Itta/190/2003 Of The Commissioner Of Income Tax v. M/S.chennupati Tyre And Rubber Products

* THE HON’BLE SRI JUSTICE L.NARASIMHA REDDY AND THE HON’BLE SRI JUSTICE CHALLA KODANDA RAM + I.T.T.A.No.190 of 2003 %Date:21.10.2014 The Commissioner of Income Tax, Vijayawada. and …appellant. $M/s.Chennupati Tyre & Rubber Products, Vijayawada. …Respondent. ! Counsel for appellant: Sri J.V.Prasad ^ Counsel for Respondent : Sri A.V.Krishna Kaundinya < GIST: > HEAD NOTE: ? Cases referred 1. 168 ITR 7052. 358 ITR 5932. 358 ITR 593 THE HON’BLE SRI JUSTICE L.NARASIMHA REDDY AND THE HON’BLE SRI JUSTICE CHALLA KODANDA RAM I.T.T.A.No.190 of 2003 JUDGMENT:(Per the Hon’ble Sri Justice L.Narasimha Reddy) The respondent is an assessee under the Income Tax Act, 1961 (for short ‘theAct’). It filed returns for the assessment year 1994-95, showing loss of Rs.4,51,475/-. The Assessing Officer processed the return under Section 143(1)(a) of the Act, andan intimation was sent to the respondent mentioning the loss at Rs.4,04,106/-. Therespondent filed an application under Section 154 of the Act, with a request to rectifythe order and the same was acceded to on 09.11.1995. The Assessing Officer has taken up an exercise under Section 143(2) of theAct, in respect of the same returns. During the course of verification, he doubted thecorrectness of the two sundry credits, being Rs.5,67,840/- and 5,60,160/-, said to befrom Super Tyre Retreads and Andhra Rubber Factory. The explanation offered bythe respondent was not found to be satisfactory by the Assessing Officer.Thereupon, the respondent agreed for treating those two amounts as income.Accordingly, the order of assessment was passed and tax was paid. The Assessing Officer initiated proceedings under Section 271(1)(c) of theAct, proposing to levy penalty, referable to those two amounts. The respondentsubmitted explanation, stating that he did not have any intention to conceal theamounts, and on the other hand, those two amounts were carried forward from theprevious assessment year. The explanation was not accepted and through his order,dated 30.08.1996, the Assessing Officer levied penalty. Aggrieved by that, therespondent filed an appeal before the Commissioner of Income Tax (Appeals). Theappeal was allowed on 12.11.1996, taking the view that there was no intention onthe part of the appellant to hide the income. The department filedI.T.A.No.205/H/1997, before the Visakhapatnam Bench of the Income Tax AppellateTribunal. The appeal was dismissed through order, dated 12.04.2002. Hence, thisfurther appeal under Section 260A of the Act. Heard Sri J.V.Prasad, learned counsel for the appellant, and Sri A.V.Krishna Kaundinya, learned counsel for the respondent. The processing of a return submitted by an assessee is a complicatedexercise. More the sources of income from an assessee, higher the amount ofscrutiny, that is needed. Even after taking the help of the Chartered Accountant, anassessee may not be correct in his understanding as to the scope of (a) thedetermination of the total income, and (b) the deductions, which he is otherwiseentitled to. The interpretation placed on the respective provisions, itself is notabsolute or final. The Courts and the Tribunals are not uniform in their interpretation Heard Sri J.V.Prasad, learned counsel for the appellant, and Sri A.V.Krishna Kaundinya, learned counsel for the respondent. The processing of a return submitted by an assessee is a complicatedexercise. More the sources of income from an assessee, higher the amount ofscrutiny, that is needed. Even after taking the help of the Chartered Accountant, anassessee may not be correct in his understanding as to the scope of (a) thedetermination of the total income, and (b) the deductions, which he is otherwiseentitled to. The interpretation placed on the respective provisions, itself is notabsolute or final. The Courts and the Tribunals are not uniform in their interpretation of the relevant provisions. Obviously, to provide a deterrance to the assessees, theParliament added Section 271 of the Act, providing for levy of penalty, in case anassessee is found to have suppressed, or concealed income, or posted the incorrectfacts. Till it was amended in the year 1964, Section 271(1)(c) of the Act, brought only“deliberate” concealment, or furnishing of inaccurate particulars as the basis for levyof penalty. Through the Finance Act, 1964, the word “deliberately” was omitted.Such omission, no doubt, has added new dimensions to the provision. All the same,the revenue has to discharge its burden to prove that there was some intention toconceal or furnish inaccurate particulars on the part of the assessee before penaltyis levied. In other words, an inadvertent mistake, or a bona fide belief, as to theclassification, or character of an amount, cannot per se provide a ground for levy ofpenalty. In the ultimate analysis, the sovereign power of the State is only to levy tax,and imposition of penalty is not a principal activity, but a step in the process ofcollection thereof. As observed at the threshold, the respondent filed a return, showing the lossof Rs.4,51,475/- for the assessment year 1994-95. When an intimation was givenunder Section 143(1)(a) of the Act reducing the loss to Rs.4,04,106/-, the respondentfiled an application for rectification thereof and that appealed to the AssessingOfficer. It is thereafter that an excise under Section 143(2) of the Act was undertakenand the scrutiny of each and every item was made. In respect of two items of sundrycredits, the explanation offered by the respondent was not found satisfactory.Naturally, he too agreed for treating those two items as income and it paid tax. It is, no doubt, true that in the order of assessment itself, the Assessing Officermade an observation that proceedings under Section 271 of the Act would beinitiated. In the explanation submitted to the show cause notice, the respondentstated the reasons on account of which, it agreed to treat those two sundry creditorsas income. According to them, it was almost a measure of purchasing peace. Theworries of the respondent are evident from the fact that it has posted losses. Lack ofany mala fide intention on the part of the respondent is clear from the fact that thosetwo items were carried forward from the previous year and were not new additions atall. The Commissioner has verified the record in detail and found that there did notexist any occasion, or basis for levy of penalty. Same view was expressed by theTribunal. It is, no doubt, true that the Tribunal made a reference to the judgment of theSupreme Court in Sir Shadilal Sugar and General Mills Ltd. V. Commissioner ofIncome Tax, which, in turn, was rendered with reference to the provisions as theystood, before Section 271(c) of the Act, was amended. It is not as if theCommissioner and Tribunal proceeded on the assumption that there was no“deliberate” attempt on the part of the respondent to conceal the two items. Theremoval of the word “deliberate” did not give a free hand to the Assessing Officer orexposing the assessee to a defenceless situation. The principle that runs cuttingacross any systems of law is that before person is visited with punishment orpenalty, the wrongful act on his part must be established. If not a deliberate intention,at least, ‘intention’, as such, must be proved to be existing. The intention of thisnature may not be equated to the concept of mens rea. At the same time, theminimum contrast with an instance of mere omission, or failure must be made.Otherwise, every inadvertent omission, or a bona fide understanding of a particularprovision, which is not accepted by the Income Tax Officer may expose theassessee to penalty. If that time is pursued, Act may turn out to be the one of thecollection of penalties than the income tax. Recently, in I.T.T.A.No.180 of 2003, we observed as under: “The levy of penalty cannot be resorted to as a matter of course.By their very nature, the returns are bound to be at variance from what iscontemplated under the Act or the estimates of the Assessing Officers.Many a time, the understanding of a given provision in a particular way,itself would lead to a considerable difference as to the income or thecorresponding tax. The very fact that quite large number of remedies inthe form of appeals at various stages is provided for, discloses that eventhe understanding of the assessing or adjudicatory authorities; notabsolute. The levy of penalty is not going to leave the matter at that. Itwould expose the assessee to prosecution also by treating him as aneconomic offender. An assessee can be made to suffer such far reachingconsequences, if only facts of the case support, and it emerges that theassessee had a clear intention to suppress the income.” Learned counsel for the appellant placed reliance upon the judgment of theSupreme Court in Mak Data P. Ltd. v. Commissioner of Income Tax. TheirLordships held that once an item of income was found to have been concealed, themere fact that the assessee has voluntarily disclosed it thereafter, does not absolvehim from being proceeded under Section 271(1)(c) of the Act. We respectfully follow that. However, it is important to understand the purport of very word “concealment”.That can occur, only when the person is in full knowledge of the state of affairs andeven while being under obligation to make it known to others, and in particular theauthorities under the Act fails or refuses to do so. It is then, and only then, that hecan be said to have ‘concealed’ and once the factum of concealment is proved, hisattempt to voluntarily disclose it does not save him. In the instant case, we do notfind any ingredients of “concealment”. We do not find any basis to interfere with the order passed by the Tribunal.The appeal is accordingly dismissed. There shall be no order as to costs. The miscellaneous petition filed in this appeal shall also stand disposed of. ____________________ L.NARASIMHA REDDY, J. _____________________ CHALLA KODANDA RAM, J. Date:21.10.2014 L.R. copy to be marked. GJ