Tc/1001/2007 Of Commissioner Of Income Tax v. M/S T.m.abdul Azeez & Co

IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED : 05.07.2007 THE HONOURABLE MR.JUSTICE P.D.DINAKARAN THE HONOURABLEMR.JUSTICE P.P.S.JANARTHANA RAJA Commissioner of Income-tax,Chennai. ..Appellant in both the T.C.(A)s. M/s.T.M.Abdul Azeez & Co.,No.17, Anderson Street,Chennai-600 001. ..Respondent in both the T.C.(A)s. Appeals under Section 260A of the Income-tax Act, 1961against the order of the Income Tax Appellate Tribunal, ChennaiBench 'B', Chennai in I.T.A. Nos.1527 and 1528/Mds/2006 dated28.09.2006 for the assessment years 1997-98 and 1998-99. againstthe ITA NO. 410 and 411/2005-06 dated 4/5/2006 on the file of theCommissioner of Income Tax (Appeals – IX) Chennai 34 agaisnt PANAAAFJ/3342G dated 30.09.2005 on the file of the Income TaxOfficer, Ward 1X (3) Chennai for the Assessment year 1997-98 and1998-99. For Appellant in both : Mr.J.Naresh Kumar, Standing Counsel forIncome-tax Department (Judgment of the Court was delivered byP.P.S.Janarthana Raja, J.) These appeals are filed under Section 260A of the Income TaxAct, 1961 by the Revenue, against the order of the Income TaxAppellate Tribunal, Chennai Bench 'B', Chennai in I.T.A. Nos.1527and 1528/Mds/2006 dated 28.09.2006, raising the following commonsubstantial question of law:- "Whether in the facts and circumstances of the https://hcservices.ecourts.gov.in/hcservices/ case, the Tribunal was right in holding thatthe concealment of income was not proved forthe purpose of levying penalty u/s 271(1)(c),when the assessee himself could not prove thesame and offered it for assessment onlysubsequent to the issuance of notice u/s 148?" 2.The facts leading to the above substantial question oflaw are as under:- (Judgment of the Court was delivered byP.P.S.Janarthana Raja, J.) These appeals are filed under Section 260A of the Income TaxAct, 1961 by the Revenue, against the order of the Income TaxAppellate Tribunal, Chennai Bench 'B', Chennai in I.T.A. Nos.1527and 1528/Mds/2006 dated 28.09.2006, raising the following commonsubstantial question of law:- "Whether in the facts and circumstances of the https://hcservices.ecourts.gov.in/hcservices/ case, the Tribunal was right in holding thatthe concealment of income was not proved forthe purpose of levying penalty u/s 271(1)(c),when the assessee himself could not prove thesame and offered it for assessment onlysubsequent to the issuance of notice u/s 148?" 2.The facts leading to the above substantial question oflaw are as under:- The relevant assessment years are 1997-98 and 1998-99 and thecorresponding accounting years ended on 31.03.1997 and 31.03.1998,respectively. For the assessment year 1997-98, the assessee filedReturn of income on 24.10.1997 admitting a total income ofRs.89,963/-. Later, notice under Section 148 of the Income-taxAct ("Act" in short) was issued to the assessee on 16.03.2004. Inresponse to the notice, the assessee filed Return of income on18.03.2004 admitting a total income of Rs.2,71,960/- whichincluded additional income offered amounting to Rs.1,82,000/-being the loan credits in the names of ten persons. Theassessment was completed The Assessing Officer completed theassessment on 29.03.2006 on a total income of Rs.2,72,160/-. Inthe course of assessment proceedings, notice under Section 271(1)(c) of the Act was issued to the assessee. The assessee filed areply on 19.09.2005 stating that it has offered a sum ofRs.1,82,000/- and paid the tax and requesting not to levy penaltyunder Section 271(1)(c). The Assessing Officer rejected thecontention and levied a penalty of Rs.72,800/-. For theassessment year 1998-99, the assessee filed Return of income on28.10.1998 admitting a total income of Rs.1,56,973/-. Later,notice under Section 148 was issued to the assessee on 16.03.2004.In response to the notice, the assessee filed Return of income on18.03.2004 admitting a total income of Rs.2,76,000/- whichincluded additional income offered amounting to Rs.1,19,028/-being the loan credits in the name of Shri.Mohamed Hafiz Abdul.The Assessing Officer completed the assessment on 28.03.2005 on atotal income of Rs.2,76,000/-. In the course of assessmentproceedings, notice under Section 271(1)(c) was issued to theassessee. The assessee filed a reply on 19.09.2005 stating thatit has offered a sum of Rs.1,19,028/- and paid the tax andrequesting not to levy penalty under Section 271(1)(c). TheAssessing Officer rejected the contention and levied a penalty ofRs.41,680/-. Aggrieved by the orders of penalty for both theassessment years, the assessee filed appeals to the Commissionerof Income-tax (Appeals). The C.I.T.(A) dismissed the appeals andconfirmed the orders of the Assessing Officer levying penaltyunder Section 271(1)(c) of the Act. Aggrieved, the assessee filedappeals to the Income-tax Appellate Tribunal ("Tribunal" inshort). The Tribunal allowed the appeals filed by the assessee,deleting the penalty. Hence the present tax cases by the Revenue. 3.Learned Standing Counsel appearing for the Revenue submittedthat the assessee himself has disclosed the additional amounts forboth the assessment years and also failed to prove the genuinenessof the loan credits accounted for. Hence the Assessing Officer isjustified in levying penalty under Section 271(1)(c) of the Act. 3.Learned Standing Counsel appearing for the Revenue submittedthat the assessee himself has disclosed the additional amounts forboth the assessment years and also failed to prove the genuinenessof the loan credits accounted for. Hence the Assessing Officer isjustified in levying penalty under Section 271(1)(c) of the Act. 4.Heard the counsel. The Tribunal followed its earlierorder relating to the assessee's own case and held as follows:-"4. Aggrieved, the Assessee preferred an appeal beforethe C.I.T.(Appeals). The C.I.T. (Appeals) confirmed thelevy of penalty in both the years. At the outset, theld. Counsel for the Assessee filed the decision of theI.T.A.T. in Assessee's own case in ITA No.1151/M/2005dated 3.10.2005 where exactly on identical facts theissue has been considered and decided in paragraphs 12and 13, which reads as under: "12. In the present case, as far as the lastyears credit balances, commission payment,sundry creditors are concerned, it could notcompel the attendance of witnesses since itadmitted the income and that would not giveright to the Assessing Officer to conclude asa false return inviting imposition of penaltyunder sec.271(1)(c) of the Act. In the presentcase, the penalty is levied only on the basisof assessment proceedings but in the scheme ofthe Act, the proceedings for imposition ofpenalty though emanating from the proceedingsof assessment, are essentially, independentand a separate proceedings which closelyfollow the assessment proceedings. Findingsgiven in the assessment proceedings arecertainly relevant and have probative value,but such findings are material alone and maynot justify the imposition of penalty if theconcealment is not proved by the AssessingOfficer. The fact in the penalty order asnarrated above is that the penalty was leviedonly on the reason that the Assessee hasconsidered a particular item of expenditure,sundry credits as income. The actual positionin law in that merely because the Assessee hasagreed to the assessment, that cannotautomatically bring in levy of penalty. Ifthe Assessee offers an explanation, therevenue authorities have to consider theacceptability of the explanation and passnecessary orders. If the explanation is found to be acceptable, notwithstanding additionmade by treating the amount offered by theAssessee as income from undisclosed sources,penalty cannot be levied. But if theexplanation is found to be vague or fancifuland without any foundation or basis, it isalways open to the revenue authorities toimpose penalty. It is also a fact that theAssessingOfficerwhileframingtheassessment, was not sure that in which yearthe income will be assessed with regard toopening balance, earlier year expenses andopening balance of sundry creditors and he wasnot sure in respect of commission paymentwhether it is income or not. The explanationsubmitted by the Assessee that declarationmade by him to add the income to buy peacewith the Department and to come out of vexedlitigation, can easily be treated as bona fidein the given facts and circumstances of thepresent case. 13. There should be a definite finding aboutthe concealment in the penalty order and thepenalty must not be levied only on the basisof what is assessed and even the Assessee isassessed at a higher figure than the returnedincome, then the penalty is not exigible. Thisview has been supported by the Hon'bleJurisdictional High Court in the case of CITV. K.R.Chinni Krishna Chetty [2000] 246 ITR121 wherein the Hon'ble High Court has dealtwith this issue and held that under sec.271(1)(c) of the Act the authority is given thediscretion to levy a penalty if there isconcealment of particulars of income and evenas regards the quantum of the penalty there isa discretion. Of greater importance is thenecessity for a definite finding that there isconcealment, as without such a finding ofconcealment, there can be no question ofimposing any penalty. It was further heldthat the mere revision of the income to ahigher figure by the assessing authority doesnot automatically warrant an inference ofconcealment of the expenditure on theconstruction. The addition to the income ofthe Assessee based on the report of the valuerwas rightly regarded by the Tribunal as beingsufficient for recording a finding ofconcealment of income. Concealment impliessome deliberate act on the part of theAssessee in withholding the true facts from https://hcservices.ecourts.gov.in/hcservices/ the authorities. The fact that the valuerassessed the building at a figure higher thanthe one reported by the Assessee does not byitself lead to the inference that there hadbeen concealment. Therefore, respectfullyfollowing the decision of the Hon'ble SupremeCourt and the Hon'ble Jurisdictional HighCourt cited supra, the penalty for concealmentof income is not possible merely on the basisof surrender of income by the Assessee and theAssessing Officer has levied the penalty onlyon the ground that the Assessee hassurrendered the income. However, theAssessing Officer has not brought out anymaterial to prove the concealment of incomeand penalty on this ground alone cannot besustained. As regards the admission of theAssessee, it must be clear and conclusive andthere should be no doubt and ambiguity of thealleged admission. But in the present case,it is doubtful in which year this income willbe assessed. As far as the assessment isconcerned, the Assessee has agreed but itcontested the penalty and the AssessingOfficer could not show that the income in anyway is concealed. In the present case inhand, the Assessing Officer having not provedthe concealment of income on any basis,therefore, the penalty cannot be sustainedonly on the basis of admission of income bythe Assessee. Accordingly, the penalty isdeleted and the orders of the authoritiesbelow are quashed." 5. In the present appeals also, the facts are identicaland it is not known when these credits were introduced,whether in assessment year 1997-98 and 1998-99 or priorto that. Neither the Assessee nor the Department provesanything about the introduction of these credits. Fromthe above reasoning of the Assessing Officer in thepenalty order, we are of the view that the concealmentwas not proved. Hence, the levy of penalty sustained bythe C.I.T.(Appeals) is without any reason. In view ofthis we have no hesitation in deleting the penalty.Accordingly, the orders of the lower authorities arereversed." From a reading of the above, it is clear that the Tribunal hasgiven a clear finding that the concealment has not been proved bythe authorities below. The question whether there is aconcealment or not is a question of fact. The finding given bythe Tribunal is that the authorities below, failed to prove theconcealment. Hence the order of the Tribunal is not a perverse https://hcservices.ecourts.gov.in/hcservices/ order. In the case of T.Ashok Pai Vs. Commissioner of Income-tax[2007] 292 ITR 11 (SC), the Supreme Court held that the AppellateTribunal alone was the highest authority empowered to determinethe question of fact and the High Court should not ordinarilydisturb the finding of fact arrived at, by the Tribunal. In thepresent case, the finding is that there is no concealment and thesame was not proved by the authorities. Hence the Tribunal cameto the correct conclusion that these are not fit cases for levyingpenalty. Learned Standing Counsel appearing for the Revenue isalso unable to state whether the Revenue has filed any appealagainst the earlier order of the Tribunal, or not. The reasonsgiven by the Tribunal are based on valid materials and evidenceand we do not find any error or legal infirmity in the order ofthe Tribunal so as to warrant interference. 5.Under the circumstances, no substantial question of lawarises for consideration of this Court and accordingly, the taxcases are dismissed. Consequently, M.P.No.1 of 2007 in T.C.(A)No.1002 of 2007 is closed. No costs. km Sd/Asst.Registrar /true copy/ Sub Asst.Registrar To 1. The Assistant Registrar, Income-tax Appellate Tribunal, Rajaji Bhavan, III Floor, Chennai 2. The Secretary, Central Board of Direct Taxes, New Delhi. 3. The Commissioner of Income-tax (Appeals) IX, Chennai-600 034. Chennai-600 034. 4. The Income Tax Officer, Ward-IX(3), Chennai. Ward-IX(3), Chennai. + one cc to M/s. Pushya Sitaraman, Advocate sr no. 41065 kg(co)nm(19.07.07) T.C.(A) Nos.1001 and 1002 of 2007