IN THE INCOME TAX APPELLATE TRIBUNAL
"F" Bench, Mumbai
Before Shri D. Manmohan, Vice President
and Shri Rajendra, Accountant Member
ITA No. 2956 & 2957/Mum/2012
(Assessment Years: 2005-06 & 2006-07)
Shri Julius Francis Pereira Income Tax Officer- 4(3)
Legal Heir of Late Smt. Violet 2nd Floor, Qureshi Mansion
Julius Pereira
Shinde Alley, Near Church Vs. Gokhale Road, Naupada
Thane
Post Gokhivare, Vasai (E)
Thane Distt.
PAN - ACKPP1438M
Appellant Respondent
Appellant by: Shri Vijay Mehta
Respondent by: Shri Sambit Mishra
Date of Hearing: 24.06.2014
Date of Pronouncement: 02.07.2014
ORDER
Per D. Manmohan, V.P.
These appeals, filed by the assessee, are directed against the orders
passed by the CIT(A), Thane and they pertain to assessment years 2005-06
and 2006-07.
2. Penalty levied by the AO under section 271(1)(c) of the Act and
confirmed by the CIT(A) is the subject matter of dispute before us.
3. The appeals were filed on 01.05.2012 by Smt. Violet Julius Pereira.
She expired on 03.10.2012. Shri Julius Francis Pereira filed an affidavit
before the Tribunal stating that he should be brought on record as Legal
Representative of the deceased assessee. The learned D.R. submitted that
the AO has no objection for bringing the said person as the legal heir of the
assessee. Accordingly Shri Julius Francis Pereira is brought on record as
legal heir of the assessee and the appeals were taken up for hearing.
4. In respect of A.Y. 2005-06 penalty of `6,44,196/- was levied by the AO
on account of the fact that cash deposits of `20,00,000/- in the SB account
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Smt. Violet Julius Pereira
of the assessee was treated by the AO as unexplained income and even in
the penalty proceedings no explanation was filed with regard to the same.
For the same reason the learned CIT(A) confirmed the action of the AO.
5. before the Tribunal the learned counsel for the assessee raised a three
pronged legal argument, i.e.:
(a) The assessee is being assessed to tax at Thane from year to year
under PAN ACKPP1438M in which event the jurisdiction to make an
assessment lies with the ITO, Ward 4(3), Thane whereas the
assessment was made by the ITO (HQ) (CIB), Pune which is void
abinito. He has referred to page 1 onwards of the paper book to
highlight that the assessee filed her returns of income from year to
year before ITO, Thane and the assessments have been made
accordingly. In his opinion it is the duty of the ITO (HQ) (CIB), Pune,
even if the assessee is non-cooperative, to find out as to whether the
assessee has been assessed to tax at any other place and to transfer
the file to enable such AO to complete the assessment as otherwise
the assessment becomes void and consequential penalty levied in
the case of an invalid assessment cannot stand. In this regard he
relied upon several orders of the Tribunal wherein the plea on behalf
of the assessee that even in penalty proceedings validity of
assessment can be challenged, was accepted.
(b) Section 275(1) of the Income Tax Act refers to period of limitation
within which penalty proceedings can be initiated and completed. In
the instant case penalty proceedings are barred by limitation. In this
regard it was contended that the CIT(A) passed the order on
26.11.2008 and penalty was levied under section 271(1)(c) on
24.04.2009. No doubt, reckoned from the date of order passed by
the CIT(A), the AO is well within his jurisdiction to levy penalty but
the fact remains that the assessee withdraw the appeal filed before
the CIT(A), which was formally accepted by the Commissioner of
Income Tax in the quantum proceedings and under such
circumstances the time limit for initiation of penalty proceedings
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Smt. Violet Julius Pereira
have to be reckoned from the date of passing the assessment order
which, in the instant case, is 26.12.2007 (order passed by the ITO
(HQ) (CIB), Pune under section 144 of the Act) and, therefore, the
order passed under section 271(1)(c) on 24.04.2009 is barred by
limitation and hence deserves to be quashed. On this aspect also the
learned counsel relied upon several decisions of the Tribunal.
(c) It was also contended that section 274(2) of the Act mandates prior
approval of the Joint Commissioner wherever penalty leviable
exceeds `10,000/`20,000/- whereas, in the instant case, penalty
order was passed under section 271(1)(c) on 24.04.2009 while
approval of the Addl. CIT was dated 28.04.2009 and thus the
procedure prescribed under section 274(2) was not followed
resulting in the order being passed contrary to law and, therefore,
liable to be quashed. The learned counsel for the assessee referred
to section 274(2) of the Act and in particular the language "No order
imposing a penalty under this Chapter shall be made" ...................
"except with the prior approval .....". Relevant provision is extracted
herein.
"(2) No order imposing a penalty under this Chapter shall be made -
(a) by the Income-tax Officer, where the penalty exceeds ten
thousand rupees;
(b) by the Assistant Commissioner [or Deputy Commissioner],
where the penalty exceeds twenty thousand rupees,
except with the prior approval of the [Joint] Commissioner."
In the in instant case the penalty was levied on 24.04.2009 whereas
in para 6 of the penalty order it is clearly mentioned that approval of
the Addl. CIT was obtained vide letter dated 28.04.2009.
6. On the other hand, the learned D.R. objected to the technical grounds
by contending that the assessment was made under section 144 of the Act.
There is no way for the AO to know as to whether the assessee was assessed
to tax at any other place, which can be noticed from the fact that even in the
assessment order the address is mentioned as "3267, Bundle No. 7,
Individual" which can only be done when address is not known. Such cases
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Smt. Violet Julius Pereira
are covered by the provisions of section 292(B) of the Act. He also submitted
that the assessee having filed an appeal before the CIT(A) the AO was of the
bona fide opinion that penalty proceedings can be initiated after appropriate
order is passed by the Commissioner of Income Tax (Appeals). Circular
issued by the CBDT is not binding on the Tribunal, if one has to go by the
intention of the Legislature, as otherwise any person can prefer an appeal
and may withdraw its appeal after lapse of one year which would
automatically give the assessee an advantage in the penalty proceedings,
which could not be the intention of the Legislature and thus even where the
permission is granted by the Commissioner to withdraw the appeal it should
be treated as a regular order passed by the CIT(A) and penalty can be
initiated by taking the said date for the purpose of computing limitation
period. He also submitted that though the date of order was shown as
24.04.2009 but in the same order the approval of the Addl. Commissioner is
shown to have been obtained on 28.04.2009, which indicates that the
approval was obtained prior to passing the order and thus contended that
the penalty proceedings are valid. However, no evidence, whatsoever, was
furnished in this regard to indicate as to the date of approval.
7. On the contrary the learned counsel for the assessee emphasised that
prior approval implies that prior to reaching a conclusion the AO should
have addressed a letter to the concerned authority and on obtaining
approval order should have been passed and the onus is on the Revenue to
prove the same.
8. Even on merits the learned counsel for the assessee submitted that
the assessee herein expired at unexpected age. The legal representatives are
sons of Late Francis Philip Gonsalves. Late Francis used to stay with his
daughter, Smt. Violet Julius Pereira. Mr. Francis Philip Gonsalves retired
from Railway service and used his retirement funds in money lending
activity. By the end of 2004 his health deteriorated due to attack of cancer
consequent to which he decreased his money lending activity with an
intention to wind up the activity in the course of time. Legal heirs deposed
on oath that to the best of their information he has accumulated about
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Smt. Violet Julius Pereira
`20,00,000/- by March, 2005 and he has able to get a little more
`10,00,000/- from borrowers, which appears to have been deposited in
March, 2005 and January, 2006 in the account of Smt. Violet Julius Pereira
with Bassien Catholic Co-op. Bank Ltd. with an intention to distribute the
amount amongst his family members. Though she was not able to properly
explain because of the depressed circumstances, even to furnish further
material at this stage, on account of her demise on 03.10.2012, legal heirs
requested for one more opportunity by setting aside the matter. At any rate,
this being penalty proceedings the explanation furnished above should be
treated as correct. The learned counsel for the assessee gave the same
explanation for both the years.
9. We have carefully considered the rival submissions and perused the
record. In so far as A.Y. 2005-06 is concerned, though the assessee has
raised three technical grounds we shall first take up the third technical
ground, i.e. penalty should be levied with prior approval of the superior
authority. In the instant case the order passed under section 271(1)(c) itself
shows contradictory facts and no material, whatsoever, was brought on
record by Revenue to prove otherwise. Under these circumstances we hold
that the AO has not followed the mandatory procedure, prescribed under
section 274(2) of the Act, and therefore, penalty levied under section
271(1)(c) of the Act deserves to be quashed. We order accordingly.
10. Since the penalty proceedings are quashed in A.Y. 2005-06, it is not
necessary to consider the issues on merits as well on the other two technical
grounds. It deserves to be mentioned that on the other two technical
grounds this Bench has certain reservations with regard to the contentions
raised before us. For example, when the assessee has not furnished
information with regard to address and place of assessment of the assessee
the AO is not expected to do an impossibility and for not doing such an
impossible task can the assessee take benefit of her own absence, by forcing
the AO to complete the assessment under section 144 of the Act, and now
take the shield of section 275(1) of the Act by contending that the
assessment order itself is bad in law and therefore penalty cannot be levied?
6 ITA No. 2956 & 2957/Mum/2012
Smt. Violet Julius Pereira
Similarly, when an assessee filed an appeal, the AO is under an obligation to
defer the proceedings for levy of penalty till the CIT(A) passes an order. The
Act prescribes that the AO is entitled to initiate and complete penalty
proceedings within a stipulated period from the date of making certain
additions/disallowances in the quantum proceedings. At the same time, if
an assessee prefers an appeal, the AO is supposed to wait till the final
outcome of the appellate proceedings. If a view is taken that in the event of
withdrawal of appeal filed before the CIT(A) the limitation period would be
reckoned from the date of passing the assessment order it may become
handy to individual assessees to take advantage of the maze of law by filing
an appeal and wait for sufficient time and to withdraw the appeal because
the assessee has no case on merits but at the same time take the benefit of
limitation vis-à-vis penalty proceedings. There are number of decisions cited
before us. Since we have accepted the plea of the assessee with regard to
third technical ground, it is not necessary at this stage to go into the moot
questions in the form of technical grounds (a) and (b). In the result, order
passed under section 271(1)(c) of the Act is quashed and the appeal filed by
the assessee is treated as allowed.
11. With regard to penalty levied for A.Y. 2006-07 it deserves to be noticed
that the AO levied penalty of `3,78,970/- on the ground that the cash
deposit of `10,00,000/- made on 12.01.2006 is not properly explained,
whereas the case of the assessee was that the cash deposited in her bank
account did not belong to her and in fact it was her father's cash and out of
his own source. According to his last wish the cash was to be distributed
among the family members and the same was deposited in her account only
for safe custody. The AO observed that the cash kept in the said bank
account was redeposited and even the interest therefrom was also not
offered to tax and therefore the assessee concealed particulars of income.
Even before the CIT(A) the assessee reiterated the contentions. The case of
the assessee is that after being diagnosed with cancer her father gave the
money to the assessee, which has to be amicably distributed amongst the
family members but upon the death of her father it became difficult for her
to gather the material to prove the source of his money; to buy peace of
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Smt. Violet Julius Pereira
mind and to avoid litigation the amount was offered to tax. Thus the
assessee always cooperated with the Department. Therefore it cannot be
treated as a deliberate act or omission on the part of the assessee so as to
levy penalty. The learned CIT(A) also rejected the contention of the assessee.
Further aggrieved the assessee is in appeal before us.
12. The learned counsel for the assessee relied upon the affidavit filed
before us and the explanation given before the AO as well as the CIT(A) to
submit that the assessee is a regular income tax assessee and it is not the
case of the Revenue that she was capable of earning so much of income
other than the income already assessed to tax. Looking from that
perspective, merely because the income was offered to tax to buy peace, it
should not be concluded that it was her concealed income. He thus
requested for cancellation of penalty.
13. On the other hand, the learned D.R. strongly relied upon the orders
passed by the tax authorities.
14. We have carefully considered the rival submissions and perused the
record. As can be noticed from the assessment order, though the AO added
the amount deposited in the bank account as unexplained income of the
assessee, there is no finding that she was capable of earning that much of
income from any specific source. She had consistently taken a plea that the
money belongs to her father who in turn utilised his hard earned retirement
funds for earning interest. There is no finding on record to suggest that the
assessee had any other source from which she was capable of generating
that much of income.
15. The learned D.R. could not controvert the contents brought out in the
affidavit by the legal heirs. Taking an overall picture and particularly on the
fact that neither Shri Francis Philip Gonsalves nor Smt. Violet Julius Pereira
are alive today, a lenient view of the matter deserves to be taken; we are also
of the opinion that she has voluntarily offered to tax to buy peace of mind
and thus we hold that the explanation of the assessee is bonafide. Therefore
we set aside the orders passed by the AO and the CIT(A) and cancel the
penalty levied by the AO.
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Smt. Violet Julius Pereira
16. In the result, appeals filed by the assessee are allowed.
Order pronounced in the open court on 2nd July, 2014.
Sd/- Sd/-
(Rajendra) (D. Manmohan)
Accountant Member Vice President
Mumbai, Dated: 2nd July, 2014
Copy to:
1. The Appellant
2. The Respondent
3. The CIT(A) II- Thane
4. The CIT III- Thane
5. The DR, "F" Bench, ITAT, Mumbai
By Order
//True Copy//
Assistant Registrar
ITAT, Mumbai Benches, Mumbai
n.p.
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