Case Law Details

Case Name : R.S. Tradelink Pvt. Ltd. Vs ACIT (ITAT Surat)
Appeal Number : ITA No. 2130/AHD/2014
Date of Judgement/Order : 04/02/2021
Related Assessment Year : 2008-09

R.S. Tradelink Pvt. Ltd. Vs ACIT (ITAT Surat)

No penalty unless there was conscious concealment or furnishing of inaccurate particulars of income

Conclusion: Penalty under section 271(1)(c) was not leviable as AO was not certain that for which limb he wanted to initiate penalty proceedings, that is, for concealment of income or for furnishing inaccurate particulars of income. AO initiated penalty proceedings on one footing and concluded on other footing, therefore, the basis of levy of penalty itself was not correct.

Held: During the scrutiny assessment, AO had made addition, on account of Long Term Capital Gain. AO in assessment order, had stated that penalty proceedings under section 274 r.w.s 271(1)(c) should be initiated for furnishing inaccurate particulars of income and concealment of income. However,  AO  had initiated penalty proceedings for concealment of income. Assessee challenged penalty levied by AO. It was held that AO had initiated the penalty proceedings on one footing and concluded on other footing. AO was not certain that for which limb he wanted to initiate penalty proceedings, that is, for concealment of income or for furnishing inaccurate particulars of income. Therefore, the basis of levy of penalty itself was not correct. Assessee company sold the land to Ambuja Cement for a certain consideration and out of the said receipt the bank loans were to be paid by the company. When this fact (that the said amount was not disclosed in the original return by way of capital gain) was drawn to the attention of the Director, he immediately and voluntarily offered the long term capital gain in the hand of the company by revising the return of income. The amount received from the transferee company of M/s Ambuja Cement had been shown by assessee-company under the head loan and advances, hence, there was no conscious concealment of income. So, where the circumstances of a case establish that the mistake was accidental and inadvertent and there was no material at all to justify any want of bona fide or any gross neglect, imposition of penalty was not justified.[ Mahadeshwara Movies 144 ITR 127 (kar) ]. Therefore, in the assessee’s case the penalty was not leviable unless it was shown that there was a conscious concealment or furnishing of inaccurate particulars of income.

FULL TEXT OF THE ORDER OF ITAT SURAT

Captioned appeal filed by the assessee, pertaining to the Assessment Year (AY) 2008-09, is directed against the order passed by the learned Commissioner of Income Tax (Appeals)-II, Surat [in short “the ld. CIT(A)”] in Appeal No. CAS-II/189/2013-14 dated 08.05.2014, which in turn arises out of penalty order passed by the Assessing Officer under section 271(1)(c) of the Income Tax Act, 1961 [hereinafter referred to as the “Act”]. The grievances raised by the assessee are as follows:

“1. On facts and circumstance of the case, the learned CIT(A) has erred in confirming the penalty of Rs.2,11,09,303/- u/s. 271(l)(c) of the Act as levied by the ld. AO in respect of the long term capital gain income of Rs.9,31,56,673/-without considering the contentions of the assessee, which is absolutely erroneous and bad-in-law and needs to be deleted in the interest of natural justice and equity.

2. The assessee craves to add, amend, alter, substitute, modify the above ground of appeal, if necessary, on the basis of submissions to be made at the time of personal hearing.”

2. Additional Grounds raised by assessee is as follows:

“On the facts and circumstances of the case as well as law on the subject, the learned assessing officer has erred in levying penalty u/s. 271(1)(c) and ld. CIT(A) has erred in confirming the penalty when assessing officer had not specified in the notice u/s.271(1)(c) r.w.s. 274 and in the penalty order whether the penalty was leviable for concealment of income or for furnishing inaccurate particulars thereof.”

3. Brief facts qua the issue are that assessee is a private limited company and engaged in the business of Coal trade. The assessee company filed its return of income on 30.09.2008 declaring total income of Rs.10,37,714/-. The scrutiny assessment under section 143(3) of the Act was finalized on 29.12.2010, with total income of Rs.9,51,17,548/-.

No penalty unless there was conscious concealment or furnishing of inaccurate particulars of income

During the scrutiny assessment, the assessing officer has made two additions, on the followings issues:

(i).Addition made on estimated bases, that is, Estimated business income of Rs.19,60,875/- (Rs.6,53,62,500 x 3%),

(ii). Addition, on account of Long Term Capital Gain of Rs.9,31,56,673/-.

The assessing officer, vide para 11 of the assessment order, had stated that penalty proceedings under section 274 r.w.s 271(1)(c) of the Act should be initiated on both the additions for furnishing inaccurate particulars of income and

concealment of income. However, in para 8 of assessment order, in respect of penalty on estimated addition, the assessing officer has initiated the penalty

proceedings for furnishing inaccurate particulars of income. In respect of Income from capital gains, vide para 9 of assessment order, assessing officer has initiated penalty proceedings for concealment of income. However, in penalty order under section 271(1)(c) of the Act, the assessing officer has initiated penalty proceedings for both the additions for both the limbs, that is, concealment of income and furnishing inaccurate particulars of income and levied penalty observing as follows:

“9. In the light of the facts and circumstances of the case and forgoing discussion, I am satisfied that the assessee company has concealed the particulars of income and furnished the inaccurate particulars of it. Therefore penalty u/s.271(1)( c) is levied. As per section 271(1)(c) of the Act the amount of penalty should very between 100% to 300% of tax sought to be evaded. The amount of penalty under said section the amount of penalty ratios from tax sought 100% to be evaded to 300% of tax sought to be evaded, The working of quantum of penalty is as under:

(i) Income sought to be evaded
Business income Rs. 6,53,625/-
Long term Capital gain.. Rs.9,31,56,6737-
ii) Tax sought to be evaded with surcharge & education cess Rs.2,13,31,470/-
(iii) Minimum penalty leviable Rs.2,13,31,470/-
(iii) Maximum penalty leviable Rs.9,39,94,410/-

10. But considering the unavoidable absence of director who manages the company affairs I hereby levy a penalty of Rs.2,13,31,470/- being minimum penalty @100% of the tax sought to be evaded u/s.271(1)(c) of the Income-tax Act, 1961.”

4. Aggrieved by the penalty order under section 271(1)(c) of the Act, the assessee carried the matter in appeal before the ld. CIT(A), who has deleted the penalty in respect of addition based on estimation made by the Assessing Officer observing as follows:

“6.6 The assessee’s contention has been examined. As regards the net profit addition, the assessee’s contention is accepted to be a bonafide explanation, as non – production of certain details at the time of assessment proceedings may be due to personal problems of the director. Consequently, the penalty levied by the assessing officer in respect of net profit addition is cancelled and the ground no.1(a) of the appeal is decided in favour of the assessee.”

5. However, the ld. CIT(A) has confirmed the penalty under section 271 (1) (c ) of the Act, in respect of addition made by the assessing officer under the head Long Term Capital Gain(LTCG). That is, the penalty, under section 271 (1) (c ), imposed by the assessing officer, in respect of addition of LTCG of Rs.9,31,56,643/-, was confirmed by the ld CIT(A).

6. Aggrieved by the order of the ld. CIT(A), the assessee is in appeal before us in respect of the penalty, under section 271 (1) (c ) of the Act pertaining to addition of LTCG of Rs.9,31,56,643/- which was confirmed by the ld CIT(A).

7. Shri Rasesh Shah, ld. Counsel for the assessee submits before us that facts and circumstances of the case are to be considered afresh in penalty proceedings and penalty cannot be levied solely on the basis of reasons given in the assessment order. In the assessee`s case there is neither furnishing of inaccurate particulars of income nor concealment of income on the part of the assessee hence, the levy of concealment penalty in respect of long term capital gain is not justified at all. The ld Counsel pointed out that assessing officer has initiated penalty proceedings u/s 271(1)(c ) of the Act, in the assessment order in respect of long term capital gain only for one limb, that is, concealment of income, vide para 9 of assessment order. However, in the penalty order under section 271(1) (c ) of the Act, the assessing officer has initiated the penalty for both limbs, that is, concealment of income and furnishing inaccurate particulars of income, therefore the charge on the assessee is not certain, hence, the penalty proceedings are bad in law on this account.

8. On the merits, Shri Rasesh Shah, submits before us that assessee company has two directors viz. Rajendra Singh Yadav and his wife Smt. Indra R. Yadav, who were managing the day to day affairs and accounts of the assessee company. However, one of the Director Smt. Indra R. Yadav developed cancer in February 2005 and ultimately died of the same disease. The other Director of the company, Shri Rajendra Singh Yadav being her husband, had to accompany her in hospital to look after her and had to be away from business affairs during the period of her treatment and thus both the Directors being away from business, the company’s business and accounts suffered severely. Further, on account of death of his wife, Shri Rajendra Singh Yadav, fell into high depression and could not fully resume the business affairs of the assessee company for subsequent years and had to consult a psychologist also and go for the various treatments to cure depression. Therefore, in the year under consideration, in December 2007, the property of the assessee company at Survey No. 52, at Village Gavier, District Surat was decided to be sold to Ambuja Cement Ltd. for a consideration of Rs. 9,61,76,433/- and out of the said receipt, the bank liabilities were to be paid off. However, on account of death of one of the Director and mental / trauma and depression to the other Director, the employee and the auditor of the assessee company were not aware of the fact that the sale agreement was executed by the Director of the assessee company with Ambuja Cement Ltd. and accordingly, they showed the amount received from the Ambuja Cement Ltd. as Loans, and Advances instead of transferring it to fixed asset account and thereby recognizing long term capital gain. However, during the course of assessment proceedings, the said fact was drawn to the attention of the Director of the assessee company viz. Shri Rajendra Singh Yadav and he immediately, voluntarily offered the long term capital gain in the hands of the assessee company by revising the return of income. Therefore, considering these circumstances, there is no concealment of income on the part of the assessee company.

9. On the other hand, Shri Ritesh Mishra, ld. Departmental Representative for the Revenue submitted that so far charge for initiation of penalty under section 271(1) (c ) of the Act is concerned, it is only a typographical error made by the assessing officer to levy penalty in assessment order on account of concealment of income and to levy penalty in the penalty order for concealment of income and furnishing inaccurate particulars of income, hence these technicality may be ignored, as the intention of the assessing officer was to levy penalty which is getting reflected in the assessment order itself.

10. On merits, Shri Ritesh Mishra, submits that assessee was given sufficient opportunity during the assessment stage to submit the details and documents, however, the assessee has failed to do so. The assessee sold the immovable property for the sale consideration of Rs.9,31,56,673/-. This income was not reflected in the original return of income filed by the assessee company. This information was made available to the assessee on 22.11.2010. In response to this, the assessee filed the revised return in paper form on 24.12.2010, offering the income from Long Term Capital Gain of Rs.9,31,56,673/- from the sale of land. As the revised return filed by the assessee was barred by limitation, therefore the Assessing Officer treated the revised return as void and non-est in the eye of law. Hence, the penalty imposed by the Assessing Officer is valid and therefore it should be upheld.

11. We have heard both the parties and carefully gone through the submissions put forth on behalf of the assessee along with the documents furnished and the case laws relied upon, and perused the facts of the case including the findings of the ld. CIT(A) and other material brought on record. We note that in respect of addition pertaining to “Long Term Capital Gain”, the property in question was sold in December 2007. The books of accounts of the assessee company are audited, however, the amount was shown as “Loans and Advances” received in the books of accounts, rather than offering the corresponding amount from the Long Term Capital Gain (LTCG). Moreover, the return of income was filed in September, 2008 and it was revised only on 24.12.2010 i.e. more than two years after filing the original return of income. Learned CIT(A) noticed that assessee was under pressure to re-pay the loans to the banks etc. and probably for this reason, the amount was shown as “Loans and Advances” to avoid additional liability of tax, in respect of “Long Term Capital Gains” in the F Y 2007-08 when the loans were repaid. Therefore, ld CIT(A) noticed that not disclosing the capital gain of Rs.9.32 cores in the return of income and not disclosing the full material facts regarding the sale of said land cannot be accepted to be a bona-fide mistake as claimed by the assessee. The ld CIT(A) further noted that revised return of income was filed by assessee only after the AIR information was handed over to the assessee. But, for the same, Long Term Capital Gain would not have been offered for tax. Therefore, though the personal problems of the assessee are not denied, the same cannot be accepted as ‘reasonable cause‘ for not disclosing the LTCG, for such a long period. The explanation of the assessee in this regard, was not accepted by ld CIT(A) to be a bonafide explanation. Therefore, the penalty imposed by the assessing officer, in respect of addition of LTCG of Rs.2,31,56,643/- was confirmed by the ld CIT(A).

12. We note that the first grievance of the ld. Counsel, in respect of long term capital gain is that there is no any definite charge/ accusation on the assessee, whether initiation of penalty proceeding is on account of ‘concealment of income’ or on account of ‘furnishing inaccurate particulars of income’. Let us first examine the charge in the assessment order and penalty order:

(1) Charge in assessment order: We note that in respect of the above two additions, the Assessing Officer has initiated and made a charge of penalty in the assessment order under section 143(3) of the Act as follows:

(A). Penalty on estimated addition: The assessing officer has initiated penalty on the limb “inaccurate particulars of income” in respect of estimated addition observing as follows:

“8. In his statement recorded on 26-09-2007, Shri Rajendrasingh Yadav, the main director of the assessee, in reply to question no.9, had stated that in his business he gets 1% net profit. In view of facts and circumstances of case, I am of the opinion that the ends of justice will be met if the net income is estimated @ 3% of the Turnover. The assessee has posted the sales of Rs.6,53,62,500/-. Thus, the net income from sale of coal is estimated at Rs.19,60,875/-.The penalty preceding under section 271(1)(c) is also initiated for furnishing inaccurate particulars of income”.

(B) Penalty on Income from capital gains: The assessing officer has initiated penalty on the limb “concealment of income” in respect of Income from capital gains observing as follows:

“9. As stated earlier there is information available under “AIR”, according to which the assessee has sold its property for the consideration of Rs. 9,62,76,433/- the income of which is not reflected in the return of income of the assessee. This information was made available to the assessee on 22-11-2010. In reply to this the assessee filed the revised return in paper form, on 24-12-2010, offering an income of Rs, 9,31,56,673/- for taxation. As the revised return filed is barred by time the same is treated as void. On the perusal of the same it is found that the assessee has sold its land situated at Magdalla, Surat to Ambuja Cements Ltd. The income from capital gain is computed as under;

Sales consideration Rs.9,61,76,433/-
Less: Indexed Cost of acquisition Rs.      30,19,760/-
Long Term Capital Gains Rs.9,31,56,673/-

Therefore, the income of Rs.9,31,56,673/- is added in the income of the assessee and the penalty proceeding under section 271(1)(c) is also initiated for concealment of income.

(C ). In the assessment order, vide para 10, the assessing officer made a Combined Charge of penalty under section 271(1) (c ) of the Act, observing as follows:

“10. In view of the discussion as above the income of the assessee is computed as under;

Income From Business & Profession Rs. 19,60,875/-
Income estimated as above
Income From Capital Gains Rs.9,31,56,673/-
Long Term Capital Gains Rs.9,51,17,548/-

11. Assessed u/s.143(3).Give credit for prepaid taxes after due verification. Interest u/s.234A, 234B, 234C is charged as per calculation given in ITNS-150 which is part of this order. Issue notice under section 271(l)(c) for concealment of income and furnishing inaccurate particulars of income.”

From the above (A), (B) and (C) analysis it is abundantly clear that in the assessment order itself the assessing officer has made different charge on the assessee under section 271(1) (c ) of the Act. Thus, there is no definite charge on the assessee under section 271(1) (c ) of the Act during the assessment proceedings. Thus, the assessing officer was not certain that for which limb he wanted to initiate penalty proceedings, that is, for concealment of income or for furnishing inaccurate particulars of income.

13. Whereas in penalty order under section 271(1) (c ) of the Act, the Assessing Officer made a charge on account of both limbs, that is, concealment of income and furnishing inaccurate particulars of income, in respect of these two additions observing as follows:

“9. In the light of the facts and circumstances of the case and forgoing discussion, I am satisfied that the assessee company has concealed the particulars of income and furnished the inaccurate particulars of it. Therefore penalty u/s.271(1)( c) is levied. As per section 271(1)(c) of the Act the amount of penalty should very between 100% to 300% of tax sought to be evaded. The amount of penalty under said section the amount of penalty ratios from tax sought 100% to be evaded to 300% of tax sought to be evaded, The working of quantum of penalty is as under:

(i) Income sought to be evaded
Business income Rs. 19,60,875/-
Long term Capital gain.. Rs.9,31,56,673/-
ii) Tax sought to be evaded with surcharge & education cess Rs.2,13,31,470/-
(iii) Minimum penalty leviable Rs.2,13,31,470/-
(iii) Maximum penalty leviable Rs.9,39,94,410/-

10. But considering the unavoidable absence of director who manages the company affairs I hereby levy a penalty of Rs.2,13,31,470/- being minimum penalty @100% of the tax sought to be evaded u/s.271(1)(c) of the Income-tax Act, 1961.”

From the above analysis of assessment order and penalty order, it is clear that during the assessment stage, the Assessing Officer has initiated the penalty in respect of income from capital gain stating “concealment of income” , vide assessment order para No.9, whereas in para 10, the assessing officer made a Combined Charge of penalty under section 271(1) (c ) of the Act stating “concealment of income and furnishing inaccurate particulars of income”, therefore in the assessment stage itself there is uncertainty in the mind of the assessing officer as to whether he wants to initiate the penalty on account of “concealment of income” or “furnishing inaccurate particulars of income”.

14. Now, we come to the penalty order. In the penalty order under section 271(1) (c ) of the Act, the assessing officer made charge in respect of income from capital gain stating “concealment of income and furnishing inaccurate particulars of income”, that is on account of both limbs, whereas in assessment order the charge in respect of income from capital gain is “concealment of income” only, therefore, the penalty initiated by the assessing officer is bad in law. As stated above, no clear finding was given by the assessing officer regarding the invocation of the limb in the penalty order. The assessing officer levied the penalty for both the limbs “for concealment and furnishing inaccurate particulars of income.” under section 271(1 )(c) of the Act, whereas in the assessment order the assessing officer initiated penalty only on one limb that is “for concealment of income”. We note that Hon`ble Supreme Court in the case of T Ashok Pai – 292 ITR 11 (SC) held. that “concealment of income” and “furnishing of inaccurate particulars of income” carry different connotations. The Hon`ble Gujarat High Court in case of Manu Engineering Works -122 ITR 306 (Guj.) held. that the penalty order has to be clear as to limb for which it is levied and the position being unclear penalty is not sustainable. Further, on the identical facts, Hon`ble Gujarat High Court in case of Nayan C. Shah vs. ITO [Tax Appeal No. 543 of 2012 (Guj- HC)] held. as follows:

“11. Another notable aspect of the matter is that while the Assessing Officer has imposed penalty on the ground that the assessee has furnished inaccurate particulars of income, the Tribunal has set aside the order of the Commissioner (Appeals) by holding that the assessee has suppressed the actual particulars of income by not making disallowance under section 40(a)(ia) of the Act. Thus, the Assessing Officer has imposed penalty on the ground of furnishing inaccurate particulars, whereas the Tribunal has upheld. the order of the Assessing Officer on the ground of concealment of particulars. It is by now well settled that while issuing a notice under section 271(1)(c) of the Act, the Assessing Officer is required to specify as to what is the default on the part of the assessee, as to whether the case is one of furnishing inaccurate particulars, or whether it is a case of concealment of income, or both. In the facts of the present case, the Assessing Officer has proceeded on the footing that inaccurate particulars were filed by the assessee, whereas the Tribunal has held. that the assessee had suppressed particulars for the year under consideration. Under the circumstances, the Tribunal, having confirmed the penalty imposed by the Assessing Officer on the ground of suppression of actual particulars in respect of which the assessee was not put to notice, the order of the Tribunal is rendered unsustainable on this ground also.”

15. Coordinate Bench of ITAT Surat in the case of Allarakhu B Memon vs. ITO [in ITA No.2388/Ahd/2016 (Srt. Trib)], on similar facts, held as follows:

“4. We have duly considered rival contentions and gone through the record carefully. Hon’ble Gujarat High Court has considered this aspect in the case of Snita Transport (supra). Reference to para 9 of this judgment is worth to note. It reads under:

“9. Regarding the contention that the Assessing Officer was ambivalent regarding under which head the penalty was being imposed namely for concealing the particulars of income or furnishing inaccurate particulars, we may record that though in the assessment order the Assessing Officer did order initiation of penalty on both counts, in the ultimate order of penalty that he passed, he clearly held that levy of penalty is sustained in view of the fact that the asses see had concealed the particulars of income. Thus insofar as final order of penalty was concerned, the Assessing Officer was clear and penalty was imposed for concealing particulars of income. In light of this, we may peruse the decision of this Court in case of Mann Engineering Works (supra). In the said decision, the Division Bench came to the conclusion that language of “and/or” may be proper in issuing a notice for penalty, but it was incumbent upon the Assessing Authority to come to a positive finding as to whether there was concealment of income by the assesses or whether any inaccurate particulars of such income had been furnished by them. If no such clear cut finding is reached by the authority, penalty cannot be levied. It was a case in which in final conclusion the authority had recorded that “I am of the opinion that it will have to be said that the assessee had concealed its income and/or that it had furnished inaccurate particulars of such income. “It was in this respect the Bench observed that “Now the language of “and/or” may be proper in issuing a notice as to penalty order or framing of charge in a criminal case or a quasi-criminal case, but it was incumbent upon the IAC to come to a positive finding as to whether there was concealment of income by the assessee or whether any inaccurate particulars of such income had been furnished by the assessee. No such clear cut finding was reached by the IAC and, on that ground alone, the order of penalty passed by the IAC was liable to be struck down. “

5. A perusal of the above paragraph would indicate that the Hon’ble High Court found that user of expression “and/or” in between concealment of income or furnishing of inaccurate particulars while inviting explanation of the assessee, may not be any procedural irregularity or fatal to the proceedings, but if the AO failed to record a finding, while visiting the assessee with penalty, then that would be fatal to the proceedings itself. In other words, while passing final order, the AO has to record a specific finding exhibiting the fact that penalty is being imposed for furnishing inaccurate particulars or concealment of income. In the light of the above, let us take note of penalty order in the case of Shri Allarakhu Babubhai Memon. It reads as under:

“6. In these circumstances, the assessee has failed to offer any plausible explanation, I am satisfied that the assessee has willfully, knowingly and without reasonable cause furnished inaccurate particulars of its income and thus, tried to conceal the income so as to evade payment of tax thereon. Thus, Explanation 1 to section 271 of the Income-tax Act, 1961 is clearly applicable to the case of the assessee for furnishing inaccurate particulars of income and concealing the income for which it is liable to for penalty u/s.271(1)(c) of the Income-tax Act, 1961. I, therefore, levy a minimum penalty @100% of Rs. 98,9101- as against the maximum penalty leviable @ 300% of Rs.296730/- in this case. “

6. A perusal of the above finding would indicate that in the first two lines, he wished to impose penalty for furnishing inaccurate particulars of income. Thereafter, he invoked Explanation 1 to section 271(1)(c) which provides that if any addition is being made to the total income of the assessee, for which the assessee failed to give any explanation or his explanation was found to be false, then qua that addition it will be deemed that the assessee has concealed income. Both these situations are contradictory to each other in the above order. Therefore, this order is not sustainable in view of decision of Hon’ble Gujarat High Court cited supra. Similar finding in para-6 are being recorded in the cases of other two assesses. In view of the above discussion, penalties in the case of each assessee are not sustainable. We allow all three appeals, and delete penalty imposed by the AO.

16. Thus, we note that the assessing officer has initiated the penalty proceedings on one footing and concluded on other footing. The assessing officer made charge in respect of income from capital gain in penalty order stating “concealment of income and furnishing inaccurate particulars of income” that is on account of both limbs, whereas in assessment order the charge in respect of income from capital gain is “concealment of income” only. Therefore, in our opinion, the basis of levy of penalty itself is not correct, hence penalty order under section 271(1)(c) of the Act needs to be quashed.

17. On merits of the case, we are of the view that this is not a case, where the amount for sale of property has been received outside the regular books of accounts or that the property is not reflected in the regular books of accounts. That is, in assessee`s case, the property is duly reflected in the regular books of the assessee company and even the amount received for sale thereof has been accounted for in the regular books but the same has been shown as advances instead of transferring it to fixed asset account and recognizing capital gain on sale of property. Therefore, it is not a case of concealment. In the assessee company there are only two directors Viz: Shri Rajendra Singh Yadav and his wife. The wife got severe illness and another director Shri Rajendra Singh Yadav used to look after his wife, therefore he was not regularly attending the day to day business of the assessee company. The accountant of the assessee company by mistake on account of not having the taxation knowledge did not show the capital gain in the return of income. However, the Accountant has shown the sale proceeds of the property as advance in the books of accounts. Thus, there is no concealment of income or filing of inaccurate particulars but there is a bona fide and genuine mistake on the part of the assessee company due to circumstances beyond its control and for which concealment penalty should not be levied.

The Learned Counsel also submitted that the assessee’s case is different from the case of the Snita Transport (P) Ltd vs. ACIT [42 taxmann.com 54] (Guj HC) wherein Hon`ble Gujarat High Court held that there was nothing on record during the penalty proceedings to show that in the original return of income the assessee was not aware about such gross concealment of the income. In fact, it has come on record that the assessee had admitted bogus entries in the accounts and thereby concealing sizeable income. That is, the assessee had debited expenses on account of bogus companies which was accepted by the assessee during the survey proceedings.

Whereas in assessee`s case the assessee has not concealed the particulars of income as the sale of property (long term capital gain) was shown under the head loans and advances. Hence, there is no conscious concealment of income. The assessee company sold the land to Ambuja Cement for a consideration of Rs.9,31,56,673/- and out of the said receipt the bank loans were to be paid by the company.

18. Thus, due to illness of one the Directors nobody was taking care of company’s affairs and the return of income of the assessee company was filed by Accountant and the said land on which Long Term Capital Gain was arisen was sold by bank. On account of death of one of the directors and mental trauma and depression to the other director, the Employees and the Accountant of the company were not aware of the fact that the sale agreement was executed by the director of the company with Ambuja Cement Ltd. and accordingly, they showed the amount received from the Ambuja Cement Ltd. as loans, and advances instead of transferring it to fixed asset account and thereby recognizing long term capital gain.

We note that assessee has not concealed the particulars of income as the sale of property (long term capital gain) was shown under the head loans and advances. Hence, there is no any conscious concealment of income. The assessee company sold the land to Ambuja Cement for a consideration of Rs.9,61,76,433/- and out of the said receipt the bank loans were to be paid by the company. When this fact was drawn to the attention of the Director, Shri Rajendra Singh Yadav, he immediately and voluntarily offered the long term capital gain in the hand of the company by revising the return of income. The amount received by the transferree company of Ambuja Cement has been shown by the assessee-company under the head loan and advances, therefore, penalty is not leviable unless it is shown that there is a conscious concealment or furnishing of inaccurate particulars of income. Reference in this regard can be usefully made to the judgment of Hon’ble Supreme Court in the case of Anantharam Veerasinghaiah & Co. vs. CIT (1980) 123 ITR 457 (SC), wherein it was held as follows:

“It is now settled law that an order imposing a penalty is the result of quasi-criminal proceeding and that the burden lies on the Revenue to establish that the disputed amount represents income and that the assessee has consciously concealed the particulars of his income or has deliberately furnished inaccurate particulars. Commissioner of Income Tax, West Bengal and Another v. Anwar Ali. It is for the Revenue to prove those ingredients before a penalty can be imposed. Since the burden of proof in a penalty proceeding varies from that involved in an assessment proceeding, a finding in an assessment proceeding that a particular receipt is income cannot automatically be adopted as a finding to that effect in the penalty proceeding. In the penalty proceeding the taxing authority is bound to consider the matter afresh on the material before it and, in the light of the burden to prove resting on the Revenue, to ascertain whether a particular amount is a revenue receipt. No doubt, the fact that the assessment order contains a finding that the disputed amount represents income constitutes good evidence in the penalty proceeding but the finding in the assessment proceeding cannot be regarded as conclusive for the purposes of the penalty proceeding, That is how the law has been understood by this Court in Anwar Ali (supra), and we believed that to be the law still. It was also laid down that before a penalty can be imposed the entirety of the circumstances must be taken into account and must point to the conclusion that the disputed amount represents income and that the assessee has consciously concealed particulars of his income or deliberately furnished inaccurate particulars. The mere falsity of the explanation given by the assessee, it was observed, was insufficient without there being in addition cogent material of evidence from which the necessary conclusion attracting a penalty could be drawn. These principles were reiterated by this Court in Commissioner of Income Tax, Madras v. Khoday Eswarsa and sons.”

19. The section of 271(1) (c ) of the Act comes into operation if in the course of any proceedings under this Act the AO is satisfied that income has been concealed. Therefore, if the assessee having filed a false return, makes as voluntary disclosure or files a revised return even before the AO takes up the original return for consideration and the assessment is made on the basis of such disclosure, penalty should not be imposed. An inadvertent omission for error in the original return, particularly when it is corrected by a revised return, or a rectification petition, would not attract penalty under section 271(1) (c ) of the Act. Reference in this regard can be usefully made to the judgment of Hon`ble High Court of Madras in the case of Sivagaminatha Moopanar & Sons Vs. Commissioner Of Income-Tax,( 27 June, 1961)52 ITR 591 (Mad), wherein it was held as follows:

Section 22(3) provides that, where a person furnishing a return discovers an omission or wrong statement therein, he could furnish a revised return at any time before the assessment is made. Therefore, in a case where the original return does not contain the true particulars by reason of a genuine mistake or accidental omission, it would be open to the assessee to furnish a revised return containing the correct particulars at any time before the assessment.”

Although, it is old judgment decided in the context of 1922 Act, but the ratio of this judgment applies to the facts of the assessee`s case under consideration.

20. Hon`ble High Court of Madras in the case of Commissioner of Income-Tax vs J.K.A. Rajappa Chettiar (17 January, 1983), 153 ITR 215 (Mad), on similar facts held as follows:

“4. The contention of the Department’s learned counsel are not borne out by the language of s. 271(1)(c) of the Act. The true scope of this section is illustrated, by way of contrast, by what we find in another provision in the Act, namely s. 277. This section renders punishable a false return, or, rather, a false verification in a return. Construing this section, this court in Jayaveerapandia Nadar & Co. v. ITO [1975] 101 ITR 390 pointed out that the gist of the offence under s. 277 was a verification made by an assessee which is false and which he either knows or believes to be false or does not believe to be true. According to this court’s decision in that case, the fact that an assessee, after filing a return, agrees to an addition in the assessment does not falsify the return; nor does it operate in the other way and exonerate the assessee from prosecution. The false verification must be held to be indictable on its own terms. section 271(1)(c), on the contrary, enables the officer to levy penalty only if he is satisfied, in the course of any proceedings, that the assessee has concealed particulars of his income. The section does not particularly focus the penalising officer’s attention to the assessee’s return of income alone. Mark the words “in the course of any proceedings”. The officer has to work on a larger canvass, as it were, of the whole gamut of the assessment proceedings, in order to be able to spell out concealment. He cannot proceed to levy penalty by concentrating on any particular return filed by the assessee or any particular aspect in any such return to the entire exclusion of any other consideration relating to the conduct of the assessee in the course of the assessment proceedings. An assessment under the I. T. Act is seldom done in a trice or based upon the assessee’s return alone. The return, after all, is in a tabular form prescribed under the rules. The form and its columns can hold only the bare minimum of information. Apart from the statutory duty of the officer to give a hearing to the assessee before concluding the assessment, the process of assessment itself, in actual practice, would ordinarily take more than one sitting between the officer and the assessee, for mutual discussion, especially of item which are either under controversy or require clarification or elucidation. It is during these sittings or hearings, or “inquiry”, as it is described by the marginal note to s. 142, that the final shape of the assessment emerges. In the very nature of things, a perusal of the return of income alone would give an inadequate or even a misleading idea of the course of assessment proceedings. For, return is but the starting point of the proceedings, and even in the best of assessments, the return alone cannot give a true indication of the course and thrust of the proceedings. When, therefore, s. 271(1)(c) speaks about the ITO having to be satisfied “in the course of any proceedings”, it means that the officer’s satisfaction must be obtained on an appraisal of the stand taken by the assessee in the whole course of the proceedings and not merely in his formal return of income.

5. In the present case, it is quite true that the assessee was found to have filed his original returns which could by no mean, be regarded as true returns, even on a mere comparison with what the assessee himself subsequently furnish by way of revised returns. But it is a significant factor in this case that these original returns were not pursued by the ITO but were kept aside for the reason that the whole inquiry as to the assessee’ taxable income came to be orientated on the basis of his voluntary disclosure and revised returns. As we earlier indicated, the pertinent inquiry under s. 271(1)(c) is, not whether the return is true or false, but whether the assessee “in the course of any (assessment) proceedings” had concealed particulars of his income. As the Tribunal said, ever since the date when the assessee filed his voluntary disclosure, the labours of both the assessee and the Department were directed to finding out what would be the estimate of the assessee’s profit from the sale of licence which would, as nearly as possible, be close to reality, especially in the absence of factual date available either with the assessee or with the Department. We also agree with the Tribunal in holding that where, on the basis of a true disclosure of the assessee’s source of income and where, in the absence of direct materials, the determination of the taxable income has got to be taken up as a matter for estimate, the question of concealment of income hardly arise. We are, therefore, satisfied that the Tribunal was justified, on the facts of this case, in recording a finding that there was no concealment of particulars of income by the assessee.

6. Mr. Jayaraman submitted that to support the conclusion of the Tribunal in this case would be to go against an earlier decision of this court in CIT v. Subramania Chettiar [1977] 110 ITR 602 (Mad). In that case, an assessee against whom penalty action was started under s. 271(1)(c) contended that penalty proceedings should not be proceeded with since he had moved the Commissioner of Income-tax for relief under s. 271(4A) of the Act. This objection was overruled, and a penalty was levied under s. 271(1)(c) of the Act. This court upheld the penalty, holding that the considerations which are relevant for s. 271(4A) are foreign to the scope of s. 271(1)(c) of the Act. Another point raised before the court by the assessee in that case was that in the connected assessment proceedings, he had filed a revised return showing the correct income and, therefor, penalty cannot be levied on the basis that the original return did not disclose the true income. This contention was also replied. The court went into the rationale behind the statutory provision enabling the assessee to file a revised return. The court pointed out that a revised return can be filed by an assessee only in a case where an omission or a wrong statement in the original return was discovered and not to enable an assessee to expiate himself from a false return.

7. We do not regard the above decision as a complete tract on the construction or 271(1)(c). The court, in that case, was merely minding to deal with and dispose of contentions raised before them, one based on s. 271(4A) and the other based on s. 139(4) of the Act. There was no attempt in that case to define what would be the proper subject of discourse on the issue as to concealment, much less an attempt to construe the expression “in the course of any proceedings” under this Act occurring in s. 271(1)(c). We are, therefore, not constricted in any manner in basing our decision in the present case on our view of s. 271(1)(c). It does not appear that the Tribunal’s view of s. 271(1)(c) was in very way similar to ours. Nevertheless, their conclusion on the facts in with our view of the relevant statutory provisions.

8. The result is that we must answer the following two questions of law in the affirmative and in favour of the assessee.

“Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was justified in deleting the penalty of Rs. 5,00,000 levied for the assessment year 1963-64 under section 271(1)(c) of the Income-tax Act, 1961, on the ground that there was no concealment of income ?

Whether, on the facts and in the circumstances of the case, and having regard to the Explanation to section 271(1)(c) of the Income-tax Act, 1961, the Appellate Tribunal was justified in deleting the penalty of Rs. 36,712 levied for the assessment year 1964-65 under section 271(1)(c) of the Income-tax Act, 1961, on the ground that there was no concealment of income ?”

9. Since the Department has lost in both the references, we award costs to the assessee. Counsel’s fee Rs. 500 (one set).”

21. Conclusion: We note that the assessing officer has initiated the penalty proceedings on one footing and concluded on other footing. Therefore, in our opinion, the basis of levy of penalty itself is not correct. The assessee company sold the land to Ambuja Cement for a consideration of Rs.9,61,76,433/- and out of the said receipt the bank loans were to be paid by the company. When this fact (that the said amount was not disclosed in the original return by way of capital gain) was drawn to the attention of the Director, Shri Rajendra Singh Yadav, he immediately and voluntarily offered the long term capital gain in the hand of the company by revising the return of income. The amount received from the transferee company of M/s Ambuja Cement has been shown by the assessee-company under the head loan and advances, hence, there is no conscious concealment of income, as held by the various Hon`ble High Courts in the precedents cited above.

If the Income Tax Act is analyzed, it is seen that there are three different ways in which the statutory requirements are enforced, namely: (i) by levying interest (ii) by imposing penalties if the default has been occasioned without reasonable cause and (iii) by punishing the assessee treating the assessee in default as an offence, if it is proved that it was caused by willful failure. These are the three varying degrees of defaults and the statute clearly keeps up the distinction between the three modes. In Hindustan Steel Ltd. v. State of Orissa [83 ITR 26) the Hon`ble Supreme Court observed that whether the penalty should be imposed for failure to perform a statutory obligation is a matter of discretion of the authority to be exercised judicially and on a consideration of all relevant circumstances and that even if a minimum penalty is prescribed the authority competent to impose the penalty will be justified in refusing to impose a penalty when there is a mere technical or venial breach of the provisions of the Act. Again in Mansukhlal & Bros v. CIT [73 ITR 546] the Hon`ble supreme court had observed that the penalty is not uniform and its imposition depends upon the exercise of discretion by the taxing authorities and is imposed as a part of the machinery for assessment of tax liability. The words may direct that such person shall pay by way of penalty in section 271 leave a certain amount of discretion in imposition of penalty which need not be imposed when there is a minor breach of the law and when having regard do the facts ends of justice require that the assessee should not be penalized. So also where the circumstances of a case establish that the mistake is accidental and inadvertent and there is no material at all to justify any want of bona fide or any gross neglect, imposition of penalty is not justified.[ Mahadeshwara Movies 144 ITR 127 (kar) ] Therefore, in the assessee`s case the penalty is not leviable unless it is shown that there is a conscious concealment or furnishing of inaccurate particulars of income. Therefore, we delete the penalty imposed under section 271(1) (c ) of the Act.

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

Order is pronounced on 04/02/2021, as per Rule 34 of Income Tax Appellate Tribunal, Rule 1963.

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