2019 (7) TMI 705 - HC - Income Tax

Penalty u/s 271(1)(c) - rectification u/s 254 - assessee accepted quantum addition - in penalty proceedings he offer explanation that the jewellery found during search were already offered to tax in the VDIS, 1997 - HELD THAT - On a perusal of the orders passed by the Tribunal, we find that what weighed in the mind of the Tribunal is primarily because the quantum assessment had attained finality and that the assessee had not challenged the said assessment. This, in our considered view, is an incorrect interpretation because both the quantum assessment as well as the penalty proceedings are independent of each other. Furthermore, the assessee's specific case is that the jewellery, which were recovered during search operations, were the jewellery, which were declared during the VDIS, 1997 and the assessee would explain that the balance amounts were inherited by her, some of which sridhana, etc. The Tribunal considered a similar issue in the case of Shanmugapriya 2016 (7) TMI 1529 - ITAT CHENNAI and reconciliation was permitted and ultimately, the assessee succeeded before the Tribunal. There is no reason as to why such an indulgence should not be granted to the assessee considering the plea raised by her and more particularly in the affidavit filed in support of the said miscellaneous petition. The explanation offered by the assessee should be tested for its correctness and only if it is found to be palpably false or not acceptable, then the question of imposing the penalty would arise. Hence, the Tribunal could not have applied the decision of the Hon'ble Supreme Court in the case of Mak Data (P) Limited Vs. CIT 2013 (11) TMI 14 - SUPREME COURT It appears that the decision in the case of Shanmugapriya was not placed before the Tribunal when the impugned order was passed. Nevertheless, this Court does not propose to foreclose the rights of the assessee on the said ground since it is pleaded that the facts are identical and the assessee Shanmugapriya is also a member of the very same family, which was the subject matter of the same search operations. Therefore, we are of the considered view that one more opportunity should be granted to the assessee to go before the AO to do the reconciliation by offering an explanation, which has been stated in these appeals as well as in the said miscellaneous petition before the Tribunal. The AO shall also take note of the decision in the case of Shanmugapriya and pass fresh orders on merits and in accordance with law uninfluenced by any of his observations made in the earlier order dated 23.9.2014. Consequently, the substantial questions of law are left open.

Summary

Issues:
1. Dismissal of a miscellaneous petition by the Tribunal without addressing merits on the ground of limitation under Section 254(2) of the Income Tax Act, 1961.
2. Setting aside the order of the Commissioner of Income Tax (Appeals) and confirming the penalty under Section 271(1)(c).
3. Consideration of disclosure under the Voluntary Disclosure of Income Scheme (VDIS), 1997 for penalty under Section 271(1)(c).
4. Failure to consider the explanation offered by the assessee regarding the source of investment in gold and jewelry.
5. Alleged inconsistency in the Tribunal's decision compared to a previous case involving a similar issue.

Analysis:

1. The first issue revolves around the dismissal of a miscellaneous petition by the Tribunal without addressing its merits, solely based on the limitation prescribed under Section 254(2) of the Income Tax Act, 1961. The appellant raised concerns regarding the timing of the appeal and the interpretation of 'sufficient cause' under Section 254(2). The Tribunal's reliance on judgments of other High Courts and the need to follow them was also questioned. The appellant sought a favorable interpretation of 'sufficient cause' based on precedents in similar cases.

2. The second issue pertains to the Tribunal's decision to set aside the order of the Commissioner of Income Tax (Appeals) and uphold the penalty imposed under Section 271(1)(c). The appellant argued that the disclosure of assets under the Voluntary Disclosure of Income Scheme (VDIS), 1997 should qualify as disclosure for the penalty provisions. Additionally, the Tribunal's failure to consider the explanation provided by the assessee regarding the source of investment in gold and jewelry was challenged.

3. The third issue involves the Tribunal's alleged inconsistency in its decision compared to a previous case, specifically the case of DCIT Vs. Shanmugapriya. The Tribunal's dismissal of the miscellaneous petition on technical grounds without considering the merits raised concerns regarding the assessment of penalty and the need for a thorough examination of the explanation offered by the assessee.

4. Upon detailed analysis, the High Court found that the Tribunal's primary concern was the finality of the quantum assessment and the lack of challenge by the assessee. However, the Court emphasized the independence of quantum assessment and penalty proceedings. The Court noted that the assessee's explanation regarding the jewelry declared under VDIS, 1997 should be thoroughly examined before imposing a penalty. The Court highlighted the need to grant the assessee an opportunity to reconcile the jewelry quantum and provide a detailed explanation, considering the precedent set in the case of Shanmugapriya.

5. The Court allowed the appeal, set aside the Tribunal's order, and remanded the matter to the Assessing Officer for a fresh decision. The Court emphasized the importance of considering the explanation offered by the assessee and ensuring that the fresh orders are passed in accordance with the law. The Court acknowledged the similarities between the present case and the Shanmugapriya case, indicating the need for a fair and thorough assessment of the assessee's claims.