The Commissioner Of Income Tax-Iiludhiana v. Shri Rajnish Nath Aggarwal

ITA No.383 of 2007 In the High Court for the States of Punjab and Haryana at Chandigarh… ITA No.383 of 2007 Date of decision:24.3.2008 The Commissioner of Income Tax-IILudhiana Appellant Versus Shri Rajnish Nath Aggarwal Respondent Coram: Hon’ble Mr.Justice Satish Kumar MittalHon'ble Mr.Justice Rakesh Kumar Garg Present:Mr.Sanjeev Bansal, Advocatefor the Revenue/appellant. Rakesh Kumar Garg,J The Revenue has filed the present appeal under Section260-A of the Income Tax Act, 1961 (for short' the Act') against theorder of the Income Tax Appellate Tribunal, Chandigarh Bench”B”Chandigarh (for short the “Tribunal”) passed in I.T.A.No.983/CHD/2005 dated 28.2.2007 for the assessment year 2001-02raising the following substantial question of law:- “Whether on the facts and circumstances of the case, theHon'ble ITAT was right in law in confirming the order ofCIT(A) in deleting the penalty levied u/s 271(1)(c) atRs.4,25,720/-?” The respondent is drawing income from salary, businessincome, house property and income from other sources. The return in this case was filed on 22.10.2001 declaring income ofRs.4,35,110/-. The return was processed under Section 143(1) of theAct. The Assessment was framed by the Assessing Officer on29.3.2004 at an income of Rs.16,47,990/- after making addition ofRs.12,12,880/- on account of uncorroborated freight charges. TheAssessing Officer noticed that respondent had furnished inaccurateparticulars of his income and had also concealed the particulars ofincome as the assessee had surrendered an amount ofRs.12,12,880/-, after inquiries were initiated to check thegenuineness of the expenses claimed in the return. While making theassessment, the Assessing Officer rejected the request of thesurrender made by the respondent and initiated penalty proceedingson this account. Penalty under Section 271(1)(c) was imposed atRs.4,25,720/- vide order dated 23.9.2004. Feeling aggrieved against the aforesaid penalty order, therespondent preferred an appeal before the Commissioner of IncomeTax(Appeals)-II, Ludhiana, who vide his order dated 14.7.2005deleted the penalty while allowing the appeal of the assessee. Notbeing satisfied with the order of the Commissioner of Income Tax(Appeals)-II, the Revenue preferred an appeal before the Tribunal.The Tribunal vide its order dated 28.2.2007 upheld the order of theCommissioner of Income Tax(Appeals)-II and resultantly dismissedthe appeal of the Revenue. Hence this appeal by the Revenue. Shri Sanjeev Bansal, Advocate, learned counsel for theRevenue has vehemently argued that the assessee could not provegenuineness of the transportation expenses debited to profit and loss account as undisputedly, the Transporters to whom the payment offreight charges was made could not be traced and therefore,theexpenses on account of freight charges made to these transporterscould not be confirmed. It was further argued by the learned counselfor the Revenue that the surrender made by the assessee was nevermutually agreed upon, as the same was rejected by the AssessingOfficer, as the said surrender had been made only after investigationwas carried out by the department and it was not bonafide andvoluntary disclosure as the revised return was made only when theassessee came to know that there was detection of concealment bythe department. Thus the penalty was rightly imposed by theAssessing Officer and therefore, the order of the Tribunal is liable tobe quashed. account as undisputedly, the Transporters to whom the payment offreight charges was made could not be traced and therefore,theexpenses on account of freight charges made to these transporterscould not be confirmed. It was further argued by the learned counselfor the Revenue that the surrender made by the assessee was nevermutually agreed upon, as the same was rejected by the AssessingOfficer, as the said surrender had been made only after investigationwas carried out by the department and it was not bonafide andvoluntary disclosure as the revised return was made only when theassessee came to know that there was detection of concealment bythe department. Thus the penalty was rightly imposed by theAssessing Officer and therefore, the order of the Tribunal is liable tobe quashed. After hearing learned counsel for the Revenue, we find noforce in the contentions raised by him. In response to show causenotice issued to the assessee, reply was submitted that during theassessment proceedings, the assessee made the surrender ofRs.12,12,880/- subject to no penal action and the assessee hadmade the surrender just to buy peace of mind to avoid furtherlitigation. The Madras High Court in the case of CITVersus JayarajTalkies(239 ITR 914) held that mere agreement to addition ofincome or surrender of income did not imply concealment of incomewhere the assessee surrendered certain amount to assessmentbecause it was unable to substantiate its claims with necessaryvouchers. The Kerala High Court in the case of CITVs. M. George &Brothers(160 ITR 511) held that where the assessee for one reason or the other agrees or surrenders certain amounts for assessment,the imposition of penalty solely on the basis of the assesseesurrender will not be well founded. It was held by Hon'ble SupremeCourt of India in the case of Sir Shadi Lal Sugar &General Mills Ltd.(168 ITR 705) that where the assessee had agreed to assessment ofundisclosed income, it did not absolve the revenue from provingmens rea in quasi criminal offence. From these judicial pronouncements, it is crystal clearthat the department has to prove mens rea before leving penaltyunder Section 271(1)(c) of the Act and it cannot be made out that theassessee has concealed income or furnished inaccurate particularsmerely because he has surrendered certain amount to avoid litigationand to buy peace of mind. This High Court in the case ofCommissioner of Income Tax Versus Suraj Bhan (2007) 159 Taxman(P&H) held that penalty cannot be imposed merely on account ofhigher income having been subsequently declared. It was a casewherein the assessee filed the revised return showing higher incomeand gave an explanation that he offered higher income to buy peaceof mind and to avoid litigation. Similarly, the Hon'ble Apex Court inthe case of Commissioner of Income Tax Versus Suresh ChanderMittal (251 ITR 9)(SC) observed that when an assessee files arevised return showing higher income and gave explanation that heoffered higher income to buy peace of mind and to avoid litigation,penalty cannot be imposed merely on accoaunt of higher incomehaving been subsequently declared. In view of the above judicial pronouncements, we are of ITA No.383 of 2007 the view that the case of the assessee is on much better footingbecause no return of income was revised in this case and thetransportation charges were directly made by the suppliers and notby the assessee and therefore, there is no question of concealmentof income or furnishing of inaccurate particulars of income. Thepenalty cannot be levied merely on account of inaccurate particularsby presuming that the payments were made by the assessee,whereas the facts are otherwise. Even otherwise, the Tribunal hasgiven a finding of fact that neither there is concealment of income norfurnishing of inaccurate particulars. In view of the above judicial pronouncements, we are of ITA No.383 of 2007 the view that the case of the assessee is on much better footingbecause no return of income was revised in this case and thetransportation charges were directly made by the suppliers and notby the assessee and therefore, there is no question of concealmentof income or furnishing of inaccurate particulars of income. Thepenalty cannot be levied merely on account of inaccurate particularsby presuming that the payments were made by the assessee,whereas the facts are otherwise. Even otherwise, the Tribunal hasgiven a finding of fact that neither there is concealment of income norfurnishing of inaccurate particulars. In view of the above stated categoric finding of theTribunal, we find no error in the order of the Tribunal. Thus, nosubstantial question of law arises in the present appeal for ourdetermination and the same is hereby dismissed. (RAKESH KUMAR GARG) JUDGE March 24,2008 (SATISH KUMAR MITTAL) nk JUDGE