Commissioner Of Income Tax, Faridabad v. M/S Lakhani Footwear Ltd

ITA No. 148 of 2010 IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH ITA No. 148 of 2010Date of Decision: 8.2.2011 Commissioner of Income Tax, Faridabad Versus M/s Lakhani Footwear Ltd. ....Appellant. ...Respondent. CORAM:-HON'BLE MR. JUSTICE ADARSH KUMAR GOEL.HON'BLE MR. JUSTICE AJAY KUMAR MITTAL. PRESENT: Ms. Urvashi Dhugga, Senior Standing Counselfor the appellant.for the appellant. Ms. Radhika Suri, Advocate for the respondent. AJAY KUMAR MITTAL, J. 1.This appeal has been preferred by the revenue underSection 260A of the Income Tax Act, 1961 (in short “the Act”) againstthe order dated 27.3.2009 passed by the Income Tax AppellateTribunal, Delhi Bench “D”, New Delhi (hereinafter referred to as “theTribunal”) in ITA No. 1059/Del/2008, relating to the assessment year1993-94, claiming the following substantial questions of law:- “I.Whether, on the facts and in the circumstances of thecase, the Ld. ITAT was right in law in upholding theorder of the Ld. CIT(A) in deleting the penalty ofRs.4,78,640/- on the ground of non-recording ofsatisfaction by the Assessing Officer in the II. III. assessment order despite the amendment by theFinance Act, 2008 with effect from 01.04.1989 toclause (1B) below Explanation 7 of Section 271(1)(c)of the Income Tax Act, 1961? Whether, on the facts and in the circumstances of thecase, the Ld. ITAT was right in law in upholding theorder of the Ld. CIT(A) in deleting the penalty ofRs.4,78,640/- on the ground that the additions basedon the difference of opinion and there is nomisrepresentation or misstatement of facts incontravention to the judgment of Hon'ble SupremeCourt in the case of Union of India and others vs.Dharmendra Textiles Processors and others (2008)306 ITR 277 (SC) wherein it was held that penaltyunder section 271(1)(c) of the Income Tax Act, 1961is a civil liability and the section has been enacted toprovide for a remedy for loss of revenue. Wilfulconcealment is not an essential ingredient forattracting civil liability as in the case in the matter ofprosecution under section 276C of the Income TaxAct, 1961? Whether, on the facts and in the circumstances of thecase, the ITAT was right in law in upholding theorder of the Ld. CIT (A) in deleting the penalty leviedby the Assessing Officer u/s 271(1)(c) of the IncomeTax Act, 1961 in respect of various additions in assessee's income which were confirmed by the Appellate Authorities at all level?” 2.Briefly stated, the facts necessary for adjudication asnarrated in the appeal are that assessee-company filed its return ofincome on 30.12.1993 for the assessment year 1993-94 declaring anincome of Rs.1,41,72,960/-. The assessment was completed on15.3.1996 at a total income of Rs.1,65,54,940/-. The Assessing Officervide order dated 29.4.2005 levied a penalty of Rs.4,78,640/- on theassessee for furnishing inaccurate particulars of the income. Feelingaggrieved, the assessee filed an appeal before the Commissioner ofIncome Tax (Appeals) [in short “the CIT(A)”]. The CIT (A) vide orderdated 8.1.2008 deleted the said penalty. Against the deletion ofpenalty, the department filed an appeal before the Tribunal who videorder dated 27.3.2009 upheld the order of the CIT (A) and dismissedthe appeal and this gave rise to the revenue to approach this Court byway of instant appeal. 3.We have heard learned counsel for the parties. 4.The issue that arises for consideration in this appeal iswhether the Tribunal was right in deleting the penalty levied underSection 271(1)(c) of the Act. 5.Learned counsel for the revenue placed reliance upon thefollowing observations in the judgment of Delhi High Court reported in Commissioner of Income Tax v. Gurbachan Lal [2001] 250 ITR157:- “A conspectus of the Explanation added by the FinanceAct, 1964, and the subsequent substituted Explanations 3.We have heard learned counsel for the parties. 4.The issue that arises for consideration in this appeal iswhether the Tribunal was right in deleting the penalty levied underSection 271(1)(c) of the Act. 5.Learned counsel for the revenue placed reliance upon thefollowing observations in the judgment of Delhi High Court reported in Commissioner of Income Tax v. Gurbachan Lal [2001] 250 ITR157:- “A conspectus of the Explanation added by the FinanceAct, 1964, and the subsequent substituted Explanations makes it clear that the statute visualized assessmentproceedings and penalty proceedings to be wholly distinctand independent of each other. In essence, theExplanation (after 1964) is a rule of evidence.Presumptions which are rebuttable in nature are availableto be drawn. The initial burden of discharging the onus ison the assessee. The rationale behind this view is that thebasic facts are within the special knowledge of theassessee. Section 106 of the Indian Evidence Act, 1872 (inshort, the “Evidence Act”) gives statutory recognition to thisuniversally accepted rule of evidence. There is nodiscretion conferred on the Assessing Officer as to whetherhe can invoke the Explanation or not. Explanation 1, whichprimarily concerns the case at hand, automatically comesinto operation when, in respect of any facts material to thecomputation of the total income of any person, there isfailure to offer an explanation or the explanation is offeredwhich is found to be false by the Assessing Officer or thefirst appellate authority, or an explanation is offered whichis not substantiated. In such a case, the amount added ordisallowed in computing the total income is deemed torepresent the income in respect of which the particularshave been concealed. As per the proviso to Explanation 1,the onus to establish that the explanation offered was bonafide and all facts relating to the same and material on thecomputation of his income have been disclosed by him will be on the person charged with concealment. Mere failureto substantiate the explanation is not enough to warrantpenalty. The Revenue has to establish that the explanationoffered was not substantiated. The proviso to Explanation1 is concerned only with cases coming under clause (B) ofthe Explanation where the assessee offered an explanationwhich he was not able to substantiate. The explanation ofthe assessee for purposes of the avoidance of penalty mustbe an acceptable explanation; it should not be a fantastic orfanciful one. As indicated above, the consequence followas a matter of law. The burden is on the assessee. If hefails to discharge that burden, the presumption that he hadconcealed income or furnished inaccurate particularsthereof is available to be drawn.” 6.It was submitted that in view of Explanation to Section 271(1)(c), the burden was upon the assessee to prove that there was noconcealment and once the explanation of the assessee was notaccepted in quantum proceedings, the penalty ought to have beenlevied, but the Tribunal had erred in deleting the same. 7.Controverting the aforesaid submissions, learned counselfor the assessee submitted that there was no concealment as all theparticulars of the income had been disclosed and the only issue was -whether the said income would fall under the head “income from houseproperty” or “business income”. It was further submitted that this issuewas highly debatable and in the case of sister concern of the assessee,the plea which has been raised by the assessee in the present case 6.It was submitted that in view of Explanation to Section 271(1)(c), the burden was upon the assessee to prove that there was noconcealment and once the explanation of the assessee was notaccepted in quantum proceedings, the penalty ought to have beenlevied, but the Tribunal had erred in deleting the same. 7.Controverting the aforesaid submissions, learned counselfor the assessee submitted that there was no concealment as all theparticulars of the income had been disclosed and the only issue was -whether the said income would fall under the head “income from houseproperty” or “business income”. It was further submitted that this issuewas highly debatable and in the case of sister concern of the assessee,the plea which has been raised by the assessee in the present case was accepted and the said income was held to be “business income” inthat case. That decision was not challenged by the revenue thereafter.It was also argued that the disallowance on account of depreciation onelectric installation, fire fighting, plant and machinery and on building aswell as relating to valuation of closing stock would not result inmisstatement or concealment of facts. Learned counsel has placedreliance on the findings of the Tribunal and the judgment of this Court inITA No. 450 of 2009 (Commissioner of Income Tax, Faridabad v.M/s SSP Ltd.) decided on 20.8.2009. 8.We have given our thoughtful consideration to therespective submissions of learned counsel for the parties and do notfind any merit in the submissions made by learned counsel for therevenue. 9.The principles enunciated in Gurbachan Lal's case(supra) are that the initial onus lay upon the assessee to prove thatthere existed no concealment or deliberate attempt on its part to furnishinaccurate particulars. The assessee was further required to establishthat the explanation so offered by it stood substantiated. In the presentcase, it has been specifically recorded by the CIT(A) and the Tribunalthat there was no deliberate concealment or misstatement of fact. Theclaim made by the assessee was with regard to certain deductionswhich involved difference of opinion and was debatable. Moreover, inthe case of the sister concern of the assessee, M/s Lakhani RubberUdyog Ltd. in ITA No. 1651/Del/98 for the assessment year 1993-94,the plea so raised in the present case was accepted and income was treated to be income from business and not income from houseproperty. The Tribunal while rejecting the appeal of the revenue inparas 3, 6 and 8 had recorded as under:- “3.Concealment penalty has been levied on threeadditions. First addition is of Rs.4,50,850/- wherein therental income was shown as business income and it hasbeen assessed by Assessing Officer as house propertyincome and such assessment of that income under thehead 'income from house properties' has been upheld uptothe level of the Tribunal. Ld. CIT(A) has deleted thispenalty on the ground of non-recording of propersatisfaction as well as on merits. It has been mentioned byCIT(A) that there was only a difference of opinion asaccording to the assessee the said income was assessableas “business income” and according to the Department saidincome was assessable under the head “income fromhouse properties”. It has also been pointed out by CIT(A)that for assessment year 1993-94, the plea of the assesseehas been accepted by the Tribunal in assessee's own casein ITA No. 1651/Del/98 and it was directed to the AssessingOfficer to decide the issue considering the decisions ofMadras High Court in the case of CIT vs. Sanmar HoldingsLtd. 183 CTR 346 and, thus, it has been held by CIT(A) thatthis was a case only of difference of opinion and theassessee did not misrepresent or misstate the factsregarding the source of income. Therefore, Ld. CIT(A) has deleted the penalty on this account. deleted the penalty on this account. XXXXXXXX6.The second addition in respect of which penalty hasbeen levied is depreciation on electrical installation, firefighting, plant and machinery and depreciation on buildingwhich is a sum of Rs.1,04,643/- as mentioned in groundNo.4 of the appeal filed by the revenue. Here also it hasbeen observed by the CIT(A) that this disallowance is alsomade on account of difference of opinion and there is nomisstatement or concealment of facts at any stage. TheCIT(A) has referred to the decision of Hon'ble Punjab &Haryana High Court in the case of CIT vs. Ajaib Singh &Co. 253 ITR 630 (P&H) according to which meredisallowance of an amount does not entail concealmentpenalty. It is also mentioned by CIT(A) that jurisdictionalHigh Court in the case of assessee in ITA No. 175 of 2005vide order dated 2[nd] April, 2007 has approved the decisionof ITAT Delhi Bench in assessee's own case and it hasbeen found from the record of CIT(A), Faridabad that noSLP was filed against the said order of the Punjab &Haryana High Court in appeal u/s 260A of the IT Act. Ld.CIT(A) also referred to the decision of the Tribunal in ITANo. 1650/Del/98 dated 29[th] November, 2004 in the case ofthe assessee for assessment year 1994-95 and, thus, hehas held that no penalty could be levied on suchdisallowance of depreciation. XX 8.Thirdly, the penalty has been levied on an addition ofRs.39,780/- which was made on account of under valuationof closing stock. Here also Ld. CIT(A) has given the findingthat there has been no misstatement or concealment offacts. It is only a case where claim of assessee has beenrejected and it is not a case where assessee hadsubmitted inaccurate particulars or concealed particulars ofits income. It has been pointed out by the CIT(A) that eventhough the addition in closing stock is made same isallowable in the next year as the additional cost of openingstock for that year. He also held that penalty cannot bejustified because it is a petty disallowance. After hearingLd. DR, we do not find any infirmity in such findings of CIT(A) and, thus, on third account also, it is not a justified casefor levy of penalty. In view of above discussion, we find noinfirmity in the order of the CIT(A) vide which penalty ofRs.4,78,640/- levied by the Assessing Officer has beendeleted for the reasons discussed above.” 10.The said finding has not been shown to be erroneous orperverse in any manner by the learned counsel for the appellant and,therefore, the judgment relied upon by the revenue, in the present facts,does not advance its case. This Court in M/s SSP Ltd's case (supra)considering similar situation had opined as under:- “A concurrent finding has been recorded on facts that therewas valid explanation that the assessee had raised ITA No. 148 of 2010 -10- debatable issue for claiming the expenditure anddisallowance is no ground for levying penalty. Mereerroneous claim in absence of any concealment or giving ofinaccurate particulars is no ground for levying penalty.” 11.Consequently, in view of the above, questions No.2 and 3cannot be held to be substantial questions of law. 12.In the light of finding of fact recorded by the CIT(A) andaffirmed by the Tribunal, question No.1 has been rendered academic. 13.Accordingly, no substantial question of law arises forconsideration in this appeal. 14.The appeal stands dismissed. (AJAY KUMAR MITTAL) JUDGE February 8, 2011gbs (ADARSH KUMAR GOEL)JUDGE