Ita/151/2008 Of The Commissioner Of Income Tax v. M/S Steel Centre

IN THB HIGH COURT OF KARNATAKA AT BANGALORE DATED THIS THE 03 DAY OF JUNE 2014 PRESENT THR HON BLE MR.JUSTICE N.KUMAR| AND THR HON'BLEB MR. JUSTICK B. MANOHAR ITA NO.151/2008 | BBRHIWEE 1. The Commissioner of Income Tax,C.R Building, Attavara,Mangalore.2. The Assistant Commissioner of Income-Tax,Circle -1 (1),C.R Building, Attavara,Mangalore....Appellants(Sri.K.V.Aravind, Advocate) AN):M/s.Steel Centre,Azizuddin Road,Bunder,Mangalore..... Responde(By Sri.A.Shankar & Sri.M.Lava, Advocates) ITA Filed u/S.260A of I.T.Act, 1961 arising out oforder.dated05.10.2007passed1NITA.No.469/Bang/2007 for the Assessment Year 2004-2005, praying that this Hon’ble Court may be pleased to © 1.formulate the substantial questions of lawstated therein,stated therein, 11.allow the appeal and set aside the orderpassedby the ITAT,Bangalore|1n ITA.469/Bang/2007 dated 05.10.2007 andcontirmtheorderoT|theAppellateCommissioner confirming the order passedby the Asst. Commissioner of Income Tax(Circle (1)), Mangalore, in the interest ofjustice and equity.passedby the ITAT,Bangalore|1n ITA.469/Bang/2007 dated 05.10.2007 andcontirmtheorderoT|theAppellateCommissioner confirming the order passedby the Asst. Commissioner of Income Tax(Circle (1)), Mangalore, in the interest ofjustice and equity. This appeal is coming on for hearing this day,N. KUMAR J.,delivered the following: JUDGMENT The Revenue has preferred this appeal against theorder passed by the Income Tax Appellate Tribunal,Bangalore|BenchSA?(forshort‘theTribunal’)upholding the order of the Appellate Authority settingaside the order imposing penalty under Section 271(1)(c) of the Income Tax Act, 1961 (for short‘the Act’). 2 |The appeal was admitted on 19-03-2009 toconsider the following substantial questions of law: 1. Whether the Tribunal was right in|holding that there was no concealment ofincome|TLOTdidtheaASSCSSCEfurnishinaccurate particulars of income to _ levpenalty u/s.271(1) (c) of the Act as some of thecreditors could not be produced before theAssessing officer and additional income wasoffered voluntarily to buy peace with theDepartment? 2. Whether the Tribunal was right in nottaking into consideration that the assesseehad filed original return dated 12.10.2004 fora sum of Rs.13,95,200/- which was revisedafter a survey was conducted on 09.02.1995by filing a revised return declaring a sum ofRs.30,45,200/- and on further enquiries,assessee filed a further revised return on20.04.2005declaring (CSUITof|Rs. 1,16,46,350/-whichclearlyshowedconcealment of income and consequentlyrecorded a perverse finding?| 3.|The assessee is a merchant of Iron and Steel. Theassessee filed his return of income on 12-10-2004|declaring the income of Rs.13,95,200/-. A Survey was_conducted in his business premises on 9-2-2005 underSection 133A ot the Act. The assessee filed revised|return OT]15-22-2005declaringtheincomeoT|Rs.30,45,200/- which included the additional income of Rs.16,50,000/- offered at the time of Survey on accountof difference in valuation of stock and expenses of staffand coolie. At the time of assessment, the AssessingOfficer asked the assessee for filing confirmation lettersfrom the Creditors and also to produce the Creditors. —some of the persons who were shown as its creditors inthe return of income filed by the assessee had confirmedthe balances and responded immediately. However,there was no clarity or reply or some confusion existedin respect of six creditors. The Assessing AuthorityissuedlettersCO theaAsSSsSE€regarding)%)6confirmation of the balances and silence on the part ofthese creditors. The assessee was also asked in these|letters to show cause why the difference in creditorsaccount should not be added as its income from|undisclosed sources. The assessee sought for timebecause of various problems and things which requiredurgent attention of its creditors. The assessee had alsoofteredTOproducethecreditors TOProve the genuineness. It was made clear to the assessee thatunless and until the assessee proves the genuineness ofall these creditors to the extent of balances shown by itin its return of income along with the connectedstatements, the negative and adverse differences will betreated as its income of the year in addition to what isshown in the returns already filed. At this stage, theaSSCSSEEengaged|theservicesoT|aCharteredAccountant. After several adjournments and meetings,the assessee expressed its inability to produce theparties or other definite and conclusive evidences toprove the transactions. It is clear from the order of theAssessing Authority that the parties had met JointCommissioner of Income Tax, Range-I, Mangalore. As isclear from the order of the Commissioner of Income Tax(Appeals) ( for short|‘First Appellate Authority’), therewas a meeting between the assessee and the learnedJoint Commissioner of Income Tax, in the course of)which, it was agreed that the assessee could offer the balances due to the creditors as additional income for|the year under appeal. Based on the ledger account ofcreditors, a table was prepared showing the name of thecreditors, opening balance, purchases during the year,payments during the year and closing balance. Theamount of purchases made by the assessee from thecreditors are not in dispute, inasmuch as, the assesseehad furnished in the penalty proceedings the evidencefor having purchased the goods in the shape of copies ofpurchase invoice and proof of movement of goodsthrough sales tax check post. However, the assesseeagreed to write off the sundry creditors which amounts.to Rs.86,01,196/-. Therefore, he agreed for additionand paid tax with interest. It is only thereafter, he filed arevised return on 20-04-2005 showing the income ofRs.1,16,46,360/-. The Assessing Authority passed anorder accepting the second revised return. The orderitself shows that the assessee paid all taxes due by it onthis re-revised return of income. The order further|! discloses that the assessee appeared before theAssessing Authority on various dates and filed all thedetails and clarification sought for. Therefore, heaccepted the income of Rs.1,16,46,3600/-. However, heissued notice under Section 27/1(1)(c) of the Act forpenalty. 4After considering the objections filed by theassessee and taking note of the various judgmentsrelied upon by him, the Assessing Authority held thatthe assessee has committed breech of duty andconcealed its particulars of income and furnishedinaccurate particulars in the return of income filed on12-10-2004 declaring the income of Rs.13,95,200/- andso levying of penalty is the only option open to him asthe ultimate disclosure came to Rs.1,02,51,160/-. Heproceeded to levy penalty of Rs.43,00,000/- as thisbeing the first instance of default and levy of penaltyunder clause (c) of sub-Section (1) of Section 271 of the Act. Aggrieved by the said order, the assessee preferredan appeal before the First Appellate Authority. TheAppellate Authority on re-examination of the entireevidence on record and aiter taking note of the various.judgments on which reliance was placed held that theassessee had furnished two revised returns out of his|compulsion. The fact that two revised returns had to befurnished itself proves that there was guilty mind andthe concealment was willful. It is further held that theAssessing Officer had collected evidence during thecourse of survey regarding the genuineness of theCXPCYIScsandduringtheCOUTSEoT|assessment|proceedings regarding genuineness of the creditors.Therefore he was of the view that initiation of penaltyproceedings and the order passed by the AssessingAuthority is proper and therefore declined to interferewith the said order. However, he gave a partial reliefinsofar as payment of interest is concerned. Aggrieved by the said order, the assessee preferred an appeal tothe Tribunal. by the said order, the assessee preferred an appeal tothe Tribunal. 5The Tribunal on re-appreciation of the entireevidence on record held that the purchases have notbeen disputed by the Assessing Officer in his order. —According to the assessee, the purchases were made oncredit and subsequently the payments were made to theparties. Only with a view to buy peace from thedepartment, since some of the creditors could not beproduced before the Assessing Officer, the assessee was.advised to write off the amounts in respect of thoseparties and thereby offered additional income by way ofsecond revised returns. There is no finding that thepurchases are bogus and consequently no addition wasmade on account of bogus purchases. The purchaseswere really accepted which are supported by the details. —so far as the parties were concerned, they were notunder the control of the assessee. They may not have appeared before the Assessing Officer for variousreasons. Only because the parties could not beproduced before the Assessing Officer, the purchasescannot be said to be bogus and consequently it is notestablished that there was any concealment of incomeor the assessee willfully furnished any inaccurateparticulars of income. So far as the disallowance ofcoolie expenses and staff expenses are concerned, someof the expenses were not supported by the bills andvouchers thereon. Therefore, the assessee voluntarilyoffered a sum of Rs.6,00,000/- for disallowance. Noincriminating material was found at the time of survey. —Therefore, the ingredient in respect of concealment ofincome is not present. Accordingly, tribunal allowed theappeal setting aside the order of imposing penalty andcancelled the order of the Assessing Officer. Aggrievedby the said order, the Revenue is in appeal before thisCOUTT. 6. Learned counsel appearing for the Revenueassailing the impugned order contended that whenadmittedly after the survey, a revised return was filedon 19-2-2005 showing the income as Rs.30,49,200/-, itonly represents the concealed income. Further, theassessee also filed a second revised returns on20-4-2005 showing the income of Rs.1,160,45,3590/-which again shows the suppression of income by theassessee. Merely because it paid the tax for purchasingpeace from the department is not sulficient to absolve itfrom the liability of paying penalty as held by the ApexCourt. In view of the aforesaid admitted facts, if the)survey had not been conducted, there would not havebeen two revised returns and therefore, he submits thata case for imposing penalty is made out and theTribunal was in error in setting aside the well,%)('2$*$2order passed by the Assessing Authority as.well as the First Appellate Authority. Therefore, he seeks for restoration of the order passed by theAssessing Authority. TS|Per contra, learned counsel appearing for theassessee submitted that it is not a case of search and|seizure and it is only a case of survey. No doubt, in thereturns filed on 12-10-2004 the income was shown as/Rs.13,95,200/- and after survey, a revised return was_filed showing the income of Rs.30,49,200/- which isnothing but a difference in valuation of stock expenses_and expenses on staff and coolies. No incriminatingmaterials were found at the time of survey. However, tosubstantiate its defense, when the Assessing Authoritycalled upon him to produce the creditors before themalong with confirmation letters, the assessee was able toproduce SomeoT|thecreditorsandalsoPAVEconfirmation letters. Only in respect of six creditorswho were not willing to come before the AssessingOfficer and also give confirmation letters, the assessee was helpless. At that stage, negotiation took placebetween the assessee, Assessing Officer and his higherofficers and on their advice, the assessee agreed to writeoff those creditors and offered it tor tax. Thebona fideof the assessee should be gathered from the facts that,not only he filed second revised return on 20-4-2005—showing the income of Rs.1,16,46,350/-, he promptlypaid the tax due thereon with interest very much beforethe assessment order was passed. These facts had notbeen properly appreciated and taken note by theAssessing Authority as well as the First AppellateAuthority and they came to the conclusion that thereWaS suppression|oT|income.It|1Sin.thosecircumstances, the Tribunal rightly set aside the saidorder and held that merely because the assessee wasnot able to substantiate the defense which it had taken|and when it is not shown that the defense taken is false,the penalty should be imposed. Therefore, he submits that no case for interference is made out and sought fordismissal of the appeal. 8.|Krom the aforesaid facts it is clear that theassessee filed a return on 12-10-2004, declaring theincome of Rs.13,95,200/-. Subsequently on 9-2-2005,a survey was conducted, no incriminating materialswere collected. ‘The assessee offered to file a revised|returns representing the difference in valuation of stock,expenses on staff and coolie and accordingly, filed arevised return on 109-2-2005 showing the income asRs.30,45,200/-..Thereafter, 1n theCOUT SEoT|investigation, the assessee had produced all his books.of accounts, invoices, check post certificates, deliverynotes showing supplies. When the Assessing Authorityinsisted that he should secure confirmation letters from|the creditors and also produce them before him, theassessee was successful in getting the confirmationletters from several creditors and was able to produce them before the Assessing Officer. Only in respect of sixcreditors, it could not secure their presence. When theassessee pleaded its inability, it appears, the higherofficers in the department asked him to write off thesaid amount and offer the said amount tor tax. >Accordingly, the assessee filed a second revised returnson 20-4-2005 showing the income as Rs.1,160,49,350/-. Immediately it paid the tax as well as the interest duethereon. It is thereafter, the Assessing Authorityproceeded to pass an order on 14-07-2005 undersection 143(3) of the Act. OQ This court had an occasion to consider the scopeof Section 2/1(1)(c) of the Act in the case ofCOMMISSIONER OF INCOME TAX v/s MANJUNATHA|COTTON & GINNING FACTORYreported in(2013) 92 DTR(Kar) 111After reviewing the entire case law, it washeld that imposition of penalty is not automatic. —Imposition of penalty even if the tax hability is admittedis not automatic. Bven if the assessee has not. Challenged the order of assessment levying tax andinterest and has paid tax and interest that by itselfwould not be sufficient for the authorities either to/initiate penalty proceedings or impose penalty, unless itis discernible from the assessment order that, it is onaccount of such unearthing or enquiry concluded byauthorities it has resulted in payment of such tax orsuch tax liability came to be admitted and if not itwould have escaped from tax net as opined by theAssessing Officer in the assessment. Only when noexplanation is offered or the explanation offered is foundto be false or when the assessee fails to prove that theexplanation offered is not.bona fide, an order imposingpenalty could be passed. If the explanation offered,even though not substanatiated by the assessee, but isfound to bebona fideand all facts relating to the same|and material to be computation of his total income havebeen disclosed by him, no penalty could be imposed.sending printed form where all the ground mentioned in SectionO71are mentionedwouldNOTsatislyrequirement of law. The assessee should know thesrounds which he has to meet specifically. Otherwise,principles of natural justice is offended. On the basis ofsuch proceedings, no penalty could be imposed to theaSSECSSFEC SectionO71are mentionedwouldNOTsatislyrequirement of law. The assessee should know thesrounds which he has to meet specifically. Otherwise,principles of natural justice is offended. On the basis ofsuch proceedings, no penalty could be imposed to theaSSECSSFEC 1Q.|Therefore, in the instant case, after the returnswere filed, in the course of survey proceedings, it wasfound that there was difference in valuation of stock|and expenses on staff and coolie. The assessee withoutQA murmur filed second revised return and offered it fortax and paid tax and interest promptly. In the course ofassessment proceedings, the assessee tried to justify itsreturns and had produced before the authorities all its”books of accounts, invoices, check post certificates anddelivery notes. When the Assessing Authority calledupon the assessee to secure the confirmation lettersand also to produce the creditors before him, the assessee was successful in getting confirmation lettersfrom everyone, but could not produce some of thecreditors. Only in respect of those creditors whosepresence it could not secure which was six in number,the assessee agreed to write off the said persons andoffered it for tax. Hence, the assessee was called uponto file second revised returns which it promptly filed andpaid the tax with interest. It is not a case where theassessee did not offer any explanation nor theexplanation offered by it was found to be false or notfound to bebona fide. Partially it was successful inproving its defense. Therefore, it is a case where, theassessee was not successful in establishing his defense. —Therefore, there was no intention either to suppressinformation or to file any incorrect statement. At thisjuncture it is pertinent to note that in the notice issuedto the assessee, the department has not made it clearwhat is the accusation against the assessee and it wasfull of blanks. In those circumstances, the Tribunal on) proper consideration of the entire material on recordand aiter taking note of the law on the point as decidedby the various courts, rightly held that there is noSuppression of material facts and was justified insetting aside the order passed by the First AppellateAuthority as well as the Assessing Authority. | 11.)In that view of the matter, we do not see any meritin the appeal. Accordingly, the appeal is dismissed. —The substantial questions of law framed in this appealare answered in favour of the assessee and against theRevenue. No costs. od/- JUDGE sd/-| JUDGE. _* | mp