Calcutta High Court
M/S Pricewaterhouse Coopers ... vs Commissioner Of Income Tax on 18 December, 2008
Author: Pinaki Chandra Ghose
Bench: Pinaki Chandra Ghose
1
ITA No. 120 of 2006
IN THE HIGH COURT AT CALCUTTA
Special Jurisdiction(Income Tax)
ORIGINAL SIDE
M/S PRICEWATERHOUSE COOPERS PVT.LIMITED .. Appellant
Versus
COMMISSIONER OF INCOME TAX, KOL-I & ORS. .. Respondents
For Appellant: Dr. Debi Pal, Sr. Adv., Mr. Rupen Mitra, Adv. And Mr. Abhratosh Majumdar, Adv.
For Respondents : Mr. Dipak Kumar Shome, Sr. Adv. And Mr. Prithu Dudhodia, Advocate.
BEFORE:
The Hon'ble JUSTICE PINAKI CHANDRA GHOSE The Hon'ble JUSTICE PARTHA SAKHA DATTA Date : 18th December, 2008.
The Court : This appeal has been filed by the appellant in respect of an order dated January 2, 2008 passed by the Tribunal, and was admitted by the Court on the following questions of law:
"1) Whether in view of the finding of the Tribuanl that failure to offer the provision for grtuity to tax was a case of human error and more so may be a silly mistake and further in view of the finding of the Tribunal that the Assessing Officer had also ignored to point out the same during the regular assessment, the Tribunal was justified in law in sustaining the penalty at the rate of 100% of the tax alleged to be 2 evaded in the absence of any finding that there had been concealment of any income or furnishing of inaccurate particulars of income with an intention to evade tax ?
2) Whether the Tribunal was justified in law in confirming the imposition of penalty under Section 271(1)(c) of the Act to the extent of 100% in the absence of any finding that the assessee was guilty of any mens rea or deliberate intention to avoid the payment of tax ?"
Dr. Debi Pal, learned Senior Advocate appearing in support of the appeal contended before us that the learned Tribunal even after accepting the fact that there was a human error committed by the appellant, did not consider the question of imposition of penalty on the appellant to the extent of 100%. It is not in dispute that at the time of hearing before the Assessing Officer as well as before the Commissioner of Income Tax (Appeals), a penalty was imposed by the Assessing Officer at the rate of 300%, which was confirmed by the Commissioner of Income Tax (Appeals) by his order in the matter.
Dr. Pal strenuously urged before us that there is no reason of imposing such penalty on his client since, according to him, there is no question of attracting Section 271(1)(c) of the Income Tax Act, 1961 by the Assessing Officer, which was confirmed by Commissioner of Income Tax (Appeals). According to him, there was no wilful concealment by the assessee. He drew our attention to 3 the statement which was filed along with the return and according to him the audit report under Section 44AB of the Income Tax Act, 1961 was duly filed and the statement of particulars which was required to be furnished under Section 44AB of the said Act was duly furnished by the assessee and it would be evident from Clause-17 of the said Audit Report that the assessee has specifically stated the provision for payment of gratuity was not allowable under Section 40A(7) of the said Act. Dr. Pal accordingly submitted that there is nothing on record which can show that there was a concealment in the return or the facts from the Assessing Officer was made by the assessee. He further pointed out that the learned Tribunal although accepted the position that it is nothing but a human error, but even then imposed the said 100% penalty on the assessee and on such ground the appellant has filed this appeal. According to Dr. Pal the said penalty cannot be sustainable in law since there is no evidence of evasion or concealment of tax by the appellant nor it can attract Section 271(1)(c) of the Act. He further drew our attention to Explanation-1 of the said section. At this stage, it is necessary for us to quote the relevant portion of Section 271(1)(c) of the Act, which reads as follows:
"271. (1) If the Assessing Officer or the Commissioner (Appeals) or the Commissioner in the course of any 4 proceedings under this Act, is satisfied that any person-
(a) .. .. .. (b) .. .. ..
(c) has concealed the particulars of the fringe benefits or furnished inaccurate particulars of such fringe benefits.
(d) .. .. .. 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) of this sub-section, be deemed to 5 represent the income in respect of which particulars have been concealed."
Dr. Pal's endeavour before us was only to show that whatever action has been taken by the appellant is nothing but a bona fide one. Dr. Pal further submitted that Explanation-1 specifically stated that if a person fails to offer an explanation and if it is found that to be a false one, then and then only Section 271(1)(c) of the Act would apply in the facts and circumstances of the given case. To substantiate his case, Dr. Pal further drew our attention to the decisions reportedin 241 ITR 124 (Commissioner of Income Tax vs. Suresh Chandra Mittal), 251 ITR 9 (Commissioner of Income Tax vs Suresh Chandra Mittal) and 291 ITR 318 (Udayan Mukherjee vs Commissioner of Income Tax).
In 241 ITR 124 (MP) Dr. Pal submitted that the initial burden lies on the Revenue to establish that the assessee had concealed the income or had furnished inaccurate particulars of such income. The burden shifts to the assessee only if he fails to offer any explanation for the undisclosed income or offers an explanation which is found to be false by the assessing authority. However, the proviso to Explanation-1 to Section 271(1)(c) of the Act provides for shifting of this burden again where the explanation offered by the assessee is found to be bona fide. Hence, the Court held that once the assessing authority had failed to take any objection in the matter, the declaration of income made by the 6 assessee in his revised returns and the explanation that he had done so to buy peace with the Department and to come out of vexed litigation could be treated as bona fide in the facts and circumstances of the case and accordingly, no penalty could be levied for concealment.
The aforesaid decision of Madhya Pradesh High Court was affirmed by the Hon'ble Supreme Court in 251 ITR 9. Dr. Pal also relied upon a Division Bench decision of this High Court reported in 291 ITR 318 where the Court held that Section 271(1)(c) of the Act would apply only in a case where the assessee has concealed his income or has furnished wrong particulars. In the said decision, it was held that all the particulars were furnished and therefore there was no finding that the particulars that were furnished were wrong in any respect and accordingly the Court came to the conclusion that wrong calcualtion on the basis of mistaken indexation does not come within the purview of Section 271(1)(c) of the Act and penalty could not be imposed.
Mr. Shome, learned Advocate appearing for the respondent, on the contrary, drew our attention to the Memorandum of Appeal and, in particular, Ground No.IV, where it has been stated as follows :
"4. That on the facts and in the circumstances of the case and without prejudice to the contentions of the appellant preferred in grounds No.(1) to (3) above, the Commissioner (Appeals), in any event, erred in not restricting the penalty 7 under Section 271(1)(c) of the Act to 100% of the income tax with respect to the disallowance of Rs.23,70,306/-, as referred to in the grounds hereinabove."
Mr. Shome submitted that this ground specifically mentions that the Commissioner (Appeals) erred in not restricting the penalty under Section 271(1)(c) of the Act to 100% of the income tax with respect to the disallowance of Rs.23,70,306/- and the said ground was allowed by the learned Tribunal in their decision. Therefore, Dr. Pal cannot, at this stage, have any grievance in respect of the order so passed by the learned Tribunal. Mr. Shome further drew our attention to certain facts that the original return was filed on 30th November, 2000 disclosing a total income of Rs.21,33,94,600/- and the same was assessed under section 143(1) of the Act on 23rd November, 2001. Subsequent thereto, a notice was served on the assessee under Section 148 of the said Act and the assessee company pursuant thereto filed return on 19th February, 2004 in terms of the said notice dated 22nd January, 2004. But in the said revised reutrn, which was filed in accordance with Section 148 of the said act, the assessee company specifically stated that the total assessment has been revised to the same amount as was shown in the earlier return. He further drew our attention to a letter of the company dated 16th February, 2004 which reads as follows :
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"the company denies the allegation that any income has escaped assessment in respect of the aforesaid assessment year. The company had accounted for the entire income received/receivable during each of the relevant previous years in the accounts made up for the said previous years and had accordingly offered the same to tax in the returns of income filed for the assessment years under consideration. The same had also been assessed to tax under section 143(3) of the Act. It is, therefore, submitted that no income of the company for any of the relevant assessment years has escaped assessment and therefore the primary condition precedent for assumption of jurisdiction under section 147 of the Act, namely, income having escaped assessement, having not been satisfied in the present case, the proceedings under section 147 of the Act initiated vide the notice dated 22nd January, 2004, under section 148 of the Act for the assessment year is bad in law and ab initio void and liable to be cancelled/ withdrawn".
Subsequent thereto, a further letter was addressed on 20th January, 2005 during the course of such assessment under sections 147/147(3) of the said Act and it has been stated by the assessee as follows :
"The assessee has verified its records and finds that such provision was created for payment to the employees who were 9 working in other business units prior to the merger of the said units with the Pricewaterhouse Coopers Limited. However, such provision was not towards the approved gratuity funds, which the company maintains and hence should have been offered to tax. During the process of filing of return of income the accountant preparing the computation was of the belief that the provision was created towards the approved superannuation/gratuity fund and hence was exempt from the rigors of the provisions of section 40A(7). This was also the reasoning while filing the return of income 'under protest' pursuant to the notice under section 148. However, as discussed earlier, on a detailed examination the company found the correct position and admits that such provision is not allowable and hence subject to tax. Thus, it is a sheer omission on the part of the assessee in not considering the amount as a disallowable expenditure".
It was also pointed out that on 27th May, 2005, a further letter was written on behalf of the assessee where the assessee has specifically stated as follows :
"In response to such notice the assessee filed the return under protest declaring the same income as declared in the original return still under the bona fide impression that nothing has escaped assessment for the captioned assessment year and also requested the Assessing Officer to give the 10 recorded reasons for initiating reassessment proceedings. When such recorded reasons were given, the assessee after going through the details realized that it had inadvertently not offered to tax the impugned amount. Therefore, the assessee had vide letter dt.20th January, 2004 accepted that such amount should be disallowed under section 40A(7)".
According to Mr. Shome the fact that would show that at every stage the assessee has specifically stated that they were not at fault and they have correctly filed their returns but the conduct of the assessee company would attract Section 271(1)(c) of the Act and Explanation-1 of the said act does not hold good and has no role to play in this matter. He further submitted that in Section 271(1)(c) of the Act it has been specifically stated "either"/"or" and if it is a concealment or if it is inaccurate, then also the said section does not apply and has no role to play. He further drew our attention to the order so passed by the Commissioner of Income Tax (Appeals) in the matter and pointed out that the findings of the Commissioner of Income Tax (Appeals) would show that the appellant has not disclosed the income to the extent of Rs.23,70,306/- in its original return of income nor in its return which was filed in compliance to the notice issued under section 148 of the said Act, but even after granting several opportunities to the appellant, assessee company kept on banging on the same point that no particular of its income has escaped assessment. 11
In the aforesaid circumstances,Mr.Shome submitted that Section 271(1)(c) of the Act must have a role in this matter on these facts. He further submitted that the assessee company is a well known Chartered Accountants company and the Director of the company has signed the return of income on behalf of the appellant and therefore it is very unusual to accept that such a reputed practicing firm and tax consultant would commit such mistake and would not detect the same for such a long time. Mr. Shome accordingly submitted that these facts would show that the case of the petitioner would come within the parameter of "concealment and/or furnishing of inaccurate statement" in terms of Section 271(1)(c) of the Act.
The Explanations appended to Section 271(1)(c) of the Act would indicate that the element of strict liability lies on the assessee for concealment or for giving inaccurate particulars while filing the return. The object behind the enactment of Section 271(1)(c) of the Act 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. Wilful concealment is not an essential ingredient for attracting civil liability as is the case in the matter of prosecution under section 276C of the Income Tax Act, 1961.
Mr. Shome submitted that in SEBI vs. Cabot International Capital Corporation reported in [2005] 123 Comp. Case 841 (Bom), it has, inter alia, been held as follows :
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"A. Mens rea is an essential or sine qua non for criminal offence;
B. A straightjacket formula of mens rea cannot be blindly followed in each and every case. The scheme of a particular statute may be diluted in a given case.
C. If, from the scheme, object and words used in the statute, it appears that the proceedings for imposition of the penalty are adjucatory in nature, in contradistinction to criminal or quasi-criminal proceedings, the determination is of the breach of the civil obligation by the offender. The word 'penalty' by itself will not be determinative to conclude the nature of proceedings being criminal or quasi- criminal. The relevant considerations being the nature of the functions being discharged by the authority and the determination of the liability of the contravener and the delinquency.
D. Mensrea is not essential element for imposing penalty for breach of civil obligations or liabilities".
Mr. Shome relied upon a decision reported in 306 ITR 277 (Union of India & Ors. Vs. Dharmendra Textiles Processors & Ors.) where a Three Judge Bench of Hon'ble Supreme Court has held as follows :
"The Explanation appended to Section 271(1)(c) of the Income Tax Act, 1961, indicate the element of strict liability on 13 the assessee for concealment or for giving inaccurate particulars while filing the return. The object behind the enactment of Section 271(1)(c) read with the Explanation indicates that the section has been enacted to provide for a remedy for loss of revenue. The penalty under that provision is a civil liability. Wilful concealment is not an essential ingredient for attracting civil liability as is the case in the matter of prosecution under Section 276C".
Mr. Shome accordingly submitted that the appeal should be dismissed and the questions must be answered in the negative.
After analysing the facts of this case, considering the submissions made by the learned Advocates for the parties and the materials placed before us, we cannot brush aside the fact that the assessee company is a well known and reputed Chartered Accountant firm and a tax consultant. We also do not find any substance in the submissions made by Dr. Pal; on the contrary, in our considered opinion, we find that Section 271(1)(c) of the Act has specifically stated about the concealment of the particulars of income or furnishing of inaccurate particulars of such income which has to be read "either"
- "or" and on the given facts of this case would automatically come within the four corners of Section 271(1)(c) of the Act and we come to the conclusion that 14 the appellant have failed to discharge their strict liability to furnish their true and correct particulars of accounts while filing the return. We are also of the opinion that the penalty under that provision is a civil liability and wilful concealment is not an essential ingredient for attracting civil liability as in the matter of prosecution under section 276C, as has been held by the Hon'ble Supreme Court. We also find that the mens rea is not an essential element for imposing penalty for breach of civil obligations or liabilities. We, therefore, accept the contention of Mr. Shome and dismiss the appeal answering the questions in the negative.
Urgent xerox certified copy of this order, if applied for, be supplied to the parties subject to compliance with all requisite formalities.
(PINAKI CHANDRA GHOSE, J.) (PARTHA SAKHA DATTA, J.) km