N.ranjit v. Commissioner Of Income Tax-V Chennai

IN THE HIGH COURT OF JUDICATURE AT MADRAS CORAM: THE HONOURABLE MRS.JUSTICE CHITRA VENKATARAMANandTHE HONOURABLE MS.JUSTICE K.B.K.VASUKI Tax Case (Appeal) No.298 of 2010 N.Ranjit N.Ranjit ...AppellantversusCommissioner of Income Tax-VChennai. ...Respondent PRAYER: Tax Case Appeal filed under Section 260A of the Income TaxAct, 1961, as against the order of the Income Tax Appellate Tribunal'D' Bench, Chennai dated 31.07.2009 made in I.T.A.No.856/Mds/2008against the order of the Commissioner of Income Tax (A) – VI, 121,Mahathma Gandhi Road, Chennai – 600 034, dated 26/12/2007 made in ITANo. 88/07-08 preferred against the order of the office of theAssistant Commissioner of Income Tax, Salary Range – V, Room No.508,New Block, 121, MG, Chennai – 600 034, dated 29/06/2007 made in PANADL PR 7084B/2002-2003.. For appellant:Mr.N.Quadir HoseynFor respondent:Mr.M.SwaminathanStanding Counsel for Income TaxJUDGMENT (Judgment of the Court was delivered by CHITRA VENKATARAMAN,J.) This Tax Case Appeal, relating to the assessment year 2002-03,filed by the assessee against the order of the Tribunal challengingthe levy of penalty, was admitted on the following substantialquestions of law:" 1.Whether on the facts and in thecircumstances of the case, the Tribunal wasjustified in holding that there was concealmentwarranting levy of penalty under Section 271(1)(c)? 2. Whether on the facts and in thecircumstances of the case, the Tribunal wasjustified in concluding that the revised return https://hcservices.ecourts.gov.in/hcservices/ filed on 9.5.2005 was not voluntary even thoughnotice under Section 148 was issued only on14.12.2005 and the enquiry by the DDI alsopertained only to the later assessment years? 3. Whether the Tribunal was justified in itsconclusion that penalty was leviable, by ignoringthat the difference arise only due to themethodology of computing the capital gains on thesale of shares and not due to their non-disclosure in the original return? 2. The assessee is an individual. He filed return of income on29.07.2002, admitting salary income of Rs.21,07,645/-. On11.03.2005, there was an enquiry by the Investigation Unit I(3),Chennai, in the assessee's wife's case as regards certain mutual fundtransaction made by her. In the course of enquiry, a statement wasrecorded from the assessee herein on 01.04.2005. On 09.05.2005, theassessee herein is stated to have filed a revised return for the year2002-03, wherein, he offered an amount of Rs.79,08,118/- under thehead of 'capital gains'. 2. The assessee is an individual. He filed return of income on29.07.2002, admitting salary income of Rs.21,07,645/-. On11.03.2005, there was an enquiry by the Investigation Unit I(3),Chennai, in the assessee's wife's case as regards certain mutual fundtransaction made by her. In the course of enquiry, a statement wasrecorded from the assessee herein on 01.04.2005. On 09.05.2005, theassessee herein is stated to have filed a revised return for the year2002-03, wherein, he offered an amount of Rs.79,08,118/- under thehead of 'capital gains'. 3. On 14.12.2005, a notice under Section 148 of the Income TaxAct was issued, requesting revised return and on the assessee filingthe revised returns, the assessment was completed, thereby assessinglong-term capital gains. After completion of assessment, penaltyproceedings were initiated under Section 271(1)(c) of the Income TaxAct, on the incorrect particulars of income disclosed in the originalreturns. The assessee resisted the said proposal, contending thatthe assessee had filed the details of the share transactions in itsreturns for the assessment year 2004-05 filed on 16.02.2005 and thateven before the receipt of notice, he had paid the tax thereon inaddition to the TDS. There was no addition to the income to therevised returns for 2002-2003 filed by him on 09.05.2005 and hence,no concealment of income could be held to have been detected by theAuthority. He pointed out that he was originally allotted 75000shares of HCL Technologies in January, 1998 at a face value of Rs.2/-each. Subsequently, during the assessment year 2002-03, he hadbought and sold the said shares many times, which did not yield anyprofit during assessment year 2002-03 and hence, was not included inhis return for the assessment year 2002-03. However, while he wasgoing through the records and the case laws for preparing the answersto the questions during the investigation, the assessee found thatthe method adopted for calculating the profit was incorrect.Thereafterwards, the right method of FIFO to calculate the profitswas adopted. As the original shares were acquired by the assessee atvery low rates, the revised calculation yielded large profits; hence,no concealment or inaccurate particulars could be attributed to theassessee. He pointed out that the filing of revised returns wasvoluntary and was made to set right the error that had crept in theoriginal returns; that there was no mala fide intention in filing a wrong return or in concealing the particulars of the income, in hisoriginal return. In the circumstances, he prayed for dropping of theproceedings. wrong return or in concealing the particulars of the income, in hisoriginal return. In the circumstances, he prayed for dropping of theproceedings. 4. The Assessing Officer, however, rejected the said contentionand pointed out to the chronological order of events that had takenplace, leading to the filing of the revised return. The AssessingOfficer pointed out that prior to 2005, the Investigation Wing of theDepartment received an information from CIB on the mutual fundtransactions by Mrs.Kanchana, the assessee's wife. Thereupon,Kanchana, wife of the assessee, was called upon to show the source ofhuge funding for investment in mutual funds. This led to furtherinvestigation. During the course of recording of sworn statementdated 01.04.2005, the assessee did not admit the transactions inshares and the source of acquisition of shares. After referring tothe statements recorded and the answers to the queries raised, theAssessing Officer pointed out that confronted with the situation thatthe Department had evidence against the assessee as regards theearning of income on the transaction in shares, the assessee wasforced to admit the same by filing revised returns, admitting longterm capital gains of Rs.79,08,118/-. Thus, looking at the conductof the assessee, the Assessing Officer came to the conclusion thatthere was no voluntariness on the part of the assessee in filing therevised return. Thus the wilful act of concealment of particularsand furnishing inaccurate particulars being there, he levied minimumpenalty of Rs.8,06,628/-. 5. Aggrieved by this levy of penalty, the assessee went on appealbefore the Commissioner of Income Tax (Appeals), who agreed with theassessee that there was no justification for levy of penalty. Hereasoned out that the Assessing Officer had not given any explanationin the order of assessment on the disclosure of capital gains arisingon the sale of shares; that the Officer had not given any explanationas to why he had not taken any action till 14.12.2005, the date onwhich Section 148 proceedings were taken. The penalty order did notanywhere bring out the fact that the assessee had in his possession,the details of escapement of income under the head "capital gains"for the assessment year 2002-03 prior to 09.05.2005, on which datethe assessee filed revised return, offering a sum of Rs.79,08,118/-as income under the head "capital gains". In the circumstances, thefirst Appellate Authority cancelled the levy of penalty, holding thatthere was no justification to uphold the same. Aggrieved by thisorder, the Revenue went on appeal before the Income Tax AppellateTribunal. 6. The Revenue took the contention that during the assessmentproceedings for the assessment year 2005-06, the Officer went throughthe statement filed by the assessee in respect of the loan amountadvanced to his wife and found out that she had made investment inshares during the earlier years, including the years under consideration; that Revenue was in possession of informationregarding the shares purchased by the assessee held in his name andnot disclosed in the original return filed by him; that the enquirywith the wife of the assessee about her investment kick-startedfurther investigation. Thus, realising the piquant situation, theassessee had filed the revised returns, which is subsequent to theincorrect returns filed by him originally. 6. The Revenue took the contention that during the assessmentproceedings for the assessment year 2005-06, the Officer went throughthe statement filed by the assessee in respect of the loan amountadvanced to his wife and found out that she had made investment inshares during the earlier years, including the years under consideration; that Revenue was in possession of informationregarding the shares purchased by the assessee held in his name andnot disclosed in the original return filed by him; that the enquirywith the wife of the assessee about her investment kick-startedfurther investigation. Thus, realising the piquant situation, theassessee had filed the revised returns, which is subsequent to theincorrect returns filed by him originally. 7. On hearing both sides, the Tribunal pointed out that theInvestigation Unit of the Department considered the letter dated11.03.2005 and the statement of the assessee was recorded by the DDITon 01.04.2005 and only subsequently thereon, the assessee filed thereturn on 09.05.2005, including the sum relating to the capital gainsreceived on the sale of shares. The assessment under Section 143(3)read with Section 147 of the Income Tax Act was completed on27.12.2006, accepting the second return of income, which was to betreated as return in response to the notice under Section 148 of theIncome Tax Act. The Tribunal pointed out it was no doubt true thatthere was no specific satisfaction recorded during the course ofassessment proceedings. However, considering Clause (IB) ofExplanation 7 to Section 271(1)(c) of the Income Tax Act, the saidrequirement was necessary while making the assessment. Consideringthe fact that the second return itself came to be filed only afterdetection, the contumacious conduct of the assessee in not disclosingthe gains earned in the share transaction certainly warranted levy ofpenalty. The Tribunal pointed out that the modus operandi adopted bythe assessee in filing the revised return on being discovered duringthe investigation made by the Revenue; there was no compulsion forfiling a revised return. Yet, the mere filing of the revised returnwould not be sufficient to exonerate the conduct of the assessee innot originally disclosing the amount earned on capital gains on thesale of the shares. Thus, even if the Department had not come acrossany tangible evidence as regards concealment, yet, when admittedlythe original return failed to disclose the assessable income and oninvestigation, ultimately led to the filing of the revised income,the question of accepting the case of the assessee as regards bonafides, did not arise. The Tribunal pointed out that the revisedreturns filed clearly showed the attempt of the assessee to pre-emptany action on the part of the Department from taking any furtherinvestigation. In the circumstances, the culpability in the conductof the assessee in the background of the facts stated, attracted thepenal provisions of the Act. Aggrieved by this, the present Tax CaseAppeal has been filed by the assessee. 8. Learned counsel appearing for the assessee strenuously arguedthat there was no allegation of concealment in the assessment orderon the assessment made under Section 143(3) read with Section 147 ofthe Income Tax Act. He further pointed out that there was adifference in the methodology of calculation of capital gains andhence, he immediately volunteered to file revised returns, disclosing 8. Learned counsel appearing for the assessee strenuously arguedthat there was no allegation of concealment in the assessment orderon the assessment made under Section 143(3) read with Section 147 ofthe Income Tax Act. He further pointed out that there was adifference in the methodology of calculation of capital gains andhence, he immediately volunteered to file revised returns, disclosing the details and paid the tax thereon and hence, there was no evasionof tax on the assessment made under Section 143(3) read with Section147 of the Income Tax Act, to hold that there was concealment ofincome. In fact, the assessment itself was based on the revisedreturns filed by the assessee. In the circumstances, he submittedthat it was incorrect to say that the Revenue had found hugetransactions in shares, calling for addition to the assessment. Hefurther pointed out that the investigation itself was with referenceto the assessee's wife's investment and there was no investigation assuch, on the assessee, to hold that there was concealment ofparticulars of income. In the circumstances, in the absence of anymens rea or lack of bona fides found on the part of the assessee, thepenal provisions are not attracted in this regard. Hence, theTribunal committed serious error in confirming the order of penalty.In this regard, he placed reliance on the decision of this Courtreported in [2011] 335 ITR 460 (Mad) (Commissioner of Income Tax Vs.Ample Properties Ltd.). 9. We do not find any justifiable ground to set aside the orderof the Tribunal, upholding the levy of penalty under Section 271(1)(c) of the Income Tax Act. We may immediately point out herein thatthe above decision of this Court referred to by the assessee, doesnot, in any manner, advance the cause of the assessee, since, onfacts, this Court accepted the reasoning of the Tribunal andcancelled the levy of penalty. The addition in that case itself aroseon account of the assessee agreeing on the addition of income on thepercentage of profit. Thus, when the assessment itself was completedas per the direction of the appellate authority adopting 1% ofprofit, which is not based on any material but based on an offer topurchase peace, this Court held that penalty could not be levied.Contrary to the assertion of the assessee, the facts herein clearlypoint out to the contumacious conduct of the assessee that but forthe investigation and the enquiry made by the Revenue, the revisedreturns would not have come as regards the income relating to thecapital gains, arising on the sale of shares. 10. It is seen from the facts that the enquiry herein made by theDDI was initiated under letter dated 11.03.2005 and a statement wasrecorded on 11.04.2005. Based on the enquiry, the revised return wasfiled by the assessee on 09.05.2005, offering an income ofRs.79,08,118/- under the head of capital gains. The original returnfiled made no reference to the sale of shares at all and it merelyindicated the salary income received by the assessee. 11. It may be of relevance to point out herein that leaving asidethe valuation on shares, there is hardly any indication as regardsthe transaction in shares, which, even accepting the assessee's case,had not been a loss. Thus, when confronted with the question on thesource of funds on the investment made in mutual fund by theassessee's wife, the assessee took his opportunity first to file the revised returns to set his assessment in order. The fact that theassessee had filed revised returns and the same was accepted, byitself, however, does not efface the fact of non-disclosure of theincome arising under the head of "capital gains" in the originalreturn. In the background of this conduct, we do not find anyacceptable ground to set aside the order of the Tribunal as held bythe Apex Court in a series of decisions. revised returns to set his assessment in order. The fact that theassessee had filed revised returns and the same was accepted, byitself, however, does not efface the fact of non-disclosure of theincome arising under the head of "capital gains" in the originalreturn. In the background of this conduct, we do not find anyacceptable ground to set aside the order of the Tribunal as held bythe Apex Court in a series of decisions. 12. It is not that every case of addition warrants levy ofpenalty. The application of penal provisions are not automatic andthe levy itself depends upon the facts and circumstances of eachcase. On the incorrectness of the returns originally filed, notdisclosing the transaction in shares, the proceedings subsequent tothe statement filed certainly indicates the conduct of the assessee.Thus in view of the decision of of the Apex Court reported in 2009(233) E.L.T. 3 (S.C.) Union of India Vs. Rajasthan Spinning & WeavingMills) on the law propounded on penalty, we reject this Tax CaseAppeal and thereby confirm the order of the Tribunal. In the result, the Tax Case Appeal stands dismissed. No costs. Sd/Asst.Registrar /true copy/ ksv Sub Asst.Registrar To1. The Income-Tax Appellate Tribunal Chennai 'D' Bench, Chennai. 2. The Commissioner of Income Tax (Appeals)-VI,Chennai-600 034.3. The Assistant Commissioner of Income Tax Salary Circle-V (i/c),Chennai. 4. The Joint Commissioner of Income Tax, Salary Range V, Chennai – 34. +1CC to Mr.M.Swaminathan, Advocate SR 29830 Tax Case (Appeal) No.298 of 2010 EV (CO)PSI 04/07/2013