Penalty Levied by AO u/s 271(1)(c) of Income Tax Act Beyond Jurisdiction is not Sustainable: ITAT [Read Order]

The Mumbai Bench of Income Tax Appellate Tribunal (ITAT) held that the addition made by the AO while completing the assessment under Section 147 of the Income Tax Act, 1961 was beyond the jurisdiction and hence upheld the impugned order of Commissioner of Income Tax (Appeals) [CIT(A)] in deleting the penalty levied under Section 271(1)(c) of the Income Tax Act.

The assessee in this case is Milan Kavinchandra Parikh. An Information under Article 28 of the India-France Double Taxation Avoidance Agreement was received regarding the four undisclosed foreign bank accounts held with HSBC Bank, Geneva, Switzerland. These bank accounts were in the name of four companies where four individuals, who are resident Indians and are cousin brothers belonging to the Mahindra Brothers group, are beneficial owners as per the Base Note received.

A search and seizure action under Section 132 of the Income Tax Act was conducted on Mahendra Brothers Export Private Limited, its directors including the assessee. The bank statement received by the Investigation Wing showed that these four individuals are beneficiaries of the four bank accounts held by the four companies in HSBC Bank, Geneva.

A reassessment proceeding under Section 147 of the Income Tax Act was initiated in the case of the assessee and notice under Section 148 of the Income Tax Act was issued. During the course of search action as well as during the course of reassessment proceedings, the assessee denied owning any such bank account in HSBC Bank, Geneva. The assessee also did not furnish the consent waiver form waiving the protection of secrecy laws.

The Assessing Officer (AO) passed an order under Section 143(3) read with Section 147 of the Income Tax Act held that the assessee is the beneficial owner of the foreign bank account maintained with HSBC Bank, Geneva, Switzerland. As the assessee has failed to disclose this amount in his return of income, therefore, an amount of (Swiss Franc) CHF 100,000, which in terms of Indian currency comes to Rs.24,24,000 (as per the exchange rate prevailing)  was added to the total income of the assessee as unexplained money under Section 69A of the Income Tax Act.

Aggrived by the order the assessee filed an appeal before the CIT(A) and challenged the assessment order both on the assumption of jurisdiction under Section 147 of the Income Tax Act as well as additions made by the AO.

The CIT(A) upheld the assumption of jurisdiction by the AO under Section 147 of the Income Tax Act and held that the AO had valid reasons to initiate the reassessment proceedings, which were duly recorded and communicated to the assessee, and following the decision of the coordinate bench of the Tribunal in assessee’s own case for the assessment years 2006-07 and 2007-08 deleted the addition of Rs. 12,62,000 levied under Section 271(1)(c) of the Income Tax Act since in quantum appeal the CIT(A) deleted the entire addition of Rs. 25,24,000 made vide order passed under Section 143(3) read with Section 147 of the Income Tax Act.

Aggrieved by the order the Revenue filed an appeal before the Tribunal

The Bench comprising of G.S. Pannu, President, and Sandeep Singh Karhail, Judicial Member followed the decision of the coordinate bench of the Tribunal in DCIT v/s Shri Milan Kavinchandra Parikh where the petition filed by the assessee was allowed under Rule 27 of ITAT Rules and held that the AO had no jurisdiction to make the addition under Section 147 of the Income Tax Act. Accordingly, the appeal filed by the Revenue in quantum proceedings was rendered academic and therefore, was dismissed.

The Tribunal held that since the addition made by the AO while completing the assessment under Section 147 of the Income Tax Act was held to be beyond the jurisdiction by the coordinate bench of the Tribunal vide order it find no basis in the penalty levied under Section 271(1)(c) of the Income Tax Act based on the very same addition.

Hence the impugned order passed by the CIT (A) deleting the penalty was upheld. As a result, grounds raised by the Revenue were dismissed.

To Read the full text of the Order CLICK HERE

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