Income Tax Appellate Tribunal - Hyderabad
Akash Kumar Agarwal, Hyderabad, ... vs Dcit, Circle-16(1), Hyderabad, ... on 23 June, 2017
IN THE INCOME TAX APPELLATE TRIBUNAL
HYDERABAD BENCH "B", HYDERABAD
BEFORE SMT. P. MADHAVI DEVI, JUDICIAL MEMBER
AND SHRI S. RIFAUR RAHMAN, ACCOUNTANT MEMBER
ITA Nos. 1505, 1506 & 1507//Hyd/2016
Assessment Year: 2012-13
1. Sandeep Agarwal, Hyderabad Vs. Dy. Commissioner of Income-
PAN - AEXPA 0097A tax, Circle - 16(1),
Hyderabad.
2. Amit Agarwal, Hyderabad.
PAN - AEXPA 0098R
3. Akash Kumar Agarwal,
Hyderabad.
PAN - ADNPA 8916 B
(Assessees) (Respondent)
Assessee by : Shri C.V. Narasimham
Revenue by : Smt. N. Swapna
Date of hearing : 15-06-2017
Date of pronouncement : 23-06-2017
ORDER
PER S. RIFAUR RAHMAN, A.M.:
These three appeals filed by the assessees are directed against the orders of the learned Commissioner of Income-tax - 4, Hyderabad, all dated, 16/06/2016 for AY 2012-13. As identical issue is involve in these appeals, they were clubbed and heard together and therefore, a common order is passed for the sake of convenience.
2. To dispose of these appeals, we refer to the facts from Sandeep Agarwal (ITA No. 1505/H/16).
2ITA Nos. 1505, 1506 & 1507/H/16 Sandeep Agarwal and others
3. Briefly the facts of the case are that the assessee is a director in M/s Nikhil Refineries Pvt. Ltd., filed his return of income for the AY 2012-13 admitting total income of Rs. 1,88,38,510/-. The assessment was completed by the AO by accepting the income retuned of Rs. 1,88,38,510/-. The Assessing Officer observed that a survey operation was conducted in the case of M/s Nikhil Refineries Pvt. Ltd., on 07-06-2012 wherein the assessee is a Director. During the course of survey proceedings, statement of Sri Kailash Chandra Agarwal, one of the Directors was recorded and he stated that the company M/ s Nikhil Refineries Pvt. Ltd., had received share capital of Rs.5,62,79,400/- and share application money of Rs. 2,04,26,000/-. Out of this, with regard to the investment of Rs. 5,05,00,000/- he admitted his inability to explain the sources and hence, offered the same as unexplained investment for the A.Y. 2012-13. Subsequently, the company filed a letter offering the additional income of Rs. 5,05,00,000/- in the hands of the Directors, viz., Sri Amit Kumar Agarwal, Sri Sandeep Kumar Agarwal and Sri Akash Kumar Agarwal, of Rs. 1,85,00,000/-, Rs. 1,40,00,000/- and Rs. 1,80,00,000/- respectively. Subsequent to survey operation, the assessee filed return of income admitting total income of Rs. 1,88,38,510/- including additional income of Rs. 1,40,00,000/-.
3. Thereafter, the AO initiated penalty proceedings u/s 271(1)(c) and issued a notice u/s 274 r.w.s. 271 dated 31/03/2015 on the ground that the assessee had declared additional income as a result of survey operations carried out in the case of M/s Nikhil Refineries Pvt. Ltd. and further observed that the assessee did not file his return of income within the due date as specified in section 139(1) of the Act. However, the original return of income for the AY under consideration was filed on 06/02/2013 for the first time, subsequent to the survey.
3ITA Nos. 1505, 1506 & 1507/H/16 Sandeep Agarwal and others 3.1 In response to the said notice, the assessee submitted that the additional income of Rs. 1.40 crores is that which was agreed to be offered during the course of survey proceedings in the case of M/s Nikhil Refineries Pvt. Ltd. and that he had paid the taxes due thereon on such agreed disclosure. He further stated that he had neither concealed the particulars nor had furnished inaccurate particulars of his income. He stated that the additional was offered during survey proceedings to buy peace with the department.
3.2 After considering the submissions of the assessee as well as referring to the provisions of 271(1)(c), the AO observed that the assessee had failed to file the return of income within the due date and the additional income offered is based on the entries in his books of account. The nature of additional income offered is the credit balances appearing in the books of account of the assessee, which has now been written off. He observed that due to the survey operation, the assessee increased his capital by Rs. 1.40 Crores and reversed the credit balances with equal amount. He observed that as the additional income offered during the course of survey Rs. 1.40 crores has a direct nexus on the income computed as per books and has direct implication on the statement of affairs, the income offered cannot said to be voluntary to buy peace of mind. The assessee's argument would have been appropriate had the income being offered did not have any bearing on financial statements or books of account and was over and above the income computed as per the books.
3.3 In view of the above observations, the AO levied a minimum penalty of Rs. 43,26,000/-.
4. Aggrieved by the order of AO, the assessee preferred an appeal before the CIT(A) and submitted that he had paid the taxes due thereon on such agreed disclosure and he has neither concealed the particulars nor had furnished inaccurate particulars of income.
4ITA Nos. 1505, 1506 & 1507/H/16 Sandeep Agarwal and others
5. The CIT(A) observed that on verification, it was found that the assessee has not filed revised return of income within due date but subsequent to survey in compliance to the statement of one of the director Sri Kailash Chandra Agarwal, the three directors including the assessee, disclosed undisclosed income and filed the returns of income. Further he observed that the undisclosed income found at the time of survey operation was disclosed by the three directors after the survey proceedings and, therefore, the assessee's submission that there is proceedings pending and there is no escapement of income is not acceptable. Accordingly, he confirmed the penalty levied by AO.
6. Aggrieved by the order of the CIT(A), the assessee is in appeal before us raising 12 grounds of appeal. Ground Nos. 1 to 3 are against the action of the CIT(A) in confirming the penalty levied by the AO u/s 271(1)(c) of the Act. Ground No. 4 is that the CIT(A) failed to appreciate that the AO has not stated in the notice u/s 274 r.w.s. 271 whether it is alleged case of concealment of particulars of income or a case of furnishing inaccurate particulars of such income.
6.1 Ground Nos. 5 to 12 are argumentative in nature, hence, need no adjudication.
7. Ld. AR of the assessee submitted that the CIT(A) failed to appreciate that the additional income agreed to be offered in the hands of the company was on account of the difficulty faced by the company to get confirmations from investors who had applied for the shares of the company due to non-cooperation by such investors. He submitted that no concealment of income was ever detected by the department in the case of assessee and the income returned by the assessee included the additional income agreed to be offered in the course of survey in the case of the company to buy peace with the department. Ld. AR submitted that the CIT(A) failed to appreciate that 5 ITA Nos. 1505, 1506 & 1507/H/16 Sandeep Agarwal and others the AO has levied penalty on misunderstanding of the law and the order of the AO disclosed that the AO is not clear whether it is a case of concealment of particulars or a case of furnishing inaccurate particulars of income. He relied on the following cases:
1. CIT Vs. M/s Manjunatha Cotton and Ginning Factory, [2013] 359 ITR 565 (KAR)
2. CIT Vs. Suresh Chandra Mittal, [2000] 241 ITR 124 (MP)
3. Meherjee Cassinath Holdings Vs. ACIT, ITA No. 2555/Mum/2012, dated 28/04/2017.
8. Ld. DR, on the other hand, submitted that the assessee has not filed the return of income u/s 139(1) of the Act and filed the return of income after survey proceedings. She submitted that the action of the AO in levying penalty on the assessee is proper. She relied on the decision in the case of MAK Data (P.) Ltd. Vs. CIT, 358 ITR 593.
9. Considered the rival submissions and perused the material facts on record as well as the decisions cited. It is observed that the AO has initiated penalty proceedings u/s 271(1)(c) on the ground that the assessee has furnished inaccurate particulars of income and but for the selection of the case for survey proceedings, the undisclosed income of the assessee would not have seen the light of the day. The AO observed that the nature of additional income offered is the credit balances appearing in the books of account of the assessee, which has now been written off. He observed that due to the survey operation, the assessee increased his capital by Rs. 1.40 Crores and reversed the credit balances with equal amount. He observed that as the additional income offered during the course of survey Rs. 1.40 crores has a direct nexus on the income computed as per books and has direct implication on the statement of affairs, the income offered cannot said to be voluntary to buy peace of mind. Accordingly, he levied penalty. However, we noticed that in the assessment order u/s 143(3), the AO has not indicated any discrepancy in the book entry nor observed any hint of income being concealed or assessee furnished inaccurate particulars. AO has accepted the return of 6 ITA Nos. 1505, 1506 & 1507/H/16 Sandeep Agarwal and others income filed by the assessee. Since AO accepted the return of income filed by the assessee and computed the assessment u/s 143(3) and not found any discrepancy in the details filed by the assessee, now the AO cannot bring any issues in the penalty proceedings after accepting financial statements and return of income filed by the assessee. In our considered view, the assessee neither concealed any particulars of income nor furnished inaccurate particulars in the return of income filed , which was duly accepted and assessment was completed. Hence, penalty cannot be levied in this case.
9.1 With regard to ground No. 4, in the case of Manjunatha Cotton & Ginning Factory (supra), the Hon'ble Karnataka High Court has observed that the condition precedent for levying the penalty is the satisfaction of the authority that there is a concealment of the particulars of the income or inaccurate particulars are furnished to avoid payment of tax. Once the authority comes to such conclusion, the law mandates that before imposing penalty, the assessee must be heard. The assessee is given the opportunity to offer his explanation. Once such an opportunity is given and the assessee fails to offer the explanation or offers explanation which is found to be false, then the penalty will follow as prescribed under sub-clause (iii) of clause (c) of sub-section (1) of section 271. Where the assessee offers an explanation and substantiate the explanation, the question of imposing penalty would not arise. Even in cases where he fails to substantiate the explanation but if he proves that the explanation offered is a bona fide one and all the facts relating to the same and material to the computation of his total income has been disclosed by him, then, in law, a discretion is vested with the authority not to impose penalty. In other words, if the assessee offers explanation but fails to substantiate the same, but if he proves that explanation offered is bonafide but is not Sufficient to substantiate the 7 ITA Nos. 1505, 1506 & 1507/H/16 Sandeep Agarwal and others explanation and discloses all material for the computation of his total income, the question of imposing penalty would not arise.
9.2 In the case of CIT Vs. Suresh Chandra Mittal (supra), the Hon'ble MP High Court has held as under:
" In the present case, though it is true that the assessee had not surrendered at all and that he had done so on the persistent queries made by the Assessing Officer, but once the revised assessment was regularised by the Revenue and once the assessing authority had failed to take any objection in the matter, the declaration of income made by the assessee in his revised returns and his explanation that he had done so to buy peace with the Department and to come out of vexed litigation could be treated as bona fide in the facts and circumstances of the case. Therefore, the Tribunal was justified in cancelling the penalty levied by the Assessing Officer and affirmed by the Commissioner of Income Tax (Appeals) in the facts and circumstances of the case. This reference is accordingly answered in the affirmative holding that the Tribunal was justified in doing so.
9.3 So far as the case law relied on by the DR in the case of MAK Data (P.) Ltd. (supra) is concerned, the very same judgment has been considered by the Hon'ble Madras High Court in the case of CIT Vs. M/s Gem Granites (supra), observed that the Hon'ble Supreme Court while considering the Explanation to section 271(1), held that the question would be whether the assessee had offered an explanation for concealment of particulars of income or furnishing inaccurate particulars of income and the Explanation to section 271(1) raises a presumption of concealment, when a difference is noticed by the assessing officer between the reported and assessed income. The burden is then on the assessee to show otherwise, by cogent and reliable evidence and when the initial onus placed by the explanation, has been discharged by the assessee, the onus shifts on the Revenue to show that the amount in question constituted their income and not otherwise. Factually, we find that the onus cast upon the assessee has been discharged by giving a cogent and reliable explanation. Therefore, if the department did not agree with the explanation, then 8 ITA Nos. 1505, 1506 & 1507/H/16 Sandeep Agarwal and others the onus was on the department to prove that there was concealment of particulars of income or furnishing inaccurate particulars of income.
10. As regards the issue of improper show cause notice, we find that the AO did not specify to mention whether the assessee has concealed the particulars of income or furnished inaccurate particulars of such income. The issue is squarely covered by the decision of the Hon'ble Supreme Court in the case of CIT Vs. SSA's Emerald Meadows, [2016] 73 Taxmann.com 248 (SC) wherein the Apex Court upheld the decision of the Hon'ble High Court, in which, the Hon'ble High Court confirmed the order of the Tribunal and dismissed the appeal of the revenue, who came in appeal against the order of the Tribunal. The Tribunal relying on a decision of Karnataka High Court in case of CIT Vs. Manjunatha Cotton & Ginning Factory, [2013] 359 ITR 565/210 allowed the appeal of the assessee holding that notice issued by Assessing Officer u/s 274 read with section 271(1)(c) was bad in law, as it did not specify under which limb of section 271(1)(c) penalty proceedings had been initiated, i.e. whether for concealment of particulars of income or furnishing of inaccurate particulars of income. Therefore, on this aspect also, the penalty order does not withstand.
11. In view of the above discussion as well as the ratios laid down by the Hon'ble courts as above, we are of the view that the case of the assessee is not a fit case to attract the provisions of section 271(1)(c) and accordingly, we direct the AO to delete the penalty imposed u/s 271(1)(c) of the Act.
12. As the issue in case of Amit Agarwal and Akash Kumar Agarwal are materially identical to that of Sandeep Agarwal case, following the conclusions drawn therein, we direct the AO to delete the penalty levied in these cases also.9
ITA Nos. 1505, 1506 & 1507/H/16 Sandeep Agarwal and others
13. In the result, all the three appeals under consideration are allowed.
Pronounced in the open court on 23 rd June, 2017.
Sd/- Sd/-
(P. MADHAVI DEVI) (S. RIFAUR RAHMAN)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Hyderabad, Dated: 23 rd June, 2017.
kv
Copy to:-
1) Sandeep Agarwal,
2) Amit Agarwal,
3) Akash Kumar Agarwal, Plot No. 266, A/B, MLA Colony, Road No. 12, Banjara Hills, Hyderabad - 500 034.
4) DCIT, Circle - 6(1), IT Towers, Hyderabad.
5) CIT(A) - 4, Hyderabad
6) Pr. CIT - 4, Hyderabad
7) The Departmental Representative, I.T.A.T., Hyderabad.
8) Guard File