Income Tax Appellate Tribunal - Mumbai
Income-Tax Officer vs Smt. Pramila Pratap Shah on 11 November, 2005
Equivalent citations: [2006]100ITD160(MUM), [2006]285ITR1(MUM), (2006)105TTJ(MUM)140
ORDER
K.C. Singhal, Judicial Member
1. The only issue arising in this appeal is whether the Learned CIT (Appeals) was justified in deleting the penalty of Rs. 3,44,460 levied by Assessing Officer under Section 158BFA of the Income-tax Act, 1961 (Act).
2. The facts of the case are these. The premises as well as the lockers of Shri Pratapchand Shah (deceased assessee) were searched under Section 132 of the Act on 9-2-1999. In response to notice under Section 158BC dated 9-5-2000, the representative of the assessee vide letter dated 2-6-2000, submitted as under:-
The assessee expired on 30-1-1997 and the date of search was conducted on 12-2-1999 which is after death. Hence, the question of filing return by the assessee does not arise. A copy of the death certificate is enclosed herewith.
The second notice under Section 158BC dated 1-12-2000 was addressed to the legal heir of Shri Pratapchand C. Shah. In response to the same, the legal heir vide letter dated 15-12-2000 reiterated the earlier stand. However, it was further submitted that in order to meet the requirement of notice the return was being filed. No income was offered in this return. Subsequently, in the course of assessment proceedings, the legal heir revised the return disclosing undisclosed income of Rs. 5,82,439 along with covering letter dated 19-1-2001 stating as under:-
However, on 22-1-2001 the legal heir of Shri Pratap C. Shah i.e., his wife Smt. Pramila P. Shah filed the revised return of income in form No. 2B for the block period declaring the undisclosed income at Rs. 5,82,439 with a covering letter dated 19-1-2001 submitted that subsequent to the filing of return it has been noticed on perusal of various papers and relevant statements on records that the figures of income shown for the assessment year 1997-98 needs revision. The figure of interest allowed on the capital balance lying to the credit of my deceased husband has not been properly shown in the original return.
On the perusal of the Bank Account, it is noticed that my husband had during his life time shown certain shares of Infar (India) Ltd. The capital gain on sale of these shares was not offered for taxation. I regret for the error committed by my deceased husband. In respect of these two items and in the absence of any knowledge, this has escaped my attention when the return was filed as stated above. The mistake and/or omission has now been realized and therefore, this return is being purely voluntarily without any notice of such errors being noted by the Department since the revision of return is purely voluntary. You are requested to take the same on record and considered the submissions made herein below:-
Sympathetically and in proper perspective while passing assessment order for the kind action of which I shall be most grateful to your good self.
Before I conclude, I would like to state that the notice filing return of income was issued in the name of Shri Pratapchand C. Shah. He had died on 30-1-1997. The income i.e., being offered under the revised return enclosed herewith is in respect of the income earned by the deceased during his life time prior to his death. I was not aware of this aspect of the matter and hence, the omission or not taking correct figures while submitting return of income for which I regret as stated above.
The Assessing Officer treated the revised return as non estas no revised return could be filed under Section 158BC. However, the assessment was completed on the total undisclosed income of Rs. 5,82,440 as shown in the revised return.
3. While completing the assessment proceedings, the penalty proceedings under Section 158BFA were initiated by issuing notice dated 27-2-2001. In response to the same, the Learned Counsel for the legal heir submitted, videletter dated 5-3-2001, as under:-
Kindly note that the return was filed by the legal heir in the absence of any relevant details at the then relevant point of time in respect of the issues for which the deceased has not taken correct steps originally. The legal heir was of the bona fide opinion that the return submitted by the deceased during his life time was the correct situation and there was no need for any disturbance thereto.
The legal heir was of the opinion that since there was no items of jewellery found from the lockers maintained by the deceased during his life time, the legal heir felt no income has remained undisclosed and, therefore, he has filed originally showing income at Rs. Nil in response to the proceedings initiated by your goodself.
Subsequently, the records of the deceased were examined carefully in consultation with us when it was noticed that certain items had remained to be shown. Therefore, a revised return was filed purely voluntarily without any notice being issued by you to rectify the errors committed in the original return.
In the light of the fact that the revised return has been submitted the assessee voluntarily disclosing correct figures of un-taxed income, we request you to kindly take a lenient view of the matter and dropped the penalty proceedings, for the kind action of which, the assessee shall be most grateful to your goodself.
Not satisfied with the above explanation, the Assessing Officer levied the penalty of Rs. 3,49,460 by observing as under:
In this case the search operation was carried out on 9-2-1999 and the last panchanama was drawn on 12-2-1999. The assessee was expired on 30-1-1997. It is, therefore, obvious that the legal heir had having ample time to verify the record of the deceased which was neglected even after notices under Section 158BC were issued i.e, on 9-5-2000 and on 1-12-2000. Notice under Section 143(2) dated 18-12-2000 was issued. The legal heir of the assessee was required to produce the documents, accounts and any other evidence to explain the return filed by her on 27-12-2000. However, there was no response on that day. On 22-1-2001 the legal heir Smt. Pramila P. Shah filed a revised return declaring the undisclosed income at Rs. 5,57,439. Therefore, her submission that the revised return was filed purely voluntarily without any notice being issued to rectify the error committed in the original return cannot be acceptable. I am satisfied that the assessee had committed a default under Section 158BFA of the Income-tax Act.
4. The matter was carried in appeal before the Learned CIT (Appeals), who deleted the penalty by observing as under:
(i) That due to sudden death of the deceased person, the legal heir being housewife was not aware of the fact that her husband had sold shares of a company;
(ii) That during the search, no incriminating material was found pertaining to the deceased husband. Hence, "nil" return was filed;
(iii) While scrutinizing and verifying the books of the firm in which deceased person was partner, it was found by the Learned Counsel for the Assessee that certain shares were sold by her husband;
(iv) Immediately, on knowing such fact, the revised return was filed by her showing capital gain earned by her husband;
(v) That Assessing Officer, of his own, did not find any unaccounted income of her husband;
(vi) That there was no mens rea on the part of legal heir of the deceased person.
Aggrieved by the same, the Revenue is in appeal before the Tribunal.
5. The Learned Departmental Representative assailed the order of the Learned CIT (Appeals) by contending that there is no requirement of mens rea in Section 158BFA(2) as held by the Learned CIT (Appeals). Further, there is no provision for revising the return. Hence, the revised return filed by the legal heir was non est and could not be acted upon. According to him, the penalty is leviable if it is shown that assessed income is more than the returned income. Since assessee did not declare any undisclosed income in the return filed under Section 158BC, the penalty was leviable in respect of the undisclosed income, not declared in the original return. The crux of his argument was that levy of penalty is automatic where the assessed undisclosed income is more than the returned income irrespective of the circumstances.
6. On the other hand, the Learned Counsel for the Assessee has submitted that levy of penalty can never be automatic. He drew our attention to the provisions of Section 158BFA(3) to point out that reasonable opportunity has to be given to assessee before levying penalty. Further, Sub-clause (2) provides that Assessing Officer may direct for levy of penalty. These two provisions clearly suggest that levy of penalty is discretionary. In other words, circumstances of the case must be taken into consideration before levy of penalty. She then drew our attention to the circumstances of the case which were taken into consideration for deleting the penalty by the Learned CIT (Appeals). Accordingly, it is prayed that order of the Learned CIT (Appeals) should be upheld.
7. However, it is mentioned that neither the Learned Departmental Representative nor Learned Counsel for the Assessee brought to our notice any decision in support of their pleas.
8. Rival submissions have been considered carefully. The basic question to be considered is whether levy of penalty is automatic irrespective of the facts and circumstances of the case. In our humble opinion, such extreme view cannot be accepted. There are certain fundamental principles with reference to the levy of penalty which must be looked into and considered before levy of any penalty. The first principle is that penalty proceedings being quasi-criminal in nature, are quite distinct, separate and independent of assessment proceedings and consequently, the findings recorded in assessment proceedings, though relevant, are not conclusive for levy of penalty. This principle was laid down by the Hon'ble Chief Justice Chagla in the case of CIT v. Gokuldas Harivallabhdas , and the same was approved by the Hon'ble Supreme Court in the case of CIT v. Anwar Ali . The second principle is the foremost principle of rule of natural justice i.e., no person should be penalized or condemned without giving a reasonable opportunity of being heard. This principle is normally incorporated in penal provisions. However, such principle is bound to be observed even though not incorporated. The third principle is that levy of penalty is discretionary. The Hon'ble Supreme Court in the case of Hindustan Steels Ltd. v. State of Orissa , held as under:-
Penalty will not also be imposed merely because it is lawful to do so. Whether 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 the relevant circumstances. Even if a minimum penalty is prescribed, the authority competent to impose the penalty will be justified in refusing to impose penalty, when there is a technical or venial breach of the provisions of the Act or where the breach flows from a bona fide relief that the offender is not liable to act in the manner prescribed by the statute.
9. The conjoint reading of above principles leads to only one conclusion that levy of penalty can never be automatic irrespective of the facts and circumstances of the case. The tax authorities must take into consideration the entire facts and circumstances of the case before levying any penalty. The opportunity of being heard is not a mere formality. Every person, against whom penal action is sought, has an inherent right to explain the facts and circumstances of the case to prove his innocence and consequently the tax authorities are bound to consider the same. The discretion is vested in the tax authorities and the same must be exercised judiciously after considering the facts and circumstances of the case. The technicalities should not come in the way of justice. The benefit of doubt must be given to the assessee. Accordingly, it has to be held that discretion must be exercised in favour of assessee, if facts and circumstances of the case, prima facie, shows the innocence of the person against whom penal action is sought.
10. Keeping in view the above legal position, let us now analyze the relevant provisions of Section 158BFA which are being reproduced as under:
(2) The Assessing Officer or the Commissioner (Appeals) in the course of any proceedings under this Chapter, may direct that a person shall pay by way of penalty a sum which shall not be less than the amount of tax leviable but which shall not exceed three times the amount of tax so leviable in respect of the undisclosed income determined by the Assessing Officer under Clause (c) of Section 158BC:
Provided that no order imposing penalty shall be made in respect of a personal if--
(i) such person has furnished a return under Clause (a) of Section 158BC;
(ii) the tax payable on the basis of such return has been paid or; if the assets seized consist of money, the assessee offers the money so seized to be adjusted against the tax payable;
(iii) evidence of tax paid is furnished along with the return; and
(iv) an appeal is not filed against the assessment of that part of income which is shown in the return:
Provided further that the provisions of preceding proviso shall not apply where the undisclosed income determined by the Assessing Officer is in excess of the income shown in the return and in such cases the penalty shall be imposed on that portion of undisclosed income determined which is in excess of the amount of undisclosed income shown in the return.
(3) No order imposing a penalty under Sub-section (2) shall be made--
(a) unless an assessee has been given a reasonable opportunity of being heard;
(b) to (f) Not relevant.
A bare reading of the above provisions reveals that Legislature has used two words - "may" and "shall" in Sub-section (2). The word "may" relates to levy of penalty while the word "shall" relates to the quantum of penalty to be imposed. The word "may" is generally used by the Legislature where discretion is vested in the concerned authority while the word "shall" is used where absolute obligation is conferred on the authority without having any discretion. No doubt, some times, the word "may" is also used as "shall" but where Legislature uses two words "may" and "shall" in the same provision then the word "may" must be understood to have conferred discretion on the concerned authority. Thus, the use of word "may" in Section 158BFA(2), in our humble opinion, clearly shows that the Assessing Officer is vested with the discretion to levy the penalty. Further, Sub-section (3) incorporates the principle of natural justice. Providing of opportunity to assessee before levy of penalty is not a mere formality. The assessee may demonstrate, with the help of facts and circumstances his innocence. Therefore, in our opinion, there is inbuilt mechanism in the provisions of Section 158BFA to the effect that penalty may not be levied if the facts and circumstances of the case justifies the bona fides of the assessee in not returning the income. Accordingly, it has to be held that levy of penalty under Section 158BFA is not automatic. The Assessing Officer must consider the circumstances of the case and then exercise his discretion in judicious manner.
11. If the facts and circumstances of the case show the bona fide of the assessee in not disclosing the income in the return then, in our opinion, penalty should not be imposed and the technicalities, if any, should not come in the way of justice. The Hon'ble Supreme Court in the case of Hindustan Steels Ltd. (supra) has clearly held that authority competent to impose the penalty would be justified in refusing to impose penalty when there is technical or venial breach of the provisions of the Act. This judgment further provides in clear terms that all relevant circumstances should be taken into consideration before exercising the discretion vested in the authority. The relevant observations have already been reproduced by us in earlier para and, therefore, need not be produced again..
12. Let us now examine whether facts and circumstances of the case justifies the levy of penalty. We have already noted the relevant facts namely - (z) that search operation was carried out after the death of the assessee, (it) no incriminating material was found either at the premises of deceased assessee or from the lockers operated by him or from the possession of his wife who is legal heir before us, (iii) the wife of assessee was not aware of the financial affairs of the deceased assessee. Therefore, in these circumstances, the legal heir filed the "nil undisclosed income in the return under Section 158BC. However, subsequently, she came to know through the Chartered Accountant of the deceased assessee that he had sold some shares in his life time and the sale proceed had been credited in his account in the books of M/s. Natwarlal & Co., a firm in which the assessee was partner. As soon as, she came to know about such facts, she filed the revised return disclosing the capital gain on sale of such shares. On important fact, which must be considered, is that even the Assessing Officer was not aware of such income as nothing was revealed in the course of search. Therefore, in our considered opinion, the bona fide of the legal heir who filed the return cannot be doubted. Consequently, we are further of the view that Assessing Officer should have exercised the discretion in favour of the assessee. The assessee cannot be penalized merely on technicalities. No doubt, there was no provision for filing the revised return but the same should not come in the way of justice. Justice is supreme and no person should be penalized where facts and circumstances shows the complete bona fide of the assessee.
13. There is another angle which also justifies the deletion of penalty. As noted earlier, the penalty under Section 158BFA(2) can be levied only where "undisclosed income" falling within the ambit of the provisions of Chapter XIV-B is not declared in the return under Section 158BC. According to Section 158BB, undisclosed income assessable in the hands of assessee is that income which is assessed on the basis of documents or other materials found in the course of search. That means, in the absence of any incriminating material found in the course of search, no income can be assessed under the provisions of Chapter XIV-B. This has been repeatedly held by the Tribunal in various cases. Reference can be made to two decisions namely - Parekh Foods Ltd. v. Dy. CIT [1998] 64 ITD 396 (Pune) and Sunder Agencies v. Dy. CIT [1997] 63 ITD 245 (Mum.). In the present case, we have already noted that no incriminating material was found in the course of search. The fact that deceased assessee had sold the shares was not known to assessee's wife. Further, sale proceeds of shares were duly recorded in the books of firm where deceased assessee was partner. Hence, income by way of capital gain was not assessable as "undisclosed income" under Section 158BB/158BC. Thus, question of levying penalty did not arise. Assessee cannot be penalised merely because, by mistake, income which is not "undisclosed income', was offered to tax as "undisclosed income."
14. Before parting with this order, we would like to mention that the learned CIT (Appeals) had taken into consideration the factor of mens rea in deleting the penalty. We agree with the contention of the Learned Departmental Representative that concept of mens rea cannot be imported in the provisions of section 158BFA(2) in view of Hon'ble Supreme Court judgment in the case of Gujarat Travencore Agency v. CIT . The effect of such legal position is that onus is not on the Revenue either to prove the guilty mind or the sufficient cause on the part of assessee. The onus is entirely on the assessee to prove his bona fides on the basis of facts and circumstances of the case. If the assessee can discharge such onus, then levy of penalty would not be justified.
15. In view of the above discussions, we hold that assessee has discharged his/her onus in proving her bona fide. Accordingly, for the reasons given by us, we uphold the order of the Learned CIT (Appeals) deleting the penalty.
16. In the result, appeal of the Revenue is dismissed.