Madras High Court
Shri Kamal Basha vs The Deputy Commissioner Of Income Tax on 26 June, 2019
Author: T.S.Sivagnanam
Bench: T.S.Sivagnanam, V.Bhavani Subbaroyan
1
IN THE HIGH COURT OF JUDICATURE AT MADRAS
DATED : 26.06.2019
CORAM :
THE HONOURABLE MR.JUSTICE T.S.SIVAGNANAM
and
THE HONOURABLE MRS.JUSTICE V.BHAVANI SUBBAROYAN
TCA.No.213 of 2009
Shri Kamal Basha .. Appellant
Vs.
The Deputy Commissioner of Income Tax,
Business Circle VIII,
611, Anna Salai,
Chennai – 600 006. .. Respondent
Prayer : Tax Case Appeal filed under Section 260A of the Income Tax
Act, 1961, against the order of the Income Tax Appellate Tribunal
Chennai 'B' Bench, Chennai, dated 26.09.2008 in
I.T.A.No.1875/Mds/2007 for the assessment year 2003-2004.
For Appellant : Mr. A.S.Sriraman
For Respondent : Ms.S.Premalatha
***
http://www.judis.nic.in
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JUDGMENT
[Judgment of the Court was delivered by T.S.Sivagnanam, J.] This appeal filed by the assessee under Section 260 A of the Income Tax Act, 1961 (hereinafter referred to as the Act) is directed against the order dated 26.09.2008 passed by the Income Tax Appellate Tribunal Chennai 'B' Bench in I.T.A.No.1875/Mds/2007 for the Assessment Year 2003-2004.
2. The appeal was admitted on 14.07.2009 on the following substantial question of law:
“Whether the Appellate Tribunal is correct in law in sustaining the levy of penalty under Section 271(1)(c) of the Act on the rejection of claim of sundry creditors which were offered for taxation in the course of the assessment proceedings by the Appellant even though the presumption on the concealment of Income or furnishing of inaccurate particulars of Income as per explanation 1 was rebutted in the proceedings?”
3. The short issue, which falls for consideration in this appeal, is whether the penalty, which was imposed by the Assessing Officer, deleted by the Commissioner of Income Tax (Appeals) -IX, Chennai http://www.judis.nic.in 3 [CIT(A)] and restored by the Tribunal in the impugned order is warranted.
4. The assessee is a dealer in iron and steel having two proprietary concerns and also deriving income from property, business and agriculture. The return of income for the year under consideration was filed declaring total income of Rs.12,93,439/- including agricultural income. The case was selected for scrutiny and notice under Section 143(2) was issued. In the course of the assessment proceedings, the assessee was asked to produce the details in respect of sundry creditors to whom the outstanding was above Rs.50,000/. The Assessing Officer noted that amounts were outstanding for more than three years.
5. The assessee filed his reply dated 02.02.2006 regarding the sundry creditors and was able to explain and furnish details for substantial amount of the money shown as payable to sundry creditors to Rs.34,51,447/-. The assessee case is that in order to avoid further problems and to purchase peace from the Department, he offered the said amount for tax. Accordingly, the assessee was assessed to tax under Section 41(1) of the Act by treating the same as deemed to be the assessee's income. The assessee did not challenge the Assessment Order and the same attained finality.
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6. Penalty proceedings were initiated under Section 271(1)(c) of the Act. The reply given by the assessee for the show cause notice issued under Section 271(1)(c) did not find favour with the Assessing Officer and accordingly, the penalty was imposed by order dated 28.09.2006.
7. The assessee preferred an appeal before the Commissioner of Income Tax (Appeals) [CIT(A)] to delete the penalty on the ground that the assessee had explained the details regarding the sundry creditors and the amount of Rs.34,51,447/- was stated to be on account of discount for the goods purchased which were defective etc. Further, the CIT(A) took note of the finding rendered by the Assessing Officer that the assessee had paid some of his sundry creditors in the ensuing years. Accordingly, the CIT(A) held that the explanation offered by the assessee cannot be stated to be incorrect or not sustainable.
8. The revenue challenged the order before the Tribunal and by the impugned order, the Tribunal restored the penalty imposed on the assessee by the Assessing Officer vide order dated 28.09.2006.
9. We have heard Mr.A.S.Sriraman, learned counsel for the appeallant/assessee and Ms.S.Premalatha, learned Standing counsel for the respondent/Revenue.
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10. At the outset, we may point out that the case on hand is not a case where there was a survey or a search in the assessee's premises. The matter was at the stage of assessment and during the course of assessment, the assessee was asked to explain with regard to the list of sundry creditors to whom the assessee had to pay sums more than Rs.50,000/-. The assessee offered an explanation for substantial amount of such sundry creditor, but at that juncture, was unable to give a clear explanation with regard to a sum of Rs.34,51,447/-. This resulted in the assessee being taxed on the said amount under Section 41(1) of the Act. To be noted, it is a deeming provision and the Assessing Officer invoked the provision thereby treating the sundry debts payable by the assessee as deemed to be income of the assessee.
11. The question would be as to whether, such deeming assessment would give rise to a penalty proceedings. However, this is not the substantial question of law which has been framed for consideration, but nevertheless, we take note of the decision of the Division Bench of this Court in S.V.Kalyanam Vs. ITO reported in 327 ITR 477, which is an assessment under Section 69 of the Act which is also a deeming provision. The Court held in favour of the assessee on the following lines:
http://www.judis.nic.in 6 “19......Here, in this case, addition was made under Section 69 of the Income-tax Act. Section 69 is a deeming provision and the same cannot be extended to penalty proceedings. The Department cannot presume that there is a concealment. There must be independent finding. Further, the appellant had explained the source of income and therefore, it cannot be taken that there was concealment of income. Mere rejection of the explanation would not be a ground for levying penalty.”
12. Ms.S.Premalatha, learned Standing counsel for the revenue referred to the decision of the Hon'ble Supreme Court in Mak Data (P) Ltd. Vs. CIT -II reported in [2013] 38 taxmann.com 448 (SC). The decision of the High Court of Allahabad in Bajrang Glass Emporium Vs. Commissioner of Income-tax, Agra reported in [2014] 361 ITR 376 (Allahabad). The decision of the High Court of Delhi in Principal Commissioner of Income Tax Vs. Dr.Vandana Gupta in ITA.NO.219 of 2017 dated 20.02.2018 and the decision of this Court in Khandelwal Steel & Tube Traders Vs. Income Tax Officer, Ward-(IX)(3) reported in [2018] 95 taxmann.com 15 (Madras). The decision in the case of Dr. Vandana Gupta and Khandelwal Steel & Tube Traders (supra) cannot be applied to the facts of the present case, as both the matters arises out of survey/search proceedings. Sofaras the decision in the case of Bajrang Glass Emporium (supra) is concerned, the Tribunal has recorded that after detection has been made by the department, the http://www.judis.nic.in 7 surrender made by the asseessee does not absolve him from the charge. The facts of the present case is not identical therefore, the decision will not apply to the assessee's case.
13. In the case of Commissioner of Income-tax, Chennai
-IV Vs.Gem Granites (Karnataka) reported in [2014] 42 taxmann.com 493, this Court had an occasion to take note of the decision in Mak Data (P) Ltd (supra) as well as earlier decisions and had set out the legal principles on the following lines:
10. The Hon'ble Supreme Court in the case of Union of India vs. Rajasthan Spinning and Weaving Mills (2009) 13 SCC 448, considered the earlier decision of the Hon'ble Supreme Court in the case of Dharmendra Textiles Processors (supra)., reported in [2008] 306 ITR 277 (SC) and held that it goes without saying that for applicability of Section 271(1)(c) of the Act, condition stated therein must exist.
The above said decision came up for consideration in the case of CIT vs. Reliance Petroproducts Pvt., Ltd., [2010] 322 ITR 158 (SC). On reading of Section 27(1)(c), the Hon'ble Supreme Court pointed out that in order to bring the case under Section 271(1)(c), there has to be concealment of the particulars of the income of the assessee. Secondly, the assessee must have furnished inaccurate particulars of his income. In order to expose the assessee to penalty, unless the case is strictly covered by the provision, the penalty provision could not be invoked. Thus, the Hon'ble Supreme Court pointed out that a mere making of a claim, which is not sustainable in law, by itself, would not amount to furnishing of inaccurate particulars regarding the income of the assessee. The reading of the decision of the Hon'ble Supreme Court referred to above, thus points out that for sustaining penalty, the bonafide explanation of the assessee must be looked at, so that the contumacious conduct of the assessee for the purpose of sustaining the penalty would be taken as condition that is the main requirement under Section 271(1)(c) of the Act. Referring to the decision http://www.judis.nic.in 8 in the case of Dharmendra Textile Processors, (supra), the Hon'ble Supreme Court pointed out that in the background of Section 271(1)(c) of the Act, there is no necessity of mens rea being shown by the Revenue, however referring to the Explanation to Section 271(1)(c) penalty being a multiple liability, the bonafide of the conduct of the assessee necessarily assumes significant, even though willfulness of the assessee may not be a criteria, the conduct is to be considered. Thus, a mere fact that the addition in this case has been sustained by this Court by itself would not lead to the automatic application to Section 271(1), the Tribunal went into the explanation offered by the assessee as regards the charging of a higher amount in the case of J.B.Exports. Although, the Tribunal rejected the explanation for the purpose of assessment of goods, it considered it as a good ground for cancellation of penalty, when the explanation on the differential amount was given by the assessee that the entries were made in the account and the Accountant had not made the correct entry.
11. In a recent decision of the Hon'ble Supreme Court in Civil Appeal No.9772 of 2013, dated 30.10.2013 Mak Data P. Ltd., vs. Commissioner of Income Tax-II,[2013] 38 taxmann.com 448, the Hon'ble Supreme Court while considering the Explanation to Section 271(1), held that the question would be whether the assessee had offered an explanation for concealment of particulars of income or furnishing inaccurate particulars of income and the Explanation to Section 271(1) raises a presumption of concealment, when a difference is noticed by the Assessing Officer between the reported and assessed income. The burden is then on the assessee to show otherwise, by cogent and reliable evidence and when the initial onus placed by the explanation, has been discharged by the assessee, the onus shifts on the Revenue to show that the amount in question constituted their income and not otherwise. Factually, we find that the onus cast upon the assessee has been discharged by giving a cogent and reliable explanation. Therefore, if the department did not agree with the explanation, then the onus was on the department to prove that there was concealment of particulars of income or furnishing inaccurate particulars of income. In the instant case, such onus which shifted on the department has not been discharged. In the circumstances, we do not find that http://www.judis.nic.in 9 there is any ground for this Court to substitute our interfere with the finding of the Tribunal on the aspect of the bonafides of the conduct of the assessee.
14. In terms of the decision in Mak Data (P) Ltd (supra), the burden is on assessee to show otherwise by cogent and reliable evidence that there is no case of concealment, if this done then the onus shifts on the revenue.
15. In the instant case, there was no allegation made against the assessee that the statement given by the assessee was either mala fide or lacks bona fide. There is no allegation against the assessee that he suppressed information to the Department with an intent to evade payment of tax. The details called for by the Assessing Officer during the course of assessment proceedings were culled out from the books of the assessee.
16. In similar circumstances, this Court in Sree Krishna Electricals Vs. State of Tamil Nadu reported in [2009] 23 VST 249 held that penalty was not imposable under the provisions of the Tamil Nadu General Sales Tax Act, when the details were culled out from the books of accounts of the assessee/dealer. This decision was quoted by the Hon'ble Supreme Court in the case of Commissioner of Income-tax, Ahmedabad Vs. Reliance Petroproducts (P) Ltd., reported in [2010] 322 ITR 158(SC). In National Textiles Vs. http://www.judis.nic.in 10 Commissioner of Income Tax reported in [2001] 249 ITR 0125, wherein it was pointed out that no penalty can be imposed if the facts and circumstances are equally consistent with the hypothesis that the amount does not represent concealed income as with the hypothesis that it does.
17. It is further pointed out that if the assessee gives an explanation which is unproved but not disproved i.e., it is not accepted but circumstances do not lead to the reasonable and positive inference that the assessee's case is false. The explanation cannot help the Department because there will be no material to show that the amount in question was the income of the assessee.
18. In Commissioner of Income Tax Vs. Suresh Chandra Mittal reported in [2000] 241 ITR 0124, it was held that the burden shifts to the assessee only if he fails to offer any explanation for the undisclosed income or offers explanation, which is found to be false by the Assessing Officer. However, proviso to Explanation 1 provides for shifting of this burden again where the explanation offered by the assessee is found to be bona fide. In the instant case, the explanation offered by the assessee was not found to be false by the Assessing Officer, in fact, the reconciliation made by the assessee was accepted for the amount of Rs.34,51,447/-. The decision in Suresh Chandra http://www.judis.nic.in 11 Mittal (supra) was affirmed by the Hon'ble Supreme Court in the decision reported in [2001] 251 ITR 0009. Furthermore, it is pointed by the CIT(A) that the Assessing Officer has observed that the appellant has been paying off to some of his creditors in the ensuing years.
19. Hence, for the above reasons, we are of the clear view that the Tribunal was wrong in reversing the order passed by the CIT(A), which deleted the penalty imposed on the assessee. For the above reasons, the appeal is allowed and the order passed by the Tribunal is set aside and the order of the CIT(A) is restored and the substantial questions of law is answered in favour of the assessee. No costs.
(T.S.S., J.) (V.B.S., J.)
26.06.2019
Speaking order: Yes/No
Index: Yes/No
mp/ska
To
The Deputy Commissioner of Income Tax,
Business Circle VIII,
611, Anna Salai,
Chennai – 600 006.
http://www.judis.nic.in
12
T.S.SIVAGNANAM, J.
and
V.BHAVANI SUBBAROYAN, J.
mp/ska
TCA.No.213 of 2009
26.06.2019
http://www.judis.nic.in