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Grounds for framing additions in assessment order do not ipso facto become basis for penalty, where ITAT rejects charges of incorrect returns filed by assessee: HC

2019-TIOL-2031-HC-ALL-IT

IN THE HIGH COURT OF ALLAHABAD

Income Tax Appeal Nos. 276 of 2015
Income Tax Appeal Nos. 277 of 2015
Income Tax Appeal Nos. 197 of 2015
Income Tax Appeal Nos. 198 of 2015
Income Tax Appeal Nos. 199 of 2015
Income Tax Appeal Nos. 200 of 2015

PRINCIPAL COMMISSIONER OF INCOME TAX
CENTRAL KANPUR

Vs

DINESH CHANDRA JAIN

Bharati Sapru & Rohit Ranjan Agarwal, JJ

Dated: August 26, 2019

Appellant Rep by: SSC IT, Praveen Kumar, Abhinav Mehrotra
Respondent Rep by: Abhinav Mehrotra

Income Tax – Sections 143(3), 153A & 271(1)(c)

Keywords – Exempted gifts – Minor son

The assessee declared income and claimed exemption on gifts made to his minor son. The AO, disallowed the exemption by treating such gift as income from other sources. The CIT(A) and later the ITAT held valid the assessment order. The assessee did not opt to appeal the ITAT order. Meanwhile, penalty proceedings were initiated against the assessee for the relevant AY to 2005-06 and penalty order was passed levying penalty at 150%. The CIT(A) reduced the penalty at 100% istead of 150%. The ITAT, set aside the order of penalty.

Having heard the parties, the High Court held that,

Whether the reason for making addition in the assessment order cannot ipso facto become the basis of penalty if the Revenue Forum has categorically denied findings of incorrect return filed by the assessee – YES: HC

++ in the present case, the AO did not record any finding as to incorrect, erroneous or false return filed by the assessee regarding inaccurate particulars of income justifying penalty u/s 271(1)(c). The AO had only doubted the genuineness of the gifts on ground of human probabilities and had also doubted the creditworthiness of donors and genuineness of transaction. The Tribunal on the other hand had recorded finding regarding the identity of creditors, their creditworthiness and genuineness of the transactions which were before the AO but he had not properly appreciated it and discarded and doubted the genuineness of gifts on ground of human probabilities, though they were tax payers and the amounts gifted had been disclosed in their tax return for relevant year. Penalty cannot be levelled solely on the basis of reason given in the original assessment order. Neither the assessing authority nor first appellate authority recorded any finding to such effect that details furnished by the assessee to be incorrect, erroneous or false. Considering the facts and circumstances of the case, the Tribunal had recorded finding of fact that no penalty can be imposed u/s 271(1)(c) as Revenue has failed to establish that assessee has concealed income or furnished inaccurate particulars. Thus, the appeals of the Revenue is dismissed.

Revenue’s appeals dismissed

Cases followed:

CIT Madras v. Khoday Eswarsa and Sons – 2002-TIOL-2719-SC-IT

Dilip N. Shroff v. CIT (2007) – 2007-TIOL-96-SC-IT

JUDGEMENT

Per: Rohit Ranjan Agarwal:

1. All these six appeals under Section 260-A of the Income Tax Act, 1961 (hereinafter called as ‘Act’) arise out of the common order passed by the Income Tax Appellate Tribunal, Delhi, Bench “B”, New Delhi (hereinafter called as ‘Tribunal’) dated 26.09.2014. The leading appeal is Income Tax Appeal No. 276 of 2015 for the assessment year 2000-01. These appeals were heard and decided on 22.02.2019 on the preliminary objection raised by the assessee regarding the territorial jurisdiction of this Court. Today with the consent of both the parties, the appeal is heard on merit.

2. This appeal was admitted on 16.11.2016 on the following question of law:-

“(A) Whether on the facts and circumstances of the case, the Hon’ble ITAT, New Delhi is legally justified in deleting the penalty of Rs.75,76,441/- imposed by the AO ignoring the quantum appeal which had been confirmed by the Ld. CIT(A) as well as the ITAT, New Delhi on which the penalty was imposed.

(B) Whether on the facts and circumstances of the case, the ITAT has not erred in law in deleting the penalty of Rs.75,76,441/- imposed by the AO contradicting their findings in deciding the quantum appeal that the whole transaction was designed to show huge amounts as gifts without any liability of paying taxes.”

3. Income Tax Appeal No. 276 of 2015 for the assessment year 2000-01 is being treated as leading case. The brief facts of the case are that under Section 132 of the Act, search and seizure was conducted on the business premises of the persons related to Begum Gutkha Group on 09.12.2003. During course of search and seizure, various books of accounts and other documents were found and seized. In response to notice under Section 153-A of the Act, the assessee filed a letter on 23.02.2007 stating that his original return filed may be treated as return required under Section 153-A of the Act.

4. The assessee had filed return declaring income of Rs.1,63,65,386/- on 31.10.2000 for assessment year 2000-01. The assessment in this case was completed under Section 153-A/143(3) on 08.11.2007 at an income of Rs.3,27,87,990/- as against return income of Rs.1,63,65,386/-. The AO in his assessment order had made an addition of Rs.1,64,22,604/- by treating the exempted gifts received by the assessee’s minor son of Rs.1,52,20,000/- as his income from other sources. Against the said assessment order, an appeal was filed before the Commissioner of Income Tax (hereinafter called as ‘CIT’). The assessment order was confirmed in appeal and further on appeal before the Tribunal, the order of the assessing authority was upheld. No further appeal was filed by the assessee challenging the order of the Tribunal as far as the quantum is concerned.

5. While, penalty proceedings under Section 271(1)(c) of the Act were initiated against assessee on the ground of concealment of particulars of income and a sum of Rs.75,76,441/- was imposed as penalty for assessment year 2000-01, on the ground that assessee had furnished inaccurate particulars and had concealed particulars of its income amounting to Rs.1,52,20,000/-. Aggrieved by the penalty order under Section 271(1)(c), assessee filed an appeal before CIT (A) III, New Delhi, who partly allowed the appeal of the assessee reducing penalty at 100% instead of 150%.

6. Against the said order, assessee as well as Revenue filed appeal before the Tribunal at New Delhi. The Tribunal dismissed the appeal of Revenue and allowed the assessee’s appeal for assessment year 2000-01 to 2005-06.

7. Sri Praveen Kumar, learned counsel appearing for the Department submitted that Tribunal was not correct to set aside the penalty imposed against the assessee under Section 271(1)(c) of the Act, as assessing authority had categorically given finding that gifts are not genuine and allowable, and after holding the gifts as unexplained, an amount of Rs.1,52,00,000/- were taxed as income from other source. He further submitted that the facts of the case suggest that furnishing of incorrect particular/ claim and consequently the concealment on assessee’s part for which the proceedings were initiated. It has also been contended that assessment order clearly demonstrated the gifts to be a sham transaction and the said finding has been upheld by the CIT holding these transactions being designed to avoid payment of tax. It was also contended that the order of the assessing authority, First Appellate Tribunal was confirmed by the Tribunal, imposition of tax under Section 68 of the act and the findings given therein had become final and further no appeal was filed by the assessee.

8. The second limb of argument of the counsel for the Revenue is that order impugned passed by the Tribunal setting aside the penalty, in fact is an order passed by Tribunal as if it was sitting in appeal against the order of the Tribunal in the quantum proceedings. It has also been submitted that the findings of original assessment proceedings are good item of evidence in penalty proceeding, and when that is the case that the finding of creation of a malicious design, on the part of the assessee, would clearly be a relevant evidence and has to be taken into account while passing the penalty order. He further laid stress that Tribunal has made fresh inquiry and set aside the finding given by the Tribunal itself in quantum proceedings and rejected the imposition of penalty on the assessee. He has relied upon the judgment of this Court in case of Ram Baboo Agrawal v. Commissioner of Income-Tax and another (2018) 404 ITR 198 (Allahabad).

9. Per contra, the counsel for the respondent- assessee submitted that the order of the Tribunal cannot be discarded, as while deciding the appeal it had recorded categorical finding in regard to the factum of gift which was duly disclosed by the assessee in his return of income. Further, assessee had substantiated its claim by legal evidence which has been discussed by the Tribunal in Para Nos. 18, 19, 20, 21 and 22 of its order, analysing and examining in detail the documents submitted by the assessee in respect of the gift before the Assessing Officer in penalty proceedings as well as the statements of both the donors Naresh Jain and Anil Jain being recorded in the said proceedings.

10. It is further submitted that gifts were disbelieved by citing human probability and perception. It has been stated that it would have been different where any tangible, cogent and relevant material was discovered by the Revenue to disapprove the gift, but it is not correct to merely disbelieve it on the basis of subjective perception. It was further contended that except for the addition on the account of alleged fictitious gift, all other additions made by the Revenue to the income of assessee were deleted by the appellate authorities.

11. Replying to the argument of the Revenue on the question of quantum proceedings, it was submitted that they are not sacrosanct and impregnable for proving a charge of concealment of income for furnishing of inaccurate particulars of income, for causing a determination on the question of liveability of penalty under Section 271(1)(c) of the Act. The counsel for the assessee to prove his case on this point has relied upon the judgment of the Apex Court in case of Anantharam Veersinghaiah and Company [123 ITR 457] = 2002-TIOL-1637-SC-IT-LB, which is extracted here as under:-

“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 contained 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’s Case [1970] 76 ITR 696 (SC) = 2002-TIOL-190-SC-IT-LB , and we believe 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 or evidence from which the necessary conclusion attracting a penalty could be drawn.These principles were reiterated by this court in CIT v. Khoday Eswarsa and Sons [1972] 83 ITR 369 = 2002-TIOL-2719-SC-IT.”

12. He further relied upon in case of T. Ashok Pai [292 ITR 11] = 2007-TIOL-98-SC-IT and the Apex Court held as under:-

“Since burden of proof in penalty proceedings varies from that in the assessment proceeding, a finding in an assessment proceeding that a particular receipt is income cannot automatically be adopted, though a finding in the assessment proceeding constitute good evidence in the penalty proceeding. In the penalty proceedings, thus, the authorities must consider the matter afresh as the question has to be considered from a different angle.”

13. Reliance has been placed on a recent judgment of the Apex Court in case of Reliance Petroproducts [322 ITR 158] = 2010-TIOL-21-SC-IT, in which the Apex Court in regard to the penalty proceedings held as under:-

“We do not agree, as the assessee had furnished all the details of its expenditure as well as income in its Return, which details, in themselves, were not found to be inaccurate nor could be viewed as the concealment of income on its part. It was up to the authorities to accept its claim in the Return or not. Merely because the assessee had claimed the expenditure, which claim was not accepted or was not acceptable to the revenue, that by itself would not, in our opinion, attract the penalty under Section 271(1)(c). If we accept the contention of the revenue then in case of every Return where the claim made is not accepted by Assessing Officer for any reason, the assessee will invite penalty under Section 271(1)(c). That is clearly not the intendment of the Legislature.”

14. The second argument of the counsel for the assessee is that the finding arrived by the Tribunal is finding of fact to the effect that there is no material in possession of Revenue to prove the charge of concealment of income or furnishing of inaccurate particulars by assessee and the present appeals on the behest of the Revenue are not maintainable. He has relied upon the decision of the Apex Court in case of Additional CIT v. Jeevan Lal Sah [1994] 205 ITR 244 = 2002-TIOL-189-SC-IT .

“Similarly, the question whether the assessee has concealed the particulars of his income or has furnished inaccurate particulars of his income continues to remain a question of fact.”

15. Lastly, it has been contended that by invoking provisions of Section 68 of the Act or by rejecting the explanation of assessee, a presumption was drawn against him but that presumption was rebuttable and not at all conclusive, particularly when considering the said explanation in the light of penalty proceedings. It was further submitted that the explanations had not remained unsubstantiated and further it can also not be held that explanation was not bona fide as prescribed in explanation to Section 271(1)(c) of the Act.

16. A decision of this Court in case of CIT vs. Sonali Jain, IT Appeal No. 88 of 2008 has been relied upon, wherein this Court held in Para Nos. 16 and 17 as under:-

“16. In view of above, neither the assessee-respondent failed to furnish any explanation regarding the material facts for computation of her income nor the explanation so furnished by her was false. At least there is no finding to this effect. At the same time, the assessee-respondent having surrendered the above gifts as part of her income just in order to buy peace of mind, may be on realising that she may also be ultimately affected by the racket of gift deeds busted by the department without any such thing being deducted in respect of her return or gifts, cannot be said to have failed to prove or substantiate her explanation regarding the to be bona fides of the two transactions.

17. Accordingly, the assessee is not a person who has failed to offer an explanation or the explanation offered by her was found to be false or that she was unable to substantiate the explanation or that the transactions were not bona fide so as to attract the deeming provision contained in Explanation 1(B) to Section 271(1)(c) of the Act. Therefore, the amount added to her income would not be deemed to be income in respect of which particulars had been concealed.”

17. We have heard Sri Praveen Kumar, learned counsel for the Revenue and Sri Abhinav Mehrotra, learned counsel for the assessee.

18. Before proceeding, it would be necessary to have a glance of provisions of Section 271(1)(c) of the Act:-

“271. (1) If the Assessing Officer or the Commissioner (Appeals) or the Commissioner in the course of any proceedings under this Act, is satisfied that any person-

(a) …………………

(b) …………………

(c) has concealed the particulars of his income or furnished inaccurate particulars of [such income, or]

(d) …………………

he may direct that such person shall pay by way of penalty,-

(i) ……………

(ii) …………….

(iii) ……………

Explanation 1.-Where in respect of any facts material to the computation of the total income of any person under this Act,-

(A) such person fails to offer an explanation or offers an explanation which is found by the Assessing Officer or the Commissioner (Appeals) or the Commissioner to be false, or

(B) such person offers an explanation which he is not able to substantiate and fails to prove that such explanation is bona fide and that all the facts relating to the same and material to the computation of his total income have been disclosed by him,

then, the amount added or disallowed in computing the total income of such person as a result thereof shall, for the purposes of clause (c) of this sub-section, be deemed to represent the income in respect of which particulars have been concealed.”

19. It is not in dispute that the assessee had disclosed the fact of gift in his return for the relevant assessment year, but it was after the assessment proceedings that the Assessing Officer who did not accept the creditworthiness of the donor as well as the genuineness of transaction made an addition of Rs.1,52,00,000/- as income from other source. The said addition was sustained by the CIT (A) and the Tribunal. As from the reading of Section 271(1)(c), it is clear that that the said provisions contemplate for levy of penalty where two conditions are satisfied, that the assessee has concealed particulars of his income or has furnished inaccurate particulars of such income thus, concealment of income and furnishing of inaccurate particulars of income are two basic ingredients for the initiation of proceedings for penalty under the relevant section. The explanation further provides, where any such person fails to offer an explanation or offers an explanation which is found by the Assessing Officer or the Commissioner to be false or such person offers an explanation which he is not able to substantiate and fails to prove that such explanation is bona fide and that all the facts relating to the same and material to the computation of his total income have been disclosed by him, then, the amount added or disallowed in computing the total income of such person as a result thereof was for the purpose of Clause (c) of this Sub-section, be deemed to represent the income in respect of which particulars have been concealed.

20. The Apex Court while considering the case CIT Madras v. Khoday Eswarsa and Sons [1972] 83 ITR 369 (SC) =2002-TIOL-2719-SC-IT held as under:-

“No doubt the original assessment proceedings, for computing the tax may be a good item of evidence in the penalty proceedings but the penalty cannot be levied solely on the basis of the reasons given in the original order of assessment.

In the case before us we have already pointed out that in the order levying penalty the income-tax Officer has categorically stated that the reasons for adding the disputed amounts in the total income of the assessee have been already discussed in the original order of assessment and that they need not be repeated again. The Appellate Assistant Commissioner, we have already pointed out, has made only a guess-work. That clearly shows that except the reasons given in the original assessment order for including the disputed items in the total income, the department had no other material or evidence from which it could be reasonably inferred that the assessee had consciously concealed the particulars of his income or had deliberately furnished inaccurate particulars.

For all the reasons given above, it follows that there is no merit in the appeal and it is accordingly dismissed. As the respondent has not appeared, there will be no order as to costs.”

21. Further, the Apex Court while dealing with phrase ‘concealment of income’ and ‘inaccurate particulars’ as used under Section 271(1)(c) of the Act discussed in detail in the judgment of Dilip N. Shroff v. CIT (2007) 6 SCC Page 329 = 2007-TIOL-96-SC-IT . Relevant paras are Para Nos. 48, 49, 50, 51 and 71 which are extracted here as under:-

“48. The expression “conceal” is of great importance. According to Law Lexicon, the word “conceal” means:

“To hide or keep secret.

The word ‘conceal’ is derived from the latin concelare which implies con + celare to hide. It means ‘to hide or withdraw from observation; to cover or keep from sight; to prevent the discovery of; to withhold knowledge of’. The offence of concealment is thus a direct attempt to hide an item of income or a portion thereof from the knowledge of the Income Tax Authorities.”

49. In Webster’s Dictionary, “inaccurate” has been defined as:

“not accurate, not exact or correct; not according to truth; erroneous; as an inaccurate statement, copy or transcript.”

It signifies a deliberate act or omission on the part of the assessee. Such deliberate act must be either for the purpose of concealment of income or furnishing of inaccurate particulars.

50. The term “inaccurate particulars” is not defined. Furnishing of an assessment of value of the property may not by itself be furnishing of inaccurate particulars. Even if the Explanations are taken recourse to, a finding has to be arrived at having regard to clause (A) of Explanation 1 that the assessing officer is required to arrive at a finding that the explanation offered by an assessee, in the event he offers one, was false. He must be found to have failed to prove that such explanation is not only not bona fide but all the facts relating to the same and material to the income were not disclosed by him. Thus, apart from his explanation being not bona fide, it should have been found as of fact that he has not disclosed all the facts which was material to the computation of his income.

51. The explanation, having regard to the decisions of this Court, must be preceded by a finding as to how and in what manner he furnished the particulars of his income. It is beyond any doubt or dispute that for the said purpose the Income Tax Officer must arrive at a satisfaction in this behalf. [See CIT v. Ram Commercial Enterprises Ltd., (2000) 246 ITR 568 (Del) = 2003-TIOL-69-HC-DEL-IT and Diwan Enterprises v. CIT, (2000) 246 ITR 571(Del) = 2003-TIOL-532-HC-DEL-IT .

71. “Concealment of income” and “furnishing of inaccurate particulars” are different. Both concealment and furnishing inaccurate particulars refer to deliberate act on the part of the assessee. A mere omission or negligence would not constitute a deliberate act of suppressio veri or suggestio falsi. Although it may not be very accurate or apt but suppressio veri would amount to concealment, suggestio falsi would amount to furnishing of inaccurate particulars.”

22. As noticed above in the case of Anantharam Veersinghaiah and Company (supra), it has been constant view of the Apex Court that burden of proof in penalty proceedings varies from that in the case of assessment proceedings and any finding in assessment proceeding that a particular receipt is income cannot automatically be adopted, though finding in assessment proceeding constitutes good evidences in the penalty proceedings. In penalty proceedings the authorities must consider the matter afresh as the question has to be considered from a different angle.

23. Argument of the counsel for the Revenue that assessee failed to prove the identity of the creditors, their creditworthiness and the genuineness of transaction and the same being confirmed by the Tribunal in the quantum proceedings, cannot be reopened now and looked upon in the penalty proceedings, cannot be accepted, as penalty cannot be levelled solely on the basis of reason given in the original assessment order. The reliance placed on the decision of Ram Baboo Agrawal (supra) is in relation to the proceedings under Section 68 and is not applicable in the present case. As in the penalty proceedings, case is examined afresh for limited purpose for determining whether the assessee has furnished inaccurate particulars of income or has concealed the income so as to make him liable for penalty under Section 271(1)(c) of the Act.

24. In Khoday Eswarsa and Sons (supra) as well as in Dilip N. Shroff (supra), the Apex Court had examined in depth what would constitute ‘concealment of income’ and ‘inaccurate particulars’. In penalty proceedings the burden of proof varies from that in assessment proceedings, and any finding in assessment proceeding would not automatically be adopted in penalty proceedings, thus, in penalty proceedings the taxing authorities have to independently arrive at a finding regarding the ‘concealment of income’ or of ‘inaccurate particular’.

25. In the present case, the Assessing Officer did not record any finding as to incorrect, erroneous or false return of income filed by the assessee which could lead to the fact that assessee has furnished inaccurate particulars of income and make him liable for penalty under Section 271(1)(c) of the Act. The Assessing Officer had only doubted the genuineness of the gifts on ground of human probabilities and had also doubted the creditworthiness of donors and genuineness of transaction. The Tribunal on the other hand had recorded finding regarding the identity of creditors, their creditworthiness and genuineness of the transactions which were before the Assessing Officer but he had not properly appreciated the same and discarded and doubted the genuineness of gifts on ground of human probabilities, though they were tax payers and the amounts gifted had been disclosed in their tax return for relevant year.

26. Instant case, is not a case of either concealment of income or of furnishing inaccurate particulars as neither the assessing authority nor first appellate authority recorded any finding to such effect that details furnished by the assessee to be incorrect, erroneous or false.

27. Considering the facts and circumstances of the case, we are of the considered opinion that the Tribunal had recorded finding of fact that no penalty can be imposed under Section 271(1)(c) of the Act as Revenue has failed to establish that assessee has concealed income or furnished inaccurate particulars.

28. These appeals have no merit and are hereby dismissed. The question of law, therefore, is answered in favour of the assessee and against the Revenue.

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