Gujarat High Court
Principal Commissioner Of Income Tax-3 vs R Umedbhai Jewellers Pvt. ... on 22 August, 2016
Author: Akil Kureshi
Bench: Akil Kureshi, A.J. Shastri
O/TAXAP/549/2016 ORDER
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
TAX APPEAL NO. 549 of 2016
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PRINCIPAL COMMISSIONER OF INCOME TAX-3....Appellant(s)
Versus
R UMEDBHAI JEWELLERS PVT. LTD.....Opponent(s)
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Appearance:
MR NITIN K MEHTA, ADVOCATE for the Appellant(s) No. 1
MR RK PATEL, ADVOCATE for the Opponent(s) No. 1
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CORAM: HONOURABLE MR.JUSTICE AKIL KURESHI
and
HONOURABLE MR.JUSTICE A.J. SHASTRI
Date : 22/08/2016
ORAL ORDER
(PER : HONOURABLE MR.JUSTICE AKIL KURESHI)
1. The Revenue is in appeal against the judgment of the Income-Tax Appellate Tribunal dated 9.10.2015 raising following questions for our consideration :
"(a) Whether the Hon'ble ITAT is right in law and on facts of the case in allowing the appeal of the assessee and thereby deleting the penalty levied by the AO u/s 271(1)(c) of the IT Act of Rs.1,99,35,135/-?
(b) Whether the Hon'ble ITAT is right in law and on facts of the case by not following the decision of the Hon'ble Apex Court in the case of MAK Data Page 1 of 10 HC-NIC Page 1 of 10 Created On Tue Aug 30 20:07:25 IST 2016 O/TAXAP/549/2016 ORDER (P) Ltd. v. CIT (38 Taxmann.com 448) and the decision of the Madras High Court in the case of CIT v. Dr.A. Mohd. Abdul Khadir (260 ITR 650)?
2. Brief facts are as under :
2.1 The respondent - assessee is a company engaged in the business of trading in gold, silver and diamond jewelery.
The assessee company was incorporated during the financial year 2009-2010. A survey operation under Section 133A of the Income-Tax Act,1961 (for short 'the Act') was conducted in case of the company on 1.7.2010. During the course of survey, the company made a disclosure of Rs.5.86 crores (rounded off) on the ground of introduction of bogus share capital during the financial year 2009-10. Such disclosures were duly matched by other investigation carried out by the department.
2.2 On 31.8.2010, the assessee - company filed a return of income for the Assessment Year 2010-11 declaring total income of Rs.6.29 crores (rounded off) which included the above-mentioned disclosure of Rs.5.86 crores made during the survey. No further additions were made by the Assessing Officer during the assessment proceedings. He, however, initiated penalty proceedings concerning the said sum of Rs.5.96 crores on the premise that the assessee had sought to evade tax on the said sum. By an order dated 30.8.2013, after hearing the assessee, he imposed penalty of Rs.1.99 crores (rounded off) @ 100 per cent of the tax sought to be evaded.
2.3 The assessee carried the matter in appeal. The CIT (Appeals) by an order dated 9.10.2015 dismissed the appeal, Page 2 of 10 HC-NIC Page 2 of 10 Created On Tue Aug 30 20:07:25 IST 2016 O/TAXAP/549/2016 ORDER inter-alia, on the ground that had a survey not been conducted in case of the assessee, such amount of Rs.5.86 crores would not have been brought to tax. Assessee's filing of the return and offering such income to tax was only on account of survey operation and thus, not voluntary.
2.4 The assessee carried the matter in further appeal before the Tribunal. The Tribunal, by the impugned judgment, reversed the decisions of the revenue authorities and allowed the assessee's appeal holding that in such a case no penalty can be imposed. Hence, the present Tax Appeal by the revenue.
3. Learned counsel, Mr.Nitin K. Mehta for the department submitted that the assessee had made a disclosure of having received bogus share application money of Rs.5.86 crores. It was only after the survey, that the assessee filed a return in which such income was also admitted. The material on record would clearly suggest that but for the survey the assessee would never have offered such income to tax. The finding of the Assessing Officer as well as CIT (Appeals) to this effect were not reversed by the Tribunal. That being the position, the penalty under Section 271(1)(c) of the Act was leviable. He relied upon the decision of the Supreme Court in case of MAK Data (P) Ltd. v. CIT, reported in 358 ITR 593. He also relied upon the decision of the Division Bench of this Court in case of Deepak Construction Co. V/s. Commissioner of Income-Tax, reported in 293 ITR 285 and that of Madras High Court in case of Commissioner of Income-Tax V/s. Dr. A. Mohd. Abdul Khadir, reported in 260 ITR 650.
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4. Learned counsel, Mr.R.K.Patel for the assessee,
however, submitted that the return was filed within the due date. Merely because it was preceded by survey action would not permit the Assessing Officer to levy penalty under Section 271(1)(c) of the Act. In the present case, to the income disclosed in the return, no additions were made by the Assessing Officer, no penalty therefore could have been levied.
5. Present is the peculiar case. The assessee - company was in its first year of incorporation subjected to survey operation. At the time when the due date for filing return had not expired. During the survey the assessee admitted certain bogus share application money to the tune of Rs.5.86 crores. Before the expiry of the due date for filing return, assessee also filed a return making matching disclosures. The Assessing Officer made no additions in this income but, desired to levy penalty on the ground that the assessee had furnished inaccurate particulars of the income.
6. To our mind, such penalty could not have been imposed as rightly held by the Tribunal. Section 271 of the Act provides for penalty. Clause (c) of sub-section (1) of Section 271 of the Act provides that if the Assessing Officer during the course of any proceeding under the Act is satisfied that any person has concealed the particulars of his income or furnished inaccurate particulars of such income, he may direct such person to pay by way of penalty which shall not be less than, but which shall not exceed three times the amount of tax sought to be evaded by the reason of concealment of Page 4 of 10 HC-NIC Page 4 of 10 Created On Tue Aug 30 20:07:25 IST 2016 O/TAXAP/549/2016 ORDER particulars or furnish inaccurate particulars of such income. Relevant provision or Section 271 of the Act reads, thus;
"271.(1) If the Assessing Officer or the Commissioner (Appeals) or the[Principal Commissioner or] Commis- sioner in the course of any proceedings under this Act, is satisfied that any person--
(a) xxx xxx xxx
(b) xxx xxx xxx
(c) has concealed the particulars of his income or fur-
nished inaccurate particulars of such income, or
(i) xxx xxx xxx
(ii) xxx xxx xxx
(iii) in the cases referred to in clause (c) or clause (d), in addition to tax, if any, payable by him, a sum which shall not be less than, but which shall not exceed three times, the amount of tax sought to be evaded by reason of the concealment of particulars of his income or fringe benefits or the furnishing of inaccurate particu- lars of such income or fringe benefits.
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 [Principal Commis- sioner or] Commissioner to be false, or (B) such person offers an explanation which he is not able to substantiate and fails to prove that such explan- ation is bona fide and that all the facts relating to the same and material to the computation of his total in-
come have been disclosed by him,
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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) of this sub-section, be deemed to represent the income in respect of which particulars have been concealed."
7. As noted, the revenue desired to bring in the element of the assessee having furnished inaccurate particulars of its income. The fact that the assessee did make a disclosure of such income in the return filed and the Assessing Officer was not dissatisfied by such disclosure is not in dispute. The assessee having filed the return by the due date for filing return, in which such income was also offered to tax, the question of assessee having furnished inaccurate particulars of the income would not arise.
8. It may be that the assessee was subjected to search operation before filing of the return and it may also be that the revenue has sufficient material at its command to argue that but for the survey operation the assessee would not have disclosed such income. However, these are not the grounds on which the penalty under Section 271(1)(c) of the Act can be imposed. The grounds are specific, namely, of the assessee having concealed particulars of the income or having furnished inaccurate particulars of such income. When neither of these two conditions apply, penalty cannot be levied under the said provision.
9. Attempt on the part of counsel for the revenue to rely upon explanation (1) to Section 271(1) of the Act would also be futile. Said explanation provides that if a person fails to offer an explanation or offers explanation which is found by the Assessing Officer to be false or offers an explanation Page 6 of 10 HC-NIC Page 6 of 10 Created On Tue Aug 30 20:07:25 IST 2016 O/TAXAP/549/2016 ORDER which he is not able to substantiate or fails to prove that such explanation is bonafide, the amount added or disallowed in computing total income of such person, as a result thereof for the purpose of clause (c) of sub-section (1) be deemed to represent the income in respect of which particulars have been concealed. This explanation would, thus, apply at the stage of assessment since it refers to in respect of any facts material to the computation of total income. At such a stage. if the assessee fails to offer an explanation or offers an explanation which is found to be false, the explanation would apply and by deeming fiction, the assessee would be for the purpose of clause (c) of sub-section (1) of Section 271 of the Act be deemed to have concealed the particulars of the amount added or disallowed in computing total income of the assessee.
10. The decision of the Supreme Court in case of MAK Data (P) Ltd. (supra) was based on different set of facts. It was a case where the assessee had filed a return of income for the Assessment Year 2004-04 declaring total income of Rs.16.17 lacs. During the course of assessment proceedings, the Assessing Officer confronted the assessee with certain materials collected during the course of survey operation earlier conducted in case of assessee's sister concern. The assessee thereupon offered a further sum of Rs.40.74 lacs to avoid litigation and buy peace. The Assessing Officer accepted such further disclosure and brought the said sum of Rs.40.74 lacs to tax as income from other source and also initiated penalty proceedings with respect to such sum. When the assessee pressed the clause of making a declaration to buy peace, the matter ultimately reached the High Court which Page 7 of 10 HC-NIC Page 7 of 10 Created On Tue Aug 30 20:07:25 IST 2016 O/TAXAP/549/2016 ORDER accepted the revenue's plea that the assessee had not offered any explanation about concealment of the income. The High Court thus applied explanation (1) to Section 271(1)(c) of the Act and upheld the penalty. This decision was carried by the assessee before the Supreme Court, which, while dismissing the appeal, observed as under :
"9. We are of the view that the surrender of income in this case is not voluntary in the sense that the offer of surrender was made in view of detection made by the AO in the search conducted in the sister concern of the assessee. In that situation, it cannot be said that the surrender of income was voluntary. AO during the course of assessment proceedings has noticed that certain documents comprising of share application forms, bank statements, memorandum of association of companies, affidavits, copies of Income Tax Returns and assessment orders and blank share transfer deeds duly signed, have been impounded in the course of survey proceedings under Section 133A conducted on 16.12.2003, in the case of a sister concern of the assessee. The survey was conducted more than 10 months before the assessee filed its return of income. Had it been the intention of the assessee to make full and true disclosure of its income, it would have filed the return declaring an income inclusive of the amount which was surrendered later during the course of the assessment proceedings. Consequently, it is clear that the assessee had no intention to declare its true income. It is the statutory duty of the assessee to record all its transactions in the books of account, to explain the source of payments made by it and to declare its true income in the return of income filed by it from year to year. The AO, in our view, has recorded a categorical finding that he was satisfied that the assessee had concealed true particulars of income and is liable for penalty proceedings under Section 271 read with Section 274 of the Income Tax Act, 1961."
11. The vital difference in the aforesaid case, thus, was that the assessee had already filed a return disclosing an amount Page 8 of 10 HC-NIC Page 8 of 10 Created On Tue Aug 30 20:07:25 IST 2016 O/TAXAP/549/2016 ORDER of Rs.16.17 lacs. It was only during the assessment proceedings that the assessee agreed to surrender further sum of Rs.40.74 lacs by way of income. It was on account of the material collected by the revenue during survey operation carried out in case of assessee's sister concern. In our case, the assessee had neither made additional disclosure nor revised the return after filing the return within the time provided under the Statute.
12. The decision of this Court in case of Deepak Construction Co. (Supra) also was rendered in different fact situation. It was a case where for the Assessment Year 1983- 84, the assessee had filed the return of income which was taken in scrutiny. During the scrutiny assessment, the Assessing Officer issued a show cause notice confronting the assessee with certain squared up cash credits. Upon receipt of the notice, the assessee filed a revised return offering such sum by way of additional income. The revised return was accepted by the Assessing Officer. He, however, instituted penalty proceedings for the additional income surrendered by the assessee. In such background, the question arose whether after the assessee having filed the revised return, could the revenue have imposed penalty without making any additions to the income so returned. The High Court in the said judgment held that since the revised return was filed after detection of concealment of income, penalty under Section 271(1)(c) of the Act would be levied. Likewise, in case of Dr. A. Mohd. Abdul Khadir (Supra) also, the Madras High Court was concerned with the similar situation where the assessee revised his return pursuant to the search operation during which he had admitted to have concealed the income. The Page 9 of 10 HC-NIC Page 9 of 10 Created On Tue Aug 30 20:07:25 IST 2016 O/TAXAP/549/2016 ORDER Court held that such revised return could not be treated as voluntary return and penalty under Section 271(1)(a) of the Act would be leviable.
13. In the result, the present Tax Appeal is dismissed.
(AKIL KURESHI, J.) (A.J. SHASTRI, J.) vipul Page 10 of 10 HC-NIC Page 10 of 10 Created On Tue Aug 30 20:07:25 IST 2016