Penalty us 271(1)(c) for black money in Swiss bank deleted on legal grounds by the ITAT as the Income Tax Department failed poorly to prosecute on legal grounds.
This is in fact one of the example to what extent Income Tax Department had prepared its officer with required skills in building up sound and flawless prosecution in ensuring that those harvesting black money are not let off merely on legal grounds. Perhaps, this is the area where Government need to work because, mere overloading the Department without proper legal focus would not solve much.
ABCAUS Case Law Citation:
ABCAUS 1244 (2017) (05) ITAT
The appellant assessee(s) were aggrieved by the order passed by the Commissioner of Income Tax (Appeals) [CIT(A)] confirming the action of the Assessing Officer (‘AO’) imposing penalty u/s 271(1)(c) and 271AAA of the Income Tax Act, 1961 (‘the Act’)
Assessment Year : 2007-08 & 2012-13
Date/Month of Pronouncement: May, 2017
Brief Facts of the Case:
The Government had collected the details of Indians having bank accounts in HSBC Bank, Geneva, Switzerland which were not disclosed to Indian tax authorities. The French authorities furnished details ( “Base Note”) wherein the account details such as Name, Date of birth, Place of birth, Sex, Residential address, profession, Nationality, date of opening of the bank account in HSBC Bank and amount of balance in that particular year etc were given.
It was noticed that one assessee ( ‘first assessee’) was having a such bank account. Consequently, the revenue carried out search and seizure operations in the hands of the first assessee u/s 132 of the Act. Simultaneously survey operations u/s 133A of the Act was also carried out in the hands of certain firms. In the statement taken from the first assessee admitted that the bank account was held by him jointly with another person ( ‘second assessee’) and it belonged to them in the ratio of 30:70. During the course of survey operations in a statement taken, the second assessee also admitted that he owned up 70% of the bank deposits.
The Revenue had the information that the peak amount of deposits available in HSBC Bank, Geneva was US $ 751747 in September 2006. However, the first assessee admitted in the sworn statement submitted that the actual amount of deposits were US $ 13,36,000. Accordingly the revenue assessed the amount of US$ 751747 equivalent to Rs.3.46 crores in the ratio of 30:70 in the hands of both the assessees in assessment year 2007-08. The remaining amount of US $ 584253 equivalent to Rs.2.83 crores was assessed in the same ratio in the hands of both the assessees in the assessment year 2012-13.
In respect of income assessed in AY 2007-08, the AO levied penalty u/s 271(1)(c) of the Act in the hands of both the assessees and in respect of income assessed in AY 2012-13, the assessing officer levied penalty u/s 271AAA of the Act in the hands of both the assessees.
The CIT(A) confirmed the penalties levied by the AO in both the years in the hands of both the assessees.
Observations made by the Tribunal:
Penalty levied u/s 271AAA in the case of the second assessee
The Tribunal found that the penalty levied u/s 271AAA of the Act in the hands of the first assessee (searched person) had been deleted by the co-ordinate bench. However, the ITAT opined that in any case, the second assessee could not be considered to have been subjected to search but revenue had carried out survey operations only u/s 133A of the Act in the hands of the partnership firms. Hence the ITAT set aside the order passed by CIT(A) and directed the AO to delete the penalty levied u/s 271AAA of the Act.
Penalty levied u/s 271(1)(c) in case of both the assesse
Regarding the contention of the assessee that the AO had initiated penalty proceedings under one limb of the penalty provisions, but levied penalty under another limb, i.e., the AO had initiated penalty proceedings for concealing the particulars of income, but levied penalty for “concealing income and furnishing inaccurate particulars of income”, the Tribunal opined that there was no clarity in the action of the AO. In fact, the furnishing of inaccurate particulars of income would also lead to concealment of income. What was required to be seen was as to whether the assessee had “concealed the particulars of income” or “furnished inaccurate particulars of income”.
Further, regarding the contention of non-application of mind on the part of the AO which was reinforced by the fact that the AO did not strike off inapplicable portion in the penalty notice issued u/s 274, the Tribunal noted that the co-ordinate bench had considered the effect of non-application of mind on the part of the AO while initiating penalty proceedings in the case of Dr. Sarita Milind Davere. In the said case, the co-ordinate bench considered the decision of the Bombay High Court, Hon’ble Supreme Court and other decisions discussed by the Bombay High Court and came to the conclusion that the non-application of mind by the AO would vitiate the penalty proceedings.
The Tribunal noted that in the instant case, there was no clarity in the approach of the AO, i.e., he had initiated penalty proceedings under one limb, but levied penalty “for concealing income and furnishing inaccurate particulars of income”, which itself was confusing. Further the AO had not struck down inapplicable portion in the notices issued to the assessees herein.
The Tribunal opined that AO had initiated penalty proceedings in a mechanical manner without proper application of mind and hence the impugned penalty orders were liable to be quashed on this ground.
Regarding the contention of the assessee that the additional income offered did not belong to AY 2007-08 but was earned by them prior to the year 2003, the ITAT opined that in view of the fact that Revenue not able to controvert it, income earned prior to 2003 and hence the voluntary offered in AY 2007-08 would not give rise to penalty, as the concerned income does not belong to that year.
The assessee had contended that the impugned addition could not have been made in sec. 153A assessments, since the material was an external material. The Revenue on the contrary, submitted that the sworn statement given by the assessee u/s 132(4) shall constitute sufficient material. The ITAT opined that the year under consideration, i.e., AY 2007-08 was concluded assessment and the same can be disturbed only on the basis of incriminating material found. It was observed by the ITAT that as per settled proposition, the penalty u/s 271(1)(c) shall not lie on debatable issues. Further the ITAT noticed that the statement u/s 132(4) has been taken only from only the first assessee and not from second assessee and hence, on this legal ground alone, the assessee had merit.
The ITAT observed that the Revenue was not able to controvert the claim of the assessee that none of the explanations of the assessees were found to be false. The contentions of the assessee were that the revenue was having only incomplete information in its hand. When the same was confronted, the assessees voluntarily furnished all the details that were available with them. Further they had given authorization to the AO to collect necessary details from the HSBC bank. Thus, they furnished all the materials available with them and they had also offered explanations as to why this income was not declared by them. Even though the income does not belong to the AY 2007-08, still they agreed to offer the same in that year and also paid taxes. The ITAT found merit and accepted the contention that the immunity given under Explanation 1 shall be available to the assessee.
Penalties were deleted in the case of both the assessees.