Income Tax Appellate Tribunal - Pune
Thomas Garbarek, Pune vs Assessee
IN THE INCOME TAX APPELLATE TRIBUNAL
Pune Bench "A" , Pune
Before Shri I.C. Sudhir, Judicial Member
and D.Karunakara Rao, Accountant Member
Sr.No. ITA NO. Asstt.Year Appellant Vs. Respondent
1. 421/PN/2008 2004-05 Thomas Garbarek Vs. DCIT, Cir.10,
C/o. Daimler Chrysler Akurdi, Pune
India
Pvt. Ltd., Sector 15-
A, Chikhali Village,
Pimpri,
Pune 18
PAN AGUPG4681P
2. 422/PN/2008 2004-05 Antonio Faria, Vs. -do-
C/o Daimler Chrysler
India Pvt. Ltd.
Sector 15-A, Chikhali
Village, Pimpri,
Pune 18
PAN AAHPF2025M
3. 424/PN/2008 2004-05 Berthold Schimmer, Vs. -do-
C/o Daimler Chrysler
India Pvt. Ltd.
Sector 15-A, Chikhali
Village, Pimpri,
Pune 18
PAN AUYPS6287R
4. 425/PN/2008 2004-05 Bernhard Appeltauer Vs. -do-
C/o Daimler Chrysler
India Pvt. Ltd.
Sector 15-A, Chikhali
Village, Pimpri,
Pune 18
PAN :AEMPA1593G
5. 426/PN/2008 2004-05 Dieter Heyl Vs. -do-
C/o Daimler Chrysler
India Pvt. Ltd.
Sector 15-A, Chikhali
Village, Pimpri,
Pune 18
PAN: ABHPH6385D
6. 423/PN/2008 2004-05 Hubert Katzenmeir Vs. -do-
C/o Daimler Chrysler
India Pvt. Ltd.
Sector 15-A, Chikhali
Village, Pimpri,
Pune 18
PAN:AGXPK5105B
7. 437/PN/2008 2004-05 Klaus-Peter Arnold, Vs. -do-
2 ITA . Ns 421 to 426, 437 t 441
& 497/PN/08
Klaus Moermann etc., A.Y. 2004-05
Page of 20
C/o DaimlerChrysler
India Pvt. Ltd.
Sector 15-A, Chikhali
Village, Pimpri,
Pune 18
PAN:AFNPA9977N
8. 438/PN/2008 2004-05 Klaus Moermann Vs. -do-
C/o Daimler Chrysler
India Pvt. Ltd.
Sector 15-A, Chikhali
Village, Pimpri,
Pune 18
PAN :AHAPM1650P
9. 441/PN/2008 2004-05 Alexander Reuss Vs. -do-
C/o DaimlerChrysler
India Pvt. Ltd.
Sector 15-A, Chikhali
Village, Pimpri,
Pune 18
PAN:AGBPR3838E
10. 497/PN/2008 2004-05 Lino Alberto Marques, Vs. -do-
C/o DaimlerChrysler
India Pvt. Ltd.
Sector 15-A, Chikhali
Village, Pimpri,
Pune 18
PAN :AGZPM7598N
Appellant by : S/Shri Pramod Achnuthan & Rajendra Agiwal
Respondent by : S/Shri Hareshwar Sharma &S.K. Ambastha
Date of hearing :07.12.11
Date of Pronouncement: 30.12.11
ORDER
Per I.C. Sudhir, JM
The above appeals have been remanded to the Tribunal by the Hon'ble jurisdictional High Court for reconsideration of the issue of levy of penalty u/s.271(1)(c ) against the appellant employees in view of the decision of Hon'ble Supreme Court in the case of U.O.I Vs. Dharmendra Textiles Processor (2008), 166 Taxman 65 (SC.): 295 ITR 244 (SC). In all these appeals, the assessees have questioned the first appellate order on several grounds against the action of ld.
CIT(A) in upholding of levy of penalty u/s. 271(1) (c ) levied by the A.O. 3 ITA . Ns 421 to 426, 437 t 441 & 497/PN/08 Klaus Moermann etc., A.Y. 2004-05 Page of 20
2. At the outset of hearing, the Ld. A.R. pointed out that the issue raised is fully covered by the decision of Pune Bench of the Tribunal in the case of Hans Christian Gaas Vs. DCIT, ITA Nos. 1583/PN/2008 and 505 to 509/PN/2009 (A.Ys. 2004-05, 2000-01 to 2005-06), order dated 26.5.2010 upheld by the Hon'ble jurisdictional Bombay High Court v ide its judgement dated 22.6.11 in ITA No. 2209 of 2010 and other. The ld. A.R submitted that the decision in the case of Hans Christian Gaas has been also followed in the case of ACIT Vs. Rolf Weinman & Others, ITA Nos.
662/PN/2010 & Others (A.Y. 2000-01 to 2003-04), order dated 30th September 2010. The Ld. A.R. also mentioned that the present appeals are relating to the A.Y. 2004-05 and in case of the A.Ys. 2001-02 and 2003-04, the Ld CIT(A) vide its orders dated 31st December 2009 and 26th February 2010, has deleted the penalty by accepting the bonafide facts and full disclosure of material facts by the assessees.
The said first appellate order has also been upheld by the Tribunal vide its order dated 30th September 2010 in ITA Nos. 649/PN/2010 & Others (A.Ys. 2000-01 to 2003-04). Copies of these orders have been filed on behalf of the assessee. The Ld. A.R. submitted further that these appeals are relating to the A.Y. 2004-05, and on earlier occasion the Tribunal respectfully following the decision of Hon'ble Supreme Court in the case of Dilip N.Shroff Vs. JCIT, 291 ITR 519(SC) had deleted the penalty vide its order dated 30th April 2008, copy furnished. The revenue had preferred appeal u/s 260A against that order of the Tribunal before Hon'ble Bombay High Court and the Hon'ble Bombay High Court keeping in mind the LATER decision of Hon'ble Supreme Court explaining the penalty provision in the case of Dharmendra Textiles 306 ITR 277 (SC) has vide its order dated 1st December 2009 has remanded the matter back to the Tribunal for reconsideration in pursuant to the decision of the Hon'ble Supreme Court in the case of Dharmendra Textiles (Supra).
Accordingly, these appeals have been fixed before the Tribunal for the hearing.
3. The Ld. A.R. reiterated the facts of the case and submissions made before the authorities below AND pointed out that the Pune Bench of the Tribunal has dealt 4 ITA . Ns 421 to 426, 437 t 441 & 497/PN/08 Klaus Moermann etc., A.Y. 2004-05 Page of 20 with an identical issue in detail in the case of Hans Christian Gaas v/s. DCIT(Supra) discussing several decisions of the Hon'ble Supreme Court including the decision in the case of Dharmendra Textiles Processors (Supra).
4. The Ld. D.R., on the other hand, tried to justify the orders of the authorities below. He submitted that there is no involvement of Section 147 proceedings in the present case. There was no denial of the fact that the value of the perquisite received by the assessee in the form of payment of Indian taxes in respect of the assessees' salary income was not disclosed by the assesseeS in the original return of income. He submitted that admittedly before issuance of questionnaire by the A.O on 1.9.2005 whereby the assessees were specifically asked to inform about any income arising out of the employer company of India or any other company non-
communication was made by the assessees to the Department regarding any under reporting of income in the returns filed by them and regarding their intention to file a revised return after including the value of the tax perquisite received from their employer. It was only after having been confronted with the question raised by the A.O regarding earning of income from the employer company or from any other company, the assessees realized that it was no more possible to hide their income.
The facts of the case clearly establish a direct nexus between the query raised by the A.O and filing of revised return by the assessee. He placed reliance on the following decisions :
1) Mahavir Metal Works Vs. CIT, 92 ITR 513 (Pun. & Har.)
2) CIT Vs. Haji P. Mohammed132 ITR 613 (Ker.)
3) Ramachandra D. Thakur (HUF) Vs. ITO, 61 ITD 279 (Bom)
4) Badri Prasad Om Prakash Vs. CIT, 163 ITR 440 (Raj.)
5) K. Mahim Vs. CIT, 232 ITR 115 (Ker.)
6) Ravi & Co. Vs. ACIT,271 ITR 286 (Mad.
7) Prempal Gandhi Vs. CIT, 231 CTR 100 (Pun & Har.)
5. In rejoinder, the Ld. A.R. also placed reliance on the following decisions :
5 ITA . Ns 421 to 426, 437 t 441 & 497/PN/08 Klaus Moermann etc., A.Y. 2004-05 Page of 20
1) T. Ashok Pai vs. CIT 292 ITR 011 (SC)
2) CIT Vs. Manibhai & Bros.209 CTR 46 (Guj.)
6. We have considered the above submissions and have gone through the orders of the authorities below, material available on record and the decisions relied upon by the parties. The relevant facts as noted by the Tribunal in its para No. 3 of its earlier order dated 30th April 2008 are being reproduced hereunder :
"3. The relevant material facts are like this. The appellants before us are employees of Daimler Chrysler AG (DCAG, in short), a German company, and were, at the relevant point of time, under secondment to Daimler Chrysler India Pvt. Ltd., Pune (DCI, in short), on assignment basis. These appellants were thus effectively in dual employment of DCAG as well as DCI. In consideration of the services so rendered by the assessee, they received remuneration from two sources - firstly, from DCAG; and - secondly, from DCI. As far as the salary received from DCI was concerned, the applicable taxes due thereon were duly deducted by the employer and deposited with the Government Treasury. However, so far salary received from DCAG was concerned, it was to be paid to the appellants net of Indian taxes in other words, the Indian tax liability in respect of DCAG salary was to be borne by the DCAG. To discharge this obligation, the DCAG computed Indian tax liability in respect of salary paid to the appellants and paid over the amount so computed directly to the appellants - for being deposited in the Government Treasury. However, while doing so, the employer i.e. DCAG did not take into account the grossing up of the tax liability in terms of the provisions of Section 195 of the Act which requires that where the agreement or arrangement is that the tax chargeable on the income is to be borne by the person by whom the income is payable, then, for the purpose of deduction of tax at source, such income shall be increased to such amount as would, after deduction of tax thereon at the rates in force for the financial year in which the income is payable, be equal to the net amount payable under agreement or arrangement. The amount received by the appellants from DCAG for discharging the tax liability, which had the character of a perquisite by way of tax free salary from DCAG, was required to be included in the income of the appellants. The perquisite of tax free salary received by the assessee was thus not taken into account by DCAG. In the income tax return originally filed by the appellants, the appellants did not offer to tax this perquisite of tax free salary. To this extent there was a failure on the 6 ITA . Ns 421 to 426, 437 t 441 & 497/PN/08 Klaus Moermann etc., A.Y. 2004-05 Page of 20 part of the employee. The cases of the appellants were selected for scrutiny assessment and, immediately after scrutiny notice was served to the assessee, the assessee revised the income tax return and recomputed his tax liability after grossing up tax under section 195 A of the Act. While the income so received was accepted by the Assessing Officer, penalty proceedings were also initiated for non-disclosure of the fact of tax-free employment at the time of filing original tax return, and for not grossing up the tax liability under section 195A of the Act."
7. The A.O. levied the penalty on the basis that the conduct of the assessees' was not above board and their disclosure of correct details at the time of filing of original return was mallafide. The Ld CIT(A) has upheld the same. With this further observation that assessees' claim that penalty is not leviable in their case because there was no "conscious concealment" by them is having no force. He observed that the mens rea of a person is reflected by his conduct . The Ld CIT(A) has upheld the penalty mainly on the basis that the assessees' act of offering the undisclosed income was triggered by the specific querry raised by the A.O, thus it was difficult to accept that the revised return was filed by the assessee voluntarily and suo-motto. The submission of the Ld. A.R. before us also remained that in early 2005, there was change in DCAG's Indian Tax Advisor. New Tax Advisor (M/s.
S.R. Batliboi and Co.) while collecting the information for preparation of income tax return of the expatriates for A.Y. 2005-06 discovered that in respect of the expatriates deputed to India, out of the components of their overseas compensation are not completely reported in their Indian Income Tax returns for certain A.Ys.
Therefore, a decision was taken by DAG in July 2005 to undertake an analysis of the inadvertently unreported/disputed salary income for all the A.Ys. from A.Y. 1999- 2000 to A.Y. 2005-06, in respect of its Expatriates deputed to India. DAG also decided to differ the filing of the returns of income of the expatriates for A.Y. 2005- 06 till the non-reporting for all the past years was quantified. Pursuant to the aforesaid analysis the DCAG voluntarily declared the fact of the inadvertent non-
reporting of disputed income to the Chief Commissioner of Income Tax (CCIT), 7 ITA . Ns 421 to 426, 437 t 441 & 497/PN/08 Klaus Moermann etc., A.Y. 2004-05 Page of 20 Pune vide letter dated 22nd December 2005. This letter was filed with the CCIT's office on 27th December 2005 after a personal meeting with the CCIT on 27th December 2005 where the CCIT verbally assured that no penalty proceedings would be initiated against DCAG or any of the expatriates. The further submission of the Ld A.R remained that the said meeting with CCIT was followed by meetings with the Commissioner of Income Tax-I (CIT -I) (TDS Wing) and Commissioner of Income Tax -V(CIT -V) (i.e. the Commissioner-In-charge of assessments for the expatriates). The further submission of the Ld. A.R. remained that DCAG voluntarily and suo motto deposited on 27th March 2006 the incremental tax liability for all the relevant years starting from A.Y. 1999-2000 after considering all the taxable salary components on a conservative basis by way of tax deducted at source(TDS) along with interest u/s. 201(1A) as per the provisions of the Income Tax Act, 1961 for all the relevant A.Ys. The said fact was communicated to CCIT on the 9th May 2006 with a copy to CIT-V on 22nd May 2006. Based on these developments, the expatriates voluntarily disclosed and filed revised returns of income on 31st March 2006 for A.Y. 2004-05 to the A.O disclosing the salary income (including inadvertently un-reported salary income) from DCAG along with Form 16 and Form 12 BA issued by DCAG in respect of tax deducted at source by DCAG.
8. The further submission of the ld AR remained that while the above developments were on going, the A.O had issued notices of assessment u/s. 143(2) to certain expatriates of DCAG for A.Y. 2004-05 based on Computer Assisted Scrutiny System (CASS). The first notice in this regard was issued on 6th August 2005 and thereafter a standard questionnaire was issued on 1st September 2005.
The A.O completed the assessment proceedings by accepting the total income reported in the revised return/computation of income (including inadvertently reported salary components) and issued an assessment order u/s. 143(3) dated 21st August 2006. The A.O then initiated penalty proceedings u/s. 271(1)(c ) of the Act and issued penalty orders dated 26th March 2007 levying penalty on the ground that 8 ITA . Ns 421 to 426, 437 t 441 & 497/PN/08 Klaus Moermann etc., A.Y. 2004-05 Page of 20 the disclosure by the expatriates of the un-reported/disputed income was not voluntary but was triggered by notices issued u/s. 142(1) in August and September 2005 for A.Y. 2004-05 to the expatriates.
9. In the first round, the Tribunal has given relief by deleting the penalty in question on the basis of decision of Hon'ble Supreme Court in the case of Dilip & Shroff Vs. JCIT, 291 ITR 519 (SC) that there was no conscious concealment of particulars of income or furnishing inaccurate particulars of income by the expatriates and on the basis that expatriates had relied upon the interpretation of Indian Tax Laws received from the expatriates' employer and earlier consultants/advisors of the expatriates' employer supporting the claim of the expatriates that bonafide mistake was committed by them and the same cannot be visited by penal consequences. The Hon'ble Bombay High Court in all the 10 cases before us in second rounds in the appeals preferred u/s. 260A before it by the revenue against earlier order dated 30th April 2008 of the Tribunal held that the Tribunal has passed the order ignoring the ratio laid down by Hon'ble Supreme Court (Division Bench) in the case of Dharmendra Textile Processors (Supra). The matter is accordingly remanded by Hon'ble High Court to the file of the Tribunal for reconsideration of the issue in view of the decision of Hon'ble Supreme Court in the case of Dharmendra Textile Processors (Supra).
10. Meanwhile, the aforesaid judgment of Division Bench of the Hon'ble Supreme Court in the case of Dharmendra Textilewas referred to a larger Bench. The larger Bench of the Hon'ble Supreme Court has been pleased to pass an order on 29th September 2008 (306 ITR 277) confirming the view of the Division Bench that willfull concealment or mensrea is not an essential ingredient for levy of penalty.
11. We find that the Pune Bench of the Tribunal in the case of Hans Christian Gaas Vs. DCIT (Supra) has occasion to decide an identical issue in view of the 9 ITA . Ns 421 to 426, 437 t 441 & 497/PN/08 Klaus Moermann etc., A.Y. 2004-05 Page of 20 different decisions of Hon'ble Supreme Court including the decision of Union of India Vs. Dharmendra Textile Processors and Others (Supra). For a ready reference, para Nos. 9 to 12 are being reproduced hereunder :
"9. Considering the above facts and circumstances in totality, we find that the issue as to whether there was concealment of particulars of income on the part of the assessee in not offering tax on the reimbursement towards rationalization as a taxable perquisite to attract penalty under section 271(1)(c ) depends on the acceptability of the explanation of the assessee that the mistake in this regard was inadvertent due to his ignorance of Indian income-tax Law, hence there was bonafide reason for the same. Explanation 1 to section 271(1)© states that where in respect of any facts material to the computation of total income of any person under this Act, such person fails to offer an explanation or offers an explanation which is found by the AO or the Commissioner(Appeals) or the Commissioner to be false, then the amount added or disallowed in computing the total income of such person as a result thereof shall, for the purpose of clause (c ) of this sub-section, be deemed to represent the income in respect of which particulars have been concealed. The other circumstances for deeming concealment of particulars of income is when such person offers an explanation which he is not able to substantiate and fails to prove that such explanation is bonafide and that all the facts relating to the same and material to the computation of his total income have been disclosed by him. For a ready reference Explanation-1 to setion 271(1)(c ) is being reproduced hereunder :-
"Explanation 1.- Where in respect of any facts material to the computation of the total income of any person under this Act,- (A) such person fails to offer an explanation or offers an explanation which is found by the [Assessing] Officer or the [Commissioner (Appeals)] [or the Commissioner] to be false, or (B) such person offers an explanation which he is not able to substantiate [and fails to prove that such explanation is bona fide and that all the facts relating to the same and material to the computation of his total income have been disclosed by him".
Then, the amount added or disallowed in computing the total income of such person as a result thereof shall, for the purposes of clause (c ) 10 ITA . Ns 421 to 426, 437 t 441 & 497/PN/08 Klaus Moermann etc., A.Y. 2004-05 Page of 20 of this sub-section, be deemed to represent the income in respect of which particulars have been concealed."
Thus, in other words, if an assessee in respect of any facts material to the computation of his total income is able to offer an explanation which is not found by the Assessing officer or Commissioner (Appeals) or Commissioner to be false, then the amount added or disallowed in computing the otal income of such person as a result thereof shall, for the purpose of clause © of section 271(1) be not deemed to represent the income in respect of which particulars have been concealed. Concealment of particulars of income on the part of the assessee would also not be deemed to levy penalty under section 271(1)(c ) as per Explanation -1 where such person offers an explanation which is bona fide and that all the fracts relating to the same and material to the computation of his total income have been disclosed by him. The ld. CIT(A) has basically upheld the pemnatly levied by the AO in the present case on the basis that the assessee brought nothing on record to substantiate his claim of boa fide belief regarding non taxability of the tax perquisite. Thus the issue revolve around the fact as to whether in the present case the assessee was able to substantiate his explanation of bona fide belief regarding non taxability of tax per quisite, or nor. Explanation of the assessee in this regard remained that he is a foreign national who was working as Managing Director of Sandvik Asia Ltd, a company incorporation in India. His contractual service period for SAL in India was for the period assessment years 1998-99 to 05-06. SAL deducted the applicable taxes on salaries paid to the assessee and pait it to the Indian Government Treasury. In addition to the employment income earned from SAL, the assessee also received some emolument outside India and reimbursement of tax, being difference in the tax rates between India and Sweden from Sandvik AB, Sweden though the employment was exercised in India. It was submitted that in the original return of income filed by the assessee for each of the above mentioned assessment years, total income filed by the assessee for each of the above mentioned assessment years, total income reported by the assessee included remunation received in India from SAL and emoluments received outside India from Sandvik AB, Sweden,. Before being deputed to India, the assessee was assured by Sandvik AB, Sweden that any increase in over all tax liability of the assessee on account of different tax rates in India would be reimbursed to him. Such reimbursement was credited to his regular saving bank account. It was 11 ITA . Ns 421 to 426, 437 t 441 & 497/PN/08 Klaus Moermann etc., A.Y. 2004-05 Page of 20 submitted that for the purpose of filing of return in India, the assessee was assisted by well known tax consultants appointed by Sandvik Group. Such tax consulstant computed the taxable income of assessee by analyzing various salary components received by him and determined the taxability of these components. The assessee based on the bona fide belief that reimbursement of incremental tax liability in India from Sandvik AB, Sweden being part of a tax rationalization measure is not a separate component of income liable to tax in India did not include this reimbursement while reporting his total income in the return of income filed for various years during his Indian assignment. During the course of assessment proceedings initiated under section 143(3) of the Act for the assessment year 2004-05, the assessee could learn that even the reimbursement towards tax rationalization needs to be considered asd taxable perquisite and offered to tax in India. It was submitted that assessee accordingly agreed to the addition to the total income on account of grossed up tax perquisite as proposed by the AO and paid the additional tax including applicable interest as demanded by the AO for A.Y. 2004-05. It was submitted that as additional tax liability arise on account of inadvertent bona fide error in understanding of law, which was agreed upon by the assessee in course of assessment proceedings, the assessee did not prefer an appeal before the ld. CIT(A) against the assessment order. It was further explained that the assessee also voluntarily, on 30th December, 2006 i.e. within 1.5 months, paid off the incremental tax due along with applicable interest for all earlier and subsequent assessment years, including the assessment year 1998-99 and 1999-2000, not withstanding that time limit for issue of notice for assessment/reassessment under section n 147 for the said two assessment years i.e. 1998-99 and 1999-2000 had already elapsed, after rectifying similar inadvertent error made in these years. It was submitted that it was done despite of the fact that the assessee had already retired from his employment. On the objection of the department that the assessee was assisted by the tax experts so no excuse that the assessee was ignorant of the relevant provisions of law is available to the assessee, the submission of the ld. A/R remained that the tax perquisite law had under gone a significant change in the past years lead to a lot of uncertainty regarding the same and thus based on the advise of tax consultants, the assessee was under a bona fide belief at the time of signing his original returns of income that the information given in his original returns of income was correct and complete and that the amount of total income and other particulars shown therein 12 ITA . Ns 421 to 426, 437 t 441 & 497/PN/08 Klaus Moermann etc., A.Y. 2004-05 Page of 20 were truly stated and were in accordance with the provisions of tax laws and thus he filed his original returns. It was further submitted that the assessee was entitled to reimbursement of incremental tax in I ndia from Sandvik AB, Sweden and as such there was no economic rational for the assessee to conceal or under report his overseas salary income. The further plea of the ld. A/R before us also remained that the related law was complicated and possibility of mistake even on the part of an expert cannot be ruled out. In this regard he has placed reliance on the decision of Mumbai Bench of the Tribunal in the case of Sunil Chandra Vohra vs. ACIT (2009) 38 SOT 365 (Mumbai). Considering these material facts in totality, we do not find reason to doubt the bona fide of above stated explanation furnished by the assessee during the course of penalty proceedings. The ld. CIT(A) has denited the explanation of the assxessee on the basis that the assessee brought nothing on record to substantiate his claim of bona fide belief regarding non taxability of tax perquisite and in the light of judgment of Hon'ble Supreme Court in the case of UOI vs. Dharmendra Textile Processors (2007) 295 ITR 244 (SC). So far as applicability of the said decision in the case of Dharmendra Textile Processors (supra) is concerned, we will discuss is in succeeding paras.
10. Regarding the first objection of ld. CIT(A) that assessee brought nothing on record to substantiate his claim of bona fide belief regarding non taxability of tax perquisite is concerned, we are of the view that it is not necessary that the claimed bona fide belief must be substantiated with some documentary evidence. The claim of bona fide belief can also be substantiated by circumstantial evidence when possibility of documentary evidence cannot be expected. In the present case, there is no dispute that the assessee was assisted by tax experts to compute his taxable income and furnish his return of income accordingly. The submission of the assessee in this regard cannot be doubted that under this bona fide belief that he has been assisted by tax expert he sighed the return of income prepared by that expert. We also find substance in this explanation of the assessee that he was entitled to reimbursement of incremental tax in India from Sandvik AB, Sweden and as such there was no economic rational for the assessee to conceal or under report any part of his overseas salary income. On going through the contents of [page 5 of the written submission, we find that the provisions laid down under section 10 of the Act has gone sequence of changes by Finance Act, 1993, Finance Act, 1970, Finance Act, 1988 and Finance Act, 1988 and Finance Act, 2002. Section 10(b)(vii) of the Act 13 ITA . Ns 421 to 426, 437 t 441 & 497/PN/08 Klaus Moermann etc., A.Y. 2004-05 Page of 20 provides exemption to tax paid by the employer for a period upto 5 years to technicians whose contract of service is approved by the Central Government and where their services commenced before 1st April, 1971. This sub-clause was omitted by the Finance Act 1993. Section 10(b)(viia)(1) of the Act inserted by Taxation Laws (Amendment) Act, 1970, provide exemption in respect of tax paid by the employer to technicians for a period upto 4 yearss where services commenced before 1st April, 1988 but after 31st March, 1971 and where Government approval was obtained for a period beyond 2 years. Section 10(6)(viia)(II) of the Act inserted by Finance Act, 1988, provide exemption in respect of tax paid by employees for a period upto 4 years to technicians where services commenced before 1st April, 1993 but after 31st March, 1988. This sub clause was omitted by Finance Act, 1998. Section 10(5B) of the Act provided an exemption, for a period upto 4 years in respect of tax paid for technicians. The sub-section was amended later on and finally deleted by the Finance Act, 2002. The definition of persons qualifying as "technicians" for whom the exemption under each of the above mentioned sections has also under gone changes at various points of time. The Finance Act, 2002 introduced section 10(10CC) of the Act which provided an exemption from tax on non monetary perquisite. Under these circumstances we do not find reason to doubt the explanation of the assessee that mistake has happened only because of grossing-up principle embedded in the Act. The concept of grossing-up is of a technical nature and can certainly be treated as out of the scope of common knowledge of the tax payers. The very conduct o the assessee in the present case is also worth noting to decide the veracity of the claimed bona fide on the part of the assessee in not reporting tax on tax reimbursement. During the assessment year 2004-05 when assessment proceedings were initiated under section 143(3) and by issuance of notices under section 143(2) and 142(1), the assessee was specifically required to inform if there was any source of income excluding the income shown in the return of income and whether income arose in consequence of the services rendered in India to the employer and any other company, the assessee learned that the reimbursement towards tax rationalization needs to be considered as a taxable perquisite and he offered to tax in India. The assessee agreed to the addition to the total income on account of grossed up tax perquisite as proposed by the AO and paid of the additional tax including applicable interest as demanded by the AO for the assessment year 2004-05. The assessee also paid the incremental tax due along with the applicable interest for all earlier and subsequent assessment 14 ITA . Ns 421 to 426, 437 t 441 & 497/PN/08 Klaus Moermann etc., A.Y. 2004-05 Page of 20 years i.e. 7 years in total, including the assessment years 1998-99 and 1999- 2000 notwithstanding that time limit for issue of notice for assessment/reassessment under section 147 for these two years had already elapsed. It was done inspite of the fact that assessee had already retired from employment. The assessee filed revised return of income for the aforesaid assessment years offering to tax the appropriately grossed up amount of tax perquisite though as stated above, the additional tax along with the interest was already deposited in December, 2006. Under these circumstances, we do not agree with the finding of the lower authorities that the explanation offered by the assessee regarding his bona fide in not reporting the taxable income in question was not substantiated by him to avoid the penalty under section 271(1)(c ) of the Act.
11. So far as applicability of the decision of Hon'ble Supreme Court in the case of UOI vs. Dharmendra Textile Processors (supra) is concerned, we after having gone through the decisions relied upon by the ld. A/R find substance in his argument that the Hon'ble Judges in the case of UOI vs. Rajasthan Spinning & Weaving Mills (supra) have been pleased to clarify that the principles laid down in the case of UOI vs. Dharmendra Textile Processors (supra) needs to be interpreted to mean that every case of levy of penalty needs to be examined based on the facts of each case and conditions specified in the law in this regard. For a ready reference the relevant extract of the decision in the case of UOI vs. Rajasthan Spinning & Weaving Mills (supra) is being reproduced hereunder :-
"At this stage, we need to examine the recent decision of this Court in Dharmendra Textiles (supra). In almost every case relating to penalty, the decision is referred to on behalf of the Revenue as if it had down that in every case of non-payment or short payment of duty and penalty clause would automatically get attracted and the authority had no discretion in the matter. One of us (Aftab Alam, J) was party to the decision in Dharmendra Textile and we see no reason to understand or read the decision in that manner....
... From the above, we fail to see how the decision in Dharmendra Textile can be said to hold that section 11AC would apply to every case of non-payment or short payment of duty 15 ITA . Ns 421 to 426, 437 t 441 & 497/PN/08 Klaus Moermann etc., A.Y. 2004-05 Page of 20 regardless of the conditions expressly mentioned in the section for its application."
In this regard it is also very pertinent to refer over here the recent decision of Hon'ble Supreme Court in the case of CIT vs. Reliance Petro Products Pvt. Ltd. (supra) wherein the Hon'ble Court has been pleased to observe as under:-
"However, it must be pointed out that in Union of India vs. Dharmendra Textile Processors (cited supra), no fault was found with the reasoning in the decision in Dilip N. Shroff vs. Joint Commissioner of Income Tax, Mumbai & Anr. (cited suptra), where the Court explained the meaning of the terms "conceal " and inaccurate". It was only the ultimate inference in Dilip N. Shroff vs. Joint Commissioner of Income Tax, Mumbai & Anr. (cited supra) to the effect that mens rea was an essential ingredient for the penalty under section 271(1)© that the decision in Dilip N. Shroff vs. Joint Commissioner of Income-tax, Mumbai & Anr. (cited supra) was overruled."
The above observation of the Hon'ble Supreme Court implies that it is only on the point of "mens rea" that the judgment in the case of Dilip N. Shroff vs. JCIT (supra) has been overruled. The meaning of term "conceal" as explained in the said judgment holds good. The Hon'ble Punjab &Haryana High Court in the case of CIT vs. Sidhartha Enterprises (supra) has been pleased to hold that penalty is imposed only when there is some element of deliberate default and not a mere mistake. The Mumbai Bench of the Tribunal in the case of Glories Realy P. Ltd. vs. ITO (Supra) has held that if bona fide explanation of the assessee has not been found false then penalty will not be leviable. On the basis of the decision relied upon, we gather strength to form a view that penalty is not an automatic consequence of addition to income; penalty under section 271(1)(c ) of the Act can come into play only when the conditions laid down under that section are satisfied; concealment of income cannot be a passive situation and it implies that the person concealing the income is hiding, covering up or camouflaging an income; penalty is not leviable in case where assessee is able to provide a 'bona fide' explanation; and penalty is not leviable in cases where assessee made errors under bona fide beliefs. The Hon'ble Supreme Court in the case 16 ITA . Ns 421 to 426, 437 t 441 & 497/PN/08 Klaus Moermann etc., A.Y. 2004-05 Page of 20 of K.C. Builders vs. ACIT (Supra) has been pleased to refer meaning of the word "concealment" as found in Shorter Oxford Dictionary, third edition, volume-I as under :
"In law, the intentional suppression of truth or fact known, to the injry or prejudice of another". "The word "concealment" inherently carried with it the element of mens rea. Therefore, the mere fact that some figure or some particulars have been disclosed by itself, even if it takes out the case from the purview of non-disclosure, it cannot be by itself take out the case from the purview of furnishing inaccurate particulars. Mere omission from the return of an item of receipt does neither amount to concealment nor deliberate furnishing of inaccurate particulars of income unless and until there is some evidence to show or some circumstances found from which it can be gathered that the omission was attributable to an intention or desire on the part of the assessee to hide or conceal so as to avoid the imposition of tax thereon."
In the case of Dilip N. Shroff vs. JCIT (supra), the Hon'ble Supreme Court has again been pleased to refer that the expression "conceal" is of great importance. According to Law Lexicon, the word "conceal" means: to hide or keep secret. The word "conceal" is con+celare which implies to hide. It means to hide or withdraw from observation; to cover or keep from sight; to prevent the discovery of; to withhold knowledge of. The offence of concealment is, thus a direct attempt to hide an item of income or a portion thereof from the knowledge of the income tax authorities. The Hon'ble Supreme Court has further observed that it signifies a deliberate act or omission on the part of the assessee. In the case of T. Ashok Pai vs. CIT (supra), the Hon'ble Supreme Court has been pleased to hold that "Concealment of income' and 'furnishing of inaccurate particulars' carry different connotations. Concealment refers to deliberate act on the part of the assessee. A mere omission or negligence would not constitute a deliberate act of suppression very or suggestion falsi." In law,, the intention suppression of truth or fact known, to the injury or prejudice of another, held the Hon'ble Supreme Court. In the case of Cement Marketing Co.of India Ltd. vs. ACIT (supra), the assessee did not include a particular item in the taxable turnover under a bona fide belief that he is not liable to include it. The Hon'ble Supreme Court held that it would not be right to condemn the 17 ITA . Ns 421 to 426, 437 t 441 & 497/PN/08 Klaus Moermann etc., A.Y. 2004-05 Page of 20 return as a "false" return inviting imposition of penalty. The Hon'ble Supreme Court also held that if an alternative view is taken, then even where assesses have a bona fide view of how taxes should be computed, the assessee would have to pay taxes based on the other view under the apprehension of being held liable for penalty in case his contention is ultimately found by the court to be not acceptable and this could surely not have been intended by the Legislature. In the case of Velayudhan Nair vs. ITO (supra) the assessee was paid salary along with traveling, conveyance and food allowances. For the said assessment year, the assessee filed his return of income on the basis of Form 16 issued by his employer, which did not include reimbursement. However, on the basis of advice, the assessee's employer paid the difference by way of tax deducted at source and also paid interest thereon. The AO issued a notice under section 148 to the assessee for concealment of income. It was held that the assessee did not include the items in the taxable bracket under a bona fide belief that he was not liable to do so. Therefore, the assessee was held not liable to pay penalty under section 271(1)(c ) of the Act. In the case of Kanybay Software India Pvt. Ltd. vs. DCIT (supra), the Pune Bench of the Tribunal has held that there is still a third scenario in which an addition is made to the income but it is established, or can be reasonably inferred, that the assessee's conduct and explanation is bona fide. These are the situations on which the assessee is able to establish his innocence. In such a situation, in accordance with the undisputed scheme of section 271(1)(c), neither the penalty was leviable prior to Hon'ble Supreme Court judgment in the case of Dilip N. Shroff vs. JCIT (supra) nor is it leviable after the Dharmendra Textile Processor's case. Under these facts and circumstances, we are of the view that the judicial principle expressed in the above cited decision are applicable to the case of the assessee in a situation where income has inadvertently been under reported under a bona fide belief that salary as reported in the return of income is correct since the same has been determined by well-known tax advisers and hence penalty is not leviable on the assessee for the concealment of income. We thus while setting aside the orders of the lower authorities, direct the AO to delete the penalty in question levied under section 27(1)(c ) of the Act. The grounds are accordingly allowed."
12. In the result, appeals are allowed."
18 ITA . Ns 421 to 426, 437 t 441 & 497/PN/08 Klaus Moermann etc., A.Y. 2004-05 Page of 20 It is apparent from the contents of para No.11 of the order of the Tribunal in the case of Hans Christian Gaas Vs. DCIT (Supra) that the Hon'ble Supreme Court in the case of Union of India Vs. Rajasthan Spinning & Weaving Mill Ltd. (2009) 23 DTR 158 (SC) have been pleased to clarify that the principles laid down in the case of Union of India Vs. Dharmendra Textile Processors (Supra) needs to be interpreted to mean that every case of levy of penalty needs to be examined based on the facts of each case and the conditions specified in the law in this regard. The other decisions including decision of Hon'ble Supreme Court in the case of Dilip & Shroff Vs. JCIT have also been discussed therein. The Pune Bench of the Tribunal in the case of Kambay Software India (P) Ltd. Vs. DCIT (Supra) had also occasion to discuss the law laid down in the case of Dharmendra Textile Processors (Supra) vide its order dated 28th April 2009. It is also worth noting that decision of the Tribunal on the issue in the case of Hans Christian Gaas Vs. DCIT (Supra) has been approved by the Hon'ble jurisdictional High Court vide its order dated 22nd June 2011 in Income Tax Appeal No. 2209 of 2010 and Another, a copy has been filed by the Ld. A.R. The relevant para No. 3 of the said judgment is being reproduced hereunder :
"3. The assessee was working as a Managing Director of Sandvik Asia Ltd.(SAL) and apart from salary had received some emoluments outside India from Sandvik Group. The said amount received from Sandvik was towards reimbursement of the tax liability incurred by the assessee in India. In the return of income, the assessee had not offered the above reimbursed amount to tax under the bonafide belief that the same were not taxable. However, when a query was raised by the assessing officer during the assessment proceedings, the assessee immediately offered that amount to tax for all the years. The penalty imposed under section 271(1)(c ) of the Act by the assessing officer was deleted by the ITAT after recording detailed reasons that it was a case of bonafide mistake and that there was no intention to evade tax. The discretion exercised by the ITAT in accepting the explanation given by the assessee is reasonable and we see no reason to interfere with the decision of the Tribunal which is based on finding of facts. Accordingly, all these appeals are dismissed with no order as to costs."
19 ITA . Ns 421 to 426, 437 t 441 & 497/PN/08 Klaus Moermann etc., A.Y. 2004-05 Page of 20 In the present case before us, the assessees are having reasonable explanation for not including the tax liability having character of a perquisite by way of tax free salary from DCAG. In the income tax returns originally filed by the appellants, the appellants did not offer to tax this perquisite of tax free salary. To this extent, there was a failure on the part of the employees. However, immediately after scrutiny notice was served upon the assessees, the assessees revised their income tax return and recomputed their tax liability after grossing up tax u/s. 195A of the Act. The explanation of the assessees remained that they were under bonafide belief that Indian Taxes on salary paid by the DCAG are in terms of the understanding that the assessees had with DCAG, and was correctly computed and borne by the DCAG. It was explained that the assessees had nothing to gain by making a lesser statement or concealing any income received from DCAG because the assessees were not to bear any part of taxes and all these taxes were to be borne by the DCAG. We have also noted that the tax matters of the appellant employees were all along looked after by the tax consultants of the employer. The appellant employees did not have a say in this and they cannot be faulted in relying upon the advice received by the employer's tax consultants particularly in a situation they were working outside the country of their normal work operations. The appellant employees cannot be made to suffer for the mistakes, if any, of the consultant of the employer of the appellant employees. These are situation in which assessees in our view have been able to establish their innocence . Such a situation as also been discussed by the Pune Bench of the Tribunal in the case of Hans Christian Gaas Vs. DCIT (Supra), upheld by the Hon'ble Bombay High Court, in accordance with undisputed scheme of Section 271(1)(c ). In such a situation neither the penalty was leviable prior to Hon'ble Supreme Court judgment in the case of Dilip N.2 Shroff Vs. JCIT (Supra) nor is it leviable after the decision in the case of Dharmendra Textiles Processors (Supra). Under these circumstances, we are of the view that the judicial principle expressed in the above cited decisions of Hon'ble Supreme Court are applicable to the case of the appellant employees in a 20 ITA . Ns 421 to 426, 437 t 441 & 497/PN/08 Klaus Moermann etc., A.Y. 2004-05 Page of 20 situation where income had undisputedly been un-reported under a bonafide belief that the salary as reported in their returns of income originally filed was correct since the same was determined by well known tax advisors and hence penalty is not leviable on the appellant employees for the alleged concealment of particulars of income or furnishing inaccurate particulars thereof. We thus while setting aside the orders of the authorities below, direct the A.O to delete the penalty in question levied u/s. 271(1)(c ) of the Act. The grounds raising the issue are accordingly decided in favour of the appellants and are allowed.
12. Consequently, the appeals are allowed.
The order pronounced in the open Court on 30th December 2011.
Sd/- Sd/-
(D. KARUNAKARA RAO) (I.C. SUDHIR )
ACCOUNTANT MEMBER JUDICIAL MEMBER
Pune, dated the 30th December, 2011
US
Copy of the order is forwarded to :
1. The Appellant
2. The Respondent
3. The CIT -V, Pune
4. The CIT(A)-III, Pune
4. The D.R. "A" Bench, Pune
5. Guard File
By order
Senior Private Secretary
Income Tax Appellate Tribunal
Pune