Case Law Details

Case Name : ITO Vs Shri Udaykumar D. Bhatt (ITAT Ahmedabad)
Appeal Number : ITA No. 2072/AHD/2018
Date of Judgement/Order : 06/08/2021
Related Assessment Year : 2014-2015

ITO Vs Shri Udaykumar D. Bhatt (ITAT Ahmedabad)

Section 271(1)(c) cast responsibility upon the AO to reach the clear finding with respect to levy of penalty under the specific charge and if the AO fails to do so then the penalty cannot be levied as such penalty order shall not be maintainable in the eyes of law.

In the light of the above stated discussion, we see the case on hand. It is noticed that the AO in the penalty order has levied the penalty under both the charges i.e. concealment of particulars of income and furnishing inaccurate particulars of income.

Section 271(1)(c) penalty not leviable when AO levied penalty under both charges

The relevant finding of the AO is extracted as under:

In the instant case assessee has concealed particulars of his income to reduce the income. In view of the above, the undersigned is left with no other option but to levy the penalty u/s 271(1)(c) of the Act, 1961.

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In view of the discussion made in above paras, I am of considered view that the assessee has furnished inaccurate particulars of his income amounting to Rs. 3,74,95,382/- and committed a default within the meaning of section 271(1)(c) of the income tax Act.

The above finding of the AO clearly shows that the AO was not conscious about the charge under which the penalty was to be levied under the provisions of section 271(1)(c) of the Act. Accordingly we hold that the penalty order is not sustainable and therefore the penalty cannot be levied on this technical ground.

FULL TEXT OF THE ORDER OF ITAT AHMEDABAD

The captioned appeal is filed by the Revenue and the CO is filed by the Assessee against the order of the Learned Commissioner of Income Tax (Appeals)- 7, Ahmedabad, dated 18/07/2018 (in short “Ld. CIT(A)”) arising in the matter of penalty order passed under s. 271(1)(c) of the Income Tax Act, 1961 (here-in-after referred to as “the Act”). The assessee has filed the Cross Objection in the Revenue’s appeals bearing ITA no. 2072/AHD/2018 for the Assessment Year 2014-2015.

2. The Revenue has raised the following grounds of appeal:

1. That under the facts and circumstances of the case, the Ld. CIT(A) has erred in law and on facts in deleting the penalty levied u/s 271(1)(c) of the I.T. Act amounting to Rs.77,24,050/-.

2. The Ld. CIT(A) has erred in law and on facts by not appreciating that as per Section 5 of the I.T. Act, 1961 Capital Gain is to be taxed on accrual basis

2.1The Ld. CIT(A] has erred in law and on facts by not appreciating that “ignorance of law” is no excuse especially when such law has been there in the statute right from its inception and that he being a big businessman had ail professional advice.

3. The Ld. CIT(A) has erred in law and on facts by accepting the bonafides of the assessee without the assessee having brought any cogent reliable evidence on records.

3.1 The Ld. CIT(A) erred in law and on facts by not appreciating that the assessee is a seasoned businessman earning interest income running into crores and, therefore, the bona-fides of not offering Capital Gain are in serious doubt.

4. The Ld. CIT(A) has erred in law and on fads by not appreciating the principle laid down by the Hon’blc Apex Court in the case of MAK Data (P) Ltd. Vs. CIT in Civil Appeal No. 9772 of 2013 that, “the voluntary disclosure does not relieve the appellant-assessee from the mischief of penal proceeding”.

5. That the department craves leave to add or alter any further grounds of appeal before or during the course of hearing.

3. The only effective issue raised by the Revenue is that the Ld. CIT(A) erred in deleting the penalty levied by the AO for Rs. 77,24,050/- under the provision of section 271(1)(c) of the Act.

4. The facts in brief are that the assessee in the present case is an individual and declared his income under the head Salary, house property, business, capital gains and other sources. The AO during the assessment proceedings found that the assessee has earned capital gain income of Rs. 3,74,95,382/- which was not disclosed in the income tax return.

4.1 On question by the AO, the assessee claimed that he received the consideration in the Financial Year 2015-16 against the sale of property. Therefore he was under the impression that the same was to be offered to tax in the Assessment Year 2016-17. However, the AO disregarded the contention of the assessee and made the addition of Rs. 3,74,95,380/- to the total income of the assessee. The AO in the Assessment Proceedings initiated penalty proceeding u/s 271(1)(c) of the Act for furnishing inaccurate particulars of income which came to be confirmed by the AO in the penalty order dated 28/07/2017 for Rs. 77,24,050/- being 100% amount of tax sought to be evaded.

5. On appeal, the Ld.CIT(A) deleted the penalty levied by the AO by observing as under:

3.2 I have carefully considered the penalty order, assessment order and the submissions made by the appellant. A perusal of the’ same shows that the appellant had not offered the capital gains arising out of the transaction of sale of property during the year under consideration since the consideration had not been received by him during the year under consideration. However, it is seen that during the assessment proceedings, the appellant offered to rectify this mistake and offered the same as income for the year under consideration. The appellant also paid the necessary tax on the said transaction before the passing of the penalty order.

3.2.1 Looking at the facts of the case, I am of the view that the appellant had not offered the capital gain for taxation during year under consideration since he was under the bonafide belief that the income was to be offered in the year that the consideration would be received. However, since he has rectified the error and offered the capital gains for tax and even paid the tax due, I am of the view that there was no intention to conceal income, and penalty provisions of Section 271(l)(c) were not attracted. The appellant’s case is al squarely covered by various case-laws Dial have been relied on by him. Following the discussion above, the penalty of Rs.77,24,050/- levied by the AO u/s.271(1)(c)of the Act is deleted.

3. In the result, the appeal is allowed.

6. Being aggrieved by the order of the LD. CIT(A) the Revenue is in appeal before us

7. Both the Ld. D.R and Ld. AR relied on the order of the authorities below as favourable to them.

8. We have heard the rival contentions of both the parties and perused the materials available on record. The assessee in the year under consideration has transferred the property but failed to offer the corresponding capital gain on such property amounting to Rs. 3,74,95,382/- in the income tax return. On question by the AO, the assessee accepted the same. The AO, subsequently levied penalty under section 271(1)(c) of the Act for an amount of Rs. 77,24,049/- on account of concealment of income.

8.1 On appeal before the learned CIT (A), it was contended that though the property was transferred in the year under consideration but the sale consideration against the transfer of such property was received in the financial year 2015-16. Accordingly, the assessee acquired the bona-fide believe that the capital gain on the sale of the property shall be offered to tax in the financial year 2015-16 corresponding to the assessment year 2016-17. This contention of the assessee was believed by the learned CIT (A) as bona-fide. The learned CIT (A) also noted that the assessee agreed for the addition immediately on question by the AO during the assessment proceedings and paid the due taxes before passing the penalty order. Finally, the ld. CIT-A deleted the penalty.

8.2 However, the Revenue being dissatisfied with the finding of the learned CIT (A) has challenged the deletion of the penalty order by contending that if there had not been any assessment, the impugned amount of income would have gone tax free. As such the assessee agreed for the addition only once it was deducted by the Revenue. Thus, the admission of the income and the consequence payment of tax before passing the penalty order is of no significance. Likewise, the assessee was a season business man, having huge turnover from the business. Thus it cannot be said that the assessee was under the bona-fide believe that capital gain has to be offered to tax in the year in which the money was received. Accordingly, the contention of the assessee that he was ignorant to the provisions of law will be of no assistance.

8.3 Now the controversy arises whether the assessee has concealed the particulars of income by not disclosing the capital gain in the income tax return. The scheme of section 271(1)( c) of the Act visualizes situations to levy penalty in the manner as detailed below:

i. The assessee has concealed income or

ii. The assessee has furnished inaccurate particulars of income.

iii. In addition to these two situations, penalty can also be imposed, inter alia, when assessee is deemed to have concealed particulars of income under Explanation 1 to section 271(1)(c) of the Act. This explanation provides that the assessee will be deemed to have concealed particulars of income wherein respect of any facts material to the computation of the total income of any person under this Act.

8.4 From the above, there remains no ambiguity to the fact that the penalty can only be levied by the AO for any of the charge as discussed above. The penalty provisions have to be construed strictly in accordance with and in terms of the language employed therein. Thus the penalty provisions cast responsibilities upon the AO so as to levy the penalty under the specific charges.

8.5 The Hon’ble Gujarat High Court in the case of CIT vs. Manu Engineering Works reported in 122 ITR 306 has held as under:

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 is 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 in instant case and, on that ground alone, the order of penalty passed by the IAC was liable to be struck down.

8.6 The aforesaid view was subsequently confirmed by the Hon’ble Gujarat High Court in the case of Snita Transport (P.) Ltd vs. ACIT reported in 42 taxmann.com 54 wherein it was held as 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 assessee 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 Manu 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 assessee 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 quasicriminal 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.”

8.7 A conjoint reading of the above judgments cast responsibility upon the AO to reach the clear finding with respect to levy of penalty under the specific charge and if the AO fails to do so then the penalty cannot be levied as such penalty order shall not be maintainable in the eyes of law.

8.8 In the light of the above stated discussion, we see the case on hand. It is noticed that the AO in the penalty order has levied the penalty under both the charges i.e. concealment of particulars of income and furnishing inaccurate particulars of income. The relevant finding of the AO is extracted as under:

In the instant case assessee has concealed particulars of his income to reduce the income. In view of the above, the undersigned is left with no other option but to levy the penalty u/s 271(1)(c) of the Act, 1961.

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In view of the discussion made in above paras, I am of considered view that the assessee has furnished inaccurate particulars of his income amounting to Rs. 3,74,95,382/- and committed a default within the meaning of section 271(1)(c) of the income tax Act.

8.9. The above finding of the AO clearly shows that the AO was not conscious about the charge under which the penalty was to be levied under the provisions of section 271(1)(c) of the Act. Accordingly we hold that the penalty order is not sustainable and therefore the penalty cannot be levied on this technical ground. As we have decided the issue in favour of assessee on technical ground, we do not find any reason to give our finding on merit. Hence the ground of appeal of the Revenue is dismissed.

8.10 In the result, the appeal filed by the Revenue is dismissed.

Now coming to the Cross objection No.75/Ahd/2019 (In ITA No. 2071/Ahd/2018) for A.Y. 2014-15 filed by the assessee

9. The assessee has raised the following grounds in it cross objection:

All the grounds in this Cross Objections are mutually exclusive and without prejudice to each other:-

1. The Ld. CIT (A) after carefully considering the facts of the case and submission of the Respondent as well as the judicial pronouncements relied upon by the Respondent has correctly deleted the penalty levied u/s.271(1)(c) of the Act of Rs.77,24,050/-

2. Your Respondent craves right to add, amend, alter, modify, substitute, delete or modify all or any of the above grounds of cross objection.

10. At the outset we note that the grounds raised by the assessee in cross objection are supporting the order of the learned CIT (A). Therefore we do not find any reason to adjudicate the same. Accordingly we dismiss the cross objection filed by the assessee being infructuous.

11. In the combined results, the appeal of the Revenue is dismissed and the cross objection filed by the assessee is also dismissed as infructuous.

Order pronounced in the Court on 06/08/2021 at Ahmedabad. 

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