The Income Tax Appellate Tribunal (ITAT), Ahmadabad Bench, has recently, in an appeal filed before it, held that no penalty can be imposed if income already offered to tax by a different entity.
The aforesaid observation was made by the Ahmadabad ITAT, when an appeal was preferred before it by an assesee, as against the orders passed by the CIT(Appeals), for the assessment years 2006-07 and 2007-08, vide orders dated 17-01-2019 and17-01-2019 respectively.
The ground of the assessee’s appeal being the question as to whether the Commissioner of Income Tax (Appeals), has erred inconfirming the Penalty of Rs.36,320/- levied by the Assessing Officeru/s.271(1)(c) of the Income Tax Act, 1961, the brief facts of the case pertaining to the issue where that the assessee had filed its return of income on 22-03-2007, declaring total income at 16,20,430/-.
During the courseof survey proceedings under section 133A of the Act, it was noticed so noticed that theassessee was also carrying out transport business in the name of M/s ChandanCarrier. And on enquiry, it was observed that M/s Chandan Carrier, though wasowned by Shri Nilesh Shah.
However, it was observed by the AO that M/s Chandan carrier did not own any trucks for transportation business, that thebusiness premises of M/s Chandan Carrier were owned by the father of theassessee, and further that for taking the premises on rent, M/s Chandan Carrier did notpay any rent. Also, enquiry from HDFC bank further revealed that the assessee wasthe authorised signatory, power of attorney holder and mandate holder in thecase of M/s Chandan Carrier, and that the business activities of M/s ChandanCarrier was limited to movement of truck/tankers owned by the assessee.
Accordingly, the AO passed the order adding a sum of _ 1,07,890/- on theground that the assessee was the benami owner of M/s Chandan Carrier, that he has full control over its business, and further that such income earned by M/s ChandanCarrier should have been taxed as income in the hands of the assessee. And since, during the year Shri Nilesh Shah had declared income of _ 1,07,890/-as income from the proprietary business of M/s Chandan Carrier, while in reality the assessee was the effective owner of such business, the aforesaid incomeof 1,07,890/-was added by the AO as the income of the assessee in hishands.
The matter travelled to the CIT(Appeals), Ahmedabad, who set aside the matter on the issue of addition of 1,07,890/- for fresh adjudication, after carrying out necessary verification. And during the fresh assessment proceedings, the additionof 1,07,890/- was again made by the AO in the hands of the assessee, who further proceeded to
impose penalty u/s 271(1)(c) of the Income Tax Act, for concealing the particulars of income of 1,07,890/- received by the assessee from M/s Chandan Carrier(a business which was effectively owned by the assessee). And it is, by the CIT(Appeals), having confirmed the penalty imposed by the AO u/s 271(1)(c) of the Income Tax Act, that the assessee has in agitation, preferred the instant appeal before the Ahmadabad ITAT.
With Shri Aseem L. Thakkar, the counsel for the assessee having submitted that theaforesaid income has already been accounted for, in the return of income forShri Nilesh Shah (as proprietor of M/s Chandan Carrier) and hence that there isno cause for imposing penalty u/s 271(1)(c) of the Income Tax Act in the hands of theassessee in respect of the aforesaid income, he argued that in the instant facts, penalty has been levied only on thebasis that the proprietorship firm M/s Chandan Carrier was effectively held by theassessee.
And further submitting that the Revenuehas erred in ignoring the fact that the aforesaid income had already beensubject to tax in the hands of Shri Nilesh Shah asproprietor of M/s ChandanCarrier, he placed his reliance on the decision of the case of PatelChemical Works v. Assessing Officer, in support of his contention.
However, on the other hand, Shri Rakesh Jha, the Sr DR, placed his reliance on theobservations made by the CIT(Appeals) in his order confirming the levy ofpenalty u/s 271(1)(c) of the Income Tax Act.
Hearing the opposing contentions of either sides, and thereby perusing the materials available on record, the ITAT Bench comprising of Annapurna Gupta, the Accountant Member, along with Siddhartha Nautiyal, the Judicial Member observed:
“We have heard the rival contentions and perused the material onrecord. We observe that in the case of Patel Chemical Works v. Assessing Officer, theHigh Court has held that in penaltyproceedings, factum of the very same income having been offered to tax bydifferent entity and having been taxed substantially in hands of other entitybecomes a relevant factor for determining whether the assessee has concealed the said income or furnished inaccurate particulars regarding the said income whichhas already been taxed after being shown in hands of different entity,namely, other than assessee.”
“Now coming to the instant facts, we observe that the income whichwas sought to be taxed in the hands of the assessee has already been offeredto tax as income in the hands of Shri Nilesh Shah for the impugnedassessment year and the assessment proceedings have also been completed
by the AO in respect of such income. Further, the primary reason for levy ofpenalty is that the firm M/s Chandan Carrier is effectively held by theassessee, however, it is also a fact that the said income which is sought to betaxed by the AO in the hands of the assessee has already been offered toincome by Shri Nilesh Shah (proprietor M/s Chandan Carrier)”, the ITAT Panel further added.
Thus, allowing the assessee’s appeal the Ahmadabad ITAT, held:
“Therefore,respectfully following the decision of Gujarat High Court in the case of PatelChemical Works supra, we hold that this is not a fit case for levy of penaltyu/s 271(1)(c) of the Act and we hereby direct that the penalty may bedeleted.”
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