TaxTMI 
TaxTMI 
2015 (12) TMI 43
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....ee to explain, among other things, as to whether the Assessee had deposited cash exceeding Rs. 10 lacs in any savings Bank Account. In reply to the aforesaid notice the Asssessee submitted details of his investments in units of mutual funds and the source of funds for making such investment. The statement filed in this regard is placed at page-23 of the Assessee's paper book and relates to the period relevant to AY 04-05, 05-06 & 06-07. The source of income for AY 06-07 which was not disclosed to the department was stated to be Rs. 68,78,869. The sum of Rs. 68,78,869 was stated to be profession income from sale of work of art i.e., paintings. The investments were made through bank accounts of the Assessee with Standard Chartered Bank, Salt Lake, Kolkata and Kotak Mahindra Bank Ltd., Kolkata. These accounts were not disclosed in the balance sheet filed along with the original return of income. The AO accepted the fact that the source of investment in units of mutual funds was from and out of professional income as stated by the Assessee. The following additions were made by the AO with the following observations: "A. Investment in mutual funds: It was observed that the asse....
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.... Vijayawada. Hon'ble ITAT Hyderabad in its order dt. 10th June, 1986 in ITA No.190/H85, has considered a case of retailer of Wines and Hot Liquors supplied by M/s Phippson & Company Ltd., Calcutta and the nature of the receipt of the free air ticket given to the retailer who had fulfilled targeted purchases and who had got the lucky coupon under the scheme who would get a free air ticket to visit Singapore, Bangkok,. It was held that the same should be considered as a perquisite or benefit under s. 28(iv) of the IT Act 1961. Similar addition has been held to be valid by Hon'ble Allahabad High Court in the case of Additional Commissioner of Income-Tax, Lucknow vs Ram Kripal Tripathi 125 ITR 408 [All]. G. As the assessee has failed to submit the precise details of expenses, it is estimated to be Rs. 2,00,000/- and is added to the income. H. Short term capital gains:- The Assessee has earned a short term capital gains of Rs. 10,38,101/- from the purchase/sale of such mutual funds units. A sum of Rs. 58,698/- was already disclosed by the Assessee in his return of income. The balance of Rs. 9,79,410/- is being added to his income. I. Long term capital gains the assesse....
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.....271(1) (c) of the Act in respect of the addition of a sum of Rs. 60,99,454, Rs. 1,09,473 and Rs. 9,79,410/- which was imposed by the AO and confirmed by the CIT(A). 3. The AO issued a show cause notice u/s.274 of the Act before imposing penalty against the Assessee u/s.271(1)( c) of the Act. In reply to the said notice the Assessee submitted he was an eminent artist and not aware of the intricacies of tax laws. He was advised by his tax consultant that income from sale of art is not taxable as it was in the nature of person effects and hence not a capital asset within the meaning of the definition of the said term u/s.2(14)(ii) of the Act. The assessee also pointed out that the sale of paintings was not done by him as an adventure in the nature of trade. The paintings were kept for years over because of his aesthetic sense. It gave him tremendous pleasure and pride of profession. The paintings were therefore his "personal effects". The sale was effeted for the very purpose of making investments in the units of mutual funds and to earn income from such investments for his livelihood. Therefore, the incidence of sale cannot be construed to be adventure in the nature of trade. Sin....
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....s not essential for attracting civil liabilities. As such, there is no onus on the department to prove mens rea beyond doubt. The AO further observed that the assessee being a responsible professional was aware of volume of his receipts. He did not disclose it truly and fully. Investment in mutual fund was made from concealed income. It led to further concealment of dividend interest etc. 3.4 On appeal by the Assessee, the CIT(A) confirmed the order of the AO. The CIT(A) was of the view that the two bank accounts with Standard Chartered Bank and Kotak Mahindra Bank Ltd., were not disclosed by the assessee and it was only when the AO made verification with mutual funds/banks and thereafter the Assessee admitted undisclosed investments in mutual funds. 3.5 Before the Tribunal the learned counsel for the Assessee reiterated the stand taken before the AO and CIT(A). He further submitted that the AO has not recorded satisfaction in the order of assessment that the Assessee is liable to be proceeded against u/s.271(1)(c) of the Act except recording as follows in the order of assessment viz., "Penalty proceeding u/s.271(1)(c) initiated." According to him, the above manner of initiat....
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.... the manner indicated above." Pointing out the above observations, it was contended that the order of assessment in the present case does not spell out any satisfaction as is contemplated in the decisions referred to above. The AO accepted whatever evidence the Assessee produced and also the offer of the Assessee to tax investments of units of mutual funds, interest income in SB Account with bank and Short Term Capital Gain on sale of units of mutual funds. 4. The learned counsel for the Assessee also drew our attention to the show cause notice issued u/s.274 of the Act before imposing penalty and submitted that the said notice does not specify as to whether the Assessee is guilty of having "furnished inaccurate particulars of income" or of having "concealed particulars of such income". He pointed out that the printed show cause notice does not strike out the irrelevant portion viz., "furnished inaccurate particulars of income" or "concealed particulars of such income". He drew our attention to a decision of the Hon'ble Karnataka High Court in the case of CIT Vs. Manjunatha Cotton & Ginning Factory (2013) 218 Taxman 423 (Kar.) wherein it was held that if the show cause notice....
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....was that it was not income and hence need not be disclosed. Let us see whether this professional advice has any basis. 5 1. At the time of enactment of the 1961 Act, section 2(14) read as under: (14) "capital asset" means property of any kind held by an assessee, whether or not connected with his business or profession, but does not include- (i) any stock-in-trade, consumable stores or raw materials held for the purposes of his business or profession; (ii) personal effects, this is to say, movable property (including wearing apparel, jewellery and furniture) held for personal use by the assessee or any member of his family dependent on him; (iii) agricultural land in India." Sub-Clause (ii) was substituted w.e.f. 1st April, 1973 by the Finance Act, 1972 for the original sub-cl. (ii) to exclude jewellery from "personal effects". Under s. 45 of the IT Act, any profits or gains arising from the transfer of a 'capital asset' are chargeable to tax. The term 'capital asset' as defined in cl. (14) of s. 2 of the IT Act does not include, inter alia, personal effects, i.e. movable property including wearing apparel, jewellery and furniture held for personal use by the asse....
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.... apparel;' The expression "personal effects" has not been defined in the Act. It would ordinarily mean physical chattels having some personal connection with the assessee such as articles of personal or domestic use, clothing, furniture etc. "personal effects" would not include money or securities for money or chosesin-action represented by promissory notes. The expression would normally include privately owned articles for intimate use by the assessee. The essential feature, thus appears to be that article in question should have intimate relation with the person of the assessee and should be of personal use, that is to say, should be normally, ordinarily and commonly in such use. Even though prior to 01.04.2008, a painting could be regarded as a "personal effect", but, before a painting can be regarded as a "personal effect" there must be evidence on record to show that it was intimately and commonly used by the assessee, for the purpose of exclusion from the definition of capital asset. 5.3 In the penalty proceedings, the Assessee pointed out that the sale of paintings was not done by him as an adventure in the nature of trade. The paintings were kept for years over becaus....
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.... the Act is similar, inasmuch, the AO will have to arrive at a prima facie satisfaction during the course of proceedings with regard to the assessee having concealed particulars of income or furnished inaccurate particulars, before he initiates penalty proceedings 'prima facie' satisfaction of the AO that the case may deserve the imposition of penalty should be discernible from the order passed during the course of the proceedings. At the stage of initiation of penalty proceeding, the order passed by the AO need not reflect satisfaction vis-a-vis each and every item of addition or disallowance, if overall sense gathered from the order is that a further prognosis is called for. The decision of the Hon'ble Supreme Court in the case of MAK Data (P) Ltd. (supra) has to be understood in the context of the facts of the said case. The relevant portion of the judgment in the aforesaid case, reads thus: "9. We are of the view that the surrender of income in this case is not voluntary in the sense that the offer of surrender was made in view of detection made by the AO in the search conducted in the sister concern of the assessee. In that situation, it cannot be said that the surrender of....
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....rom the order of assessment. If the assessee in good faith offers income to tax voluntarily prior to any positive detection by the AO, such voluntary offer cannot be taken advantage of by the AO to initiate penalty proceedings against the assessee without specifying the reasons why penalty proceedings are initiated u/s.271(1)(c) of the Act. In the present case, we have read the order of assessment as a whole and are satisfied that satisfaction for initiation of penalty proceedings is not discernible from the order of assessment. We therefore concur with the argument of the learned counsel for the assessee that initiation of penalty proceedings was not proper in the present case and on that ground the imposition of penalty u/s.271(1)( c) of the Act is unsustainable. 8. The next argument that the show cause notice u/s.274 of the Act which is in a printed form does not strike out as to whether the penalty is sought to be levied on the for "furnishing inaccurate particulars of income" or "concealing particulars of such income". On this aspect we find that in the show cause notice u/s.274 of the Act the AO has not struck out the irrelevant part. It is therefore not spelt out as to wh....
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.... penalty. The practice of the Department sending a printed farm where all the ground mentioned in Section 271 are mentioned would not satisfy requirement of law when the consequences of the assessee not rebutting the initial presumption is serious in nature and he had to pay penalty from 100% to 300% of the tax liability. As the said provisions have to be held to be strictly construed, notice issued under Section 274 should satisfy the grounds which he has to meet specifically. Otherwise, principles of natural justice is offended if the show cause notice is vague. On the basis of such proceedings, no penalty could be imposed on the assessee. 60. Clause (c) deals with two specific offences, that is to say, concealing particulars of income or furnishing inaccurate particulars of income. No doubt, the facts of some cases may attract both the offences and in some cases there may be overlapping of the two offences but in such cases the initiation of the penalty proceedings also must be for both the offences. But drawing up penalty proceedings for one offence and finding the assessee guilty of another offence or finding him guilty for either the one or the other cannot be sustained in....
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....limb for which it is levied and the position being unclear penalty is not sustainable. Therefore, when the Assessing Officer proposes to invoke the first limb being concealment, then the notice has to be appropriately marked. Similar is the case for furnishing inaccurate particulars of income. The standard pro forma without striking of the relevant clauses will lead to an inference as to non-application of mind." The final conclusion of the Hon'ble Court was as follows:- "63. In the light of what is stated above, what emerges is as under: a) Penalty under Section 271(1)(c) is a civil liability. b) Mens rea is not an essential element for imposing penalty for breach of civil obligations or liabilities. c) Willful concealment is not an essential ingredient for attracting civil liability. d) Existence of conditions stipulated in Section 271(1)(c) is a sine qua non for initiation of penalty proceedings under Section 271. e) The existence of such conditions should be discernible from the Assessment Order or order of the Appellate Authority or Revisional Authority. f) Even if there is no specific finding regarding the existence of the conditions mentioned in Secti....