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Suvaprasanna Bhatacharya Versus ACIT, Ci rcle-55, Kolkata

Penalty u/s.271(1)(C) - receipts on sale of paintings was not disclosed as “income” in the return of income filed - Held that:- In the penalty proceedings, the Assessee pointed out that the sale of paintings was not done by him as an adventure in the nature of trade. The paintings were kept for years over because of his aesthetic sense. It gave him tremendous pleasure and pride of profession. The paintings were therefore his “personal effects”. This aspect has not been disputed by the AO. In the .....

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refore income from sale of paintings were capital receipts not chargeable to tax. Therefore, the plea of the assessee that the on the basis of professional advice, receipts from sale of paintings was treated as capital receipt not chargeable to tax, is found to be acceptable. Therefore the plea of the assessee that receipts from sale of paintings were not offered to tax on a bona fide belief is acceptable. Consequential imposition of penalty in so far as, it relates to the addition of ₹ 60 .....

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g penalty in all the assessment years have to be held as invalid and consequently penalty imposed is cancelled. - Decided in favour of assessee. - ITA No.1303/Kol /2010 - Dated:- 6-11-2015 - Shri N.V. Vasudevan, Judicial Member and Shri Waseem Ahmed, Accountant Member For The Appellant Shri A.K. Tibrewal, FCA and Shri Amit Agarwal, Advocate For The Respondent : Shri Sanjit Kr. Das, JCIT, SR-DR ORDER PER Waseem Ahmed, Accountant Member:- This appeal by the Assessee is directed against the order d .....

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8377; 6,73,346/-. In the course of assessment proceedings, the AO issued a notice dated 28.7.2008 u/s.142(1) of the Act calling upon the Assessee to explain, among other things, as to whether the Assessee had deposited cash exceeding ₹ 10 lacs in any savings Bank Account. In reply to the aforesaid notice the Asssessee submitted details of his investments in units of mutual funds and the source of funds for making such investment. The statement filed in this regard is placed at page-23 of t .....

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he balance sheet filed along with the original return of income. The AO accepted the fact that the source of investment in units of mutual funds was from and out of professional income as stated by the Assessee. The following additions were made by the AO with the following observations: A. Investment in mutual funds: It was observed that the assessee had not disclosed a substantive part of his investments in mutual funds. Such investments, although done through bank (Std.Chartered Bank, Sale La .....

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disclosed and it is being added to the income of the Assessee. C. Honorarium of ₹ 5,500/- received during the previous year, not reported in his return of income is also being added to his income. D. Foreign travel. The assessee is a celebrated painter enjoying a very good reputation in the field of art across the globe. During the previous year 2005-06, he visited the following countries. Sl Period Country Trip financed by Reasons of visit 1 27/4/05 to 3/5/05 Pakistan Self Goodwill missio .....

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nor claimed any expenditure in this regard. It is being met out of income from sale of paintings. As such, the expenses should be added to the income of the assessee. When a trip is sponsored by an agency, it is still a benefit u/s. 28(iv) and shall be added to the income of the assessee. The assessee, in his sworn statement submitted that the only benefit he got was the exchange of view and knowledge about current developments in the field of art, which could not be measured in terms of money. .....

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as held that the same should be considered as a perquisite or benefit under s. 28(iv) of the IT Act 1961. Similar addition has been held to be valid by Hon ble Allahabad High Court in the case of Additional Commissioner of Income-Tax, Lucknow vs Ram Kripal Tripathi 125 ITR 408 [All]. G. As the assessee has failed to submit the precise details of expenses, it is estimated to be ₹ 2,00,000/- and is added to the income. H. Short term capital gains:- The Assessee has earned a short term capita .....

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ded to his income. J. Dividend -The assessee has not reported any dividend from such investments as most of the units are under growth option. K. Closing stock / work in progress of art - The assessee in his sworn statement has stated that at any given point of time, about 10-15 works of art are usually lying with different galleries. However, as he follows cash system or accounting, it is accounted in income only at the point of sale. Unsold paintings are retuned back, which are again displayed .....

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,454 Add Income as per discussion in Sl.B above ₹ 1,09,473 Add Income as per discussion in Sl.C above ₹ 5,500 Add Income as per discussion in Sl.G above ₹ 2,00,000 Add Income as per discussion in Sl.H above ₹ 9,79,410 Add Income as per discussion in Sl.L above ₹ 37,060 Total Income ₹ 80,88,821 Rounded off u/s.288A to ₹ 80,88,820/- only including short term capital gains of ₹ 10,38,108/- which will be taxed at special rate of 10%. Assessed u/s.143(3 .....

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sessee is to the levy of penalty u/s.271(1) (c) of the Act in respect of the addition of a sum of ₹ 60,99,454, ₹ 1,09,473 and ₹ 9,79,410/- which was imposed by the AO and confirmed by the CIT(A). 3. The AO issued a show cause notice u/s.274 of the Act before imposing penalty against the Assessee u/s.271(1)( c) of the Act. In reply to the said notice the Assessee submitted he was an eminent artist and not aware of the intricacies of tax laws. He was advised by his tax consultant .....

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le was effeted for the very purpose of making investments in the units of mutual funds and to earn income from such investments for his livelihood. Therefore, the incidence of sale cannot be construed to be adventure in the nature of trade. Since the source of investments in units of mutual funds is explained as from and out of sale proceeds of paintings which are personal effects and hence not taxable, the very basis of addition by the AO is not correct. In the course of assessment proceedings, .....

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₹ 60,99,454/- was unsustainable. 3.1 With regard to the addition of bank interest of ₹ 1,09,473/- the Assessee submitted that the same has already been considered while computing the undisclosed investments in units of mutual funds. The investments were all made through bank account and the bank balance including interest on a particular date was invested and hence bank interest should not be treated as undisclosed income separately due to the mere fact that the same has already been .....

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issions did not find favour with the AO. The AO held that the assessee had deliberately tried to conceal his professional receipt by depositing it in the bank account not disclosed to the department. He was well aware of the volume of transactions being carried out in various accounts. Such information was found out by the department. He had no option but to disclose it fully as the bank details were already with the department. The mistake was neither due to ignorance nor bona fide. The AO refe .....

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concealment of dividend interest etc. 3.4 On appeal by the Assessee, the CIT(A) confirmed the order of the AO. The CIT(A) was of the view that the two bank accounts with Standard Chartered Bank and Kotak Mahindra Bank Ltd., were not disclosed by the assessee and it was only when the AO made verification with mutual funds/banks and thereafter the Assessee admitted undisclosed investments in mutual funds. 3.5 Before the Tribunal the learned counsel for the Assessee reiterated the stand taken befo .....

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aka High Court in the case of CIT Vs. MWP Ltd. (2014) 41 taxmann.com 496 (Karn.). In the aforesaid decision it was held that mere mention of Penalty Proceedings under section 271(1)© initiated separately in assessment order, does not amount to a direction under Section 271(1)© for levy of penalty. The learned counsel pointed out that the Hon ble Karnataka High Court in the aforesaid decision has considered the effect of Sec.271(1B) of the Act, in the light of the decision of the Hon bl .....

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nitiates penalty proceedings; (iii) prima facie satisfaction of the AO that the case may deserve the imposition of penalty should be discernible from the order passed during the course of the proceedings. Obviously, the AO would arrive at a decision, i.e., a final conclusion only after hearing the assessee; (iv) at the stage of initiation of penalty proceeding the order passed by the AO need not reflect satisfaction vis-a-vis each and every item of addition or disallowance if overall sense gathe .....

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dings are initiated separately if otherwise, it conforms to the parameters set out hereinabove are met. The prayers made in the writ petitions are thus rejected with the caveat that provisions of s. 271(1)© post-amendment will be read in the manner indicated above. Pointing out the above observations, it was contended that the order of assessment in the present case does not spell out any satisfaction as is contemplated in the decisions referred to above. The AO accepted whatever evidence t .....

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cealed particulars of such income . He pointed out that the printed show cause notice does not strike out the irrelevant portion viz., furnished inaccurate particulars of income or concealed particulars of such income . He drew our attention to a decision of the Hon ble Karnataka High Court in the case of CIT Vs. Manjunatha Cotton & Ginning Factory (2013) 218 Taxman 423 (Kar.) wherein it was held that if the show cause notice u/s.274 of the Act does not specify as to the exact charge viz., w .....

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06 (SC) wherein it was held inadvertent errors in the return of income filed cannot be the basis to impose penalty u/s.271(1)© of the Act. 4.2 The learned DR relied on the order of the CIT(A). He placed reliance on the decision of the Hon ble Supreme Court in the case of MAK Data (P) Ltd. Vs. CIT 358 ITR 593 (SC) wherein it was held that satisfaction is not required to be recorded in any particular manner or reduce such manner of arriving at satisfaction in writing. 4.3 The learned counsel .....

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ons. The facts go to show that the AO came to know that the Assessee had made investments in units of mutual funds. The source of funds for making investments in units of mutual funds was the starting point of enquiry by the AO. It is not in dispute that the source of funds for making such investments was the sale of assessee s own paintings. If the painting are considered as personal effects than they cannot be regarded as capital assets within the meaning of Sec.2(14)(ii) of the Act. Consequen .....

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d as under: (14) capital asset means property of any kind held by an assessee, whether or not connected with his business or profession, but does not include- (i) any stock-in-trade, consumable stores or raw materials held for the purposes of his business or profession; (ii) personal effects, this is to say, movable property (including wearing apparel, jewellery and furniture) held for personal use by the assessee or any member of his family dependent on him; (iii) agricultural land in India. Su .....

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ny member of his family dependent on him. In view of the specific exclusion of jewellery from the definition of capital asset profits and gains arising from the transfer of jewellery held for personal use are not chargeable to income tax. The exemption of capital gains arising from transfer of jewellery facilitates tax evasion through bogus or inflated claims of sale of Jewellery for explaining moneys introduced in business. This exemption has therefore been withdrawn making capital gains arisin .....

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sfer will not be liable to tax if the whole of the full value of the consideration is spent in acquiring the new jewellery. Where only a part of this consideration is used in acquiring new jewellery, a proportionate part of the capital gain will not be liable to tax. Consequential amendment has also been made in s. 45 of the Act. The above amendment took effect from 1st April, 1973 and applied in relation to asst. yrs. 1973-74 and subsequent years. 5.2 By the Finance Act, 2007, in cl. (14), for .....

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atinum or any other precious metal or any alloy containing one or more of such precious metals, whether or not containing any precious or semi-precious stone, and whether or not worked or sewn into any wearing apparel; (b) precious or semi-precious stones, whether or not set in any furniture, utensil or other article or worked or sewn into any wearing apparel; The expression personal effects has not been defined in the Act. It would ordinarily mean physical chattels having some personal connecti .....

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, ordinarily and commonly in such use. Even though prior to 01.04.2008, a painting could be regarded as a personal effect , but, before a painting can be regarded as a personal effect there must be evidence on record to show that it was intimately and commonly used by the assessee, for the purpose of exclusion from the definition of capital asset. 5.3 In the penalty proceedings, the Assessee pointed out that the sale of paintings was not done by him as an adventure in the nature of trade. The pa .....

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essee that the paints were his personal effects . 5.4 The AO has not disputed the position that the source of funds for investment in units of mutual funds was the sale of paintings which were personal effects and therefore income from sale of paintings were capital receipts not chargeable to tax. Therefore, the plea of the assessee that the on the basis of professional advice, receipts from sale of paintings was treated as capital receipt not chargeable to tax, is found to be acceptable. Theref .....

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1(1)©, in the course of concluding the assessment proceedings, wherein the additions in respect of which penalty was imposed were made. On the above issue, the first aspect which, we notice is that in the order of assessment, which we have extracted in the earlier part of this order, nowhere spells out or indicates that the AO was of the view that the assessee was guilty of either concealing particulars of income or furnishing inaccurate particulars of income. The offer to tax of income by .....

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prima facie satisfaction during the course of proceedings with regard to the assessee having concealed particulars of income or furnished inaccurate particulars, before he initiates penalty proceedings prima facie satisfaction of the AO that the case may deserve the imposition of penalty should be discernible from the order passed during the course of the proceedings. At the stage of initiation of penalty proceeding, the order passed by the AO need not reflect satisfaction vis-a-vis each and ev .....

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by the AO in the search conducted in the sister concern of the assessee. In that situation, it cannot be said that the surrender of income was voluntary. AO during the course of assessment proceedings has noticed that certain documents comprising of share application forms, bank statements, memorandum of association of companies, affidavits, copies of Income Tax Returns and assessment orders and blank share transfer 8 deeds duly signed, have been impounded in the course of survey proceedings un .....

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s true income. It is the statutory duty of the assessee to record all its transactions in the books of account, to explain the source of payments made by it and to declare its true income in the return of income filed by it from year to year. The AO, in our view, has recorded a categorical finding that he was satisfied that the assessee had concealed true particulars of income and is liable for penalty proceedings under Section 271 read with Section 274 of the Income Tax Act, 1961. 10. The AO ha .....

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atisfaction need not be recorded in a particular manner but from a reading of the assessment order as a whole such satisfaction should be clearly discernible. If the AO accepts all the contentions of the assessee and the offer of income that has not been declared in the return of income to tax without indicating either directly or indirectly that the assessee has concealed particulars of income or furnished inaccurate particulars of income, it cannot be said that satisfaction for initiation of p .....

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of penalty proceedings is not discernible from the order of assessment. We therefore concur with the argument of the learned counsel for the assessee that initiation of penalty proceedings was not proper in the present case and on that ground the imposition of penalty u/s.271(1)( c) of the Act is unsustainable. 8. The next argument that the show cause notice u/s.274 of the Act which is in a printed form does not strike out as to whether the penalty is sought to be levied on the for furnishing i .....

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arn), has held that notice u/s. 274 of the Act should specifically state as to whether penalty is being proposed to be imposed for concealment of particulars of income or for furnishing inaccurate particulars of income. The Hon ble High court has further laid down that certain printed form where all the grounds given in section 271 are given would not satisfy the requirement of law. The Court has also held that initiating penalty proceedings on one limb and find the assessee guilty in another li .....

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edings can be initiated on various ground set out therein. If the order passed by the Authority categorically records a finding regarding the existence of any said grounds mentioned therein and then penalty proceedings is initiated, in the notice to be issued under Section 274, they could conveniently refer to the said order which contains the satisfaction of the authority which has passed the order. However, if the existence of the conditions could not be discerned from the said order and if it .....

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ase of the Department and show that the conditions stipulated in Section 271(1)© do not exist as such he is not liable to pay penalty. The practice of the Department sending a printed farm where all the ground mentioned in Section 271 are mentioned would not satisfy requirement of law when the consequences of the assessee not rebutting the initial presumption is serious in nature and he had to pay penalty from 100% to 300% of the tax liability. As the said provisions have to be held to be s .....

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some cases there may be overlapping of the two offences but in such cases the initiation of the penalty proceedings also must be for both the offences. But drawing up penalty proceedings for one offence and finding the assessee guilty of another offence or finding him guilty for either the one or the other cannot be sustained in law. It is needless to point out satisfaction of the existence of the grounds mentioned in Section 271(1)© when it is a sine qua non for initiation or proceedings, .....

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led upon to meet. Otherwise though the initiation of penalty proceedings may be valid and legal, the final order imposing penalty would offend principles of natural justice and cannot be sustained. Thus once the proceedings are initiated on one ground, the penalty should also be imposed on the same ground. Where the basis of the initiation of penalty proceedings is not identical with the ground on which the penalty was imposed, the imposition of penalty is not valid. The validity of the order of .....

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hing of inaccurate particulars of total income under clause ©. Concealment, furnishing inaccurate particulars of income are different. Thus the Assessing Officer while issuing notice has to come to the conclusion that whether is it a case of concealment of income or is it a case of furnishing of inaccurate particulars. The Apex Court in the case of Ashok Pai reported in 292 ITR 11 at page 19 has held that concealment of income and furnishing inaccurate particulars of income carry different .....

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rate particulars of income. The standard pro forma without striking of the relevant clauses will lead to an inference as to non-application of mind. The final conclusion of the Hon ble Court was as follows:- 63. In the light of what is stated above, what emerges is as under: a) Penalty under Section 271(1)© is a civil liability. b) Mens rea is not an essential element for imposing penalty for breach of civil obligations or liabilities. c) Willful concealment is not an essential ingredient f .....

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discernible from the said order which would by a legal fiction constitute concealment because of deeming provision. g) Even if these conditions do not exist in the assessment order passed, at least, a direction to initiate proceedings under Section 271(l)© is a sine qua non for the Assessment Officer to initiate the proceedings because of the deeming provision contained in Section 1(B). h) The said deeming provisions are not applicable to the orders passed by the Commissioner of Appeals and .....

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by authorities it has resulted in payment of such tax or such tax liability came to be admitted and if not it would have escaped from tax net and as opined by the assessing officer in the assessment order. l) Only when no explanation is offered or the explanation offered is found to be false or when the assessee fails to prove that the explanation offered is not bona fide, an order imposing penalty could be passed. m) If the explanation offered, even though not substantiated by the assessee, but .....

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s have to be initiated by the appellate authority and not the Assessing Authority. p) Notice under Section 274 of the Act should specifically state the grounds mentioned in Section 271(1)©, i.e., whether it is for concealment of income or for furnishing of incorrect particulars of income q) Sending printed form where all the ground mentioned in Section 271 are mentioned would not satisfy requirement of law. r) The assessee should know the grounds which he has to meet specifically. Otherwise .....

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