RAJUBHAI S. PATEL vs.INCOME TAX OFFICER (INTERNATIONAL TAXATION)

RAJUBHAI S. PATEL vs.INCOME TAX OFFICER (INTERNATIONAL TAXATION)

AHMEDABAD TRIBUNAL

RAJPAL YADAV, JM & MANISH BORAD, AM.

ITA No. 904 and 905/Ahd/2014

Mar 1, 2016

(2016) 46 cch 0214 AhdTrib

Legislation Referred to

Section 69, 148, 271(1)(c)

Case pertains to

Asst. Year 2002-03 and 2003-04

Decision in favour of: Assessee

Penalty u/s 271(1)(c)—Assessee was non-resident Indian and he had FDRs with Dena bank in FCNR NRE category—Interest income out of those FDRs was exempt from tax—Assessee had given power of attorney to ’X’ who had maintained FDR/OD account with fixed deposit overdraft facility—According to AO, certain amounts had been deposited in FD/OD account—Assessee filed returns of income declaring NIL income, because interest income from FDs was exempt from tax—AO determined taxable income of assessee at Rs.30,99,810 on ground that deposits had been made in FD/OD account which remained unexplained—AO held that assessee concealed his income or furnished inaccurate particulars of income—AO thus initiated penalty proceedings u/s 271(1)(c) and imposed penalty of Rs.1,50,000 in relevant AYs—CIT(A) confirmed penalty imposed by AO u/s 271(1)(c)—Held, bare perusal of s 271(1)(c) would reveal that for visiting any assessee with penalty, AO or CIT(A) during course of any proceedings before them should be satisfied that assessee concealed his income or furnished inaccurate particulars of income—As far as quantification of penalty was concerned, penalty imposed under this section can range in between 100% to 300% of tax sought to be evaded by assessee, as result of such concealment of income or furnishing inaccurate particulars—However s 271(1)(c) not only covers situation in which assessee had concealed income or furnished inaccurate particulars but in certain situation, even without there being anything to indicate so, statutory deeming fiction for concealment of income comes into play—Assessee had given explanation about source of deposits in accounts—Explanation could not be substantiated with supporting evidence, but explanation was not held by AO as false—AO had not issued any notice to ’X’ in order to find out if explanation given by assessee was false or not—Similarly, in AY 2003-04, explanation given by assessee was that he had received back Rs.1.50 lakhs from ’X’ and that amount was deposited in bank account— AO accepted facts that sum of Rs.3.00 lakhs advanced by assessee, but disbelieved explanation of Rs.1.50 lakhs—Again explanation of assessee was not held to be false—It was thus held that assessee did not deserve to be visited with penalty u/s 271(1)(c) and accordingly impugned penalty in both appeals were cancelled—Assessee’s Appeal allowed

Held

A bare perusal of this section would reveal that for visiting any assessee with the penalty, the Assessing Officer or the Learned CIT(Appeals) during the course of any proceedings before them should be satisfied, that the assessee has; (i) concealed his income or furnished inaccurate particulars of income. As far as the quantification of the penalty is concerned, the penalty imposed under this section can range in between 100% to 300% of the tax sought to be evaded by the assessee, as a result of such concealment of income or furnishing inaccurate particulars. The other most important features of this section is deeming provisions regarding concealment of income. The section not only covered the situation in which the assessee has concealed the income or furnished inaccurate particulars, in certain situation, even without there being anything to indicate so, statutory deeming fiction for concealment of income comes into play.

(Para 9)

Assessee had given explanation about the source of deposits in the accounts. The explanation could not be substantiated with the supporting evidence, but the explanation was not held by the AO as false. Had the assessee given confirmation from M/s.Shrinathji Corporation in the Asstt.Year 2002-03, then the addition itself would have been deleted, but the AO had not issued any notice to M/s.Shrinathji Corporation in order to find out whether the explanation given by the assessee is false or not. Similarly, in the Asstt.Yar 2003-04, the explanation given by the assessee was that he had received back Rs.1.50 lakhs from Shri Anvarbhai Kapadia and that amount was deposited in the bank account. The AO had accepted the facts that a sum of Rs.3.00 lakhs advanced by the assessee, but disbelieved the explanation of Rs.1.50 lakhs. Again the explanation of the assessee was not held to be false. Therefore, in view of ITAT discussion, ITAT was of the view that the assessee did not deserve to be visited with penalty under section 271(1)(c) of the Act, and accordingly impugned penalty in both the appeals were cancelled.

(Para 10)

Conclusion

Once sum advanced by assessee and explanation given by him was not held to be false, assessee did not deserve to be visited with penalty u/s 271(1)(c).

In favour of

Assessee

Counsel appeared:

Aseem Thakkar, CA for the Assessee.: Anita Hardasani, Sr.DR for the Revenue

RAJPAL YADAV, JM.

1. Aggrieved with the separate orders of the ld.CIT(A), Gandhinagar dated 20.12.2013 passed in the Asstt.Years 2002-03 and 2003-04, the assessee is in appeals before us.

2. The grievance of the assessee is that the ld.CIT(A) has erred in confirming the penalty of Rs.1,50,00/- and Rs.20,000/- imposed by the AO under section 271(1)(c) of the Act in the Asstt.Years 2002-03 and 2003-04 respectively.

3. Brief facts of the case are that the assessee is a non-resident Indian. He has FDRs. with Dena bank in FCNR NRE category. The interest income out of these FDRs is exempt from tax. Against these FDs., an overdraft facility account was opened. The assessee has given power of attorney to one Shri Hasmukhbhai Patel who has maintained FDR/OD account with fixed deposit overdraft facility. According to the AO, certain amounts have been deposited in FD/OD account. He, therefore, recorded reasons and reopened the assessment in both these years by issuance of notice under section 148 on 27.2.008 and 16.3.2009 for the Asstt.Years 2002-03 and 2003-04 respectively. In response to the notice received under section 148 of the Income Tax Act, the assessee has filed returns of income declaring NIL income, because the interest income from FDs. was exempt from tax. The AO has passed the assessment order for the Asstt.Year 2002-03 on 29.12.2008. He determined the taxable income of the assessee at Rs.30,99,810/- on the ground that deposits have been made in FD/OD account which remained unexplained. He made addition with the help of section 69 on account of unexplained investments.

4. Dissatisfied with the addition, the assessee carried the matter before the CIT(A). The ld.First Appellate Authority has deleted the addition of Rs.25,99,806/- and confirmed addition of Rs.5 lakhs.

5. In the Asstt.Year 2003-04, the ld.AO has made an addition of Rs.1,50,000/-. The ld.AO has initiated penalty proceedings in both the years under section 271(1)(c) of the Act and imposed penalty of Rs.1,50,000/- in the Asstt.Year 2002-03 and Rs.20,000/- in the Asstt.Year 2003-04.

6. With the assistance of the ld.representatives, we have gone through the record carefully. On perusal of the assessment order passed in the Asstt.Year 2002-03, we find that the ld.AO has tabulated details of amounts deposited in FD/OD account in para 4.2 of the assessment order. A perusal of those details revealed that on thirteen occasions the amounts have been deposited in this account. Out of these thirteen occasions, cash was deposited on six occasions. A major amount of Rs.12 lakhs was deposited through bank transfer on 9.4.2011. Then again Rs.7.00 lakh was deposited through transfer on 10.4.2001. Similarly on 24.10.2001, Rs.5 lakhs was transferred through bank. The CIT(A) has deleted all these additions on the ground that the assessee has explained the source of deposits. The only addition confirmed was a sum of Rs.5.00 lakhs which was deposited on 27.4.2001 by transfer from bank. But the assessee could not file confirmation. Had the assessee filed the confirmation from M/s.Shrinathji Corporation, then the addition would have been deleted. In other words, the amount has been transferred from the account of M/s.Shrinathji Corporation, through banking channel. But in order to substantiate the source of deposits the assessee could not file confirmation. The case of the assessee is that he has given an explanation about the source of deposits. The amounts have been deposited through banking channels, and the AO failed to collect any evidence on record to prove that the assessee has taxable income in India or explanation given by him is false.

7. As far as the facts in the Asstt.Year 2003-04 are concerned, a sum of Rs.3.50 lakhs was given to Shri Anvarbhai Kapadia. He has repaid Rs.1.50 lakhs. The assessee has deposited this amount in the FD/OD account. The AO has rejected the explanation of the assessee on the ground that the assessee could not prove that same amount was deposited by him. In other words, the assessee failed to prove that Shri Anvarbhai Kapadia has encased the cheque given by the assessee, and thereafter, withdrew the amount refunded to the assessee and that very amount was deposited in the account.

8. We have considered rival submissions and gone through the record. Section 271(1)(c) of the Act has a direct bearing on the controversy which reads as under:

"271. Failure to furnish returns, comply with notices, concealment of income, etc.— (1) The Assessing Officer or the Commissioner (Appeals) or the CIT in the of course of any proceedings under this Act, is satisfied that any person

(a) and (b) ** ** **

(c) has concealed the particulars of his income or furnished inaccurate particulars of such income. He may direct that such person shall pay by way of penalty.

(i)and (Income-tax Officer,)** ** **

(iii) in the cases referred to in Clause (c) or Clause (d), in addition to tax, if any, payable by him, a sum which shall not be less than, but which shall not exceed three times, the amount of tax sought to be evaded by reason of the concealment of particulars of his income or fringe benefit the furnishing of inaccurate particulars of such income or fringe benefits:

Explanation 1- Where in respect of any facts material to the computation of the total income of any person under this Act,

(A) Such person fails to offer an explanation or offers an explanation which is found by the Assessing Officer or the Commissioner (Appeals) or the CIT to be false, or

(B) such person offers an explanation which he is not able to substantiate and fails to prove that such explanation is bona fide and that all the facts relating to the same and material to the computation of his total income have been disclosed by him, then, the amount added or disallowed in computing the total income or such person as a result thereof shall, for the purposes of Clause (c) of this sub-section, be deemed to represent the income in respect of which particulars have been concealed."

9. A bare perusal of this section would reveal that for visiting any assessee with the penalty, the Assessing Officer or the Learned CIT(Appeals) during the course of any proceedings before them should be satisfied, that the assessee has; (i) concealed his income or furnished inaccurate particulars of income. As far as the quantification of the penalty is concerned, the penalty imposed under this section can range in between 100% to 300% of the tax sought to be evaded by the assessee, as a result of such concealment of income or furnishing inaccurate particulars. The other most important features of this section is deeming provisions regarding concealment of income. The section not only covered the situation in which the assessee has concealed the income or furnished inaccurate particulars, in certain situation, even without there being anything to indicate so, statutory deeming fiction for concealment of income comes into play. This deeming fiction, by way of Explanation-1 to section 271(1)(c) postulates two situations; (a) first whether in respect of any facts material to the computation of the total income under the provisions of the Act, the assessee fails to offer an explanation or the explanation offered by the assessee is found to be false by the Assessing Officer or Learned CIT(Appeal); and, (b) where in respect of any fact, material to the computation of total income under the provisions of the Act, the assessee is not able to substantiate the explanation and the assessee fails, to prove that such explanation is bona fide and that the assessee had disclosed all the facts relating to the same and material to the computation of the total income. Under first situation, the deeming fiction would come to play if the assessee failed to give any explanation with respect to any fact material to the computation of total income or by action of the Assessing Officer or the Learned CIT(Appeals) by giving a categorical finding to the effect that explanation given by the assessee is false. In the second situation, the deeming fiction would come to play by the failure of the assessee to substantiate his explanation in respect of any fact material to the computation of total income and in addition to this the assessee is not able to prove that such explanation was given bona fide and all the facts relating to the same and material to the computation of the total income have been disclosed by the assessee. These two situations provided in Explanation 1 appended to section 271(1)(c) makes it clear that that when this deeming fiction comes into play in the above two situations then the related addition or disallowance in computing the total income of the assessee for the purpose of section 271(1)(c) would be deemed to be representing the income in respect of which inaccurate particulars have been furnished.

10. In the light of the above, if we examine the facts in the present two appeals, then it would reveal that the assessee has given explanation about the source of deposits in the accounts. The explanation could not be substantiated with the supporting evidence, but the explanation was not held by the AO as false. Had the assessee gave confirmation from M/s.Shrinathji Corporation in the Asstt.Year 2002-03, then the addition itself would have been deleted, but the AO has not issued any notice to M/s.Shrinathji Corporation in order to find out whether the explanation given by the assessee is false or not. Similarly, in the Asstt.Yar 2003-04, the explanation given by the assessee is that he has received back Rs.1.50 lakhs from Shri Anvarbhai Kapadia and that amount was deposited in the bank account. The AO has accepted the facts that a sum of Rs.3.00 lakhs advanced by the assessee, but disbelieved the explanation of Rs.1.50 lakhs. Again the explanation of the assessee was not held to be false. Therefore, in view of our discussion, we are of the view that the assessee does not deserve to be visited with penalty under section 271(1)(c) of the Act, and accordingly impugned penalty in both the appeals are cancelled.

11. In the result, both the appeals of the assessee are allowed.

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