent had filed a valid revised return and had also produced the donor who had testified of making the valid gift. The Hon’ble High Court also found that the assessee respondent in that case did not fail to furnish any explanation regarding material facts for computation of her income nor the explanation furnished by her was found false. In the present case, however, 1 find that the assessee has failed to disclose true particulars of his income in the original return filed and the subsequent return filed was merely to disclose the income which stood concealed in the original return being a belated return. Thus this is a case where original return of income filed by the assessee was a false return where the assessee has disclosed inaccurate particulars of income leading to concealment of his income. This is an admitted position of law that the offences of the penalty has to be examined with reference to the original return of income as has been held by the Apex Court in the case of CIT v. Onkar Saran & Sons [1992] 195 ITR 1/62 Taxman 440 where the Apex Court affirmed the judgment by Hon’ble Allahabad High Court in the case of Addl. CIT v. Onkarsaran [1979] 116 ITR 317 (All) and held that even in a case where a return filed in response to a notice under section 148 involved an element of concealment, the law applicable would be the law as it stood at the time when the original return was filed for the assessment year in question and not the law as it stood on the date on which the return was filed in response to the notice under section 148.
10. On the peculiar facts and the findings as have been set out in the orders of the authorities below and the finding as reached herein before by me and considering the law that stood at the time of filing the original return of income and the assessee is found to have filed a dishonest and false return of income and had concealed income initially with a view to avoid payment of tax. The subsequent return filed on 30/10/2002, therefore, does not obliterate the fact of earlier mala fide return filed by the assessee. Even the explanation filed in response to notice u/s 271(1)(c) of the Act is not found bona fide. The penalty for furnishing inaccurate particulars leading to concealment of income is exigible in this case. This view also finds support from the judgment rendered by the Hon’ble Bombay High Court, Panaji Bench, in the case of Jyoti Laxman Konkar v. CIT [2007] 292 ITR 163 and also by Hon’ble Madras High Court in the case of M.S. Mohammed Marzook (Late) v. ITO [2006] 283 ITR 254 (Mad.). Finding no error in the order of learned CIT(A). The imposition of penalty is found valid. There being no merit in the grounds raised in appeal by the assessee, the same are rejected.
11. In the result, the appeal by assessee stands dismissed.
THIRD MEMBER ORDER
