D.b. Income Tax Appeal v. Shri Manoj Kumar Johari

HIGH COURT OF JUDICATURE FOR RAJASTHAN BENCH ATJAIPUR D.B. Income Tax Appeal No. 222 / 2016 Pr. Commissioner of Income Tax, Jaipur-3, Statue Circle , C Scheme, Jaipur. ----Appellant Versus Shri Manoj Kumar Johari, Prop. M/s The Art Palace, Sikar. AY 2008-09 ----Respondent _____________________________________________________ For Appellant(s) : Mr. Sameer Jain For Respondent(s) : Mr. Sanjay Jhanwar with Mr. Archana _____________________________________________________ HON'BLE MR. JUSTICE K.S.JHAVERI HON'BLE MR. JUSTICE INDERJEET SINGHJudgment 05/09/2017 1. By way of this appeal, the appellant has assailed judgment andorder of the Tribunal whereby the tribunal has allowed the appealof the assessee. 2.This court while admitting the appeal on 21.2.2017 framedfollowing substantial question of law:- “Whether the Tribunal is justified in deletingthe penalty u/s 271(1)(c) of Rs.24,20,000/-for furnishing inaccurate particulars ofincome with reference to the deductionclaimed u/s 10BA of the IT Act, ignoring thefindings of fact and law of the CIT(A)confirming the penalty?” 3.The facts of the case are that for the A.Y. 2003-04 theassessee declared income from his Proprietary business namedM/s. The Art Palace for the first time. Prior to that, for the A.Y.2002-03, assessee had income of Rs.88,240/- i.e. Rs.7,241/- asinterest and Rs.36,000/- as salary from M/s. Deepak Handicraftsand Rs.45,100/- as income from other sources. As per the balancesheet of assessee for the A.Y. 2002-03, assessee had loan ofRs.14,20,000/- from M/s. Indian Art Palace. M/s. Indian Art Palaceis a family partnership firm having assessee’s brothers, uncles andcousins as partners. M/s. Indian Art Palace was in existence sincelong and was in the same business as is the assessee even today.In the initial year when the assessee started his business he hadno machinery of his own, no business premises of his own and nosufficient capital of his own. All these business in puts werecontributed by M/s. Indian Art Palace, the old existing familyconcern of the assessee. He started his business in the samebusiness premises where very old firm M/s. Indian Art Palace wascarrying the business. He used the same old machinery belongingto M/s. Indian Art Palace, for which he paid rent to that concern.He also paid rent for the business premises separately, to M/s.Indian Art Palace. Assessee added to the machinery every yearbut continued to use the plant and machinery and premises ofM/s. Indian Art Palace and is till using these assets. 3.1The assessee claimed 100% deduction of his profit u/s 80IBfrom A.Y. 2003-04 to A.Y. 2005-06. When 100% deduction wasnot available to assessee from A.Y. 2006-07 onwards, the assessee switched over his claim from Section 80IB to section10BA, though there was no noticeable change in the nature ofassessee’s business. No new undertaking was set up by theassessee in A.Y. 2006-07 to 2009-10. As is evident from thesequence of events, the same business at the same place and withsame machinery had been going on for several years, in the nameof M/s. Indian Art Palace. 4.Counsel for the appellant contended that view taken by thetribunal is contrary to law and the penalty was required to beimposed. 5.Counsel for the respondent contended that in view of thedecision of the Supreme Court in Commissioner of Income Tax,Ahemdabad vs. Reliance Petroproducts (P.) Ltd. (2010) 322 ITR158 wherein Supreme Court held as under:- assessee switched over his claim from Section 80IB to section10BA, though there was no noticeable change in the nature ofassessee’s business. No new undertaking was set up by theassessee in A.Y. 2006-07 to 2009-10. As is evident from thesequence of events, the same business at the same place and withsame machinery had been going on for several years, in the nameof M/s. Indian Art Palace. 4.Counsel for the appellant contended that view taken by thetribunal is contrary to law and the penalty was required to beimposed. 5.Counsel for the respondent contended that in view of thedecision of the Supreme Court in Commissioner of Income Tax,Ahemdabad vs. Reliance Petroproducts (P.) Ltd. (2010) 322 ITR158 wherein Supreme Court held as under:- “8. Therefore, it is obvious that it must beshown that the conditions under Section271(1)(c)must exist before the penalty isimposed. There can be no dispute thateverything would depend upon the Returnfiled because that is the only document,where the assessee can furnish theparticulars of his income. When suchparticulars are found to be inaccurate, theliability would arise. In Dilip N. Shroff Vs.Joint Commissioner of Income Tax, Mumbai& Anr. [2007(6) SCC 329], this Courtexplained the terms "concealment ofincome"and"furnishinginaccurateparticulars". The Court went on to holdtherein that in order to attract the penaltyunder Section 271(1)(c), mens rea wasnecessary, as according to the Court, theword "inaccurate" signified a deliberate actor omission on behalf of the assessee. Itwent on to hold that Clause (iii) of Section271(1) providedforadiscretionary jurisdiction upon the Assessing Authority,inasmuch as the amount of penalty couldnot be less than the amount of tax sought tobe evaded by reason of such concealment ofparticulars of income, but it may not exceedthree times thereof. It was pointed out thatthe term "inaccurate particulars" was notdefined anywhere in the Act and, therefore,it was held that furnishing of an assessmentof the value of the property may not by itselfbe furnishing inaccurate particulars. It wasfurther held that the assessee must befound to have failed to prove that hisexplanation is not only not bona fide but allthe facts relating to the same and materialto the computation of his income were notdisclosed by him. It was then held that theexplanation must be preceded by a findingas to how and in what manner, the assesseehad furnished the particulars of his income.The Court ultimately went on to hold thatthe element of mens rea was essential. Itwas only on the point of mens rea that thejudgment in Dilip N. Shroff Vs. JointCommissioner of Income Tax, Mumbai & Anr.was upset. In Union of India Vs.Dharamendra Textile Processors (citedsupra),afterquotingfrom Section271 extensively and also considering Section271(1)(c), the Court came to the conclusionthat since Section 271(1)(c)indicated theelement of strict liability on the assessee forthe concealment or for giving inaccurateparticulars while filing Return, there was nonecessity of mens rea. The Court went on tohold that the objective behind enactmentof Section 271(1)(c) read with Explanationsindicated with the said Section was forproviding remedy for loss of revenue andsuch a penalty was a civil liability and,therefore, willful concealment is not anessential ingredient for attracting civilliability as was the case in the matter ofprosecution under Section 276-C of the Act.The basic reason why decision in Dilip N.Shroff Vs. Joint Commissioner of IncomeTax, Mumbai & Anr. (cited supra) wasoverruled by this Court in Union of India Vs.Dharamendra Textile Processors (citedsupra), was that according to this Court theeffect and difference between Section271(1)(c) and Section 276-C of the Act was lost sight of in case of Dilip N. Shroff Vs.Joint Commissioner of Income Tax, Mumbai& Anr. (cited supra). However, it must bepointed out that in Union of India Vs.Dharamendra Textile Processors (citedsupra), no fault was found with thereasoning in the decision in Dilip N. ShroffVs. Joint Commissioner of Income Tax,Mumbai & Anr. (cited supra), where theCourt explained the meaning of the terms"conceal" and inaccurate". It was only theultimate inference in Dilip N. Shroff Vs. JointCommissioner of Income Tax, Mumbai & Anr.(cited supra) to the effect that mens rea wasan essential ingredient for the penaltyunder Section 271(1)(c) that the decision inDilip N. Shroff Vs. Joint Commissioner ofIncome Tax, Mumbai & Anr. (cited supra)was overruled. 9. We are not concerned in the present casewith the mens rea. However, we have toonly see as to whether in this case, as amatter of fact, the assessee has giveninaccurateparticulars.InWebster'sDictionary, the word "inaccurate" has beendefined as:- "not accurate, not exact orcorrect; not according to truth; erroneous;as an inaccurate statement, copy ortranscript". We have already seen the meaning of theword "particulars" in the earlier part of thisjudgment. Reading the words in conjunction,they must mean the details supplied in theReturn, which are not accurate, not exact orcorrect, not according to truth or erroneous.We must hasten to add here that in thiscase, there is no finding that any detailssupplied by the assessee in its Return werefound to be incorrect or erroneous or false.Such not being the case, there would be noquestionofinvitingthepenaltyunder Section 271(1)(c) of the Act. A meremaking of the claim, which is notsustainable in law, by itself, will not amounttofurnishinginaccurateparticularsregarding the income of the assessee. Suchclaim made in the Return cannot amount tothe inaccurate particulars. 10. It was tried to be suggested that Section14A of the Act specifically excluded the deductions in respect of the expenditureincurred by the assessee in relation toincome which does not form part of thetotal income under the Act. It was furtherpointed out that the dividends from theshares did not form the part of the totalincome. It was, therefore, reiterated beforeus that the Assessing Officer had correctlyreached the conclusion that since theassessee had claimed excessive deductionsknowing that they are incorrect; itamounted to concealment of income. It wastried to be argued that the falsehood inaccounts can take either of the two forms;(i) an item of receipt may be suppressedfraudulently; (ii) an item of expenditure maybe falsely (or in an exaggerated amount)claimed, and both types attempt to reducethe taxable income and, therefore, bothtypes amount to concealment of particularsof one's income as well as furnishing ofinaccurate particulars of income. We do notagree, as the assessee had furnished all thedetails of its expenditure as well as incomein its Return, which details, in themselves,were not found to be inaccurate nor could beviewed as the concealment of income on itspart. It was up to the authorities to acceptits claim in the Return or not. Merelybecause the assessee had claimed theexpenditure, which claim was not acceptedor was not acceptable to the Revenue, thatby itself would not, in our opinion, attractthe penalty under Section 271(1)(c). If weaccept the contention of the Revenue then incase of every Return where the claim madeis not accepted by Assessing Officer for anyreason, the assessee will invite penaltyunder Section 271(1)(c). That is clearly notthe intendment of the Legislature. 11. In this behalf the observations of thisCourt made in Sree Krishna Electricals v.State of Tamil Nadu & Anr. [(2009) 23VST249 (SC)] as regards the penalty areapposite. In the aforementioned decisionwhich pertained to the penalty proceedingsin Tamil Nadu General Sales Tax Act, theCourt had found that the authorities belowhad found that there were some incorrectstatements made in the Return. However,the said transactions were reflected in the accounts of the assessee. This Court,therefore, observed: "So far as the question of penalty isconcerned the items which were notincluded in the turnover were foundincorporated in the appellant's accountbooks. Where certain items which are notincluded in the turnover are disclosed in thedealer's own account books and theassessing authorities include these items inthe dealer's turnover disallowing theexemption, penalty cannot be imposed. Thepenalty levied stands set aside." The situation in the present case is stillbetter as no fault has been found with theparticulars submitted by the assessee in itsReturn. 5.1He contended that the view taken by the tribunal is requiredto be approved. 6.We have heard counsel for the parties. 6.1Taking into consideration the view taken by the SupremeCourt (supra), the issue is answered in favour of the assessee andagainst the department. 7.The appeal stands dismissed. (INDERJEET SINGH)J. (K.S.JHAVERI)J. Brijesh 80.