Income Tax Appellate Tribunal - Ahmedabad
Panchratna Hotels Pvt. Ltd. vs Deputy Commissioner Of Income Tax. on 30 March, 1993
Equivalent citations: (1993)47TTJ(AHD)282
ORDER
R. L. SANGANI, J. M. :
These two appeals by the assessee relating to asst. yrs. 1989-90 and 1990-91 arise out of proceedings for imposition of penalty under S. 271(1)(c) of the IT Act, 1961 (hereinafter referred to as the Act).
2. The assessee is a company and carries on business of running a hotel. For asst. yr. 1989-90 the assessee had filed a return declaring total loss of Rs. 3,90,441 and the loss was computed accordingly, in the assessment order dt. 21st March, 1990. In the said assessment order current years unabsorbed depreciation (Rs. 24,46,340) and unabsorbed investment allowance (Rs. 46,217) were also allowed to be carried forward to the subsequent assessment years. Subsequently a notice under S. 148 was issued because the Assessing Officer was of the view that the provisions of S. 43B were applicable in respect of unpaid liability relating to luxury tax. The reassessment order was passed on 25th Nov., 1991. The luxury tax collected during the year was Rs. 9,52,858 and luxury tax paid came to Rs. 5,88,783 leaving unpaid luxury tax of Rs. 3,64,075. The assessee had maintained separate luxury tax account and the credit balance to the above extent in said account was taken directly to the balance-sheet and not to P&L account. This amount formed part of current years liability. The Assessing Officer in the reassessment order held that the luxury tax collected constituted trading receipt and unpaid luxury tax was not allowable as deduction. He, therefore, made addition of Rs. 3,64,075 to the assessed loss as per order dt. 21st March, 1990 of Rs. 3,90,441. Thus in the reassessment order dt. 25th Nov., 1991 the net loss computed came to Rs. 26,366. The unabsorbed depreciation (Rs. 24,46,340) and unabsorbed investment allowance (Rs. 46,217) were allowed to be carried forward as in the original assessment order.
3. For asst. yr. 1990-91 the assessee had filed a return declaring loss. In this year the excess luxury tax collected came to Rs. 1,38,838. This amount was added to the declared loss. Besides, addition was also made of two cash credits of Rs. 2,80,043 (Director Shri Jayantibhai T. Pasawala) and Rs. 97,002 (Director Shri Kaniyabhai T. Pasawala) amounting to Rs. 3,77,045. Ultimately loss of Rs. 5,20,785 (including unabsorbed depreciation) was computed.
4. The Assessing Officer initiated penalty proceedings under S. 271(1)(c) of the Act for both the years. For asst. yr. 1989-90, the said proceedings pertain to addition (unpaid luxury tax) of Rs. 3,64,075. For asst. yr. 1990-91 the said proceedings pertain to unpaid luxury tax liability of Rs. 1,38,830 and cash credits of Rs. 3,77,045. The Assessing Officer held that the omission of the assessee to declare those items as income in the returns amounted to concealment of income in respect of those items. For asst. yr. 1989-90 he held that the tax on the above item of Rs. 3,64,075 would work out to Rs. 2,16,260. He levied penalty of 200% of the said tax which came to Rs. 4,32,520. For asst. yr. 1990-91 he held that the tax on Rs. 5,15,875 (Rs. 1,38,830 plus Rs. 3,77,045) would come to Rs. 3,06,429. He levied penalty of 200% amounting to Rs. 6,12,858. These penalties were confirmed by the CIT(A) and the assessee is now in further appeals before the Tribunal.
5. The submission on behalf of the assessee is that the assessee was under bona fide belief that difference between the luxury tax collected and luxury tax paid did not represent the income of the assessee of the year under consideration and it was for that reason that the said amount was not included in the computation of profit and gains of the business. It was submitted that for both the years it was specifically mentioned in the auditors reports that such excess existed. Since the assessee maintained separate luxury tax account the balance was taken directly to the balance-sheet. These basic facts had been disclosed and this was not a case of concealment. As regards the cash credits it was submitted that those credits were from the directors of the assessee-company. The directors had signed the balance-sheet and the enclosed papers and that they were assessed to income-tax and those credit items did not represent income of the assessee. It was also submitted that the credits in question did not pertain to year under consideration (asst. yr. 1990-91) but pertained to earlier years and as such as the said amounts did not represent concealed income of the year under consideration.
6. It was further submitted on behalf of the assessee that even after additions made by the Assessing Officer the resultant figures for both the years represented loss and not any positive income and hence the provisions of S. 271(1)(c) were not attracted.
7. The submission on behalf of the Department was that the luxury tax collected represented trading receipt and unpaid liability was not allowable in view of S. 43B of the Act and hence excess of collections of over payment represented income of the assessee and there was concealment. Besides, the assessee had not filed any appeal against assessment order which indicated the assessees admission that the said amount represented income of the assessee. Similar argument was made in respect of the cash credits for the second year. Reliance was placed on the decisions in the cases of CIT vs. Dr. R. C. Gupta & Co. (1980) 122 ITR 567 (Raj) and R. V. Venugopal Chettiar vs. CIT (1985) 153 ITR 376 (Mad). It was further submitted that the assessee had not raised plea either before the ITO or before the CIT(A) to the effect that the cash credits were of the earlier years and hence the said plea should not be allowed to be raised before the Tribunal.
8. As regards the submission of the assessee that there should not be any penalty when finally assessed amount was loss, the Department relied on Expln. 4 to S. 271(1)(c) and also on certain decisions in which a view in favour of Department on the point in controversy has been taken.
9. We have considered the rival submissions and facts on record. We find that in the reports of the auditors which had been filed with the returns for both the years, there were specific mentions about the exact excess amounts in respect of the luxury tax. Thus the documents filed by the assessee had drawn specific attention to the fact that the luxury tax collected was in excess of the luxury tax paid. It was specifically mentioned as to what were the amounts which represented difference between the collection and payment. The assessees case was that the luxury tax collected was credited in separate account and payments made were debited to that account and balance used to be taken to the balance-sheet and not to P&L A/c. It was because of this method of accounting that the amount was not taken to the P&L A/c. It is true that the amount in question represented income of the assessee. However, the crucial question is whether it could be said that there was concealment on the part of the assessee of his income. When material facts are disclosed in the documents filed before the ITO it could not be said that there was concealment on the part of the assessee although the plea raised by the assessee was not accepted in assessment proceedings. Consequently it could not be said that there was any concealment as far as the amounts representing difference between the collections and payments of luxury tax were concerned.
10. As regards the cash credits, those credits are from the directors of the company who had made advances without payment of interest. These directors had signed accounts and had confirmed in the audited accounts given to the IT Department and also with the Registrar of Companies. Consequently no further confirmation was required. Merely because these amounts were added in the assessment proceedings, would not mean that they represented income of the assessee. The assessee has filed revision petition under S. 264 of the Act before the CIT in the quantum matter and the said revision petition was pending before him. Considering the entire circumstances, no inference that those amounts represented concealed income of the assessee, could be drawn in the penalty proceedings.
11. On the question whether penalty under S. 271(1)(c) could be levied in view of Expln. 4 in cases where finally assessed amount is a loss, there is difference of judicial opinion. There are some decisions which have taken the view in favour of assessee and there are other decisions which have taken the view against the assessee. The learned Departmental Representative has relied on decisions in the cases of CIT vs. India Sea Foods (1976) 105 ITR 708 (Ker) and CIT vs. Rowther Bros. (1979) 119 ITR 353 (Ker) in which the view in favour of Department has been taken. The learned counsel for the assessee has relied on decisions in the cases of CIT vs. Jaora Oil Mills (1981) 129 ITR 423 (MP), CIT vs. C. R. Niranjan (1991) 187 ITR 280 (Mad), CIT vs. Prithipal Singh & Co. (1990) 183 ITR 69 (P&H) and Indo-Gulf Fertilizers & Chemicals Corpn. Ltd. vs. Union of India & Anr. (1992) 195 ITR 485 (All) in which the view in favour of assessee has been taken.
12. Both the parties have cited the decisions of the Tribunal also in some of which the view in favour of assessee is taken while in others the view against the assessee is taken. It is not necessary to refer to those Tribunal decisions.
13. As far as Benches of the Tribunal at Ahmedabad are concerned, consistent view in the recent period is in favour of assessee. One of the recent decisions of Ahmedabad Bench of the Tribunal has been cited on behalf of the assessee and that decision is in the case of H. T. Power Structure Pvt. Ltd. in ITA No. 4778/Ahd/1991 dt. 10th Feb., 1993. In that decision the conflicting decisions have been noted and Expln. 4 to S. 271(1)(c) on which the Department has placed strong reliance, has been considered in detail and it has been held that nothing in said Explanation would justify levy of penalty under S. 271(1)(c) when the finally assessed amount is a loss. The Tribunal has observed as follows in said decision :
"This phraseology of Expln. 4 also envisages total income assessed. In IT Act, 1961 total income is defined in cl. 45 of S. 2 and does not throw any light as to whether is would always include loss. Of course, there are judicial pronouncements to the effect that for some purpose words total income would include loss. Then word assessed also has been construed in different ways according to the context. However, it is important to note that in common parlance for a loss case one generally describe as loss computed rather than loss assessed. It means that the words "total income assessed" do not necessarily include a case of loss computed or assessment resulting in loss. Now, the point is that in this particular context, that we are considering we must hold that these words "total income assessed" would not take into their abmit a case which has resulted in computation of loss even as per the assessment order. The reasoning is that we are considering the statutory provisions for levy of penalty and it has been held repeatedly that penalty provisions should be construed rather strictly. Further, even in the penalty provisions Expln. 4 is a sort of deeming provision and such a provision has to be construed even more strictly. Even further, Expln. 4 seeks to prescribe what is the "amount of tax sought to be evaded" which means that it seeks to put an artificial meaning on these words viz."the amount of tax sought to be evaded". In common parlance amount of tax means amounts of tax and it cannot take into its ambit a case where no tax is leviable at all. This constitutes yet another reason for a very strict construction being placed on this provision of Expln. 4. Viewed in this light it would be very difficult to accept the Departments contention that in cl. (5) of Expln. 4 below S. 271(1) the total income assessed should take into its ambit a case where assessment has resulted in a loss. Here, we are not concerned with a case in which part of the concealed income gets adjusted against other items of loss or deficiency and the assessment results in computation of a positive figure of total income albeit much smaller than the concealed income as was the case before the Honble Kerala High Court in CIT vs. India Sea Foods (1976) 105 ITR 708 (Ker).
In this view of the matter, we are of the considered opinion that when assessment has resulted in a loss penalty under S. 271(1)(c) would not be leviable even on the basis of Expln. 4 below S. 271(1) as inserted w.e.f. 1st April, 1976."
14. We may mention here that the Honble Supreme Court has specifically mentioned in CIT vs. Vegetable Products Ltd. (1973) 88 ITR 192 (SC) that if the Court finds that the language of a taxing provision is ambiguous or capable of more meanings than one, then the Court has to adopt that interpretation which favours the assessee, more particularly so where the provision relates to the imposition of penalty.
15. We respectfully follow those decisions which have taken the view in favour of the assessee on this point and hold that no penalty under S. 271(1)(c) was leviable if the finally assessed amount is a loss and not a positive income. Consequently in the present case no penalty could have been levied. We accordingly cancel the penalty for both the years.
16. Before parting we may mention that the words of Expln. 4 to S. 271(1)(c) were similar to words in the provision relating to additional income-tax in S. 143(1A). As observed by the Allahabad High Court in one of the decisions and in several decisions under said provision, additional income-tax could not be levied in those cases where finally assessed amount was a loss. This provision is sought to be amended by recent legislation but no similar amendment appears to have been contemplated in Expln. 4 to S. 271(1)(c) of the Act.
17. The appeals are allowed.