Itta/559/2010 Of The Commissioner Of Income Tax-Iii v. M/S. Vinayaka Agritech Limited

THE HON’BLE SRI JUSTICE V.V.S.RAOANDTHE HON'BLE SRI JUSTICE RAMESH RANGANATHAN ITTA No.559 of 2010 Dated:04.02.2011 Between: The Commissioner of Income Tax-III,I.T.Towers, A.C.Guards, Masab Tank,Hyderabad. and …Petitioner M/s.Vinayaka Agritech Limited,Hyderabad. …Respondent THE HON’BLE SRI JUSTICE V.V.S.RAOANDTHE HON'BLE SRI JUSTICE RAMESH RANGANATHAN ITTA No.559 of 2010 ORDER:(per Hon’ble Sri Justice V.V.S.Rao) The respondent, an assessee in Floriculture business, filedreturn of income for the assessment year 2004-2005. The same wastaken up for scrutiny after issuing notice under Section 143(2) of theIncome Tax Act, 1961 (the Act). The income was assessed atRs.5,15,410/- and the tax was calculated at Rs.2,38,951/-. By aseparate order the penalty under Section 271(1)(c) of the Act waslevied. The order of the Assessing Officer was subject matter ofappeal before the Commissioner of Income Tax (Appeals). Theappellate authority recorded a finding that the respondent made adeliberate attempt to conceal the income from trading of flowers andalso on interest and deposits by deliberately claiming such income asexemption under Section 10(1) of the Act and accordingly confirmedthe levy of penalty. The appeal before the Income Tax Tribunal was,however, allowed against which the present appeal is filed underSection 260A of the Act. The Senior Counsel for Income Tax submits that the assesseeclaimed exemption under Section 10(1) of the Act on the depositswhich were shown in the return. This amounts to concealing thetaxable income. The learned Tribunal in the impugned order considered thisaspect in the following manner. …Firstly, it needs to be appreciated that all theparticulars from which income has to be determined are onrecord. Secondly, when the Assessing Officer noticed thatthe purchase of flowers were to the tune of Rs.30.59 lacs, theassessee furnished the breakup and satisfied the AssessingOfficer that actual purchases which were meant for salesamounted only to Rs.14.62 lacs. Thus, it is not a case ofinflation of purchases as contended by the learnedDepartmental Representative. This aspect itself establishesthe bonafides of the assessee. Thirdly, the total sales of theassessee amounted to Rs.2.59 crores including export salesof Rs.89.24 lacs. The net profit amounted to Rs.48.44 lacs. Considering this volume of business and profitability, it cannotbe the intention of the assessee to conceal a meager incomeof Rs.3.76 lacs which too is not the correct concealedincome, if it can be so called. At best, this appears to be thecase of sheer oversight to separate out the trading activityfrom such a huge volume. Fourthly, yes, there can be apenalty on estimated income. But it can be so only when theestimate is fair and is based on some cogent material onrecord. In the instant case, the income itself is arrived at onthe basis of an arithmetical formula which cannot beconsidered to be fair. Therefore, on any count, we do notconsider this to be a fit case for levy of concealment penalty. We cancel the same. Under Section 271(1)(c) of the Act the Assessing Officer maydirect the assessee to pay penalty when any person, “has concealedthe particulars of his income or furnished inaccurate particulars of suchincome”. The recording of satisfaction that the assessee concealedthe particulars or furnished inaccurate particulars is conditionprecedent for levying penalty under the provisions. The AssessingOfficer did not record any finding and was carried away by the fact thatthe assessee claimed exemption under Section 10(1) of the Act. Theappellate authority inferred that the claim of exemption under Section10(1) of the Act itself is deliberate attempt to conceal the income. When the exemption is claimed under Section 10(1) of the Act we failto understand as to how it would amount to concealment. That Section271(1)(c) of the Act is not always attracted the moment there isallegation of concealment of the income or furnishing of inaccurate particulars, is settled by reason of the decision of the Supreme Court inCommissioner of Income Tax v Eli Lilly and Company (India)P.Ltd[[1]]. It was held therein as under. …Thus, section 271C(1)(a) makes it clear that thepenalty leviable shall be equal to the amount of tax whichsuch person failed to deduct. We cannot hold this provision tobe mandatory or compensatory or automatic because undersection 273B Parliament has enacted that penalty shall not beimposed in cases falling thereunder. Section 271C falls in thecategory of such cases. Section 273B states thatnotwithstanding anything contained in section 271C, nopenalty shall be imposed on the person or the assessee forfailure to deduct tax at source if such person or the assesseeproves that there was a reasonable cause for the said failure. Therefore, the liability to levy of penalty can be fastened onlyon persons who do not have good and sufficient reason fornot deducting tax at source. Only those persons will be liableto penalty who do not have good and sufficient reason for notdeducting the tax. The burden, of course, is on the person toprove such good and sufficient reason… Applying the above principles, we do not find any infirmity in theimpugned order of the learned Tribunal. The ITTA is, therefore, dismissed. There shall be no order as tocosts. _______________ (V.V.S.RAO, J) _____________________________ (RAMESH RANGANATHAN, J) 04.02.2011vs [1](2009) 312 ITR 225 (SC)