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Smt. Makina Annapurna Versus ITO, Ward-5 (2) , Range-5, Visakhapatnam and Vice-Versa

Exemption u/s 54F - addition towards consideration for unsold flats - penalty proceedings u/s 271(1)(c) initiated - Held that:- We find that the assessee had admitted income in respect of development agreement as soon as she came to know that she had to pay tax on development agreement which cannot be termed as concealment of particulars of income, more particularly when she is an illiterate lady not assessed to income tax in the earlier period. The matter would have been different if she had as .....

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nnot be considered as concealment of particulars of income or furnishing inaccurate particulars of income. Though there is a slight difference in income admitted by the assessee and income determined by the A.O. for the assessment year 2007-08, this is because of disallowance of exemption claimed u/s 54F towards 4 flats retained by her, which was further supported by case of CIT Vs. K.G. Rukminiamma [2010 (8) TMI 482 - Karnataka High Court] which was followed by the Hon’ble High Court of Andhra .....

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ag/2014 - Dated:- 2-2-2017 - SHRI V. DURGA RAO, JUDICIAL MEMBER AND SHRI G. MANJUNATHA, ACCOUNTANT MEMBER For The Appellant : Shri C. Kameswara Rao, AR For The Respondent : Shri R.S. Aravindan, DR ORDER PER G. MANJUNATHA, Accountant Member: These are two appeals filed by the assessee for the assessment years 2007-08 & 2008-09 and one appeal filed by the revenue for the assessment year 2009-10 are directed against common order of the CIT(A), Visakhapatnam dated 26.9.2014. Since, the facts are .....

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ment on 6.2.2006 with M/s. Kamal Builders for development of land owned by her of an extent of 1272 sq.yd. and agreed to share the built up area in the ratio of 50% for the assessee and 50% for the builder. During the course of survey, when these documents were confronted to the assessee, the assessee has agreed to pay tax in respect of sale proceeds on sale of flats for the assessment years 2007-08 to 2009-10. 3. Subsequently, the A.O. issued notice u/s 148 of the Act on 25.3.2011 for assessmen .....

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75,47,000/- & ₹ 66,36,320/- for the assessment years 2007-08, 2008-09 & 2009-10 respectively. During the course of assessment proceedings, for the assessment year 2007-08, the A.O. determined total income of ₹ 1,04,16,000/- as against income admitted by the assessee of ₹ 68,37,000/-, making an addition of ₹ 35,79,000/- towards consideration for unsold flats, which was claimed exemption u/s 54F of the Act by the assessee. 4. Thereafter, the A.O. initiated penalty .....

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efore the search party and filed her return of income for all the assessment years disclosing income admitted during the course of search and paid taxes. Therefore, her own admission of additional income in respect of development agreement cannot be considered as concealment of particulars of income or furnishing inaccurate particulars of income. It was further submitted that although there is a difference in income assessed by the A.O., when compared to income returned for the assessment year 2 .....

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before the CIT(A) to cooperate with the department and to end the litigation. Therefore, penalty cannot be levied u/s 271(1)(c) of the Act, for agreed additions and also for disallowance of a bonafide claim, which is supported by the order of the higher judicial forums. The assessee also placed her reliance in the cases of CIT Vs. SAS Pharmaceuticals (2011) 244 CTR (Delhi) 51 and CIT Vs. Reliance Petro Products Pvt. Ltd. (2010) 230 CTR (SC) 32. 5. The A.O. after considering the explanations of t .....

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cessors (SC) 306 ITR 277 and CIT Vs. Atul Mohan Bindal (SC) 317 ITR 1. The A.O. further opined that the assessee s agreement of addition of concealed income after detection thereof does not offer any immunity from penalty and for which the A.O. relied upon the decision of Hon ble High Court of Kerala in the case of P.C. Joseph and Brothers Vs. CIT 240 ITR 818 and Hon ble High Court of Allahabad in the case of CIT Vs. Rakesh Suri 331 ITR 458. With these observations, opined that the assessee has .....

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initiation of penalty. The assessee further contended that the A.O. has merely stated that penalty proceedings u/s 271(1)(c) of the Act are separately initiated, which is not sufficient satisfaction. The assessee further contended that even after introduction of clause 1(B) to section 271 of the Act, the satisfaction recorded has to be discernible from the assessment order and accordingly, initiation of penalty proceedings is bad in law and liable to be quashed. To support her arguments relied u .....

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unatha Cotton and Ginning Factory (2013) 359 ITR 565 (Karn). 7. In so far as merits, the assessee contended that she is an old lady and was also illiterate and was not a person regularly assessed to income tax. It was because of her transaction to sell away her land on development basis, there was liability of income tax which was came to know during the survey proceedings. It was further contended that as soon as she came to know there is a tax liability in respect of development agreement, she .....

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be levied for disallowance of bonafide claim made u/s 54F of the Act. In support of her claim, relied upon the decision of Hon ble Supreme Court in the case of CIT Vs. Reliance Petro Products Pvt. Ltd. (2010) 230 CTR 32. In so far as assessment year 2009-10, the assessee contended that explanation (3) to section 271(1)(c) of the Act, has no application as the conditions set out in explanation (3) for attracting the penalty is not fulfilled. The A.O. has issued notice u/s 148 of the Act, prior to .....

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e sufficient compliance to the requirement stipulated in section 271(1B) of the Act. It would be pertinent to note that Hon ble Supreme Court, in CIT Vs. S.V. Angidi Chettiar 44 ITR 739 (SC), has held that a mere indication as to the initiation of penalty proceedings separately in the assessment order is tantamount to an indication as to the satisfaction of the authorities. A similar issue was considered by the Hon ble High Court of Delhi, in the case of CIT Vs. ECS Limited 336 ITR 162, wherein .....

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er the penalty proceedings are initiated or not during the course of assessment proceedings and the A.O. is not required to record his satisfaction in a particular manner or reduce into writing . Thus, it is not necessary that the A.O. had to spell out the satisfaction in detail at the time of finalising the assessment proceedings and hence, the claim of the assessee that the A.O. has not recorded satisfaction before initiation of penalty u/s 271(1)(c) of the Act is rejected. 9. In so far as pen .....

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ice is vague is devoid of any merits. The prima facie satisfaction to indicate proceedings u/s 271(1)(c) of the Act, having been recorded in the assessment order and a show cause notice having been issued subsequently calling for the assessee s explanation as to levy of penalty u/s 271(1)(c) of the Act, to which the assessee had filed a reply, there is no material basis to take a view that the penalty notice was vague and was not issued without application of mind. With these observations, CIT(A .....

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a debatable issue. Therefore, in view of the decision of the Hon ble apex court, in the case of CIT Vs. Reliance Petro Products Pvt. Ltd. (supra), mere making of a claim which is not sustainable in law, by itself, will not amount to furnishing inaccurate particulars of income. Therefore, directed the A.O. to delete penalty levied in regard to the addition made of ₹ 35,79,000/-. As regards the penalty levied in regard to the income returned, the CIT(A) observed that the assessee s case is .....

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do not fall within the purview of explanation (3) to 271(1)(c) of the Act, as notice u/s 148 of the Act was issued prior to the expiry of the stipulated period. The decision relied on by the assessee in the case of Chhaganlal Suteriya Vs. ITO 337 ITR 350 applies to the assessee s case. Therefore, the A.O. is directed to cancel impugned penalty for the assessment year 2009-10. Aggrieved by the CIT(A) order, the assessee as well as the revenue are in appeal before us. 11. The Ld. A.R. for the ass .....

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is further submitted that deeming fiction created by section 271(1B) of the Act is not applicable for the assessment year 2008-09, as there is no difference between income returned and income assessed by the A.O. Once income returned by the assessee is accepted, there is no deeming concealment to initiate penalty proceedings u/s 271(1)(c) of the Act. The A.R. further submitted that penalty notice issued u/s 274 r.w.s. 271(1)(c) of the Act is vague in nature as the A.O. has not striked off inappr .....

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nsequently penalty levied is liable to be quashed. In support of the arguments relied upon the decision of Hon ble High Court of Karnataka, in the case of CIT Vs. Manjunatha Cotton & Ginning Factory (2013) 359 ITR 565 and CIT Vs. M/s. SSA s Emerald Meadows (2016) 73 Taxman.com 248 (SC). 12. In so far merits, the A.R. submitted that the A.O. was erred in levying penalty u/s 271(1)(c) of the Act, without specifying whether penalty is levied for concealment of particulars of income or furnishin .....

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sessment year 2007-08, which is because of disallowance of exemption claimed u/s 54F of the Act in respect of 4 flats retained by her, which was supported by the decision of Hon ble High Court of Karnataka in the case of CIT Vs. K.G. Rukminiamma (supra) and Hon ble High Court of A.P. in the case of CIT Vs. Syed Ali Adil. Therefore, levy of penalty on agreed addition by the assessee and also for disallowance of bonafide claim of exemption, which was supported by the decision of judicial forums is .....

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t that notice u/s 148 of the Act dated 27.5.2011 was issued following survey operation conducted in assessee s case and it was well within the specified time limit in accordance with the provisions of section 151(2) of the Act. The CIT(A) without appreciating the facts simply deleted penalty and hence penalty levied by the A.O. should be upheld. 14. We have heard both the parties, perused the materials available on record and gone through the orders of the authorities below. The factual matrix w .....

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es. The A.O. initiated penalty proceedings for the reason that the assessee has concealed particulars of income within the meaning of section 271(1)(c) of the Act. The A.O. was of the opinion that the assessee has not been able to make out any case for reasonable cause to justify non-levy of penalty. The A.O. further was of the opinion that mens rea is not an essential pre-requisite for civil liability of penalty u/s 271(1)(c) of the Act, since such liability is for breach of civil liability and .....

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ulars of income or furnishing inaccurate particulars of income. Mere issue of printed form of notice without striking off inappropriate clause in the notice is invalid, consequently any proceedings in pursuance of invalid notice are liable to be quashed. 15. The A.O. levied penalty u/s 271(1)(c) of the Act, for the reason that the assessee has not been able to make out any case for reasonable cause to justify non-levy of penalty. The A.O. further observed that the assessee has concealed the part .....

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lty proceedings are initiated, i.e. whether it is for concealment of particulars of income or furnishing inaccurate particulars of income . The Hon ble High Court of Karnataka, in the case of CIT Vs. Manjunatha Cotton and Ginning Factory (supra) observed that notice u/s 274 of the Act should specifically stated the grounds mentioned in section 271(1)(c) of the Act, i.e. whether it is for concealment of income or for furnishing incorrect particulars of income. Sending printed form where all the g .....

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in so far as concealment of income and furnishing of incorrect particulars would not operate as res judica in the penalty proceedings. It is open to the assessee to contest the proceedings on merits. Therefore, before issuing penalty notice, the A.O. should specify in the notice whether it is for concealment of particulars of income or furnishing inaccurate particulars of income. 16. A similar view has been taken by the Hon ble Karnataka High Court, in the case of CIT Vs. M/s. SSA s Emerald Mea .....

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njunatha Cotton & Ginning Factory (supra) and held that penalty notice issued by the A.O. is vague and accordingly, penalty orders are liable to be quashed. When this matter was taken up before the Hon ble Supreme Court, the Hon ble Supreme Court has dismissed SLP filed by the revenue against the order of the Hon ble High Court of Karnataka, wherein the Hon ble Supreme Court observed that where Tribunal, relying on a decision of Karnataka High Court allowed appeal of assessee holding that no .....

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f Karnataka, in the case of CIT Vs. Manjunatha Cotton & Ginning Factory (supra), wherein it was specifically held that issuing printed form of notice without striking off inappropriate portion of the notice or without mentioning the reasons for which penalty proceedings are initiated, i.e. whether it is for concealment of particulars of income or furnishing inaccurate particulars of income, the penalty proceedings initiated is invalid. 17. In this case, on perusal of the facts available on r .....

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s of income, it would be difficult for the assessee to justify the case before the A.O., thus it would amount to violation of principles of natural justice, therefore, we are of the considered view that initiation of penalty proceedings without a valid notice is bad in law and liable to be quashed. Hence, we quashed penalty proceedings initiated by the A.O. u/s 271(1)(c) of the Act, for the assessment years 2007-08, 2008-09 & 2009-10. 18. In so far as assessment year 2009-10 is concerned, th .....

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012. To attract the provisions of explanation 3 of section 271(1)(c) of the Act, the assessee should not be previously assessed, the return of income was not filed within the period specified u/s 153(1) of the Act and no notice u/s 142(1) or 148 of the Act was issued to the assessee before the expiry of 2 years from the end of the assessment year. In this case, undoubtedly, the A.O. has issued notice u/s 148 of the Act within 2 years from the end of the relevant assessment year, consequently, pe .....

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pecified u/s 153(1) of the Act, the third condition namely that no notice u/s 142(1) or 148 of the Act should have been issued within the period specified u/s 1 of section 153 of the Act is clearly not satisfied and therefore, the failure on the part of the assessee to furnish the return within the specified period cannot be deemed to be concealment within the meaning of explanation 3 to section 271(1)(c) of the Act and no penalty u/s 271(1)(c) of the Act could be levied. Therefore, we are of th .....

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