IN THE INCOME TAX APPELLATE TRIBUNAL DELHI `A' BENCH
BEFORE SHRI A.D. JAIN, JM & SHRI A.N. PAHUJA, AM
ITA No.2970/Del/2012
Assessment year:2006-07
Assistant CIT, V/s . Ashok Raj Nath, C/o
Panipat Circle, M/s Deepak W oolen Mills,
Panipat G.T. Road, Panipat
[PAN : AAPPN 8330 P]
(Appellant) (Respondent)
Assessee by None
Revenue by Mrs. Anusha Khurana, DR
Date of hearing 22-08-2012
Date of pronouncement 31-08-2012
ORDER
A.N.Pahuja:- This appeal filed on 14.06.2012 by the Revenue against an order
dated 01.03.2012 of the learned CIT(A)-Karnal, raises the following grounds:-
"1) On the facts and in the circumstances of the case,
the ld. CIT(A) has erred in law in cancelling penalty of
``10,77,190/- levied u/s 271(1)(c) on account of non-
disclosure of short term and long term capital gain in the
return originally filed without appreciating the fact that the
so called revised return filed including the amount of
capital gains was subsequent to the receipt of notices u/s
143(2)/142(1) issued by the department.
2. The appellant craves leave to add or amend the
grounds of appeal before the appeal is heard or disposed
of. "
2. At the outset, none appeared before us on behalf of the assessee
nor submitted any request for adjournment. Considering the nature of issue and
2 ITA No.2970/Del./2012
findings of the ld. CIT(A), the Bench proceeded to dispose of the appeal after
hearing the ld. DR.
3.. Facts, in brief, as per relevant orders are that return declaring income of
```73,73,806/- filed on 31.10.2006 by the assessee, was selected for scrutiny
with the service of a notice u/s 143(2) of the Income-tax Act, 1961, (hereinafter
referred to as the Act) issued on 11th October, 2007. None responded to this
notice. In response to a show cause notice alongwith notice u/s 143(2) and
142(1) of the Act, the ld. AR on behalf of the assessee sought adjournment for
18th August, 2008 ,when none appeared. In response to subsequent show cause
notice dated 3rd September, 2008, the assessee submitted a detailed reply along
with revised return declaring income of ``1,28,20,913/-. Since the revised return
was beyond the time prescribed u/s 139(5) of the Act, i.e. beyond the period of
one year from the end of the relevant assessment year, this return was treated
as invalid return. During the course of assessment proceedings, the Assessing
Officer (A.O. in short) noticed that the assessee declared gross rental income of
``9,05,071/- whereas certificate issued in Form No.16A by Unitech Ltd., New
Delhi and M/s Iquara Telcoms India Ltd., reflected rental income of
``14,47,319/- and ``1,87,833/- respectively. To a query by the AO,seeking
details of properties and reconciliation of rental income vis--vis amount reflected
in the TDS certificates, the assessee replied that rent of Unit No.206, Cyber
Park, Gurgaon was received to the extent of ``14,47,319/- and in respect of unit
no.201 -``1,73,003/-) and unit no.206-``12,74,316/-. Out of rent of ``12,74,316/-
for unit No.206, a sum of ``4,63,388/- was given to M/s P.J. Associates vide
cheque No.618356 dated 8.6.2006 as per mutual understanding as advance of
``47 lacs was received from M/s P.J. Associates on account of sale of the said
unit no.206 to them. Though advance of ``47 lacs had been received by the
assessee on 29.12.2005, the assessee did not furnish any evidence in the shape
of agreement regarding the sale of unit no.206 to P.J. Associates or for returning
rent of ``4,63,388/- to them. In response to another show cause notice dated
10.09.2008 the assessee replied as under:-
3 ITA No.2970/Del./2012
"The assessee did not bonafidely claim TDS on the basis of
certificate as rent for four months was refundable which he actually
did in the immediately succeeding year. An assessee has to be
taxed on real income and not on hypothetical basis. It is
understandable that an assessee who was honoured by Hon'ble
CBDT Chairman at Chandigarh as one of the 16 assessees of
NWR in the category of assesses in higher bracket of income, is
being questioned vide your show cause to add what has to come to
him as his real income."
3.1 After considering the aforesaid reply and in the absence of any
evidence of agreement to sell or return of rent, the AO denied deduction of
``4,63,388/-. Inter alia, penalty proceedings u/s 271(1)(c) of the Act were also
initiated.
3.2 The AO further noticed that the assessee declared short term
capital gain on sale of three properties at ``13,93,279/-
(8,49,979+19,000+5,24,250/-) beside from sale of shares at ``47,10,726/-. In
response to `a show cause notice issued by the AO, seeking details of the
properties sold and copies of their sale deeds as also details of shares, the
assessee submitted the following details:-
"Property styled Unit No.201, Cybre Park, Gurgaon:
Sale price 77,24,250/-
Cost price 72,00,000/-
Capital Gain 5,24,250/-
Land at V. Kheri Sadh (Rohtak)
Sale price 53,13,379/-
Cost price 33,90,400/-
Capital Gain 19,19,979/-"
3.3 Since total capital gain on sale of properties as pr the aforesaid
computation worked out to ``24,44,229/- as against ``13,93,279/- shown in the
4 ITA No.2970/Del./2012
return, the AO added the difference and initiating penalty u/s 271(1)(c) of the Act
for furnishing inaccurate particulars of capital gain.
3.4 Though, the assessee reflected short term capital gain on sale of
shares to the extent of ``47,10,726/-,in response to show cause notice, the
assessee reflected following working of short term capital gain:-
Gain on sale of shares (STT Paid) ``47,09,951/-
Add Dividend u/s 94(7) `` 1,61,278/-
Total: ``48,71,229/-
3.5 Beside in the return filed on 31st October, 2006, the assessee
claimed exemption of long term capital gain to the extent of ``1,17,67,514/- u/s
10(38) of the Income-tax Act, 1961. However, in response to show cause notice,
the assessee revised the claim of exemption to ``76,68,595/- ,resulting in taxable
long term capital gain of ``40,98,919/-. Inter alia, penalty proceedings were also
initiated u/s 271(1) of the Act for furnishing inaccurate particulars of income.
3.6 Apart from above, the AO disallowed interest of `2,51,507/- claimed by way
of deduction from interest income of `9,87,808/-
4. On appeal, the ld.CIT(A) upheld the addition towards rental income
while reducing the disallowance of interest by `29,166/- as against disallowance
of ``2,51,507/- made by the AO. On further appeal, the ITAT vide their order
dated 18th March, 2011 adjudicated the issue of two additions on account of
rental income and interest, in the following terms:-
" We have heard the rival submissions and have gone through the
material available on record. We find that there is no dispute on
this factual aspect that advance of `47 lakhs was received by the
assessee from M/s PJ Associates on account of sale of the
impugned property by the assessee to that party. The dispute is
regarding the rental income from the month of December, 2005 to
March, 2006 i.e. for four months. It is also admitted factual position
5 ITA No.2970/Del./2012
that under similar circumstances, the assessee received rental
income for the month of April and May, 2006 and the same was
also passed on to the buyer by way of the same cheque of dated
8.6.2006 because as per the details available on page No.3 and 4
of the paper book, one cheque No.618356 for `5,72,806/- was
received by that party from the assessee on 5.6.2006. As per the
details of this amount, it is on account of rental income received by
the assessee from December, 2005 to May, 2006 after deducting
TDS of Rs.l,21,076/-. As per the order for assessment year 2007-
08 submitted by the assessee before us, it is seen that the
Assessing Officer has not made any addition in the income of the
assessee on account of rent for the month of April & May, 2006
Hence, it is seen that the Assessing Officer has accepted the claim
of the assessee in the subsequent year that the rental income from
this property does not belong to the assessee although the property
in question was registered in the name of the buyer after May,
2006. Hence, it is seen that the claim of the assessee has been
accepted by the Assessing Officer in the subsequent year under
similar facts and circumstances. Hence, in the present year,
whether this claim of the assessee deserves to be accepted or not
is to be decided by us. When we examine the facts of the present
case in its entirety. We find that this is admitted position that capital
gain on sale of this property was declared by the assessee in the
next year and hence, as per the assessee also, ownership of the
property was with the assessee in this year and hence, if we apply
the legal position strictly rental income for the period from
December, 2005 to March, 2006 is also taxable in the hands of this
assessee only but we find that three other aspects are also very
much important. One aspect is the tax impact. As per the tax
impact of the impugned addition of Rs.4,63,388/- in the present
year, it is worked out by the assessee at Rs.l,09,184/- after
deducting 30% as per the provisions of section 24 of the Act and
the tax was determined at Rs.97,312/- @ 30% of Rs.3,24,372/-and
after making addition of surcharge and education cess, total tax
payable is of `1,09,184/-. It is the submission of the Ld AR of the
assessee that in case, we decide this issue in favour of the
assessee, the Assessing Officer may be directed to disallow credit
of TDS from the rental income of these four months from
December, 2005 to March, 2006 which is amounting to Rs.82,482/ -
. Hence, the net tax impact comes to Rs.26,702/ -. The second
important aspect is that the claim of the assessee has been
accepted by the Assessing Officer also in the subsequent year
because in spite of completing the assessment of assessment year
2007-08 u/s 143(3), no addition has been made by the Assessing
Officer on account of rental income for the month of April & May,
2006 although the same was also refunded by the assessee to Shri
6 ITA No.2970/Del./2012
PJ Singh by way of same cheque N0.618356 dated 5.6.2006 and
the property in question was transferred by the assessee to the
buyer after that date only. Hence, it is seen that under similar
circumstances, the revenue has accepted the claim of the
assessee in the subsequent year. As per the judgment of Hon'ble
Punjab & Haryana High Court rendered in the case of CIT v. Reita
Biscuits Co. Pvt. Ltd. (supra), if the issue is being decided in
subsequent year in favour of the assessee and against the
revenue, different view cannot be taken in the preceding year.
Hence, this judgment of Hon'ble Punjab & Haryana High Court
becomes applicable under these facts of the present case and as
per the same, the claim of the assessee has to be accepted in the
present year also that rental income from December, 2005 to
March, 2006 also did not accrue to the assessee. The third
important point is that even if it is held that rental income is
assessable in the hands of the assessee then this amount of
Rs.4,63,338/ - paid by the assessee to Shri P.J. Singh has to be
reduced from the capital gain tax in the hands of the assessee in
the subsequent year I.e. assessment year 2007-08 and as a result,
the short term capital gain of Rs.3, 77, 756/ - declared by the
assessee in that year will be converted into short term capital loss
of Rs.85,632/-and the difference in tax in that year will work out to
Rs.1,36,764/ - in assessment year 2007-08. Tax payable by the
assessee in that year will go down by this amount whereas the tax
liability created by the Assessing Officer in the present year is only
of Rs.1,09,184/-. This is because of this reason that on account of
rental Income of Rs.4,63,388/ -, the assessee is getting deduction
of 30% u/s 24 and hence this tax liability is going down to this
amount to Rs.1, 09,184/ - whereas the consequent relief from short
term capital gain will be on the full amount of Rs.4,63,388/ -. If we
consider these factors, we feel that the revenue is not gainer by
rejecting the treatment given by the assessee and various
consequential orders are to be passed i.e., in the case of the.
assessee in next year and also in the hands of the buyer for the
present year because rent income cannot be assessed in the
hands of both i.e, the present assessee and the buyer to whom rent
is transferred by this assessee but one aspect is not clear as to
whether that assessee has included this amount in his taxable
income or not because as per the certificate on page No.3-4 of the
paper book, that party is certifying that they have received the net
amount of Rs.572806/ - and did not claim TDS credit but there is no
mention that they had included this amount in taxable income as
per the return of income filed. Hence, we find that if this amount has
been declared as income by that party , than the same should not
be added in the hands of this present assessee to avoid multiple
consequential rectifications without any tax gain to the revenue and
7 ITA No.2970/Del./2012
also because the revenue has accepted this claim in next year and
as per the decision of Hon'ble Punjab & Haryana High Court in the
case of CIT v. Reita Biscuits Co. (supra), different stand cannot be
taken in this year but for this, the Assessing Officer has to find out
as to whether the buyer has declared this income or not in its return
of income. We, therefore, set aside the order of Ld CIT(A) on this
issue and restore this matter back to the file of the Assessing
Officer for a decision afresh. The Assessing Officer should find out
as to whether the buyer, to whom this rental income is transferred
by this assessee has declared this income in its return of income or
not in the present year, If the buyer has declared this income in the
return of income filed by the buyer for the present year, then no
addition should be made in the hands of this assessee on account
of rent for December, 2005 to March, 2006 and the Assessing
Officer should withdraw the credit of TDS of Rs.82,482/- on rental
income for December, 2005 to March, 2006 because if the income
is not taxed in the hands of this assessee, credit for TDS cannot be
allowed. But if this rental income for December, 2005 to March,
2006 has not been declared by the buyer in its return of income
then such rental income has to be taxed in the hands of this
assessee. The Assessing Officer should pass necessary order as
per law as per above discussion after providing adequate
opportunity of being heard to the assessee and to make it clear that
burden is on the assessee to bring evidence on record establishing
that the buyer has declared this income in its return of income for
this assessment year. This ground is allowed for statistical
purposes.
.........................................................................................
We have heard the rival submissions and have gone through the
material available on record. We find that Ld. CIT(A} has worked out
the interest income on account of this deposit of Rs.1 crore in
Savings Bank A/c of the assessee by applying 3.5% of bank interest
rate and he has held that the assessee has earned interest income
for one month only on this basis that the bank has credited interest
up to 31.1.2006 only on 4.2.2006 although there was credit balance
after that also up to 31.3.2006. Under this factual position, we find
that on this amount of Rs.1 crore, the assessee was earning
interest income from the 1st day of credit in the same Savings Bank
A/c i.e. on 20.12.005. Even for the period after 31.1.2006, interest
income must be there on this account although the same is not
credited by the bank till 31.3.2006. Interest for the period from
1.2.2006 up to 31.3.2006 must have been credited by bank in the
next year being interest for 1.2.2006 to 31. 7.2006. The Assessing
Officer could have brought to tax such interest income in the
present year for 1.2.2006 to 31.3.2006 but this was not done even
8 ITA No.2970/Del./2012
than, it cannot be said that the assessee was not earning income in
this period. Now, the question is whether for the interest bearing
borrowed funds which was utilized for earning interest income,
deduction on account of interest payment is allowable only to the
extent of actual interest income thereon or the whole amount of
interest payment should be allowed. In our considered opinion,
when the interest bearing borrowed funds have been utilized by the
assessee for earning interest income which is taxable under the
head income from other sources, deduction on account of full
payment of interest is allowable to the assessee and it cannot be
restricted to the extent of actual interest income only. Hence, we
delete the disallowance of interest expenditure confirmed by
learned CIT(A). This ground of the assessee is allowed."
5. Meanwhile on receipt of order of the ld. CIT(A), in response to a show cause
notice before levy of penalty, the assessee pleaded that return was revised
voluntarily without any show cause notice, with a following note in the
computation sheet:-
"Return of income is being revised voluntarily to correct the figure of
capital gain in respect of land at Kheri Sadh (Rohtak) as also to
correct the interest income wherein interest paid was wrongly
claimed against interest income inadvertently. The return of income
is being also revised to include short term capital gain in acquisition
of land at Bahadurgarh which was earlier wrongly credited to land
at Panchkula."
Since the return was revised voluntarily, relying upon decisions in Cheap Cycle
Stores vs. CIT,196 CTR 173 (All.); CIT vs. SV Electricals Pvt. Ltd.,274 ITR 334
(MP);CIT vs. Mrs. Roshan D Rehman,295 ITR 280 (Bom.) and CIT vs. SSP P
Ltd.,302 ITR 43 (P&H),the assessee pleaded that penalty proceedings should be
dropped. However, the AO did not accept the explanation of the assessee and
imposed a penalty of ``10,77,190/- for furnishing inaccurate particulars of income
of ``60,39,824/- while observing that since the revised return had been filed on
10.9.2008 while notice u/s 143(2) of the Act was issued on 11.10.2007,revised
return was not voluntary nor valid.
6. On appeal, the ld. CIT(A) cancelled the penalty, in the following
terms:-
9 ITA No.2970/Del./2012
"1.9 The issue is examined. As discussed above that the
appellant declared further income on account of short term and
long term capital gain by filing a revised return of income. The
appellant impressed upon that no information was available with
the department in this regard and the assessment was made by
adopting the figures declared by him in the revised return of
income. In view of this fact, it is noted that the additional income
offered and assessed for capital gain heads was provided by the
appellant only and the same was assessed as such besides the
fact that the other two additions made by the Assessing Officer was
deleted by the ITAT in as far as one of the issues was restored
back to the Assessing Officer with the specific directions for
verifying the facts and the other one was deleted. In view of these
facts, both the additions do not stand as on date. At most, the
Assessing Officer is free to take necessary action as per law with
reference to first addition if the facts are found otherwise."
7. The Revenue is now in appeal before us against the findings of
learned CIT(A).The ld. DR supported the order of the AO, levying penalty.
8. We have heard the ld. DR and gone through the facts of the case. As is
apparent from the aforesaid facts, the AO levied penalty u/s 271(1)(c) of the Act
in respect of an amount of `60,39,824/-comprising addition on account of rental
income-`4,63,388/-;disallowance of interest-`2,51,507/-,addition towards short
term capital gains on sale of properties-`10,50,950/-;short term capital gains on
sale of shares-`1,60,503/- and long term capital gains-`40,98,919/-. The ld.
CIT(A) cancelled the penalty on the ground that disallowance of interest was
deleted by the ITAT while issue relating to addition towards rental income had
been restored to the file of the AO and additional income towards capital gains
on sale of properties and shares was disclosed by the assessee suo motu
during the course of assessment proceeding. The assessee submitted revised
return since in the original return long term capital gain on UTI liquid plus fund
institution plan was claimed exempt u/s 10(38) of the Act as also to reflect correct
figures of sale of land at Kheri Sadh and rental income. Merely because the
assessee disclosed additional income suo motu after issue of a notice u/s 143(2)
10 ITA No.2970/Del./2012
of the Act, does not amount to detection of concealment by the AO. Apparently,
the assessee had given all particulars of his income and had disclosed all facts
to the AO during the assessment proceedings.. It is not the case of the AO that in
reply to a query of the AO, some new facts were discovered or the AO had dug
out some information which was not furnished by the assessee. In such
circumstances, we are of the opinion that no penalty is leviable. It is well settled
that assessment proceedings and penalty proceedings are separate and distinct
and as held by Hon'ble Supreme Court in the case of Ananthraman
Veerasinghaiah & Co. Vs. CIT, 123 ITR 457, the finding in the assessment
proceedings cannot be regarded as conclusive for the purposes of the penalty
proceedings. It is, therefore, necessary to reappreciate and reconsider the matter
so as to find out as to whether the addition made in the quantum proceedings
actually represents the concealment on the part of the assessee as envisaged in
sec. 271(1 )(c) of the Act and whether it is a fit case to impose the penalty by
invoking the said provisions. It is also well settled that the criterion and yardsticks
for the purpose of imposing penalty u/s 271(1)(c) of the Act are different than
those applied for making or confirming the additions. The Hon'ble Kerala High
Court in the case of CIT v. M. George & Bros. [1986] 160 ITR 511 held that
where the assessee for one reason or the other agrees or surrenders certain
amounts for assessment, the imposition of penalty solely on the basis of the
surrender will not be well-founded. Hon'ble Punjab and Haryana High Court in
the case of CIT v. Suraj Bhan [2007] 159 Taxman 26 while following the decision
in CIT v. Suresh Chandra Mittal [2001] 251 ITR 9(SC), held that when an
assessee files a revised return showing higher income and gives an explanation
that he offered higher income to buy peace of mind and avoid litigation, penalty
cannot be imposed merely on account of higher income having been
subsequently declared. The Hon'ble Apex Court in CIT v. Suresh Chandra
Mittal, [2001] 251 ITR 9/119 Taxman 433, upheld the decision of the Hon'ble
Madhya Pradesh High Court rendered in the case of CIT vs. Suresh Chandra
Mittal [2000] 241 ITR 124, where in similar circumstances it was held that the
initial burden lies on the revenue to establish that the assessee had concealed
11 ITA No.2970/Del./2012
the income had furnished inaccurate particulars of such income. The burden
shifts to the assessee only if he fails to offer any explanation for the undisclosed
income or offers an explanation which is found to be false by the Assessing
Officer.
8.1 In Qudai International vs. Income Tax Officer 2009 (13) MTC 622 (Trib), the
ITAT Lucknow Bench 'A' held that "mere raising of query by the Assessing
Officer did not amount to detection of concealment. It cannot therefore, be said
that the revised return was filed after detection of concealment and was not
voluntary. The term "detection" itself implies the Assessing Officer had reached a
conclusion but the query raised by the Assessing Officer was only first step in
detection of concealment. If the assessee voluntarily revised the return, it could
not be said that it does not fulfill requirements of section 139(5) of the Act." The
facts of the present case are also similar to the facts of the aforesaid referred to
case.
8.2 Similarly, in the case of Dy. CIT vs. Tarun Agarwal 2009 (13) MTC 831, the
ITAT Lucknow Bench 'A' held that "the assessee had surrendered the amount
before any specific detection of undisclosed income or even before the issue of
notice. Even though a general enquiry was going on and notices had been
issued to some of his relatives and the amount might have been surrendered
because of compulsion of circumstances, it was not sufficient to penalise the
assessee as the factum of detection was not there." In the instant case also,
nothing is brought on record that there was any detection at the level of the AO to
suggest that the assessee concealed the income on account of capital gains,
which was offered for taxation suo motu in the revised return.
8.3 Merely because a notice u/s 143(2) had already been issued and the
assessee filed revised return thereafter, disclosing additional income towards
capital gains, which was not correctly shown in the original return, does not
tantamount to detection of concealment of income u/s. 271(1)(c) of the Act .
12 ITA No.2970/Del./2012
Hon'ble Madhya Pradesh High Court in the case of CIT v. S.V. Electricals P. Ltd.,
155 Taxman 158 and Hon'ble Jharkhand High Court in CIT v. Ashim Kumar
Agarwal, 153 Taxman 226 held that where the assessee surrenders his full
income, though at a later stage, there was no question of any concealment on his
part and consequently, no penalty under Section 271(1)(c) was leviable, and that
a omission from return of income did not amount to concealment. Hon'ble
jurisdictional High Court while adjudicating the issue of levy of penalty u/s
271(1)(c) of the Act in the case of CIT vs. Harnarain in their decision dated 31st
October,2011 in ITA no.2072/2010 concluded that "surrender of the amount by
the assessee after receipt of the questionnaire could not lead to an inference that
it was not voluntary, in the absence of any material on record to suggest that it
was bogus or untrue. It is further evident that there was neither any detection nor
any information in the possession of the Revenue which might lead to a
conclusion that there was a detection by the Revenue of concealment.
Accordingly, the question of law framed is answered against the Revenue and in
favour of the assessee."
9.. In the instant case, the assessee voluntary disclosed
additional income during the course of assessment proceedings and
paid tax thereon. In the light of view taken in the aforesaid
decisions, it cannot be said in the case before us, additional
income disclosed during the course of assessment proceedings was
not voluntary or that the assessee wanted to conceal the income.
Even though the revised return was found to be invalid, the AO
accepted the income as declared in the revised return and computation. The AO
did not bring any material on record that the declaration of income made by the
assessee in his revised return or his explanation was not bonafide. In these
circumstances, there appears to be no basis for imposition of penalty on the
ground that the assessee furnished inaccurate particulars of income. Since the
Revenue have not placed before us any material nor brought to our notice any
13 ITA No.2970/Del./2012
contrary decision so as to enable us to take a different view in the matter, we are
not inclined to interfere. Therefore, ground no.1 in the appeal is dismissed.
10.. No additional ground having been raised in terms of residuary
ground no.2 in the appeal; accordingly, this ground is also dismissed.
11. No other plea or argument was made before us.
12. In the result, appeal is dismissed.
Order pronounced in open Court
Sd/- Sd/-
(A.D. JAIN) (A.N. PAHUJA)
(Judicial Member) (Accountant Member)
NS
Copy of the Order forwarded to:-
1. Assessee
2. Assistant CIT,Panipat Circle,Panipat
3. CIT concerned
4. CIT(A)- Karnal.
5. DR, ITAT 'A' Bench, New Delhi
6. Guard File.
By Order,
Deputy/Asstt.Registrar
ITAT, Delhi
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