Ita/198/2012 Of C.t.chacko v. The Commissioner Of Income Tax

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT: THE HON'BLE THE CHIEF JUSTICE DR. MANJULA CHELLUR & THE HONOURABLE MR.JUSTICE A.M.SHAFFIQUE TUESDAY, THE 3RD DAY OF DECEMBER 2013/12TH AGRAHAYANA, 1935 ITA.No. 198 of 2012 ---------------------------- [AGAINST THE COMMON ORDER OF THE INCOME TAX APPELLATE TRIBUNAL, COCHIN BENCH, COCHIN DATED 27-04-2012 IN I.T.A. NO.216/COCH/2010 FOR THE A.Y-1995-96] .............. APPELLANT/APPELLANT/ASSESSEE: ------------------------------------------------------ C.T.CHACKO, CHALUVELIL, THOTTACKADKU, CHANGANACHERRY. BY SRI.T.M.SREEDHARAN, SENIOR ADVOCATE, ADVS.SRI.V.P.NARAYANAN, SMT.DIVYA RAVINDRAN. RESPONDENT/RESPONDENT/REVENUE: ----------------------------------------------------------- THE COMMISSIONER OF INCOME TAX, AAYAKAR BHAVAN, KOWDIAR, THIRUVANANTHAPURAM-695 003. BY SRI.JOSE JOSEPH, S.C. THIS INCOME TAX APPEAL HAVING COME UP FOR ADMISSION ON 03-12-2013, ALONG WITH I.T.A. NO.215/2012 AND CONNECTED CASES, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: Prv. APPENDIX PETITIONER'S ANNEXURES: RESPONDENTS' ANNEXURES: NIL. //TRUE COPY// P.A. TO JUDGE. MANJULA CHELLUR,C.J. & A.M.SHAFFIQUE, J. = = = = = = = = = = = = = = = = I.T.A.Nos.198,215,216,217,218,219 and 220 of 2012 = = = = = = = = = = = = = = = = = = = = = Dated this the 3[rd] day of December, 2013 Manjula Chellur,CJ JUDGMENT These matters are taken up for final disposal by consent ofboth the parties. The assessment years with reference to theabove appeals are as under:- 2. The following substantial questions of law arise forconsideration. i) Whether on the facts and circumstances of the case, is the Appellate Tribunal justified in sustaining the penaltyimposed u/s.271(1)(c) for concealment of income/furnishing ofinaccurate particulars of income for the Assessment Years? ii) Should not the Appellate Tribunal have held that theorder imposing penalty was barred by limitation by virtue of theproviso to Section 275 of the Act? iii) Has not the Appellate Tribunal erred in relying on Explanation-3 to Section 271(1)(c) without noticing theamendment to the above Explanation with effect from01.04.2003 and in sustaining the penalty on that ground? 3. The facts that led to the filing of the present appeals areunder:- Appellant assessee, admittedly, was running a poultry farmand a piggery. He was supplying chicken to hotels and differentshops. The appellant comes within the Income Tax office, WardNo.I, Thiruvalla Circle. For the above assessment years, theappellant filed return of income voluntarily under Section 139 ofthe Income Tax Act (hereinafter referred to as the Act) on26.03.1997 declaring total income as 44,000/-. The return was₹processed as per intimation issued on 01.01.1998. It is also notin dispute that out of the above assessment years for about 5years only such voluntary returns came to be filed. Thereafter,assessment came to be reopened and notice was issued calling I.T.A.Nos.198,215,216,217,218,219 and 220 of 2012 upon the appellant to furnish return of income on the groundthat there was escapement of income from assessment in theoriginal assessments. No return of income came to be filed inresponse to the said notices. Thereafter, reassessmentproceedings continued and ultimately reassessment orders cameto be passed which assessments were also subject matter ofchallenge before the Commissioner of Income Tax (Appeals),Tribunal and ultimately came before this Court. Finally, thematters went against the appellant-assessee so far as quantumappeals are concerned. The subject matter in the above appealsis not the reassessment quantum, but penalty imposed after thereassessment orders. I.T.A.Nos.198,215,216,217,218,219 and 220 of 2012 upon the appellant to furnish return of income on the groundthat there was escapement of income from assessment in theoriginal assessments. No return of income came to be filed inresponse to the said notices. Thereafter, reassessmentproceedings continued and ultimately reassessment orders cameto be passed which assessments were also subject matter ofchallenge before the Commissioner of Income Tax (Appeals),Tribunal and ultimately came before this Court. Finally, thematters went against the appellant-assessee so far as quantumappeals are concerned. The subject matter in the above appealsis not the reassessment quantum, but penalty imposed after thereassessment orders. 4. It is not in dispute that notice of penalty was served on28.03.2002 along with assessment orders so far asreassessments for the year 1995-96 to 1997-98. So far asassessment year 1998-99, notice of penalty was issued alongwith assessment order dated 29.03.2001. Then for theassessment years from 1999-2000 to 2001-02, penalty noticecame to be issued on 29.03.2004. I.T.A.Nos.198,215,216,217,218,219 and 220 of 2012 5. As stated earlier, so far as the quantum appeals beforethe Tribunal is concerned, the judgment was on 27.09.2007. Theassessee was not filing return of income regularly. However, nobooks of accounts were also maintained. 6. It is also not in dispute that he was required to maintainbooks of accounts whenever the income exceeded a particularlimit. In response to penalty notice, when the assessee did notfile returns, the Assessing Officer made a detailed enquiry bycollecting information from various hotels, shops etc. to whichthere was supply of poultry products (chicken) from the poultryof the assessee. He also maintained a bank account whichreflected certain amounts not noted in the books of account.There was no explanation for the amounts reflected in the bankaccount and so also with regard to the bills that were collectedfrom various shops and hotels. The explanation given by theassessee was, non-availability of an accountant to maintain thebooks of accounts at a remote village where he was running hisbusiness. In the absence of maintaining books of accounts,Assessing Officer, having regard to the vast difference between I.T.A.Nos.198,215,216,217,218,219 and 220 of 2012 income voluntarily declared by the assessee and the quantum ofamount arrived during the course of re-assessment proceedings,opined that penalty deserves to be imposed. The question is,what should be the percentage of penalty that has to be paid? 7. Admittedly, Section 271(1)(c) proceedings were alsoinitiated and 150% penalty came to be imposed, having regard tothe income estimated in all the above said assessment years.Apart from the vast variance in the quantum of income disclosedand arrived at during reassessment, the fact remains, none ofthe obligations required to be discharged by the assessee, weredischarged. Non-maintenance of books of accounts as theincome in all these years exceeded prescribed limit was alsoglaring at the assessee. Apart from this, bank accountsreflected, he was maintaining a bank account and othermaterials reflected that he was supplying chicken to varioushotels and shops, but not a single paper was maintained in thisregard. These were the main reasons for imposition of penalty at150%. So far as the penalty proceedings, the Assessing Officerimposed 1½ times the tax payable as penalty which came to be I.T.A.Nos.198,215,216,217,218,219 and 220 of 2012 reduced to 100% by the First Appellate Authority, which wasconfirmed by the Tribunal in the above appeals. I.T.A.Nos.198,215,216,217,218,219 and 220 of 2012 reduced to 100% by the First Appellate Authority, which wasconfirmed by the Tribunal in the above appeals. 8. Learned counsel for the appellant-assessee raised twofold arguments one is with regard to the limitation placingreliance on Section 275 and according to him, the Explanation toSection 275(1) was introduced much later than the year in whichpenalty proceedings were initiated, therefore the question ofdeemed concealment would not come to the aid of theDepartment as indicated at Explanation III. Section 275 of Act reads as under:- “275. Bar of limitation for imposing penalties-[(1)] Noorder imposing a penalty under this Chapter shall be passed- (a) in a case where the relevant assessment or other order isthe subject-matter of an appeal to the Commissioner(Appeals) underSection 246 [or section 246A] or an appeal to the Appellate Tribunalunder section 253, after the expiry of the financial year in which theproceedings, in the course of which action for the imposition ofpenalty has been initiated, are completed or six months from theend of the month in which the order of the Commissioner (Appeals)or, as the case may be, the Appellate Tribunal is received by theChief Commissioner or Commissioner, whichever period expireslater: [Provided that in a case where the relevant assessment orother order is the subject-matter of an appeal to the Commissioner(Appeals) under Section 246 or section 246A, and the Commissioner(Appeals) passes the order on or after the 1[st] day of June, 2003,disposing of such appeal, an order imposing penalty shall be passedbefore the expiry of the financial year in which the proceedings, inthe course of which action for imposition of penalty has beeninitiated, are completed, or within one year from the end of thefinancial in which the order of the Commissioner (Appeals) isreceived by the Chief Commissioner or Commissioner, whichever islater;] [(b) in a case where the relevant assessment or other order isthe subject matter of revision under Section 263 [or Section 264]after the expiry of six months from the end of the month in whichsuch order of revision is passed;] [(c)in any other case, after the expiry of the financial yearin which the proceedings, in the course of which action for theimposition of penalty has been initiated, are completed, or sixmonths from the end of the month in which action for imposition ofpenalty is initialled, whichever period expires later.] [(1A) In a case where the relevant assessment or other orderis the subject-matter of an appeal to the Commissioner(Appeals)under section 246 or section 246A or an appeal to the AppellateTribunal under section 253 or an appeal to the High Court undersection 260A or an appeal to the Supreme court under section 261or revision under Section 263 or section 264 and an order imposing or enhancing or reducing or cancelling penalty or dropping theproceedings for the imposition of penalty is passed before the orderof the Commissioner (Appeals) or the Appellate Tribunal or the HighCourt or the Supreme Court is received by the Chief Commissioneror the Commissioner or the order of revision under Section 263 orSection 264 is passed, an order imposing or enhancing or reducingor cancelling penalty or dropping the proceedings for the impositionof penalty may be passed on the basis of assessment as revised bygiving effect to such order of the Commissioner (Appeals) or, theAppellate Tribunal or the High Court, or the Supreme Court or orderof revision under section 263 or section 264: Provided that no order of imposing or enhancing or reducingor cancelling penalty or dropping the proceedings for the impositionof penalty shall be passed- (a) unless the assessee has been heard, or has been given a reasonable opportunity of being heard; a reasonable opportunity of being heard; Provided that no order of imposing or enhancing or reducingor cancelling penalty or dropping the proceedings for the impositionof penalty shall be passed- (a) unless the assessee has been heard, or has been given a reasonable opportunity of being heard; a reasonable opportunity of being heard; (b) after the expiry of six months from the end of the month in which the order of the Commissioner (Appeals) or the Appellate Tribunal or the High Court or the Supreme Court is received by the Chief Commissioner or the Commissioner or the order of revision under section 263 or section 264 is passed: in which the order of the Commissioner (Appeals) or the Appellate Tribunal or the High Court or the Supreme Court is received by the Chief Commissioner or the Commissioner or the order of revision under section 263 or section 264 is passed: Provided further that the provisions of sub-section (2) ofsection 274 shall apply in respect of the order imposing orenhancing or reducing penalty under this sub-section.] [(2) The provisions of this section as they stood immediately before their amendment by the Direct Tax Laws(Amendment) Act,1987 (4 of 1988), shall apply to and in relation to any action initiatedfor the imposition of penalty on or before the 31[st] day ofMarch,1989.] [Explanation - In computing the period of limitation for the purposes of this section,-- (i) the time taken in giving an opportunity to the assessee to be re-heard under the proviso to section 129;be re-heard under the proviso to section 129; (ii) any period during which the immunity granted under section 245H remained in force; and (iii) any period during which a proceeding under this Chapter for the levy of penalty is stayed by an order or injunction of any court, for the levy of penalty is stayed by an order or injunction of any court, shall be excluded.]” 9. Now the crucial date would be when exactly the notice of penalty was issued with reference to particular assessmentyears. So far as 1995-96 to 1997-98, it was 28.03.2002. Thequantum appeal before the Tribunal was finally decided on27.09.2007, therefore the financial year in which the quantumappeal before the Tribunal came to be decided being 27.09.2007,the proceedings ought to have been initiated on or before31.03.2008. The notice is dated 28.03.2002. 10. Similarly, so far as 1998-99, it was in 2001 and the restof the assessment years, it was in 2004. In all the appeals theinitiation of penalty proceedings were much prior to 31.03.2008.Therefore, the contention of limitation raised by the appellant-assessee that proceedings are barred by limitation for imposingpenalty as contemplated under Section 275 of the Act is notavailable to the appellant-assessee. None of the contentions withreference to Section 275 of the Act are available to the appellantassessee. 11. Then coming to Section 271(1)(c) of the Act, we failto understand why learned counsel for the appellant-assesseeis placing much emphasis on Explanation 3 to Section 271 ofthe Act. The assessment order and the orders of the CIT(Appeals) clearly indicate that there was no reference, so faras Explanation 3 to Section 271 of the Act. Based on the mainSection 271(c), the penalty proceedings were made by theAssessing Officer, after completion of the reassessmentproceedings. 12. Deemed concealment is explained under Explanation 3. If all the conditions at Explantaion 3 are complied with,even if the assessee had filed the returns, if the returns arefiled beyond the period of limitation or the time prescribedthen the department by operation of law has the benefit ofopining deemed concealment. 11. Then coming to Section 271(1)(c) of the Act, we failto understand why learned counsel for the appellant-assesseeis placing much emphasis on Explanation 3 to Section 271 ofthe Act. The assessment order and the orders of the CIT(Appeals) clearly indicate that there was no reference, so faras Explanation 3 to Section 271 of the Act. Based on the mainSection 271(c), the penalty proceedings were made by theAssessing Officer, after completion of the reassessmentproceedings. 12. Deemed concealment is explained under Explanation 3. If all the conditions at Explantaion 3 are complied with,even if the assessee had filed the returns, if the returns arefiled beyond the period of limitation or the time prescribedthen the department by operation of law has the benefit ofopining deemed concealment. 13. In the present case, the facts reveal that in responseto the notice under Section 148 of the Act, the assessee neverfiled returns, therefore question of filing return beyond theperiod prescribed would not arise in the present case.Reading of Section 271(1)(c) itself indicates whether there isconcealment of income or not as reflected in the materialcollected by the Assessing Officer. The vast differencebetween voluntary disclosed income and the income arrivedby the Assessing Officer in the reassessment proceedingsclearly indicates, there is concealment of income without evenfiling of the returns by the appellant-assessee in response toSection 148 notice. Whether Explanation 3 is applicable to the facts of the present case or not, the date of introduction of Explanation 3 is relevant. It is not a ground to beconsidered, so far as facts in the present appeals areconcerned. 14. Tribunal while referring to provisions of Section 271(1)(c) incidentally seems to have referred to Explanation 3which has no application so far as the facts of the presentappeals. Mere reference to Explanation 3 to Section 271would not imply that reassessment proceedings which led topenalty proceedings are based on deemed concealment ofincome. There was no occasion for the authorities to invokethis provision in the present situation. Therefore, none of thedecisions relied upon by learned counsel for the appellant-assessee are of any help to the appellant-assessee. 15. Quantum of penalty imposed by the AssessingOfficer was substantially reduced by the CIT (Appeals) whichcame to be confirmed by the Tribunal, we find no good groundto interfere with the said opinion of the Tribunal, as the First Appellate Authority has explained with reasons why suchimposition of penalty should be imposed and why it wasbrought to 100% by the First Appellate Authority. In the light of above discussion and reasoning, wedecline to interfere with the order of the Tribunal.Accordingly, all the questions of law raised are answeredagainst the appellant-assessee. These appeals are dismissed. MANJULA CHELLUR, CHIEF JUSTICE A.M.SHAFFIQUE, JUDGE. sj 5/12