TMI Blog2015 (4) TMI 50X X X X Extracts X X X X X X X X Extracts X X X X ..... be taxed as capital gains when no such decision could take place by the assessee. The crux of the issue therefore results in giving a finding that the amount was agreed upon by the assessee on the Assessing Officer giving a finding that the assessee's funds as held by the holders of the funds had informed the assessee that the funds have increased in value whether he agreed to encash the enhancement or not. The investment was noted by the AO in the assessment year 2005-06 and again after a gap of one year, i.e., 2007-08 when the assessee cannot be said to be paying tax again on the so-called enhancement by the mutual fund company being the portfolio manager who keep changing the net asset value of the units in various other forms giving high or low rate of return. The assessee remained secured in so far as he had parted with the funds which funds belonged to him in the first place were reinvested in the hope that they will generate more income than the rate of interest available from a scheduled bank. Therefore it was a clear case of valuation of tax paid capital which the assessee had already paid tax on till such time when the enhancement was brought to the notice by the Ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... For the assessment year 2005-06, learned counsel for the assessee submitted the brief facts along with his submissions as considered by the Assessing Officer for the levy of penalty under section 271(1)(c) are that the assessee is a transport contractor. The return was filed showing income of ₹ 2,91,560. The assessment was completed on February 17, 2007 on a total income of ₹ 91,90,967. In the course of assessment proceeding the assessee disclosed investment of ₹ 90,21,303 voluntarily and offered for taxation to buy peace and avoid unnecessary litigation. The Assessing Officer accepted the same and after allowing relief on account of dividend accrued to the extent of ₹ 2,21,180 made addition of ₹ 88,00,123 as unexplained investment and assessed accordingly. Even though, the assessee himself came forward voluntarily in good faith to buy peace and avoid litigation, and even though the entire investment was not earned during the relevant year, but in several years in the past, the several years still then the learned Assessing Officer initiated penalty proceeding under section 271(1)(c) of the Income-tax Act, 1961. The assessee paid the entire taxes even ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Income-tax Act, 1961. (ii) The honourable Supreme Court of India in the case of Dilip N. Shroff v. Joint CIT [2007] 291 ITR 519 (SC) has held that the imposition of penalty is not automatic, it is a matter of discretion. The Assessing Officer has to be fair and objective. 3. The concealment of income and furnishing inaccurate particulars are different. Both concealment and furnishing of inaccurate particulars refers to deliberate Act on the part of the assessee. A mere omission or negligence would not constitute a deliberate act of suppressio veri or suggestio falsi . Mens rea is an important factor. The assessee stays in a rural area like Joda in Keonjhar District. He was assisted by accountant and tax practitioner who were locally available. They may not be very efficient to advise properly. But he had no other alternative than to depend on them. 4. The Explanation appended to section 271(1)(c) is an exception to the general rule. It raises a legal fiction by reason whereof the burden of proof shifts from the Department to the assessee. Legal fiction, however, as is well known must be given full effect when the conditions precedent thereof are satisfied and not ot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ), Giridharilal Goenka v. CIT [1989] 179 ITR 122 (Cal). Further, non recording of satisfaction by the Assessing Officer as to concealment of income, penalty is not justified. Case law are as under : (a) CIT v. Munish Iron Store [2003] 263 ITR 484 (P H) ; (b) CIT v. Ram Commercial Enterprises Ltd. [2000] 246 ITR 568 (Delhi) ; (c) CIT v. Angidi Chettiar (S. V.) [1962] 44 ITR 739 (SC) ; and (d) Diwan Enterprises v. CIT [2000] 246 ITR 571 (Delhi). 13. For the assessment year 2007-08, learned counsel of the assessee submitted the brief facts along with his submissions as considered by the Assessing Officer for the levy of penalty under section 271(1)(c) that the assessee is an individual carrying on business in transport contract has been visited with penalty under section 271(1)(c) of the Income-tax Act, 1961 to a tune of ₹ 21,70,100 for concealment of income of ₹ 72,33,660 (Rs. 47,71,090 as disclosed before the Assistant Director of Income-tax, Investigation, Bhubaneswar, Unit 1(1) + ₹ 24,62,570 disclosed before to the Assessing Officer). (Rs.) (i) The assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... agreeing to additions, penalty under section 271(1)(c) has been made illegally and arbitrarily to a tune of ₹ 21,70,100. 16. Aggrieved, the assessee appealed before the first appellate authority, who by way of separate orders for the two assessment years analysed the issue appealed before him by the assessee by distinguishing the facts for the levy of penalty from the case law cited when he chose to rely on the case law which was in favour of the Revenue and not the case law which was in favour of the assessee when the Supreme Court dictum is that whenever there are contra decisions on any issue, the decision which is favourable to the assessee should be adopted. He further contended that the penalty levied even after the amount surrendered and agreed for assessment and tax paid to buy peace and avoid future litigation is illegal and hence not justified. (CIT v. Suresh Chandra Mittal [2001] 251 ITR 9 (SC)). That no satisfaction has been recorded regarding concealment in the assessment order by the learned Assessing Officer which is a condition precedent for initiation of penalty proceeding. Hence the order of penalty is illegal. Though the assessee owned the unaccounted t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of India v. Raghubir Singh [1989] 178 ITR 548 (SC) followed by the Cochin Bench of the Income-tax Appellate Tribunal in the case of The Society of Presentation Sisters v. ITO reported in [2009] 318 ITR (AT) 287 (Cochin) at page 297 paragraphs 2 and 3. It is also settled law that if two views are possible then the one, which is in favour of the assessee must be adopted. (Union of India v. Onkar S. Kanwar [2002] 258 ITR 761 (SC), CIT v. Vegetable Products Ltd. [1973] 88 ITR 192 (SC)). In the absence of mens rea established by the Assessing Officer and surrendered the amount having been accepted, penalty is not leviable as no criminal intention is proved and brought on record. Learned counsel for the assessee contended that no penalty could have been imposed on the assessee because there was no tax sought to evaded because the addition in respect of which penalty was imposed was made was disclosed before computing total income under normal provision of the Act and ultimately the total income of the assessee was determined on the basis income returned plus income offered and surrendered for taxation. Further penalty is not imposable if there is no conscious breach of law. (Hindusta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is based on surrender of income. The assessee surrendered and agreed to be assessed to buy peace and end litigation. A vital letter of the assessee dated June 27, 2011 received on the same date, by the Assistant Commissioner of Income-tax office has neither been taken note of nor considered. In the said adjournment petition, it was clearly written that a petition for adjournment was filed on June 7, 2011 as the advocate of the assessee was out of the station on that day. Further the assessee could not take steps on June 14, 2011 wrongly mentioned in the letter as July 14, 2011 due to the absence of his advocate. It was further stated that the addition of ₹ 47,71,090 was on account of disclosure before the Assistant Director of Income-tax (Investigation), Bhubaneswar, and for which tax to the tune of ₹ 16,00,000 has already been paid on February 15, 2009 by the assessee and the notice of concealment under section 271(1)(c) was made only for that amount. The date of disclosure before the Assistant Director of Income-tax (Investigation), Bhubaneswar was much before the date of initiation of proceeding under section 147 therefore the question of initiating penalty should no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is is a case of voluntary disclosure and agreed assessment. The assessee has offered the entire amount invested in bank account to buy peace and avoid litigation. There are plethora of decisions on the subject enclosed along with the written submission before the Income-tax Appellate Tribunal against the penalty levied under section 271(1)(c) for the assessment year 2005-06 which may kindly be perused and the assessee relies on the same. Further learned counsel for the assessee submitted that the undisclosed investment by the assessee made on May 2, 2007, August 15, 2007, May 22, 2007 and August 30, 2007 for ₹ 12,00,000, ₹ 24,60,218, ₹ 2,25,557, ₹ 22,71,981 for which, penalty proceeding is made relate all to the assessment year 2008-09 and not to the relevant year under consideration therefore penalty levied for the assessment year 2007-08 being misconceived is liable to be deleted. 19. The learned Departmental representative opposed the contentions of learned counsel for the assessee. He submitted that it was not the case of the learned Commissioner of Income-tax (Appeals) to distinguish the case law relied upon before him for the proposition that the am ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The computation was confronted to the assessee in so far as the holders of the funds on behalf of the assessee informed the assessee that the funds have accumulated to such an extent. It was therefore nobody's case that the assessee should have incorporated the enhancement of income on the assets held by it to be taxed as capital gains when no such decision could take place by the assessee. The crux of the issue therefore results in giving a finding that the amount was agreed upon by the assessee on the Assessing Officer giving a finding that the assessee's funds as held by the holders of the funds had informed the assessee that the funds have increased in value whether he agreed to encash the enhancement or not. In other words, the investment was noted by the Assessing Officer in the assessment year 2005-06 and again after a gap of one year, i.e., 2007-08 when the assessee cannot be said to be paying tax again on the so-called enhancement by the mutual fund company being the portfolio manager who keep changing the net asset value of the units in various other forms giving high or low rate of return. The assessee remained secured in so far as he had parted with the funds wh ..... X X X X Extracts X X X X X X X X Extracts X X X X
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