The order of the Bench was delivered by
T. R. Meena (Accountant Member)- This is an appeal filed by the assessee against the order dated November 21, 2012, of the learned Commissioner of Income-tax (Appeals)-III, Jaipur, for the assessment year 2006-07. The effective grounds of appeal are as under :
"1. In the facts and in the circumstances of the case and in law the learned Commissioner of Income-tax (Appeals) has erred in confirming the action of the learned Assessing Officer in imposing penalty under section 271(1)(c) of the Income-tax Act, 1961, amounting to Rs. 2,44,937. The action of the learned Commissioner of Income-tax (Appeals) is illegal, unjustified, arbitrary and against the facts of the case. Relief may please be granted by quashing the penalty of Rs. 2,44,937 imposed under section 271(1)(c).
2. In the facts and in the circumstances of the case and in law the learned Commissioner of Income-tax (Appeals) has erred in confirming the action of the learned Assessing Officer in imposing penalty under section 271(1)(c) of the Income-tax Act, 1961, amounting to Rs. 2,44,937 on a dead person. The action of the learned Commissioner of Income-tax (Appeals) is illegal, unjustified, arbitrary and against the facts of thecase. Relief may please be granted by quashing the penalty order."
2. In this case, the assessee filed return on July 29, 2006. The case was scrutinised under section 143(3) of the Income-tax Act, 1961 (in short, "the Act") on December 17, 2008. During the course of assessment proceedings, the learned Assessing Officer made addition on account of cost of marble at Rs. 6,09,534 and disallowance of expenditure at Rs. 61,018. The assessee challenged these additions before the honourable Income-tax Appellate Tribunal, which has been confirmed. The learned Assessing Officer initiated the penalty proceeding for concealment of true income and furnishing inaccurate particulars of such income. The learned Assessing Officer before imposing penalty, gave reasonable opportunity of being heard. The assessee filed reply vide letter dated February 18, 2011, which has been considered by the Assessing Officer. After considering the assessee's reply, he has held that the assessee has declared income from construction and sale of shops during the year. The assessee has claimed bogus expenses of Rs. 6,09,534 as cost of marble. The assessee had debited total expenditure at Rs. 22,16,592 in the profit and loss account as per construction account filed with the return of income. The expenditure debited on account of cost of marble was not found to the Assessing Officer for business purposes. The assessee could not produce any evidence for claiming this expenditure. Spot inquiry got conducted through the Inspector level that no such work was done by the assessee. The assessee could not even specified in which particular shop or place, the marble was used. The assessee had thus failed to establish the genuineness of the expenditure of Rs. 6,09,534. While computing his total income, the assessee had claimed further expenses of Rs. 61,018 on account of bank commission and other expenses and during the course of assessment proceedings, the assessee himself admitted that these expenses were personal nature and were inadmissible. Therefore, the learned Assessing Officer imposed penalty at Rs. 2,44,937 under section271(1)(c) of the Act, which is 100 per cent. of tax sought to be evaded.
3. Being aggrieved by the order of the Assessing Officer, the assessee carried the matter before the learned Commissioner of Income-tax (Appeals), who had dismissed the appeal by observing that the findings of the Assessing Officer are based on the spot inquiry made by him and the assessee was given sufficient opportunity to produce the evidence of the use of marble. In the statement recorded on December 5, 2008, Shri Jagdish Prasad Jangir, who was looking after the construction work of the assessee and was also having power of attorney from the assessee, could not specify in which particular shop or place the marble was used. The assessee was also given an opportunity by the Assessing Officer to file an affidavit stating that the marble was actually used and identify the particular shop or place where it was used. The assessee refused to do so, vide his letter dated August 17, 2008. Therefore, disallowance was not made on account of lack of evidences but no marble was used by the assessee. The additional evidences filed in the form of photo copies of self-made vouchers and payment slips do not prove the use of marble in the construction of complex. The assessee could not produce original copy of the evidences before the Assessing Officer for verification. Page 1 of the additional evidences filed, a self-made voucher of Rs. 4,11,608, which was dated March 31, 2008, whereas the corresponding bill of lading at page 2 was dated February 3, 2006. Hence, he has not admitted the additional evidence as genuine and valid evidence. Thus, evidences were not made available during the quantum proceedings before the honourable Income- tax Appellate Tribunal. The learned Assessing Officer had proved beyond doubt that the marble was nowhere used in the construction of complex. Therefore, the assessee claimed bogus expenses. The learned Commissioner of Income-tax (Appeals) upheld the penalty under section 271(1)(c) of the Act. He also considered the various case law on disallowance of business expenses. The issue of penalty can be imposed on the expired person, has also considered by the learned Commissioner of Income-tax (Appeals). He held that the assessment proceedings was completed at the time when he was alive even up to the learned Commissioner of Income- tax (Appeals). In this case, the assessee himself filed the return not by the legal heirs. The case law referred to by the assessee are also not convinced him that penalty cannot be imposed on the expired assessee. Therefore, he confirmed the penalty.
4. Now, the assessee is in appeal before us. The learned authorised representative of the assessee has submitted that the marble expenditure was duly reflected in the regularly maintained books of account of Kamla Modi Market. The marble was purchased by the assessee on February 3, 2006, from Wonder Granite Pvt. Ltd., Gurgaon, Haryana. He has drawn our attention on page 9 of the paper book to confirm the marble purchase. This evidence proved beyond doubt that this expenditure was genuine and incurred by the assessee. The marble expenditure was related to that portion of property, which was sold during the year. Therefore, the same was directly debited to the profit and loss account otherwise also the method of accounting employed by the assessee is not relevant for claiming any expenditure. Before the Assessing Officer in the assessment proceedings, has furnished photo copies of bills but original bills could not be produced before him. As the assessee already expired, therefore, original vouchers could not be produced. The legal heirs of the assessee made various efforts to trace out the original voucher but they were also helpless to produce these vouchers but at the stage of this appeal, they have been produced before the honourable Bench. The learned Commissioner of Income-tax (Appeals)'s observation is also not right that photo copies of the bills are not genuine. If any doubts were in the mind of the learned Commissioner of Income-tax (Appeals) or the learned Assessing Officer they have power to issue summon to the marble supplier. At the time of spot inquiry conducted through the Inspector, the marble was not found fixed in the constructed area, it is claimed that there is possible to alter the marble fixed by the assessee by the buyer as marble was placed in February, 2006, whereas inquiry was made in December, 2008. The penalty imposed under section 271(1)(c) of the Act is not automatic. The learned Assessing Officer disallowed the expenses, does not mean that the assessee had concealed the particulars of income. He relied on the decision of the honourable Punjab and Haryana High Court in the case of CIT v. Ajaib Singh and Co. [2002] 253 ITR 630 (P&H). It is further submitted that merely making a claim, which is not substantial by itself will not amount to furnishing inaccurate particulars regarding the income of the assessee. He placed reliance on the decision of the honourable Supreme Court in the case of CIT v. Reliance Petroproducts Pvt. Ltd. [2010] 322 ITR 158 (SC). It is further argued that on dead person, no penalty can be imposed, which deals with the obligation of the legal representatives of the deceased person. As per sub-section (1), the legal representative has obligation to pay any sum. Sub-section (2) deals with assessment against the legal representative and recovery of sum from him. Sub-section (2) provides for assessment of income only and does not provide for levy of penalty. Thus, if penalty was levied on the assessee while he was alive the liability to pay the said sum would be on the legal representatives in terms of sub-section (1). However, if penalty was not levied when the assessee was alive the same cannot be levied on the legal representative of the deceased assessee as no such authority is given under sub-section (2). He further argued that as per section 159(2)(b) read with sub-sections (1) and (2) any proceeding which could have been taken against the deceased if he had survived may be taken against the legal representative, would mean that for recovery of sum as per sub-section (1) any proceedings, i.e., recovery but not include the imposition of penalty. The learned authorised representative further relied on the decision in the case of Bhuban Mohan Mitter Charitable Trust v. ITO [1993] 45 ITD 617 (Cal) wherein the honourable High Court has held that penalty proceedings are quasi-criminal in nature. In criminal jurisprudence, a crime dies with a man and the legal representative of the deceased offender or criminal legal heirs cannot be penalised for the offences or crimes committed by the deceased. Therefore, penalty proceedings abate on the death of the assessee. He further relied on the decision in the case of Bhagwansingh Shriramsingh L/H Dinesh Bhagwan Singh v. ITO [2006] [2006] 9 SOT 73 (Mum) (URO) wherein it has been held that penalty proceedings are different and distinct in nature than tax while tax are price paid for buying civilisation. Penalties are levied for the contumacious conduct of the wrong doer, who is deceased in the case before it. The honourable Income- tax Appellate Tribunal deleted the penalty on the deceased person. He further relied on the decision in the case of ITO v. V. P. Sharma [2006] 154 Taxman 34 (Delhi) (Mag.) wherein the co-ordinate Bench has considered the phrase "any sum" given in section 159(1) and held that which includes only tax not penalty proceedings. Accordingly, it allowed the appeal of the assessee. He also distinguished the case law relied upon by the learned Commissioner of Income-tax (Appeals), i.e., Smt. Tapati Pal v. CIT [2000] 241 ITR 468 (Cal) ; [2002] 124 Taxman 123 (Cal) and finally he prayed to cancel the penalty confirmed by the learned Commissioner of Income-tax (Appeals).
5. At the outset, the learned Departmental representative has vehemently supported the order of the learned Commissioner of Income-tax (Appeals).
6. We have heard the rival contentions of both the parties and perused the material available on the record. It is undisputed fact that the assessee expired on November 22, 2010. In this case, the assessment was completed on December 17, 2008, and penalty was imposed on March 1, 2011. It means that after the death of the assessee. The assessee claimed the expenditure of Rs. 6,09,534 in the profit and loss account, which has been disallowed by the Assessing Officer. The same has been confirmed by the Income-tax Appellate Tribunal, vide order dated November 26, 2010. The assessee claimed that this marble was fixed in the construction made in Kamla Modi Market which was purchased on February 3, 2006. Copy of the bill placed before us on page 9 of the paper book, which is copy of the bill of lading for purchase of marble at Rs. 4,11,608 on which registration number of the seller and the name of the transporter has been given. The evidence placed for remaining expenses also perused and we find that the assessee could not produce these original evidences at the time of quantum proceedings but produced during the penalty proceedings before the learned Commissioner of Income-tax (Appeals) but he has not taken any cognizance. He simply treated them as non-genuine. The learned Commissioner of Income-tax (Appeals) has coterminous power with the Assessing Officer as penalty proceedings are distinct from the assessment order, he could have sent these evidences to the Assessing Officer for verification. The inquiry made by the Inspector in December, 2008, to verify the marble fixed in the constructed area. The case law referred by the assessee particularly the decision of the Mumbai Income-tax Appellate Tribunal Bench in the case of Bhagwansingh Shriramsingh L/H Dinesh Bhagwan Singh v. ITO [2006] 9 SOT 73 (Mum) (URO) is squarely applicable as any sum referred in section 159(1) does not include the penalty proceedings on the legal representative under section 159(2) of the Act. Therefore, penalty imposed on the legal heir is not justified. Accordingly, we reverse the order of the learned Commissioner of Income-tax (Appeals).
7. In the result, the assessee's appeal is allowed.
The order pronounced in the open court on May 6, 2016.