Terra Energy Ltd. Eldorado V Floor 112, Uthamar Gandhi Salai Nungambakkam Chennai 600 034 v. The Deputy Commissioner Of Income Tax Company Circle Iii(2) Ayakar Bhavan Chennai 600 034

IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED: 05.10.2015 CORAM THE HONBLE MR.JUSTICE V.RAMASUBRAMANIANandTHE HON'BLE MR.JUSTICE K.RAVICHANDRABAABU Tax Case Appeal No.991 of 2010 Terra Energy Ltd.Eldorado V Floor112, Uthamar Gandhi SalaiNungambakkamChennai 600 034...AppellantVs. The Deputy Commissioner of Income TaxCompany Circle III(2)Ayakar BhavanChennai 600 034. ..Respondent ----- Appeal under Section 260A of the Income Tax Act, 1961,against the order of the Income Tax Appellate Tribunal "C"Bench,Chennai,dated23.4.2010madeinITANo.1014/Mds/2009 for the assessment year 2004-05. and against the Order of the Commissioner of Income-Tax (Appeals)-III, Chennai-34. made in ITA.NO.102/07-08/A-III Dated 27.02.2009 for the Assessment Year 2004-2005 andagainst the Order of the Assessment passed by theAsst.Commissioner of Income-Tax, Company Circle-III (2)Chennai-34 made in GIR No./PAN No. , Dated31.10.14 for the Assessment Year 2004-2005. ----- For Appellant : Mr.R.Sankaranarayan For Respondent : Mr.T.Ravi Kumar----- https://hcservices.ecourts.gov.in/hcservices/ J U D G M E N T (Delivered by V.Ramasubramanian,J.) This tax case appeal was admitted on 15.11.2010, on thefollowing questions of law: (1) Whether the Income Tax Appellate Tribunalis right in holding that the error that crept inon account of using the same template used in theprior occasion would not amount to a mistake? (2) Whether or not the error in reporting aprofit figure as a loss figure had resulted inloss of revenue to the exchequer in the light ofthe fact that such error had only resulted inincrease in carried forward losses withoutimpacting the tax liability, which had in any waybeen determined on the basis of minimum alternatetax provisions and duly discharged and thecarried forward losses had been corrected by therectification carried out in the return of thesubsequent assessment year? and (3) Whether or not the decision of the IncomeTax Appellate Tribunal in changing findings offact by the Commissioner of Income Tax (Appeals)without any further material or availablematerial is lawful?" 2. Heard Mr.R.Sankaranarayan, learned counsel for theappellant and Mr.T.Ravi Kumar, learned Standing Counsel for theDepartment. 3. The appellant filed Form No.1 under Rule 12(1)(a) of theIncome Tax Rules, 1962, along with necessary schedules, on30.10.2004 in respect of the assessment year 2004-05. In columnNo.18 of the said Form, the appellant/assessee showed a grosstotal income of Rs.8,62,60,370/- (but signifying that theassessee had suffered a net loss to that extent for the saidassessment year). 4. As a matter of fact, the memo of income that accompaniedForm No.1 under Rule 12(1)(a) of the Rules showed the followingparticulars: MEMO OF INCOME ADJUSTED FOR INCOME TAX PURPOSESRs.Rs.PROFIT as per Profit and Loss Account 113,529,755Add: Depreciation as per books 80,433,740 ---------------PROFIT 193,963,495Less: Depreciation for Income tax purposes 108,796,889 ----------------LOSSLessDisallowances under Section 43B:Bonus provided but not paid27,188Gratuity Provision 427,183Superannuation provision 52,685Profit on sale of assets 1,660considered separately,874Leave wages provision not paid25,649Loan Processing Fees claimed asdeduction in earlier assessmentyears, and charged to profit and 11 2,3loss account5,27508,854 --------------- (87,475,460)Add: Voluntary Compensation paidduring the year ended 31.3.2001allowable under Section 35DDA -1/5th of 3,90,414/- III Year 78,083 MEMO OF INCOME ADJUSTED FOR INCOME TAX PURPOSESRs.Rs.PROFIT as per Profit and Loss Account 113,529,755Add: Depreciation as per books 80,433,740 ---------------PROFIT 193,963,495Less: Depreciation for Income tax purposes 108,796,889 ----------------LOSSLessDisallowances under Section 43B:Bonus provided but not paid27,188Gratuity Provision 427,183Superannuation provision 52,685Profit on sale of assets 1,660considered separately,874Leave wages provision not paid25,649Loan Processing Fees claimed asdeduction in earlier assessmentyears, and charged to profit and 11 2,3loss account5,27508,854 --------------- (87,475,460)Add: Voluntary Compensation paidduring the year ended 31.3.2001allowable under Section 35DDA -1/5th of 3,90,414/- III Year 78,083 MEMO OF INCOME ADJUSTED FOR INCOME TAX PURPOSESShare Issue Expenses allowableunder Section 35D - 1/5th ofRs.10,20,000/- III Year 204,000Bonus Provision disallowed inprevious Asst. year paid duringthe year (Sec.43B)57,842Interest on loans borrowed forA.Chittur, capitalised in books 55claimed as revenue9,547ExpenditureincurredatKollumangudi capitalised incapital work in progress in 27 1,21accounts claimed as revenue5,6185,989---------expenditure--------LOSS (86,260,370)========== 5. Before we proceed further, it could be seen even from acursory glance at the particulars furnished in the Memo ofIncome which we have extracted above that the appellant/assesseehad in fact earned a profit of Rs.8,62,60,370/-, but by amistaken process, instead of deducting the fourth entry from thethird entry, they had deducted the third entry from the fourthentry. 6. The case of the assessee was chosen for scrutiny and anotice was issued on 25.8.2005. At that time, theappellant/assessee claims to have noticed that what was actuallya profit was wrongly indicated in column No.18 of Form No.1 andin the Memo of Income filed on 31.10.2004 as a loss. Therefore,when Form No.1 for the assessment year 2005-06 was filed on31.10.2005, along with a Memo of Income, the appellant/assesseedid not show the said amount of Rs.8,62,60,370/- as a businessloss to be carried forward. In other words, the mistake that theassessee committed got rectified in the Memo of Income and FormNo.1 filed on 31.10.2005 in relation to the assessment year2005-06. 7. However, the Assessing Officer initiated penaltyproceedings under Section 271(1)(c), by issuing a show causenotice dated 17.5.2007. To the show cause notice, the appellantsent a reply dated 11.6.2007. In the reply, theappellant/assessee pointed out that the Memo of Income was https://hcservices.ecourts.gov.in/hcservices/ prepared in an Excel Sheet, the format of which had already beenfed into the computer and that in the previous years, thedepreciation for income tax purposes which appears as the fourthentry far exceeded the profit that appeared as the third entryand that as a consequence, the command given to the software forthe preparation of excel sheet was for deducting (c) from (d).Since this command was not altered in respect of the assessmentyear 2004-05, the system deducted the entry No.3(c) from entryNo.4(d) and showed what was actually a profit, as a loss. 8. However, the explanation offered by the assessee wasoverruled by the Assessing Officer and by an order dated28.6.2007, the Assessing Officer imposed a penalty of Rs.4.00Crores on the ground that the total evasion of tax worked out toRs.2,25,29,973/- and that a maximum penalty of Rs.6,75,89,919/-could have also been levied. 8. However, the explanation offered by the assessee wasoverruled by the Assessing Officer and by an order dated28.6.2007, the Assessing Officer imposed a penalty of Rs.4.00Crores on the ground that the total evasion of tax worked out toRs.2,25,29,973/- and that a maximum penalty of Rs.6,75,89,919/-could have also been levied. 9. As against the said order of penalty, the appellant filedthe first appeal before the Commissioner of Income Tax(Appeals). The Commissioner (Appeals) allowed the appeal of theappellant/assessee by an order dated 27.02.2007, posing threeimportant questions for arriving at the conclusion. Thequestions that the Commissioner (Appeals) posed to himself were(i) whether it was a case of concealment irrespective of itsorigin, (ii) whether it was a rectifiable mistake which did notattract any penalty, and (iii) whether the mistake was found outby the Assessing Officer or admitted by the assessee himself.The Commissioner (Appeals) found the answers to these threequestions in favour of the appellant/assessee and consequently,he set aside the order of penalty passed by the AssessingOfficer. 10. The Department filed a second appeal before the IncomeTax Appellate Tribunal. The Appellate Tribunal held that thecase on hand would fall under the category of furnishing ofinaccurate particulars of income and consequently, heldExplanation 1 to Section 271(1)(c) being attracted in the case.The reliance placed by the appellant on the decision of thisCourt in CIT v. Lakshmi Vilas Bank [303 ITR 428] and thedecision of the Supreme Court in Udayan Mukherjee v. CIT [(2007)291 ITR 318] were distinguished by the Tribunal and the Tribunaleventually allowed the appeal of the Department and confirmedthe order of penalty imposed by the Assessing Officer. Aggrievedby the said order, the assessee is on appeal before us. 11. Mr.R.Sankaranarayanan, learned counsel for the appellantcontended that though in the original order passed by theAssessing Officer, he came to the conclusion that the totalevasion of tax worked out to Rs.2,25,29,973/-, after theoriginal proceedings relating to the assessment terminated on anappeal and an order giving effect to the order passed on appeal, https://hcservices.ecourts.gov.in/hcservices/ it was ultimately found that the appellant/assessee was entitledto a refund of Rs.5,14,49,683/-. Therefore, it is his contentionthat the first impression that the Assessing Officer had asthough there was a tax evasion to the tune of Rs.2,25,29,973/-got rectified eventually. 12. In the light of the above fact, the learned counselcontended that this is not a case which would fall either underthe category of concealment of income or under the category offurnishing of inaccurate particulars. What was actually aclerical or arithmetical mistake in projecting the same figureas a loss, instead of profit, on account of a wrong commandgiven to the system, cannot be construed, according to thelearned counsel, as furnishing of incorrect particulars. Thelearned counsel relies upon the decision of the Delhi High Courtin CIT v. Nalwa Sons Investments Ltd. [(2010) 327 ITR 543],which was confirmed by the Supreme Court in SLP.(Civil)No.18564/2011 by a judgment dated 04.5.2012. 12. In the light of the above fact, the learned counselcontended that this is not a case which would fall either underthe category of concealment of income or under the category offurnishing of inaccurate particulars. What was actually aclerical or arithmetical mistake in projecting the same figureas a loss, instead of profit, on account of a wrong commandgiven to the system, cannot be construed, according to thelearned counsel, as furnishing of incorrect particulars. Thelearned counsel relies upon the decision of the Delhi High Courtin CIT v. Nalwa Sons Investments Ltd. [(2010) 327 ITR 543],which was confirmed by the Supreme Court in SLP.(Civil)No.18564/2011 by a judgment dated 04.5.2012. 13. In response to the above contentions, it is contended byMr.T.Ravi Kumar, learned Standing Counsel for the Departmentthat Form No.1, which an assessee is obliged to file under Rule12(1)(a) of the Income Tax Rules, 1962, is not prepared in anexcel sheet and is not taken as a print out of the computer. Theparticulars recorded therein are actually handwritten. ColumnNo.18 in Form No.1 has been filled up by hand by the assesseewith the deliberate intention of misleading the Department asthough there was a business loss to the extent ofRs.8,62,60,370/-. Therefore, the learned Standing Counselcontended that the mistake, which was deliberately done by hand,cannot be shifted to the mechanical failure. In addition, healso contended that Form No.1 contains a column at the bottomwhere the signatory to the Form is obliged to make averification and declare that all the particulars furnishedtherein are correct and complete and that the particulars aretruly stated therein. There is also a foot-note to Form No.1which declares that a person making a false statement in FormNo.1 is liable to be prosecuted under Section 277 of the IncomeTax Act, 1961. Therefore, the learned Standing Counsel contendedthat the person who filled up the Form in such a manner thatwould automatically indicate a false declaration and falseverification and a person who has made himself liable forcriminal prosecution, but has escaped merely with a penalty, canhave no grievance as against the order of the Tribunal. 14. In support of his contention that cases of this naturewould also attract penalty under Section 271(1)(c), the learnedStanding Counsel for the Department relied upon a series ofdecision, which are as follows: (1) Joint Commissioner of Income Tax v. Saheli Leasing &Industries Ltd. [(2010) 324 ITR 170 (SC)]; (6) Commissioner of Income Tax v. M.Thiruvengadam [(2013) 36taxmann.com 321 (Madras)]; 16. Before we get into the details, it would be useful tolook at the scope of the power conferred under Section 271(1)(c), the authorities on whom such powers are conferred and thescope of an appeal before the Income Tax Appellate Tribunal. Itis no doubt true that an appeal to the Income Tax AppellateTribunal is filed under Section 253(1). While an appeal to thisCourt under Section 260-A can only be on a substantial questionsof law, there is no such restriction with regard to the appealsto be filed before the Tribunal under Section 253(1). Therefore,the appeal to the Tribunal could be on a factual aspect as wellas a legal aspect. Keeping this in mind, let us now turn ourattention to the authorities on whom a power to impose penaltyis conferred under Section 271(1)(c) and the circumstances underwhich the penalty could be imposed. 17. Since the extraction of the provision of Section 271will consumer more papers, we restrict what is to be extractedin respect of Section 271(1) only to the preliminary portion.The first part of Sub-section (1) of Section 271 reads asfollows: https://hcservices.ecourts.gov.in/hcservices/ 17. Since the extraction of the provision of Section 271will consumer more papers, we restrict what is to be extractedin respect of Section 271(1) only to the preliminary portion.The first part of Sub-section (1) of Section 271 reads asfollows: https://hcservices.ecourts.gov.in/hcservices/ "If the Assessing Officer or the Commissioner(Appeals) or the Principal Commissioner or theCommissioner in the course of any proceedingsunder this Act, is satisfied that any person- ". 18. From the above, it is clear that the power to impose apenalty is vested only with the Assessing Officer, theCommissioner (Appeals) or the Principal Commissioner or theCommissioner in the course of any proceedings. In other words,the Tribunal is not empowered to impose a penalty. 19. As a consequence of the authorities on whom the power toimpose penalty is conferred, the circumstances under whichpenalty can be imposed is also circumscribed by the expression"is satisfied". Therefore, what Section 271(1) requires is asatisfaction on the part of the Assessing Officer or theCommissioner. In a case where the Assessing Officer or theCommissioner has arrived at such a satisfaction in an objectivemanner, we do not know whether the Tribunal, on account of beingempowered to deal with questions of fact and law, will beentitled to interfere with an objective satisfaction arrived atby the Assessing Officer or the Commissioner (Appeals). Anyway,we will not go into this question for the present. 20. This is a case where, as pointed out by the learnedcounsel for the appellant, at the time when the AssessingOfficer passed the order imposing the penalty, he was of theview that the mistake committed by the appellant resulted intotal evasion to the tune of Rs.2,25,29,973/-. Unless thefurnishing of wrong particulars or the concealment ofparticulars had actually resulted in an evasion of tax or anunder payment of tax, a penalty itself cannot be levied. Thereason is that Section 271(1)(c), as admitted by the AssessingOfficer himself, stipulates a minimum as well as a maximumpenalty. If the tax evasion is zero, even the minimum penalty aswell as the maximum penalty can only be zero. It requiresnothing more than mere arithmetics to show that themultiplication of zero by any number will result only in zero.Therefore, the first pre-requisite for the imposition of penaltyis that a difference in payment of tax has actually arisen outof the entire exercise. If the difference in the amount of taxpayable, in the course of any proceeding is nil or actually onthe negative, we do not know how a minimum of not less than andnot more than three times such penalty can be levied. This is amore fundamental fact that the Tribunal has completely omittedto take note of. On the contrary, the Commissioner (Appeals) hastaken note of this fact. 21. It is in the light of the above fact that the taxliability that arose out of the entire exercise was nil that thedecision of the Division Bench of the Delhi High Court in NowalSons Investments Ltd. relied upon by the learned counsel for theappellant assumes significance. In Nowal Sons Investments Ltd.,the Division Bench of the Delhi High Court was dealing with acase where the total income of the assessee was first computedunder the normal provisions of the tax and the tax payable onsuch total income was compared with the prescribed percentage ofthe book profits computed under Section 115-JB of the Act.Ultimately, on the basis of disallowance and additions made andrelying upon the decision of Commissioner of Income Tax v. GoldCoin Health Food Pvt. Ltd. [(2008) 304 ITR 308 (SC)], a penaltywas imposed. But, while setting aside the penalty, the DivisionBench of the Delhi High Court held that even in a case where theassessee was guilty of furnishing of wrong particulars, itshould have had an effect upon an amount of tax sought to beevaded. The relevant portion of the decision of the DivisionBench reads as follows: "The question, however, in the present case,would be as to whether furnishing of such wrongparticulars had any effect on the amount of taxsought to be evaded. Under the Scheme of the Act,the total income of the assessee is firstcomputed under the normal provisions of the Actand tax payable on such total income is comparedwith the prescribed percentage of book profitscomputed under Section 115JB of the Act." This decision of the Delhi High Court was affirmed by theSupreme Court by the dismissal of the SLP. 22. Coming to the decisions relied upon by the learnedStanding Counsel for the Department, it can be seen that therewas an underlying factor in all those cases. In all those cases,two things emanate from the facts. The first is that the taxthat was found to be payable ultimately was different andactually higher than the tax actually paid by the assessee. Thesecond is that what was found out was in respect of certainconcealments or wrongful claims which the assesee was notentitled to make, but they made and also claimed a lesser levyof taxes. 23. In Saheli Leasing & Industries Ltd., the Supreme Courtwas concerned with a case where the assessee filed a returnshowing loss and the income was also assessed as nil income. Theassessee was able to do it, on the basis of a claim fordepreciation to the tune of Rs.24,22,531/-. The assessee wasactually a leasing company, which was not entitled to claim https://hcservices.ecourts.gov.in/hcservices/ depreciation on plant and machinery as per the law. Therefore,the Supreme Court held that the same was a case of concealmentof particulars of income and also a case of wrongful claim whichthe assessee was not entitled to make. 24. In Zoom Communication (P) Ltd., the Division Bench ofthe Delhi High Court was concerned with the case of an assesseewho was engaged in the business of hiring of audio and videoequipments. The assessee debited a particular amount under thehead "equipment written off". Later, he claimed that due tooversight, this amount was not added back in computation ofincome. Therefore, the Delhi High Court held that such a personcannot escape the consequences of a benefit that would haveactually accrued to the assessee on account of the oversight ormistake by whatever name it was called. 24. In Zoom Communication (P) Ltd., the Division Bench ofthe Delhi High Court was concerned with the case of an assesseewho was engaged in the business of hiring of audio and videoequipments. The assessee debited a particular amount under thehead "equipment written off". Later, he claimed that due tooversight, this amount was not added back in computation ofincome. Therefore, the Delhi High Court held that such a personcannot escape the consequences of a benefit that would haveactually accrued to the assessee on account of the oversight ormistake by whatever name it was called. 25. In Mak Data P. Ltd., the Supreme Court was concernedwith the case of an assessee, whose account was taken up forscrutiny in the course of which certain documents comprising ofshare application forms, bank statements, affidavits, copies ofincome, blank share transfer forms duly signed were found andimpounded. Actually, these documents were found in the course ofsurvey proceedings under Section 133A, in the course of a searchconducted in the sister concern of the assessee. Therefore, thepenalty proceedings were found to be justified in that case. 26. Morgan Finvest (P) Ltd. decided by the Delhi High Courtwas also a case of wrongful claim for depreciation in respect ofa property that was not used for business purposes. Similarly,M.Thiruvengadam decided by this Court was a case where a findingof fact was recorded by this Court that the assessee made anattempt to fabricate evidences to make illegal gain bysuppression of profits. Therefore, the same cannot be equated tothe case on hand. 27. In Sri Gokulam Hotels India (P) Ltd., the liabilityarose out of the difference in interpretation of Section 115-JB.This difference had an impact on the taxes. Therefore, the saiddecision cannot also go to the rescue of the department. 28. In Lanxess India Pvt. Ltd. (unreported decision) decidedby this Court, a wrongful claim relating to royalty payment wasmade. Therefore, this Court applied the principles laid down bythe Supreme Court in Gold Coin Health Food Pvt. Ltd. 29. In Kuldeep Wines, the Andhra Pradesh High Court wasconcerned with a case where there was a concealment with respectto the collection of refundable empty bottles. The actualfinding was recorded in that case to the effect that thisconcealment would never have come to light but for the search operations conducted by the revenue. Therefore, the said casecannot also go to the rescue of the revenue. 30. Having said it, let us now turn our attention to themanner in which the Commissioner of Appeals, who is competentunder Section 271(1) by himself to impose penalty, dealt withthe case on hand. In paragraph 15.8 of the order dated27.02.2009, the Commissioner (Appeals) indicated that he hadperused the assessment records, the questionnaire dated31.7.2006 as well as the order sheet dated 23.10.2006. TheAssessing Officer appears to have sent a letter dated 26.3.2008to the Commissioner (Appeals) pointing out that the notice underSection 143(2) dated 25.8.2005 was issued much before theappellant filed a return for the assessment year 2005-06.Therefore, the Assessing Officer pointed out to the firstAppellate Authority that the assessee must have seen thescrutiny notice and thereafter filed the return of income. But,this argument was rejected by the Commissioner (Appeals) on theground that the penalty proceedings cannot be levied on thebasis of questionnaire or office note and that it cannot bebased upon presumptions and conjectures. After having said thatthe Commissioner (Appeals) took up in paragraph 15.9 forconsideration the question whether there was a mistake incomputation sheet warranting the levy of penalty. The AppellateCommissioner relied upon the decision of the Supreme Court inUdayan Mukherjee. 31. In Udayan Mukherjee, the Calcutta High Court wasconcerned with a case whether there was a mistake due toindexation. Finding that all the particulars had already beendisclosed and that on the basis of such particulars, the exactamount to be taxed could be easily arrived at, the Calcutta HighCourt held that a mistake that happened due to wrong indexation,cannot fall under the category of furnishing a wrong particularsor concealment of particulars. In the penultimate paragraph ofits decision, the Calcutta High Court indicated that there is adistinction between furnishing of wrong particulars and making awrong calculation on the basis of the particulars furnished. Ifthe particulars are furnished, then there cannot be any questionof concealment. 32. Since the decision of the Calcutta High Court in UdayanMukherjee arose under almost identical circumstances, we are ofthe considered view that the reliance placed upon the same bythe Calcutta High Court was justified. Even in the case on hand,the profit that the appellant/ assessee had earned, did notundergo any change in terms of the numerals. The actual profitthat the appellant had earned for the assessment year 2004-05was Rs.8,62,60,370/-. It is the very same amount that has beenshown to be a loss, by showing the same within brackets.However, the mistake that had happened has also been explained properly by the assessee. Therefore, we are of the consideredview that this is a case which did not actually result in theamount of tax payable by the appellant becoming completelydifferent from what they have paid. As we have indicatedearlier, the penalty to be levied is indicated in Sub-clause(iii) to be the same which shall not be less than, but whichshall not exceed three times the amount of tax sought to beevaded by reason of concealment of particulars or the furnishingof incorrect particulars. If this amount is zero, the minimum ormaximum penalty cannot be less or more than the very sameamount. Therefore, we are of the considered view that thediscretion or the power to arrive at a satisfaction conferredupon the Commissioner of Income Tax under Section 271(1) oughtnot to have been interfered with by the Tribunal. Since theTribunal has done that, the order of the Tribunal requires to beupset. Therefore, the questions of law are answered in favour ofthe appellant and the appeal is allowed. No costs. Consequently,M.P.No.1 of 2010 is closed. kpl Sd/- Asst.Registrar /true copy/Sub Asst. RegistrarTo1. The Registrar, Income Tax Appellate Tribunal, 'C' Bench, Chennai.2. The Commissioner of Income Tax (Appeals)-III, 121, Mahatma Gandhi Road, Chennai-34.3. The Deputy Commissioner of Income Tax Company Circle III(2) Ayakar Bhavan, Chennai 600 034. + 1 cc to Mr.R.Sankaranarayan, Advocate Sr 53984KR/29/3/16 TCA No.991 of 2010