Income Tax Appellate Tribunal - Mumbai
Dy. Cit vs Aatur Holding (P) Ltd. on 12 August, 2004
Equivalent citations: [2004]1SOT101(MUM)
ORDER
K.K. Boliya, A.M. These two departmental appeals involving common issues are disposed of by this common order. An application for adjournment on behalf of the assessee respondent has been filed by Shri Ashwin Mehta, Director of the company on the ground that the assessee company belongs or Harshad Mehta group and the cases of Harshad Mehta group are being normally heard by ITAT, A Bench, Mumbai. It is, therefore, requested that these appeals may be transferred to the A Bench.
2. None was present on behalf of the assessee company. The Bench felt that the request of the assessee is untenable and can not be accepted. Therefore, the assessees application was rejected and we have beard Shri Ashok Kotangle, standing counsel, who attended on behalf of the department. The appeals are decided on merits.
3. Both the appeals pertain to deletion by the learned CIT(A) of penalties of Rs. 87,56,292 and Rs. 3,01,46,655, levied by the assessing officer under section 271(1)(c) of the Income Tax Act for the assessment years 1991-92 and 1992-93 respectively. Identical grounds of appeal have been raised by the department and, therefore, it would suffice to reproduce the grounds of appeal for the assessment year 1991-92 as under-
"On the facts and circumstances of the case and in law, the learned CIT (A) erred in
(i) cancelling the penalty of Rs. 87,56,292 levied under section 271(1)(c) and in holding that the penalty imposed was illegal in nature.
(ii) holding that penalty under section 271(1)(c) was not leviable in the assessees case since the assessee had not filed a return of income and further that even Explanation 3 could not be invoked since the assessee was an old assessee.
(iii) overlooking the fact that the provisions of section 271(1)(c) as also the Explanations thereto do not specifically exclude an old assessee, who has not filed his return of income from the applicability of the provisions of section 271(1)(c).
)iv) failing to appreciate that the assessees case is covered by the main section itself since the assessee had concealed the particulars of its income by not furnishing a return of income.
(v) Failing to appreciate the fact that the assessee is liable for penalty under section 271(1)(c) even in terms of Explanation 1 to section 271(1)(c) inasmuch as the assessee had failed to offer an explanation in respect of the facts material to the computation of the total income.
(vi) holding that penalty under section 271(1)(c) cannot be imposed in the case of an old assessee who had not furnished its return of income without appreciating that the Legislature has no such intention of exempting an old assessee, who had not filed its return, from imposition of penalty under section 271(1)(c) as is also evident from the provisions of Explanation 5 to section 271(1)(c) which clearly indicate that penalty for concealment is leviable in such cases.
(vii) failing to appreciate that the quantum of penalty imposable under section 271(1)(c) is no longer computed with reference to the returned income as was the position earlier, and that the quantum of penalty leviable in the assessees case could be computed as per the provisions of clause (c) of Explanation 4 of section 271(1)(c).
(viii) failing to appreciate that the intention of the Legislature at the time of enactment of Explanation 3 to section 271 (1)(c) was undoubtedly to bring within the ambit of section 271(1)(c) even a new assessee, who had previously not been assessed under the Income Tax Act and who had not filed his return of income as required under the Act and that such specific provisions cannot be interpreted in a manner so as to mean that penalty under section 271(1)(c) would not be applicable in the case of an old assessee who had not filed his return of income and whose income was computed as per the provisions of section 144 of the Income Tax Act, 1961.
(ix) failing to appreciate that the Legislature had no intention of put ling an old assessee in an advantageous position vis-a-vis anew assessee with regard to the commission of an identical default viz., concealment of income resulting from failure to file a return of income.
(x) reliving upon the judgments reported at S. Santhosh Nadar v. First Addl. ITO (1962) 46 ITR 411 (Mad), Thoppil Kutti Eroor v. CIT (1958) 34 ITR 850 (Ker) and S. Narayanappa & Bros. v. CIT (1961) 41 ITR 125 (Mys) etc., without appreciating the fact that the facts of the assessees case are distinguishable from those of the cases ref erred to by the CIT (A) inasmuch as the issues involved were different and also the judgment were delivered in an altogether different context and with reference to legal provisions, that were markedly different from the ones that are applicable in the assessees case."
4. The relevant facts may be briefly stated. The returns of income for the assessment years 1991-92 and 1992-93 were due to be filed under section 139(1) of the Income Tax Act on or before 31-12-1991 and 31-12-1992 respectively. However, the assessee did not furnish the returns of income with the result that notices under section 142(1) were issued to the assessee company requiring it to file the returns of income. In response to the notices, letters were filed wherein the assessee expressed its inability to submit the returns of income on the ground that it was facing problems due to number of searches being conducted by the Income Tax department and C.B.I. on the premises of the assessee and its directors. Further notices were issued by the assessing officer under section 142(1), but the same proved to be of no avail and the assessee did not furnish the returns of income. The assessing officer, in these circumstances, preceded to complete the assessment ex parte under section 144 of the Income Tax Act and the total income was determined as under :
Assessment year Total Income (Rs) 1991-92 50,76,537 1992-93 1,74,76,322 Penalty proceedings under section 271(1)(c) were initiated which culminated into levy of the impugned penalties which are the maximum leviable at the rate of 300% of the assessed tax.
5. The learned CIT(A) recorded a finding that it is a well-settled position of law that penalty under section 271(1)(c) cannot be imposed in a case where no return of income is filed unless such case is covered under Explanation 3 to section 271(1)(c). The learned CIT (A) also referred to certain judicial pronouncements to support this view. Penalties levied were, accordingly, deleted.
6. The learned standing counsel attending before us pointed out that it could never be the intention of the Legislature to keep outside the purview of section 271(1)(c) such assessees who have failed to furnish the returns of income. It is argued that in the present case, there is sufficient material and evidence to indicate that the assessee deliberately avoided filing of return of income for the two assessment years. The assessing officer issued notices on several occasions, but on some or the other pretexts, the assessees did not comply with such notices. Eventually, the assessing officer had no alternative except to complete the assessment under section 144. It is argued that in such circumstances, the assessee is guilty of concealment of income to the extent of the assessed income for both the assessment years and, therefore, the penalty is leviable. The learned standing counsel invited our attention to the provisions of section 144 of the Income Tax Act. He pointed out that under section 144, the assessing officer is authorized to frame the best judgment assessment, after taking into account all relevant material gathered by the assessing officer and after giving the assessee an opportunity of being heard. In the present case, the assessing officer allowed adequate opportunity to the assessee and framed the assessment on the basis of evidence and material available on record. It is contended that penalty under section 271(1)(c) is clearly leviable in such circumstances. The learned standing counsel also invited our attention to clause (c) of Explanation 4 to section 271(1)(c), which is reproduced below :
"Explanation 4.For the purposes of clause (iii) of this sub-section, the expression the amount of tax sought to be evaded
(c) in any other case, means the difference between the tax on the total income assessed and the tax that would have been chargeable had such total income been reduced by the amount of income in respect of which particulars have been concealed or inaccurate particulars have been furnished."
The learned standing counsel submitted that in the present case, the assessed income is clearly the income in respect of which particulars have been concealed by the assessee and, therefore, quantum of penalty is workable under clause (c). The learned standing counsel also relied on the grounds of appeal raised by the department, which have already been reproduced above.
7. We have given a very careful consideration to the submissions made on behalf of the department and have gone though the relevant provisions of law. At the outset, it may be mentioned that the learned CIT(A) has recorded a finding that in a case where the return of income has not been filed, penalty under the main section 271(1)(c) cannot be levied and such penalty can be levied only if Explanation 3 applies. It may be mentioned that the assessing officer, while levying penalty has not invoked Explanation 3. However, the learned CIT(A) also considered applicability of Explanation 3 and recorded a finding that even Explanation 3 is not applicable to this case because Explanation 3 is applicable only to an assessee who has not previously been assessed under the Income Tax Act whereas the assessee was an existing assessee and assessment had already been made, It is notable that Explanation 3 has been amended by the Finance Act, 2002 with effect from 1-4-2003 and accordingly for the assessment year 2003-04 and subsequent assessment years the Explanation has been made applicable in respect of the existing assessees. In any case, it is an admitted position that in the present case, Explanation3 is not applicable and if at all penalty under section 271(1)(c) is exigible, it may be levied only under the main section. The main section 271 (1)(c) can be invoked in two circumstances viz., (a) the assessee has concealed the particulars of his income or (b) the assessee has furnished inaccurate particulars of such income. Thus, before levying penalty, it must be established beyond any doubt that the assessees case falls under any one of the above-mentioned situations. Concealment of particulars of income or furnishing of inaccurate particulars of income envisages some voluntary or deliberate action on the part of the assessee. In the present case, the assessee did not furnish the return of income for the two assessment years. Whatever may be the reasons for the default on the part of the assessee in not furnishing the returns of income, in our view, the factum of concealment of particulars of income or furnishing inaccurate particulars of income is directly connected to the return of income filed by the assessee. If in such return of income, the assessee has concealed the particulars of income or has furnished inaccurate particulars of income, the provisions of section 271(1)(c) would be clearly attracted. Thus, there should be conscious action on the part of the assessee to conceal or to furnish inaccurate particulars in a return of income duly filed by him. If no return of income has been filed by the assessee at all, by no stretch of imagination can it be said that the assessee is guilty of concealment of or furnishing of inaccurate particulars of his income.
8. The learned CIT (A), in his order, has referred to three High Court judgments and in one of the grounds of appeal, it is claimed by the department that these cases have no relevance to the facts of the assessees case. Therefore, a reference may be made to these cases. In the case of Thoppil Kutti Eroor v. CIT (1958) 34 ITR 850 (Ker), the Kerala High Court held that it is impossible to say that if a person has failed to furnish any return at all, what he has done is to conceal the particulars of income or to deliberately furnish inaccurate particulars of such income within the meaning of section 38(1)(c) of the Cochin Income Tax Act, 1117. The provisions of section 38(1)(c) of the Cochin Income Tax Act are similar to the provisions of section 271(1)(c). In the case of S. Narayanappa & Bros. v. CIT (1961) 41 ITR 125 (Mys), it was held by the Mysore High Court that where the assessee fails to submit the return when called upon to do so by a notice under section 22(2) of the Indian Income Tax Act, 1922 and further failed to produce its books of account when called upon to do so under section 22(4), the Income Tax Officer is not competent to levy penalty section 28(1)(b). In such cases, the only penalty which may be imposed upon the assessee is under section 28(1)(a), only for not furnishing the return of income. Another case relied upon by the CIT(A) is Madras High Court decision in the case of S. Santhosa Nadar v. First Addl. ITO (1962) 46 ITR 411 (Mad). In this case, it was held that if no return is filed, it cannot be said that in such a case there has been concealment of the particulars of income or deliberate furnishing of inaccurate particulars and section 28(1)(c) of the Indian Income Tax Act, 1922 would not be applicable. Such cases would come only within the scope of section 28(1)(a). The legal position which emerges from the abovementioned judgments is clear that in a case where return of income is not filed, it cannot be said that the assessee has concealed particulars of income or furnished inaccurate particulars of income. Insertion of Explanation 3 in the Income Tax Act strengthens this view and the Explanation 3 has been brought on the Statute Book for the specific purpose of levying penalty under section 271 (1)(c) in cases where the assessee fails to furnish the return of income. However, initially the Explanation is applicable only to person who has not hitherto been assessed to Income Tax. Therefore, even the Explanation has been rightly held by the learned CIT (A) as not applicable to the assessee. The Legislature has taken remedial measure by amending the Explanation with effect from 1-4-2003. If the arguments of the learned standing counsel are accepted, the Explanation 3 would be rendered redundant. It is the cardinal principle of interpretation of Statute that no part of the Statute should be considered as redundant and no provisions of Statute can be just ignored. In this connection, a reference may be made to the following cases :
(i) CIT v. Distributors (Baroda) (P) Ltd. (1972) 83 ITR 377 (SC).
(ii) Smt. Tarulata Shyam v. CIT (1977) 108 ITR 345 (SC).
(iii) CIT v. Forbes Forbes Campbell & Co. Ltd. (1994) 206 ITR 495 (Bom).
Further, it is the well accepted principle of law that the provisions of law for levying penalty have to be strictly construed and even if there is a doubt, the view which is favourable to the assessee has to be adopted. After considering the entire facts and circumstances and the legal position, we have no hesitation in holding that in the present case penalty under section 271(1)(c) is not leviable for both the assessment years. Therefore, we see no reason to interfere with the orders of the learned CIT (A), which are confirmed.
9. In the result, the departmental appeals for both the assessment years stand dismissed.