Income Tax Appellate Tribunal - Chandigarh
Sh. Nitin Chauhan , Sirmour vs Ito, Ward, Nahan on 27 July, 2018
IN THE INCOME TAX APPELLATE TRIBUNAL
DIVISION BENCH, CHANDIGARH
BEFORE SMT. DIVA SINGH, JUDICIAL MEMBER AND
DR. B.R.R. KUMAR, ACCOUNTANT MEMBER
ITA No.1409/Chd/2017
Assessment Year: 2011-12
Sh. Nitin Chauhan Vs. The I TO
C/o Sh. Sadanand Chauhan Ward
Mohalla Gobindgarh Nahan(H.P.)
Nahan, Dist- Sirmour
PAN No. AEAPC5728F
(Appellant) (Respondent)
Appellant By : Shri. Parikshit Aggarwal
Respondent By : Shri. Yoginder Mittal
Date of hearing : 12/07/2018
Date of Pronouncement : 27/07/2018
ORDER
PER DR. B.R.R. KUMAR, A.M:
The present appeal has been filed by the Assessee against the order of the Ld. CIT(A), Faridabad dt. 27/07/2017.
2. In the present appeal Assessee has raised the following grounds:
1. That on facts and circumstances of the case and in law, the order passed by the Ld. CIT(A) is violative of principle of natural justice and deserves to be quashed and set aside.
2. That on facts and circumstances of the case, the Ld. CIT(A) has recorded the submissions of the Appellant for AY 2008-09 but has grossly erred in disposing off the appeal for A.Y. 2011-12, thereby enumerating complete non application of mind.
3. That on the facts and circumstances of the case and in law, the penalty imposed by the CIT(A) of Rs. 4,88,002/- is unjustified and bad in law.
3. In brief, the facts are that the appellant filed its return of income for the Assessment Year 2011-12 at Rs.3,01,500/- plus agricultural income of Rs.2,90,000/-. The assessment u/s 143(3) of the Income Tax Act, 1961 was completed on 19.03.2014 at an income of Rs.21,67,630/- after making addition of Rs. 15,14,000/- on account interest received on Fixed Deposits Receipts by the appellant from HP State Agricultural and Rural Development Bank, Nahan. The Assessing Officer initiated penalty proceedings u/s 271(l)(c) of the Act for concealment of income at the time of assessment proceedings separately. The 2 Assessing Officer after considering the submissions of the appellant, imposed penalty of Rs.4,88,002/- under section 271(l)(c) of the Act by holding that the appellant had concealed the particulars of income. The said penalty order has been confirmed by the Ld. CIT(A) holding that the assessee has concealed particulars of income.
4. During the hearing before us, Ld. AR argued that the assessee has already agreed for the addition of Rs. 15,16,126/- during the assessment proceedings being the interest earned on the FDR purchased from HP State Agricultural and Rural Development Bank. He argued that it was a bonafide belief of the assessee that the interest received from the bank was exempt as no TDS was deducted by the Bank and it was conveyed by the Bank that the TDS is not being deducted as it is not taxable, the reason for which the assessee could not offer this interest to taxation.
5. The Ld. AR relied on the judgment passed by the Hon'ble Supreme Court in the case of Price Waterhouse Coopors (P.) Ltd. v. CIT [2C12](348 ITR - i n this case, Hon'ble Supreme Court held that calibre and expertise of assessee have little to do with inadvertent error. In that case the assessee-firm engaged in providing multi-disciplinary management consultancy services filed its return of income along with tax audit report. A provision towards payment of gratuity was claimed as a deduction which was not allowable, thereby leading to underassessment of income. The Assessing Officer imposed penalty under section 271(l)(c). The CIT(A) upheld the levy of penalty; IT AT partially reduced it, taking a view that the assessee had made a mistake which could be described as a silly mistake.
6. The High Court upheld the order of the Tribunal.
7. The Hon'ble Apex Court observed as follows:
19. The contents of the Tax Audit Report suggest that there is no question of the assessee concealing its income. There is also no question of the assessee furnishing any inaccurate particulars. It appears to us that all that has happened in the present case is that through a bona fide and inadvertent error, the assessee while submitting its return, failed to add the provision for gratuity to its total income. This can only be described as a human error which we are all prone to make. The calibre and expertise of the assessee has little or nothing to do with the inadvertent error. That the assessee should have been careful cannot be doubted, but the absence of due care, in a case such as the present does not mean that the assessed is guilty of either furnishing inaccurate particulars or attempting t o conceal its income.3
And judgment in case of Hindustan Steels Lts vs State of Orissa, reported in [1972](83 iTR 25), it has been, held by the Hon'ble Supreme Court as under:-
An order imposing penalty for failure to carry out a statutory obligation is the result of a quasi-criminal proceeding, and penalty will not ordinarily be imposed unless the party obliged, either acted deliberately in defiance of law or guilty of conduct, contumacious or dishonest, or acted in conscious disregard to its obligation. Penalty will not also be imposed merely because it is lawful to do so. Whether penalty should be imposed for failure to perform a statutory obligation is a matter of discretion of the authority to be exercised judicially and on a consideration of all the relevant circumstances. Even if a minimum penalty is prescribed, the authority competent to impose the penalty will be justified in refusing to impose penalty, when there is a technical or venial breach of the provisions of the Act or where the breach flow* from a bona fidebelief that the offender is not liable to act in the manner prescribed by the statute
8. Ld. AR also relied on the judgment in the case of CIT vs Manjunatha Cotton end Ginning Factory, reported in [2013](359 ITR 565), wherein it has been held as under:-
The imposition of penalty is not automatic, i.e., imposition of penalty even if the tax liability is admitted, is not automatic. Even if the assessee has not challenged the order of assessment levying tax and interest and has paid the same, that by itself would not be sufficient for the authorities either to initiate penalty proceedings or impose penalty, unless it is discernible from the assessment order that, it is on account of such unearthing or enquiry concluded by authorities which has resulted in payment of such tax or such tax liability came to be admitted, and if not, it would have escaped from tax net as opined by the Assessing Officer in the assessment order. Only when no explanation is offered or the explanation offered is found to be false or when the assessee fails to prove that the explanation offered is not bona fide, an order imposing penalty can be passed. If the explanation offered, even though not substantiated by the assessee, is found to be bona fide and all facts relating to the same and material for the computation of his total income have been disclosed by him, no penalty can be imposed. [Para 63]."
8.1 He argued that since there is a bonafide belief that the amount of interest is not taxable the assessee has not shown the same to taxation and however when pointed out, the same was offered to tax before the Assessing Officer. 8.2 Against the arguments of the assessee the Ld. DR submitted his arguments in writing as under:
1. The main fact of the case is that during the assessment proceedings, the assessing officer observed that during the assessment year, the assessee had received an amount of Rs 55,14,000 on account of maturity of FDR purchased from the HP State Agricultural and Rural Development Bank Nahan. This information was collected on the basis of notice issued u/s 133(6) by the AO. On further investigations, it was found by the AO that there was an interest component of Rs 15,16,126 which was received by the assessee on account of the aforesaid FDR but the same was not declared in the ITR. Apart from this amount, the assessee has understated his interest income received from other FD/saving accounts to the tune of Rs 2,126 in his return.4
2. The assessee was confronted by the AO during the assessment proceedings about the understatement of income in respect of the interest. The assessee accepted that the interest component was understated but the same was an inadvertent mistake. The assessee vide order sheet entry dated 19.03.2014 submitted the following in respect of the undisclosed FDR:
"Agreed addition subject to no concealment penalty to avoid litigation and to purchase peace".
3. However, since the assessee has concealed his income and furnished inaccurate particulars of income, the penalty proceedings were initiated against the assessee and penalty was levied by the AO on both accounts i.e for concealment as well as furnishing of inaccurate particulars.
4. The assessee had appealed against the penalty order before the Ld CIT appeal. In respect of the undisclosed interest, the assessee made the following submission before the Ld CIT (A):
"...The appellant herein had not diselosed sueh interest in his return of income since the appellant was under a bonafide belief that such income from a state owned Agricultural and Rural development bank would be exempt from tax under section 10(1) of the Act".
However, considering the submissions of the assessee, the Ld C1T (A) has passed a detailed order relying upon the relevant Judicial decisions of the H'ble Supreme Court and confirmed the penalty order passed by AC).
5. During the hearing on 09.07.2018, the counsel of the assessee mentioned before H'ble Bench that the HP State Agricultural Bank had not deducted the TDS on the interest component and hence the assessee was under the impression that the interest income earned on FDRs with the bank was also exempt. To the specific query of the H'ble Bench that whether HP State Agricultural Bank was required to deduct TDS, it is submitted that as per section 194A, the payer are not required to deduct TDS when the amount of interest is below the specified limit. The limit for non deduction of TDS is Rs 10,000 when the payer is banking company to which the Banking Regulation Act, 1949 or a cooperative society engaged in carrying on the business of banking.
6. Coming to the merits of the case, it is humbly submitted that the Ld CIT (A) has right upheld the penalty on the assessee. Kind attention is invited to the following facts in this regard:
a) During the penalty proceedings, the assessee submitted that understatement of interest income was an 'inadvertent error' on his part. (Para 4 of the assessment order).
b) The assessment order reveals that the assessee had not disclosed the interest component received from HP State Agricultural Bank on his own volition. It was due to the independent investigations carried out by the AO u/s 133(6), the fact pertaining to non disclosure of interest came to the knowledge of the AO. When confronted about the undisclosed interest, the assessee offered for agreed addition. Thus, the offer was not voluntary as the same was made after the detection of concealed interest income.
c) The assessee has been changing his stands to explain the non disclosure of the interest income. During the assessment proceedings, the assessee submitted that it was an "inadvertent mistake", whereas in the penalty proceedings, the assessee changed his stand from that of "inadvertent error" to a "bonafide belief that the income from HP State Agricultural Bank was exempt from tax". This fact has also been mentioned by the AO in the penalty order (Para 2).
d) The AO has given a further finding that even if the assessee was under
the bonafide belief that interest income was exempt from tax, still the same was to required to be disclosed in return of income in Column 20 which deals with exempt income. However, the assessee has claimed only the agricultural income as exempt in this Column 20 of the return. This fact again shows that the assessee had deliberately not declared the interest from FDR in his return and when caught by the AO, the assessee took the 5 plea of "inadvertent mistake"/"bonafide belief for escaping penalty proceedings.
e) It is important to note that the assessee has not only derived interest on FDR from HP State Agricultural Bank, but from other Rural Bank as well i.e Himachal Gramin Bank. However, he has shown the interest income from FDRs with Himachal Gramin Bank. Thus, the assessee claim of bonafide belief that he was not required to declared income from Rural/agricultural banks falls flat on this account as well.
f) The claim of the assessee in the appellate proceedings that he was under bonafide belief that interest income from state owned agriculture and development bank was exempt under Section 10(1) is again misleading. Section 1 0 ( 1 ) gives exemption to income from agriculture and not interest income earned on FDRs with Agricultural/Rural banks, considering the fact that the interest income received from similar other bank i.e. Himachal Gramin bank has been disclosed in the return.
8.3 During the hearing specific query was raised to the parties as to whether the interest payment from HP State Agricultural and Rural Development Bank was exempted from the TDS provisions or not for which the Ld. DR submitted as under:
1. During the course of hearing before this H'ble Bench on 11.07.2018, the Ld counsel for the assessee mentioned that the assessee had received interest from HP State Agricultural and Rural Development Bank. To the specific query whether this bank was required to deduct TDS, it was submitted by the Ld Counsel that this bank being a land development bank, hence it was not under the obligation to deduct TDS as the bank falls under Section 194A(viia).
2. In this regard, it is submitted that section 194A(viia) is applicable for cooperative land development bank. However, in the present case HP State Agricultural and Rural Development Bank is not a development bank. The following information is gathered from the website of this bank:
"The HP State Cooperative Agriculture & Rural Development Bank Ltd; was established in 1961 in the State and registered as 'Cooperative Society' under the provision of Himachal Pradesh Cooperative Societies Act 1956 as Himachal Pradesh Central Land Mortgage Bank. At the initial stages/years the main emphasis and concentration of the Bank has been to advance loans for redemption of land and to save the farmers from the clutches of money-lenders and big land-lords. With the passage of time the Land Mortgage bank in the State changed its lending policies and started providing long term credit/loans for developmental activities i.e. reclamation of land. Gradually the role and nomenclature of the Bank was changed as Land Development Bank through amendment in the bank Act/Rules.
On the recommendations of the National Bank for Agriculture & Rural Development bank this Bank diversified its activities and started lending for purpose like Dairy Development, Bee Keeping, Floriculture, raising of orchards, irrigation etc. With the passage of time and changed economic scenario the Bank further diversified its activities and started lending to non-farm sector activities verging agriculture, rural artisans and small enterprises and name changed as HP State Cooperative Agriculture & Rural Development Bank Ltd; Now Bank provides loans to the agriculturist/horticulturist/artisans of the State for purposes like land development, irrigation, dairy and poultry development, farm mechanization (purchase of tractors) plantation of orchards, small and cottage industries, non farm sector activities, purchase of transport and passenger vehicles and for recently introduced purpose i.e. Rural Housing against the security of agricultural land. In addition to it now Bank is going to introduce Kisan Credit Card Scheme for the rural people at low rate of interest and Kisan Clubs 6 and Women Self Help Groups are being organized by the Bank for increasing the economical status of the rural people."
3. From the above description, it is very clear that this bank is not a land development bank as claimed and hence is required to deduct TDS under Section 194A of the Act.
8.4 Ld. AR reiterated that it is a fact that the TDS has not been deducted on the interest payments made to the assessee.
9. We have gone through the facts on record. We find that HP State Cooperative Agriculture & Rural Development Bank Ltd. is not exempted from deducting the TDS. The assessee has shown the agricultural income even though it is non taxable in the return of income. Similarly the assessee has also shown the interest received on FDR's from SBI, Nahan, ICICI Bank, Nahan and also Himachal Gramin Bank, Nahan. Hence the plea that the interest on FDR's have been omitted on a bonafide belief that the interest on FDR's is not taxable cannot be accepted. The assessee has not disclosed the interest income on these FDRs in his return of income. The contention of the assessee has been that it was a bonafide mistake has been well addressed by the Assessing Officer in para 5 of the penalty order. At the end of para 6 it is clearly mention that the assessee had invested Rs. 40,00,000/- in FDRs and the same was detected by the AO while collecting information u/s 133(6).
In the case of K.P. Madhusudhanan V CIT, 25.1 ITR 99 (S.C) the Hon'ble Supreme Court observed at last para as under:
"Learned counsel for the assessee then drew our attention to the judgement of this court in SirShadilal Sugar and General Mills Ltd. v. CIT[1987] 168 ITR 705. He submitted that the assessee had agreed to the additions to his income referred to hereinabove to buy peace and it did not follow therefrom that the amount that was agreed to be added was concealed income. That it did not follow that the amount agreed to be added was concealed income is undoubtedly what was laid down by this court in the case of Sir Shadilal Sugar and General Mills Ltd. [1987] 168 ITR 705 and that, therefore, the Revenue was required to prove the mensrea of a quasi- criminal offence. But it was because of the view taken in this and other judgments that the Fxplanation to section 271 was added. By reason of the addition of that Explanation, the view taken in this case can no longer he said to be applicable."
Hon'ble Constitutional Bench considered and discussed this issue in case of Union of India and others V. Dharmendra Textiles Processors and others, 306 ITR 7 277(S.C) and overruled the decision of Dilip N Shroff (supra). It is observed as under:
"The Explanations appended to section 271(l)(c) of the Income-tax Act entirely indicate the element of strict liability on the assessee for concealment or for giving inaccurate particulars while filing the return. The judgment in Dilip N Shroff's case (2007) 8 Scale 304 (S.C) has not considered the effect and relevance of section 276C of the Income-tax Act. The object behind the enactment of section 271(l)(c) read with the Explanations indicates that the said section has been enacted to provide for a remedy for loss of revenue. The penalty under that provision is a civil liability. Willful concealment is not an essential ingredient for attracting civil liability as is the case in the matter of prosecution u/s 276C of the Income-tax Act."
9.1 Originally in the 1922 Act Section 28 which authorizes the levy of penalty contained the word deliberately in sub-sec (3) for imposing the penalty for concealment. Same position prevailed in the original Section 271 in 1961 Act and the same read as under:
"271 - Failure to furnish returns, comply with the notice, concealment of income etc. (1) I f the ITO or the Appellant Assistant Ld. Commissioner in the course of any proceedings under this Act, is satisfied that any person---
(a) ----------------------
(b) ---------------------
(c) As concealed particulars of his income or deliberately furnished inaccurate particulars of such income."
9.2 Because of the expression deliberately it was earlier believed that unless and until some income was intentionally concealed by a person, penalty cannot be imposed. Because of the expression ''deliberately" it was held in case of CIT V. Anwar AM, 76 ITR 696, that penalty proceedings are penal in nature and even if explanation of the assessee is false, it does not necessarily give rise to the inference that disputed amount is income. The head note in this case reads as under:
"Proceedings u/s 28 of the Income-tax Act, 1922 are penal in character. The gist of the offence u/s 2891)(c) is that the assessee has concealed the particulars of his income or deliberately furnished inaccurate particulars of such income and the burden is on the department to establish that the receipt of the amount in dispute constitutes income of the assessee. If there is no evidence on the record except the explanation given by the assessee, which explanation has been found to be false, it does not follow that the receipt constitutes his taxable income. It would be perfectly legitimate to say that the mere fact that the explanation of the assessee is false does not necessarily give rise to the inference that the disputed amount represents income."8
9.3 From this position it becomes clear that because of the expression "deliberately" the Courts were of the opinion that even if explanation of the assessee was false the burden still lies with the Revenue to prove beyond doubt that the assessee has concealed particulars of income. The Parliament:
amended the law by omitting the expression "deliberately" in sub-section (c) which was omitted by Finance Act, 1964. After such omission an explanation was also inserted.
9.4 After insertion of above explanation, the decisions were still rendered on the lines of intention of the assessee and the explanation was further amended by Taxation Laws (Amendment) Act, 1975. The explanation (1) was substituted as under:
"Explanation 1 - Where in respect of any facts material to the computation of the totul 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 id. Commissioner (Appeals) (or the Id. 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) of this subsection be deemed to represent the income in respect of which particulars have been concealed.
Provided that nothing contained in this Explanation shall apply to a case referred to in clause (B) in respect of any amount added or disallowed as a result of the rejection of any explanation offered by such person, if such explanation is bonafide and all the facts relating to the same and material to the computation of his total income have been disclosed by him."
Proviso was amended by Taxation Laws (Amendment Act and Miscellaneous Provisions) Act 1986 w.e.f. 10.9.1986. Commenting on this explanation the Hon'ble Supreme Court in case of K.P. Madhusudanan V CIT" (supra) observed as under:
"The Explanation to Section 271(l)(c) is a part of section 271. When the Assessing Officer or the Appellate Assistant Commissioner issues a notice u/s 271, he makes the assessee aware that the provisions thereof are to be used against him. These provisions include the Explanation. By virtue of the notice u/s 271 the assessee is put to notice that, if he does not prove, in the circumstances stated in the Explanation, that his failure to return his correct income v/os not due to fraud or neglect, he shall be deemed to have concealed the particulars of his income or furnished inaccurate particulars thereof, and, consequently be liable to the penalty under the section. No express invocation of the Explanation to section 9 271 in the notice u/s 271 is necessary before the provisions of the 14 Explanation are applied."
9.5 The above clearly shows that after insertion of this explanation the burden has been shifted to the assessee to prove that he has not concealed the particulars of income and if such explanation is found to be bonafide then penalty cannot be levied but if no explanation is given or the explanation is found to be false then penal consequences will follow. It may be noted that whatever doubts were there regarding requirement of mensrea or 'deliberateness' have been removed by the Constitution Bench of Hon'ble Supreme Court In case of Union of India & Others Vs. Dharmendra Textile Processors and others (2008) 306 ITR 277 In the said decision the Larger Bench held at page 302 that "the object behind the enactment of Section 271(l)(c) read with the Explanations indicates that the said Section has been enacted to provide for a remedy for loss of revenue. The penalty under the provision is a civil liability. Willful concealment is not an essential ingredient for attracting civil liability as is the case in the matter of prosecution u/s 276C of the Income Tax Act.
10. Hence keeping in view the facts and circumstances of the instant case and the judicial pronouncements, wherein the bonafide has not been proved by the assessee and the revenue could bring about a clear case of concealment of income, we hereby decline to interfere with the order of the Ld. CIT(A).
11. In the result appeal of the Assessee is dismissed.
Order pronounced in the open Court.
Sd/- Sd/- (DIVA SINGH) (DR. B.R.R. KUMAR) JUDICIAL MEMBER ACCOUNTANT MEMBER Dated : 27/07/2018 AG Copy to:
1.The Appellant, 2. The Respondent, 3.The CIT, 4. The CIT(A), 5. The DR