Ita/1/2004 Of Late Shri.c.d.joseph v. Commissioner Of Income Tax

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT THE HONOURABLE MR.JUSTICE K.VINOD CHANDRAN & THE HONOURABLE MR. JUSTICE ASHOK MENON FRIDAY ,THE 28TH DAY OF SEPTEMBER 2018 / 6TH ASWINA, 1940 ITA.No. 1 of 2004 AGAINST THE ORDER/JUDGMENT IN ITA 227/COCH/1995 ofI.T.A.TRIBUNAL,COCHIN BENCH DATED 30-06-2003 APPELLANT/S:/RESPONDENT LATE SHRI.C.D.JOSEPHREPRESENTED BY SHRI.SEBASTIAN JOSEPH, CHEMMANNUR JEWELLERY, M.G.ROAD, THRISSUR. BY ADVS.SRI.E.K.NANDAKUMAR (SR.)SMT.PRIYA MAHESHSMT.PRIYA MANJOORAN RESPONDENT/S:/APPELLANT COMMISSIONER OF INCOME TAX,COCHIN. BY ADVS.SRI.P.K.R.MENON, SR.COUNSEL, GOI (TAXES)SRI.JOSE JOSEPH, SC, INCOME TAX DEPT. THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 28.09.2018, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: K.VINOD CHANDRAN & ASHOK MENON, JJ. ------------------------------------- ITA No.1 of 2004 ------------------------------------------- Dated this the 28[th] day of September, 2018 J U D G M E N T Ashok Menon, J. Aggrieved by the order of the Income Tax AppellateTribunal, Cochin Bench allowing the appeal filed by theRevenue and reinstating the penalty imposed by theAssessing Officer, the assessee is before us underSection 260A of the Income Tax Act, 1961 ('Act' forbrevity). 2.The facts in brief are thus: Chemmannur Jewellery, Thrissur is a proprietorship runby the assessee. He filed a return declaring a loss ofRs.1,27,600/-for the assessment year 1989-1990. Oncompletion of the assessment under Section 143(1)(a) ofthe Act, it was revealed that the real profit from thebusiness was understated. During the course of theproceedings by the Assessing Officer (AO), the assesseeoffered Rs.16 lakhs as the net assessable businessincome after all admissible deductions, so as to cover ITA 1/04 the low margin of profit and the profit on sale ofornaments outside the accounts, which was accepted bythe assessing authority vide Annexure-A dated24.3.1992. 3.Vide Annexure-B order dated 28.9.1992, minimumpenalty of Rs.9,05,373/- was imposed on the assesseeunder Section 271(1)(c) of the Act. The assesseepreferred an appeal before the Commissioner of IncomeTax (Appeals) which was allowed and the penaltycancelled vide order dated 9.1.1995 at Annexure-C. 4.Aggrieved by this, the Department preferred anappeal before the Tribunal. But that appeal wasdismissed vide order dated 27.10.1998 produced asAnnexure-D. The Department came up with appeal beforethis Court and this Court vide judgment dated27.11.2002 at Annexure-E in ITA No.8/1999, remanded thematter to the Tribunal for re-consideration, directingExplanation I to Section 271(1)(c) of the Act, to betaken into account. 5.On re-consideration by the Tribunal, thepenalty imposed by the assessing authority wasconfirmed vide order dated 30.6.2003 at Annexure-F. The assessee filed an application for review before theTribunal on the ground that there was an error apparenton the face of the record, in view of not having takennote of a letter of the AO dated 24.12.1991 informingthe CIT, which stated that there was no cause ofconcealment of income for the concerned assessmentyear. There was no discussion about that letter in theorder. The Tribunal considered the point raised by theassessee and held that the letter of the AO wasconsidered by the Tribunal though it was notspecifically extracted in the order, and hence, therewas nothing to be reviewed and also observed that theTribunal had no power to review its order. Theapplication was thus rejected vide Annexure-G order. 6.The following substantial questions of lawarise for consideration:- “(i) Whether on the facts and circumstances ofthe case, and in the light of the provisionsof Section 271(1)(c) of the Income Tax Actthe Hon'ble Tribunal was right in law inconfirming the penalty against the assessee? 6.The following substantial questions of lawarise for consideration:- “(i) Whether on the facts and circumstances ofthe case, and in the light of the provisionsof Section 271(1)(c) of the Income Tax Actthe Hon'ble Tribunal was right in law inconfirming the penalty against the assessee? (ii) Whether on the facts andcircumstances of the case, the Hon'bleappellate tribunal was right in law and onfacts in holding that the acceptance by theassessing officer of the offer of the assessee of the sum of Rs.16 lakhs as additionalincome was not on the ground that the formerwas satisfied with the explanation offered bythe assessee? (iii)Whetheronthefactsand circumstances of the case, the Honourableappellate tribunal was right in law in notspecifically considering the factual findingof the assessing officer in the letter dated24.12.1991 to the Commissioner of Income Taxthat the evidence gathered for the assessmentyear 1989-90 was not sufficient to make out afool proof concealment case and proceeding toconfirm the penalty on the assessee?” 7.The learned Counsel appearing for the assessee submits that the Commissioner was approached by theassessee by filing a petition under Section 273A of theAct, as can be seen from the order of the assessingauthority at Annexure-A, para 7, stating thus: "In thecourse of assessment proceedings, the assessee hassubmitted a petition before the Commissioner of IncomeTax under Section 273A of the Act, wherein he isoffering an amount of Rs.15 lakhs as net assessablebusiness income after all admissible deductions, so asto cover the low margin of profit and the profit onsale of ornaments outside the accounts. He has furthermade an offer of another sum of Rs.1 lakh bywithdrawing the claim of Kuri loss, which was claimed on a pro-rata basis before the termination of the chitsand other minor inadmissible items of expenses." Theargument of the learned counsel for the assessee isthat in view of the offer made by the assessee beforethe Commissioner of Income Tax under Section 273A ofthe Act, the Assessing Officer (AO) was convinced andstated that "The sum of Rs.16 lakhs offered as above isaccepted as it reasonably covers the purchase inflationand profit on sale of ornaments outside the accountsand other inadmissible claims in the accounts." Inview of this statement in the assessment order, theassessee would claim that Section 273A would apply andnullify the effect of penalty. 8.The relevant portion of Section 273A(1) withthe Explanation reads as thus: “273A. Power to reduce or waive penalty,etc., in certain cases- xxxxxxxxx Explanation - For the purposes of this sub-section, a person shall be deemed to havemade full and true disclosure of his incomeor of the particulars relating thereto in anycase where the excess of income assessed overthe income returned is of such a nature asnot to attract the provisions of Section 270Aor clause (c) of sub-section (1) of section ITA 1/04 271.” According to the learned Counsel for the assessee, itis a voluntary disclosure made by the assessee prior tothe assessment by the AO and having made full and truedisclosure of the particulars, the penalty provisionunder Section 271(1)(c) would not be attracted. Percontra, the learned Senior Counsel for Government ofIndia (Taxes) submits that Section 273A is notattracted in cases where penalty has been imposed underSection 271(1)(c). ITA 1/04 271.” According to the learned Counsel for the assessee, itis a voluntary disclosure made by the assessee prior tothe assessment by the AO and having made full and truedisclosure of the particulars, the penalty provisionunder Section 271(1)(c) would not be attracted. Percontra, the learned Senior Counsel for Government ofIndia (Taxes) submits that Section 273A is notattracted in cases where penalty has been imposed underSection 271(1)(c). 9.It is pertinent to note that waiver orreduction of amount of penalty imposed under clause(iii) of sub-Section (1) of Section 271, is as perSection 273A(1)(ii)(b) & (c). Sub-clause (ii) ofSection 273A(1) speaks of reduction or waiver ofpenalty imposed or imposable on a person under Section271(1)(iii) only if both clauses (b) & (c) aresatisfied. That is, the assessee should have made afull and true, voluntary disclosure of the concealedincome or the inaccurate particulars furnished, beforedetection by the Assessing Officer; in good faith[Clause (b)]. The assessee also, in a case coming under Clause (b), ought to have co-operated in any enquiryrelating to the assessment of his income and has eitherpaid or made satisfactory arrangements to pay the taxor interest under the Act [clause (c)]. That apart, areading of the Explanation extracted above would alsoindicate that a person is deemed to have made a fulland true disclosure only if the excess income assessedover the income returned does not attract clause (c) ofsub-Section (1) of Section 271. 10.In the present case at the earlier instance onthe very same issue the Department was before thisCourt challenging the order of the Tribunal, confirmingthe order of the first appellate authority, deletingthe penalty imposed on the ground of the assesseehaving made a full and true disclosure prior to theassessment being completed and before any fool proofcase having been set up by the A.O of concealment. ThisCourt remanded the matter finding that the Tribunal hadnot considered the effect of Explanation I to Section271(1). 11.The Tribunal extracted Explanation 1(B) ofSection 271(1)(c) and in that background dealt with the facts of the case as directed by the High Court. It wasfound that the loss return was processed initially anda refund determined, subsequent to which scrutiny wastaken up. Extensive enquiries were made with theassessee when no disclosure was made. The A.O foundinflation of purchase and suppression of sales, whichwere objected to by the assessee. On the first issuethe rate of Gross Profit was found to be low based onthe industry average as also the anomalies reflected inthe purchase bills of old ornaments. The assessee wasfound to have not maintained the register under theGold Control Act properly; for reason of non-recordingof the net weight after wastage. On suppression it wasnoticed that the assessee having not accounted the netweight in purchases of old gold, was showing the saleon the differential weight; without taking into accountthe wastage on purchase and sale; a prevalent practicein the business. The assessee was found to have notoffered any satisfactory explanation. 12.Only on the assessee being confronted withsuch queries the assessee approached the Commissionerunder Section 273A. Even before the Commissioner, there was no disclosure of the particulars of concealment orthe actual income concealed. The assessee, to purchasepeace, offered a lump sum for addition, which was alsoaccepted by the AO as a reasonable amount. The assesseehence got away from an assessment on best judgment byoffering voluntarily the lump sum addition. Theassessee hence cannot be deemed to have made a full andtrue disclosure before the A.O and there is also nosatisfactory explanation offered. 12.Only on the assessee being confronted withsuch queries the assessee approached the Commissionerunder Section 273A. Even before the Commissioner, there was no disclosure of the particulars of concealment orthe actual income concealed. The assessee, to purchasepeace, offered a lump sum for addition, which was alsoaccepted by the AO as a reasonable amount. The assesseehence got away from an assessment on best judgment byoffering voluntarily the lump sum addition. Theassessee hence cannot be deemed to have made a full andtrue disclosure before the A.O and there is also nosatisfactory explanation offered. 13.The Tribunal laid emphasis on the fact thatthe assessee had not offered any explanation before theA.O and while the assessment on these queries werepending, the Commissioner was approached under Section273A. We are also of the opinion that the attempt ofthe assessee was to preempt the AO from finding thatthe explanation offered is not satisfactory.Significant also is the fact that the assessee; lendingcredence to the queries raised by the A.O, offered 16lakhs as income, out of which 15 lakhs was to cover upthe low gross profit and suppression of sales. Afurther amount of one lakh was offered to cover up theother inadmissible heads. The A.O accepted the amounts offered, not on account of satisfaction of theexplanation offered, but on the amounts offered beingcommensurate to the suppression detected. Hence, thereis no explanation offered by the assessee, bringing theissue squarely under Explanation I(A) of Section271(1). There is also no disclosure of all the factsand materials relating to the suppression resulting inconcealment of income and a mere lump sum addition wasoffered. This attracts Section 271(1)(C) of the I.T.Act and there is no escape from it. On the above reasoning the argument of the learnedcounsel for the assessee is not appealing to us. Themere fact that the AO wrote a letter to theCommissioner, taken up as a ground for review beforethe Tribunal, is also not acceptable for the purpose ofwaiver of penalty. Reduction of penalty is notpossible because what is imposed is minimum of thepenalty. We find no reason for interference with thefindings of the Tribunal and the AO in imposing thepenalty because here is a case where the assessee hadat the first instance declared a loss and onlyconsequent to the proceedings being initiated by the AO, did he come with a revelation of additional incomewhich would undoubtedly attract the provisions ofSection 271(1)(c) of the Act. The questions of laware, therefore, answered in favour of the Revenue andagainst the assessee. The appeal stands dismissed. Nocosts. Sd/-K.VINOD CHANDRANJUDGE Sd/-ASHOK MENONJUDGE jg ITA 1/04 APPENDIX APPELLANT'S EXHIBITS ANNEXURE-ACOPY OF THE ASSESSMENT ORDER FOR 1989-90 ISSUED BY THE INCOME TAX DEPARTMENTTO THE APPELLANT DATED 24.3.1992.90 ISSUED BY THE INCOME TAX DEPARTMENTTO THE APPELLANT DATED 24.3.1992. ANNEXURE-B COPY OF THE ORDER ISSUED BY THEASSISTANT COMMISSIONER TO THE APPELLANTDATED 28.9.1999.ASSISTANT COMMISSIONER TO THE APPELLANTDATED 28.9.1999. ANNEXURE-C COPY OF ORDER ISSUED BY THECOMMISSIONER OF INCOME TAX (APPEALS) TOTHE APPELLANT DATED 9.1.1995.COMMISSIONER OF INCOME TAX (APPEALS) TOTHE APPELLANT DATED 9.1.1995. ANNEXURE-D COPY OF THE TRIBUNAL ORDER DATED27.10.1998 TO THE APPELLANT.27.10.1998 TO THE APPELLANT. ANNEXURE-ECOPY OF JUDGMENT ISSUED BY THIS COURTDATED 27.11.2002.DATED 27.11.2002. ANNEXURE-F COPY OF THE ORDER OF THE TRIBUNAL TOTHE APPELLANT DATED 30.6.2003.THE APPELLANT DATED 30.6.2003. ANNEXURE-GCOPY OF THE ORDER OF THE TRIBUNAL TOTHE APPELLANT DATED 22.12.2003 MP27(COCH)/2003THE APPELLANT DATED 22.12.2003 MP27(COCH)/2003 //True Copy// jg