Income Tax Appellate Tribunal - Ahmedabad
Dashratlal C. Shah vs Income-Tax Officer on 11 December, 1987
Equivalent citations: [1988]26ITD33(AHD)
ORDER
R.M, Mehta, Accountant Member
1. These appeals are directed against the orders of the CIT(A) whereby the penalties imposed on the assessee under Section 271(1)(c) of the Act by the ITO have been confirmed.
2. At the outset we find that the appeals are barred by limitation by a period of 3 days. After hearing the parties on the assessee's application dated 12th September, 1987, we condone the delay and dispose of these appeals on merits.
3. The assessee in this case is an individual and the assessment years involved are 1977-78 and 1978-79. The Income-tax Officer in the course of the reassessment proceedings under Section 143(3)/147(a) brought to tax a sum of Rs. 4,043 as income from house property in both the years. His reasons for doing so are recorded as under :
3. The assessee has thrown his self-occupied residential house property into the hotchpotch of his HUF consisting of himself, his wife and major son on 25-10-1973. Thereafter, on 12-7-1974 there was a partial partition as a result of which the assessee received a sum of Rs. 5,000 and. separated from the HUP. According to the provisions of Section 64(2)(c) as amended by the Taxation Laws (Amendment) Act, 1975, it is quite clear that where a converted property has been the subject-matter of partition amongst the members of the family, the income derived from such converted property as is received by the spouse or minor child from assets transferred indirectly by the individual to the spouse or minor child and the provisions of Section 64(1) shall apply. Accordingly, income from the converted house property has to be assessed in the assessee's hands. The assessee's representative's contention that the provisions of Section 64(2) are not applicable to the assessee as he is no longer member of the HUF has no merit and cannot be accepted. Similar inclusion of property income was made in the assessee's income for assessment year 1976-77 also. Therefore, income from house property which was taken in assessment year 1976-77 at Rs. 4,043 is included in the assessee's total income.
4. Consequent to the addition in respect of the income from house property, the ITO initiated penalty proceedings under Section 271(1)(c) and issued the relevant show-cause notices to the assessee. In response to these notices, the following submissions were made on behalf of the assessee :
(i) That the assessee has made a full disclosure of the material facts in the relevant year and once the same have been brought on record by way of 'note' or otherwise in the return of income of the previous year there is no need in law for the assessee to go on repeating the same in the return of every subsequent year for years to come. In this case the nature of the alleged 'nondisclosure' of fact is such that unless the assessee repeats the same 'note' in the return of every subsequent year till he survives he is charged with the offence of concealment.
(ii) On the facts of the case and in view of what has been stated in para (iii) above, it is contended that the assessee has made full disclosure of the material relevant for the assessment.
(iii) It is well settled that unless the department proves 'mens rea.' the penalty of concealment cannot be levied in law. Looking to the facts of the case, the amount of addition of income on account of alleged concealment as compared to total income, it becomes apparent that there is complete absence of 'mens rea.
5. The Income-tax Officer after considering these arguments disposed of the matter on the following lines :
4. I have carefully considered the above submissions made by the assessee. Although the penalty proceedings under Section 271(1)(c) are separate and independent of the assessment proceedings, it has nevertheless to be observed that the property income of Rs. 4,043 which had escaped assessment has been brought to tax by reopening the assessment under Section 147(a) by reason of failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment.
In this connection, it is pertinent to reproduce below the finding given by the CIT(A) in his appellate order on the assessee's objections of reopening of the assessment under provisions of Section 147(a) :
It is true that if the ITO had gone through the records of the assessee, the fact that the property income was not shown by the assessee in the year under appeal would have come to his notice. However, there is nothing in law which enjoins the ITO to see the entire past assessment records or connected records of the assessee under any other Act before making the assessment. In this view of the matter, I agree with the ITO that he had jurisdiction to reopen the assessment under Section 147(a).
[Emphasis supplied].
As regards the addition/inclusion of property income, the learned CIT(A)'s findings are as under :
The plain reading of Section 64(2)(a) & (2)(b) clearly indicates that any conversion of individual's own property to the HUF has to be ignored and the income has to be taxed in the hands of the individual who impressed it with the character of HUF property.
Here, the assessee was a member of the HUF after 31st December, 1969, at the time of impressing the property with the HUF character which was on 25-10-1973, individual was a member of the HUF, as such Section 64(2) will have full impact in the present case. Thus, the ITO's action is taxable (sic) in the hands of the assessee under Section 64(2)(c) by the same is taxable in view of the Section 64(2)(a) and (2)(b). In this view of the matter, the appeals are dismissed.
From the above findings, it is unequivocally clear that the assessee had firm liability and obligation to show the property income of Rs. 4,043 relating to the converted property in his return of income and pay his tax accordingly. This he has intentionally and dishonestly omitted, to evade tax or reduce his tax liability by making a false statement in verification in the following words :
There is no other income, including income of any other person, in respect of which I am chargeable to tax under the Income-tax Act, 1961.
6. The assessee's contention that income from house property was shown in the income of concerned HUF shows that there was no deliberate defiance of law and the intention of the assessee was not dishonest, is not only incorrect but further supports the Department's case that the assessee has intentionally omitted to show the said income in his own return to evade proper taxability, as soon as the total income returned by the assessee and the concerned HUF are compared.
Assessment year D.C. Shah (Indl.) D.C. Shah (HUF)
Rs. Rs.
1976-77 71,470 -
1977-78 1,72,210 24,270
1978-79 1,84,600 23,110
1979-80 86,180 22,010
In fact the ITO assessing the HUF has clearly held in assessment order for A.Y. 1976-77, that income from house property is assessable in the hands of D.C. Shah (Individual) and not in the hands of the HUF. Since the HUF had returned the income from house property in its return, the ITO was left with no option but to assess it protectively. Similarly, property income shown by the HUF in A.Ys. 1977-78 to 1979-80 has been assessed by the ITO protectively. It is also clear from the material brought on record that the income from the house property was purposefully offered to be assessed in the hands of the HUF so as to evade full tax liability in his hands. In fact, the assessee was successful in his design to evade tax, when the original assessment for A.Ys. 1977-78 and 1978-79 were completed without addition of property income. This was possible, because the assessee omitted to furnish all the facts about the property income which were relevant for assessment of his income for these assessment years. Had there been no provision in the Income-tax Act, 1961 to reopen the assessment in such circumstances the loss to the Government would have been irretrievable. The facts and circumstances not only call for levy and recovery of tax which was rightly due to the Govt., but also to levy penalty under Section 271(1)(c) so that the assessee is deterred from obtaining wrongful advantage in his assessment by not disclosing income which is assessable in his hands.
7. Lastly, in the course of personal hearing on 31-8-1984, the assessee's representative has placed reliance on the following decisions :
1. CIT v. P.A. Patel [1981] 127 ITR 390 (Pat.).
2. Harak Chand Phoolchand Jain v. CIT [1984] 146 ITR 25 (MP).
3. Navinchandra Kantilal (HUF) v. ITO [1984] 16 Taxman 82 (Ahd. -Trib.).
Perusal of these decisions shows that all the three decisions are clearly distinguishable on facts as will be seen hereunder :
1. The first decision refers to non-inclusion of income of his wife under Section 64(1) for A.Ys. 1962-63 & 1963-64 before amendment of Section 271(1)(c).
2. The second decision relates to an assessee who filed two returns of income before the same ITO for the same assessment year for two different sources of income on account of ignorance.
3. In the third decision, the assessee had shown construction of S.O. Property and the same was also reflected in the balance-sheet.
In fact there are several decisions wherein it has been held by the High Courts on similar facts and circumstances that penalty under Section 271(1)(c) is attracted. Such attempts to mislead the Department are treated very seriously in other cases also as can be seen from the decision of the Income-tax Appellate Tribunal Bench 'E' Bombay, in the case of Gay Silk Mills Bombay v. ITO [IT Appeal No. 624 (Bom.) of 1983] for A.Y. 1979-80.
8. The ITO accordingly imposed penalties of Rs. 3,000 for each of the years and these were further confirmed by the CIT(A).
9. At the time when these appeals came up for hearing the initial submissions came from the side of the Revenue to the effect that the point at issue was fully covered in favour of the Revenue by the decision of the Tribunal in the connected case of Shri Hasmukhlal C. Shah. According to the D.B.. the Tribunal vide its order in Hasmukhlal C. Shah [IT Appeal Nos. 2068, 2069 & 2757 (Ahd.) of 1985, dated 8-7-1987] had upheld the levy of penalties on absolutely identical facts. According to him, the assessment years involved, the act of throwing the S.O. Property into the hotchpotch of the HUF as also the subsequent opting out of the HUF by the assessee along with the relevant dates were facts absolutely similar in both these cases. The D.R. was accordingly of the view that an identical order be passed in the case of the present assessee as well and the imposition of penalties upheld.
10. These arguments of the D.R. were resisted vehemently by the learned counsel appearing on behalf of the assessee. According to him there was no doubt that the facts as brought out by the ITO in both these cases did appear to be identical, but he sought an opportunity to bring certain other relevant facts on record with a view to contend that the penalties in question were not imposable. According to him his endeavour would be to convince the Tribunal to depart from its earlier view taken in the case of Hasmukhlal C. Shah (supra), as according to him, those appeals were argued without bringing relevant material on record and which he would be doing in the course of his arguments.
11. Faced with this situation, we proceed to hear the learned counsel of the assessee in support of Ms case.
12. It was first of all urged that the HUF originally consisted of the assessee, his wife and his major son. It was on 25th October, 1973 that the assessee threw his self-occupied residential property into the hotchpotch of his HUF. It was further submitted that vide partition deed dated 12th November, 1974 the assessee opted out from the HUF which thereafter consisted of his wife, and his major son. According to the learned counsel these facts had been regularly indicated by the assessee both in his income-tax as well as wealth-tax returns all along from assessment year 1974-75 up to assessment year 1976-77. It was submitted that nothing in law required the assessee to continuously go on repeating these 'notes' in his returns for years to come. It was further stated that the assessee in compliance to the notices Under Section 148 for both the years under consideration, filed the returns of income once again indicating by way of a 'note' that no income was liable to be added Under Section 64(2) of the Income-tax Act, 1961 since the assessee has relinquished his interest in the HUF on 12th November, 1974.
13. At this stage the assessee's counsel drew our attention to the provisions of Section 64(2) of the Act. According to him, as long as the assessee continued to remain in the HUF into which he had thrown his property the provisions of Sub-sections (a) and (b) would apply. According to the learned counsel since the assessee had relinquished its interest in the HUF on 12th November, 1974 the provisions of Sub-section (c) would have to be considered. According to him, there had been a partial partition on 12th November, 1974 whereby the assessee had taken a sum of Rs. 5,000 and had withdrawn from the HUF. It was urged that Section 64(2)(c) envisaged a situation where the income derived from converted property was received by the spouse or minor child. According to him the income in question had not been received either by the spouse or minor child but was being received by the HUF consisting of the assessee's wife and major son. He was accordingly of the view that the bringing to tax of such income had been a mistake on the part of the ITO but since the amount involved was very small the assessee had not cared to prefer any appeals. According to him this by itself would not justify the imposition of penalties. It was further urged that the decision of the Supreme Court in the case of CIT v. Smt. P.K. Kochammu Amma [1980] 125 ITR 624 would not apply on the facts and circumstances of the case as narrated by him in the course of his submissions and arguments. He accordingly made an impassioned plea for the cancellation of the penalties as according to him, the facts which had been stated by him were not so done in the appeals pertaining to the connected case of Hasmukhlal C. Shah (supra). The learned counsel also referred extensively to his paper book in the course of his arguments and in support of the same.
14. The learned D.R., on the other hand, strongly supported the orders of the lower authorities. According to him, the decision of the Tribunal in the case of Hasmukhlal C. Shah (supra), squarely applied. He went on to submit that since the facts were identical in these appeals there was no good ground to give a different decision in the assessee's case. He accordingly canvassed for the confirmation of the order of the CIT(A).
15. We have considered the rival contentions and perused the material on record. At the outset we may mention that the material placed before us in these appeals by means of a detailed paper book was missing in the connected case of Hasmukhlal C. Shah (supra). This would be clear from a comparison of the documents filed in both the appeals as follows :
In the case of Hasmukhlal C. Shah (supra) :
(1) Order Under Section 271(1)(c) for A.Y. 1977-78 (2) Order Under Section 271(1)(c) for A.Y. 1978-79
3. Order Under Section 271(1)(c) for A.Y. 1979-80 (4) Order of CIT(A) for A. Ys. 1977-78 and 1978-79 under Section 271(1)(c).
(5) Order of CIT(A) for A.Y. 1979-80 Under Section 271(1)(c).
(6) Assessment orders for 1977-78 and 1978-79 Under Section 143(3)/147(a).
In the case of Deshratlal C. Shah (the appellant) :
(1) Statement of facts and grounds of appeal before CIT(A).
(2) Statement of income for A.Ys. 1974-75 to 1977-78.
(3) Assessment order for A.Y. 1977-78 dt. 28-3-1980.
(4) Notice Under Section 148 dated 19-2-1982.
(5) Return filed in response to notice Under Section 148.
(6) Assessment order Under Section 143(3) r.w.s. 147(a) dated 19-6-1982.
(7) Statement of income for A.Y. 1978-79.
(8) Assessment order A.Y. 1978-79 dated 28-2-1981.
(9) Notice Under Section 148 for A.Y. 1978-79.
(10) Return filed in response to notice Under Section 148.
(11) Assessment order for A.Y. 1978-79 Under Section 143(3) r.w.s. 147(a).
(12) CIT(A) order for A.Ys. 1977-78 and 1978-79 dated 1-3-1984.
(13) Statement of income of D.C. Shah (HUF) for A.Ys. 1978-79 to 1980-81.
(14) Partial partition deed dated 12-11-1974.
(15) Declaration dated 25-10-1973.
(16) Written reply dated 16-8-1984.
(17) Written submissions filed before CIT(A).
16. The same could be said of the arguments advanced in the present appeals since no reference was made to the provisions of Section 64(2)(c) in the connected case and its applicability vis-a-vis the partial partition and the assessee's withdrawal from the HUP. The decision in the case of Hasmukhlal C. Shah (supra), has proceeded entirely on the basis of the Supreme Court decision in the case of P.K. Kochammu Amma (supra).
17. After highlighting the line of argument and the facts of both the cases we are of the considered opinion that our decision in the case of Hasmukhlal C. Shah (supra) would not apply and a departure is warranted.
18. After examining the relevant facts as also the provisions of Section 64(2) we are of the view that no penalty is attracted in this case. In support of this view we would first of all advert to the provisions of the section which are as follows :
64. (2) Where, in the case of an individual being a member of a Hindu undivided family, any property having been the separate property of the individual has, at any time after the 31st day of December, 1969, been converted by the individual into property belonging to the family through the act of impressing such separate property with the character of property belonging to the family or throwing it into the common stock of the family or been transferred by the individual, directly or indirectly, to the family otherwise than for adequate consideration (the property so converted or transferred being hereinafter referred to as the conver-ted property), then notwithstanding anything contained in any other provision of this Act or in any other law for the time being in force, for the purpose of computation of the total income of the individual under this Act for any assessment year commencing on or after the 1st day of April, 1971,-
(a) the individual shall be deemed to have transferred the converted property, through the family, to the members of the family for being held by them jointly ;
(b) the income derived from the converted property or any part thereof shall be deemed to arise to the individual and not to the family;
(c) where the converted property has been the subject matter of a partition (whether partial or total) amongst the members of the family, the income derived from such converted property as is received by the spouse or minor child on partition shall be deemed to arise to the spouse or minor child from assets transferred indirectly by the individual to the spouse or minor child and the provisions of Sub-section (1) shall, so far as may be, apply accordingly.
19. It is apparent straightaway that Sub-sections (a) and (b) would not be attracted since we are dealing with the period after a partial partition has been effected (recognised by the ITO vide order dated 15-2-1978) and the assessee has opted out of the HUF which now consists of his wife and major son. The only other Sub-section is (c) which again would not be attracted since the income is not received by the spouse or the minor child (in the present case it is the case of a major son) but by the HUF. We find force in the submission of the assessee's counsel that the income from property was in fact not taxable at all in the assessee's hands and the ITO's action had been accepted only on account of the "smallness" of the amount involved.
20. We are also of the view that no mala fide intention can be attributed to the assessee since he disclosed complete facts in his income and wealth-tax returns for a number of years. He was not expected to repeat this disclosure for times immemorial specially when we now find that the income was not taxable in the hands of the assessee under Section 64(2) after the partial partition effected on 12th November, 1974.
21. We also hold that the decision in the case of P.K. Kochammu Amma, (supra) would not apply to the facts of the present case.
22. We accordingly cancel the penalties for both the years under consideration and allow these appeals.