G. Vengal Rao, Hyderabad, Hyderabad V. ITO, Ward-11(5), Hyderabad, Hyderabad

ITA 908/HYD/2017

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 2434 (ITAT-HYDERABAD)
• Duration Of Justice: 9 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-03-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2008-2009
• Appeal Filed On: 25-05-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MINI CHANDRAN
• Assessee Lawyers: MANOJ DAGA
• Keywords: Invalid notice
• Section: 54F; 153A; 27

Judgement Text

ITA NO 908 OF 2017 G VENGAL RAO HYDERABAD. PAGE 1 OF 8 IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD A BENCH, HYDERABAD BEFORE SMT. P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI S.RIFAUR RAHMAN, ACCOUNTANT MEMBER ITA NO.908/HYD/2017 (ASSESSMENT YEAR: 2008-09) SHRI G. VENGAL RAO HYDERABAD PAN: AEHPG 0792 E VS INCOME TAX OFFICER WARD 11 ( 5 ) HYDERABAD (APPELLANT) (RESPONDENT) FOR ASSESSEE : SHRI MANOJ DAGA FOR REVENUE : SMT. MINI CHANDRAN, DR O R D E R PER SMT. P. MADHAVI DEVI, J.M. THIS IS ASSESSEES APPEAL FOR THE A.Y 2008-09 AGAIN ST THE ORDER OF THE CIT (A)-5, HYDERABAD, DATED 20.03. 2017 CONFIRMING THE PENALTY LEVIED BY THE AO U/S 271(1)( C) OF THE ACT. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF AP PEAL: GROUND NO.L: THE LD CIT(A) ERRED BOTH ON FACTS AND IN LAW IN UPH OLDING THE PENALTY ORDER PASSED BY THE AO U/S 271(1)(C) LE VYING PENALTY OF RS 6,54,058/-. GROUND NO.2: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LD CIT(A) ERRED IN NOT APPRECIATING THE FA CT THAT THE AO HAS NOT RECORDED SPECIFIC REASONS FOR INITIA TION OF PENALTY PROCEEDINGS UNDER SECTION 271(1)(C) OF THE ACT. UNDER THE LAW, THE LD. AO IS DUTY BOUND TO STATE SP ECIFIC REASONS FOR INITIATION OF SUCH PENALTY PROCEEDINGS. DATE OF HEARING: 12.02.2018 DATE OF PRONOUNCEMENT: 2 1 . 0 3 .2018 ITA NO 908 OF 2017 G VENGAL RAO HYDERABAD. PAGE 2 OF 8 GROUND NO.3: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LD. CIT(A) ERRED IN IGNORING THE FACT THAT THE PENALTY NOTICE ISSUED BY THE LD. AO SUFFERS FROM DE FECTS WHICH MAKES THE NOTICE INVALID. THE LD. AO IN HIS S HOW CAUSE NOTICE OUGHT TO HAVE MENTIONED CLEARLY WHETHE R PENALTY PROCEEDING IS INITIATED FOR FURNISHING INAC CURATE PARTICULARS OF INCOME OR FOR CONCEALMENT OF PARTICU LARS OF SUCH INCOME BY STRIKING OUT THE INAPPLICABLE PORTIO N. NON- STRIKING OUT OF THE INAPPLICABLE PORTION IN THE SHO W CAUSE NOTICE MADE THE NOTICE INVALID AND THE PENALTY ORDE R BASED ON SUCH INVALID NOTICE IS NOT SUSTAINABLE IN LAW AS HELD BY COURTS. GROUND NO.4: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LD. CIT(A) ERRED IN NOT APPRECIATING THE F ACT THAT THE LD. AO IN HIS PENALTY ORDER HAS FAILED TO RECOR D A CLEAR FINDING AS TO WHETHER IT IS A CASE OF CONCEAL MENT OF PARTICULARS OF INCOME OR A CASE OF FURNISHING INACC URATE PARTICULARS OF SUCH INCOME. MERE MENTION THAT THE P ENALTY IS LEVIED U/S 271(1)(C) CANNOT SUBSTITUTE THE REQUI REMENT OF SPECIFIC FINDING OF CONCEALMENT OF PARTICULARS O F INCOME OR FURNISHING OF INACCURATE PARTICULARS OF INCOME. GROUND NO.5: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LD. CIT(A) ERRED IN NOT APPRECIATING THE F ACT THAT THE APPELLANT HAS DISCLOSED ALL THE FACTS RELATING TO RESIDENTIAL PROPERTY AND THERE IS NO CONCEALMENT OR MISREPRESENTATION OF ANY OF THE MATERIAL FACTS ON T HIS ISSUE. UNDER THE CIRCUMSTANCE THE LD. CIT(A) OUGHT TO HAVE CONSIDERED THAT MERE DISALLOWANCE OF A LEGAL C LAIM CANNOT BE A GROUND FOR LEVY OF PENALTY U/S 271(1)(C ) OF THE ACT AS HELD BY THE COURTS. 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE, A N INDIVIDUAL, WAS CARRYING ON BUSINESS AND EARNED INC OME FROM REAL ESTATE, COMMISSION, PLYING OF VEHICLES, OPERATING W EIGH BRIDGES, ROAD ROLLERS, SALE OF PLOTS ETC., THERE WAS A SEARC H AND SEIZURE OPERATION CONDUCTED IN THE CASE OF VENIGALLA ANANDA PRASAD & OTHERS AND THEIR GROUP OF CASES ON 7.10.2009. THE A SSESSEE WAS ITA NO 908 OF 2017 G VENGAL RAO HYDERABAD. PAGE 3 OF 8 ALSO SEARCHED. DURING THE COURSE OF SEARCH, THE ASS ESSEE WAS FOUND TO BE DERIVING INCOMES FROM VARIOUS SOURCES L IKE PLYING OF VEHICLES, OPERATING WEIGH BRIDGES, ROAD ROLLERS, SA LE OF PLOTS ETC. WHICH WERE NOT DISCLOSED IN THE RETURNS FILED PRIOR TO THE SEARCH. ACCORDINGLY, NOTICE U/S 153A OF THE ACT WAS ISSUED TO THE ASSESSEE FOR THE A.Y 2008-09 ON 30.08.2010. 3. IN RESPONSE TO THE SAID NOTICE, THE ASSESSEE FIL ED HIS RETURN OF INCOME AND OFFERED THE INCOME FROM THE SO URCES FOUND DURING THE COURSE OF SEARCH. THE AO COMPLETED THE A SSESSMENT BY ACCEPTING THE INCOME RETURNED BY THE ASSESSEE AND B Y MAKING ADDITION ON ACCOUNT OF RECOMPUTING THE COST OF ACQU ISITION OF THE PROPERTY ON SALE OF WHICH, THE ASSESSEE HAS OFFERED LONG TERM CAPITAL GAINS. THE ASSESSEE HAD CLAIMED EXEMPTION U /S 54F OF THE ACT. THE AO OBSERVED THAT THE ASSESSEE HAS NOT MADE ANY SUCH CLAIM DURING THE SEARCH PROCEEDINGS AND FURTHER THA T THE ASSESSEE COULD NOT GIVE ANY PROOF OF CLAIM MADE DEPICTING TH E INVESTMENT MADE IN NEW PROPERTY ELIGIBLE U/S 54F OF THE ACT AN D DETAILS AND TIME OF SUCH INVESTMENT. THEREFORE, HE REJECTED THE ASSESSEES CLAIM OF EXEMPTION U/S 54F OF THE ACT. THEREAFTER, THE AO INITIATED PENALTY PROCEEDINGS BY ISSUING A NOTICE U/S 271(1)( C) OF THE ACT DATED 29.12.2011. MEANWHILE, THE ASSESSEE FILED AN APPEAL BEFORE THE CIT (A), AGAINST THE ADDITION MADE BY THE AO, A ND THE CIT (A) CONFIRMED THE ORDER OF THE AO BY OBSERVING THAT THE ASSESSEE HAS OFFERED RENTAL INCOME FROM EIGHT PROPERTIES AND THE REFORE, THE ASSESSEE IS NOT ELIGIBLE FOR EXEMPTION U/S 54F OF T HE ACT BECAUSE HE IS THE OWNER OF MORE THAN TWO RESIDENTIAL PROPER TIES. THE ASSESSEE ACCEPTED THE ORDER OF THE CIT (A). ITA NO 908 OF 2017 G VENGAL RAO HYDERABAD. PAGE 4 OF 8 4. THEREAFTER, THE AO COMPLETED THE PENALTY PROCEED INGS BY PASSING THE ORDER DATED 12.11.2015, FOR THE CLAI M OF THE EXEMPTION U/S 54F OF THE ACT. THE AO IMPOSED MINIMU M PENALTY OF RS.6,54,058 U/S 271(1)(C) OF THE ACT. AGGRIEVED, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT (A) ALSO RAISING A GROUND AGAINST THE VALIDITY OF THE NOTICE U/S 271(1)(C) OF THE ACT, CONTENDING THAT THE AO HAS NOT INDICATED THE GROUND ON WHICH THE PENALTY HAS BEEN INITIATED AND THAT HE HAS NOT STRUCK OFF THE IRRELEVANT PORTION OF THE NOTICE. THE CIT (A) HOWEV ER, CONFIRMED THE ORDER OF THE AO AND THE ASSESSEE IS IN SECOND A PPEAL BEFORE US. 5. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED T HAT THE ASSESSEE WAS NOT AWARE OF THE LEGAL PROVISIONS AND THEREFORE, HAD MADE THE CLAIM U/S 54F OF THE ACT, WHILE DECLAR ING THE LONG TERM CAPITAL GAIN. HE SUBMITTED THAT IN THE RETURN OF INCOME ITSELF, THE ASSESSEE HAS OFFERED THE RENTAL INCOME FROM VAR IOUS PROPERTIES AND ALSO IN RESPONSE TO THE NOTICE ISSUED BY THE AO , HE HAS GIVEN THE DETAILS OF THE PROPERTIES AND THE RENTAL INCOME THEREFROM. THEREFORE, ACCORDING TO HIM, THE ASSESSEE HAS NOT F URNISHED ANY INACCURATE PARTICULARS OF INCOME, NOR HAS HE CONCEA LED ANY OF HIS INCOME AND THEREFORE, THE PENALTY IS NOT LEVIABLE. HE ALSO CHALLENGED THE VALIDITY OF THE NOTICE U/S 271(1)(C) OF THE ACT, AS IRRELEVANT PORTION OF THE PRINTED PROFORMA NOTICE H AS NOT BEEN STRUCK OFF. HE RELIED UPON THE DECISION OF THE HON' BLE KARNATAKA HIGH COURT IN THE CASE OF CIT VS. MANJUNATHA COTTON & GINNING FACTORY REPORTED IN (2013) 359 ITR 565 AND ALSO THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF CIT & ANR VS. M/S. SSAS EMERALD MEADOWS IN CC NO.11485/2016 IN SUPPOR T OF THIS ITA NO 908 OF 2017 G VENGAL RAO HYDERABAD. PAGE 5 OF 8 CONTENTION. HE ALSO PLACED RELIANCE UPON THE DECISI ON OF THE JURISDICTIONAL HIGH COURT IN THE CASE OF PR. CIT-I, VISAKHAPATNAM VS. SMT. BAISETTY REVATHI REPORTED IN (2017) 398 IT R 0088 AND VARIOUS OTHER DECISIONS OF THE ITAT, WHEREIN THE AB OVE DECISIONS HAVE BEEN FOLLOWED AND THE PENALTY HAS BEEN DELETED . 6. THE LEARNED DR, ON THE OTHER HAND, SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW. 7. HAVING REGARD TO THE RIVAL CONTENTIONS AND THE M ATERIAL ON RECORD, WE FIND THAT THE AO HAD DISALLOWED THE C LAIM U/S 54F OF THE ACT ON THE GROUND THAT THE ASSESSEE HAS NOT FILED DETAILS OF THE INVESTMENTS MADE IN THE RESIDENTIAL PROPERTY FO R WHICH THE EXEMPTION HAS BEEN CLAIMED. WE FIND THAT IN THE RET URN OF INCOME FILED IN RESPONSE TO THE NOTICE U/S 153A OF THE ACT , THE ASSESSEE HAS FURNISHED THE DETAILS OF THE PROPERTIES HELD BY HIM AND HAS OFFERED RENTAL INCOME DERIVED FROM SUCH PROPERTY TO TAX. THEREFORE, IT IS CLEAR THAT THE ASSESSEE OWNED MORE THAN TWO RESIDENTIAL PROPERTIES AND WAS NOT ELIGIBLE FOR MAK ING SUCH CLAIM AND ALL THE RELEVANT DETAILS WITH REGARD TO THE OWN ERSHIP OF THE PROPERTIES BY THE ASSESSEE WERE BEFORE THE AO. THE AO HAS DISALLOWED THE CLAIM U/S 54F OF THE ACT, SOLELY ON THE GROUND THAT THE ASSESSEE HAS NOT GIVEN DETAILS OF THE INVESTMEN TS MADE U/S 54F OF THE ACT. IT IS ONLY THE CIT (A), WHO HAS HEL D THAT THE ASSESSEE IS NOT ELIGIBLE FOR EXEMPTION U/S 54F OF T HE ACT, BECAUSE THE ASSESSEE WAS ALREADY HOLDING MORE THAN TWO RESI DENTIAL PROPERTIES. THE ASSESSEE HAD NOT FILED THE DETAILS OF THE PROPERTY PURCHASED BY HIM BEFORE THE AO DURING THE ASSESSMEN T ITA NO 908 OF 2017 G VENGAL RAO HYDERABAD. PAGE 6 OF 8 PROCEEDINGS OR DURING THE PENALTY PROCEEDINGS TO SU BSTANTIATE HIS CLAIM. BUT IT CANNOT BE HELD THAT THE ASSESSEE HAD MADE AN INACCURATE OR FICTITIOUS CLAIM. 8. FURTHER, WE HAVE GONE THROUGH THE COPY OF THE NO TICE ISSUED BY THE AO FOR LEVY OF PENALTY. WE FIND THAT IT IS IN A PRINTED PROFORMA AND THE AO HAS NOT STRUCK OFF THE IRRELEVA NT PORTION AND IT IS NOT EVIDENT AS TO WHETHER THE PENALTY PROCEED INGS HAVE BEEN INITIATED FOR CONCEALMENT OF INCOME OR FOR FURNISHI NG OF INACCURATE PARTICULARS OF INCOME. AS HELD BY THE HON'BLE KARNA TAKA HIGH COURT IN THE CASE OF CIT VS. MANJUNATHA COTTON & GI NNING FACTORY (SUPRA), THE AO SHOULD BE SATISFIED BEFORE INITIATING PENALTY ABOUT THE NATURE OF THE DEFAULT COMMITTED B Y THE ASSESSEE AND THE ASSESSEE SHOULD BE MADE AWARE OF THE DEFAUL T COMMITTED BY HIM FOR WHICH THE PENALTY IS INITIATED SO THAT T HE ASSESSEE CAN ANSWER OR SUBMIT ITS EXPLANATION AS TO WHY THE PENA LTY SHOULD NOT BE LEVIED. AT THE TIME OF ISSUANCE OF NOTICE U/S 27 1(1)(C) OF THE ACT, THE AO HAD REJECTED THE CLAIM U/S 54F OF THE ACT ON LY ON THE GROUND THAT THE ASSESSEE HAS NOT FURNISHED THE DETA ILS OF THE INVESTMENT MADE BY THE ASSESSEE. THEREFORE, THE ASS ESSEE CAN ONLY UNDERSTAND THAT THE PENALTY IS INITIATED FOR N ON-FURNISHING OF THE INFORMATION ON INVESTMENT MADE, UNLESS THE AO C LARIFIES THAT THE PENALTY IS INITIATED FOR MAKING A WRONG OR FICT ITIOUS CLAIM OR FOR MAKING AN INELIGIBLE CLAIM. FURTHER, THE HON'BL E APEX COURT IN THE CASE OF RELIANCE PETROPRODUCTS (P) LTD REPORTED IN (2010) 322 ITR 0158, IT HAS HELD AS UNDER: 7. AS AGAINST THIS, LEARNED COUNSEL APPEARING ON BE HALF OF THE RESPONDENT POINTED OUT THAT THE LANGUAGE OF SECTION 271(1)(C) HAD ITA NO 908 OF 2017 G VENGAL RAO HYDERABAD. PAGE 7 OF 8 TO BE STRICTLY CONSTRUED, THIS BEING A TAXING STATU TE AND MORE PARTICULARLY THE ONE PROVIDING FOR PENALTY. IT WAS POINTED OUT THAT UNLESS THE WORDING DIRECTLY COVERED THE ASSESSEE AN D THE FACT SITUATION HEREIN, THERE COULD NOT BE ANY PENALTY UN DER THE ACT. IT WAS POINTED OUT THAT THERE WAS NO CONCEALMENT OR AN Y INACCURATE PARTICULARS REGARDING THE INCOME WERE SUBMITTED IN THE RETURN. SECTION 271(1)(C) IS AS UNDER:- '271(1) IF THE ASSESSING OFFICER OR THE COMMISSIONE R (APPEALS) OR THE COMMISSIONER IN THE COURSE OF ANY PROCEEDINGS UNDER THIS ACT, IS SATISFIED THAT ANY PERSON (C) HAS CONCEALED THE PARTICULARS OF HIS INCOME OR FURNISHED INACCURATE PARTICULARS OF SUCH INCOME.' A GLANCE AT THIS PROVISION WOULD SUGGEST THAT IN OR DER TO BE COVERED, THERE HAS TO BE CONCEALMENT OF THE PARTICULARS OF T HE INCOME OF THE ASSESSEE. SECONDLY, THE ASSESSEE MUST HAVE FURNISHE D INACCURATE PARTICULARS OF HIS INCOME. PRESENT IS NOT THE CASE OF CONCEALMENT OF THE INCOME. THAT IS NOT THE CASE OF THE REVENUE EIT HER. HOWEVER, THE LEARNED COUNSEL FOR REVENUE SUGGESTED THAT BY MAKIN G INCORRECT CLAIM FOR THE EXPENDITURE ON INTEREST, THE ASSESSEE HAS FURNISHED INACCURATE PARTICULARS OF THE INCOME. AS PER LAW LE XICON, THE MEANING OF THE WORD 'PARTICULAR' IS A DETAIL OR DET AILS (IN PLURAL SENSE); THE DETAILS OF A CLAIM, OR THE SEPARATE ITE MS OF AN ACCOUNT. THEREFORE, THE WORD 'PARTICULARS' USED IN THE SECTI ON 271(1)(C) WOULD EMBRACE THE MEANING OF THE DETAILS OF THE CLA IM MADE. IT IS AN ADMITTED POSITION IN THE PRESENT CASE THAT NO INFORMATION GIVEN IN THE RETURN WAS FOUND TO BE INCORRECT OR IN ACCURATE. IT IS NOT AS IF ANY STATEMENT MADE OR ANY DETAIL SUPPLIED WAS FOUND TO BE FACTUALLY INCORRECT. HENCE, AT LEAST, PRIMA FACIE, THE ASSESSEE CANNOT BE HELD GUILTY OF FURNISHING INACCURATE PARTICULARS . THE LEARNED COUNSEL ARGUED THAT 'SUBMITTING AN INCORRECT CLAIM IN LAW FOR THE EXPENDITURE ON INTEREST WOULD AMOUNT TO GIVING INAC CURATE PARTICULARS OF SUCH INCOME'. WE DO NOT THINK THAT S UCH CAN BE THE INTERPRETATION OF THE CONCERNED WORDS. THE WORDS AR E PLAIN AND SIMPLE. IN ORDER TO EXPOSE THE ASSESSEE TO THE PENA LTY UNLESS THE CASE IS STRICTLY COVERED BY THE PROVISION, THE PENA LTY PROVISION CANNOT BE INVOKED. BY ANY STRETCH OF IMAGINATION, M AKING AN INCORRECT CLAIM IN LAW CANNOT TANTAMOUNT TO FURNISH ING INACCURATE PARTICULARS. IN COMMISSIONER OF INCOME TAX, DELHI V S. ATUL MOHAN BINDAL [2009(9) SCC 589], WHERE THIS COURT WAS CONS IDERING THE SAME PROVISION, THE COURT OBSERVED THAT THE ASSESSI NG OFFICER HAS TO BE SATISFIED THAT A PERSON HAS CONCEALED THE PARTIC ULARS OF HIS INCOME OR FURNISHED INACCURATE PARTICULARS OF SUCH INCOME. THIS COURT REFERRED TO ANOTHER DECISION OF THIS COURT IN UNION OF INDIA VS. DHARAMENDRA TEXTILE PROCESSORS [2008(13) SCC 369], AS ALSO, THE ITA NO 908 OF 2017 G VENGAL RAO HYDERABAD. PAGE 8 OF 8 DECISION IN UNION OF INDIA VS.RAJASTHAN SPG. & WVG. MILLS [2009(13) SCC 448] AND REITERATED IN PARA 13 THAT:- '13. IT GOES WITHOUT SAYING THAT THAT FOR APPLICABI LITY OF SECTION 271(1)(C), CONDITIONS STATED THEREIN MUST EXIST.' 9. THUS, WE FIND THAT THE PENALTY CAN ONLY BE LEVI ED ONLY IF THE ASSESSEE FURNISHES INACCURATE PARTICULARS OF INCOME OR CONCEALS ITS INCOME AND NOT FOR MAKING ANY INACCURA TE CLAIM. IN THE CASE BEFORE US, THE ASSESSEE HAS MADE AN INACCU RATE CLAIM BUT HAS FURNISHED ALL THE RELEVANT DATA BEFORE THE AO. THEREFORE, WE ARE INCLINED TO ALLOW THE ASSESSEES APPEAL BOTH ON GROUND OF INVALIDITY OF THE NOTICE AND ALSO ON MERITS. THEREF ORE, THE PENALTY LEVIED BY THE AO IS DELETED. 10. IN THE RESULT, ASSESSEES APPEAL IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 21 ST MARCH, 2018. SD/- SD/- (S.RIFAUR RAHMAN) ACCOUNTANT MEMBER (P. MADHAVI DEVI) JUDICIAL MEMBER HYDERABAD, DATED 21 ST MARCH 2018. VINODAN/SPS COPY TO: 1 SHRI G. VENGAL RAO, PLOT NO.431, D31 2-22-46/4, E ENADU COLONY, VIVEKANANDA NAGAR, KUKATPALLY, HYDERABAD 500072 2 ITO WARD 11(5) HYDERABAD 3 CIT (A)-5 HYDERABAD 4 PR. CIT 5 HYDERABAD 5 THE DR, ITAT HYDERABAD 6 GUARD FILE BY ORDER