Sri A.ramamurthy v. The Assistant Commissioner Of Income Tax, Virudhunagar

IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED : 08.02.2022 CORAM THE HONOURABLE MR. JUSTICE R. MAHADEVANAND THE HONOURABLE MR. JUSTICE J.SATHYA NARAYANA PRASAD T.C.A.Nos. 205 to 210 of 2011 M/s Ramamurthy Metal Decorating Industries Private Ltd.,Sivakasi. .. Appellant in TCA.Nos.205, 207, 208 & 209 of 2011 Sri A.Ramamurthy .. Appellant in TCA.Nos.206 & 210 of 2011 Versus The Assistant Commissioner of Income Tax, Virudhunagar. .. Respondent in all TCAs Tax Case Appeals filed under Section 260A of the Income TaxAct, 1961 against the order dated 30.08.2005 passed by theIncome Tax Appellate Tribunal, Chennai “C” Bench, in I.T.A.Nos.1407, 1411, 1408, 1409, 1410 and 2132 /Mds/2003 Respectively. Prayer in TCA 205 of 2011 Against the order dated 19.02.2003 of the commissioner ofIncome Tax (Appeals-II), Madurai in ITA Nos.207, 213, 214, 210,215, 216/1999-2000 pertaining to Assesment Year 1979-80, againstthe order of the Assistant Commissioner of Income Tax, Circle-I,Virudhunagar, dated 22.09.1994 in PA.No.47-016-CX-5714. Prayer in TCA 206 of 2011Against the order dated 19.02.2003 of the commissioner ofIncome Tax (Appeals-II), Madurai in ITA Nos.204, 205, 206/1999-2000 pertaining to Assesment Year 1976-1977 against the order ofthe Assistant Commissioner of Income Tax, Circle-I,Virudhunagar, dated 15.09.1994 in PA.No.47-018-PZ-0193. Prayer in TCA 207 of 2011 Against the order dated 19.02.2003 of the commissioner ofIncome Tax (Appeals-II), Madurai in ITA Nos.207, 213, 214, 210,215, 216/1999-2000 pertaining to the Assesment Year 1978-1979against the order of the Assistant Commissioner of Income Tax,Circle-I, Virudhunagar, dated 22.09.1994 in PA.No.47-016-CX-5714. https://hcservices.ecourts.gov.in/hcservices/ Prayer in TCA 208/2011 & TCA 209 of 2011Against the order dated 19.02.2003 of the commissioner ofIncome Tax (Appeals-II), Madurai in ITA Nos.207, 213, 214, 210,215, 216/1999-2000 pertaining to the Assesment Year 1976-1977and 1975-1976 against the order of the Assistant Commissioner ofIncome Tax, Circle-I, Virudhunagar, dated 22.09.1994 inPA.No.47-016-CX-5714. Prayer in TCA 210 of 2011 Against the order dated 19.02.2003 of the commissioner ofIncome Tax (Appeals-II), Madurai in ITA Nos.204, 205, 206/1999-2000 pertaining to the Assesment Year 1979-80 against the orderof the Assistant Commissioner of Income Tax, Circle-I,Virudhunagar, dated 22.09.1994 in PA.No.47-018-PZ-0193. For Appellant : Mr.P.J.Rishikesh in all TCAs For Respondent : M/s.V.Pushpa, Junior Standing Counsel in all TCAs COMMON JUDGMENT (Judgment of the Court was delivered by R. MAHADEVAN, J.) These tax case appeals have been filed by the appellant /assessee, challenging the common order dated 30.08.2005 passedby the Income Tax Appellate Tribunal, 'C' Bench, Chennai, inI.T.A.Nos. 1407, 1411, 1408, 1409, 1410 and 2132 /Mds/2003,relating to the respective assessment years 1979-80, 1976-77,1978-79, 1976-77, 1975-76 and 1977-78. 2.By order dated 01.08.2011, this court admitted theaforesaid tax case appeals on the following substantial questionof law: “Whether on the facts and in thecircumstances of the case, the ITAT was right inholding that penalty was leviable under section271 (1) (c) of the Income Tax Act?" For Respondent : M/s.V.Pushpa, Junior Standing Counsel in all TCAs COMMON JUDGMENT (Judgment of the Court was delivered by R. MAHADEVAN, J.) These tax case appeals have been filed by the appellant /assessee, challenging the common order dated 30.08.2005 passedby the Income Tax Appellate Tribunal, 'C' Bench, Chennai, inI.T.A.Nos. 1407, 1411, 1408, 1409, 1410 and 2132 /Mds/2003,relating to the respective assessment years 1979-80, 1976-77,1978-79, 1976-77, 1975-76 and 1977-78. 2.By order dated 01.08.2011, this court admitted theaforesaid tax case appeals on the following substantial questionof law: “Whether on the facts and in thecircumstances of the case, the ITAT was right inholding that penalty was leviable under section271 (1) (c) of the Income Tax Act?" 3.The brief facts of the case would run thus:3.1The appellant viz., M/s.Ramamurthy Metal DecoratingIndustries P. Ltd is engaged in the business of card making, tinprinting and purchase and sale of safety matches; and oneA.Ramamurthy is its Managing Director. For the assessment yearsin question, while scrutinising the accounts of the appellants,the assessing officer found that there were cross transactionsof purchases and sales of safety matches among the assesseegroup concerns and each member of the group was found to begranting certain “rebates” to some sister concerns at the end ofthe year and to be receiving similar “rebate” from them. Theserebates mostly kept hidden in the respective accounts of https://hcservices.ecourts.gov.in/hcservices/ purchases and sales. After examining the oral and documentaryevidence, it was found by the assessing officer that suchrebates represented a systematic and ingenious process ofreducing the profits by fictitious claim and hence, the rebatesdebited by the concerned assesses in their accounts weredisallowed as not related to business. 3.2Aggrieved by the orders of the assessment, theassesses went on appeals, which were allowed and all theassessments were set aside. 3.3In the fresh assessments, the assessing officer tookthe very same stand and the second round of assessmentproceedings were again set aside by the Tribunal with directionto all the assesses to go for a permanent settlement of thedispute with the concerned Commissioner of Income Tax.Accordingly, the CIT, Madurai had a detailed pre-settlementdiscussions with all the assesses. The terms of settlement alsoincluded a condition regarding levy of penalties under section271(1)(c). Based on the same, the assessing officer initiatedpenalty proceedings and issued show cause notices to theassesses, to which, no reply was filed. The assessing officercompleted the assessment based on the settlement arrived atbetween the assesses and the department. The details of thepenalty imposed are as under:-M/s.Ramamurthy Metal Decorating Ind. P. Ltd. 1979-1980 Rs.2,33,596/-1975-1976 Rs.3,81,243/-1976-1977 Rs. 37,234/-1978-1979 Rs.3,00,530/- Sri A.Ramamurthy 1976-1977 Rs.1,10,442/-1977-1978 Rs. 10,330/- 3.4Challenging the orders of assessment, the appellantsfiled appeals before the CIT(A), who confirmed the penalties anddismissed the appeals. Aggrieved by the same, the appellantswent on further appeals before the Tribunal, which alsodismissed the appeals filed by the appellant. Therefore, thepresent tax case appeals by the appellants / assesses. 4.Heard both sides and perused the materials available onrecord. 5.It appears from the facts stated above that the assessingofficer upon verification of the materials placed, had concludedthat the rebates claimed by the appellants /assesses for theassessment years in question, were clearly the profits divertedby the fictitious claims and hence, the same were disallowed. Inthe second round of litigation as well, the assessing officertook the same stand and passed the reassessment orders, which 4.Heard both sides and perused the materials available onrecord. 5.It appears from the facts stated above that the assessingofficer upon verification of the materials placed, had concludedthat the rebates claimed by the appellants /assesses for theassessment years in question, were clearly the profits divertedby the fictitious claims and hence, the same were disallowed. Inthe second round of litigation as well, the assessing officertook the same stand and passed the reassessment orders, which https://hcservices.ecourts.gov.in/hcservices/ were again challenged by the appellants. At this time, theTribunal directed the appellants to go for a permanentsettlement of the dispute with the concerned CIT. Pursuant tothe said direction, settlement was entered into among theparties, one of the terms of which is that penalty under section271(1)(c) will have to be levied for the assessment years at theminimum rate on the net excess payment disallowed, which wastreated as concealed income. Accordingly, the assessing officerinitiated the penalty proceedings, during the course of which,the assesses did not come forward to give proper explanation byway of reply. Hence, the assessing officer imposed penalty undersection 271(1)(c) on the assesses, which was confirmed by boththe first appellant authority and the Tribunal. The appellantsquestioned the said imposition of penalties by the assessingofficer as affirmed by the appellate authorities in these taxcase appeals. 6.To determine the substantial question of law involvedherein, we consider it necessary to quote below the relevantfindings of the appellate authorities, for ready reference:First Appellate Authority “The second aspect of the case is the merit ofimposition of the penalties. Although my primarydecision is that all the penalties are to be confirmedbecause otherwise the concerned settlements standvitiated, in my view even from an independent angle,these cases definitely warrant imposition ofpenalties. By certain ingenious and intricateadjustments in accounts, through kite flying entriesof rebates given and received, the 14 Members of thegroup kept on playing the game of inter-diversions ofprofits for 6 to 7 years. The Government for almost 15to 20 years had not collected the concerned taxesbecause the matters pertaining to Assessment Years1975-76 to 1979-80 ultimately reached stage ofsettlement only in 1994. The appellant group nevercame for any settlement voluntarily. It was only onthe directions of the ITAT, the Department and theAssessee had come to the discussion table for theeventual settlements. When the 14 concerns belonged tothe same group, price fluctuation in the market wouldnot warrant passing on rebates by one concern toanother in a cyclical fashion. During the course ofthe relevant assessment proceedings, the group memberswere not able to substantiate the debits and creditsfor the rebates. All these definitely indicate theattempt of the group members not to make payments ofcorrect taxes for the concerned Assessment Years byartificially manipulating the income figures.Therefore, in my opinion, these cases do not come anywhere near the facts of any of the 7 casesmentioned before me by the Authorised Representativeof the Appellant. Therefore, even on merit, thesepenalties have to be confirmed.” Tribunal “On careful consideration of the facts andcircumstance of the case we are of the view that theassesses have failed to offer explanation that therewas no concealment of income in the returns filed bythem. Concealment of income was due to a plannedscheme resorted to by the group of assesses which wasdetected by the department. The assesses wereindulging in concealment of income in a planned mannerfor several years. Penalty under section 271(1)(c)under such circumstances is imposable. We thereforeuphold the orders of authorities below.” anywhere near the facts of any of the 7 casesmentioned before me by the Authorised Representativeof the Appellant. Therefore, even on merit, thesepenalties have to be confirmed.” Tribunal “On careful consideration of the facts andcircumstance of the case we are of the view that theassesses have failed to offer explanation that therewas no concealment of income in the returns filed bythem. Concealment of income was due to a plannedscheme resorted to by the group of assesses which wasdetected by the department. The assesses wereindulging in concealment of income in a planned mannerfor several years. Penalty under section 271(1)(c)under such circumstances is imposable. We thereforeuphold the orders of authorities below.” It is thus evident from the aforesaid findings of theauthorities below that the appellants / assesses had concealedincome, which was accepted after detection and the assessmentwas completed as per the terms of the settlement, whichstipulated minimum penalty under section 271(1)(c). Based on thesame, the assessing officer initiated the penalty proceedings byissuing show cause notices, to which, the appellants/assessesdid not file any reply to substantiate their stand that therewas no concealment of income. Therefore, the assessing officerimposed penalties on the appellants, which were also confirmedby the appellate authorities. 7.At this juncture, it is apt to refer to a decision of theSupreme Court in Mak Data (P) Ltd. v. CIT [(2013) 38 taxmann.com448/ 358 ITR 593 (SC), wherein, it was held as under: “7. The AO, in our view, shall not be carriedaway by the plea of the assessee like “voluntarydisclosure”, “buy peace”, “avoid litigation”,“amicable settlement”, etc. to explain away itsconduct. The question is whether the assessee hasoffered any explanation for concealment of particularsof income or furnishing inaccurate particulars ofincome. Explanation to Section 271(1) raises apresumption of concealment, when a difference isnoticed by the AO, between reported and assessedincome. The burden is then on the assessee to showotherwise, by cogent and reliable evidence. When theinitial onus placed by the explanation, has beendischarged by him, the onus shifts on the Revenue toshow that the amount in question constituted theincome and not otherwise.8. Assessee has only stated that he hadsurrendered the additional sum of Rs.40,74,000/- with a view to avoid litigation, buy peace and tochannelize the energy and resources towards productivework and to make amicable settlement with the incometax department. Statute does not recognize those typesof defences under the explanation 1 to Section 271(1)(c) of the Act. It is trite law that the voluntarydisclosure does not release the Appellant-assesseefrom the mischief of penal proceedings. The law doesnot provide that when an assessee makes a voluntarydisclosure of his concealed income, he had to beabsolved from penalty.”Applying the ratio decidendi laid down in the aforesaid decisionto the facts of the present case, wherein, the appellants haddisclosed the income, after detection by the department and asper the terms of settlement, the assessing officer initiated thepenalty proceedings, to which, the appellants / assesses did notsubmit any explanation to the effect that there was noconcealment of income or furnishing of inaccurate particulars ofsuch income, which culminated in imposition of penalties undersection 271(1)(c), we do not find any infirmity or illegality ininitiating the penalty proceedings and the consequential orderspassed by the assessing officer as confirmed by the appellateauthorities. 8.In such view of the matter, all these tax case appealsare dismissed by answering the substantial question of lawagainst the appellants / assesses. No costs. Sd/- Assistant Registrar(CS-IX) //True Copy// avTo Sub Assistant Registrar