Rc/212/1991 Of Comnr.income Tax A.p.iii.hyd v. C.v.raghava Reddy Died Gudur

THE HON’BLE SRI JUSTICE V.V.S.RAOAND THE HON’BLE SRI JUTICE R.KANTHA RAO Referred Case No.212 OF 1991 Date:20.12.2011 Between: Commissioner of Income Tax, A.P.-III,Hyderabad.. Applicant And Sri C.V.Raghava Reddy (died)L/R Chjannareddy Kanthamma andChannareddy Sundara Ramireddy,Gudur ..Respondent THE HON’BLE SRI JUSTICE V.V.S.RAOANDTHE HON’BLE SRI JUTICE R.KANTHA RAO Referred Case No.212 OF 1991 ORDER:(Per Hon’ble Sri Justice V.V.S.Rao,) This referred case under Section 256(1) of the Income TaxAct, 1961 (the ‘Act’), is at the instance of the Revenue. TheIncome Tax Appellate Tribunal referred the following question forthe opinion of this Court: Whether on the facts and in the circumstances ofthe case the Income-tax Appellate Tribunal wasright in cancelling the penalty of Rs.37,410 leviedon the assessee under Section 271(2) of theIncome Tax Act for the assessment year 1968-69? This Court heard the Junior Standing Counsel for IncomeTax Department, who has taken through the order of theInspecting Assistant Commissioner, Nellore, the application underSection 256(1) and the order passed by the appellate Tribunal. After giving anxious consideration, we are convinced that thequestion referred to our opinion has to be answered in theaffirmative against the Revenue and in favour of the assessee. The reasons are as follows. The respondent (hereinafter called,the ‘assessee’) was carrying on business in purchase and exportof Mica scrap during the accounting year relevant to theassessment year 1968-1969. He filed his return of Income tax admitting an income of Rs.15,336/-. Therein, he claimedexpenditure towards packing of mica purchase in Bhilwara andKuwarla. The Assessing Officer added this expenditure on theground that there was abnormal inflation of expenditure in respectof packing contract. The Assessing Officer also found that thepacking charges were actually paid by the seller of mica at Bilwaraand Kuwarla. The consequence of the assessment order adding theexpenditure claimed is the penalty proceedings under Section271(1)(c) of the Act. After issuing notice, the competent authorityby order dated 03.05.1978 passed orders under Section 271(1)(c)levying penalty of Rs.37,410/- on the ground that the assesseeconcealed income by inflating expenditure towards packingmaterial of mica. The assessee was unsuccessful before the Commissionerof Income Tax (Appeals). Being aggrieved, further appeal was filedbefore the Appellate Tribunal. By order dated 13.09.1979, theAppellate Tribunal allowed the appeal observing that when theassessment order, pursuant to which the penalty proceedingswere initiated, itself was cancelled, the question of levying penaltyunder Section 271(1)(c) would not arise. Being aggrieved, theRevenue approached this Court under Section 256 (2) of the Act.This Court by order dated 25.09.1996 made in I.T.C.No.308 of1985, directed the appellate Authority to refer the question noticedhereinabove. Section 271(1)(c) of the Act with its Explanation as it stoodduring the relevant time, reads as under. 271(1) - If the Income-tax Officer or the Appellate Assistant Commissioner in the course of anyproceedings under this Act is satisfied that anyperson- (c) has concealed the particulars of his income ordeliberately furnished inaccurate particulars of suchincome, he may direct that such person shall pay by way ofpenalty,….. Section 271(1)(c) of the Act with its Explanation as it stoodduring the relevant time, reads as under. 271(1) - If the Income-tax Officer or the Appellate Assistant Commissioner in the course of anyproceedings under this Act is satisfied that anyperson- (c) has concealed the particulars of his income ordeliberately furnished inaccurate particulars of suchincome, he may direct that such person shall pay by way ofpenalty,….. Explanation: Where the total income returned by anyperson is less than eighty per cent, of the totalincome (hereinafter* in this Explanation referred toas the correct income) as assessed under Section143 or section 144 or section 147 (reduced by theexpenditure incurred bona fide by him for thepurpose of making or earning any income includedin the total income but which has been disallowedas a deduction), such person shall, unless he provesthat the failure to return the correct income did notarise from any fraud or any gross or willful neglecton his part, be deemed to have concealed theparticulars of his income or furnished inaccurateparticulars of such income for the purpose of clause(c) of this Sub-section. Firstly, there is no dispute that penalty under Section 271(1)(c) of the Act read with Explanation would be attracted only whenthe assessee has concealed the particulars of income or furnishedinaccurate particulars of income. A perusal of the order passed bythe Assistant Commissioner would reveal that there was noacceptable evidence which would probabilise the version of theRevenue that there was a concealment of income. The entire case of the Revenue rested on the statement ofMr. K.Prakash Rao. By reading the order dated 03.05.1978,wherein the penalty was levied, we are not able to discern anycategorical statement having been made by the said K.PrakashRao to the effect that the assessee inflated the expenditure towards packing material. Secondly, there is no dispute nor denialbefore us that the assessment order under Section 143(3) of theAct itself was cancelled. Therefore, the question of concealmentand furnishing inaccurate particulars would not arise. The Juniorcounsel fairly admits that the additions made by the AssessingOfficer were deleted and the assessment order was cancelled.This would conclusively lead to an inference that exercise ofjurisdiction by the competent authority under Section 271(1)(c) ofthe Act was not warranted. The Tribunal was, therefore, right incoming to the conclusion as noticed above. In the result, the reference is answered in the affirmativeagainst the Revenue and in favour of the assessee and theReferred Case shall stand disposed of accordingly without anyorder as to costs. ___________ V.V.S. RAO, J Date: 20-12-2011kvrm/ccm _______________ R. KANTHA RAO, J THE HON’BLE SRI JUSTICE V.V.S.RAOANDTHE HON’BLE SRI JUTICE R.KANTHA RAO Referred Case No. 212 OF 1991DATE: 20.12.2011