Ita/124/2019 Of M/S. Kite Maker v. The Income Tax Officer

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT THE HONOURABLE MR.JUSTICE S.V.BHATTI & THE HONOURABLE MR.JUSTICE VIJU ABRAHAM TUESDAY, THE 7 DAY OF SEPTEMBER 2021 / 16TH BHADRA, 1943 ITA NO. 124 OF 2019 AGAINST THE ORDER IN ITA 320/2017 OF I.T.A.TRIBUNAL,COCHIN BENCH,ERNAKULAM APPELLANT/S: M/S. KITE MAKERKTS SHOPPINT CENTRE, 1ST FLOOR, PONNURUNNI ROAD, CHALIKKAVATTOM, KOCHI-682 019, REPRESENTED BY ITS PARTNER SRI MANZOOR.M.M. BY ADVS.ANIL D. NAIRSRI.R.SREEJITHSRI.ACHYUT K PADMARAJSMT. ARYA ANILSHRI.GOKULRAJ L. RESPONDENT/S: THE INCOME TAX OFFICERWARD-2(3), KOCHI-682 018. BY SC SRI CHRISTOPHER ABRAHAM THIS INCOME TAX APPEAL HAVING COME UP FOR HEARING ON 07.09.2021, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: ITA No.124/2019 J U D G M E N T S.V. Bhatti, J. Heard learned Advocates Mr Anil D Nair and MrChristopher Abraham for parties. 2.M/s. Kite Maker/assessee is the appellant. The Income Tax Officer, Ward-2(3), Kochi/Revenue is therespondent. 3.The assessee challenges the order dated 25.09.2018 of the Income Tax Appellate Tribunal (for short 'Tribunal'), CochinBench, in I.T.A. No.320/Coch/2017 to the extent the order isagainst the assessee. The issues canvassed in the appeal relateto the return filed by the assessee for the Assessment Year 2010-11. The substantial questions of law raised in the appeal aremixed questions of fact and law arising under Section 271(1)(c) ITA No.124/2019 of the Income Tax Act, 1961 (for short, 'the Act'). 4.The circumstances necessary for disposing of theappeal are in a limited sphere and are stated thus: The subjectmatter of the appeal relates to the penalty proceedings for theomission or commission of assessee in either disclosing theincome or paying the tax for the Assessment Year 2010-11. On06.06.2011 the assessee filed the return for the Assessment Year2010-11, declaring a total income of Rs.1,64,990/-. The returnwas processed under Section 143(1) of the Act and order ofassessment dated 26.03.2013 was passed. The Assessing Officeradded the suppressed income received by the assessee andapplied for TDS deducted from the assessee for the same period.The concluding portion in the order dated 26.03.2013 reads asfollows: “Hence the books of the assessee is rejected as it is not areliable source for arriving at the assessee's income. This pointwas discussed with the assessee and a proposal to assessee the income at 12% of the total receipts was made and the assesseehas not objected to this. The total income is therefore fixed atRs.27,38,409/-. The assessment is completed as under: Assessed u/s. 143(3) of the IT Act. Demand notice & Calculationsheet enclosed. The demand should be paid as per DemandNotice enclosed.” (emphasis supplied) 4.1To the same effect is the computation on determining the tax payable by the assessee as Rs.5,88,800/-.The Assessing Officer, through Annexure-B order dated26.09.2013, made under Section 271(1)(c) of the Act, levied penalty of Rs.20,51,700/- under Section 271(1)(c) of the Act. Thebasis for the penalty is that the tax sought to be evaded by theassessee amounted to Rs.10,25,850/- and 200% penalty on the tax sought to be evaded was levied. On appeal, filed by theassessee, before the Commissioner of Income Tax (Appeals), the ITA No.124/2019 Commissioner set aside the order of penalty in Annexure-C dated 09.03.2017. In the appeal filed by the Revenue before theTribunal in I.T.A. No.320/Coch/2017, the Tribunal in-part setaside the order of the CIT (Appeals) and directed a minimumpenalty of 100% under Section 271(1)(c) and prescribed thepenalty payable by the assessee as Rs.10,25,850/-. Hence, theappeal at the instance of the assessee. 5.The following substantial questions of law are framedfor decision. “ i. In the facts and circumstances of the case, ought not theTribunal have held that there cannot be a levy of penalty underSec.271 (1) (c) on "estimated income” by the assessingauthority. tax sought to be evaded was levied. On appeal, filed by theassessee, before the Commissioner of Income Tax (Appeals), the ITA No.124/2019 Commissioner set aside the order of penalty in Annexure-C dated 09.03.2017. In the appeal filed by the Revenue before theTribunal in I.T.A. No.320/Coch/2017, the Tribunal in-part setaside the order of the CIT (Appeals) and directed a minimumpenalty of 100% under Section 271(1)(c) and prescribed thepenalty payable by the assessee as Rs.10,25,850/-. Hence, theappeal at the instance of the assessee. 5.The following substantial questions of law are framedfor decision. “ i. In the facts and circumstances of the case, ought not theTribunal have held that there cannot be a levy of penalty underSec.271 (1) (c) on "estimated income” by the assessingauthority. ii. In the facts and circumstances of the case, ought not theTribunal have held that the assessee was entitled for credit oftax deducted at source on the extent of Rs.4,63,824/- which wasnot given credit even while arriving at penalty proceedings.” 6.Advocate Mr Anil D Nair argues that the order of Tribunal in Annexure-D dated 25.09.2018 is firstly untenable ITA No.124/2019 and has not actually appreciated the reasoning of the CIT(Appeals) for completely relieving the assessee of the rigour ofpenalty under Section 271(1)(c) of the Act. That being the case,the order, to that extent, of the Tribunal is liable to be set aside.Alternatively, it is argued that even if the omission andcommission of the assessee warrant levy of penalty, it isaccepted by the Tribunal that it shall be at the minimum of100% under Section 271(1)(c) of the Act, the amount shall notcome to Rs.10,25,850/-, but it is limited to the extent of taxevaded by the assessee. It is elaborated by arguing that thepenalty envisaged could be on account of an omission indisclosing the income and consequent commission is notpayment of tax, payable in that behalf. Therefore, theparameter for deciding the penalty shall be the tax evaded butnot the entire tax assessed on the assessee. He relies on Section271(1)(c), which reads thus: ITA No.124/2019 “ Failure to furnish returns, comply with notices, concealmentof income, etc. (1) If the Assessing Officer or the [Commissioner (Appeals)] orthe Principal Commissioner or Commissioner in the course ofany proceedings under this Act, is satisfied that any person- (a) …. (b) .... (c) has concealed the particulars of his income or furnished inaccurate particulars of such income, or (d) ….. he may direct that such person shall pay by way of penalty,-- (i) …... (ii) ….. (iii) in the cases referred to in clause (c) or clause (d), inaddition to tax, if any, payable by him, a sum which shallnot be less than, but which shall not exceed three times,the amount of tax sought to be evaded by reason of theconcealment of particulars of his income or fringe benefitsor the furnishing of inaccurate particulars of such incomeor fringe benefits.” (emphasis supplied) 6.1According to him, the charging section is clear in its purport and extent of application while determining the ITA No.124/2019 factor/quantum for penalty. The determining factor is not thetotal tax payable by the assessee. Applied thus, the penalty ofRs.10,25,850/- is illegal and unauthorized. According to him, itshall be less and penalty shall be determined only at the lesseramount. (i) …... (ii) ….. (iii) in the cases referred to in clause (c) or clause (d), inaddition to tax, if any, payable by him, a sum which shallnot be less than, but which shall not exceed three times,the amount of tax sought to be evaded by reason of theconcealment of particulars of his income or fringe benefitsor the furnishing of inaccurate particulars of such incomeor fringe benefits.” (emphasis supplied) 6.1According to him, the charging section is clear in its purport and extent of application while determining the ITA No.124/2019 factor/quantum for penalty. The determining factor is not thetotal tax payable by the assessee. Applied thus, the penalty ofRs.10,25,850/- is illegal and unauthorized. According to him, itshall be less and penalty shall be determined only at the lesseramount. 7.Mr Christopher Abraham argues that theCommissioner’s view was contrary to the mandate of Section271(1)(c). The reasons recorded by the Tribunal are available inthe circumstances of the case. No ground warrantinginterference is made out. According to him, the assessee is notseriously raising a ground on the order of the Tribunal dealingwith the order of CIT(Appeals) in Annexure-C. He submits thatthe substantial issue for consideration is only the quantum ofpenalty payable by the assessee, assuming all the circumstancesas admitted between the parties. It was faintly suggested thatthe matter need to go back to the Assessing Officer for Mr Christopher Abraham argues that the ITA No.124/2019 determination afresh, after considering the scope of Section271(1)(c) read with (iii) of the Act. 8.We have heard the counsel, perused the record. 8.1Section 271(1)(c) deals with levy of penalty in casewhere any person has concealed the particulars of his incomeor furnished inaccurate particulars of such income resulting inevasion of tax. Then, the question is: what is the penaltypayable - whether on total tax assessed or on the tax evaded bythe assessee. The Tribunal treated the penalty amount asRs.10,25,850/-. The plain meaning of the section leads to theconclusion that the criteria for determination of penalty is thetax sought to be evaded but not the total tax payable by theassessee. As already noticed from the computation statement inAnnexure-A the total tax payable by the assessee isRs.10,25,850/-. The difference of tax is lesser than that whichwas found to have been evaded by the assessee. Therefore, the ITA No.124/2019 penalty shall be quantified or qualified by such figures. For thesaid purpose, we are persuaded not to remit the matter to anyof the authorities. 8.2From the details available in the record, we haveheard the counsel on the quantum of penalty, it has been statedthat penalty of 100% works out to Rs.5,62,918/-. As noted at thebeginning of our discussion, the questions of law involveconsideration of Section 271(1)(c) of the Act and the error offact in appreciating what is the actual tax sought to be evadedby the assessee. The discussion is concluded by holding that thepenalty is determined on the amount of tax sought to beevaded, by the concealment of income etc.., but not on the totaltax chargeable on the assessee. From the details available in the record, we have For the above reasons, the questions are answered in favour of the assessee and against the Revenue, by holding thatthe penalty of 100% of the tax sought to be evaded works out to ITA No.124/2019 Rs.5,62,918/-. Income Tax Appeal is allowed as indicated above. No order as to costs. Sd/- S.V.BHATTI JUDGE Sd/- VIJU ABRAHAM JUDGE APPENDIX OF ITA 124/2019 PETITIONER ANNEXURE ANNEXURE A TRUE COPY OF THE ASSESSMENT ORDER DATED 26.03.2013 FOR THE YEAR 2010-11 ISSUED TO THE APPELLANT. ANNEXURE BTRUE COPY OF THE PENALTY ORDER DATED 26.09.2013 ISSUED TO THE APPELLANT. ANNEXURE CTRUE COPY OF THE ORDER DATED 09.03.2017 OF THE COMMISSIONER OF INCOME TAX (APPEALS) ISSUED TO THE APPELLANT. ANNEXURE D From the details available in the record, we have For the above reasons, the questions are answered in favour of the assessee and against the Revenue, by holding thatthe penalty of 100% of the tax sought to be evaded works out to ITA No.124/2019 Rs.5,62,918/-. Income Tax Appeal is allowed as indicated above. No order as to costs. Sd/- S.V.BHATTI JUDGE Sd/- VIJU ABRAHAM JUDGE APPENDIX OF ITA 124/2019 PETITIONER ANNEXURE ANNEXURE A TRUE COPY OF THE ASSESSMENT ORDER DATED 26.03.2013 FOR THE YEAR 2010-11 ISSUED TO THE APPELLANT. ANNEXURE BTRUE COPY OF THE PENALTY ORDER DATED 26.09.2013 ISSUED TO THE APPELLANT. ANNEXURE CTRUE COPY OF THE ORDER DATED 09.03.2017 OF THE COMMISSIONER OF INCOME TAX (APPEALS) ISSUED TO THE APPELLANT. ANNEXURE D TRUE COPY OF THE ORDER OF THE INCOME TAX APPELLATE TRIBUNAL DATED 25.09.2018.