VANITA H. ALIMCHANDANI, MUMBAI V. ITO 19(2)(2), MUMBAI

ITA 506/MUM/2015

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 2176 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 9 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-10-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: F
• Assessment Year: 2005-2006
• Appeal Filed On: 21-01-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: K R LAKSHMINARAYAN
• Keywords: Capital asset; Bonafide belief
• Section: 143(3); 54F; 147; 148

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL 'F' BENCH, MUMBAI BEFORE SHRI JASON P. BOAZ, ACCOUNTANT MEMBER AND SHRI SANDEEP GOSAIN , JUDICIAL MEMBER ITA NO. 506/MUM/2015 (ASSESSMENT YEAR: 2005-06) MRS. VANITA H. ALIMCHANDANI VS. INCOME TAX OFFICER - 19(2)(2) C/O. M.R. SHARMA & CO. E-8, POONAM DARSHAN POONAM NAGAR, MAHAKALI CAVES ROAD, ANDHERI (E) MUMBAI 400093 PIRAMAL CHAMBERS MUMBAI 400012 PAN AGYPA7278C APPELLANT RESPONDENT APPELLANT BY: SHRI K.R. LAKSHMINARAYAN RESPONDENT BY: SHRI RAVINDER SINDHU DATE OF HEARING: 26.10.2016 DATE OF PRONOUNCEMENT: 28.10.2016 O R D E R PER JASON P. BOAZ, A.M. THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE CIT(A)- 34, MUMBAI DATED 28.11.2014 UPHOLDING THE LEVY OF P ENALTY UNDER SECTION 271(1)(C) OF THE INCOME TAX ACT, 1961 (IN SHORT, 'T HE ACT') BY THE ASSESSING OFFICER (AO) IN THE CASE ON HAND VIDE ORDER DATED 1 1.03.2014. 2. THE FACTS OF THE CASE, BRIEFLY, ARE AS UNDER: - 2.1 THE ASSESSEE WAS A PARTNER IN THE FIRM M/S. B. ALIM BUILDERS, FROM WHICH SHE RETIRED IN THE YEAR UNDER CONSIDERATION W .E.F. 30.06.2004, I.E. IN A.Y. 2005-06 AND RETIREMENT DUES OF ` 2.98 CRORES WAS CREDITED IN HER CAPITAL ACCOUNT. SINCE NO RETURN OF INCOME FOR A.Y. 2005-06 WAS FILED, TO OFFER THE SAME TO TAX, THE AO INITIATED PROCEEDINGS UNDER SECTION 147 OF THE ACT AND AFTER RECORDING REASONS IN THIS REGARD, ISS UED NOTICE UNDER SECTION 148 OF THE ACT. IN RESPONSE TO NOTICES ISSUED THE A SSESSEE FILED A RETURN OF ITA NO. 506/MUM/2015 MRS. VANITA H. ALIMCHANDANI 2 INCOME DECLARING INCOME OF ` 3,34,740/- CONSTITUTING RENTAL INCOME AND SHORT TERM CAPITAL LOSS. ON BEING QUERIED REGARDING THE TAXABILITY OF THE AMOUNT OF ` 2.98 CRORES, THE ASSESSEES RESPONSE WAS THAT THE P ROFITS AND GAINS ARISING FROM TRANSFER OF CAPITAL ASSETS BY WA Y OF DISTRIBUTION OF CAPITAL ON DISSOLUTION OF FIRM OR AOP OR BOI OR OTH ERWISE WAS EXIGIBLE TO TAX AS INCOME OF THE FIRM. THE ASSESSEES EXPLANATI ON DID NOT FIND FAVOUR WITH THE AO, WHO HELD THAT THE PROFIT HAD ARISEN ON REVALUATION OF THE ASSETS AND IT IS THEREFORE EXIGIBLE TO TAX IN THE A SSESSEES HANDS. THE ASSESSMENT FOR A.Y. 2005-06 WAS ACCORDINGLY COMPLET ED UNDER SECTION 143(3) R.W.S. 147 OF THE ACT VIDE ORDER DATED 31.12 .2010; WHEREIN THE ASSESSEES INCOME WAS DETERMINED AT ` 2,61,70,392/- ON ACCOUNT OF PROFITS ARISING FROM REVALUATION OF ASSETS AND IN RESPECT O F WHICH THE AO SIMULTANEOUSLY INITIATED PENALTY PROCEEDINGS UNDER SECTION 271(1)(C) OF THE ACT. THIS ORDER OF ASSESSMENT DATED 31.12.2010 FOR A.Y. 2005-06 WAS UPHELD BY THE CIT(A) VIDE ORDER DATED 19.03.2013. 2.2 CONSEQUENT TO THE ORDER OF THE LEARNED CIT(A) D ATED 19.03.2013 FOR A.Y. 2005-06, THE AO ISSUED ANOTHER SHOW CAUSE NOTI CE TO THE ASSESSEE TO SHOW CAUSE AS TO WHY PENALTY SHOULD NOT BE LEVIED U NDER SECTION 271(1)(C) OF THE ACT IN RESPECT OF THE ADDITION MADE ON ACCOU NT OF PROFITS ARISING TO THE ASSESSEE ON REVALUATION OF ASSETS OF THE FIRM I N WHICH SHE WAS PARTNER. IN RESPONSE THERETO, THE ASSESSEE REITERATED HER SU BMISSIONS PUT FORTH IN ASSESSMENT PROCEEDINGS, THAT SETTLEMENT OF DUES OF RETIRING PARTNER DOES NOT ATTRACT ANY TAX LIABILITY TO THE ASSESSEE AS TH ERE IS NO TRANSFER OF ASSET TO THE RETIRING PARTNER. THE AO REJECTED THE ASSESS EES CONTENTIONS AND HOLDING THAT THE ASSESSEE HAD COMMITTED A DEFAULT W ITHIN THE MEANING OF EXPLANATION 1 OF PROVISO TO SECTION 271(1)(C) OF TH E ACT, PROCEEDED TO LEVY PENALTY OF ` 86,96,280/- BEING 100% OF THE TAX SOUGHT TO BE EVAD ED. ON APPEAL, THE LEARNED CIT(A) UPHELD THE AFORESAID PEN ALTY LEVIED UNDER SECTION 271(1)(C) OF THE ACT FOR A.Y. 2005-06 VIDE THE IMPUGNED ORDER. 3. AGGRIEVED BY THE ABOVE ORDER OF THE LEARNED CIT(A) CONFIRMING THE LEVY OF PENALTY UNDER SECTION 271(1)(C) OF THE ACT FOR A.Y. 2005-06, THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS IN THIS A PPEAL AS UNDER: - ITA NO. 506/MUM/2015 MRS. VANITA H. ALIMCHANDANI 3 1. THE ORDER PASSED BY THE LEARNED CIT (A) IS BAD IN LAW. 2. THE LEARNED CIT (A) ERRED IN DISMISSING THE APP EAL FILED BY THE APPELLANT AGAINST LEVY OF PENALTY OF RS.86,96,280/- U/S 271(1)(C) WITHOUT PASSING A SPEAKING ORDER ON THE DETAILED EX PLANATIONS GIVEN IN THE LETTER DATED 27.11.2014 OF ASSESSEE'S REPRESENTATIVE. 3. THE LEARNED CIT (A) ERRED IN DISMISSING THE APP EAL RELYING ON MUMBAI ITAT'S ORDER DT. 13.11.2014 IN THE CASE OF D ELLEOITTE CONSULTING INDIA PVT. LTD. FOR A.Y. 2004-05 AND 200 5-06 IN ITA NO. 7650/M/2012 AND 7651/M/2012 WITHOUT APPRECIATING TH E FACT THAT IN THE SAID CASE THE PENALTY RELATED TO ASSESS EE'S CLAIM FOR DEDUCTION OF DISALLOWABLE EXPENDITURE INCURRED IN R ESPECT OF IT'S A.E. AND THAT THE ASSESSEE HAD FILED BELATED REVISE D RETURN WITHDRAWING THE CLAIM FOR DEDUCTION OF SAID EXPENDI TURE. 4. THE LEARNED CIT (A) FAILED TO NOTE THAT APPELLA NT'S BONAFIDE BELIEF THAT AMOUNT RECEIVED ON RETIREMENT FROM PARTNERSHIP FIRM IS NOT TAXABLE WAS BASED ON DECISIONS OF HIGH COURT AND TR IBUNALS (COPY FURNISHED TO CIT (A AND THAT EVEN IF A DEFAU LT IS COMMITTED UNDER BONAFIDE BELIEF PENALTY IS NOT JUSTIFIED AS H ELD BY THE SUPREME COURT IN CIT V. RELIANCE PRODUCTS 322 ITR 1 58. 5. THE LEARNED CIT (A) ERRED IN RELYING ON CIT(A)' S FINDING IN ASSESSMENT PROCEEDINGS WITHOUT APPRECIATING THAT PE NALTY PROCEEDINGS ARE SEPARATE FROM ASSESSMENT PROCEEDING AND IN ANY CASE CIT (A) ORDER HAS NOT BECOME FINAL. 6. THE LEARNED CIT (A) FAILED TO NOTE THAT AS HELD BY CALCUTTA HIGH COURT IN CIT V. CALCUTTA CORP. 166 ITR 29 THAT WHER E TWO OPINIONS ARE POSSIBLE, PENALTY IS NOT JUSTIFIED. 7. IT IS PRAYED THAT PENALTY OF RS. 86,96,280/- LE VIED BY ASSESSING OFFICER U/S 271(1)(C) MAY BE DELETED. 8. THE APPELLANT CRAVES LIBERTY TO ADD, AMEND, ALT ER, AND/OR WITHDRAW ANY OF THE ABOVE GROUNDS OF APPEAL. 4.1 AT THE OUTSET OF THE HEARING OF THIS APPEAL, TH E LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED AND BROUGHT TO THE NOTICE OF THE BENCH THAT THE ASSESSEES APPEAL IN QUANTUM PROCEEDINGS AGAINST TH E ORDER OF THE CIT(A)- 30, MUMBAI DATED 19.03.2013 FOR A.Y. 2005-06 HAS BE EN DISPOSED OFF BY THE ORDER OF THE COORDINATE BENCH OF THIS TRIBUNAL IN ITA NO. 3172/MUM/2013 DATED 13.02.2015, SETTING ASIDE THE O RDER OF THE LEARNED CIT(A) ON BOTH ISSUES OF TAXABILITY OF RETIREMENT R ECEIPTS AND DEDUCTION UNDER SECTION 54F OF THE ACT AND RESTORED THESE MAT TERS TO THE FILE OF THE LEARNED CIT(A) FOR FRESH ADJUDICATION. IT WAS PLEAD ED THAT IN THESE ITA NO. 506/MUM/2015 MRS. VANITA H. ALIMCHANDANI 4 CIRCUMSTANCES, THE PENALTY LEVIED AND CONFIRMED UND ER SECTION 271(1)(C) OF THE ACT BY THE AO/LEARNED CIT(A) BEING BASED ON THE ORDERS OF THE CIT(A)- 30, MUMBAI DATED 19.03.2013 HAVING BEEN SET ASIDE, THE PENALTY SO LEVIED WOULD NOT NOW SURVIVE FOR CONSIDERATION AND IS TO B E SET ASIDE. A COPY OF THE SAME HAS BEEN PLACED ON RECORD. 4.2 THE LEARNED D.R. FOR REVENUE AGREED TO THIS PRO POSITION PUT FORTH BY THE LEARNED COUNSEL FOR THE ASSESSEE, BUT SUBMITTED THAT PENALTY PROCEEDINGS UNDER SECTION 271(1)(C) OF THE ACT BE A LSO SET ASIDE TO THE FILE OF THE AO FOR CONSIDERATION IN ACCORDANCE WITH THE DEC ISION OF THE LEARNED CIT(A) ON THIS ISSUE IN FRESH ADJUDICATION TO BE MA DE IN ACCORDANCE WITH THE DIRECTIONS IN THE TRIBUNALS ORDER (SUPRA). 4.3 WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED AND CAREFULLY CONSIDERED THE MATERIAL ON RECORD. WE FIND, ON A PE RUSAL OF THE ORDER OF THE COORDINATE BENCH IN THE ASSESSEES OWN CASE FOR A.Y . 2005-06 IN QUANTUM PROCEEDINGS IN ITA NO. 3172/MUM/20013 DATED 13.02.2 015, THAT THE ORDER OF THE LEARNED CIT(A)-30 DATED 19.03.2013 ON THE QUANTUM ADDITION HAS BEEN SET ASIDE AND RESTORED TO THE FILE OF THE CIT(A) FOR FRESH ADJUDICATION ON THE ISSUE ON WHICH PENALTY LEVIED U NDER SECTION 271(1)(C) OF THE ACT HAS BEEN UPHELD BY THE LEARNED CIT(A) IN THE IMPUGNED ORDER. IN THESE FACTUAL CIRCUMSTANCES, IN WHICH THE QUANTUM A DDITION IN RESPECT OF WHICH THE SAID PENALTY WAS LEVIED HAVING BEEN SET A SIDE FOR FRESH CONSIDERATION AND ADJUDICATION, THE SAID PENALTY OF ` 86,96,280/- LEVIED UNDER SECTION 271(1)(C) OF THE ACT FOR A.Y. 2005-06 IN CONSEQUENCE THEREOF WOULD NOT NOW SURVIVE FOR CONSIDERATION BEFORE US I N THE PRESENT APPEAL. WE, THEREFORE, SET ASIDE THE AFORESAID PENALTY OF ` 86,96,280/- LEVIED UNDER SECTION 271(1)(C) OF THE ACT FOR A.Y. 2005-06 AND R ESTORE THIS MATTER TO THE FILE OF THE AO FOR FRESH CONSIDERATION AND ADJUDICA TION, CONSEQUENT TO THE ORDER OF THE LEARNED CIT(A) ON THE QUANTUM ISSUE SE T ASIDE TO HIS/HER FILE FOR FRESH ADJUDICATION BY THE DECISION OF THE COORD INATE BENCH OF THIS TRIBUNAL IN ITA NO. 3172/MUM/2013 DATED 13.02.2005. IT IS ACCORDINGLY ORDERED. ITA NO. 506/MUM/2015 MRS. VANITA H. ALIMCHANDANI 5 5. IN THE RESULT, THE ASSESSEES APPEAL IS TREATED AS ALLOWED FOR STATISTICAL PURPOSES AS INDICATED ABOVE. ORDER PRONOUNCED IN THE OPEN COURT ON 28 TH OCTOBER, 2016. SD/ - SD/ - (SANDEEP GOSAIN) (JASON P. BOAZ) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DATED: 28 TH OCTOBER, 2016 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) -34, MUMBAI 4. THE CIT - 22, MUMBAI 5. THE DR, F BENCH, ITAT, MUMBAI BY ORDER //TRUE COPY// ASSISTANT REGISTRAR ITAT, MUMBAI BENCHES, MUMBAI N.P.