The Calcutta High Court has quashed the income tax penalty on the ground of genuine mistake in treating Hindu Undivided Family (HUF) partition as transfer.
The bench of Chief Justice T.S. Sivagnanam and Justice Chaitali Chatterjee (Das) has observed that the assessee upon partition of the HUF in full form mistakenly treated the assets in the hands of erstwhile co- parceners to be a transfer. This was subsequently ascertained during the course of the assessment proceedings and the assessee put forth the case to be a one of genuine mistake. If that be the case on facts, it is also one more ground for not to levy any penalty on the assessee.
The assessing officer completed the assessment for the assessment year under consideration under Section 143(3) of the Act by order dated 30.12.2016. While completing the assessment, an addition of Rs.7,29,59,117/- was made on the ground of disallowance of capital loss on dissolution of the HUF.
In the assessment order, the Assessing Officer has stated that he is satisfied that the assessee has furnished inaccurate particulars of the income by claiming the said amount as deduction and hence penalty proceedings under Section 271(1)(c) of the Income Tax Act is initiated.
The assessee filed a rectification petition under Section 154 of the Income Tax Act, in which it was pointed out that the total income has been assessed at Rs.36,11,706 by the Assessing Officer. However, the brought-forward long-term capital loss of previous years amounting to Rs.58,93,223/- has not been considered, pursuant to which total income would be nil. Therefore, the assessee stated that there would not be any tax payable by the assessee.
Necessary documents were also annexed to the petition filed under Section 154. It appears that no formal orders have been passed by the Assessing Officer in the petition filed under Section 154 of the Act. At the same time, no tax has been demanded from the assessee which would go to show that the entire issue is tax neutral.
Penalty proceedings were initiated, as noted above, on the alleged ground that the assessee furnished inaccurate particulars of income by claiming the said amount as deduction. In this regard, a show-cause notice was issued to which the assessee submitted their reply.
The Assessing Officer while passing the order under Section 271(1)(c) of the Income Tax Act held that the added amount is deemed to represent the income in respect of which particulars have been concealed.
Thus, the reason for levying the penalty is contrary to the reason for which the show- cause notice was issued prior to commencement of the penalty proceedings. This is a serious error which would result the order as a nullity. The assessee carried the matter in appeal before the National Faceless Appeal Centre (NFAC) contending that the order of penalty has been passed on a non-existent person namely, HUF, which has been dissolved and the properties have been partitioned to the erstwhile co- parceners.
It was contended that the order of penalty is levied on the ground of concealment of particulars of income, whereas the penalty proceedings were initiated on the alleged ground of furnishing inaccurate particulars.
The assessee contended that the limitation for initiation of the proceedings expired on 30.6.2017 and therefore, the entire proceedings are ab initio void.
The court held that the tribunal was right in allowing the assessee’s appeal and setting aside the penalty order. The appeal filed by the revenue is dismissed and the substantial questions of law are answered on the terms against the revenue.
Case Details
Case Title: Principal Commissioner Of Income Tax-9, Kolkata Vs.
Chandravadan Desai (HUF)
Case No.: ITAT/274/2024
Date: 16.04.2025
Counsel For Petitioner: Prithu Dudhoria
Counsel For Respondent: J. P. Khaitan, Sr. Adv.
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