SUBHASH SHARMA, JAIPUR v. DCIT, CIRCLE-6, JAIPUR, Income Tax Appellate Tribunal, Judgment, Law, casemine.com

Citation Codes

Equivalent Citations

citation codes

Case Number

ITA 205/JPR/2020

Attorney(S)

Acts

section 274 read with section 271(1)(c) of the Income Tax Act, 1961 (for short the Act)
section 274, read with section 271(1)(c) of the Income Tax Act, 1961,
section 271(1)(c) of the Income Tax Act, 1961
section 143(3) read with section 147,
section 271(1)(c) of the I. T. Act.
section 271(1)(c),

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Smart Summary

Factual and Procedural Background

The assessee, an individual earning income from salary, house property and other sources, filed a return of income under section 139(1) for the assessment year 2014-15 declaring total income of Rs. 1,07,53,630, which included Long Term Capital Gain (LTCG) of Rs. 94,72,909 arising on sale of agricultural land held jointly with his brother Sunil Sharma.

After processing the return, the Assessing Officer (AO) issued a notice under section 148. In an order framed under section 143(3) read with section 147 the AO made an addition relating to capital gains and also initiated penalty proceedings under section 271(1)(c) of the Income Tax Act; the penalty was confirmed by the CIT(A)-2 Jaipur. The assessee appealed to the Tribunal (ITA No. 205/JP/2020).

Relevant factual particulars disclosed during proceedings: the agricultural land was purchased in 1989 for Rs. 2,04,905 (measuring 18 Bigha 2 Biswa), the assessee's share being 9 Bigha 1 Biswa. In the year under consideration the assessee sold 2 Bigha 6 Biswa out of his share. Due to a clerical error by the tax return preparer the cost of acquisition claimed for computation of LTCG used the entire share's cost (Rs. 102,303) instead of the proportionate cost for the portion sold (Rs. 26,037). The assessee received information of this mistake but received notice under section 148; in compliance with that notice he filed a return correcting the computation and declaring an adjusted total income (including corrected LTCG).

The Tribunal examined whether the penalty under section 271(1)(c) was sustainable, in particular assessing (i) the validity of the section 271(1)(c) notice which did not specify whether proceedings were for "concealment of particulars of income" or for "furnishing inaccurate particulars of income", and (ii) the substantive merit of imposing penalty in view of the stated bonafide, inadvertent error.

Legal Issues Presented

Whether a notice issued under section 271(1)(c) must specify which limb of section 271(1)(c) is being invoked — i.e., whether the penalty proceedings are for concealment of particulars of income or for furnishing inaccurate particulars of income — and whether a notice failing to specify the limb is bad in law.
Whether a bona fide, inadvertent clerical error (in computation of cost of acquisition leading to an incorrect LTCG figure) justifies levy of penalty under section 271(1)(c), or whether such error precludes imposition of penalty.
Whether the matter is covered by existing Division Bench and High Court precedents such that no substantial question of law arises for the Tribunal to determine afresh.

Arguments of the Parties

Appellant's (Assessee's) Arguments

The notice under section 271(1)(c) should explicitly indicate which limb of the provision is being invoked — concealment of particulars or furnishing inaccurate particulars — and in the absence of such specification no penalty should be levied.
Reliance was placed on Karnataka High Court decisions (including CIT vs SSAs Emerald Meadows and the Division Bench decision in Commissioner of Income Tax vs. Manjunatha Cotton and Ginning Factory) establishing that a notice not specifying the limb is bad in law.
The error in computation of cost of acquisition (leading to an incorrect LTCG figure) was an inadvertent, bonafide human error committed by the tax return preparer/staff and not an attempt to conceal income; the mistake was corrected during the course of assessment and therefore penalty is not justified.
Additional High Court decisions following the Manjunatha Cotton ratio were cited in support (e.g., Mitsu Industries Ltd., Narayana Heights & Towers, and others listed by the appellant).

Respondent's (Revenue's) Arguments

The Department argued that mistakes in the notice can be rectified under section 292B, and relied on orders of the lower authorities which maintained the penalty.
The revenue defended the initiation of penalty proceedings and relied on the assessment and penalty orders passed by lower authorities.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
CIT vs. SSAs Emerald Meadows (2015)	Held that a notice under section 271(1)(c)/section 274 is bad in law if it does not specify which limb of section 271(1)(c) is being invoked (concealment or furnishing inaccurate particulars).	The Tribunal and the Bench treated this decision as supporting the proposition that the AO's pre-printed, non-specific notice was invalid; the Supreme Court's dismissal of SLP was noted as approving this approach.
Commissioner of Income Tax vs. Manjunatha Cotton And Ginning Factory (2013) 359 ITR 565 (Karnataka)	Clarified that "concealment" and "furnishing inaccurate particulars" are different and the AO must form a conclusion and indicate which limb is invoked when issuing a penalty notice; mere use of a standard proforma without striking out irrelevant limbs indicates lack of application of mind.	The Bench held the present matter was covered by this Division Bench ratio and applied it to conclude the AO's notice did not specify the limb and showed non-application of mind; this influenced the conclusion that penalty could not be sustained.
T. Ashok Pai (292 ITR 11)	Explained that concealment of income and furnishing inaccurate particulars carry different connotations.	The Manjunatha Cotton decision referred to Ashok Pai; the Bench relied on this chain of reasoning when treating the AO's failure to specify the limb as fatal to the penalty notice.
Manu Engineering (122 ITR 306) & Virgo Marketing (171 Taxman 156)	Held that levy of penalty must be clear as to the limb under which it is levied; where the position is unclear the penalty is not sustainable.	These authorities were cited in support of the proposition that an ambiguous/unspecified notice cannot sustain a penalty; the Tribunal relied on this principle in reaching its decision.
Price Waterhouse Coopers P. Ltd. vs. CIT (2012) 348 ITR 306	Held that absence of due care by itself does not necessarily mean that an assessee is guilty of furnishing inaccurate particulars or attempting to conceal income; a bonafide/inadvertent/human error does not automatically attract penalty.	The Bench relied on this authority to conclude that the clerical/inadvertent mistake by the tax return preparer did not constitute grounds for imposing penalty under section 271(1)(c).
CIT vs. SKY Auto Products Pvt. Ltd. (2004) 271 ITR 335 (M.P. High Court)	Where a taxpayer's mistake (e.g., incorrect claim of depreciation) is bonafide, such a mistake does not provide a valid ground for imposition of penalty under section 271(1)(c).	The Bench cited this decision as authority for treating the assessee's error as bonafide and not a basis for penalty.
M/s K.C. Builders vs. ACIT (2004) 265 ITR 562	Mere omission from the return of an item of receipt does not amount to concealment or deliberate furnishing of inaccurate particulars unless there is evidence showing intention to hide income.	The Bench applied this principle to find no evidence of intent to conceal and to support deletion of the penalty.
Mitsu Industries Ltd.; Narayana Heights & Towers vs. ITO; other cited High Court orders	Listed by the appellant as decisions following the Manjunatha Cotton ratio that the limb of section 271(1)(c) must be specified and that ambiguous notices are invalid.	The Bench noted these cases were cited by the appellant to demonstrate consistent judicial treatment; they formed part of the judicial context relied upon by the Tribunal in its reasoning.

Court's Reasoning and Analysis

The Tribunal considered the rival contentions, the factual matrix and the authorities cited. The key analytical steps taken by the Court were:

The Tribunal examined the form and content of the notice issued under section 271(1)(c) and observed that the AO had used a pre-printed notice which did not clearly state or strike out which limb of section 271(1)(c) (concealment or furnishing inaccurate particulars) was being invoked. The Tribunal concluded that the AO did not apply his mind in specifying the basis for penalty initiation.
The Tribunal reviewed the factual circumstances surrounding the disputed capital gains computation: the land details (purchase year, area and cost), the portion actually sold, and the clerical mistake by the tax return preparer that resulted in use of the whole-share cost rather than proportionate cost. The assessee corrected the mistake in the return filed in compliance with the section 148 notice and the AO framed assessment under section 143(3)/147 on the corrected return.
On the legal question of the notice's validity, the Tribunal applied the ratio from the Division Bench (Manjunatha Cotton) and other High Court/Supreme Court authorities cited: concealment and furnishing inaccurate particulars are distinct concepts and the notice must indicate which limb is invoked — failure to do so renders the notice bad in law.
On the substantive question of penalty, the Tribunal applied authorities (Price Waterhouse, SKY Auto Products, K.C. Builders) holding that a bona fide, inadvertent human error (or omission) which is corrected does not amount to deliberate concealment or furnishing of inaccurate particulars warranting penalty under section 271(1)(c).
Balancing the procedural defect in the notice (lack of specification) together with the substantive finding that the error was inadvertent and rectified during assessment, the Tribunal concluded there was no basis to sustain the penalty and directed deletion of the penalty levied under section 271(1)(c).
The Bench also recorded that the Department had filed a Special Leave Petition which was dismissed by the Supreme Court, thereby approving the findings made by the Karnataka High Court in related precedents relied upon by the Tribunal.

Holding and Implications

Holding: The appeal of the assessee is allowed and the penalty imposed under section 271(1)(c) is deleted.

Implications:

Direct effect on the parties: The AO is directed to delete the penalty under section 271(1)(c) that had been levied and confirmed by the CIT(A). The assessee's appeal is allowed and the order was pronounced in open court on 21/07/2020.
Procedural guidance: The decision follows existing Division Bench and High Court authority emphasizing that a penalty notice under section 271(1)(c) must specify whether proceedings are for concealment or for furnishing inaccurate particulars; a pre-printed form not indicating the specific limb suggests non-application of mind and can render the notice invalid.
Substantive guidance: The Tribunal applied precedents holding that bona fide, inadvertent clerical errors (especially those corrected during assessment) do not warrant penalty under section 271(1)(c) absent evidence of intent to conceal.
Broader precedent status: The Bench noted that the Department's SLP was dismissed by the Supreme Court, which the Tribunal treated as approval of the Karnataka High Court findings relied upon. The Tribunal also observed that, in the view taken, no substantial question of law arose for further determination because the matter was covered by existing Division Bench precedent.

Copy recipients listed in the order: Appellant (Shri Subhash Sharma), Respondent (The DCIT Circle-6, Jaipur), the CIT(A), the CIT, the DR ITAT Jaipur, and Guard File. (As recorded in the order.)

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SUBHASH SHARMA, JAIPUR v. DCIT, CIRCLE-6, JAIPUR

PER R.C . SHARMA, AM : This is an appeal by the assessee against the order of ld. CIT (A)-2, Jaipur for the assessment year 2014-15, in the matter of penalty imposed under section 271(1)(c) of the I. T. Act.

2. Rival contentions have been heard and perused. Facts in brief are that the assessee is an Individual deriving income from salary, house property and other sources. The assessee for the year under consideration filed return of income u/s 139(1) declaring total income of Rs. 1,07,53,630/- which included Long Term Capital Gain of Rs. 94,72,909/- earned on sale of agricultural land which was jointly held in ITA No. 205/JP/2020 Shri Subhash Sharma, Jaipur. equal share with his brother Sunil Sharma. After processing the return, the AO issued notice under section 148. In the order framed under section 143(3) read with section 147, the AO made an addition on account of Capital Gains earned on sale of agricultural land. On the addition so made, AO also levied penalty under section 271(1)(c), which was confirmed by the ld. LD. CIT (A) and assessee is in further appeal before us.

3. It was argued by ld. A/R that any notice issued under section 274, read with section 271(1)(c) of the Income Tax Act, 1961, should specify under which limb of Section 271(1)(c) of the Act, the penalty proceedings had been initiated i.e. whether for concealment of particulars of income or furnishing of inaccurate particulars of income. In the absence of which no penalty should be levied on the assessee as determination of such limb is sine qua non for imposition of penalty under section 271(1)(c). Reliance was placed on the decision of Hon'ble Karnataka High Court in the case of CIT vs. SSAs Emerald Meadows reported in 2015(11) TMI 1620, wherein Hon'bleble Court has held that :-

3. The Tribunal has allowed the appeal filed by the assessee holding the notice issued by the Assessing Officer under section 274 read with section 271(1)(c) of the Income Tax Act, 1961 (for short the Act) to be bad in law as it did not specify which limb of Section 271(1)(c) of the Act, the penalty proceedings had been initiated i.e. whether for concealment of particulars of income or furnishing of inaccurate particulars of income. The Tribunal, while allowing the appeal of the assessee has relied on the decision of the division Bench of this Court rendered in the case of Commissioner of Income Tax vs. Manjunatha Cotton And Ginning Factory (2013) 359 ITR 565. ITA No. 205/JP/2020 Shri Subhash Sharma, Jaipur.

4. In our view, since the matter is covered by judgement of the Division Bench of this Court, we are of the opinion, no substantial question of law arised in this appeal for determination by this court. The appeal is accordingly dismissed. The department has filed SLP in the Hon'ble Supreme Court which has been dismissed. Therefore, Hon'ble Supreme Court has approved the findings made by Hon'ble Karnataka High Court in the case of CIT vs. SSAs Emerald Meadows and CIT vs. Manjunatha Cotton & Ginning Factory & Others (2013) 359 ITR 565. Hon'ble Karnataka High Court in the case of Manjunatha Cotton & Ginning Factory (2013) 359 ITR 565 (Karnataka) after referring to the decision of Hon'ble Supreme Court in the case of T. Ashok Pai, 292 ITR 11 held as under :- 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 a case of furnishing of inaccurate particulars. The Hon'ble Apex Court in the case of Ashok Pai reported in 292 ITR 11 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 122 ITR 306 and the Delhi High Court in the case of Virgo Marketing reported in 171 taxman 156, has held that levy of penalty has to be clear as to the 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 limp being concealment, then the notice has to be appropriately market. Similar is the case for furnishing inaccurate particulars of income. The Standard proforma without striking ITA No. 205/JP/2020 Shri Subhash Sharma, Jaipur. of the relevant clauses will lead to an inference as to non application of mind ..? 3.1 The ld. A/R further contended that the above ratio laid down in the case of Manjunatha Cotton & Ginning Factory (supra) has been followed by various High Courts in the below mentioned cases :-

i) Shri Samson Perinchery, ITA No. 1154, 953, 1097, 1226 of 2014 (Order dated 5.01.2017)(Bombay High Court). ii) SSAs Emerald Meadows (2016) 73 taxmann.com 241 (Karnataka High Court) iii) Mitsu Industries Ltd., ITA No. 216 of 2004, Gujarat High Court. iv) Narayana Heights & Towers vs. ITO Ward-2-4, Jaipur ITA No. No. 1033/JP/2016. 3.2. With regard to the merits of the addition and the penalty imposed thereon, contention of the ld. A/R was that the inadvertent human error of taking wrong/in excess cost of acquisition while computing Long Term Capital Gain was bonafide and unintentional and committed by tax return preparer of counsel of assessee due to oversight only as he could not notice that the entire land was not sold but only a part of it was so sold and therefore the entire cost of acquisition of land was not to be taken and only proportionate cost is to be taken.

4. On the other hand, it was contended by ld. D/R that under the provisions of section 292B, mistake in the notice can be rectified. She further relied on the orders passed by the lower authorities. ITA No. 205/JP/2020 Shri Subhash Sharma, Jaipur.

5. We have considered the rival contentions and carefully gone through the orders of the authorities below. We have also deliberated on the judicial pronouncements referred by the lower authorities in their respective orders as well as cited by the ld. A/R and ld. D/R during the course of hearing before us, in the context of factual matrix of the case. From the record, we find that assessee jointly with his brother Shri Sunil Sharma sold share in agricultural land. The said agricultural land was purchased long back in 1989 measured 18 Bigha 2 Biswa for Rs. 2,04,905/-. The assessees share in this land was 9 Bigha 1 Biswa. The assessee sold in this year 2 Bigha 6 Biswa out of his share. However due to clerical mistake the assessee and his brother Sunil Sharma in computation took cost of their respective part at Rs. 102303/- instead of Rs. 26037/-. The assessee at the time of filing of return of income given the purchase deed to Tax Return preparer staff of his tax consultant. But the tax return preparer staff of tax consultant due to inadvertent mistake claimed the entire cost of acquisition of assessees share of land measuring to 9 bigha 1 biswa i.e. Rs. 102303/- in computation of long term capital gain while the land sold was 2 bigha 6 biswa out of said land the proportionate cost of which worked to Rs. 26037/- only. The assessee also got information from his brother of said mistake but by that time notice u/s 148 was received by assessee. The assessee therefore, while filing return in compliance to notice u/s 148 corrected the mistake in computation of capital gain and filed return of income declaring total income of Rs. 1,11,69,992/- which included Long Term Capital Gain of Rs. 98,89,268/- in place of Rs. 94,72,909/- declared in original return. The ld. AO also completed assessment u/s 143(3) /147 on returned income filed in compliance to notice ITA No. 205/JP/2020 Shri Subhash Sharma, Jaipur. under section 148 but initiated penalty proceedings u/s 271(1)(c). The notice issued by the Assessing Officer under section 271(1)(c) of the Income Tax Act, 1961 is bad in law in as much as it did not specify in which limb of section 271(1)(c) of the Income Tax Act, 1961 the penalty proceedings has been initiated, i.e. whether for concealment of income or furnishing of inaccurate particulars of income. 5.1. It is pertinent to note that in the notice, AO has not clearly mentioned the limb, on the basis of which, penalty was proposed to be imposed. The AO in assessment order or penalty notices did not specify the limb under which the penalty was initiated and simply issued a pre-printed notice without striking off the unnecessary portions of the notice. If the AO was of the view that the assessee has concealed the income or furnishing inaccurate particulars of income then he should have deleted or not mentioned the other limb for imposition of penalty i.e. concealing the particulars of income. The above act of the AO clearly shows that the entire exercise of initiation of penalty proceedings has been done without application of mind. 5.2. With regard to the merits of the penalty so levied, we find that it was an inadvertent human error while taking the costs of acquisition at the time of computation of capital gain. It was a bonafide and unintentional mistake which was rectified during the course of assessment itself. The Hon'ble Supreme Court in case of Price Water House Coopers P. Ltd. vs. CIT (2012) 348 ITR 306 held that the assessee should have been careful but in absence of due care in a case did not mean that assessee was guilty of either furnishing inaccurate particulars or attempting to conceal the income. Thus no penalty can be levied for a bona fide/inadvertent/human error. ITA No. 205/JP/2020 Shri Subhash Sharma, Jaipur. 5.3. Further Hon'ble M.P. High Court in case of CIT vs. SKY Auto Products Pvt. Ltd. (2004) 271 ITR 335 held that where the assessee, a new businessman claimed depreciation for the full year in the first year of starting production though he was entitled only to fractional depreciation, it was a case of bonafide mistake on the part of the assessee. Such a ground cannot be a good ground for imposition of penalty u/s 271(1)(c). 5.4. The Hon'ble Supreme Court in the case of M/s. K.C. Builders vs. ACIT (2004) 265 ITR 562 held that mere omission from the return of an item of receipt does neither amount to be concealment nor deliberate furnishing of inaccurate particulars of income unless and until there is some evidence to show or some circumstances found from which it can be gathered that the omission was attributable to an intention or desire on the part of the assessee to hide or conceal the income so as to avoid the imposition of tax thereon. In the view of the above there was neither concealment nor the assessee furnished the inaccurate particulars of income. 5.6. In view of the above discussion, we do not find any merit for the penalty so levied under section 271(1)(c) of the IT Act. The AO is directed to delete the same.

6. In the result, appeal of the assessee is allowed. Order is pronounced in the open court on 21/07/2020. Sd/- Sd/- (fot; iky jkWo ( jes'k lh- 'kekZ ) (VIJAY PAL RAO) (RAMESH C. SHARMA ) U;kf;d lnL;@Judicial Member ys[kk lnL;@Accountant Member ITA No. 205/JP/2020 Shri Subhash Sharma, Jaipur. Jaipur Dated:- 21/07/2020. Das/ vkns'k dh izfrfyfi vxzsf"kr@Copy of the order forwarded to:

1. The Appellant- Shri Subhash Sharma, Jaipur.

2. The Respondent The DCIT Circle-6, Jaipur.

3. The CIT(A).

4. The CIT,

5. The DR, ITAT, Jaipur

6. Guard File (ITA No. 205/JP/2020) vkns'kkuqlkj@ By order, lgk;d iathdkj@ Assistant. Registrar

SUBHASH SHARMA, JAIPUR v. DCIT, CIRCLE-6, JAIPUR

Factual and Procedural Background

Legal Issues Presented

Arguments of the Parties

Appellant's (Assessee's) Arguments

Respondent's (Revenue's) Arguments

Table of Precedents Cited

Court's Reasoning and Analysis

Holding and Implications

SUBHASH SHARMA, JAIPUR v. DCIT, CIRCLE-6, JAIPUR

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