Arvind Gupta, New Delhi vs Assessee

I.T.A. No.: 3715/Del/12 Assessment year: 2003-04

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IN THE INCOME TAX APPELLATE TRIBUNAL DELHI A BENCH, NEW DELHI

[Coram: Pramod Kumar AM and C. M. Garg JM]

I.T.A. No.: 3715/Del/12 Assessment year: 2003-04

Arvind Gupta ...................Appellant B 7/7, Safderjang Enclave New Delhi 110 029 [PAN: AAPG785M] Vs.

Income Tax Officer Ward 2(1), New Delhi ...................Respondent

Appearances by: Ved Jain and Rano Jain, for the appellant Y Kakkar, for the respondent

Date of concluding the hearing: 19 th January, 2015 Date of pronouncing the order: 20 th January, 2015

Per Pramod Kumar, AM:

1. By way of this appeal, the assessee appellant has challenged correctness of order dated 30 th April 2012 passed by the learned Commissioner (Appeals), upholding penalty of Rs. 14,68,448 imposed on the assessee under section 271(1)(c) of the Income Tax Act, 1961 (hereinafter referred to as 'the Act') for the assessment year 2003-04, and the short issue that we are required to adjudicate in this appeal is whether or not the facts and circumstances of this case indeed justify the impugned penalty being so upheld.

2. The relevant material facts, as discernible from the material before us, are as follows. It is a case of an addition of income on the basis of material received under article 25, dealing with the exchange of information (EoI) arrangements, in the old India United Kingdom Double Taxation Avoidance Agreement [(1982) 133 ITR Statue 34]. While the date on which such I.T.A. No.: 3715/Del/12 Assessment year: 2003-04

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information was received in India is not clear from material before us, as the statement of the assessee was recorded, in respect of the information so received, on 12 th January 2006 and 7 th February 2006, evidently this information must have been received prior to 12 th January 2006. The assessee had received a sum of UK £ 3,95,400 and US $ 65,000, during the calendar year 2003, from Aviation Spares International Limited, and this receipt, till the time statement of the assessee was not so recorded on the information received under EoI arrangements, was not disclosed by the assessee in his income tax returns. Shortly after the recording of this statement and on 31 st January 2006, the assessee revised his income tax return for the assessment year 2004-05 and offered to tax additional income of Rs 38,56,768 and Rs 1,29,54,082. This additional income of Rs 1,68,10,850 was shown as 'miscellaneous receipts' in the revised income tax return. The income tax return so filed by the assessee was accepted and there were no other issues with respect to the same.

3. The matter, however, did not rest there.

4. "On 17 th March 2009", as noted by the Assessing Officer, "on the basis of information/enquiry received from the office of the DIT(Investigation), reasons were recorded" for reopening the assessment for the assessment years 2003-04 and 2004-05. When the assessee asked for the reasons for which these assessments reopened, the Assessing Officer declined to share the same on the ground that information cannot be shared in view of the treaty obligations. Be that as it may, the correctness of such a stand is not in challenge before us. Suffice to note that while filing fresh income tax returns in response to this notice, the assessee offered to tax an additional amount of Rs 38,56,768 in this assessment year, in respect of the commission receipts from Aviation Spares International Limited, while restricted the amount, in respect of the same item for the assessment year 2004-05, to Rs 1,29,54,082 as against Rs 1,68,10,850 offered to tax for that assessment year earlier. In effect thus, while there was no difference in the aggregate income, in respect of commission receipts from Aviation Spares International Limited, offered to tax, an income of Rs 38,56,768 was shifted from assessment year 2004-05 to 2003-04. The Assessing Officer brought this income of Rs 38,56,768 to tax, as also an additional income of Rs 1,39,009 on account of exchange difference, and also initiated the penalty proceedings under section 271(1)(c).

5. It was in this backdrop that the Assessing Officer proceeded to frame the question, for his consideration, as "can the income of Rs 38,56,768 pertaining to the assessment year 2003-04, which was neither declared in the original return nor revised as per the provisions of section 139(5) but included in I.T.A. No.: 3715/Del/12 Assessment year: 2003-04

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the revised return dated 31-01-2006 in a different assessment year, i.e. AY 2004-05, and subsequently declared in the assessment year 2003-04 filed against notice under section 148 could be treated as filed voluntarily and escape penalty for concealment?" and proceed to conclude that "the answer is a clear 'no'". It was noted that there were no good reasons for the assessee not to disclose this income in the original income tax return. It was also noted that even if an assessee offers an income to tax in the reassessment proceedings, the assessee can still be subjected to concealment penalty proceedings. A reference was then made to the decision of Hon'ble Supreme Court, in the case of Dharmendra Textile Processors Vs Union of India [(2007) 295 ITR 244], in support of the proposition that the penalty is imposable in a situation in which there is an concealment of income, such a fact of concealment would be sufficient to sustain the penalty. The Assessing Officer was of the view that assessee had concealed the income by not offering it to tax in the original income, and, as such, penalty was leviable. He thus proceeded to impose the penalty of Rs 14,68,448 which was quantified at one hundred percent of the tax sought to be avoided by so concealing the income. Aggrieved, assessee carried the matter in appeal before the CIT(A) but without any success. Learned CIT(A) held that "a consistent opinion has been expressed by the higher judiciary that blame attached to the assessee with reference to the original return cannot be avoided by filing a revised return after concealment was detected" and that "since the appellant has disclosed the income of Rs 38,56,768 when it was detected by the (income tax) department, the penalty under section 271(1)(c) has rightly been levied by the AO". The assessee is not satisfied with the stand so taken by the CIT(A) as well, and is in further appeal before us.

6. We have heard the rival contentions, perused the material on record and duly considered facts of the case in the light of the applicable legal position.

7. We have noticed that, as rightly pointed out by the assessee, the Assessing Officer has, so far as assessment year 2004-05 is concerned and in respect of the same commission income of Rs 1,29,54,082 from Aviation Spares International Limited (ASIL, in short), dropped the penalty proceedings vide order sheet dated 24.06.2010. The lapse of not disclosing the commission receipts from ASIL, in original returns filed by the assessee, was the same in the assessment year 2004-05, as it was in the assessment year 2003-04. Until the assessee was confronted with the information received under EoI arrangements, the assessee did not offer any part of this income to the tax. It was only after the statement of the assessee was recorded on 12 th January 2006 and shortly before his statement was recorded yet again on 7 th February 2006 that sense of I.T.A. No.: 3715/Del/12 Assessment year: 2003-04

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fairness dawned on the assessee and he revised his return for the assessment year 2004-05 to disclose all this suppressed income therein. This change of heart, as it would appear to us, was triggered by assessee's realization that the income tax department is well aware about his commission income from ASIL, and, whether assessee offers this income to tax on his own or not, its taxation in the hands of the assessee is now a fait accompli. To rephrase the oft quoted words of Adam Smith, it is not from the benevolence of such assessee that the exchequer gets its shares of taxes but from their regard to their own interest. The very fact of offering this income to tax in the revised return filed on 31 st January 2006 did seem to be ex facie anything but voluntary action in good faith. If the assessee's action of offering income to tax was to be examined vis-à-vis the income offered to tax in the original returns, the assessee was as much at fault for the assessment year 2003-04 as much the assessee was to be faulted for the assessment year 2004-05. Yet, the Assessing Officer dropped the penalty proceedings for the assessment year 2004-05, even though he examined the lapse of the assessee in taxability of this income vis-à-vis the income offered to tax in the original return of income and imposed penalty in connection with the same lapse for the assessment year 2003-04. As to what should be done when in respect of the same set of material facts permeating in different assessment years, an Assessing Officer drops concealment penalty proceedings for one assessment year and goes ahead to impose the same penalty for another assessment year, we find guidance from the decision of a coordinate bench in the case of Orient Press Limited Vs JCIT [(2006) 99 TTJ 1091] which has, speaking through one of us, observed as follows:

It is difficult to understand as to how can Revenue defend imposition of penalties for asst. yrs. 1993-94 and 1994-95, when, on the materially similar set of facts, no penalty is imposed for the asst. yr. 1995-96. The dropping of penalty proceedings for the asst. yr. 1995- 96 is a conscious act by the AO as evident from the specific order dropping the penalty proceedings for that year. During the course of hearing before us, we did ask the Departmental Representative to explain this contradiction in the stand but he was not able to explain the same and he made a vague statement to the effect that the facts of that year may be different. This is unacceptable. In any case, the material facts, as evident from the documents before us, were clearly the same so far as the question of declaration was concerned. On one set of facts, in one year, the penalty is dropped, and for the remaining years, the penalties are imposed. Once this happens and no distinguishing features, for the years for which penalties are I.T.A. No.: 3715/Del/12 Assessment year: 2003-04

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imposed, are pointed out, for this reason alone, penalties imposed are not sustainable in law.

8. That is, however, not the only reason as to why the impugned penalty must be held to unsustainable in law.

9. We have also noted that as on 31 st January 2006 when, as a result of the assessee being confronted with the information received under EoI with UK, the assessee on his own offered the income to tax, the assessee could not have revised his income tax return for the assessment year 2003-04 as a revised return under section 139(5) can only be filed within one year from the end of the relevant assessment year. What the assessee did was, and that is all that he could have done, to disclose entire receipts in the assessment year for which the income tax return could be revised. Undoubtedly, even upon so offering the income to tax, the penalty proceedings could have been considered in the hands of the assessee for the entire amount of Rs 1,68,10,850, and all the erudite justification, that the authorities below have advanced for the impugned penalty before us, would have been far more relevant for that addition of Rs 1,68,10,850 but then, in the wisdom of the Assessing Officer, he did not touch that income tax return for any further proceedings even under section 143(3) r.w.s. 147. The lapse of concealment of income could only have been relevant for that assessment year as the income was, for the first time, brought to the realm of taxability that time. It is only elementary that when a penalty proceeding is even initiated, it is initiated qua the findings in the assessment order in which the related quantum addition is made. As a corollary to this position, a penalty cannot be justified on the basis of some facts, howsoever relevant, which have not come to the light in the relevant quantum proceedings, but much before that. The commission income from ASIL first came to light in the revised return dated 31.1.2006 for the assessment year 2004-05 but then the present proceedings are not in respect of the proceedings in respect of this revised return which have received finality without any initiation of concealment penalty proceedings. The matter rests there. So far as the assessment proceedings before us are concerned, there is nothing more than an income from the assessment year 2004-05 being shifted to the assessment year 2003-

04. No concealment has come to light as a result of the assessment proceedings that we are in seisin of, and, therefore, the issue of concealment of an income, which was evident in the revised return filed for 2004-05 and which was filed on 31.1.2006, is not relevant now. Viewed thus, such a change in the assessment year of taxability, particularly when the assessee could not have disclosed the related income in the relevant assessment year, and, for that reason, the assessee had disclosed the same income in the next available I.T.A. No.: 3715/Del/12 Assessment year: 2003-04

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assessment year in which disclosure could have been made, cannot be visited with penalty proceedings under section 271(1)(c). All that we need to examine in the present case, so far as the concealment penalty in respect of income which has been shifted to tax in this assessment year, is whether or not the assessee has a bonafide explanation in respect of not offering this income in the present assessment year. As far as this aspect of the matter is concerned, we are satisfied that the assessee has a reasonable explanation for not offering this income to tax in the present assessment year inasmuch as the time limit for revision of return under section 139(5) had expired at the point of time when income was offered to tax on 31 st January 2006. The lapse of not offering the income to tax in the original income tax return was relevant in the proceedings in respect of the income tax return in which this income was offered for the first time. The stage for penalizing the assessee for this lapse of concealing the income was over long ago. The present assessment proceedings, which only shift an income from taxability in a later assessment year to this assessment year, cannot make good for the inertia of the Assessing Officer at that stage.

There is no, and there could not have been any, act of concealment of income in the present assessment proceedings as the income which is now brought to tax in the present assessment year was already in the knowledge of the Assessing Officer for several years much before the initiation of the present reassessment proceedings. When there is no concealment of income qua the present assessment proceedings, there is no question of imposition of concealment penalty qua this assessment proceedings. As section 271(1)(c) categorically provides, this penalty can only be imposed "if the AO or the CIT(A) or the CIT in the course of any proceedings under this Act, is satisfied that any person has concealed the particulars of his income or furnished inaccurate particulars of such income". As penalty proceedings are initiated in the course of the proceedings, and the Assessing Officer has to essentially satisfy himself that it is a fit case for initiation of concealment proceedings during such proceedings, it is a natural corollary to this legal position that the fact of concealment of income must be vis-à-vis such proceedings.

That is not the case here. In any event, as we have noted earlier, for the same lapse, the penalty proceedings for the assessment year 2004-05 have been dropped on the same set of facts, for the same lapse, and, therefore, the Assessing Officer cannot take different stand for this assessment year i.e. 2003-04.

10. For the reasons set out above, we hold that it was not a fit case for imposition of penalty under section 271(1)(c). As we have held this issue in favour of the assessee for the technical reasons set out above, we see no need to address ourselves to the question whether or not non-disclosure of an income, which has come to the light only a result of information gathered under EoI I.T.A. No.: 3715/Del/12 Assessment year: 2003-04

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arrangements and which was not offered to tax by the assessee in his original return of income, would justify the concealment penalty proceedings under section 271(1)(c). We leave it at that.

11. In the result, the appeal is allowed in the terms indicated above. Pronounced in the open court today on 20th day of January, 2015,

Sd/- Sd/-

C M Garg Pramod Kumar (Judicial Member) (Accountant Member)

New Delhi, the 20 th day of January, 2015.

Copies to: (1) The appellant (2) The respondent (3) Commissioner (4) CIT(A) (5) Departmental Representative (6) Guard File

By order etc

Assistant Registrar Income Tax Appellate Tribunal Delhi benches, New Delhi