The Commissioner Of Income-Tax, Jalandhar v. P. Ram Chand & Co., Basti Nau, Jalandhar

Income Tax Appeal No.109 of 1999 1 IN THE HIGH COURT OF PUNJAB AND HARYANA ATCHANDIGARH. Income Tax Appeal No.109 of 1999Date of Decision: 28.10.2013 The Commissioner of Income-tax, Jalandhar ..Appellant versus P. Ram Chand & Co., Basti Nau, Jalandhar ..Respondent CORAM:HON'BLE MR. JUSTICE RAJIVE BHALLA HON'BLE MR. JUSTICE DR. BHARAT BHUSHAN PARSOON Present:Mr. Vivek Sethi, Advocate, for the appellant. Mr. Alok Mittal, Advocate, for the respondent. RAJIVE BHALLA, J. (ORAL) The revenue is, before us, by way of an appealimpugning the correctness of order dated 26.3.1999, passed by theIncome Tax Appellate Tribunal, Amritsar, setting aside order dated22.1.1993 passed by the Commissioner of Income Tax (Appeals) andorder dated 31.1.1990 passed under Section 271(1)(c) of the IncomeTax Act, 1961 (hereinafter referred to as the “Act”), imposing penaltyupon the assessee. Counsel for the appellant submits that, as the assesseefurnished inaccurate particulars with intent to evade tax, the Tribunalhas erred in setting aside the penalty. The assessee firm havingaccepted that fixed deposits in the name of its partners and ex-partners, may be assessed as income of the firm, the return wasclearly incorrect. The penalty was, therefore, a necessary Income Tax Appeal No.109 of 1999 2 consequence of furnishing incorrect particulars with mens rea toevade tax. Counsel for the appellant submits that the followingquestion of law arises for adjudication:- “ Whether, on the facts and the circumstances of thecase, the ITAT was justified in law in allowing the appealof the assessee whereby deleting the penalty imposed bythe A.O u/s 271(1)(c) of the Act and sustained by the CIT(A), holding that no such penalty was attracted becauseneither inaccurate particulars were furnished nor anyincome concealed because the income on due basis wasduly shown in the hands of the partners?” Counsel for the assessee submits that it is not everyinfraction of the Income Tax Act or every rejected claim for exemptionor deduction, that would attract a penalty. A penalty can only belevied if the assessee furnishes incorrect particulars with mens reato evade tax. The Income Tax Appellate Tribunal has, therefore,rightly set aside the penalty. We have heard counsel for the parties. Admittedly, the quantum appeal filed by the assessee,has been dismissed by affirming addition of income on account ofinterest received from deposits standing in the name of partners andex-partners. Notices for levy of penalty, served under Section 271(1)(c) of the Act, were decided against the assessee and penalty wasimposed. The order passed by the Assessing Officer was affirmedby the Commissioner of Income Tax (Appeals), Jalandhar. TheVarinder KumarIncome Tax Appellate Authority has set aside the penalty by holding2013.11.25 17:06I attest to the accuracy andintegrity of this documentHigh Court Chandigarh Income Tax Appeal No.109 of 1999 3 as follows:- We have heard counsel for the parties. Admittedly, the quantum appeal filed by the assessee,has been dismissed by affirming addition of income on account ofinterest received from deposits standing in the name of partners andex-partners. Notices for levy of penalty, served under Section 271(1)(c) of the Act, were decided against the assessee and penalty wasimposed. The order passed by the Assessing Officer was affirmedby the Commissioner of Income Tax (Appeals), Jalandhar. TheVarinder KumarIncome Tax Appellate Authority has set aside the penalty by holding2013.11.25 17:06I attest to the accuracy andintegrity of this documentHigh Court Chandigarh Income Tax Appeal No.109 of 1999 3 as follows:- “ We are of the opinion that this is not a fit case whereexplanation of the appellant would have been rejected andpenalty under section 271(1)(c) either for filing ofinaccurate particulars or concealment of income wouldhave been imposed. The appellant has shown the assetunder consideration regularly in the books of account andalso shown the interest income accrued on the FDRs. Theonly difference is the understanding of the appellantregarding the passing of an entry relatable to interest.One argument put forth by the Auditors for passing of theentry is that if FDRs are purchased in the name of the firmproper entry should be made by debiting the capitalaccount and each and every partner in whose name theFDRs is made. Under the circumstances the capitalaccount of the partner will get reduced and the FDR willnot appear in the balance sheet of the firm. Second adviceand argument of the Chartered Accountant to theappellant is not to pass entry in the capital account, by thatthe FDR will remain in the balance sheet. The purpose ofdoing so is mainly to take advantage of such FDRs inobtaining credit facilities in the bank. The taxability in caseof the firm is also a matter of interpretation where one viewhas been held by the I.T.A.T. That FDRs are purchasedfrom the funds of the firm in which individual capitalaccount gets merged with the total capital available with Income Tax Appeal No.109 of 1999 4 the firm, therefore the interest should be credited in theprofit and loss account of the firm. The reason for makingabove discussion is that it is the question of entry ofinterest which is reflected in the books of account andshown to the Income-tax Department. The Ld. Counselhas pleaded that in the past they were crediting theinterest income in case of the firm whereas during the yearunder consideration, on the legal advice, they wereadvised to credit directly the interest income in the handsof the partners which they did and the advise was foundnot to be correct in case of the appellant by the I.T.A.T.There is logic in the Explanation as pleaded by the Ld.Counsel and we do not find any reason that penalty u/s271(1)(c) is attracted because neither inaccurateparticulars have been filed nor any income has beenconcealed because the income on due basis have dulybeen shown in case of individual partners. The penaltyimposed by the Ld. CIT(A) is, therefore, deleted. In the result the appeal of the appellant is accepted.” A perusal of the order passed by the Tribunal reveals that the respondent had disclosed the assets under consideration,and the interest income accruing on fixed deposit receipts, in itsbooks of accounts. The Tribunal has held that explanation proferredby the assessee that they were advised to directly credit interest inthe name of the partners, which was later found to be legallyVarinder Kumarimpermissible, is logical and, therefore, does not attract penalty2013.11.25 17:06I attest to the accuracy andintegrity of this documentHigh Court Chandigarh Income Tax Appeal No.109 of 1999 5 In the result the appeal of the appellant is accepted.” A perusal of the order passed by the Tribunal reveals that the respondent had disclosed the assets under consideration,and the interest income accruing on fixed deposit receipts, in itsbooks of accounts. The Tribunal has held that explanation proferredby the assessee that they were advised to directly credit interest inthe name of the partners, which was later found to be legallyVarinder Kumarimpermissible, is logical and, therefore, does not attract penalty2013.11.25 17:06I attest to the accuracy andintegrity of this documentHigh Court Chandigarh Income Tax Appeal No.109 of 1999 5 under Section 271(1)(c) of the Act or fall within the mischief offurnishing incorrect particulars or concealment of income, so as toinvite a penalty. Even otherwise as, held by the Hon'ble Supreme Court in CITversus Reliance Petro Products Pvt. Ltd. 322 ITR 158, it isnot every infraction or denial of claim for deduction or exemption thatinvites penalty. A penalty would follow only where inaccurateparticulars have been furnished with mens rea to evade tax. Anassessee is entitled, by provisions of the Act, to claim deductions orexemptions and to present his income in such a manner as he maydeem beneficial to his business/interest. Thus where an assesseehas exercised a bona fide right but the deductions or exemptions soclaimed are found to be incorrect, penalty would follow only if theclaim is raised with intent to furnish incorrect particulars and toevade tax. The discretion exercised by the Tribunal is neitherarbitrary or perverse and does not suffer from any error of jurisdictionor of law. We find no reason to differ with the opinion recorded by thelearned Tribunal. The question of law is answered accordingly andthe appeal is dismissed. ( RAJIVE BHALLA )JUDGE 28.10.2013VK ( DR. BHARAT BHUSHAN PARSOON) JUDGE