Income Tax Appellate Tribunal - Hyderabad
Smt. G. Indira K. Reddy And Others vs Income Tax Officer on 14 January, 1999
ORDER
O. K. Narayanan, A.M.
1. There are eight appeals in this bunch. These appeals are filed by five different assessees. Assessment years involved are 1983-84 in all cases and asst. yr. 1985-86 as well in the case of Somanadri Bhupal. These appeals are filed in the context of penalties levied under s. 271(1)(a) or s. 271(1)(c) of the Act.
2. The assessees are members of the same family. Facts and circumstances leading to the imposition of penalty in these cases are the same. The grounds are common. The reasons for imposing penalty in these cases is centered around the filing of returns in respect of capital gains arising out of the sale/transfer of land in which all the appellants had rightful shares. Therefore, in the circumstances these appeals are clubbed together for joint hearing and disposal by a common order. The details of penalties involved in different appeals are tabulated below :- --------------------------------------------------------------------------
ITA No. Name of assessee Asst. Penalty Amount of penalty
year under s.
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1304/Hyd/91 Smt. G. Indira K. Reddy 1983-84 271(1)(c) 21,213 1305/Hyd/91 Shri Somanadri Bhupal 1983-84 271(1)(c) 28,890 368/Hyd/91 -do- 1985-86 271(1)(a) 22,62,540 492/Hyd/91 -do- 1983-84 271(1)(a) 45,662 1306/Hyd/91 Shri G.V. Krishna Reddy 1983-84 271(1)(c) 37,645 1307/Hyd/91 Shri Sanjay Reddy 1983-84 271(1)(c) 35,000 1308/Hyd/91 Smt. Shalini Bhupal 1983-84 271(1)(c) 49,311 503/Hyd/91 -do- 1983-84 271(1)(a) 77,894
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3. Facts and circumstances leading to the imposition of impugned penalties are that G. V. K. Reddy along with the members of his family joined in a partnership on 27th July, 1980, as Sri Krishna Enterprises, to carry on the business of hotels, commercial complexes, etc. Along with Mr. Reddy and his family members, certain outside persons also joined the firm by way of contributing their landed properties towards the capital in the firm. The firm succeeded in procuring altogether an extent of 73,627 sq. mtrs. of land for the business purposes. Between April and November of 1982, the Municipal Corporation of Hyderabad acquired 5,241 sq. mtrs. of land for public purposes for a compensation of Rs. 5,70,000. The remaining extent of 68,386 sq. mtrs. of land was continued to be in the enjoyment of the firm. Meanwhile, the outsiders who joined the firm by contributing their landed properties towards share-capital in the firm retired from the firm by accepting money in settlement of their capital accounts. Later on, the family members of G. V. K. Reddy promoted two limited companies, for the purpose of persuing the original business proposal of running hotel business. The appellants' group later decided that the hotel business may be carried on by the two limited companies. On the basis of that decision, the firm was dissolved in December, 1984, and the assets and liabilities of the firm were take over by the two limited companies, which later on went ahead with its business of hotel project. At that time, when the assets and liabilities of the firm were taken over by the two companies, G. V. K. Reddy and his family members were the partners of the firm. These partners received their capital account in the firm, by way of allotment of shares in the two companies. The alienated properties were valued at the market rate while handing over the same to the limited companies. The compensation received for the land acquired by Municipal Corporation and the differential value of the land at the time of transferring the land to the two companies, were to be offered for the purpose of assessment under the IT Act. The appellants originally filed the returns before the AO declaring capital gains in the hands of the firm, viz. the capital gains arising out of the compensation received for the land acquired by the Municipal Corporation of Hyderabad as well as the capital gains arising out of the transfer of land, to the companies at the time of dissolution of the firm in December, 1984. In the course of assessment proceedings, the AO found that the firm was only a cover deployed by the appellants to transact the transfer of land to the two companies, and actually, the income arising out of acquisition and transfer of land had to be treated as business income, as those lands were held by the appellants as stock-in-trade. He held that as the firm was only a make-believe arrangement for the purpose of transferring the title of the lands, the firm could not be recognised for the purposes of assessment, and therefore, he assessed the appellants in the status of AOP. In short, as against the income returned by the appellants in the hands of the firm under the head 'Capital gains', the AO assessed the income as business income in the status of AOP.
3.1. The assessment was taken in appeal before the CIT(A)-4, Hyderabad. The CIT(A) also upheld the finding of the AO that the firm was only a sham arrangement for the purpose of carrying out its transactions in land and the firm was not genuine. The CIT(A) also held that the assessment could not be made in the status of AOP, as according to him, the land was not held as business stock by the appellants. According to the CIT(A) the appellants had to be assessed as co-owners of the land, and the income should be assessed under the head 'Capital gains'. Thus, holding, he set aside the assessment and directed the AO to redo the assessment, after investigating the matter in detail from the inception of the firm in 1980 to its dissolution in 1984.
3.2. At this stage, the appellants filed returns in the individual names offering capital gains for taxation, and those returns were accepted by the AO and the assessments were completed accordingly.
3.3. Following the assessments as stated in the above para, the AO levied interest under s. 139(8) and under s. 217 and imposed penalties under s. 271(1)(a), s. 271(1)(c) and s. 273(1)(b) of the Act, on all the appellants for all the assessment years ranging from 1983-84 to 1988-89. All the interest and penalty orders were taken up by the appellants before the CIT(A) for waiver under s. 273A of the Act. The CIT has waived the entire amounts of interest and penalties for all the assessment years upto 1988-89 in the cases of the appellants, except where the returns were filed by the appellants in response to notices issued under s. 148 of the IT Act.
3.4. The details of the interests and penalties imposed and waived are summarised below :-
(a) In respect of G. V. K. Reddy, interest under s. 139(8) and s. 217 as well as penalties under ss. 271(1)(a) and 273(1)(b) have already been waived by the CIT for all the four assessment years from 1985-86 to 1988-89, and the only penalty that subsists in the case of G. V. K. Reddy is the amount of Rs. 37,645 levied under s. 271(1)(c) for the asst. yr. 1983-84, which was not waived by the CIT since the (sic).
(b) In the case of G. V. K. Reddy (HUF) interest under s. 139(8) and under s. 217 as well as penalties under ss. 271(1)(a) and 273(1)(b) have been waived by the CIT vide his order dt. 25th January, 1995 for all the three assessment years, viz. 1986-87, 1987-88 and 1987-88. Therefore, there is no appeal before us from G. V. K. Reddy (HUF).
(c) In the case of Smt. G. I. K. Reddy, interest levied under s. 139(8) and penalty levied under s. 271(1)(c) only are subsisting for the asst. yr. 1983-84, and in her case, penalties and interests levied for the other four years viz. 1985-86 to 1988-89 have been waived. It is against the penalty of Rs. 21,213 for asst. yr. 1983-84 levied under s. 271(1)(c), that she has preferred the appeal ITA No. 1304/Hyd./91 before us.
(d) In the case of G. V. S. Reddy again, interest and penalty under s. 271(1)(c) for the asst. yr. 1983-84 alone are subsisting and penalties and interests levied for all the other four assessment years, viz. 1985-86 to 1988-89 have been waived by the CIT, vide his order dt. 25th January, 1995. Hence, he filed appeal ITA No. 1307/Hyd./91 questioning the penalty of Rs. 35,000 levied under s. 271(1)(c) for the asst. yr. 1983-84
(e) In the case of Somanadri Bhupal, the CIT has waived interests and penalties for the asst. yr. 1988-89 whereas interest and penalties levied for the asst. yrs. 1983-84 and 1985-86 are subsisting. Hence, he has filed three appeals, viz. ITA No. 1305/Hyd/91 against penalty of Rs. 28,890 under s. 271(1)(c) and ITA No. 492/Hyd./91 against penalty of Rs. 65,668 under s. 271(1)(a) for the asst. yr. 1983-84, and ITA No. 368/Hyd./91 against penalty of Rs. 22,62,540 for asst. yr. 1985-86.
(f) In the case of Smt. N. Annapurnamma, the CIT has waived all the interests and penalties levied for asst. yrs. 1984-85 to 1988-89, and hence there is no appeal from her before us.
(g) In the case of Smt. Shalini Bhupal, all interests and penalties for asst. yrs. 1985-86 to 1988-89 have been waived by the CIT vide his order dt. 25th January, 1995. For the asst. yr. 1983-84 interest under s. 139(8) and penalties under s. 271(1)(a) and under s. 271(1)(c) are subsisting. Hence, it is against these two penalties of Rs. 77,894 and Rs. 49,311 that the assessee has come up with appeals ITA Nos. 503 and 1308/Hyd./91 respectively, before us.
3.5. The penalties that subsist after the waiver by the CIT in the cases of the various assessees discussed above and which are taken up in appeal before us, are already tabulated by us in para 2 of this order hereinabove. Those penalties not waived by the CIT(A) under s. 273A are in short the issues involved in these eight appeals. The CIT did not waive these penalties for the reason that the related returns were filed only in response to notices issued under s. 148 of the IT Act.
4. The common contentions of the appellants are as follows. That the appellants have given the reason for the failure on their part in detailed notes by way of explanations before the lower authorities; that both the authorities did not consider those explanations furnished by the appellants, that the lower authorities passed the orders mechanically, that in fact, the capital gains arising on both the occasions, i. e., on acquisition of land by the Municipal Corporation of Hyderabad and on the transfer of the land to the companies, were assessable in the hands of the respective firms, that that contention was at least legally tenable. It was on the basis of a package of settlement with the IT Department that the appellants offered the capital gains for taxation in the individual hands of the appellants on pro rata basis. Initially, assessment of the income under the head 'business' and in the status of AOP was set aside by the appellate order of the CIT(A) thereon with direction to conduct investigation and consider the income as capital gains in the hands of the appellants as co-owners of the land, and the subsequent settlement arrived at with the Department all were time-consuming and protracted, and they resulted in the delay in filing the returns by the appellants individually. It is also contended that there is no question of concealment of income in these cases, as the income offered was on the basis of the settlement with the Department, which is evident from the following facts :
(i) That the income returned in their individual returns has almost been accepted, except for certain additions.
(ii) Except in the cases of assessment years, where the returns were covered by notices under s. 148, in all other cases, interest and penalties levied have been waived by the CIT under s. 273A.
(iii) When both the Department and the appellants have not preferred appeals against the order of the CIT(A) against the original assessment in the name of the firm, in which case both the parties had strong grounds to agitate the matter in the higher forum.
(iv) That the appellants have not concealed any particulars of income, as all the particulars are always available in the records itself.
It is contended that the compensation received from the Municipal Corporation of Hyderabad on acquisition of land was not a secret. The land revalued at market rate at the time of transfer of the land to the two companies on the dissolution of the firm was also apparent on the face of the records. The learned counsel for the assessee, Shri Bhaskara Rao contended that the assessments have been completed on the basis of a settlement arrived at with the Department, which is apparent from the above factors and other facts of the case. It is submitted that in all the cases, interest and penalties have been waived, and in the cases before us, interests and penalties have not been waived by the CIT, only because he was prevented by a technical hitch in the sense that the related returns were filed in response to notices under s. 148. But for this statutory fetter, the CIT would have definitely waived the interests and penalties in these cases also. He therefore, submitted that the penalties agitated in these appeals may be cancelled.
5. The learned Departmental Representative on the other hand, supported the orders of the lower authorities. According to Shri Bobjee Kurien, the learned Departmental Representative, the waiver of interest and penalty under s. 273A by the CIT for the other years, does not make it a case that there was any settlement as contemplated and argued by the appellants. According to him, the CIT was rather bound to waive interest and penalties under s. 273A, wherever the conditions stipulated in that provision have been satisfied, in view of the Board circulars as well as relevant judicial pronouncements. According to the learned Departmental Representative, the appellants have been driven to a dead end by the order of the CIT(A) passed against the original assessment completed on the firm. Therefore, they had no other way, but concede the pro rata capital gains in the individual hands. The delay in filing the returns is long and there was no voluntary compliance. Therefore, in all these cases, penalties are liable to be confirmed.
6. We heard both sides in detail and perused the relevant records of the case. It is the penalties which have neither been waived by the CIT in the proceedings under s. 273A, nor been cancelled by the CIT(A) in the first appeal, which are subject-matter of these appeals before us. In these assessments, the AO had altogether passed as many as 91 orders imposing interests and penalties under various provisions of the Act, for various years from 1983-84 to 1988-89. Out of the these 91 orders, the CIT has already waived under s. 273A full interest and penalties in as many as 77 cases, where the related returns were not filed in response to notices under s. 148 of the Act. Only in 14 cases the CIT has declined to waive interest and penalties, since the related returns were covered by notices under s. 148 and as such there was a statutory hitch in the CIT waiving those penalties and interests. Out of these fourteen matters, these eight appeals have been preferred before this Tribunal by the five assessees, questioning the penalties under s. 271(1)(a) and under s. 271(1)(c) tabulated in para 2 above, for the asst. yrs. 1983-84 to 1985-86. The only reason for non-waiver of these penalties by the CIT under s. 273A is the statutory fetter, viz. filing of the related returns was covered by notices under s. 148, and but for that fetter, the CIT would have waived the interests and penalties for the impugned years under appeal as well in these cases. This position is very much evident from the order of the CIT dt. 25th January, 1995, passed under s. 273A, in various files involved in these group of appeals. This is a strong ground in favour of the appellants that there was a settlement between the appellants and the Department. The capital gains in the individual hands of the appellants have been assessed only after the order of the CIT(A), dt. 22nd December, 1989 passed against the original assessment order passed in the name of the firm, Sri Krishna Enterprises, assessing the business income in the status of AOP. It is the CIT(A) who directed the AO to conduct detailed investigation and make necessary enquiries and to assess the income as capital gains in the individual hands of the appellants as co-owners of the property as according to him, there was no partnership firm in existence at all. We are not now sitting in judgment over that order of the CIT(A). But as a relevant material on record, we have to peruse it. Many of the reasons stated by the learned CIT(A) in his order to rebut the existence of the partnership firm, Sri Krishna Enterprises, as argued by the appellants, are highly contestable before higher authorities. Still, the appellants opted for returning the income in the hands of the 'individuals' status of these assessees. The Department could have assessed the income as capital gains in the individual hands in the normal course, only after conducting the detailed investigation and necessary enquiries, as directed by the CIT(A) in his order. So, when the appellants agreed to offer the income as capital gains in their individual hands, the Department succeeded in avoiding the process of a protracted and cumbersome investigation. When we read the circumstances, leading to the cooperation extended by the appellants, in offering the income in their individual hands, and the subsequent blanket waiver of interest and penalties under s. 273A wherever possible, we find that there is an intimate nexus between the cooperation of the appellants and the waiver of the interest and penalties by the CIT under s. 273A. Non-filing of appeal by the appellants against the order of the CIT(A) in the original assessment proceedings in the case of the firm, the facility of avoiding time consuming and contestable enquiries by the Department, filing of returns in the individual hands of the appellants and the waiver of interest and penalties by the CIT, when put together are good enough to lend much support to the contention of the appellants that there was a settlement with the Department in respect of the assessments, which gave rise to impugned penalties. In the circumstances, we find that the contention of the appellants that there is no justification for the Department to levy penalties in the impugned cases, is fit for consideration.
7. As the law stood, under the provisions of s. 271(1)(a) relevant for the asst. yrs. 1983-84 and 1985-86, penalty for the delay in filing of the returns of income could not be levied, if the appellants established a reasonable cause. In this case, the assessee have a strong reason. Penalties are levied with reference to the revised returns filed in the individual capacities and assessments thereon. It is only after the order of the CIT(A) in the appellate proceedings on the assessment in the case of the firm, that the appellants could file their individual returns. It is long after the filing of the original return by the firm, its assessment and subsequent order of the CIT(A) that the assessees could file their individual returns. If the original assessment completed in the hands of the firm, had not been set aside by the CIT(A) the filing of the returns in the individual hands of the appellants would not have been warranted. Who has to file the returns and in what status assessments were to be completed were all debatable issues, till the CIT(A) upon the assessment in the case of the firm, set aside the assessment with certain directions, which prompted the appellants to file their returns in individual status. Further, the uncertainty regarding the business and the projects of the erstwhile firm, frequent changes in the constitution and subsequent dissolution of the firm actual implementation of the project through limited companies, and the long period involved in the income-tax proceedings upto the stage of the first appellate authority setting aside the order of the assessment in the case of firm, etc. must have contributed to the delay in the filing of the returns by the appellants before us. Further, sources of income for all the members of family are one and the same. Consequently, if there is any delay in respect of one source, none of the members of the family vis-a-vis the appellants could have filed the return in time, and any delay on the part of G. V. K. Reddy would result in corresponding delay in the hands of the other appellants. Therefore, the appellants who are family members are constrained in filing the returns, till the head of the family finalises the accounts of business activities and brings out the full picture of the income or loss.
8. On examination of totality of facts and circumstances of the cases, discussed above, we find that the appellants have made out a reasonable cause for not filing the returns in time, and, therefore, the penalties levied under s. 271(1)(a) and sustained in the cases of Somanadri Bhupal for asst. yrs. 1983-84 and 1985-86 and in the case of Smt. Shalini Bhupal for asst. yr. 1983-84 are liable to be cancelled.
9. Regarding the penalties under s. 271(1)(c) also, we have no ground to take a different view. Regarding the quantum of income there was no concealment. The appellants have furnished correct particulars of their income, as evident from the fact that the incomes returned by the appellants have almost been assessed. Therefore, the appellants are not hit by the second limb of s. 271(1)(c) of the Act, i. e., the assessee "furnishes inaccurate particulars of income". The next question is whether the appellants 'have concealed particulars of income'. As stated in the first limb of s. 271(1)(c) of the Act. The contention of concealment is advanced in these cases by the Revenue mainly for the reason that the returns in question were filed only after service of notices under s. 148. In all other related cases, the CIT has waived interest and penalties taking into account, the various circumstances of the case. The penalties under appeal before us in these cases are also imposed very much under the same set of circumstances. Issue of notices under s. 148 alone would not alter the pith and substance of the circumstances on which the CIT has acted upon in other cases, where no such notices were issued under s. 148. The circumstances which weighed with the CIT in cancelling the penalties in other cases, equally hold good in these cases, and but for the issuance of notices under s. 148, the CIT would have cancelled these penalties as well. Issuance of notice under s. 148 is a statutory fetter on the CIT in waiving the penalty under s. 273A. As such, notice under s. 148 may hold good for non-exercise of jurisdiction by the CIT under s. 273A of the Act, but it would not hold good for appreciating the merits of the case in appeal against penalty. In these cases, the concealment is only the other side of the delay caused in filing the returns which we have already considered. The appellants originally returned the income as capital gains in the hands of the firm. The AO in his turn assessed it as business income in the status of AOP. The CIT(A) again directed to assess the capital gains in the individual hands of the appellants as co-owners. It is only on account of change of view adopted by the CIT(A), that prompted the assessees to file the returns of income in their individual capacities; and the Revenue to issue notices under s. 148 for bringing the assessments of the earlier years to the fore. The Department itself had opposite views regarding the nature of income as well as the assessees in whose hands the same have to be assessed, with the AO completing the assessment, assessing it as business income in the status of AOP, and the CIT(A) directing to assess the same as capital gains in the hands of the individual appellants. It is for these reasons that the income had to be returned in the individual hands of the appellants at a later point of time. When there was controversy and confusion about the very incidence of the tax in the hands of the appellants, even in the minds of the Departmental authorities, when the appellants file returns in their individual capacities, albeit in response to notices under s. 148 which in the facts and circumstances of these cases are merely procedural, no concealment of income on the part of these appellants can be alleged. In fact, we find that there is no concealment of income. The returns were filed by the appellants in their individual capacities and the assessments were completed thereon, almost on the incomes returned. Interests and penalties were waived in all cases where notices under s. 148 were not issued in this group of cases, and it is only because of notices under s. 148 which is a technical hitch, in waiving the penalties by the CIT under s. 273A that the penalties in these appeals could not be waived. From the substantial number of cases of this group in which interests and penalties have been waived by the CIT, leaving only these matters in which related returns were filed in response to notices under s. 148 without waiver of penalty, it is evident that there was a package settlement between the appellants and Department. However, in these appellant proceedings, issue of notice under s. 148 is not a hitch, and what clinches the issue is existence or otherwise of a reasonable cause and a case of concealment. Considering totality of facts and circumstances of these cases, we find that there is no act of concealment on the part of the appellants, and these cases are not fit for levy of penalties under s. 271(1)(c) of the Act. As such, penalties in all these cases under s. 271(1)(c) are also liable to be cancelled.
10. We accordingly cancel the penalties under s. 271(1)(a) as well as under s. 271(1)(c) levied in these cases, and allow the appeals.
11. In the result, all the eight appeals are allowed.