No penalty can be levied if income already taxed in the hands of another entity

[CA Bimal Jain]

The ITAT, Ahmedabad in SHRI AMITKUMAR HASMUKHBHAI SHAH VERSUS DY. CIT, CIRCLE-1 (2) , VADODARA - 2023 (1) TMI 832 - ITAT AHMEDABAD has set aside the penalty, for alleged concealing the particulars of income, on the grounds that the income which was sought to be taxed in the hands of the assessee had already been taxed as income in the hands of another entity. Directed the Revenue Department to delete the levy of penalty under Section 271(1)(c) of the Income Tax Act, 1961 (“the IT Act”).

Facts:

Amitkumar Hasmukhbhai Shah (“the Appellant”) had filed its return of income on March 22, 2007 declaring a total income of INR 16,20,430/-. During the survey proceedings under Section 133A on the IT Act, it was found that the Appellant was carrying out a transport business in the name of M/s Chandan Carrier (“the Firm”) engaged in the movement of trucks and tankers owned by the Appellant and it did not own any trucks and the Appellant was the authorized signatory, power of attorney holder and mandate holder of the Firm, even though it was owned by one Nilesh Shah.

Subsequently, the Revenue Department (“the Respondent”) passed an order adding a sum of INR 1,07,890/- on the ground that, the Appellant was the benami owner of the Firm  and any income earned by the Firm should be taxed as income in the hands of the Appellant, alleging that the Appellant was the effective owner of such business and accordingly such income was added to the income of the Appellant by the Respondent.

The Appellant had previously preferred an appeal and accordingly the first Commissioner of Income Tax (Appeals) (“CIT(A)”) and the ITAT had set aside the issue of addition of INR 1,07,890/- for fresh adjudication. However, during the fresh assessment proceedings addition of INR 1,07,890/- was again made by the Respondent vide order dated January 17, 2019 (“the Impugned Order”) and it further proceeded to impose penalty under Section 271(1)(c) of the IT Act for concealing the particulars of income.

Being aggrieved, this appeal has been filed.

The Appellant contended that the income which has been sought to be taxed by the Respondent belongs to Nilesh Shah and has already been assessed in its name and hence, there is no cause for imposing penalty under Section 271(1)(c) of the IT Act.

Issue:

Whether the Impugned Order imposing penalty upon the Appellant is sustainable?

Held:

The ITAT, Ahmedabad in SHRI AMITKUMAR HASMUKHBHAI SHAH VERSUS DY. CIT, CIRCLE-1 (2) , VADODARA - 2023 (1) TMI 832 - ITAT AHMEDABAD held as under:

• Relied on the judgment of the Hon’ble Gujarat High Court in PATEL CHEMICALS WORKS VERSUS ASSESSING OFFICER - 2008 (9) TMI 175 - GUJARAT HIGH COURT wherein, it was held that in penalty proceedings, the factum of the same income having been offered to tax by a different entity and having been taxed substantially in hands of such different entity becomes a relevant factor for determining whether assessee has concealed said income or furnished inaccurate particulars regarding said income which has already been taxed after being shown in hands of different entity.
• Observed that, the primary reason for levy of penalty is that the Firm is effectively held by the Appellant and the income which is sought to be taxed in the hands of the Appellant has already been offered to tax as income in the hands of Nilesh Shah and the assessment proceedings have also been completed by the Respondent in respect of such income.
• Held that, it is not a fit case for levy of penalty under Section 271(1)(c) of the IT Act and directed the Respondent to delete such penalty.

Relevant Provisions:

Section 271(1)(c) of the IT Act:

“Failure to furnish returns, comply with notices, concealment of income, etc. – 

(1) If the Assessing Officer or the Commissioner (Appeals) or the Principal Commissioner or Commissioner in the course of any proceedings under this Act, is satisfied that any person-

…..

(c) has concealed the particulars of his income or furnished inaccurate particulars of such income, or”

(Author can be reached at [email protected])