The Commissioner Of Income Tax,Ward Iv (1), Chennai v. P.rojes

1 IN THE HIGH COURT OF JUDICATURE AT MADRASDated : 05.02.2013 Coram : THE HONOURABLE MRS.JUSTICE R.BANUMATHI and THE HONOURABLE MR.JUSTICE K.RAVICHANDRABAABUTax Case (Appeal) No.341 of 2010 The Commissioner of Income Tax,Ward IV (1), Chennai. ... Appellant vs. P.Rojes,No.11, Station Road,West Mambalam, Chennai. ... Respondent Appeal is filed under section 260A of the Income Tax Act, 1961against the order of the Income Tax Appellate Tribunal, 'B' Bench,Chennai dated 05.10.2009 made in ITA No.531/Mds/2009. For Appellant: Mr.M.Swaminathan Standing Counsel for Income Tax For Respondent : Mr.J.Balachander JUDGMENT (Judgment of the Court was made by K.RAVICHANDRABAABU,J) The Revenue is on appeal against the order passed by theTribunal in ITA.No.531/Mds/2009 dated 05.10.2009, for the relevantassessment year 2005-2006 by raising the following substantialquestion of law:- "Whether on the facts and circumstances of thecase, the Tribunal was right in cancelling the penaltycontrary to the law laid down in 306 ITR 277 by the ApexCourt?" 2. The assessee, is an individual. He originally admitted theincome of Rs.1,99,440/- under Section 44 AF of Income Tax Act. Thesaid assessment was selected for scrutiny under 'CASS' based on AIRinformation, that the assessee had deposited cash of Rs.47,36,000/-on 31.03.2005. On notice, the assessee filed a letter on 30.11.2007along with the revised Profit and Loss Account statement with copy ofthe bank statement and stated that he had not deposited cash ofRs.47,36,000/- on a single day and that the cash deposit was spreadover for the period of twelve months and the deposit was made out ofsales and also recovery from the sundry debtors. As such the assessee had admitted the net profit of Rs.3,92,649/- being 5% of thetotal gross income of Rs.78,52,980/-. Further, the assessee agreedfor addition of 3% being the profit which works out to Rs.2,35,589/-.Thus the Income Tax Officer assessed the income as Rs.6,58,240/-.Consequently, the Assessing Officer imposed penalty of Rs.4,28,706/-being 300% by invoking his power under Section 271(1)(c) of the saidAct. 3. Aggrieved against the said imposition of penalty, asseseefiled appeal before the Commissioner of Income Tax (Appeals) inITA.No.20/08-09. The Appellate Authority confirmed the order ofpenalty by holding that the assessee had not shown the deposits andhe had not given any explanation, except saying that books ofaccounts were not maintained. The Appellate Authority furtherobserved that the reasons for increase the profit percentage from 5%to 8% was not clear. Consequently, the appeal filed by the assesseewas dismissed. 4. The further appeal preferred before the Tribunal by theassessee in I.T.A.No.531/Mds/2009 was allowed by holding that thoughthe Assessing Officer initially proceeded on the basis of informationthat the assessee deposited cash of Rs.47,36,000/- a single day,however, he subsequently found that there was no deposit on a singleday. It was also found by the Tribunal that the assessee agreedfor estimation of income at Rs.3,92,649/- which was enhanced by theAssessing Officer to Rs.6,28,240/-. The Tribunal further pointed outthat it is not clear as to whether it is a case of suppression ofturnover or of the estimation of income at a lower rate. Therefore,considering all these facts and circumstances, Tribunal after beingsatisfied that it is not a fit case for levy of penalty under Section271 (1) (c) of the Act, allowed the appeal preferred by the assessee.The Revenue challenged the said order of the Tribunal in this appealby raising the above said substantial question of law as statedsupra. 5. First of all, in order to invoke penalty proceedings underSection 271 (1) (c) of the Act, there must be concealment ofparticulars of income or furnishing of inaccurate particulars of hisincome by the assessee. Section 271 (1) (c) of the Act reads asfollows:- 5. First of all, in order to invoke penalty proceedings underSection 271 (1) (c) of the Act, there must be concealment ofparticulars of income or furnishing of inaccurate particulars of hisincome by the assessee. Section 271 (1) (c) of the Act reads asfollows:- "271. Failure to furnish returns, comply with notices,concealment of income, etc. - (1) If the AssessingOfficer or the Commissioner (Appeals) in the course ofany proceedings under this Act, is satisfied that anyperson - (a) ......(b) .....(c) has concealed the particulars of his income or furnished inaccurate particulars of income "From the facts placed before this Court, it could be seen that theAssessing Officer was originally of the impression that a sum ofRs.47,36,000/-was deposited by the assessee on a single day.However, the Assessing Officer latter found that such deposit was notmade on a single day and it was made for a period commencing from01.04.2004 to 29.03.2005. 6. Though the Assessing Officer invoked penalty under Section 27(1)(c) of the Act and stated that the assessee failed to furnishcomplete details from bank statement, on going through the materialsplaced before this Court, it is seen that the Assessing Officer hassubsequently found that the said deposit was made for the periodcommencing from 01.04.2004 to 29.03.2005. Therefore, when theAssessing Officer himself has found that the said deposit was notmade on a single day, in our considered view, it cannot be said thatthe assessee had failed to furnish complete particulars. TheTribunal has categorically found that in the return, the assessee hadshown the income on estimate basis at Rs.1,99,440/- and suchestimation of income was enhanced by the Assessing Officer andconsequently, imposed penalty. Therefore, from the above facts it isclear that levy of penalty was based on the estimation of income.In our considered view, there cannot be any imposition of penaltybased on estimation of income. 7. The Tribunal has rightly found that the present case is not afit case for levy of penalty under Section 27(1)(c) of the Act byfinding that the initial impression of the Assessing Officer wasincorrect with regard to the deposit of a sum of Rs.47,36,000/-.The Tribunal has also pointed out that it was not clear as towhether, according to Assessing Officer, it was a case of suppressionof turn over or of estimation of income at a lower rate. When theRevenue itself has not come out with clear case of suppression ofturn over and where there was no specific finding with regard to suchfactual aspect, we find that imposition of penalty under Section 27(1)(c) of the said Act is not warranted. In this connection, it isrelevant to quote the decision of the Hon'ble Supreme Court reportedin (2010) 322 ITR 158 (Commissioner of Income Tax v. ReliancePetroproducts (P) Ltd.) in which it is observed that in order tobring the case under Section 271(1)(c) of the Act, there has to beconcealment of particulars of the income of the assessee and theassessee must have furnished inaccurate particulars of his income.It was further pointed out by the Hon'ble Supreme Court that in orderto expose the assessee to the penalty unless the case is strictlycovered by the provision, the penalty provision cannot be invoked.It is further pointed out that making an incorrect claim in lawcannot tantamount to furnishing inaccurate particulars. The relevant portion of the decision reads as follows:- relevant portion of the decision reads as follows:- "7. As against this, the learned counsel appearing onbehalf of the respondent pointed out that the language ofSection 271(1)(c) had to be strictly construed, this beinga taxing statute and more particularly the one providingfor penalty. It was pointed out that unless the wordingdirectly covered the assessee and the fact situationherein, there could not be any penalty under the Act. Itwas pointed out that there was no concealment or anyinaccurate particulars regarding the income were submittedin the return. Section 271(1)(c) is as under: “27(1) If the AO or the CIT(A) or the CIT in thecourse of any proceedings under this Act, is satisfiedthat any person— (c) has concealed the particulars of his income orfurnished inaccurate particulars of such income.” A glance at this provision would suggest that inorder to be covered, there has to be concealment of theparticulars of the income of the assessee. Secondly, theassessee must have furnished inaccurate particulars of hisincome. Present is not the case of concealment of theincome. That is not the case of the Revenue either.However, the learned counsel for the Revenue suggestedthat by making incorrect claim for the expenditure oninterest, the assessee has furnished inaccurateparticulars of the income. As per Law Lexicon, the meaningof the word “particular” is a detail or details (in pluralsense); the details of a claim, or the separate items ofan account. Therefore, the word “particulars” used inSection 271(1)(c) would embrace the meaning of the detailsof the claim made. It is an admitted position in thepresent case that no information given in the return wasfound to be incorrect or inaccurate. It is not as if anystatement made or any detail supplied was found to befactually incorrect. Hence, at least, prima facie, theassessee cannot be held guilty of furnishing inaccurateparticulars. The learned counsel argued that “submittingan incorrect claim in law for the expenditure on interestwould amount to giving inaccurate particulars of suchincome”. We do not think that such can be theinterpretation of the words concerned. The words are plainand simple. In order to expose the assessee to the penaltyunless the case is strictly covered by the provision, thepenalty provision cannot be invoked. By any stretch ofimagination, making an incorrect claim in law cannottantamount to furnishing inaccurate particulars. In CIT v.Atul Mohan Bindal (2009) 225 CTR (SC) 248 : (2009) 28 DTR (SC) 1 : (2009) 9 SCC 589, where this Court wasconsidering the same provision, the Court observed thatthe AO has to be satisfied that a person has concealed theparticulars of his income or furnished inaccurateparticulars of such income. This Court referred to anotherdecision of this Court in Union of India v. DharamendraTextile Processors (2007) 212 CTR (SC) 432 : (2008) 13 SCC369, as also, the decision in Union of India v. RajasthanSpinning & Weaving Mills(2009) 224 CTR (SC) 1 : (2009)23 DTR (SC) 158 : (2009) 13 SCC 448 and reiterated in para13 that: "13. It goes without saying that for applicability of S.271(1)(c), conditions stated therein must exist.” (SC) 1 : (2009) 9 SCC 589, where this Court wasconsidering the same provision, the Court observed thatthe AO has to be satisfied that a person has concealed theparticulars of his income or furnished inaccurateparticulars of such income. This Court referred to anotherdecision of this Court in Union of India v. DharamendraTextile Processors (2007) 212 CTR (SC) 432 : (2008) 13 SCC369, as also, the decision in Union of India v. RajasthanSpinning & Weaving Mills(2009) 224 CTR (SC) 1 : (2009)23 DTR (SC) 158 : (2009) 13 SCC 448 and reiterated in para13 that: "13. It goes without saying that for applicability of S.271(1)(c), conditions stated therein must exist.” 8. Therefore, it is obvious that it must be shownthat the conditions under Section 271(1)(c) must existbefore the penalty is imposed. There can be no disputethat everything would depend upon the return filed becausethat is the only document, where the assessee can furnishthe particulars of his income. When such particulars arefound to be inaccurate, the liability would arise. InDilip N. Shroff v. CITand another (2007) 210 CTR (SC) 228: (2007) 6 SCC 329, this Court explained the terms“concealment of income” and “furnishing inaccurateparticulars”. The Court went on to hold therein that inorder to attract the penalty under Section 271(1)(c), mensrea was necessary, as according to the Court, the word“inaccurate” signified a deliberate act or omission onbehalf of the assessee. It went on to hold that clause(iii) of Section 271(1) provided for a discretionaryjurisdiction upon the assessing authority, inasmuch as theamount of penalty could not be less than the amount of taxsought to be evaded by reason of such concealment ofparticulars of income, but it may not exceed three timesthereof. It was pointed out that the term “inaccurateparticulars” was not defined anywhere in the Act and,therefore, it was held that furnishing of an assessment ofthe value of the property may not by itself be furnishinginaccurate particulars. It was further held that theassessee must be found to have failed to prove that hisexplanation is not only not bona fide but all the factsrelating to the same and material to the computation ofhis income were not disclosed by him. It was then heldthat the explanation must be preceded by a finding as tohow and in what manner, the assessee had furnished theparticulars of his income. The Court ultimately went on tohold that the element of mens rea was essential. It wasonly on the point of mens rea that the judgment in Dilip N. Shroff v. Jt.CIT& Another (supra) was upset. In Unionof India v. Dharamendra Textile Processors (cited supra)after quoting from Section 271 extensively and alsoconsidering Section 271(1)(c), the Court came to theconclusion that since Section 271(1)(c) indicated theelement of strict liability on the assessee for theconcealment or for giving inaccurate particulars whilefiling return, there was no necessity of mens rea. TheCourt went on to hold that the objective behind enactmentof Section 271(1)(c) read with the Explanations indicatedwith the said section was for providing remedy for loss ofrevenue and such a penalty was a civil liability and,therefore, wilful concealment is not an essentialingredient for attracting civil liability as was the casein the matter of prosecution under Section 276-C of theAct. The basic reason why the decision in Dilip N. Shroffv. Jt.CITand another (cited supra) was overruled by thisCourt in Union of India v. Dharamendra Textile Processors(cited supra) was that according to this Court the effectand difference between Section 271(1)(c) and Section 276-Cof the Act was lost sight of in Dilip N. Shroff v. Jt. CITand another (cited supra). However, it must be pointed outthat in Union of India v. Dharamendra Textile Processors(cited supra), no fault was found with the reasoning inthe decision in Dilip N. Shroff v. Jt. CITand another(cited supra), where the Court explained the meaning ofthe terms “conceal” and “inaccurate”. It was only theultimate inference in Dilip N. Shroff v. Jt.CITandanother (cited supra) to the effect that mens rea was anessential ingredient for the penalty under Section 271(1)(c) that the decision in Dilip N. Shroff v. Jt.CITandanother (cited supra) was overruled." 8. The very same issue was considered by the Division Bench ofthis Court in Tax Case (Appeal) No.273 of 2012 dated 12.09.2012(Commissioner of Income Tax, Chennai v. M/s.Shriram Properties &Constructions (Chennai) Ltd., T.Nagar, Chennai-17) wherein one of uswas a member (Justice K.Ravichandrabaabu, J). In that case, theAssessing Officer initiated penalty proceedings under Section 271(1)(c) of the Act holding that the assessee had not filed the revisedreturn of income to offer the amount as income for the purpose ofassessment. Even in that case such levy of penalty was rejected bythis Court by holding that when the Tribunal had come to a factualfinding that there was no lacking in bona fide in the claim of theassessee originally made, no ground to accept the plea of the Revenueto admit the said Tax Case (Appeal). Here, it is the admitted casethat the assessee filed revised profit and loss account statement showing the net profit of Rs.3,92,649/- being 5% on Rs.78,52,980/-and the same having been done before the assessment was completed, wefail to understand as to how the Revenue is justified in imposingpenalty under Section 271 (1) (c) of the Act. Therefore by applyingthe decision of the Hon'ble Supreme Court in (2010) 322 ITR 158 (SC)as well as the decision of the Division Bench of this Court in TaxCase (Appeal) No.273 of 2012 dated 12.09.20012, we reject the appealfiled by the Revenue by answering the substantial question of lawagainst the Revenue. 9. Accordingly, the Tax Case (Appeal) is dismissed. No costs.bbrSd/Asst. Registrar/true copy/Sub Asst.Registrar To1.The Income Tax Officer,Business Ward IV (1), Chennai.2.The Commissioner of Income Tax,(Appeals)-VIII, Chennai-34.3.The Income Tax Appellate Tribunal,Chennai Bench 'B', Chennai. 4. The Assistant RegistrarIncome Tax Appellate TribunalRajaji Bhavan, Besant Nagar,Chennai 5. The Commissioner of Income -TaxWard IV (1), Chennai T C (A) No.341 of 2010KSJ (CO)ns 27/02/2013