Income Tax Appellate Tribunal - Indore
Assistant Commissioner Of Income-Tax vs Abril Pharmaceuticals (P) Ltd. (Abril ... on 27 August, 1998
Equivalent citations: [1999]70ITD206(INDORE)
ORDER
Satish Chandra, A.M.
1. The appeal by the Revenue and cross-objection by the assessee arise out of the order dt. 8th March, 1994, of the CIT(A)-II, Indore, whereby he cancelled the penalty of Rs. 5,00,000 imposed by the AO under s. 271(1)(c) of the Act for concealment of penalty (siz-income) and/or furnishing of inaccurate particulars thereof for the asst. yr. 1990-91.
2. Briefly stated, the assessee company filed return for the asst. yr. 1990-91 declaring loss of Rs. 10,69,191 on 31st December, 1990. The return was processed under s. 143(1)(a) and intimation was issued on 25th March, 1991, determining the loss as shown. Consequently on 21st June, 1991, notice under s. 143(2) was issued and the assessment was framed ex parte under s. 144 on 31st March, 1992, on 'nil' income subject to allowance of depreciation with the observation that additions of Rs. 5,78,937 on account of unexplained cash credit and disallowance of interest of Rs. 62,557 shall be included in 'nil' income in respect of which penalty proceedings under s. 271(1)(c) were also initiated.
3. In response to show cause notice, no compliance was made. The AO, therefore, imposed the impugned penalty. Aggrieved thereby, the assessee carried the matter in appeal.
4. Before the CIT(A), it was contended that penalty proceedings are separate than assessment proceedings and merits of each addition should be considered on the basis of evidence that may be filed in the course of penalty proceedings. Copy of account of M/s Pharma Distributors in the books of the assessee-company was filed. This showed the dates on which amounts were advanced by them to the assessee on which the assessee paid interest to them. It was argued that an amount of Rs. 94,057 was paid towards interest. It was pointed out that no partner of the said concern is related to any of the Directors of the assessee-company. As regards the next loans taken during the year it was submitted that most of them are old creditors and are directors or their relatives, who are income-tax payers and whose identity is established. It was argued that the assessment was made ex parte and, therefore, all these facts could not be appreciated and the additions were made reducing the returned loss to 'nil'. It was argued that since no tax is payable, no penalty is attracted. To support the above proposition, reference was made to the decision in CIT vs. Prithipal Singh & Co. (1990) 183 ITR 69 (P&H), Modi Cement Ltd. vs. Union of India & Ors. (1992) 193 ITR 91 (Del) and Indo-Gulf Fertilizers and Chemicals Corporation Ltd. vs. Union of India & Anr. (1992) 195 ITR 485 (All). It was urged that the levy of penalty is not justified. The submissions of the assessee found favour with the CIT(A). He did not go into the merits of the above two additions. However, he held that the impugned penalty is not legally justified. He observed that there is no positive income on completion of assessment. The provisions of levy of additional tax under s. 143(1A) and levy of penalty under s. 271(1)(c) are at par and various Courts have already held under both the provisions that no additional tax/penalty can be levied unless there was positive income. He further observed that while the statute has been amended for the purpose of levy of additional tax, no such amendment has been brought so far regarding concealment penalty and for this reason the views of the Court with reference to penalty still holds good. Following the decision of the Tribunal in S.T.I. Byplus Tubing India Ltd. vs. CIT (ITA No. 266/Ind/92) for the asst. yr. 1988-89, the CIT(A) ultimately held that no penalty under s. 271(1)(c) can be levied in a case where there is no positive income. Consequently, he cancelled the impugned penalty. Dissatisfied, the Revenue is in appeal before us.
5. Placing heavy reliance on Expln. 4(a) to s. 271(1)(c), Shri Brijesh Gupta, the learned Departmental Representative argued that this Explanation applies to loss cases and, therefore, the view of the CIT(A) is not legally tenable. Shri M. Mehta, the learned counsel for the assessee, on the other hand, submitted that the Expln. 4(a) will apply in a situation where loss is converted into positive income and not where the loss is reduced. It was pointed out by the learned counsel for the assessee that Expln. 4(a) was brought to statute book to overcome the difficulty created by the decision of Madhya Pradesh High Court in CIT vs. Jaora Oil Mill (1981) 129 ITR 423 (MP). In that case, the assessee had filed return declaring loss of Rs. 2 lacs. The AO had completed the assessment ex parte on total income of Rs. 50,000. It was held by the Revenue authorities that the income concealed was Rs. 2,50,000. When the matter went before the Tribunal, the Tribunal held that for the purposes of penalty under s. 271(1)(c) the income concealed was the income actually determined i.e. Rs. 50,000 and reduced the penalty to Rs. 50,000 from Rs. 2,50,000. At the instance of the Revenue, the Tribunal granted reference and referred the following question for the opinion of the Hon'ble High Court.
"Whether, on the facts and in the circumstances of the case, the income concealed was Rs. 2,50,000 or Rs. 50,000 and whether the Tribunal was justified in law in reducing the quantum of penalty from Rs. 2,50,000 to Rs. 50,000 ?"
6. The Hon'ble High Court found that the crucial words in cl. (iii) of s. 271(1) are "the amount of the income". According to the Court "income" even in its broadest connotation refers to return "coming in" and is conceptually contradictory to "loss". The Court went on to observe further that s. 4 of the Act taxes income and not loss. The contention that a loss can be used to set off income in a particular year and can be carried forward under certain circumstances to the following assessment years will not by any logic convert it into an income. The Hon'ble Court finally held that looking at the issue from this angle, it is clear that the income which was determined was Rs. 50,000 and it was this income which was concealed by the assessee. The Tribunal was, therefore, right in holding that the income concealed was Rs. 50,000 and not Rs. 2,50,000 and was justified in reducing the quantum of penalty from Rs. 2,50,000 to Rs. 50,000.
7. Shri Mehta further argued that sub-s. (1A)(a)(ii) of s. 143 provides for levy of additional tax where as a result of adjustment the loss declared by the assessee in the return is reduced or is converted into income. Inviting our attention to Expln. 4(a) to s. 271(1)(c), Shri Mehta pointed out that the above expression which occurs in cl. (1A)(a)(ii) of s. 143 has not been used in Expln. 4(a). Shri Mehta further argued that in the case of CIT vs. Prithipal Singh & Co. (supra) High Court interpreted that the word 'income' in cl. (c) and (iii) of s. 271(1) of the IT Act, 1961, refers to positive income only. In that case, the loss of Rs. 3,35,830 returned by the assessee was finally assessed at a loss figure of Rs. 34,164 and Their Lordships held that only the loss returned by the assessee had been reduced and it could not be said that the assessee had suppressed any income which would have attracted liability to tax. Sec. 271(1)(c) was not applicable and penalty could not be imposed. Shri Mehta further argued that the onus of proving that the addition represented concealed income lay on the AO, which onus has not been discharged by him. He pointed out that the assessee is running into losses year after year and non-filing of appeal against the assessment order may be looked into in this perspective and no adverse inference should be drawn.
8. We have considered the rival submissions. We have perused the orders of the authorities below and the documents made available to us by Shri Mehta, the learned counsel for the assessee. It would be observed that assessment was framed ex parte and while assessing the income at 'nil' as against returned loss of Rs. 10,69,191, the AO took into consideration the fresh deposits in the names of certain creditors aggregating Rs. 5,78,937 in respect of which even confirmatory letters had not been filed and disallowance of Rs. 62,557 out of interest account on ground of excessive claim. The AO eventually imposed the impugned penalty with reference to the above two amounts. Perusal of the penalty order would go to reveal that he has passed the order on 28th September, 1992, on which date itself the assessee had filed written explanation (copy at pp 1 to 2A of the assessee's compilation) which apparently has not been considered by the AO in the penalty order. Even assuming that by the time the assessee's explanation reached the AO, he had already passed the order, it is not in dispute that before the CIT(A) detailed explanation dt. 24th February, 1993 (copy at pp 3 to 7 of the assessee's paper book) was furnished. It is by now well established that the explanation can be offered by the assessee before the appellate authorities if explanation has not been offered before the AO. The fact remains that the AO imposed the impugned penalty solely on the basis of his findings recorded in ex parte assessment order. It has been held by a number or Courts that penalty proceedings are distinct from assessment proceedings and one is independent of the other. Any addition made in assessment proceedings may not by itself justify imposition of penalty.
9. It would be seen from the explanation furnished by the assessee during penalty proceedings that along with the explanation, the assessee had also filed confirmations from the creditors and had even furnished GIR numbers/permanent account numbers of most of them. Complete details of loan account of M/s Pharma Distributors, Indore had also been filed elaborating the justification for payment of interest to them. It was also stated in the reply, dt. 28th September, 1992, filed before the AO that the company is running heavy losses for the last several years. It was for this reason that no appeal was filed against the above additions. Therefore, even if the addition of the above two amounts has been made in assessment and no further appeal was filed by the assessee, on the basis of material/evidence brought on record by the assessee during the course of penalty proceedings, it cannot be held that there was either concealment of income by the assessee or the assessee was guilty of furnishing inaccurate particulars of income merely because the addition was not disputed in appeal.
10. In a recent judgment in CIT vs. Ganesh Prasad Badri Prasad & Co. (1998) 231 ITR 951 (MP), Their Lordships have held, in the context of applicability of Expln. 1 to s. 271 inserted by the amending Act of 1975 w.e.f. 1st April, 1976 that Expln. 1 to s. 271 has cast a duty on the AO that he should first record reasons that there has been concealment of income and then the explanation is to be sought. The initial burden is on the Department to prima facie record that there was concealment and thereafter the explanation is to be sought. It may be stated that the Explanation inserted in 1964 was omitted and 4 new Explanation (1 to 4) were introduced w.e.f. 1st April, 1976. The ratio decidendi of the decision in Ganesh Prasad Badri Prasad & Co. (supra) will, therefore, apply mutatis mutandis to Expln. 4 as well which was brought on the statute book w.e.f. 1st April, 1976. What is contemplated in Expln. 4(a) is that where the amount of concealed income exceeds the total income assessed, the tax sought to be evaded would be the tax chargeable on the amount of income concealed. True, even in a case where the assessee has returned loss, the concealment penalty can be imposed on the basis of tax sought to be evaded on the amount of concealed income. But before proceeding to levy concealment penalty by invoking Expln. 4(a), there should be positive finding of concealment of income by the Revenue which in the case before us is lacking. The burden which lay on the AO to record the finding that there was concealment by bringing on record relevant material during penalty proceedings has not been discharged. We, therefore, reject the contention of Shri Brijesh Gupta, the learned Departmental Representative, that Expln. 4(a) is applicable to the facts of the assessee's case.
11. It is an admitted position that loss of Rs. 10,69,191 has been reduced to 'nil'. In other words, no taxable income was computed. In a case where the declared loss was substantially reduced on assessment, the question of levy of concealment penalty in the context of Explns. 3 & 4 to s. 271(1) came up for consideration before Punjab & Haryana High Court in Prithipal Singh & Co. (supra) wherein Their Lordships held as under :
"The word 'income' in cls. (c) and (iii) of s. 271(1) of the IT Act, 1961, refers to positive income only. Evasion of tax is the sine qua non for imposition of penalty, cl. (iii) of s. 271(1) deals with cases referred to in cl. (c) under sub-s. (1) of s. 271 of the Act and it clearly provides therein that the penalty or further sum payable by a person would be in addition to any tax payable by him. Explns. 3 and 4 annexed to the said provision of law also presuppose taxable income with regard to the assessment year in question. If there is no taxable income or tax assessed for payment during a particular year, the question of evasion and consequently penalty does not arise."
12. In CIT vs. C. R. Niranjan (1991) 187 ITR 280 (Mad); Their Lordships held, thus :
"Clause (iii) of s. 271(1) of the IT Act, 1961, uses the words "amount of income". The word 'Income' has been defined under s. 2(24) of the Act. It is an inclusive definition and it takes into its fold not only the real income, but also such items which are not incomes in the natural sense of the word. In s. 4 which is the charging section it is nowhere stated that income includes loss. It is also significant to note that, wherever it is necessary to consider loss as income, the Act specifically states so, as can be seen from Expln. 2 to s. 64. On the other hand, in s. 271(1)(c) and 271(1)(iii), it is not stated anywhere that income includes loss."
13. It may not be out of place to mention that the sole ground on which the decision of the CIT(A) is challenged before us is that the decision of the Tribunal in STI Byplus Tube India Ltd. vs. CIT (supra) has not been accepted by the Department and Department's R.A. arising out of ITA No. 266/Ind/1992 is pending. We are afraid, the decision of the CIT(A) cannot be faulted merely because he has followed the decision of the Indore Bench of the Tribunal, which he had to do for the sake of judicial propriety. We are reminded of the observations of the Hon'ble Supreme Court in the case of State of West Bengal vs. Hemant Kumar, AIR 1966 SC 1061, wherein Their Lordships observed that a wrong decision by a Court having jurisdiction is as much binding between the parties as a right one and may be superseded only by appeal to higher Tribunals or other procedures like review which the law provides.
14. We, therefore, subscribe to the view of CIT(A) that the impugned penalty is not legally imposable and add that even on merits, on the facts and in the circumstances of the assessee's case, the impugned penalty is not exigible at all.
15. In the result, the appeal stands dismissed.
16. In assessee's cross-objection No. 79/Ind/1994, it has been stated that as per the evidence filed during the course of assessment and penalty proceedings, the payment of interest of Rs. 62,577 was genuine and was allowable as business expenditure. The disallowance of this expenditure by itself cannot be the basis of concealment penalty. It has also been stated therein that as per the evidence filed during the course of assessment and appellate proceedings, the genuineness of the loan creditors of Rs. 5,78,937 were proved. Some of them were old creditors. Levy of penalty with reference to the said sum is not justified.
17. In Revenue's appeal, we have already taken a view that the concealment penalty is not exigible with reference to the aforesaid two items of disallowance/addition. In this view of the matter, the assessee succeeds in its cross-objections.