Ita/50/2009 Of The Commissioner Of Income Tax Cochin v. Samurai Tchno Trading (P) Ltd

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT: THE HONOURABLE MR.JUSTICE ANTONY DOMINIC &THE HONOURABLE MR. JUSTICE DAMA SESHADRI NAIDU MONDAY, THE 20TH DAY OF JUNE 2016/30TH JYAISHTA, 1938 I.T.A.No.50 of 2009 AGAINST THE ORDER IN ITA 424/2005 of I.T.A.TRIBUNAL, COCHIN BENCH, DATED 05-09-2008 APPELLANT/APPELLANT/RESPONDENT: THE COMMISSIONER OF INCOME TAX, COCHIN. BY ADV. SRI.JOSE JOSEPH, SC, FOR INCOME TAX RESPONDENT/APPELLANT: SAMURAI TECHNO TRADING (P) LTD., KOCHI-20. R,R BY ADV. SRI.V.PHILIP MATHEW THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 20-06-2016,ALONG WITH ITA. 80/2009, ITA. 72/2009, THE COURT ON THE SAME DAY DELIVEREDTHE FOLLOWING: APPENDIX PETITIONER'S ANNEXURE: ANNEXURE A & B: COPY OF TRIBUNAL'S ORDER AND ORDER OFASSESSING OFFICER GIVING EFFECT TO THE ITAT's ORDER. ANNEXURE C: COPY OF PENALTY ORDER DATED 28.5.2004 FOR THEASSESSMENT YEAR 1993-1994. ANNEXURE D: COPY OF ORDER DATED 20.9.2004 OF THECOMMISSIONER OF INCOME TAX (APPEALS). ANNEXURE E: COPY OF THE ORDER DATED 5.9.2008 OF THE INCOMETAX APPELLATE TRIBUNAL, COCHIN BENCH IN ITA NO.424/COCH/2005. // TRUE COPY // P.A. TO JUDGE ANTONY DOMINIC & DAMA SESHADRI NAIDU, JJ. 'CR' - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - I.T.A.Nos.50, 72 & 80 of 2009 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - Dated this the 20[th] day of June, 2016 Antony Dominic, J. JUDGMENT The Revenue has filed these appeals challenging the common order passed by the Income Tax Appellate Tribunal, Cochin Bench,in I.T.A.Nos.424 to 426/05. By the impugned order, the appealsfiled by the respondent assessee, challenging the orders passed bythe Commissioner of Income Tax (Appeals) confirming the penaltylevied on them under Section 271(1)(c) of the Income Tax Act forthe assessment years 1993-1994 to 1995-1996, was allowed. 2. We heard the Senior Counsel for the Revenue and thelearned counsel appearing for the assessee. 3. On facts, briefly we may state that insofar as the assessment year 1993-1994 is concerned, the return of incomewas filed by the assessee declaring a total income of Rs.16,060/-. The return was scrutinized under Section 143(1)(a) and in theassessment made under Section 143(3), additions were made I.T.A.Nos.50, 72 & 80 of 2009 : 2 : under 14 heads and the total income was finally fixed atRs.23,93,510/-. The assessee carried the matter in appeal beforethe CIT (Appeals), who deleted six items of additions and, as aresult, the total income got reduced to 13,32,000/-. Both sides filedappeals before the Tribunal, which restored two items of additions.Thus, the total income stood enhanced to Rs.21,32,000/-. 4. Insofar as the assessment year 1994-1995 is concerned,the assessee filed its return declaring the total income of21,39,850/-. The case was taken up for scrutiny and in theassessment made under Section 143(3), the total income was fixedat Rs.68,32,870/-. In the appeal filed before the CIT (Appeals),deduction of Rs.50,000/- out of the additions made was allowed. Inthe further appeal filed before the Tribunal, addition ofRs.15,44,350/- was ordered to be deleted and the total income gotreduced to Rs.52,38,520/-. 5. Insofar as the assessment year 1995-1996 is concerned,the total income declared by the assessee was Rs.12,31,670/- and after scrutiny and assessment, the total income was finally fixed atRs.56,26,000/-. First appeal filed by the assessee was dismissedand in the further appeal filed before the Tribunal, some of theadditions were ordered to be deleted and the total income gotreduced to Rs.49,30,910/-. 6. It is based on the above orders that penalty proceedings 5. Insofar as the assessment year 1995-1996 is concerned,the total income declared by the assessee was Rs.12,31,670/- and after scrutiny and assessment, the total income was finally fixed atRs.56,26,000/-. First appeal filed by the assessee was dismissedand in the further appeal filed before the Tribunal, some of theadditions were ordered to be deleted and the total income gotreduced to Rs.49,30,910/-. 6. It is based on the above orders that penalty proceedings under Section 271(1)(c) of the Act were initiated for theassessment years 1993-1994, 1994-1995 and 1995-1996. Thepenalty order passed for the assessment year 1993-1994 showthat, according to the officer, in response to the notices that wereissued though a representative of the assessee had appeared, hehad not adduced any evidence either in writing or orally. On thatfactual basis, he reached the conclusion that this was a fit case forimposing penalty under Section 271(1)(c). Accordingly, a penaltyof Rs.17,92,870/- was levied. So far as the assessment year 1994-1995 is concerned, in the absence of any written or oral evidence,penalty of Rs.17,81,735/- was levied. On similar reasoning, for the assessment year 1995-1996, also a penalty of Rs.17,01,651/- waslevied. 7. The assessee carried the matter in appeal before the FirstAppellate Authority. Insofar as the assessment year 1993-1994 isconcerned, the First Appellate Authority has, in paragraph 2 of itsorder, stated that he has verified the income tax records maintainedby the Department and that in the records he saw a letter filed bythe assessee on 22.4.1996 in response to the notice under Section271(1)(c) issued by the Assessing Officer on 28.3.1996. Similarly,in the common order passed by the First Appellate Authority in theappeals arising out of the penalty levied for the assessment years1994-1995 and 1995-1996 also, in paragraph 8(1) the FirstAppellate Authority has stated that it is seen that the appellant hadfiled “the following reply on 18.10.1999 in response to the penaltynotice under Section 271(1)(c) issued in the course of theassessment proceedings for the AY 1994-1995”. Again, the FirstAppellate Authority has stated that for the AY 1995-1996 the : 5 : assessee has filed a reply on 17.4.1998. After holding so, in respectof all the three assessment years, the First Appellate Authorityexamined the case of the assessee on merits and confirmed theorder passed by the primary authority. 8. It was aggrieved by the orders passed in appeals, the assessee had carried the matters in further appeals before theTribunal in I.T.A.Nos.424 to 426/2005. By the impugned commonorder, the Tribunal held that in the facts and circumstances of thecase, there was no justification to levy penalty in these cases. Thereasoning of the Tribunal is reflected in paragraphs 7 and 8 of itsorder, which reads thus: 7. We heard the parties. There is no dispute that allthe additions have been made in the normal course ofassessments on the basis of details furnished by theassessee itself. The Assessing Officer has pointed outdeficiencies regarding the evidences and materials tosupport various claims of expenditure by way ofdeductions made by the assessee. But for those lapses, theAssessing Officer has already disallowed the claims of theassessee and made corresponding additions but thequestion is whether those additions made by the assessingauthority by way of disallowances of expenditure will : 6 : automatically attract the provisions of section 271(1)(c)of the Act so as to hold that the assessee is liable forconcealment of income or furnishing of in accurateparticulars of income. : 6 : automatically attract the provisions of section 271(1)(c)of the Act so as to hold that the assessee is liable forconcealment of income or furnishing of in accurateparticulars of income. 8. In these cases, the Profit and Loss Accounts havebeen prepared by the assessee on the basis of the regularbooks of accounts maintained by it. The returns of incomehave been prepared and filed on the basis of those booksof accounts. Many of the items of expenditure debited inthe books of accounts have not been supported withconvincing vouchers and evidences, observed by theAssessing Officer. This may justify the disallowance ofexpenditure and consequent additions. But, suchdisallowances by themselves are not concrete andmaterial evidences to hold that the assessee hadconcealed the particulars of income or it furnishedinaccurate particulars regarding the income. Regardingthe appreciation of sufficient evidences in a taxproceeding is also a matter of judgment. Any difference ofopinion in such matters does not automatically make outa case that the opinion of the assessee was justblasphemous and the view of the Assessing Officer is sosacred that every addition or disallowance made by theAssessing Officer points towards concealment of incomeor furnishing of inaccurate particulars by the assessee.Penalty is a penal proceeding and can be resorted to onlyif the guilt is established against the assessee by areasonable standard. Suppose, if the assessee has notmaintained books of accounts at all and the income isestimated and assessed, is it possible to hold that such anaddition made by the Assessing Officer on estimate basiswould be a reasonable basis for imposing penalty? No. Inthe case of an assessee, who has not maintained the booksof accounts at all, the deficiency does not hold him : 7 : responsible for penalty. The case of the assessee before usis far better; in the sense that he has maintained books ofaccounts and deficiencies have been pointed out only inrespect of certain expenses claimed by way of expenditure.Penalty cannot be levied on such flexible grounds.” 9. It is aggrieved by the order that is passed by the Tribunal, these appeals are filed, and the main question of law raised iswhether in the facts and circumstances of the case, the Tribunalwas justified in setting aside the penalty levied under Section 271(1)(c). According to us, this question of law raised before us has to be answered in the light of Section 271(1)(c). Section 271(1)(c)provides for levy of penalty and this section together withExplanation 1 thereto read thus: “271. Failure to furnish returns, comply with notices, concealment of income, etc. -- (1) If the AssessingOfficer or the Deputy Commissioner (Appeals) or theCommissioner (Appeals) in the course of any proceedingsunder this Act, is satisfied that any person - (a) . . . . . . . . . . . . . . . (b) . . . . . . . . . . . . . . . (c) has concealed the particulars of his income orfurnished inaccurate particulars of such income (d) . . . . . . . . . . . . . . . : 8 : he may direct that such person shall pay by way ofpenalty, -- . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Explanation 1 - Where in respect of any factsmaterial to the computation of the total income of anyperson under this Act, - (A) such person fails to offer an explanation or offers an explanation which is found by the AssessingOfficer or the Commissioner (Appeals) or the PrincipalCommissioner or Commissioner to be false, or (d) . . . . . . . . . . . . . . . : 8 : he may direct that such person shall pay by way ofpenalty, -- . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Explanation 1 - Where in respect of any factsmaterial to the computation of the total income of anyperson under this Act, - (A) such person fails to offer an explanation or offers an explanation which is found by the AssessingOfficer or the Commissioner (Appeals) or the PrincipalCommissioner or Commissioner to be false, or (B) such person offers an explanation which isnot able to substantiate and fails to prove that suchexplanation is bona fide and that all the facts relatingto the same and material to the computation of histotal income have been disclosed by him, then, the amount added or disallowed incomputing the total income of such person as a resultthereof shall, for the purposes of clause (c) of this sub-section, be deemed to represent the income in respectof which particulars have been concealed.” 10. Reading of the above provision shows that if any one of the officers mentioned therein are satisfied that any person has concealed the particulars of income or furnished inaccurate I.T.A.Nos.50, 72 & 80 of 2009 particulars of such income, he may direct that such person shallpay by way of penalty, the amount that are indicated in clauses II orIII, as the case may be. While appreciating the scope of clause (c),one has to take into account the provisions of Explanation (1)which is in two parts. This Explanation clarifies that where inrespect of any facts material to the computation of the total incomeof any person, (A) such person fails to offer an explanation or offersan explanation and the officer concerned has found it to be false, or(B) such person offers an explanation which he is unable tosubstantiate and fails to prove that such explanation is bonafideand that all the facts relating to the same and material to thecomputation of his total income have been disclosed by him. Oncethese provisions of Clauses (A) or (B) are satisfied, then, theamount added or disallowed in computing the total income of suchperson as a result thereof shall, for the purpose of Section 271(c)be deemed to represent the income in respect of which particularshave been concealed. : 10 : 11. In so far as these cases are concerned, admittedly, there is no finding in the impugned orders attracting clause (A) ofExplanation (1). Therefore, we have to find out whether clause (B)is attracted or not. Clause B takes in three parts. First part is thatan explanation has been offered and the assessee is not able tosubstantiate it. The second part is that the assessee has failed toprove that such explanation offered by him is bona fide and thethird part is that the assessee has failed to prove that all the factsrelating to the same and material to the computation of his totalincome have been disclosed by him. 12. Turning now to the precedents that are relevant, we findthat Section 271(1)(c) was considered by the Apex Court in itsjudgment in Commissioner of Income Tax v. Reliance Petroproducts.Pvt. Ltd. [2010] 322 ITR 158(SC) In that judgment, after extractingthe relevant part of Section 271(1)(c), the Apex Court has held thata glance at this provision would suggest that in order to be coveredby this Section, there has to be concealment of particulars of : 11 : income of the assessee or that the assessee must have furnishedinaccurate particulars of his income. It was also held that themeaning of the word “particulars” used in the Section wouldembrace the details of the claim made. Thereafter, the Apex Court has proceeded to explain the provision thus: 12. Turning now to the precedents that are relevant, we findthat Section 271(1)(c) was considered by the Apex Court in itsjudgment in Commissioner of Income Tax v. Reliance Petroproducts.Pvt. Ltd. [2010] 322 ITR 158(SC) In that judgment, after extractingthe relevant part of Section 271(1)(c), the Apex Court has held thata glance at this provision would suggest that in order to be coveredby this Section, there has to be concealment of particulars of : 11 : income of the assessee or that the assessee must have furnishedinaccurate particulars of his income. It was also held that themeaning of the word “particulars” used in the Section wouldembrace the details of the claim made. Thereafter, the Apex Court has proceeded to explain the provision thus: “We have already seen the meaning of the word“particulars” in the earlier part of this judgment.Reading the words in conjunction, they must mean thedetails supplied in the return, which are not accurate,not exact or correct, not according to truth or erroneous.We must hasten to add here that in this case, there is nofinding that any details supplied by the assessee in itsreturn were found to be incorrect or erroneous or false.Such not being the case, there would be no question ofinviting the penalty under Section 271(1)(c) of the Act.A mere making of the claim, which is not sustainable inlaw, by itself, will not amount to furnishing inaccurateparticulars regarding the income of the assessee. Suchclaim made in the return cannot amount to theinaccurate particulars. It was tried to be suggested that section 14A of the Actspecifically excluded the deductions in respect of theexpenditure incurred by the assessee in relation toincome which does not form part of the total incomeunder the Act. It was further pointed out that thedividends from the shares did not form the part of thetotal income. It was, therefore, reiterated before us thatthe Assessing Officer had correctly reached the conclusion that since the assessee had claimed excessivedeductions knowing that they are incorrect; it amountedto concealment of income. It was tried to be argued thatthe falsehood in accounts can take either of the twoforms; (i) an item of receipt may be suppressedfraudulently; (ii) an item of expenditure may be falsely(or in an exaggerated amount) claimed, and both typesattempt to reduce the taxable income and, therefore,both types amount to concealment of particulars of one’sincomeas well as furnishing of inaccurate particulars ofincome. We do not agree, as the assessee had furnishedall the details of its expenditure as well as income in itsreturn, which details, in themselves, were not found to beinaccurate nor could be viewed as the concealment ofincome on its part. It was up to the authorities to acceptits claim in the return or not. Merely because theassessee had claimed the expenditure, which claim wasnot accepted or was not acceptable to the Revenue, thatby itself would not, in our opinion, attract the penaltyunder Section 271(1)(c). If we accept the contention ofthe Revenue then in case of every return where the claimmade is not accepted by the Assessing Officer for anyreason, the assessee will invite penalty under Section 271(1)(c). That is clearly not the intendment of theLegislature.” 13. The Rajasthan High Court has in its judgment in Commissioner of Income Tax v. Raj Trading Co. [1996] 217 ITR 208held that furnishing incorrect particulars and concealing theparticulars of income are different things. It was also held that the 13. The Rajasthan High Court has in its judgment in Commissioner of Income Tax v. Raj Trading Co. [1996] 217 ITR 208held that furnishing incorrect particulars and concealing theparticulars of income are different things. It was also held that the words “furnishing inaccurate particulars of income” refer to theparticulars of his income which have been furnished by theassessee and the requirement of “concealment of income” is thatincome has not been declared at all or is not even recorded in thebooks of accounts or in a particular case, the concealment of theparticulars of income may be from the books of account as well asfrom the return furnished. In the judgment in New SorathiaEngineering Co. v. Commissioner of Income Tax [2006] 282 ITR 642(Guj), the Gujarath High Court has taken the view that it wasincumbent upon the Assessing Officer to come to a positive findingas to whether there was concealment of income by the assessee orwhether any inaccurate particulars of such income had beenfurnished by the assessee and that in the absence of such positivefinding, penalty levied under Section 271(1)(c) is liable to be struckdown. 14. We may also mention that the Senior Counsel for theRevenue had relied on the Apex Court judgment in Commissioner of Income Tax v. Mssadilal Ram Bharose [1987] 165 ITR 22where theApex Court held that it is not the requirement of law that any andevery explanation by the assessee must be accepted and that theexplanation submitted by the assessee must be an acceptableexplanation, acceptable to a fact-finding body. 15. Bearing the above principles in mind, we may nowproceed to examine the correctness of the impugned orders. As wehave already stated, in order to attract Section 271(1)(C) read withclause B of Explanation (1), there must be a positive finding that inthe explanation has been offered, the three elements noticed abovehave been established. Insofar as these cases are concerned,admittedly the Assessing Officer has proceeded to levy the penaltyon the basis that in the absence of an explanation submitted by theassessee he was satisfied that, these are cases fit for penalty underSection 271(1)(C). There is no finding that there are anyconcealment of any particulars of income or that the assessee hasfurnished inaccurate particulars of income to attract Section 271 I.T.A.Nos.50, 72 & 80 of 2009 (1)(c). That the assumption of the Assessing Officer is factuallyerroneous as is evident from the orders passed by the FirstAppellate Authority, which refers to the explanations submitted bythe assessee and the contentions therein. Thus, there is absence ofa finding rendered by the Assessing Officer, bringing the casewithin the scope of clause (B) of Explanation (1) to Section 271(1)(c). Secondly, the Assessing Officer has levied penalty ignoring theexplanations submitted by the assessee. Consequently, as held bythe Apex Court in Commissioner of Income Tax v Reliance PetroProducts Pvt. Ltd. [(2010) 322 ITR 158] and the Gujarat High Courtin New Sorathia's case (supra), referring to its earlier judgment inCIT v. Manu Engineering Works [1980] 122 ITR 306 (Guj), thepenalty order was liable to be vacated on that ground itself. 16. We may here reiterate that merely because of theassessee has made certain claims, which were not accepted or wasnot acceptable to the Revenue, that itself would not attract thepenalty under Section 271(1)(c). If that is the interpretation accepted that in every return where the claim made is not accepted for some reason, the assessee will be inviting penalty under Section271(1)(c). Therefore, for the aforesaid reasons, according to us, theTribunal was justified in setting aside the penalty levied on theassessee and allowing the appeals. We, therefore, confirm theorders of the Tribunal and answer the question of law raised infavour of the assessee and against the Revenue. ANTONY DOMINIC JUDGE 16. We may here reiterate that merely because of theassessee has made certain claims, which were not accepted or wasnot acceptable to the Revenue, that itself would not attract thepenalty under Section 271(1)(c). If that is the interpretation accepted that in every return where the claim made is not accepted for some reason, the assessee will be inviting penalty under Section271(1)(c). Therefore, for the aforesaid reasons, according to us, theTribunal was justified in setting aside the penalty levied on theassessee and allowing the appeals. We, therefore, confirm theorders of the Tribunal and answer the question of law raised infavour of the assessee and against the Revenue. ANTONY DOMINIC JUDGE DAMA SESHADRI NAIDU JUDGE