TaxTMI 
TaxTMI 
2019 (6) TMI 289
X X X X Extracts X X X X
X X X X Extracts X X X X
....scrow bank account with HSBC Bank, Geneva, amounting to Rs. 3,99,01,729/-. For this assessee has raised the following 6 effective grounds: - "1. In the facts and circumstances of the case and in law, the learned Commissioner of Income-tax (Appeals) - 51, Mumbai ('CIT(A)') erred in sustaining levy of penalty under section 271(1) (c) of the Income-tax Act, 1961('Act') on Rs. 3,99,01,729 being peak balance lying in the escrow bank account with HSBC Bank, Geneva, not belonging to the appellant which was offered to tax only, to buy peace of mind. The said penalty has been levied without fulfilling the conditions in the said section. 2. The learned CIT(A) while sustaining the penalty failed to appreciate that the basis for levy of penalty is contrary to the facts on record, overlooks the relevant facts and is based on factually incorrect observations and conclusions and material and evidence which are irrelevant to the issue. 3. The learned CIT(A) failed to appreciate that the show cause notice dated 28th March 2014 was issued by the Assessing Officer ('AO') under section 274 read with section 271 of the Act without application of mind t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ur above letter dated 2nd January 2014 requiring me to explain and file details enumerated therein. In this regard, I have to state as under: I had earlier in my letter dated 26.12.2013 filed with you stated that during the course of proceedings conducted under section 132 of the I.Tax Act 1961 on 29.07.2011 at my residence, I had myself voluntarily admitted that a foreign bank account did exist for a short period, which may carry my details. On being subsequently shown some Xerox copy of a HSBC bank account which showed my name, I had confirmed to the investigating officer on 29.07.2011 that the said account belonged to me. To buy peace of mind, I had offered the peak balance mentioned in the statement of USD 9,24,292 on February 2007 as my income for the assessment year 2007-08 although the funds were not belonging to me and were in the nature of an Escrow account. I had also explained to the investigating officer that though Xerox copies of five different statements in five different names were shown to me, all being identical copies showing identical balances and identical narrations in respect of the said account with HSBC Bank, all those fi....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... he is disclosing only Rs. 3,99,01,729/- at the rate of Rs. 43.17=1USD nor did he give any submission in this regard during assessment proceedings. Only when the difference in the amount declared was noticed by the AO and a show cause notice was given to assessee on this difference, the same was explained as above. 7.15 Accordingly, on the basis of search proceedings and statement of assessee recorded under section 132(4) of the I.T. Act, 1961, it was Rs. 4.5 cr to be disclosed by the assessee, however he has disclosed only 3,99,01,729/- in this return of income, therefore, the difference amount of Rs. 50,98,271/- is added as undisclosed income of assessee for the year under consideration. (addition Rs. 50,98,271/-) Penalty proceedings initiated under section 271(1)(c) of the IT Act for filing inaccurate particulars of income leading to concealment of income." 5. The AO also initiated the proceedings under section 271(1)(c) of the Act for filing of inaccurate particulars of income in the return of income by the assessee leading to concealment of income. The assessee has challenged the addition before CIT(A) on account of the differential amount of Rs. ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... T.T. rate as on 3 1.3.2007 furnished by assessee the AO is at liberty to correct the same and recalculate the rupee equivalent of S 924293 as per Rule 115. The matter is remanded to AO for this limited purpose. AO is directed accordingly." It was informed by the learned Counsel that this addition has been deleted amounting to Rs. 50,98,271/- by the AO while giving appeal effect to the order of CIT(A). 6. In the meantime, the AO started the penalty proceedings under section 271(1)(c) of the Act for furnishing of inaccurate particulars of income and levied the penalty on the amount of Rs. 4,50,65,679/- comprised of the following three items: - "(i) Rs. 3,99,01,729 being rupee equivalent of USD 9,24,293 i.e. peak balance of the funds lying in the escrow bank account, and (ii) Rs. 50,98,271 being the difference between the adhoc/ estimated amount of Rs. 4,50,00,000 stated in the statement made by the Appellant under section 132(4) of the Act and Rs. 3,99,01,729 as per (i) above; (iii) Rs. 65,679 being the interest income declared in the original return of income filed on 29-10-2007 erroneously considered for its purpose of levying penalty." 7. The A....
X X X X Extracts X X X X
X X X X Extracts X X X X
....of income by observing in Para 11 and 12 as under:- "11. The above submission made by the assessee and arguments are considered very carefully. It may be pointed out that the assessee filed original return of income declaring income of Rs. 22,49,454 on 29-10-2007. In the said return of income, the assessee neither disclosed the above foreign bank account nor the income of USD 9,24,293 equivalent to Rs. 3,99,01,729. It is only during the course of search when the assessee was confronted with the base note that he chose to offer the said amount to tax. It is clear that but for the search action the amount would have escaped the assessment. It is established beyond doubt that the bank account in which the funds were lying with HSBC, Geneva was in the name of assessee. It may also be pointed out that assessee himself offered the income stashed in the overseas bank account and in such circumstances the entire financial transactions are subject to taxation as per the provisions of income Tax Act 1961. Therefore, the assessee's contention that the said amount is not taxable is devoid of any merit. This action of assessee reveals that the assessee had no intention of disclosin....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ng Systems (PSDS) which thereafter could be leased/ sold to prospective customers with a good margin. Due to close involvement, assessee engaged in the services of a consulting company to identify a business associate with whom the Assessee could carry on the said business as a joint-venture. The Assessee was approached by the Dorchester Group who showed interest in the carrying the business as a joint venture. The Assessee entered into a Memorandum of Understanding (MOU) with Dorchester International Inc. a Cyprus Company (Dorchester) to explore the said business opportunity as a joint-venture (JV), which was remain in force till 28.11.2004 i.e. for 18 months, during which period both parties would endeavour to commence the business of the proposed JV. As per the MOU all costs for setting up and establishing the JV including the initial funds for purchase/refurbishment of PSDS and for running the operation of JV for an initial period of 2 years shall be contributed by Dorchester. The Assessee was under an obligation to identify suitable second hand PSDS and provide the requisite technical services and facilities for refurbishing the same in a cost efficient manner and would also b....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ssee. Further, funds lying in the said bank account could be utilised only for specified purposes and not for the benefit of the Assessee. There was a specific bar on the Assessee to expend or appropriate any part of the said sum without obtaining the permission of Dorchester. The ultimate destination of the said funds was to be as contribution of Dorchester into the JV Company. The only benefit which could be received by the Assessee from the said bank account was for meeting cost of relocation as may be agreed between the parties. However, this stage was not reached as no JV entity was formed and consequently, the Assessee did not relocate himself to UK. The MOU dated 29.05.2003 entered into between the Assessee and Dorchester was terminated. With the termination of the MOU, the escrow bank account with HSBC Bank in Geneva was also closed. They have acknowledged that they have received repayment of the entire fund lying to the credit of the said bank account. They have also confirmed that they have received all the amount remitted by them to the said bank account and have no claim whatsoever against the Assessee. Therefore, the entire amount lying in the said bunk account was pai....
X X X X Extracts X X X X
X X X X Extracts X X X X
....information of which the authenticity has not been tested?" 11. The learned Counsel for the assessee first of all argued that there is no satisfaction recorded by AO qua the income declared by the assessee in the return of income because no addition on that account was made and there is satisfaction recorded by the AO qua only the addition made on account of quantum of Rs. 50,98,271/- being the difference between the adhoc/ estimated amount of Rs. 4.50 crores stated in the statement made by the assessee under section 132(4) of the Act and Rs. 3,99,01,729 as per amount offered by assessee in its return of income. He argued that there is no satisfaction recorded by the AO. And also, he argued that the notice issued under section 274 read with section 271 of the Act does not fulfill the preconditions specified in the said sections and also does not reflect any application of mind. It was also contended by the learned Counsel for the assessee the levy of penalty by the AO was for default of furnishing of inaccurate particulars of income whereas the CIT(A) uphold the levy of penalty for the default of concealment of income, it means that authorities below are not sure about the sp....
X X X X Extracts X X X X
X X X X Extracts X X X X
....139 TTJ 513 (Mum) 14. Mrs. SArita Kaur Manjeet Singh Chopra V. ITO (2017) 88 Taxmann.com 360 (Pune-Trib) 15. MAK Data (P) Ltd. v. CIT (2013) 358 ITR 593 16. m/S Madhushree Gupta vs. UOI & Anr. (2009) 317 ITR 107 (Delhi) 12. On the other hand, the learned CIT DR, Shri Anadi Verma countered the arguments and stated that there is clear admission by the assessee regarding non disclosure of income under section 132(4) of the Act and accordingly, the concealed income was brought to tax by assessing the peak balance of the assessee maintained with HSBC bank, Geneva, Switzerland. It was argued by him that this was information from sovereign Govt. of France under DTAA about untaxed black money stashed in HSBC bank account of the assessee. It was contended by him that the information was received in the form of "Base Note" with full identificatory details of the assessee. The assessee himself blocked the further inquiry by admission of undisclosed income under section 132 of the Act by offering peak balance of assessee's HSBC Bank Account lying an amount of USD 9,24,292/- for the AY 2007-08. The assessee further blocked inquiry by refusing to sign "Consent Waiver Form" a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....Taxmann.com 360 (Pune-Trib) 31. MAK Data (P) Ltd. v. CIT (2013) 358 ITR 593 32. m/S Madhushree Gupta vs. UOI & Anr. (2009) 317 ITR 107 (Delhi) 13. The learned CIT DR also argued that the additional ground/ additional plea proposed to be raised by assessee during the course of hearing cannot be admitted and barred by laches. We noted that the assessee has raised the main ground regarding the penalty levied by AO and confirmed by CIT(A) is void ab-initio being without jurisdiction and assessee has raised original ground qua this i.e. the ground no. 3 and 4. Hence, we are not admitting this objection of the assessee and will adjudicate the ground No. 3 and 4. 14. We have heard rival contentions and gone through the facts and circumstances of the case. We find that in the statement recorded under section 132(4) of the Act, the Assessee had explained the nature a source of funds in the bank account and explain in detail about the business opportunity as identified by him in the year 2002 for which he had entered into a MOU with Dorchester in the year 2003. Reference was also made to the Supplementary MOU which contemplating opening of the escrow bank account in the Ass....
X X X X Extracts X X X X
X X X X Extracts X X X X
....f fund in the bank account, he filed a detailed explanation explaining the business opportunity as identified by him in the year 2002 for which he had entered into a MOU with Dorchester in the year 2003. Reference was also made to the Supplementary MOU which contemplating opening of the escrow bank account in the Assessee's name and deposit of funds into the same by Dorchester. It was clarified that the Assessee had no authority to use nor had any control over the funds lying in the said escrow bank account. Ultimately, no JV could be set-up between the Assessee and Dorchester and the entire funds lying in the said bank account with HSBC Bank was transferred back to them. Therefore, it was explained that the funds lying in the said escrow bank account never belonged to him, nor did he have any control over the said funds. He was holding the same in trust and ultimately the funds were returned to Dorchester without any benefit to the Assessee. In spite of this fact, the Assessee in conformity with his statement made under section 132(4) of the Act, agreed to offer USD 9,24,293 in order to buy peace of mind and avoid any litigation with the Revenue. A request was also made tha....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... provisions of section 271(1)(1) of the Act and argued that before levying penalty under this section, it is incumbent on the AO that in the course of any proceedings under the Act he has to record satisfaction that the condition for levying penalty are satisfied in the assessee's case. The learned Counsel for the assessee argued that such satisfaction should be explicitly recorded by the AO and for this purpose he relied on the decision of Hon'ble Supreme Court in the case of CIT vs. S.V. Angidi Chettiar (1962) 44 ITR 739 (SC), wherein Hon'ble Supreme Court held as under: - "The penalty provisions under section 28 would therefore in the event of the default contemplated by clause (a), (b) or (c ) be applicable in the course of assessment of a registered firm. If a registered firm is exposed to liability of paying penalty, by committing any of the defaults contemplated by clause (a), (b ) or (c) by virtue of section 44, notwithstanding the dissolution of the firm the assessment proceedings are liable to be continued against the registered firm, as if it has not been dissolved. Counsel contended that in any event, penalty for the assessment year 1949-50 could not b....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... course of the assessment proceedings. Satisfaction in the very nature of things precedes the issue of notice and it would not be correct to equate the satisfaction of the Income-tax Officer or Appellate Assistant Commissioner with the actual issue of notice. The issue of notice is a consequence of the satisfaction of the Income-tax Officer or the Appellate Assistant Commissioner and it would, in our opinion, be sufficient compliance with the provisions of the statute if the Income-tax Officer or the Appellate Assistant Commissioner is satisfied about the matters referred to in clauses (a) to (c ) of sub-section (1) of section 271 during the course of proceedings under the Act even though notice to the person proceeded against in pursuance of that satisfaction is issued subsequently. We may in this context refer to a decision of five judges Bench of this court in the case of Commissioner of Income-tax v. S.V. Angidi Chettiar [1962] 44 ITR 739 , 745; [1962] Supp. 2 SCR 640 (SC). Shah J., speaking for the court, while dealing with section 28 of the Indian Income-tax Act, 1922, observed : "The power to impose penalty under section 28 depends upon the satisfaction of ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....iated. In fact, said notice has been issued in a standard format without striking of the irrelevant part. This clearly discloses complete non- application of mind by the AO before issuing the notice. In the above referred facts and circumstances of the case, the learned Counsel for the assessee argued that penalty has been levied under section 271(1)(c) of the Act, without fulfilling the jurisdictional pre-conditions necessary for issuing a valid show-cause notice and passing of an order under the said section. Further, the conclusion reached by the AO/ CIT(A) is contrary to the facts of the case and overlooking relevant material and evidence thereby rendering the same to be illegal and bad in law. 21. We are of the view, it is a settled principle of law that before taking any action, including levy of penalty under section 271(l)(c) of the Act, the Assessing Officer should issue a valid show cause notice to the assessee. In the show cause notice, he should specify the default as committed by the Assessee and the reason why he is seeking to levy penalty in respect of the same i.e. whether penalty is sought to be levied for (i) concealment of income or (ii) furnishing of inaccura....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... is in a standard proforma, without having striked out irrelevant clauses therein. This indicates non-application of mind on the part of the Assessing Officer while issuing the penalty notice. 4 The impugned order relied upon the following extract of Karnataka High Court's decision in CIT v/s. Manjunath Cotton and Ginning Factory 359 ITR 565 to delete the penalty: "The Assessing Officer is empowered under the Act to initiate penalty proceedings once he is satisfied in the course of any proceedings that there is concealment of income or furnishing of inaccurate particulars of total income under clause (c). Concealment, furnishing inaccurate particulars of income are different. Thus, the Assessing Officer while issuing notice has to come to the conclusion that whether is it a case of concealment of income or is it as case of furnishing of inaccurate particulars. The apex court in the case of Ashok Pai reported in [2007] 292 ITR 11 (SC) at page 19 has held that concealment of income and furnishing inaccurate particulars of income carry different connotations. The Gujarat High Court in the case of Manu Engineering reported in 12....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ble Supreme Court in the case of Dilip N Shroff v. CIT 291 ITR 519 (SC) has considered this issue and observed as under: - "83. It is of some significance that in the standard proforma used by the Assessing Officer in issuing a notice despite the fact that the same postulates that inappropriate words and paragraphs were to be deleted, but the same had not been done. Thus, the Assessing Officer himself was not sure as to whether he had proceeded on the basis that the assessee had concealed his income or he had furnished inaccurate particulars. Even before us, the learned Additional Solicitor General while placing the order of assessment laid emphasis that he had dealt with both the situations. 84. The impugned order, therefore, suffers from non-application of mind. It was also bound to comply with the principles of natural justice. [See Malabar Industrial Co. Ltd. v. CIT [2000] 2 SCC 718]. 85. We have, however, noticed hereinbefore that the Income-tax Officer had merely held that the assessee is guilty of furnishing of inaccurate particulars and not of concealment of income; which finding was arrived at also by the Commissioner of Income-tax and the Income....