Commissioner Of Income Tax,Faridabad v. M/S Ssp (P) Ltd

IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH ITA No.586 of 2007Date of decision: 7.2.2008 Commissioner of Income tax,Faridabad ......Appellant Versus M/s SSP (P) Ltd.......Respondent CORAM:-HON'BLE MR.JUSTICE SATISH KUMAR MITTALHON'BLE MR.JUSTICE RAKESH KUMAR GARG * * * Present:Mr. Yogesh Putney, Advocate for the appellant-revenue. * * * Rakesh Kumar Garg, J . 1.The present appeal has been filed by the revenue against theorder dated 5.4.2007 passed by the Income Tax Appellate Tribunal, DelhiBench 'H' New Delhi in ITA No.175/D/2006 in the case of respondent-assessee for the assessment year 1993-94 raising the followingsubstantial questions of law:-. “(a) Whether on the facts and in the circumstances ofthe case, the Hon'ble ITAT erred in deciding that provingcontumacious intent is an essential ingredient in levy ofpenalty in contravention of the provisions of a CivilStatute like Income Tax Act in spite of there being somany judgements that breach of a Civil obligationattracts levy of penalty whether the contravention wasmade by the defaulter with any guilty intention or not?(b) Whether on the facts and in the circumstances of thecase, the Hon'ble ITAT is in contravention of manyjudicial pronouncements including Thirupathy KumarKhemka vs. Commissioner of Income Tax210 CTR 287 (Mad)? (c) Whether on the facts and in the circumstances ofthe case, the Hon'ble ITAT erred in deleting the penaltylevied u/s 271(1)(c) of the Income Tax Act, 1961whereasithadconfirmedalltheadditions/disallowances?” 2.Brief facts giving rise to this appeal are as under:- The respondent-assessee filed a return declaring income ofRs.45,62,890/- on 4.1.1994 which was processed under Section 143(1)(a)of the Income Tax Act (for short the 'Act') on an income of Rs.53,17,880/-vide order dated 14.2.1994. This order was rectified under Section 154 ofthe Act on an income of Rs.45,76,027/- vide order dated 4.3.1994 and thesame was again rectified on 18.3.1994 to an income of Rs.45,63,320/-,and finally the assessment was made vide order dated 26.3.1996 by theAdditional Commissioner of Income tax, Special Range, Faridabad underSection 143 (3) of the Income Tax Act, 1961. While making theassessment, the Assessing Officer observed that the assessee has notshown purchases of Rs.5,71,360/- in the closing stocks and therebyconcealed income to that extent. He further observed that the assesseehas filed inaccurate particulars of income by making a wrong claim ofcommission paid by M/s Rohan Engineers & Consultant (P) Ltd. forRs.94,991/-. He also observed that the assessee has made falsestatement with regard to the payment of Rs.52,500/- to M/s ProplusManagement, Registrar of Companies and Sh. K.K. Paul claiming thisexpenditure to be revenue in nature whereas the same was capitalexpenditure. Thus, the Assessing Officer vide the assessment order dated26.3.1996 made the assessment and also ordered for initiation ofproceedings under Section 271(1)(c) of the Act.Against the above orders,the assessee filed an appeal before the Commissioner of Income Tax (Appeals), Faridabad who partly allowed the appeal vide his order dated16.2.1998 against which both revenue and the assessee preferredappeals before the Tribunal which was decided by the Tribunal vide itsorder dated 5.8.2004 in ITA No.2865/D/98. (Appeals), Faridabad who partly allowed the appeal vide his order dated16.2.1998 against which both revenue and the assessee preferredappeals before the Tribunal which was decided by the Tribunal vide itsorder dated 5.8.2004 in ITA No.2865/D/98. 3.The Assessing Officer initiated penal proceedings underSection 271 (1)(c) and in those penalty proceedings, the assessee wasgranted an opportunity to explain as to why penalty orders should not bepassed on the points of additions which were finally upheld by theTribunal. The assessee vide his letter dated 18.4.2005 submitted thatthey had neither concealed nor submitted any inaccurate particulars and itwas requested that the penalty proceedings may be dropped. However, theAssistant Commissioner of Income Tax, Range-I, Faridabad vide his orderdated 28.4.2005 passed the penalty order against the respondent-assessee. The relevant part of the order is reproduced as under:- “In view of the above position, it is held that theassessee concealed income of Rs.5,71,360/- by notshowing purchases of the same amount in the closingstock. Further, the assessee filed inaccurate particularsby making a wrong claim of payment of commission ofRs.94,991/- to M/s Rohan Engineers & Consultants (P)Ltd..Similarly the asseessee company made paymentsof Rs.52,500/- to M/s Proplus Management, Registrar ofCompanies and Sh. K.K. Paul and claimed the same asrevenue expenditure when in fact, they were of capitalnature. This total income concealed/inaccurateparticulars filed was of the order of Rs.7,18,851/- and Iam satisfied that for concealment/wrong claim, theassessee is liable to penalty on the sum ofRs.7,18,851/-. A penalty of Rs.4,15,000/- is as such imposed which is worked out as under:- Tax payable on income of Rs.54,03,021/- The above penalty order has been passed aftertaking necessary approval from the Addl. Commissionerof Income Tax, Range-I, Faridabad communicated videhis letter No.380 dated 28.04.2005.” 4.Feeling aggrieved against the order dated 28.4.2005, theassessee filed an appeal before the Commissioner of Income Tax(Appeals), Faridabad who vide his order dated 26.10.2005 dismissed theappeal filed by the assessee and confirmed the order of the AssessingOfficer with the further directions to the Assessing Officer to includeRs.2,85,585 for further enhancement of the penalty.5.The assessee filed an appeal before the Tribunal against theorder of the Commissioner of Income Tax (Appeals) whereby he hasupheld the order of imposing the penalty under Section 271(1)(c ) of theAct passed by the Assessing Officer. The Tribunal vide its order dated5.4.2007 accepted the appeal filed by the assessee and set aside the order of the CIT(A) and deleted the penalty of Rs.4,15,000/-. The operative partof the judgement of the Tribunal is reproduced as under:- of the CIT(A) and deleted the penalty of Rs.4,15,000/-. The operative partof the judgement of the Tribunal is reproduced as under:- “ We have heard the rival submissions and perused theorders of the lower authorities and the materialsavailable on record. We find that the AO observed thatthe assessee has not shown purchases of Rs.5,71,360/-in the closing stock and thereby concealed income tothat extent. He further observed that the assessee hasfiled inaccurate particulars of income by making a wrongclaim of commission paid to M/s Roshan Engg. &Consultants (P) Ltd. Rs.94,991/-. He further observedthat similarly the assessee has made false statementwith regard to the payment of Rs.52,500/- to M/s.Proplus Management Service, Registrar of Companiesand Sh. K.K. Paul claiming this expenditure to berevenue in nature whereas the same was capitalexpenditure. The AO held that the assessee hasfurnished inaccurate particulars of income amounting toRs.7,18,851/- and levied penalty of Rs.4,15,000/-. Wefind that the return was filed by the assessee on4.1.1994 whereas the decision of the Hon'ble SupremeCourt in the case of Brooke Bond India Ltd. vs. CIT225 ITR 798 (SC) was rendered on 27.2.1997 holdingfees payable to Registrar of Companies for increase inshare capital as capital expenditure. Thus on the dateof filing of the return the assessee did not have thebenefit of the order of the Hon'ble Supreme Court.Therefore, penalty cannot be levied on the sum ofRs.7,500/- paid to Registrar of Companies. Further with regard to Rs.5,71,360/- not shown the assessee in theclosing stock we find that the assessee admitted themistake and the Tribunal while deciding the issue hasheld that this amount has to be included in the closingstock of the year under appeal and simultaneously hasto be considered in the opening stock in subsequentyear. Thus we find that the net result to the addition ofthe income of the assessee is zero as addition is madein one year whereas deduction is allowed in thesubsequent year. Further the AO as well as the CIT(A)has not allowed the deduction for payment ofRs.25,000/- to M/s. Proplus Management andRs.20,000/- to Sh. K.K. Paul on the ground thatevidence for rendering of services could not be filed. Inthese facts we are of the view that though the AO wasof the view that no services were rendered by the twopersons M/s Proplus Management and Sh. K.K. Paul,but it cannot be said that the assessee filed inaccurateparticulars of income or concealed its income. TheHon'ble Supreme Court in the case of CementMarketing Company of India Ltd. v. ACIT and others124 ITR 15 (SC) has held that unless the filing of aninaccurate return is accompanied by a guilty mind,penalty cannot be imposed. If the view canvassed onbehalf of the revenue were accepted, the result would bethat if the assesses raised a bona fide contention that aparticular item is not taxable, he would have to show itas forming part and pay tax upon it on the point of beingheld liable for penalty in case contention is ultimately found by the Court to be not acceptable. This surelycould never have been intended by the legislature.Hence, for the reasons given above, we are of the viewthat the penalty levied cannot be sustained in law.Hence, we set aside the order of the CIT(A) and deletethe penalty of Rs.4,15,000/-. The grounds of appeal ofthe assesses are allowed.” 6.Mr. Yogesh Putney, counsel for the appellant, has argued thatthe assessee had filed inaccurate particulars as the additions have beenmade on the returned income as declared by the assessee and therefore,the breach of this statutory obligation attracts levy of penalty irrespective ofthe fact whether the contravention was made by the assessee with anyguilty intention or not. found by the Court to be not acceptable. This surelycould never have been intended by the legislature.Hence, for the reasons given above, we are of the viewthat the penalty levied cannot be sustained in law.Hence, we set aside the order of the CIT(A) and deletethe penalty of Rs.4,15,000/-. The grounds of appeal ofthe assesses are allowed.” 6.Mr. Yogesh Putney, counsel for the appellant, has argued thatthe assessee had filed inaccurate particulars as the additions have beenmade on the returned income as declared by the assessee and therefore,the breach of this statutory obligation attracts levy of penalty irrespective ofthe fact whether the contravention was made by the assessee with anyguilty intention or not. 7.After considering the arguments raised by the counsel for theappellant and perusing the record, we find no force in the contention raisedby the counsel for the appellant. A perusal of the impugned order wouldshow that the Tribunal has given a finding of fact to the effect that returnwas filed by the assessee on 4[th] January, 1994 whereas the Apex Court inthe case ofBrooke Bond India (Ltd.) vs. CIT225 ITR 798 (SC) renderedthe decision on 27.2.1997 holding fees payable to Registrar of Companiesfor increase in share capital as capital expenditure. Thus, the penaltycannot be levied on the amount paid to the Registrar of Companies. It hasalso been found by the revenue that with regard to sum of Rs.5,71,360/-which was not shown by the assessee in the closing stock, the Tribunalwhile deciding the quantum appeal, has held that this amount has to beincluded in the closing stock of the year under appeal and simultaneouslyhas to be considered in the opening stock in subsequent year and the netresult to the addition of the income of the assessee is zero on this account. Similarly, the Tribunal has given a finding with regard to theclaim of deduction for payment of Rs.25,000/- to M/s Proplus Managementand Rs.20,000/- to Sh. K.K. Paul. It cannot be said that the assessee filedinaccurate particulars of income or concealed its income. The Hon'bleSupreme Court in the case ofCement Marketing Company of India Ltd.v. ACIT and others 124 ITR 15 (SC) has held that unless the filing of aninaccurate return is accompanied by a guilty mind, penalty cannot beimposed. It has been further held that return cannot be “false” unless thereis an element of deliberateness in it. Where the assessee does not includea particular item in the taxable turnover under bona fide belief that he is notliable so as to include the same, it would not be right to treat the return as afalse return inviting imposition of penalty. Thus, we are of the view that theorder of the Tribunal does not suffer from any illegality and no substantialquestion of law arises in the appeal and the same is dismissed in limine. (RAKESH KUMAR GARG) JUDGE February 7, 2008ps (SATISH KUMAR MITTAL) JUDGE