Tca/26/2010 Of M/S Sharma Alloys (India) Ltd v. The Income Tax Officer (Osd)

IN THE HIGH COURT OF JUDICATURE AT MADRASDated : 05.06.2013CoramThe Honourable Mrs.Justice CHITRA VENKATARAMANandThe Honourable Ms.Justice K.B.K.VASUKITax Case (Appeal) Nos.26 and 27 of 2010--- M/s.Sharma Alloys (India) LtdNew No.12, Old No.72Thatha Muthiappan StreetChennai-600 001 ...Appellant in boththe TC (Appeals)-vs- The Income Tax Officer (OSD)Company Circle VI (2) Aayakar BhavanNew Block 121, M.G.Road, 7th floorChennai-34 ...Respondent in boththe TC (Appeals) Tax Case Appeals filed under Section 260A of the Income Tax Act, 1961 against the order of theIncome Tax Appellate Tribunal Madras 'D' Bench, Chennai dated 25.05.2009 in ITA.Nos.802 and803/Mds/2008 For appellant : Mr.R.Sivaraman For respondent : Mr.N.V.BalajiStanding Counsel forIncome Tax Dept. JUDGMENT (Judgment of the Court was delivered by CHITRA VENKATARAMAN, J.) The assessee is on appeal as against the common order of the Income Tax Appellate Tribunal,Madras 'D' Bench dated 25.05.2009 in ITA.Nos.802 and 803/Mds/2008 relating to the assessmentyears 2002-03 and 2003-04 raising the following questions of law:-T.C.(A).No.26 of 2010:-" 1. Whether on the facts and in the circumstances of the case, the Appellate Tribunal is right in lawin confirming the levy of penalty of Rs.4,99,800/- under Section 271(1)(c) of the Act for theassessment year 2002-03 ?2. Whether on the facts and circumstances of the case, the Appellate Tribunal is right in law inimposing the penalty under Section 271(1)(c) even though there is no finding in the penalty orderthat there exists concealment of income ?3. Whether on the facts and circumstances of the case, the Appellate Tribunal is right in law in holding that the assessing officer can levy penalty in a case where the assessee himself has offeredadditional income on estimated basis in order to purchase peace with the Department?4. Whether on the facts and circumstances of the case, the Appellate Tribunal is right in law inconfirming the action of the assessing officer in levying penalty even though the Commissioner ofIncome Tax under Section 263 had directed the Assessing Officer not to initiate penalty proceedings?" T.C. (A).No.27 of 2010:- " 1. Whether on the facts and circumstances of the case, the Appellate Tribunal is right in law inconfirming the levy of penalty of Rs.6,28,001/- under Section 271(1)(c) of the Act ?2. Whether on the facts and circumstances of the case, the Appellate Tribunal is right in law inimposing the penalty under Section 271(1)(c) even though there is no finding in the penalty orderthat there exists concealment of income ?" 2. The assessee is a private limited company. The assessment order made originally for theassessment year 2002-03 was subjected to revisional proceedings under Section 263 of the IncomeTax Act, 1961 (hereinafter referred to as the "Act"). A reading of the order of the Commissioner ofIncome Tax dated 08.12.2004 passed under Section 263 of the Act reveals that on account ofunreliability of the accounts as regards the gross profit as well as on Bill discounting charges, theproposal to revise the assessment was made. 3. The assessee is a dealer in Iron and Steel. The assessee submitted that considering the recessionin the Iron and Steel market and the resultant crisis thereon, they could not pay attention onaccounting ; in the circumstances, to buy peace with the department, the assessee offered anestimated addition of Rupees Four lakhs towards deficiencies in Gross Profit and Rupees Ten Lakhstowards discounting charges. 3. The assessee is a dealer in Iron and Steel. The assessee submitted that considering the recessionin the Iron and Steel market and the resultant crisis thereon, they could not pay attention onaccounting ; in the circumstances, to buy peace with the department, the assessee offered anestimated addition of Rupees Four lakhs towards deficiencies in Gross Profit and Rupees Ten Lakhstowards discounting charges. 4. The Commissioner of Income Tax held that in the peculiar circumstances of the case, theassessee's offer be accepted and the Assessing Officer was accordingly directed to assess theadditional estimate of income of Rupees four lakhs towards Gross Profit and Rupees Ten lakhstowards non business related discounting charges. He further viewed that in view of the submissionsof the assessee and the facts of the case, the Assessing Officer's decision in not initiating penaltyproceedings did not need any interference, in the circumstances, the assessment was set aside forthe limited purpose of fresh consideration for further examination and decision as per the provisionsof the Act. 5. Consequent on the revisional order, the Assessing Officer passed fresh assessment order for theyear 2002-03. During the course of assessment proceedings, the Assessing Officer viewed that theassessee had concealed income within the meaning of Section 271(1)(c) of the Act, hence, proposedpenalty for both the years. 6. As far as the assessment year 2003-04 is concerned, it is an assessment passed under Section143(3) of the Act. It is seen from the order of the assessment for the year 2003-2004 that theaddition in this year arose on account of disallowance of the assessee's claim on depreciation andthe claim of deduction on question of payment of penalty and fine under the Customs Act apart fromadditions on disallowing the claim towards LC discounting charges rejected. 7. It is seen from the order of assessment that as regards the claim on depreciation, in the course ofSurvey under Section 133A of the Act, a sworn statement was recorded from the assessee'sCompany Director. The assessee stated that the machineries were sent for repair to SIPCOTCommercial Complex, Gummidipoondi. However, no supporting documents were produced inrespect of the machineries alleged to have been sent for servicing. In the course of the assessment proceedings, the assessee further stated that they received the machineries after repair from theirstock yard in April 2003. Thus as on 31.03.2003, there was no machinery received after service forthe purpose of using it in the business; consequently, the claim on depreciation was disallowed. 8. As far as fine and penalty payment under the Customs Act was concerned, the said levy weremade under the Customs Act on account of price variation. Rejecting the plea of the assessee to takea lenient view, the Assessing Officer made addition of Rs.8,00,000/- under this head. 9. As far as LC discounting is concerned, the Assessing Officer found that there was no physicalmovement of goods and sale invoices were prepared only to help the group companies, when theyrequired money and thereafter, bogus bills prepared were discounted, in the circumstances, a sumof Rupees Five lakhs was disallowed. Based on the above said materials, in the penalty orderspassed, the Assessing Officer levied minimum penalty under Section 271(1)(c) of the Act. 10. Aggrieved by this, the assessee went on appeal before the Commissioner of Income Tax(Appeals) in respect of both the assessment years. 11. The Commissioner of Income Tax (Appeals) accepted the plea of the assessee that there was noconcealment within the meaning of Section 271(1)(c) of the Act. Thus he cancelled the penalty leviedfor both years. Aggrieved by this, the Revenue went on appeal for these years before the Income TaxAppellate Tribunal. 10. Aggrieved by this, the assessee went on appeal before the Commissioner of Income Tax(Appeals) in respect of both the assessment years. 11. The Commissioner of Income Tax (Appeals) accepted the plea of the assessee that there was noconcealment within the meaning of Section 271(1)(c) of the Act. Thus he cancelled the penalty leviedfor both years. Aggrieved by this, the Revenue went on appeal for these years before the Income TaxAppellate Tribunal. 12. In considering the claim of the Revenue and the assessee, the Income Tax Appellate Tribunalpointed out to the decisions of this Court in the case of CIT Vs. B.A.Balasubramaniam and Brothers.reported in 152 ITR 529, the decision of the Apex Court in the above said case reported in (1999)157 CTR (SC) 556 as well as the decision of the Apex Court in the case of Union of India and othersVs. Dharmendra Textiles Processors and Others reported in (2008) 306 ITR 277 and held that beinga civil liability, wilful concealment is not an essential ingredient for attracting penalty under Section271(1)(c). In the circumstances, keeping in view the entire facts and circumstances of the case,penalty levied by the Assessing Officer was confirmed and the order of Commissioner of Income Tax(Appeals) was set aside. Aggrieved by this, the present Tax Case Appeals by the assessee. 13. Learned counsel for the assessee submitted that when in the Section 263 proceedings,particularly for the year 2002-03, the Commissioner of Income Tax had specifically pointed out thatthere was no case for levy of penalty and the Assessing Officer was directed only to assess theadditional estimated income offered, the Department could not initiate again, penal proceedingsunder Section 271(1)(c) of the Act. He further pointed out that the additions were offered only topurchase peace with the Department, consequently, there is no case of concealment in this case. 14. As far as assessment year 2003-04 is concerned, learned counsel submitted that disallowance,per se, would not lead to an inference of concealment, consequently, on the facts of the case, theIncome Tax Appellate Tribunal committed serious error in holding that circumstances warrant levyof penalty in this case. 15. Learned counsel for the assessee relied on unreported decision of this Court in T.C.A.No.341 of2010 dated 05.02.2013 (The Commissioner of Income Tax, Ward IV (1), Chennai Vs. P.Rojes) as wellas to the decisions of this Court, to which one of us was a party (CHITRA VENKATARAMAN, J.) viz.,in T.C.A.No.273 of 2012 dated 12.09.2012 (Commissioner of Income Tax, Chennai Vs. M/s.ShriramProperties & Constructions (Chennai) Ltd., T.Nagar, Chennai-17) and T.C.A.No.1985 of 2006 dated01.10.2012 (Commissioner of Income Tax Vs. Balaji Distilleries Ltd) and contended that in the absence of any concealment, per se, any addition made, per se, will not lead to levy of penalty. 15. Learned counsel for the assessee relied on unreported decision of this Court in T.C.A.No.341 of2010 dated 05.02.2013 (The Commissioner of Income Tax, Ward IV (1), Chennai Vs. P.Rojes) as wellas to the decisions of this Court, to which one of us was a party (CHITRA VENKATARAMAN, J.) viz.,in T.C.A.No.273 of 2012 dated 12.09.2012 (Commissioner of Income Tax, Chennai Vs. M/s.ShriramProperties & Constructions (Chennai) Ltd., T.Nagar, Chennai-17) and T.C.A.No.1985 of 2006 dated01.10.2012 (Commissioner of Income Tax Vs. Balaji Distilleries Ltd) and contended that in the absence of any concealment, per se, any addition made, per se, will not lead to levy of penalty. 16. The claim of the assessee was countered by the learned Standing Counsel for the Revenue byplacing reliance on the decision in the case of Union of India Vs. Rajasthan Spg. & Wvg. Millsreported in (2009) 180 Taxman 609 (SC), the decision of the Apex Court in the case of Union of Indiaand others Vs. Dharmendra Textiles Processors and Others reported in (2008) 306 ITR 277 as wellas the decision of the Delhi High Court in the case of Commissioner of Income Tax Vs. ZoomCommunication P. Ltd., reported in (2010) 327 ITR 510 (Delhi) and submitted that even going by thedecisions of this Court relied on by the learned counsel for the assessee, penalty is leviable in thiscase. He submitted that the claim of the assessee that the additions made were not on account ofconcealment is totally incorrect. As far as assessment year 2002-03 is concerned, the claim of theassessee for bill discounting itself was found to be false since bogus invoices were made only toaccommodate the group companies. As far as addition on account of Gross Profit is concerned, thebooks of accounts were not properly maintained. Thus, the defects in the accounts warrantedaddition under the head of gross profit. Thus, unreliability of the accounts and false claims areclearly instances of concealment, which warranted levy of penalty. 17. As far as assessment year 2003-04 is concerned, learned Standing counsel for the Revenuesubmitted that when the machinery itself was not available, the assessee made false claim fordepreciation. So too, the question of payment of customs duty cannot be allowed as deductionsunder the provision of the Act. As far as bill discounting was concerned, the same was also a falseclaim, as there were no physical movement of goods and the bogus bills claimed as in the earlieryear were for giving financial accommodation to its group companies. In the circumstances, nointerference is called for in the order of the Income Tax Appellate Tribunal. 18. Heard the learned counsel on either side and perused the documents available on record. 17. As far as assessment year 2003-04 is concerned, learned Standing counsel for the Revenuesubmitted that when the machinery itself was not available, the assessee made false claim fordepreciation. So too, the question of payment of customs duty cannot be allowed as deductionsunder the provision of the Act. As far as bill discounting was concerned, the same was also a falseclaim, as there were no physical movement of goods and the bogus bills claimed as in the earlieryear were for giving financial accommodation to its group companies. In the circumstances, nointerference is called for in the order of the Income Tax Appellate Tribunal. 18. Heard the learned counsel on either side and perused the documents available on record. 19. We agree with the contentions of the learned Standing counsel appearing for the Revenue. It isno doubt true that in the order passed under Section 263 of the Act dated 08.12.2004, theCommissioner of Income Tax pointed out to the offer made by the assessee for addition andultimately held that in view of the submissions of the assessee and the facts of the case, the decisionof the Assessing Officer in not initiating penalty proceedings did not need interference. Having saidso, while remanding the matter for fresh consideration for Assessing Officer for further examinationand decision, the Assessing Officer was directed to consider the claim of the assessee as per theprovisions of the Act. Thus, contrary to the assertion of the assessee, all that the Commissioner ofIncome Tax did in the revisional Order was that while accepting the plea of the assessee forrestricting the addition, he merely pointed out that a non initiation of penalty proceedings did notwarrant any interference. This, however, does not mean that the hands of the Assessing Officer istied on invoking the provisions under the Act, which, otherwise, would be applicable to the facts ofthe case. Thus, in the given fact situation, if the provisions of the Act on penalty are attracted, theAssessing Officer has to go by the dictates of the law rather than by the order of the Commissionerof Income Tax. In fact, we may even say that the Commissioner did not comment anything at all onthis. In the circumstances, we reject the plea of the assessee that based on the order under Section263 of the Act, there could not be any penalty. 20. As far as levy of penalty is concerned, as rightly pointed out by the learned Standing counsel forthe Income Tax Department, the claim for bill discounting for both assessment years was found to betotally untrue, as there was no physical movement of goods. The bills were found to be bogus one.Apart from that, the addition was made towards gross profit for the assessment year 2002-2003 onlyon account of non-reliability of the books of accounts. 21. As far as assessment year 2003-04 is concerned, the claim for depreciation was also found as abogus claim. As far as the claim on depreciation on machinery is concerned, admittedly, themachinery was not at all put to use during the said year. As far as the claim for deduction towardsfine and penalty is concerned, evidently, the assessee cannot legally sustain this claim in terms ofSection 37 of the Act. Thus, in the garb of the bona fide claim, the assessee cannot escape levy ofpenalty. 22. In the circumstances, we have no hesitation in rejecting the plea of the assessee that additionswere not substantial additions and hence there could be no penalty. The reliance made by thelearned counsel for the assessee on the unreported decisions of this Court in T.C.(A).No.341 of 2010(The Commissioner of Income Tax, Ward IV (1), Chennai Vs. P.Rojes) does not, in any manner,support the case of the assessee. 22. In the circumstances, we have no hesitation in rejecting the plea of the assessee that additionswere not substantial additions and hence there could be no penalty. The reliance made by thelearned counsel for the assessee on the unreported decisions of this Court in T.C.(A).No.341 of 2010(The Commissioner of Income Tax, Ward IV (1), Chennai Vs. P.Rojes) does not, in any manner,support the case of the assessee. 23. As far as T.C.(A).No.341 of 2010 is concerned, it follows the decision of this Court inT.C.(A).No.273 of 2012 dated 12.09.2012 (Commissioner of Income Tax, Chennai Vs. M/s.ShriramProperties & Constructions (Chennai) Ltd., T.Nagar, Chennai-17 ) and other decisions of this Courtas well as Apex Court. The issue in the said unreported decision of this Court in T.C.(A).No.341 of2010 related to cash deposit. On the allegation that cash deposit of Rs.47,36,000/- was made out ofsales and also recovery from the sundry debtors, penalty was imposed by the Assessing Officer. Onappeal by the assessee, the Appellate Authority pointed out that the reasons for increase in the profitpercentage from 5% to 8% was not clear. Taking into consideration the merits of the case on afactual finding given by the Income Tax Appellate Tribunal, this Court found that it was not a fit casefor levy of penalty. Further, on these facts, this Court applied the decision of the Apex Court in thecase of Commissioner of Income Tax Vs. Reliance Petroproducts (P) Ltd., reported in (2010) 322 ITR158 as well as the decision of this Court in Tax Case (Appeal) No.273 of 2012 dated 12.09.2012(Commissioner of Income Tax, Chennai Vs. M/s.Shriram Properties & Constructions (Chennai) Ltd.,T.Nagar, Chennai-17) to delete the levy of penalty, thereby, confirming the order of Income TaxAppellate Tribunal. 24. As far as the other two unreported decisions are concerned, confirming the deletion of penalty,they were based on the facts found, particularly with reference to a claim made, but not allowedunder the provisions of the Act. 25. In the circumstances, we find that the unreported decisions of this Court relied on by the learnedcounsel for the assessee stand on factual findings and are distinguishable. The plea made by thelearned counsel for the assessee, hence, stands rejected on the facts of the case on hand. 26. On the other hand, the reliance placed by the Revenue on the decisions of the Apex Courtreported in (2009) 180 Taxman 609 (SC) (Union of India Vs. Rajasthan Spg. & Wvg. Mills) and in thecase of Commissioner of Income Tax Vs. Zoom Communication P. Ltd., reported in (2010) 327 ITR510 (Delhi) merits acceptance. In the decision reported in (2010) 327 ITR 510 (Delhi) (Commissionerof Income Tax Vs. Zoom Communication P. Ltd.), the Delhi High Court viewed that so long as theassessee had not concealed any material fact or the factual information given by him has not beenfound to be incorrect, even if the claim made by him is unsustainable in law, he will not be liable toimposition of penalty under Section 271(1)(c) of the Income Tax Act, 1961, provided that he eithersubstantiates that the explanation offered by him or the explanation, even if not substantiated, isfound to be bona fide. If the explanation is neither substantiated nor shown to be bonafide,Explanation 1 to Section 271(1)(c) of the Act would come into play and the assessee will be liable forthe prescribed penalty. 27. We are in entire agreement with the view expressed by the Delhi High Court in the decision reported in (2010) 327 ITR 510 (Delhi) (cited supra). The Delhi High Court observed that it is truethat mere submitting a claim which is incorrect in law would not amount to giving inaccurateparticulars of the income of the assessee but it cannot be disputed that the claim made by theassessee needs to be bona fide. If the claim besides being incorrect in law is mala fide, Explanation 1to Section 271(1)(c) would come into play and work to the disadvantage of the assessee. 27. We are in entire agreement with the view expressed by the Delhi High Court in the decision reported in (2010) 327 ITR 510 (Delhi) (cited supra). The Delhi High Court observed that it is truethat mere submitting a claim which is incorrect in law would not amount to giving inaccurateparticulars of the income of the assessee but it cannot be disputed that the claim made by theassessee needs to be bona fide. If the claim besides being incorrect in law is mala fide, Explanation 1to Section 271(1)(c) would come into play and work to the disadvantage of the assessee. 28. The decision of the Apex Court in the case of Union of India and others Vs. Dharmendra TextilesProcessors and Others reported in (2008) 306 ITR 277, which is referred to by the Income TaxAppellate Tribunal and the subsequent decision in the Union of India Vs. Rajasthan Spg. & Wvg.Mills reported in (2009) 180 TAXMAN 609 (SC) clearly point out that the penalty is leviable fordeliberate deception of the claim. Thus levy of penalty would depend on the existence or otherwiseof the conditions calling for levy of penalty. The object behind the enactment of Section 271(1)(c),read with the Explanations, indicates that the Section has been enacted to provide for a remedy forloss of revenue, by reason of concealment of particulars of income. Thus, being a civil liability andthat the explanation offered by the assessee not being a bona fide one, particularly on the facts ofthe case, we have no hesitation in confirming the order of the Income Tax Appellate Tribunal. 29. In the circumstances, we have no hesitation in dismissing the Tax Case Appeal filed by theassessee. Accordingly, the Tax Case Appeal stands dismissed. No costs. Index:Yes (C.V.,J) (K.B.K.V.,J)Internet:Yes 05.06.2013 nvsri To 1.The Income Tax Officer (OSD)Company Circle VI (2), Aayakar BhavanNew Block, 121, M.G.Road, 7th floorChennai-34. 2.The Commissioner of Income Tax (Appeals)-IXNo.121, Nungambakkam High Road, Chennai-34. 3.The Income Tax Appellate Tribunal,Chennai Bench 'D', Chennai.CHITRA VENKATARAMAN,J.andK.B.K.VASUKI,J. nvsri Dated: 05.06.2013