Income Tax Appellate Tribunal - Mumbai
Lotus Learning (P.) Ltd. vs Dy Cit on 25 July, 2005
Equivalent citations: [2006]7SOT540(MUM)
ORDER
D.C. Agrawal, Accountant Member.
This is an appeal filed by the assessee against the confirmation of penalty under section 271(1)(c) for concealment for an addition of Rs. 1,73,126 in the total income. In the assessment order, the assessing officer had made the following additions :
"(i) P.F. Debited twice of Rs. 1,73,126.00
(ii) Training expenses of (in respect of payment to M/s. Surekha Decorators andM/s. Grumore Caterers) Rs. 3,00,000.00
(iii) Amount debited in the foreign travel expenses Rs. 8,69,120,00"
2. The first addition was about claim of deduction on account of debiting the PF amount twice. The facts were that a sum of Rs. 3.56 lakhs was claimed as payment towards Family Pension Scheme (hereinafter referred to as 'FPS'). The assessing officer called for the details, the assessee submitted to the assessing officer that by inadvertent mistake, the claim has been made twice. Actual claim is only Rs. 1,73,126 to which he accepted the addition. The second issue was about the addition out of training expenses debited in respect of M/s. Surekha Decorators and M/s. Grumore Caterers. The assessee could not prove the expenditure, it was claimed before the assessing officer that payment was through account payee cheque. The Commissioner (Appeals) confirmed this addition, as the assessee could not establish the genuineness of the expenditure. The third addition was about amount debited in the foreign travel expenses. The total claim under this head was to the extent of Rs. 22.07 lakhs. The scrutiny of the accounts indicated that a sum of Rs. 8.69 lakhs was claimed on the basis of estimated liability. According to the assessing officer, the expenditure had not crystallised before 31-3-1992. It was only a provision and not actual, The details thereof were mentioned in the penalty order passed by the assessing officer on 31-3-1995. It was mentioned by the assessing officer in the assessment order that he initiated penalty proceedings for all the three additions. The total amount of addition considered for the purpose of levy of penalty was Rs. 5,87,096 being Rs. 1,73,126 on account of FPS debited twice, Rs. 3.00 lakhs for unproved trading expenses and Rs. 1, 13,970 being excess claim of foreign travel expenses. Tax sought to be evaded including surcharge was Rs. 3,37,580 and hence a minimum penalty of Rs. 3,37,580 being 100 per cent of the tax sought to be evaded was levied vide order dated 29-8-1996.
3. In appeal, the Commissioner (Appeals) accepted the assessee's explanation about the sum of Rs. 3.00 lakhs and Rs. 1,13,970 as bona fide and cancelled the penalty. He, however, sustained the penalty on the sum of Rs, 1,76,126. While cancelling the penalty in respect of two amounts, the Commissioner (Appeals) held that payments to the parties viz., M/s. Surekha Decorators and M/s. Grumore Caterers were made through account payee cheques, payments were not doubted, similar payments were made in earlier years in similar way, these amounts were submitted before the Settlement Commission for taxation on the ground that due to misplacement of records arising out of labour unrest, claim could not be substantiated. The Settlement Commission accepted the offer and did not levy the penalty under section 271(1)(c) in respect of these incomes in earlier year. On the same ground, the assessee offered the sum of Rs. 3.00 lakhs in the assessment year 1992-93 with a request that penalty should not be levied. Following the decision of Hon'ble Settlement Commission, the Commissioner (Appeals) cancelled the penalty in respect of Rs. 3.00 lakhs. He also relied on the decision of Hon'ble Bombay High Court in CIT v. Kiran & Co. (1996) 217 ITR 326 (Bom) and (1988) 169 ITR 133 (Bom). In respect of foreign travel expenses, out of total addition of Rs. 8,69,120, the Commissioner (Appeals) sustained the addition of Rs. 1, 13,970 only, which was accepted by the assessee. During penalty proceedings before the Commissioner (Appeals), the said sum of Rs. 1,13,970 was offered for taxation in the assessment year 1993-94 by the assessee. Thus, the Commissioner (Appeals) inferred that assessee has not furnished inaccurate particulars in respect of this sum. However, in respect of the sum of Rs. 1,73,126, which was the addition for double deduction of FPS amount, the Commissioner (Appeals) was not convinced that it arose from inadvertent error committed by the assessee. Hence, he confirmed the penalty in respect of addition of Rs. 1,73,126. The department appealed before the Tribunal against cancellation of Rs. 3.00 lakhs and Rs. 1,13,970. While assessee filed an appeal against sustaining the penalty in respect of sum of Rs. 1,73,126. The appeal filed by the department was dismissed by the Tribunal in ITA No. 911 /M/98 vide its order dated 29-4-2005. The operating portion of the order is as under :-
"3. We have duly considered the rival contention. We find that penalty has been deleted by the learned Commissioner (Appeals) because addition qua foreign tour expenses has been retained marginally and major portion of expenses has been allowed to the assessee. Therefore, it shows that element of concealment was not available. Partial disallowance of expenses could be confirmed because of appreciation of facts, and not because of conduct of the assessee. Similarly for training expenses the learned Commissioner (Appeals) accepted the contention of the assessee that payment was made through account payee cheques. Nothing contrary was brought to our notice. Therefore, we do not see any good reason to interfere in the order of learned Commissioner (Appeals). Since on facts, we are satisfied that the assessee has not concealed or furnished inaccurate particulars of the income and learned Commissioner (Appeals) has rightly deleted the penalty, we do not deem it necessary to consider the legal proposition propounded by the learned counsel for assessee."
4. The present appeal relates to sustenance of penalty by the Commissioner (Appeals) for concealment in respect of addition of Rs. 1,73,126.
5. Before us, the learned counsel for the assessee submitted that :
"(i) assessing officer has not spelt out his satisfaction that the assessee has concealed income or furnished inaccurate particulars of income attracting levy of penalty under section 271(1)(c) before finalising the assessment proceedings. Reliance is placed on the following --
(a) CIT v. Ram Commercial Enterprises Ltd. (2000) 246 ITR 568 (Del)
(b) Diwan Enterprises v. CIT (2000) 246 ITR 571 (All.), and
(c) CIT v. Super Metal Re-rollers (P) Ltd. (2004) 265 ITR 82 (Del).
(ii) In the case of CITv. Ram Commercial Enterprises Ltd. (2000) 246 ITR 568 (Del) the ITAT cancelled the penalty holding that the assessment order did not record the satisfaction as warranted by section 271 for initiating penalty proceedings. Hon'ble High Court upheld the decision of the Tribunal and held as under :-
(1) The satisfaction as to the assessee having concealed the particulars of the income or furnished inaccurate particulars of such income is to be arrived at by the assessing officer during the course of any proceedings under the Act, which would mean that very jurisdiction to initiate the penalty proceedings is not conferred on the assessing authority by reference to clause (c) of sub-section (1) of section 271 of the Income Tax Act, 1961.
(2) A bare reading of the provisions of section 271 and the law laid down by the Hon'ble Supreme Court makes it clear that it is the assessing authority which has to form its own opinion and record its satisfaction before initiating the penalty proceedings. Merely because the penalty proceedings have been initiated, it cannot be assumed that such a satisfaction was arrived at in the absence of the same being spelt out by the -order of assessing authority.
(iii) Hon'ble High Court held - "The law is clear and explicit. Merely because this Court, while hearing the application, may be inclined to form an opinion that the material available on record could have enabled the initiation of penalty proceedings that cannot be a substitute for the requisite finding, which should have been recorded by the assessing authority in the order of assessment but has not been so recorded."
(iv) Following the above judgment of the Hon'ble Delhi High Court, the Hon'ble Allahabad High Court has laid down the said principle in Diwan Enterprises v. CIT(supra). This principle has also followed in CIT v. Super Metal Re-rollers (P.) Ltd. (supra).
(v) The appellant respectfully submits that the assessing officer has not recorded in his order as to his satisfaction as to the assessee having concealed the particulars of his income or furnished inaccurate particulars of such income, before initiation of penalty as required under the provisions of law. Therefore, in absence of such a recording, which is a sine qua non before initiation of penalty under consideration, the order levying penalty is liable to be quashed. The appellant, therefore, prays that the penalty proceedings be quashed."
6. The main crux of the arguments of the learned counsel for the assessee is that the assessing officer has not recorded his satisfaction about initiation of penalty in the assessment order. Therefore, the order is bad in law and should be quashed.
7. In addition to this, the learned counsel for the assessee submitted on merits that there was labour unrest, strike/lock out and hence entire staff had to be sacked. This fact has also been noted by the Settlement Commission while waiving penalty under section 271(1)(c) for the earlier assessment year. The accountant committed the mistake while presenting the account in horizontal form as required in the Companies Act. He added the figures of the last year as well as current year of the FPS payments and debited them into Profit and Loss account. Further, there was no intention to conceal the income or submit any false account as noted by the assessing officer, There were 15 branches and all the payments had to be compiled, accountant was inexperienced and the mistake had occurred. An soon as the assessing officer asked for details of FPS payments, we discovered the mistake and offered the same for taxation. Thus, relying on the decision in Hindustan Steel Ltd v. State Of Orissa (1972) 83 ITR 26 (SC), it was submitted that there is no case for levy of penalty.
8. Vide letter dated 13-4-2005, the learned DR counsel for the assessee sought to raise the following additional ground :
'That on the facts and in the circumstances of the case, the assessing officer has not spelt out his satisfaction that the appellant has concealed income or furnished inaccurate particulars of income attracting levy of penalty under section 271(1)(c) before finalising the assessment proceedings. The appellant submits that the levy of penalty is ab initio void in absence of spelling out such a satisfaction by the assessing officer. The appellant, therefore, prays that the penalty under section 271(1)(c) be deleted."
It was submitted that all the facts relating to this ground are already on record, no further facts are necessary to be culled out after investigation, the said ground be admitted.
9. Finally, the learned counsel for the assessee submitted that his explanation is bona fide and department has not proved it to be false. Therefore, by virtue of Explanation 1B of section 271(1)(c), no penalty is leviable. As Tribunal has confirmed the cancellation in respect of other amounts similarly added, there is no case for confirming the penalty in respect of this amount.
10. Against this, the learned DR submitted that the assessing officer has made the addition and separately initiated penalty proceedings for each addition. It is not the case that at the end of assessment order, he has initiated penalty without application of mind. Therefore, technical objection raised by the assessee is not sustainable. On merits, he supported the order of the Commissioner (Appeals) on the ground that the mistake was not inadvertent and assessee had filed inaccurate particulars with the return.
11. Since all the facts relating to additional ground are on the record, following the decision of Hon'ble Supreme Court in the case of National Thermal Power Co. Ltd. v. CIT (1998) 229 ITR 383 (SC), we admit the additional ground.
12. We have heard the rival submissions and considered the facts and materials on record. We are not convinced with the technical objection raised by the assessee by raising additional ground that the assessment is bad in law because assessing officer has not initiated penalty proceedings after taking conscious decision after satisfying himself that there is concealment of income. There is no doubt that assessment proceedings and penalty proceedings are independent. This is evident from the fact that law permits passing of two orders one for assessment and the other for penalty. Separate channel for appeal has been provided for two types of orders. Hence, what is expected in a penalty order cannot be expected to be done in the assessment order. In the assessment order, the assessing officer has only to comply with the requirement was laid down by the decisions of Hon'ble Delhi High Court in Diwan Enterprises v. CIT (2000) 246 ITR 571 (Del), CIT v. Ram Commercial Enterprises Ltd. (2000) 246 ITR 568 (Del) and CIT v. Super Metal Re-rollers (P) Ltd. (2004) 265 ITR 82 (Del). The requirement is that he must record a satisfaction about concealment of income for initiating penalty. This satisfaction is only prima facie. There is no requirement that concealment has to be proved in the assessment order. What is to be seen is whether the assessing officer has applied his mind before initiating penalty or that he has routinely initiated the penalty after making several additions in the assessment order and not satisfying as to in respect of which addition, there is an element of concealment of particulars of income or of filing of inaccurate particulars. Where there are certain disallowances for want of evidence or there are certain claims, the assessee was not able to establish and there may be other additions, where there may not be any charge of filing inaccurate particulars of income or concealing particulars of income, it becomes very difficult to know as to, in respect of which item the assessing officer has applied his mind before initiating penalty. In the present case, things are entirely different. After every addition, the assessing officer has mentioned that penalty is initiated on this account. In other words, while making addition either on account of double claim of FPS account or unexplained payment to distributors or unexplained claim in foreign travel expenses, the assessing officer was specific after each addition and he initiated penalty proceedings thereafter. It was not a case where assessing officer had without application of mind initiated penalty at the end of the assessment order. Therefore, we are unable to accept the contention of the learned counsel for the assessee that there was no satisfaction of the assessing officer before initiating penalty proceedings. We inter from the conduct of the assessing officer apparent from the manner in which the assessment order has been drafted wherein the facturn of initiation of penalty proceedings has been mentioned after every addition that lie has applied his mind and he was satisfied about concealment of income and only thereafter penalty proceedings were initiated. There is another point to be noted is that he has not left it to the office staff to initiated penalty proceedings by simply mentioning "to initiate penalty proceedings". He has mentioned penalty proceedings "initiated" after each amount of addition. We are satisfied that assessing officer has followed the basic requirement of application of mind before initiating penalty proceedings. Accordingly, this ground of assessee is rejected.
13. Regarding merits, we are of the view that assessee has a reasonable case. It is a fact accepted by the Hon'ble Settlement Commission that there was a labour unrest in the business of the assessee. The staff was sacked. The Commissioner (Appeals) has also accepted this fact. It is reasonable to believe that there would be disruption in sorting out papers. Further, there was no discovery made by the assessing officer about concealment of income. When asked for the details about the FPS payments, was discovered by the assessee and he himself surrendered the double claim. We also find that Explanation 1B to section 271(1)(c) is applicable on the facts of the present case for levy of penalty under section 271(1)(c). Under Explanation 1B, there are three requirements to be satisfied simultaneously. They are (1) the assessee offers an Explanation, which was not substantiated (2) he fails to prove that such Explanation is bona fide (3) all the facts relating to the same and material to the computation of total income has been disclosed by him. Here, the assessee has offered an Explanation, all the facts relating to computation of income are on record and in fact, they were disclosed by the assessee and the Explanation of the assessee is bona fide in the sense that labour unrest and disruption has been accepted by the Settlement Commission and he himself offered the sum for taxation, when mistake was discovered by them. We also find that the Tribunal in assessee's own case confirmed the cancellation of penalty in respect of other two amounts made on similar grounds. Thus, we do not find any justification in confirming the penalty. Hence, the order of Commissioner (Appeals) is reversed and penalty for concealment in respect of the sum of Rs. 1,73,126 is hereby cancelled.
14. In the result, the appeal of the assessee is allowed.