CHETAK CO-OPERATIVE HOUSING SOCIETY LTD., MUMBAI V. ITO WARD-23(1)(3), MUMBAI

ITA 3776/MUM/2023

• Counselvise Citation: [2024] 100 COUNSELVISE.COM (IT) 1607 (ITAT-MUMBAI)
• Duration Of Justice: 7 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-06-2024
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 10-06-2024
• Assessment Year: 2006-2007
• Appeal Filed On: 19-10-2023
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Capital asset; Question of law; Cost of acquisition; Set aside
• Section: 147; 27; 271(1)(c); 143(3); 250; 274; 73

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH “C”, MUMBAI BEFORE SHRI ANIKESH BANERJEE, JUDICIAL MEMBER AND SHRI GAGAN GOYAL, ACCOUNTANT MEMBER ITA 3776/Mum/2023 (Asst.Year: 2006-07) Chetak Co-operative Housing Society Ltd, 35, Manju Mahal, Pali Hill, Bandra (West), Mumbnai-400 050 PAN :AAAAC0996J vs The Income-tax Officer-23(1)(3), Mumbai APPELLANT RESPONDENT ITA 4098/Mum/2023 (Asst.Year: 2006-07) The Income-tax Officer- 23(1)(1), Mumbai vs Chetak Co-operative Housing Society Ltd, 35, Manju Mahal, Pali Hill, Bandra (West), Mumbnai-400 050 PAN : AAAAC0996J APPELLANT RESPONDENT Assessee by : Shri Anuj Kisnadwala Respondent by : Shri H.M. Bhatt, (SR.DR) Date of hearing : 11/06/2024 Date of pronouncement : 18/ 06/2024 O R D E R 2 ITA No.3776 & 4098 /Mum/2023 Chetak Co-op HsgSty Ltd PER ANIKESH BANERJEE, J.M: These cross appeals preferred against the order of theLd. National Faceless Appeal Centre, Delhi [for brevity, ‘Ld.CIT(A)’] passed under section 250 of the Income-tax Act, 1961 (in short, ‘the Act’), for Assessment Year 2006-07, date of order 21.09.2023.The impugned order was emanated from the order of the Ld. Income-tax Officer, Ward 22(1)(3), Mumbai (in short, ‘the A.O.’) passed under section 271(1)(c) of the Act, date of order30/03/2016. 2. The grounds raised by the parties are as under:- Assessee: “1. The Ld.CIT(A) NFAC has erred in law and on facts in confirming the penalty order passed by the Assessing Officer which is bad in law as the notice issued by him u/s 271(1)(c) of the Act does not specify the nature of limb under which the assessee is covered. 2. The Ld.CIT(A) NFAC has erred in law and on facts in not holding that the notice initiating the penalty proceedings is vague and, hence, the penalty order is bad in law. 3. The learned CIT(A) NFAC has erred in law and on facts in upholding enhancing the rate of penalty from 100% to 200% without providing an opportunity of hearing to the assessee. 4. The Ld.CIT(A) NFAC has erred in law and on facts in upholding and enhancing the penalty to Rs.25,57,600/- as against Rs.12,78,800/- levied by the Assessing Officer. 3 ITA No.3776 & 4098 /Mum/2023 Chetak Co-op HsgSty Ltd 5. The appellant craves leave to add to, amend, alter or delete all or any of the foregoing grounds of appeal.” Revenue “1. "Whether on the facts and in the circumstances of the case and in law, the Ld C1T(A), has erred in deleting the penalty u/s 271(1 )(c) of the Act, without considering the fact that neither the assessee society nor members have offered income received during the year amounting to Rs.8,10,08,200/- being a compensation on sale of TDR/FSl of the Four Plots to Sandhu Builders forthe Re-development, which was owned by the Assessee Society and also not offered to tax Rs.800000/-, being received as lease Rent and donation of Rs. 32,00,000/- from Sandhu Builders? 2. "Whether on the facts and m the circumstances j of the ease and in law, the Ld CIT(A), has erred in deleting the penalty u/s 271(1 )(c) of the Act, without considering the fact that penalty u/s 271(1)(c) of the Act, was levied for furnishing inaccurateparticulars of income by the Assesses Society , when the total consideration amounting to Rs.8,10,08,200/-, was received by the society members directly from Sandhu Developers to whom the right, title and interest in the property has been transferred through the Development Agreement ?" 3. "Whether on the facts and in the circumstances iff of the case and in law, the LdCIT(A), has erred in | deleting the penalty u/s 271 (l){c) of the Act, without considering the fact that TDR/FSI are capital asset and after amendment in section 50 of the Income-Tax Act, the statue is now permitting to tax capital gains of assets which are not having any cost of acquisition? 4 ITA No.3776 & 4098 /Mum/2023 Chetak Co-op HsgSty Ltd 4. "Whether on the facts and in the circumstances of the case and in law, the Ld.CIT(A) , has erred in deleting the penalty u/s 27 l(l)(c) of the Act without following the decision in Shakti Insulated Wires Ltd Vs JCIT (Supra ) wherein it was held that value of development rights had been taken on 01.0.1981, as cost of acquisition for indexation in the case where there is no cost of Indexation of assets ?" 5. "Whether on the facts and in the circumstances \ of the case and in law, the Ld C1T(A), has erred in ; deleting the penalty u/s 271(I)(c) of the Act, without considering the fact Assessee society is owner of the Land/Plot /property as well as of TDR/FSI allotted to in the ratio 1:1 as per the Development Control Regulation, 1991, by virtue of owning the contiguous four plots and henceforth the assessee society alone is liable to pay applicableLong Term Capital Gain arising out of transfer of such TDR/FSI?" 6. "Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the penalty u/s 271(1 )(c) of the Act, without considering fact that section 30 of the Maharashtra Co-op Housing Society Act, defines that the society is a legal person and can hold property in its name and the members are not the owner of land /right therein. Therefore, the consideration received by the society members is arising as a result of transfer ofcapital assets by theassessee society .which need to be taxed in the hand of society itself?" 7. "Whether on the facts and in the circumstances of the case and in law, the Ld CIT(A),has erred in deleting the penalty u/s 271 (1 )(c) of the Act, without considering fact that as per the rule of Co-operative society, any compensation / consideration received in respect of property belonging to the society and should go to thesociety account 5 ITA No.3776 & 4098 /Mum/2023 Chetak Co-op HsgSty Ltd and it shall be used for the welfare of the society under the principle of mutuality, however in this case the society has allowed each members to receive their share of compensation forextinguishing the rights and interest in the society because if this amount is received by the society inits account shall amount to a profit which is not distributable among the members under the rule and thus the payment of compensation directly deposited through Escrow Account of the members was only a colorable device to avoidtax bythesociety?" 8. Whether on the facts and in the circumstances of the case and in law, the Ld CIT(A), has erred in deleting the penalty u/s 271(i)(c) of the Act, without appreciating that the Department has not accepted the decision of Tribunal in order IT A No. 4363/Mum/20l5 Dated. 12.07.2017 and the Department has filed an appeal Before Hon'ble High Court, Mumbai which is still pending foradjudication?'' ` 9. The appellant prays that the order of the CIT{A) on the above grounds be set aside and that of the Assessing Officer be restored. 10. The appellant craves leave to amend or to alter »d or add a new ground, which may be necessary". 3. Brief facts of the case are that the assessment was completed under section 143(3) read with section 147 of the Act and theassessee was assessed at a total income of Rs.7,93,74,420/-. The penalty was initiated and levied at 100% of the tax sought to be evaded amount to Rs.1,82,08,045/-. The penalty U/s 271(1)(c) of the Act is levied amount to Rs. 1,82,08,045/-. Being aggrieved, the assessee filed an appeal before the Ld.CIT(A). The Ld.CIT(A) has allowed the part 6 ITA No.3776 & 4098 /Mum/2023 Chetak Co-op HsgSty Ltd relief and the penalty amount is reduced to Rs.25,57,600/-. Aggrieved, both the parties are in appeal before the Tribunal, with their respective appeal. 4. The Ld.AR vehemently argued and first argued the ground No.2. the Ld.AR placed the notice issued by the Ld.AO under section 274 read with section 271(1)(c). The copy of the notice is duly inserted as below:- 7 ITA No.3776 & 4098 /Mum/2023 Chetak Co-op HsgSty Ltd 8 ITA No.3776 & 4098 /Mum/2023 Chetak Co-op HsgSty Ltd 5. The Ld.AR prayed that the notice itself is defective and not mention the limb whether the concealment or inaccurate particulars of income. So the entire penalty proceedings will be quashed. 6. The Ld.DR fully relied on the order of the Ld.AO and argued vehemently. 7. We heard the rival submissions and considered the documents available in the record. The Ld.AR placed that the issue of defective notice which was already challenged before the Ld.CIT(A). The relevant paragraph No.7 of appeal order is reproduced as below:- “07. Additional ground of appeal The Appellant took the following additional ground of appeal in the appellate proceedings:- ' On the facts and circumstances of the case and in law, the Penalty Order passed under section 271(1)(c) of the Act is bad in law. The statement of facts submitted, alongside was as under: The AO issued m notice under secion 274 r.w.s 271(1)(c) dated 27.03.2014, received on 02.04.2014. In the penalty notice, the AO has not specified the limb under which the penalty has to.be levied i.e. whether for the concealment of particulars of income or for furnishing inaccurate particulars of such income. Under such circumstances, various courts have held that the penalty proceeding initiated by the AO is bad in law. This ground of appeal is admitted. In respect of this ground of appeal the Assessee made the following submissions:- "The Assessing Officer issued the notice under section 274 r.w.s 271(1)(c) dated 27.03.2014, received on 02.04.2014. In the penalty notice, the AO has not 9 ITA No.3776 & 4098 /Mum/2023 Chetak Co-op HsgSty Ltd specified the limb under which the penalty has to be levied i.e. whether for the concealment of particulars of income or for furnishing inaccurate particular of such income. Under such circumstances, various courts have held that the penalty proceeding initiated by the AO is bad in law. So we request you to kindly set aside the order of penalty levied u/s 271(1)(c)on the appellant. Please refer to the decision of Karnataka High Court in the case of the Pr. Commissioner of Income Tax Belagavi vs. M/s RyataraSahakariSakkareKarkhane (Decision of Karnataka High Court enclosed) In the above circumstances, we request you to delete the full penalty u/s 271(1)(c) Rs. 1,82,08,045/- levied on the above total addition of Rs. 7,91,56,026/- (77,51,56,025+40,00,000). Apart from this the Appellant also relied on the decision of the jurisdictional Bombay High Court in case of Mohd. Farhan A Shaikhvs. Deputy Commissioner of Income Tax, reported as 434 ITR 1, [2021] 125 taxmann.com 253 (Bombay), in the video / conference held.” 8. In the finding, the Ld.CIT(A) relied on the order of the Hon’ble Madras High Court in case of Gangotri Textiles Ltd vs DCIT Corporate Circle 2, Coimbatore (2010)121 taxmann.com 171 (Mad). The order of the Hon’ble Madras High Court was challenged by the assessee before the Hon’ble Supreme Court and the leave was dismissed vide order dated 18/02/2022, 137 taxmann.com 198 (SC). 9. We respectfully considered the order of the Hon’ble Madras High Court. The relevant paragraph 15 is duly reproduced below:- “15.The learned counsel had argued that the defect in the penalty notice is a question of law which can be raised by the assessee at any point of time. We have considered this submission and we have rejected it. The learned counsel relied on the decision of the Hon'ble Supreme Court in the case of 10 ITA No.3776 & 4098 /Mum/2023 Chetak Co-op HsgSty Ltd K.Lubna to submit that if the factual foundation for a case has been laid and the legal consequences of the same having been examined, the examination of such legal consequences would be a pure question of law. We have noted the factual position. The assessee understood the notice to be under both heads, namely, furnishing of inaccurate particulars and concealment of income. This is evident from the assessee's reply dated 08.04.2015 to the show cause notice dated 12.03.2015. Therefore, the decision in the case of K.Lubna does not help the assessee, as there is no substantial question of law arising from such contention.” 10. We find that the issue of the notice was not discussed in the order. But only rejected on the basis of the substantial question of law. Hon’ble Lordship rejected the issue as there is no substantial question of law. The issue is squarely covered by the judgement of Hon’ble Jurisdictional High Court in the case of Mohammed Farhan A. Shaikh Vs. PCIT (125 taxamnn.com 253) vide order dt. 11.3.2021. The relevant paragraphs are reproduced as below:- “179. Besides, the prima facie opinion in the assessment order need not always translate into actual penalty proceedings. These proceedings, in fact, commence with the statutory notice under section 271(1)(c) read with section 274. Again, whether this prima facie opinion is sufficient to inform the assessee about the precise charge for the penalty is a matter of inference and, thus, a matter of litigation and adjudication. The solution, again, is a tick mark; it avoids litigation arising out of uncertainty. 180. One course of action before us is curing a defect in the notice by referring to the assessment order, which may or may not contain reasons for the penalty proceedings. The other course of action is the prevention of defect in the notice—and that prevention takes just a tick mark. Prudence demands prevention is better than cure. Answers: 11 ITA No.3776 & 4098 /Mum/2023 Chetak Co-op HsgSty Ltd Question No. 1: If the assessment order clearly records satisfaction for imposing penalty on one or the other, or both grounds mentioned in Section 271(1)(c), does a mere defect in the notice— not striking off the irrelevant matter—vitiate the penalty proceedings? 181. It does. The primary burden lies on the Revenue. In the assessment proceedings, it forms an opinion, prima facie or otherwise, to launch penalty proceedings against the assessee. But that translates into action only through the statutory notice under section 271(1)(c), read with section 274 of IT Act. True, the assessment proceedings form the basis for the penalty proceedings, but they are not composite proceedings to draw strength from each other. Nor can each cure the other's defect. A penalty proceeding is a corollary; nevertheless, it must stand on its own. These proceedings culminate under a different statutory scheme that remains distinct from the assessment proceedings. Therefore, the assessee must be informed of the grounds of the penalty proceedings only through statutory notice. An omnibus notice suffers from the vice of vagueness. 182. More particularly, a penal provision, even with civil consequences, must be construed strictly. And ambiguity, if any, must be resolved in the affected assessee's favour.” 10.1. The issue is squarely covered by the jurisdictional High Court which is legally binding on us. Ld. AO did not mention the nature of concealment in the notice issued u/s 274/271(1)(c). The counsel laid down that in the absence of such specific notice, the notice would be invalid. As held in various judicial pronouncements including the decision of Hon’ble Karnataka High Court in CIT V/s SAS’s Emerald Meadows (73 Taxmann.com 241) against which Special Leave Petition (SLP) filed by the department stood dismissed by Hon’ble Supreme Court which is reported as 73 Taxmann.com 248. The notice u/s 274/271(1)(c) of the Act is not carrying the specific limb. Therefore, this is a case where both the parts of the offences i.e., concealment of income as well as furnishing of inaccurate particulars of income were involved. Finally, respectfully following the binding judicial precedents as cited aforesaid, we are of the considered opinion that the impugned penalty is not sustainable on legal grounds. The issue was agitated before the ld. CIT(A) but the issue is not adjudicated in appeal order. The ld. DR is unable to submit any contrary judgment 12 ITA No.3776 & 4098 /Mum/2023 Chetak Co-op HsgSty Ltd before the bench. Hence, penalty U/s 271(1)(c) is quashed. We allow the appeal of the assessee. 11. In the result, appeal of the assessee bearing ITA No.3776/Mum/2023 is allowed and appeal of the revenue bearing ITA No.4098/Mum/2023 is dismissed. Order pronounced in the open court on 18 th day of June, 2024. Sd/- sd/- (GAGAN GOYAL) (ANIKESH BANERJEE) ACCOUNTANT MEMBER JUDICIAL MEMBER Mumbai,दिन ांक/Dated: 18/06/2024 Pavanan Copy of the Order forwarded to: 1. अपील र्थी/The Appellant , 2. प्रदिव िी/ The Respondent. 3. आयकरआयुक्त CIT 4. दवभ गीयप्रदिदनदि, आय.अपी.अदि., मुबांई/DR, ITAT, Mumbai 5. ग र्डफ इल/Guard file. BY ORDER, //True Copy// (Asstt. Registrar), ITAT, Mumbai