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2016 (1) TMI 1018 - ITAT KOLKATA

2016 (1) TMI 1018 - ITAT KOLKATA - TMI - Inclusion of cash-in-hand in the wealth tax assessment - It is argued that “Receivable” is recorded in the balance filed with the Department before income tax scrutiny proceedings for A.Y 2009-10. Simply, the nomenclature changed from “Receivable” to “cash-in-hand” with custodians does not amount the concealment of wealth. However the WTO has disregarded the claim of the assessee and confirmed penalty @ 200% of the tax sought to be evaded - bonafide ignor .....

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e two counts i.e. Firstly, for concealment of wealth and secondly for furnishing the inaccurate particulars of wealth. However the AO has not recorded his satisfaction in the assessment order for levying the penalty but just initiated penalty proceedings. - the orders imposing penalty in all the assessment years have to be held as invalid and consequently penalty imposed is cancelled. - Decided in favor of assessee. - WTA No. 27-30/Kol /2014 - Dated:- 20-1-2016 - Shri N.V. Vasudevan, Judicial Me .....

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2012 for assessment years 2007-08 to 2010-11 respectively. 2. All these appeals filed by a single assessee against the penalty order under section 18(1)(c) of the Act. Since all the issues relate to the common grounds of appeals so we are hearing them together and passing a common order for the sake of convenience. Before we carve out the specific issue of the appeal, let us put some light on the history of the case for the better understanding. 3. The assessee in the present case is an individu .....

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order dated 28.03.2008 under section 245D(4) of the Act. The relevant portion of the ITSC is reproduced below:- 5. The undisclosed income is settled as per following table: Sl. No. Name of the applicant Additional income offered in the SOF (Rs) Further additional income disclosed during 245D(1) proceedings (Rs) Further additional income disclosed during 245D(4) proceedings (Rs) Total additional income offered before I.T.S.C. (Rs) 1 SRI LOKNATH PRASAD GUPTA 37,75,00,000 67,25,00,000 1,05,00,00,00 .....

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h respect to interest u/s. 220(2), we order that interest for the period between the date of the application and the date of this order u/s. 245D(4) shall be excluded. 9. The applicant has made a prayer for capitalization of additional income offered before us. We allow capitalization to the extent of net residual income after payment of taxes and interests. As per the order of the ITSC, assessee capitalized the net additional income settled after the payment of taxes and interest in his persona .....

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9. The return was filed on dated 12.2.2010 declaring a net wealth of ₹ 2,28,88,300/- and same return of wealth tax was accepted and assessed after giving basic exemption limit of ₹ 15 lacs under section 16(3) of the Act. The penalty proceedings were initiated under section 18(1)(c) of the Act and confirmed @ 200% of the tax sought to be evaded. 5. The assessee case was selected for scrutiny under section 143(3) of the Income tax Act for the A/y 2009-10. During assessment proceedings .....

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sted friends and well wishers as custodian. The assessee paid the additional wealth tax for an amount of ₹ 15,65,900/- @ 1% of the amount shown as receivable i.e. ₹ 15,65,90,000/-. Accordingly the wealth tax was assessed on ₹ 17,79,78,300/- (2,28,88,300.00+15,65,90,000.00- 15,00,000.00). The penalty proceedings were initiated and the assessee argued that the additional tax paid for considering Receivable as cash-inhand voluntarily and intimated to the Department before the issu .....

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Receivable to cash-in-hand with custodians does not amount the concealment of wealth. However the WTO has disregarded the claim of the assessee and confirmed penalty @ 200% of the tax sought to be evaded amounting to ₹ 35,89,566.00 only. 7. Aggrieved, assessee preferred appeal before Ld. CWT(A) where it was submitted that the assessee was not well versed with the various tax laws and legal compliances. The assessee was more dependent on the advice of the consultant. For the additional dis .....

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ereon, the 1std penalty order is Cancelled on the basis of Explanation 3 to the section 18(1)©. Thus the 1st penalty component amount at ₹ 4,27,766/- is Deleted. As regards the balance Penalty this pertains to the Cash in Hand [Receivables] discussed at Para 5.2. The imposition of the Penalty is confirmed. Explanation 3 to this portion of the Penalty is not available, as the 2nd notice u/s. 17 was issued on 02.02.2012. The appellant has also not raised this aspect in the grounds of ap .....

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I observe that the Assessing Officer while imposing the Penalty in both the 1st as well as 2nd Penalty Orders, had erroneously not given the basic exemption limit of ₹ 15,00,000/- on the taxable net wealth. As is evident from the 2nd reassessment order, the gross total taxable net wealth is ate ₹ 17,94,78,300/-. The gross total net wealth as per the 1st assessment order at ₹ 2,28,88,300/-. In view that the 1st Penalty order I have cancelled, this amount of gross total net 3wea .....

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ereby Confirmed. Aggrieved by the order of ld. CWT(A), the assessee preferred second appeal before us on the following grounds of appeal:- 1. That the Ld. CIT(A) erred in confirming penalty to the tune of ₹ 15,50,900/- @ 100% of the tax on net taxable wealth under sec. 18(1)(c) of the Wealth Tax Act, 1957. The assessee, in the course of the assessment to regularize the wealth escaped assessment. Based on the petition of the assessee, notice u/s. 17 of the Act was issued and ultimately asse .....

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has submitted a paper book which is running in pages no. 1 to 139. Ld. AR regarding the first penalty order further submitted that the assessee could not file the wealth tax return as he was under the impression that his net wealth does not fall within the taxable limit. Besides the assessee is also not well verse with the taxation matter. The accountant and the legal advisor of the assessee also failed to guide for the wealth tax matters. As a result of this the assessee was penalized with int .....

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the balance sheet on 31st March is the correct form of the cash belonged to the assessee because the cash is with his closed friends, relatives and well-wishers and it is not actually in hand. If somebody do not return back to the assessee in that case the assessee would have to incur loss even after paying taxes on disclosure of ₹ 105 crores before ITSC Kolkata. Thus, the term Receivable should not mix with cash-in-hand and should not be covered by the definition of net wealth u/s. 2(ea) .....

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. But the WTO initiated penalty proceedings in the assessment order which was confirmed by the WTO. However at the time of assessment proceedings under section 143(3) of Income Tax Act for the assessment 2009-10, it was discovered that receivable shown in the balance sheet of the assessee for the assessment year 2007-08 was factually cash in hand which was not offered to wealth tax. But the assessee immediately worked out the wealth and paid the tax thereon and informed to the WTO. However the W .....

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alth until & unless the notices were issued. The plea of the ld. AR that the assessee is not aware about the taxation laws does not hold any merit. The assessee is running a good business in the brand name of Raja Group and paying huge taxes. Therefore on merit we find that the assessee has defaulted in the payment of wealth tax. However we find from the order of the AO that the penalty has just been initiated without recording the reason whether it is for the concealment of the wealth or fu .....

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on has been recorded by the AO for levying the penalty either for concealment or furnishing in accurate particulars of wealth. It is the duty of the AO to clearly specify that the penalty is being imposed for concealment of wealth or furnishing inaccurate particulars of wealth. Following the same analogy as described in the income tax matters, we rely on the following judgment of the Hon ble Karnataka High Court in the case of CIT & Anr. v. Manjunatha Cotton and Ginning Factory, 359 ITR 565 .....

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n another limb is bad in law. It was submitted that in the present case, the aforesaid decision will squarely apply and all the orders imposing penalty have to be held as bad in law and liable to be quashed. 9.3 The Hon ble Karnataka High Court in the case of CIT & Anr. v. Manjunatha Cotton and Ginning Factory (supra) has laid down the following principles to be followed in the matter of imposing penalty u/s.271(1)(c) of the Act. NOTICE UNDER SECTION 274 59. As the provision stands, the pena .....

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and if it is a case of relying on deeming provision contained in Explanation-1 or in Explanation-1(B), then though penalty proceedings are in the nature of civil liability, in fact, it is penal in nature. In either event, the person who is accused of the conditions mentioned in Section 271 should be made known about the grounds on which they intend imposing penalty on him as the Section 274 makes it clear that assessee has a right to contest such proceedings and should have full opportunity to m .....

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o be strictly construed, notice issued under Section 274 should satisfy the grounds which he has to meet specifically. Otherwise, principles of natural justice is offended if the show cause notice is vague. On the basis of such proceedings, no penalty could be imposed on the assessee. 60. Clause (c) deals with two specific offences, that is to say, concealing particulars of income or furnishing inaccurate particulars of income. No doubt, the facts of some cases may attract both the offences and .....

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the penalty proceedings should be confined only to those grounds and the said grounds have to be specifically stated so that the assessee would have the opportunity to meet those grounds. After, he places his version and tries to substantiate his claim, if at all, penalty is to be imposed, it should be imposed only on the grounds on which he is called upon to answer. It is not open to the authority, at the time of imposing penalty to impose penalty on the grounds other than what assessee was cal .....

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penalty must be determined with reference to the information, facts and materials in the hands of the authority imposing the penalty at the time the order was passed and further discovery of facts subsequent to the imposition of penalty cannot validate the order of penalty which, when passed, was not sustainable. 61. The Assessing Officer is empowered under the Act to initiate penalty proceedings once he is satisfied in the course of any proceedings that there is concealment of income or furnis .....

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notations. The Gujarat High Court in the case of MANU ENGINEERING reported in 122 ITR 306 and the Delhi High Court in the case of VIRGO MARKETING reported in 171 Taxman 156, has held that levy of penalty has to be clear as to the limb for which it is levied and the position being unclear penalty is not sustainable. Therefore, when the Assessing Officer proposes to invoke the first limb being concealment, then the notice has to be appropriately marked. Similar is the case for furnishing inaccurat .....

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racting civil liability. d) Existence of conditions stipulated in Section 271(1)(c) is a sine qua non for initiation of penalty proceedings under Section 271. e) The existence of such conditions should be discernible from the Assessment Order or order of the Appellate Authority or Revisional Authority. f) Even if there is no specific finding regarding the existence of the conditions mentioned in Section 271(1)(c), at least the facts set out in Explanation 1(A) & (B) it should be discernible .....

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er. i) The imposition of penalty is not automatic. j) Imposition of penalty even if the tax liability is admitted is not automatic. k) Even if the assessee has not challenged the order of assessment levying tax and interest and has paid tax and interest that by itself would not be sufficient for the authorities either to initiate penalty proceedings or impose penalty, unless it is discernible from the assessment order that, it is on account of such unearthing or enquiry concluded by authorities .....

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bona fide and all facts relating to the same and material to the computation of his total income have been disclosed by him, no penalty could be imposed. n) The direction referred to in Explanation IB to Section 271 of the Act should be clear and without any ambiguity. o) If the Assessing Officer has not recorded any satisfaction or has not issued any direction to initiate penalty proceedings, in appeal, if the appellate authority records satisfaction, then the penalty proceedings have to be in .....

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