Income Tax Appellate Tribunal - Ahmedabad
Ajay Kumarlal Tehalyani, Nadiad vs Department Of Income Tax
IN THE INCOME TAX APPELLATE TRIBUNAL
AHMEDABAD BENCH "A"
Before SHRI D K TYAGI,JM & SHRI A N P AHUJ A, AM
ITA no.2295/Ahd/2009
(Assessment Year:-2005-06)
Deputy Commissioner of Shri Ajay Kumarlal
V/s
Income-tax, Kheda Circle, Tehalyani, C/o Asian Food
Nadiad Industries, N.H. No.8,
Dabhan, Tal: Nadiad
PAN: AC APT 9844 M
[Appellant] [Respondent]
ITA no.2296/Ahd/2009
(Assessment Year:-2005-06)
Income-tax Officer, W ard- Smt. Radhaben K
V/s
1, 1 s t Floor, Aayakar Tehalyani, C/o Asian Food
Bhavan, Gitanjali Char Industries, Opp. Escort
Rasta, Pij Road, Nadiad Tractor, N H No.8, Dabhan,
Tal: Nadiad
PAN: AB APT 8063 F
[Appellant] [Respondent]
Revenue by :- Shri M R Chaudhry, DR
Assessees by:- Shri D K Parikh, AR
O R D E R
A N Pahuja: These two appeals by the Revenue against two separate orders dated 13 t h January, 2009 of the ld. CIT(Appeals)-IV, Ahmedabad, for the Assessment Year 2005-06, raise the following common grounds:-
" [1] On the facts and in the circumstances of the case and in law, the learned CIT(A) has erred in deleting the penalty levied u/s 271(1)(c) of Rs.5,63,200/- on disclosure of interest income of Rs.19,63,940/- by Shri Ajay Kumarlal Tehalyani and Rs.5,78,000/- on disclosure of interest income of Rs.20,13,264/- by Smt. Radhaben K Tehalyani, in the return filed in response to notice u/s 153A, ignoring the fact that the said income was detected during the search u/s 132 of the Income Tax Act, 1961 and it was not reflected in the original return of income filed u/s 139(1), overlooking the ratio laid down by the Hon'ble Supreme Court in the case of Dharmendra Textile Processors (2008) 306 ITR 277 (SC) wherein it was laid down that penalty u/s 271(1)(c) was civil wrong & mens rea is not is not required to be established.
2 ITA nos.2295 & 2296/Ahd/2009 [2] On the facts and in the circumstances of the case and in law, the CIT(A) ought to have upheld the order of the AO.
Relief claimed in appeal.
The order of the CIT(A) on the issues raised in the aforesaid Grounds be set aside and that of the AO be restored.
2. Facts, in brief, as per relevant orders are that a search u/s 132 of the Income-tax Act, 1961 [hereinafter referred to as the "Act"] was conducted on 19-01-2006 in the premises of Kumar Meghraj group of cases including Shri Ajay Kumarlal Tehalyani partner in M/s Asian food Industries and Indian Food Industries as also in the premises of Smt. Radhaben K Tehalyani wife of shri Kumar Meghraj. Consequently, a notice dated 19-05-2006 u/s 153A(a) of the Act was issued to Shri Ajay Kumarlal Tehalyani, requiring him to furnish return of income for six years including the year under consideration. In response, the assessee filed return u/s 153A of the Act on 14-05-2007 declaring income of Rs.24,95,420/-, as against income of Rs.5,31,480/- declared in the original return filed u/s 139(1) of the Act on 23-05-2005. The assessee disclosed additional interest income of Rs.19,63,940/- earned on FCNR FDRs in the said return. The assessment was completed u/s 153A(b) of the Act on 20-09-2007 on the returned income of Rs.24,95,420/-. Inter alia, penalty proceedings u/s 271(1)(c) of the Act were initiated on account of concealment of income of Rs.19,63,940/-.
2.1 Likewise In consequence of search, a notice dated 29-06-2006 u/s 153A(a) of the Act was also issued to Smt. Radhaben K Tehalyani, requiring her to furnish return of income for six years including the year under consideration. In response, the assessee filed return u/s 153A of the Act on 14-05-2007 declaring income of Rs.20,21,850/-, as against income of Rs.20,585/- in the original return filed u/s 139(1) of the Act. The assessee disclosed additional 3 ITA nos.2295 & 2296/Ahd/2009 interest income of Rs.20,13,264/-earned on FCNR FDRs in the said return. The assessment was completed u/s 153A(b) of the Act on 20-09-2007 on the returned income of Rs.20,21,850/-. Inter alia, penalty proceedings u/s 271(1)(c) of the Act were initiated on account of concealment of income of Rs. 20,13,264/-/-.
3. Subsequently, in response to a show cause notice dated 20-09- 2007 and 03-03-2008, the assessee Shri Ajay Kumarlal Tehalyani replied as under:-
"2. Before coming to the issue of concealment of income as inferred by your honour, the assessee considers it appropriate to place certain facts on the record. The assessee's family including assessee shifted to U.A.E. under a permanent residential permit since Government of the U.A.E. and the assessee also continuously stayed in U.A.E. in all the financial years as per the suitability & convenience of the business affairs /family affairs of the assessee. The assessee group operated one limited liability company at U.A.E. and due to certain family problems, it was compulsion for the assessee group .to start a firm in India, which can procure the spices for the U.A.E. company and export them to U.A.E. Under the circumstances, the assessee and her family members decided to transfer their funds from U.A.E. to India. Accordingly, the funds were transferred and deposited in various Banks in FCNR AJc i.e. Foreign Currency Non Resident A/c. Tltese remittances were inform affixed deposits.
3. The assessee was earning interest income on such FCNR deposits. Provisions of Sec. 6 determine the residential status of a person. Upon such status, the income either becomes chargeable or exempt from the purview of the Income-tax Act. Sec. 10(15)(iv)(fa) governs the exemption and it stipulates that, the Interest income on FCNR deposits is exempt in case of a person who is either Non-Resident or Resident but Not ordinarily Resident. Provisions of Sec.6 determines the residential status of a person into three categories namely; (a) Resident & ordinarily resident (b) Resident but Not ordinarily Resident & (c) Non Resident. The assessee was having accordingly the status of Sec.6 upto A.Y.2003-04. Accordingly, the FCNR interest income was exempt within the provisions of Sec. 10(15)(iv)(fa) of the Act. It is pertinent to submit that, this aspect is undisputed one. Subsequently, the provisions of Sec.6 applicable to A.Y.2004-05, were amended and new sub-section 6 was introduced which modified the conditions for determination of the residential status especially in the cases of Resident but Not ordinarily resident persons. This aspect of amendment remained out of our attention especially due to the fact that, I am staying at a smaller town like; Nadiad and besides, even in the F.Ys. 2003-04 and subsequent years also, I was out of India for 4 ITA nos.2295 & 2296/Ahd/2009 quite a some time due to my permit for permanent residency at U.A.E. Besides, the Bank brochures which were being published subsequent to the amendment in the Income-tax Act especially Sec.6(6), were also showing the income of FCNR as exempt. Besides, no tax was ever deducted by the Banking authorities on such interest income. Under the circumstances, your assessee being ignorant of the highly technical provisions of the taxation laws and under prevailing of the same standards by the Banking authorities, was under a bonafide belief that, the interest income from the FCNR was exempt even in the assessment years subsequent to A.Y.2003-04. Besides, in India, there are two Acts which determines the residential status, etc. i.e. FEMA and Income-tax Act. All such complexities of laws, amendments, etc. were therefore beyond the level of understanding either by the assessee or her Advocates especially in a small town like Nadiad. Therefore, your honour will appreciate that, the non-incorporation of the interest income in the original return of income filed u/s. 139 of the Act was a bonafide belief under ignorance of law and especially the subsequent amendment being brought in law. All the deposits were in Banking channels and all the accounts were duly being reflected and shown. Subsequent to the search proceedings, the assessee look opinion and guidance from the senior lawyers of Ahmedabad & Mumbai and as soon as it was found that, the FCNR interest income was left to be incorporated in the returns of income pertaining to A.Ys.2004-05 & onwards, the assessee voluntarily offered the same into the return filed u/s. 153A of the Act. All the taxes with interest have also duly been paid and the detailed clarification was submitted during the course of the assessment proceedings vis-a-vis even in a note accompanying our return of income.
4. Without prejudice to the above factual submission, it may further be submitted that, there was no deliberate attempt on the part of the assessee to conceal any income. The income became chargeable to tax by virtue of some amendment in the law which was not noticed by the assessee. Due taxes with interest have been paid and the bonafide mistake has been rectified at the first available opportunity on voluntary basis. The Hon'ble Supreme Court in the case of Cement Marketing Co. of India Ltd. V/s Asstt. C.S.T. (124 ITR 15) has held that, a return can not be said to be "false" unless there is an element of deliberateness in it. The Hon'ble Court has hold that, where the assessee does not include a particular item in the taxable income under a bonafide belief that he is not liable so to include it, it would not be right to condemn the return as a false return inviting imposition of penalty. Similarly, the Hon'ble Bombay High Court in the case of D.M. Dahanukar v/s CIT (65 ITR 280) and Hon'ble Madras High Court in the case of M. Husain Alt & Sons v/s CIT (58 ITR
787) have laid down the principle that, mere omission from return of an item of receipt does neither amount to concealment nor deliberate furnishing of inaccurate particulars of income unless there is some evidence to show or some circumstances found from which it can be gathered that, the omission was attributable to an intention or desire on the part of the assessee to hide or conceal the income so as to avoid the 5 ITA nos.2295 & 2296/Ahd/2009 imposition of tax thereon. Besides, it is a very well accepted proposition of law that penalty proceedings are independent and separate from the assessment proceedings. It is not mandatory u/s.27I that a penalty must be imposed in every case. The Hon'ble Calcutta High Court has uphold this doctrine and further has held that, if the' conditions laid down in the said section are established then the authority concerned "may direct" that the person committing the default within the meaning of the said section pay penalty imposed (165 ITR 249). Further the Hon 'ble Supreme Court as well as various High Courts have laid down that, an order imposing penalty for failure to carry out a statutory obligation is the result of quasi- criminal proceedings and penalty wilt not ordinarily be imposed unless the party obliged, either acted deliberately in defiance of law or was guilty of conduct, contumacious or dishonest or acted in conscience disregard of its obligations. 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 on a consideration of all the relevant circumstances. Even if a minimum penalty is prescribed, the authority competent to impose the penalty when there is a technical or venial breach of the provisions of the Act or where the breach of the provisions of the Act or where the breach flows from the belief that, the offender is not liable to act in the manner prescribed by the statute [Hindustan Steel Ltd. vs. State of Orissa (83 ITR 23 (SC)]
5. If your honour will apply the above referred legal doctrines on the facts of the case of the assessee as discussed (Supra), it is crystal clear that there was ignorance about amendment in the law, which in itself is a complex position for a layman to understand and even for the Advocates in a town like; Nadiad, and therefore, there is no conscious effort on the part of the assessee to conceal any income. Accordingly, the assessee may kindly be spared from the quasi-criminal proceedings for a bonafide technical breach of law, for which act of judiciousness, the assessee shall ever remain thankful to your honour."
3.1 However, the AO did not accept the plea of ignorance of amendments to provisions of sec. 6 of the Act, the assessee being a partner in M/s Asian Food Industries and the return having been filed through authorized representative, a person with good knowledge of provisions of the Act. Since additional income was disclosed only in consequence of search only, the AO imposed penalty of Rs. 5,63,200/- u/s 271(1)(c) of the Act @100% of the tax sought to be evaded on the aforesaid additional income disclosed in consequence of search, the assessee having failed to discharge onus within the meaning of explanation-1 below section 271(1)(c) of the Act . 6 ITA nos.2295 & 2296/Ahd/2009 4 Likewise in the case of Smt. Radhaben K Tehalyani, a penalty of Rs. 5,78,000/- u/s 271(1)(c) of the Act @100% of the tax sought to be evaded by her on the aforesaid additional income disclosed in consequence of search, was imposed.
5. On appeal, the learned CIT(A) cancelled the penalty in the case of Shri Ajay Kumarlal Tehalyani in the following terms:-
"2.0 I have carefully considered the contentions of the Learned Counsel as well gone through the records. On perusal of penalty order, it has been noticed that a search was conducted on the appellant's premises on 19.01.2006. The only effective issue raised in this appeal is that the Assessing Officer was not justified in imposing 100% penalty on account of disclosure of interest income earned on Foreign Currency Non- Resident(FCNR) FDRs of Rs.19,63,940/- in the return filed in response to notice issued u/s 153A declaring total income of Rs.24,95,420/- as against total income of Rs.5,31,480/- declared u/s 139(1). Based on such returns, the assessment was also completed u/s. 153A(a) r.w.s. 143(3) accepting the income returned. Learned Counsel contended that the Appellant's interest income was bonafide believed to be exempt u/s 10(15)(iv)(fa) of Income Tax Act, 1961. When the Appellant came to know, the correct legal position, the income was offered and tax paid thereon suo motu in the Return filed in response to the notice issued u/s 153A. Further, the sources of making investment in the relevant FCNR account were explained which were not doubted by the Assessing Officer. The disclosed asset was held by the appellant, there cannot be any intention not to disclose the interest accrued on Foreign Currency Non-Resident(FCNR) FDRs. However, it was not declared in the Return filed u/s 139(1) under the bonafide belief that the same continued to be exempt from tax u/s 10(15)(iv)(fa) of Income Tax Act, 1961. The Hon'ble Supreme Court in case of CIT Vs. Sureshchandra Mittal (251 ITR 009) has held that in this case, revised return showing higher income after search was filed to purchase peace and avoid litigation. The Tribunal held that burden of proving concealment is not discharged and penalty cannot be levied. The apex Court upheld above findings of ITAT. However, the Hon'ble Supreme Court in Union of India v/s. Dharmendra Textiles Processors (2008) has held that the penalty u/s 271(1)(c) is Civil Liability and the willful concealment is not an essential ingredient for attracting civil liability as is the case in the matter of prosecution u/s 276C. it has further been held that the mens rea is not an essential ingredient for imposing penalty under this section. However, Hon'ble Supreme Court has not held that in all cases where addition is confirmed, the penalty shall mechanically follow. The ratio decidendi of the judgment is confined to treating the willful concealment as not vital for imposing penalty u/s 271(1)(c). However, it may not be correct to infer that because the liability is civil liability, it 7 ITA nos.2295 & 2296/Ahd/2009 ceases to be penal in character. There is no contradiction in a liability being a civil liability and same liability being a penal liability though a civil liability cannot certainly be a criminal liability as well.
2.1 The additional income offered by assessee u/s 153A after the search having been accepted in its entirety without detailed discussion of the seized documents. An assessee's statutory obligation u/s 139(1) is to give correct and complete information with the return of income complied with, then there is no contravention which can attract penalty, in other words, the assessee concealed the income comes to an end when the corresponding amount was offered for taxation when all the necessary particulars are declared by the assessee in the return of income filed u/s 153A. In a case where all the necessary particulars are declared by the assessee in the return of income, it cannot be said that the assessee has concealed his income or furnished inaccurate particulars of income in respect of the undisclosed income. The A.O. has not discharged the burden to prove the concealment of income, which was levied purely on the basis of additional income disclosed in the Return filed u/s 153A by the assessee in good faith. Therefore, the Appellant had made disclosure after the search cannot be treated as concealment. It cannot be said to be the amount of tax sought to be evaded because the undisclosed income was declared in the Return fifed u/s 153A only. Keeping in view of above facts and circumstances of the case as well as the, cases (supra), the penalty imposed u/s 271(1)(c) is hereby deleted. Hence, the appeal is allowed."
5.1 For similar reasons , the ld. CIT(A) cancelled the penalty in the case of Smt. Radhaben Kumarlal Tehalyani.
6. The Revenue is now in appeal before us against the aforesaid findings of the learned CIT(A) in these two appeals. The learned DR supported the order of AO, levying penalty while the ld. AR on behalf of the assessee supported the findings of the learned CIT(A) and further contended that these assessees in their respective original returns for the A.Y. 2005-06 filed u/s 139(1) of the Act had bonafidely shown status as Resident But Not Ordinarily Resident (RbNOR) and consequently, the income from deposits under FCNR was bonafidely believed to be exempt in terms of provisions of s. 10(15)(iv)(fa) of the Act, providing for exemption of interest on FCNR deposits in the hands of a non resident or a person who is Not Ordinarily Resident within the meaning of s. 6(6) of the Act. However, from the AY 2004-05, there was an amendment in s. 6(6) and these assessees ceased to 8 ITA nos.2295 & 2296/Ahd/2009 be Resident but Not Ordinarily Resident and became R & O R. Since the bonafide explanation of the assessee that the change in the provisions of s. 6(6) escaped attention of the assessee and the return preparers who filed original returns and that it was honestly believed at the time of original return based on bank brochures that interest on FCNR RFDs was exempt and hence even in original return bonafidely, status was shown as "R but Not R," have not been found to be false, penalty has rightly been deleted by the ld. CIT(A), the ld. AR pleaded . Inter alia, the ld. AR relied upon decisions in Shreenath Builders vs. DCIT (2000) 111 Taxman 142; ACIT vs. Vinman Finance & Leasing Ltd (2009) 120 TTJ (Vishakha) (TM) 462 ; Sunilchandra Vohra vs ACIT, (2010) 127 TTJ (Mum) (UO) 100 ;ITO vs. Chirag Family Trust 56 TTJ (Ahd), 115 / 58 ITD 382 ; Dilip N. Shroff (2007) 291 ITR 519 (SC) and Reliance Petro Products P Ltd., 322 ITR 158 (SC).
7. W e have heard both the parties and gone through the facts of the case as also the decisions relied upon. Indisputably, the assessee Shri Ajay Kumarlal Tehalyani claimed the status of RbNOR in the original return filed u/s 139(1) of the Act in the AYs 2000-01 to 2005-06 while Smt. Radhaben Kumarlal Tehalyani also claimed the same status in the AYs 2000-01,2001-02; 2004-05 & 2005-06 and non-resident in the AYs 2002-03 & 2003-04. Thus, for the year under consideration both these assessees reflected status of RbNOR in their returns filed u/s 139 of the Act even after amendment to provisions of sec. 6(6) of the Act by the Finance Act,2003 w.e.f 1.4.2004 and consequently these assessees did not reflect interest earned of their FCNR deposits, made out of remittances from UAE through banking channels on the bonafide belief that such income continued to be exempt u/s 10(15)(iv)(fa) of the Act. In terms of the amended provisions, the status of these assessees became R &OR and consequently, interest on FCNR deposits became liable to tax. However, these assessees claimed in their explanation that due to intricate and complex provisions of the Act and on the advise of the person who prepared their tax returns, status continued to be shown 9 ITA nos.2295 & 2296/Ahd/2009 as R bNOR and it was only after the search that this mistake was set right and amount of interest on FCNR deposits was offered to tax voluntarily. It is well established that making of wrong claim under some bonafide belief is not at par with concealment or giving of inaccurate information, which may call for levy of penalty under section 271(1)(c) of the Act. It is not the case of the Revenue that these assessees were not under the bonafide belief or the explanation offered by the assessee was found to be false or untrue.W e are of the view that making a wrong claim is not at par with concealment or giving of inaccurate information, which may call for levy of penalty u/s. 271(1)(c) of the Act. Hon'ble Apex Court in CIT v. Reliance Petroproducts (P.) Ltd. [2010] 322 ITR 158/ 189 Taxman 322, after considering various decisions including Dilip N. Shroff v. Jt. CIT [2007] 291 ITR 519/ 161 Taxman 218 (SC) and Union of India v. Dharmendra Textile Processors [2008] 306 ITR 277 / 174 Taxman 571 (SC) concluded that a mere making of a claim, which is not sustainable in law, by itself, will not amount to furnishing inaccurate particulars of regarding the income of the assessee. Such a claim made in the return cannot amount to furnishing inaccurate particulars. Similar view was taken in CIT vs. Sidhartha Enterprises (2010) 322 ITR 80 (P&H) and CIT vs. Shahabad Co-op. Sugar Mills Ltd. (2010) 322 ITR 73(P&H). Hon'ble Supreme Court in the case of Motilal Padampat Sugar Mills Co. Ltd. v. State of Uttar Pradesh [1979] 118 ITR 326 held that there is no presumption that every person knows the law. Following this view, in ITO v. Chirag Family Trust 58 ITD 382, a co- ordinate Bench concluded that bona fide ignorance of newly inserted provisions of law, would not lead to levy of penalty under s. 271 (1) (c) of the Act .Likewise, in Sunilchandra Vohra vs. ACIT [2010) 127 TTJ (Mumbai) (UO) 100, it was held that bona fide ignorance of the law regarding applicability of provisions of the Act and the CA having not drawn the attention of the assessee to the relevant provisions of law, is a valid ground for not imposing penalty for concealment. In the instant case also, these assessees continued to claim status of RbNOR even after amendment to provisions of sec. 6(6) of the Act while the legal adviser ,who 10 ITA nos.2295 & 2296/Ahd/2009 prepared the original returns also did not draw the attention of these assessees to the relevant provisions and consequently, interest income from FCNR deposits continued to be claimed as exempt u/s 10(15)(iv)(fa) of the Act. Since the bank also did not deduct tax at source even after amendment in law, these assessees explained that they were under the bona fide belief that their income continued to be exempt. It was only after the search that they were advised that income was no longer exempt due to amendment in law and consequently, interest income from FCNR deposits in the bank was declared in their returns filed in consequence of search.
8. In the light of view taken in the aforesaid decisions and considering the totality of facts and circumstances of the instant case, we are of the opinion that mere erroneous claim on mistaken bonafide belief, is no ground for levying penalty u/s 271(1)(c) of the Act. In view thereof, we are of the opinion that levy of penalty is not justified. Consequently, we have no hesitation in upholding the conclusion of the ld. CIT(A). Therefore, ground nos.1 & 2 in these two appeals are dismissed .
9.In the result, both these appeals are dismissed.
Order pronounced in the court today on 30 -06-2011
Sd/- Sd/-
(D K TYAGI) (A N P AHUJ A)
JUDICI AL MEMBER ACCOUNTANT MEMBER
Dated : 30 -06-2011
Copy of the order forwarded to:
1. Shri Ajay Kumarlal Tehalyani, C/o Asian Food Industries, N.H. No.8, Dabhan
2. Smt. Radhaben K Tehalyani, C/o Asian Food Industries, Opp. Escort Tractor, N H No.8, Dabhan, Tal: Nadiad
3. The DCIT, Kheda Circle, Nadiad
4. CIT concerned 11 ITA nos.2295 & 2296/Ahd/2009
5. CIT(A)-IV, Ahmedabad
6. DR, ITAT, Ahmedabad Bench-, Ahmedabad
7. Guard File BY ORDER Deputy Registrar Assistant Registrar ITAT, AHMEDABAD