Dy.C.I.T.Central Circle,-1(3), Nagpur V. Purti Sakhar Karkhana Limited, Nagpur

ITA 153/NAG/2010

• Counselvise Citation: [2012] 119 COUNSELVISE.COM (IT) 9592 (ITAT-NAGPUR)
• Duration Of Justice: 2 year(s) 3 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-12-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Assessment Year: 2004-2005
• Appeal Filed On: 15-09-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Gift; Business income; Depreciation; Search and seizure; Opportunity of being heard; Initiation of penalty proceedings; Block assessment; Onus to prove; Revised return; Revenue expenditure; Reassessment proceedings
• Section: 143(3); 153A; 68; 148; 132; 12; 144; 139

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL NAGPUR BENCH, NAGPUR BEFORE SHRI P. K. BANSAL, HONBLE ACCOUNTANT MEMBER AND SHRI D. T. GARASIA, HONBLE JUDICIAL MEMBER I.T.A. NOS. 150 TO 155/NAG/10 ASSESSMENT YEARS: 01-02 TO 06-07 DY. C.I.T., VS. M/S PURTI SAKHAR KARKHANA LTD., CENTRAL CIRCLE-1(3), MAHAL, NAGPUR. NAGPUR. PAN:AACCP1296J (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI MILIND BHUSARI, CIT, D. R. RESPONDENT BY : SHRI HITESH SHAH, C.A. DATE OF HEARING :16/10/2012 DATE OF PRONOUNCEMENT : 21.12.12. ORDER PER P. K. BANSAL: ALL THESE APPEALS FILED BY THE REVENUE SINCE INVOLVE COMMON ISSUE IN ALL THE ASSESSMENT YEARS, THESE ARE BEING DISPOSED OF BY THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE. ALL THESE APPEALS ARE AGAINST THE CONSOLIDATED ORDER OF CIT(A) DATED 28/05/2010 BY WHICH THE CIT(A) HAS DELETED THE PENALTY IMPOSED U/S 271(1)(C) OF THE ACT BY THE ASSESSING OFFICER. IN ALL THESE APPEALS, THE REVENUE HAS RAISED COMMON GROUNDS OF APPEAL AGAINST THE DELETION OF PENALTY. 2. THE BRIEF FACTS OF THE CASE ARE THAT THERE HAS BEEN SEARCH IN THE CASE OF THE ASSESSEE ALONG WITH MEHTA GROUP U/S 132 OF THE ACT ON 23/08/2006. THE ASSESSEE IS A PUBLIC LIMITED COMPANY, INCORPORATED UNDER THE COMPANIES ACT, I.T.A. NO. 150 TO 155/NAG/2010 2 1956 ON 20/04/2000 FOR SETTING UP AN INTEGRATED PLANT FOR MANUFACTURING OF SUGAR, POWER, ETHANOL ETC. AT VILLAGE BELA, TAH. UMRED, DISTT, NAGPUR. DURING THE PREVIOUS YEAR RELEVANT TO ASSESSMENT YEAR UNDER CONSIDERATION, THE ASSESSEE COMPANY WAS IN THE PROCESS OF ACQUIRING LAND, DOING SITE DEVELOPMENT, CONSTRUCTION OF FACTORY BUILDINGS, ERECTING PLANT & MACHINERY AND OTHER RELATED ACTIVITIES. THE ASSESSEE HAD PLACED ORDERS FOR SUPPLY AND ERECTION OF VARIOUS PLANT PACKAGES WITH VARIOUS AGENCIES INCLUDING THE CONTRACTORS OF NATIONAL AND INTERNATIONAL REPUTE. WORK ORDERS WERE ISSUED FOR EXECUTION AND SUPPLY OF RESPECTIVE ITEMS OF PLANT AND ADVANCES WERE PAID AS PER TERMS OF CONTRACT. MEANS OF FINANCING THE PROJECT INCLUDES SHARE MONEY RECEIVED FROM VARIOUS INDIVIDUALS AND BODIES CORPORATE, UNSECURED LOANS IN THE FORM OF INTER CORPORATE DEPOSITS FROM VARIOUS COMPANIES, GENUINENESS OF WHICH ARE NOT UNDER DISPUTE. THE ASSESSEE COMPANY RAISED SECURED LOANS FROM CONSORTIUM OF NINETEEN CO-OPERATIVE BANKS, INDIAN RENEWABLE ENERGY DEVELOPMENT AGENCY, NEW DELHI, BANK OF MAHARASHTRA AND STATE BANK OF INDORE ETC. THE ASSESSEE COMPANY HAD ISSUED WORK ORDER FOR EXECUTING THE SUPPLY AND ERECTION OF PLANT TO VARIOUS CONTRACTORS/COMPANIES. THESE COMPANIES EXECUTED EARTH WORK AND SITE DEVELOPMENT, CIVIL CONSTRUCTION ETC. JOBS AND RAISED BILLS FOR THESE JOBS. THE ASSESSEE COMPANY PAID FOR THESE BILLS IN THE NORMAL COURSE OF BUSINESS AND DULY DEDUCTED TAX AT SOURCE AND DEPOSITED THE SAME. THESE BILLS WERE DULY CLUBBED UNDER THE HEAD CAPITAL WORK-IN- PROGRESS FOR CAPITALIZATION AT A LATER DATE WHEN THE BUSINESS IS SET UP. THE ASSESSEE PURCHASED CEMENT, STEEL, HARDWARE AND OTHER MACHINERY COMPONENTS ETC. FROM VARIOUS DEALERS/COMPANIES. THE BILLS WERE DULY CHECKED AND 2 I.T.A. NO. 150 TO 155/NAG/2010 3 PAYMENTS WERE MADE FOR THESE SUPPLIES AND WERE DEBITED TO CAPITAL WORK-IN- PROGRESS. VARIOUS EXPENSES WERE INCURRED IN THE NORMAL COURSE OF BUSINESS DURING THE PREVIOUS YEARS WHEN THE WORK OF CONSTRUCTION AND ERECTION WAS GOING ON. THE EXPENSES INCLUDED THE INTEREST PAID BY THE ASSESSEE ON SECURED LOANS AS WELL AS UNSECURED LOANS. THERE WAS NO DEFAULT OF THE TDS ETC. THE ASSESSEE HAS MAINTAINED THE REGULAR BOOKS OF ACCOUNT WHICH WERE DULY AUDITED. FEW COMPANIES OF MEHTA GROUP SUPPLIED THE CAPITAL GOODS AND ALSO CARRIED OUT ERECTION WORK FOR SETTING UP THE PLANT & MACHINERY BY THE ASSESSEE. ADVANCES WERE ALSO MADE TO MEHTA GROUP FOR THE EXECUTION OF THE WORK. FEW COMPANIES BELONGING TO MEHTA GROUP MADE INVESTMENTS IN THE SHARES OF THE ASSESSEE COMPANY AND HAD ALSO GIVEN INTER CORPORATE DEPOSITS. SIMULTANEOUS SEARCH OPERATION WAS CARRIED OUT ON THE ASSESSEE COMPANY ALONG WITH MEHTA GROUP U/S 132 OF THE I.T. ACT ON 23/08/2006. NOTICES U/S 153A OF THE I.T. ACT WERE RECEIVED BY THE ASSESSEE COMPANY FOR THE ASSESSMENT YEAR 2001-2002 TO ASSESSMENT YEAR 2006-2007 ON 23/03/2007. THE ASSESSEE SUBMITTED THE REPLY ON 23/04/2007 AND IT WAS SUBMITTED THAT ON PERUSAL OF THE SEIZED MATERIAL THEN MADE AVAILABLE, IT WAS FELT THAT SOME OF THE ITEMS CLUBBED UNDER CAPITAL WORK-IN- PROGRESS WERE NOT PROPERLY ACCOUNTED FOR. THE ASSESSEE IS CARRYING ON THE ANALYSIS OF THE CAPITAL WORK-IN-PROGRESS AND IS PREPARING A REVISED STATEMENT OF INCOME CONSIDERING THE SEIZED MATERIAL FOUND FROM THE MEHTA GROUP OF COMPANIES. THE REDUCTION OF THE CAPITAL WORK-IN-PROGRESS WOULD RESULT IN REDUCTION IN CLAIM OF DEPRECIATION IN FUTURE YEAR WHEN THE BUSINESS IS SET UP AND ACCORDINGLY THE ASSESSEE REQUESTED MORE TIME FOR FILING THE RETURN U/S 153A AND TO CONTINUE ASSESSMENT PROCEEDINGS ON THE BASIS OF THE AVAILABLE RECORDS. IT 3 I.T.A. NO. 150 TO 155/NAG/2010 4 WAS ALSO MENTIONED THAT ASSESSEE IS FACING DIFFICULTY AS SOME OF THE OLD EMPLOYEES OF THE ASSESSEE HAVE LEFT THE SERVICE AND THE INFORMATION WAS REQUIRED TO BE OBTAINED FROM OUTSIDE SOURCES I.E. MEHTA GROUP OF COMPANIES. WHATEVER INFORMATION WAS OBTAINED FROM THE SEIZED MATERIAL AND MEHTA GROUP OF COMPANIES WAS BEING CONTINUOUSLY ANALYSED WITH ITS OWN RECORDS. A NUMBER OF TRANSACTIONS HAD TAKEN PLACE AMONGST VARIOUS MEHTA GROUP OF COMPANIES AND, THEREFORE, IT WAS DIFFICULT TO TRACE THE ULTIMATE NET EFFECT IN THE BOOKS OF THOSE COMPANIES. THE ASSESSEE, THEREFORE, TOOK THE INITIATIVE AND REVISED THE CAPITAL WORK-IN-PROGRESS ON LUMP SUM BASIS. THUS, THE ASSESSEE VOLUNTEERED TO REWORK THE YEAR-WISE IMPACT OF THESE TRANSACTIONS ON CAPITAL WORK-IN-PROGRESS AND ACCORDINGLY INTIMATED THE ASSESSING OFFICER. THE ASSESSEE ACCORDINGLY FOR THE ASSESSMENT YEARS 2001-2002 TO 2006-2007 SURRENDERED THE FOLLOWING AMOUNT IN THE CAPITAL WORK-IN-PROGRESS BY REDUCING THE AMOUNT OF THE CAPITAL WORK IN PROGRESS AMOUNT FOR EACH OF THE ASSESSMENT YEARS RESPECTIVELY ON 23/12/2008 AND FILED THE REVISED RETURN FOR THE ASSESSMENT YEAR 2006-2007 GIVING THE EFFECT OF CLAIMING THE LOWER DEPRECIATION. IN OTHER ASSESSMENT YEARS THERE WAS NO AFFECT ON THE INCOME/LOSS RETURNED BY THE ASSESSEE IN THE ORIGINAL RETURNS. SR.NO. ASSESSMENT YEAR AMOUNT OF CAPITAL WORK-IN-PROGRESS SURRENDERED BY ASSESSEE (RS.) ---------- ------------------------ ------------------------------------------------ 1. 2001-02 10,00,000 2. 2002-03 2,73,89,041 3. 2003-04 2,01,000 4. 2004-05 1,87,46,067 5. 2005-06 2,43,26,321 6. 2006-07 3,25,00,000 4 I.T.A. NO. 150 TO 155/NAG/2010 5 2.1 THE CUMULATIVE EFFECT OF AMOUNT SURRENDERED BY THE ASSESSEE DURING ALL ASSESSMENT YEARS FROM 2001-2002 TO 2006-2007 BY REDUCING THE CAPITAL WORK-IN-PROGRESS UNDER THE VARIOUS HEADS IS AS UNDER: (I) PLANT & MACHINERY RS.9,48,85,108/- (II) POWER PLANT RS.2,31,76,321/- (III) ADMN. BUILDINGS RS. 10,00,000/- (IV) FACTORY BUILDINGS RS. 50,00,000/- ----------------------- TOTAL RS.12,40,61,429/- ----------------------- 2.3 IN RESPONSE TO NOTICE ISSUED U/S 153A FOR THE ASSESSMENT YEARS 2001- 2002 TO 2005-2006, THE ASSESSEE STATED THAT THE RETURN ALREADY FILED BY THE ASSESSEE U/S 139(1) MAY BE TREATED AS RETURN FILED IN RESPONSE TO NOTICE U/S 153A OF THE ACT. THE ASSESSMENT ORDERS U/S 153A READ WITH SECTION 143(3) OF THE ACT FOR ALL THESE ASSESSMENT YEARS WERE PASSED ON 31/12/2008 CREATING NIL DEMAND OF TAX. THE DETAILS OF RETURNED INCOME IN RESPONSE TO NOTICE U/S 153A AS WELL AS INCOME ASSESSED IN EACH OF THE ASSESSMENT YEAR IS GIVEN AS UNDER: ASSTT. YEAR RETURNED INCOME ASSESSED INCOME TAX --------------- --------------------------------- ------------------------------ ------------- ----- 2001-02 NIL NIL NIL 2002-03 (-)2,81,545 (-)2,81,545 NIL 2003-04 (-)2,65,464 (-)2,65,464 NIL 2004-05 (-) 83,122 (-) 83,122 NIL 1,02,848 (US/115JB) 1,02,848 NIL 2005-06 (-)2,13,036 (-)2,13,036 NIL 5 I.T.A. NO. 150 TO 155/NAG/2010 6 3. IN THE ASSESSMENT YEAR 2006-07, ORIGINALLY RETURN WAS FILED SHOWING A LOSS OF RS.16,86,25,367/- WHILE THE RETURN U/S 153A WAS FILED ON 23/12/2008 REDUCING THE LOSS TO RS.15,66,37,622/- DUE TO LESS CLAIM OF DEPRECIATION ON THE REVISED FIGURES OF CAPITAL WORK IN PROGRESS AS CAPITALIZED DURING THE YEAR. THE ASSESSMENT HAS BEEN COMPLETED BY THE ASSESSING OFFICER AT A LOSS OF RS.15,66,36,622/-. THE ASSESSEE REDUCED THE CLAIM FOR DEPRECIATION IN THE ASSESSMENT YEAR 2006-07 DUE TO REDUCTION IN THE CAPITALIZED VALUE OF THE CAPITAL WORK-IN-PROGRESS SURRENDERED IN DIFFERENT ASSESSMENT YEARS. ORIGINALLY THE ASSESSEE HAD CLAIMED DEPRECIATION AT RS.14,5716,287/-, WHICH WAS REDUCED TO RS.13,42,12,588/-. THERE WAS NO EFFECT ON THE DEPRECIATION CLAIMED SO FAR IT RELATES TO THE ASSESSMENT YEAR 2001-2002 TO 2005-2006 AS THE CAPITAL WORK-IN-PROGRESS WAS NOT CAPITALIZED TO RESPECTIVE ASSET, EXCEPT THE POWER PLANT DURING THE ASSESSMENT YEAR 2006-07. THE ASSESSING OFFICER, WHILE COMPLETING THE ASSESSMENT FOR EACH OF THE ASSESSMENT YEARS, MENTIONED THAT PENALTY PROCEEDINGS U/S 271(1)(C) OF THE I.T. ACT, 1961 IS INITIATED SEPARATELY.(ENGLISH TRANSLATION). ACCORDINGLY, SHOW CAUSE NOTICE DATED 31/12/2008 WAS ISSUED TO THE ASSESSEE FOR EACH OF THE ASSESSMENT YEARS TO THE FOLLOWING TERMS:- SUB: SHOW-CAUSE NOTICE U/S 271(1)(C) OF THE INCOME-TAX ACT, 1961- REG. WHEREAS IN THE COURSE OF PROCEEDINGS BEFORE ME FOR THE AY 2001-02, IT APPEARS THAT YOU HAVE CONCEALED THE PARTICULARS OF YOUR INCOME OR FURNISHED INACCURATE PARTICULARS OF SUCH INCOME. YOU ARE REQUESTED TO APPEAR BEFORE ME AT 11.00 A.M. ON 17/02/2009 AND SHOW CAUSE WHY AN ORDER IMPOSING A PENALTY ON YOU SHOULD NOT BE MADE UNDER 271 OF THE INCOME-TAX ACT, 1961. IF YOU DO 6 I.T.A. NO. 150 TO 155/NAG/2010 7 NOT WISH TO AVAIL YOURSELF OF THIS OPPORTUNITY OF BEING HEARD IN PERSON OR THROUGH AN AUTHORIZED REPRESENTATIVE, YOU MAY SHOW-CAUSE IN WRITING ON OR BEFORE THE SAID DATE, WHICH WILL BE CONSIDERED BEFORE ANY SUCH ORDER IS MADE U/S 271 OF THE ACT. 4. THE ASSESSEE AGITATED THE ISSUE OF SHOW CAUSE NOTICE. IN REPLY TO THE SHOW CAUSE NOTICE, THE ASSESSEE STATED THAT NOTICE U/S 153A WAS RECEIVED BY THE ASSESSEE ON 22/03/2007. IN THE REPLY DATED 12/04/2007, THE ASSESSEE STATED THAT THE FIGURES OF CAPITAL WORK-IN-PROGRESS BOOKED DURING THE PREVIOUS YEARS RELEVANT TO ASSESSMENT YEAR 2001-02 TO 2007-08 WERE LIKELY TO GO UNDER REVISION ON ACCOUNT OF SURRENDER, THE ASSESSEE WAS CONTEMPLATING, WHEREBY THE COST OF CAPITAL WORK-IN-PROGRESS WOULD BE REDUCED. THE ASSESSEE HAD VOLUNTEERED TO ANALYZE REDUCTION IN THE COST OF CAPITAL WORK-IN-PROGRESS WHEN THE ASSESSEE GOT THE OPPORTUNITY TO LEARN ABOUT CERTAIN INFORMATION OUT OF THE MATERIAL SEIZED FROM PREMISES OF MEHTA GROUP. THE NOTICE WAS RECEIVED BY THE ASSESSEE ONLY ON 07/02/2008. THE ASSESSEE SURRENDERED CERTAIN AMOUNT OF THE CAPITAL WORK-IN-PROGRESS MUCH BEFORE THE INITIATION OF THE ASSESSMENT PROCEEDINGS AND THE SURRENDER IS NOT THE OUTCOME OF THE FINDING OF THE ASSESSING OFFICER DURING THE ASSESSMENT PROCEEDINGS. NO MATERIAL WAS FOUND DURING THE COURSE OF ASSESSMENT PROCEEDINGS OR SEARCH ON WHICH BASIS THE ASSESSING OFFICER COULD HAVE HELD THAT THE ASSESSEE HAS CONCEALED THE PARTICULARS OR FURNISHED INACCURATE PARTICULARS OF INCOME. THE ASSESSEE RELIED ON THE DECISION OF HON'BLE SUPREME COURT IN THE CASE OF SIR SHADILAL SUGAR AND GENERAL MILLS LTD. FOR THE PROPOSITION THAT THE ASSESSEE AGREEING FOR THE ADDITION DOES NOT FOLLOW THAT THE AMOUNT AGREED TO BE ADDED AS INCOME IS CORRECT INCOME. THERE MAY BE HUNDRED AND ONE REASONS FOR SUCH ADDITIONS 7 I.T.A. NO. 150 TO 155/NAG/2010 8 WHEN THE ASSESSEE REALIZES THE TRUE POSITION, IT DOES NOT DISPUTE CERTAIN ADDITIONS BUT THAT DOES NOT MEAN THAT THE ASSESSEE HAS FILED THE INACCURATE PARTICULARS. RELIANCE WAS ALSO PLACED ON CERTAIN OTHER DECISIONS. THE ASSESSING OFFICER, IN EACH OF THE ASSESSMENT YEAR, LEVIED THE PENALTY ON THE ASSESSEE FOR FURNISHING FALSE PARTICULARS AMOUNTING TO RS.4,10,000/- FOR ASSESSMENT YEAR 2001-2002, RS.1,10,00,000/- IN ASSESSMENT YEAR 2002-03, RS.75,00,000/- IN THE ASSESSMENT YEAR 2003-04, RS.68,00,000/- IN THE ASSESSMENT YEAR 2004-05, RS.90,00,000/- IN THE ASSESSMENT YEAR 2005-06 AND RS.1,10,00,000/- IN THE ASSESSMENT YEAR 2006-07. 5. THE ASSESSEE WENT IN APPEAL BEFORE THE CIT(A). THE CIT(A) DELETED THE PENALTY IN EACH OF THE ASSESSMENT YEAR BY PASSING A CONSOLIDATED ORDER DATED 28/05/2010 BY HOLDING AS UNDER: 19. I HAVE GONE THROUGH THE FINDINGS OF THE ASSESSING OFFICER IN HIS PENALTY ORDERS, THE REMAND REPORT OF THE ASSESSING OFFICER AS WELL AS THE DETAILED SUBMISSIONS OF THE APPELLANT. THE APPELLANT COMPANY WAS INCORPORATED ON 10/04/2000. DURING THE ASSESSMENT YEAR 2001-02 TO 2005-06, IT WAS IN THE PROCESS OF ACQUIRING LAND, DOING SITE DEVELOPMENT, CONSTRUCTION OF FACTORY BUILDINGS, ERECTING PLANT AND MACHINERIES AND OTHER RELATED ACTIVITIES DURING THE AYS UNDER CONSIDERATION. THE APPELLANT COMPANY HAD PLACED ORDERS FOR SUPPLY AND ERECTION OF VARIOUS PLANT PACKAGES WITH VARIOUS AGENCIES INCLUDING THE CONTRACTORS OF NATIONAL AND INTERNATIONAL REPUTE AND WORK ORDERS WERE ISSUED FOR EXECUTION AND SUPPLY OF RESPECTIVE ITEMS OF PLANT AND ADVANCES WERE PAID AS PER TERMS OF CONTRACT. THE MEANS OF FINANCING THE PROJECT INCLUDED SHARE MONEY RECEIVED FROM VARIOUS INDIVIDUALS AND BODIES CORPORATE, UNSECURED LOANS IN THE FORM OF INTER CORPORATE DEPOSITS (ICDS) FROM VARIOUS COMPANIES. THE APPELLANT-COMPANY RAISED SECURED LOANS FROM CONSORTIUM OF NINETEEN CO-OPERATIVE BANKS, INDIAN RENEWABLE ENERGY 8 I.T.A. NO. 150 TO 155/NAG/2010 9 DEVELOPMENT AGENCY (IREDA), NEW DELHI, AND BANK OF MAHARASHTRA AND STATE BANK OF INDORE. THE ASSESSEE- COMPANY HAD ISSUED WORK ORDER FOR EXECUTING THE SUPPLY AND ERECTION OF PLANT TO VARIOUS CONTRACTORS/COMPANIES. THESE COMPANIES EXECUTED EARTH WORK AND SITE DEVELOPMENT, CIVIL CONSTRUCTION ETC. JOBS AND RAISED BILLS FOR THESE JOBS. THE APPELLANT-COMPANY PAID FOR THESE BILLS IN THE NORMAL COURSE OF BUSINESS AND DULY DEDUCTED TAX AT SOURCE AND DEPOSITED THE SAME. THESE BILLS WERE DULY CLUBBED UNDER THE HEAD CAPITAL WORK-IN-PROGRESS (CWIP) FOR CAPITALISATION AT A LATER DATE. THE APPELLANT-COMPANY INCURRED VARIOUS EXPENSES IN THE NORMAL COURSE OF BUSINESS THROUGHOUT THE VARIOUS PREVIOUS YEARS DURING WHICH WORK OF CONSTRUCTION AND ERECTION WAS GOING ON. THE EXPENSES INCLUDED THE INTEREST PAID BY THE APPELLANT ON SECURED LOANS AS WELL AS UNSECURED LOANS WHILE MAKING PAYMENT OF INTEREST ON INTER CORPORATE DEPOSITS (ICDS) TAX WAS DEDUCTED AT SOURCE AND DEPOSITED INTO GOVERNMENT TREASURY. ALL INTEREST AND EXPENSES WERE CLUBBED AND SHOWN UNDER THE HEAD CWIP. THE ADVANCES PAID BY THE APPELLANT COMPANY TO VARIOUS CONTRACTORS AND SUB- CONTRACTORS FOR EXECUTING THE WORK WERE ALSO CLUBBED AND SHOWN UNDER CWIP, IN THE BALANCE SHEET, WITH A PROPER DISCLOSURE BY WAY OF A STATEMENT IN NOTES TO ACCOUNTS. FEW COMPANIES BELONGING TO MEHTA GROUP ALSO DID THE WORK OF SUPPLY AND ERECTION. ADVANCES WERE PAID TO THE MEHTA GROUP COMPANIES FOR EXECUTION OF WORK. 20. THE COMPANY WAS INCORPORATED FOR SETTING UP OF AN INTEGRATED PLANT FOR MANUFACTURING SUGAR, POWER, ETHANOL ETC. THE COMMERCIAL PRODUCTION OF THE ENTIRE PROJECTS WERE TO START FROM DECEMBER, 2006 ONWARDS, BUT CRUSHING OF SUGARCANE STARTED DURING AY 2006-07. HOWEVER, SEARCH AND SEIZURE ACTION WAS CARRIED ON THE APP ELLANT-COMPANY ALONG WITH MEHTA GROUP U/S 132 OF THE INCOME TAX ACT, 1961 ON 23.08-2006. THE NOTICES U/S 153A OF THE ACT WERE RECEIVED BY THE APPELLANT-COMPA NY FOR THE AY 2001-02 TO AY 2006-07 ON 23-03-2007. THE APPELLANT HAS FILED REPLIES TO THESE NOTICES ON 23-04-2007 AND IT WAS SUBMITTED IN THAT LETTER THAT ON PERUSAL OF THE SEIZED MATERIAL THEN MADE AVAILABLE IT WAS FELT THAT SOME OF THE ITEMS CLUBBED UNDER CWIP MAY NOT BE FULLY EXPLAINABLE TO THE SATISFACTION OF THE AO. IT WAS ALSO MENTIONED THAT ON CAREFUL ANALYSIS THE CWIP APPEARED TO BE ON HIGHER SIDE AND HENCE THE APPELLANT WAS PREPARING A 9 I.T.A. NO. 150 TO 155/NAG/2010 10 REVISED STATEMENT OF INCOME CONSIDERING THE SEIZED MATERIAL, FOUND FROM MEHTA GROUP OF COMPANIES, THE APPELLANT HAD STATED THAT REDUCTION IN CWIP WOULD RESULT IN REDUCTION IN CLAIM OF DEPRECIATION IN THE FUTURE YEARS. THESE FACTS WERE BROUGHT TO THE NOTICE OF THE ASSESSING OFFICER, PRIOR TO THE COMMENCEMENT OF THE ASSESSMENT PROCEEDINGS. SUBSEQUENT TO THE SEARCH IN RESPONSE TO NOTICE U/S 153A OF THE ACT, RETURNS WERE FILED SHOWING REDUCED FIGURES OF CWIP FOR THESE YEARS. THE AO HAS ACCEPTED THE RETURNED LOSS IN THESE CASES IN HIS ASSESSMENT ORDERS U/S 153A R.W.S. 143(3) OF THE ACT, DTD. 31-12-2008, BUT HAS INITIATED AND LEVIED PENALTIES U/S 271(L)(C) OF THE ACT ON THE AMOUNTS REDUCED FROM CWIP, WHICH WERE SURRENDERED BY THE APPELLANT. 21. I HAVE PERUSED THE ORDERS IMPOSING PENALTY U/S 271(1) (C) OF INCOME TAX ACT, 1961 AND IT IS EVIDENT FROM THE SAME THAT PENALTY IS IMPOSED ONLY FOR THE REASON THAT IN THE COURSE OF ASSESSMENT ASSESSEE HAS AGREED FOR REDUCTION IN THE AMOUNT SHOWN IN CAPITAL WORK IN PROGRESS IN THE RETURNS OF EARLIER YEARS. THE MATTER WAS DISCUSSED WITH AO IN THE COURSE OF APPELLATE PROCEEDINGS. IN THE CASE OF ASSESSEE IT IS UNDISPUTED FACT ON RECORD THAT REDUCTION IN CAPITAL WORK IN PROGRESS IS NOT BASED ON ANY DOCUMENTS OR EVIDENCE FOUND IN THE COURSE OF SEARCH FROM ASSESSEE. IT IS ON THE BASIS OF SEARCH AT MEHTA GROUP AND ASSESSEE HAD VERIFIED THE VALUE OF CAPITAL WORK IN PROGRESS AND REVISED AND REDUCED THE SAME TO BUY PEACE OF MIND AND AVOID VEXED LITIGATION. IN FACT IN THE CASE OF ASSESSEE ALL ADVANCES GIVEN TO MEHTA GROUP OF COMPANIES WERE THROUGH PROPER BANKING CHANNEL AND WAS DULY RECORD IN THE BOOKS OF ACCOUNT OF ASSESSEE. IN THE CASE OF MEHTA GROUP OF COMPANIES IN SEARCH CONDUCTED CERTAIN TRANSACTIONS WITH THE ASSESSEE COMPANY COULD NOT BE FULLY RECONCILED AND THEREFORE COULD NOT BE EXPLAINED BY THE ASSESSEE. THE ASSESSEE COMPANY HAS GIVEN ADVANCES AS WELL AS PAID INTEREST TO MEHTA GROUP OF COMPANIES AND SUCH AMOUNTS PAID HAVE NOT BEEN CLAIMED AS REVENUE EXPENDITURE IN ANY OF THE ASSESSMENT YEARS FOR WHICH PENALTY U/S 271(L)(C) OF THE ACT HAS BEEN LEVIED IN THE CASE OF ASSESSEE. IN FACT IN THE CASE OF ASSESSEE UPTO ASSESSMENT YEAR 2005-06 AS PRODUCTION OF SUGAR HAS NOT COMMENCED AND THEREFORE THERE IS NO QUESTION OF COMPUTING INCOME FROM BUSINESS, TO WHICH THE VARIOUS ADVANCES/INTEREST PAYMENT MADE TO MEHTA GROUP OF COMPANIES RELATES. THE AMOUNT OF 10 I.T.A. NO. 150 TO 155/NAG/2010 11 ADVANCES/INTEREST HAVE NOT BEEN CLAIMED AS EXPENDITURE IN THE RETURN OF INCOME OF ASSESSEE AND THE AFORESAID SUMS NOT BEING ASSESSABLE AS BUSINESS INCOME AT THE HANDS OF ASSESSEE, HENCE NO CHARGE OF CONCEALMENT OR FURNISHING INACCURATE PARTICULARS OF INCOME CAN BE HELD AGAINST ASSESSEE. THE AO HAS NOT DISPUTED THE SOURCE OF GIVING ADVANCE AND INTEREST PAYMENT MADE TO MEHTA GROUP OF COMPANIES. THE ADVANCES AS WELL AS INTEREST PAYMENT TO MEHTA GROUP OF COMPANIES ARE THROUGH PROPER BANKING CHANNEL AND ARE DULY RECORDED IN REGULAR BOOKS OF ACCOUNTS OF THE SAID COMPANY MUCH PRIOR TO THE DATE OF SEARCH. THE ASSESSEE HAS ALSO MADE DUE COMPLIANCE OF DEDUCTION OF TAX AT SOURCE IN RESPECT OF INTEREST PAYMENTS MADE BY ASSESSEE COMPANY AND ALSO IN RESPECT OF ADVANCES FOR CONSTRUCTION ACTIVITY OF THE PROJECT. THE TRANSACTIONS HAVING BEEN DULY DISCLOSED, COULD NOT BE SAID TO HAVE BEEN HIDDEN BY ASSESSES FROM THE REVENUE AUTHORITIES. THE TRANSACTION OF ASSESSEE WITH MEHTA GROUP HAS NO BEARING ON THE TAXABLE INCOME OF VARIOUS YEARS UNDER CONSIDERATION. IT IS ON ACCOUNT OF ASSESSEE NON-RECONCILIATION OF ACCOUNTS WITH MEHTA GROUP THE ASSESSEE, IN ORDER TO BUY PEACE OF MIND AND AVOID VEXED LITIGATION THE ASSESSEE HAD AGREED TO REVISE THE VALUE OF CAPITAL WORK IN PROGRESS IN THE CASE OF ASSESSEE. IT HAS ALSO BEEN NOT THE CASE OF AO THAT ASSESSEE HAS CLAIMED HIGHER LOSS WHICH STANDS REDUCED AS A RESULT OF ASSESSMENT. PERUSAL OF ASSESSMENT ORDERS/PENALTY ORDERS INDICATE THAT CAPITAL WORK IN PROGRESS IS REVISED ON THE BASIS OF OFFER OF THE ASSESSEE ALONE AND DOES NOT REFER TO ANY SPECIFIC SEIZED DOCUMENT. IN VIEW OF ABOVE THERE IS NO CASE FOR LEVY OF PENALTY U/S 271(1) (C) OF INCOME TAX ACT, 1961. IT IS ALSO EVIDENT FROM RECORD THAT AMOUNT OFFERED TO REDUCE THE VALUE OF CAPITAL WORK IN PROGRESS WAS MADE BY THE ASSESSEE MUCH BEFORE THE QUESTIONNAIRE ISSUED TO ASSESSEE AND WAS VOLUNTARY. THIS IS EVIDENT FROM THE LETTER DTD. 23-04-2007 OF THE ASSESSEE TO THE ASSESSING OFFICER. THE PERUSAL OF THE ASSESSMENT ORDERS WOULD INDICATE THAT INCOME RETURNED AND INCOME ASSESSED ARE SAME. IT IS ALSO SEEN THAT THE REDUCTION OF THE VALUE OF CAPITAL WORK IN PROGRESS BY THE APPELLANT- COMPANY HAS NO BEARING ON THE COMPUTATION OF INCOME OR LOSS FOR THE YEAR UNDER CONSIDERATION IN AS MUCH AS THE VALUE OF CAPITAL WORK IN PROGRESS WAS NOT AT ALL TAKEN INTO CONSIDERATION FOR COMPUTING THE INCOME / LOSS DURING THE YEAR UNDER CONSIDERATION, ON ABOVE FACTUAL ADMITTED POSITION, NO 11 I.T.A. NO. 150 TO 155/NAG/2010 12 PENALTY U/S 271(L)(C) OF INCOME TAX ACT, 1961 IS EXIGIBLE. IN THE CASE OF ASSESSEE THE AO HAS NOT ESTABLISHED THAT ASSESSEE HAS CONCEALED INCOME OR FURNISHED INACCURATE PARTICULARS OF INCOME IN RESPECT OF INCOME OR LOSS TO BE COMPUTED FOR THE PREVIOUS YEARS UNDER CONSIDERATION. IN VIEW OF ABOVE THERE IS NO CASE FOR IMPOSITION OF PENALTY U/S 271(L)(C) OF THE ACT IN THE CASE OF ASSESSEE. THE PERUSAL OF ORDERS IMPOSING PENALTY AND ASSESSMENT ORDERS FOR ALL THE YEARS CLEARLY INDICATE THAT IT IS A MERE OFFER OF ASSESSEE TO REDUCE THE VALUE OF CAPITAL-WORK-IN-PROGRESS, WHICH IS ACCEPTED BY THE AO. THE REDUCTION IN CAPITAL WORK-IN- PROGRESS WAS MADE IN ORDER TO BUY PEACE AND AVOID VEXED LITIGATION. 22. THE APPELLANT HAS SUBMITTED VARIOUS CASE LAWS IN HIS SUPPORT. THE RATIO OF THESE CITATIONS SUPPORT THE CASE OF THE APPELLANT. IN A GIVEN CASE AND ON CONSIDERATION OF FACTS AND CIRCUMSTANCES OF THE CASE THE PENALTY MAY OR MAY NOT BE EXIGIBLE. IN THIS REGARD RELIANCE IS PLACED ON THE RATIO OF THE DECISION OF THE HON'BLE APEX COURT IN THE CASE OF HINDUSTAN STEEL LTD. VS. STATE OF ORISSA, REPORTED IN 83 ITR 26(S.C). IT WAS HELD IN CIT VS. SHYAMLAL SONI REPORTED IN 276 I.T.R. P.156 (MP) THAT WHERE THE DISCLOSURE WAS MADE TO BUY PEACE OF MIND AND TO COOPERATE WITH THE DEPARTMENT AND TO AVOID LITIGATION, NO PENALTY U/S 271(1)(C) OF THE ACT COULD BE LEVIED IN CASE WHERE INCOME RETURNED IN THE REVISED RETURN IS ACCEPTED AND ASSESSED IN THE HANDS OF THE ASSESSEE, EVEN THOUGH REVISED RETURNS WERE FILED AFTER SEARCH AND SUBSEQUENT INQUIRIES MADE BY THE DEPARTMENT DURING THE COURSE ASSESSMENT PROCEEDINGS. IN THE CASE OF CIT VS. SURESH MITTAL REPORTED IN (2000) 241 I.T.R. P. 125 (M.P.) THE ASSESSEE'S RETURNS WERE ORIGINALLY FILED SHOWING MEAGER INCOME. LATER ON IN PURSUANCE OF NOTICE UNDER SECTION 148 OF THE ACT REVISED RETURNS WERE FILED SHOWING HIGHER INCOME TO PURCHASE PEACE OF MIND AND TO AVOID LITIGATION. THE REVISED RETURNS WERE ACCEPTED AND REGULARIZED. ON INITIATION OF PENALTY PROCEEDINGS AND THE LEVY OF PENALTY UNDER SECTION 271(1) (C) OF THE ACT THE HON'BLE TRIBUNAL HELD THAT NO PENALTY COULD BE LEVIED. THE HON'BLE HIGH COURT HELD THAT ONCE THE REVISED RETURN WAS REGULARIZED AND ACCEPTED WITHOUT ANY OBJECTION, THE DECLARATION OF INCOME MADE BY THE ASSESSEE TO BUY PEACE AND AVOID LITIGATION HAS TO BE TREATED AS BONAFIDE AND THE HON'BLE TRIBUNAL WAS JUSTIFIED IN CANCELING PENALTY. 12 I.T.A. NO. 150 TO 155/NAG/2010 13 THE HON'BLE SUPREME COURT IN AN APPEAL AGAINST THE SAID ORDER CIT VS. SURESHCHANDRA MITTAL REPORTED IN (2001) 251 I.T.R. P.9 HELD THAT THE ASSESSEE HAD ORIGINALLY FILED SHOWING MEAGER INCOME. WHEN AFTER ACTION UNDER SECTION 132 OF I.T. ACT, 1961 A NOTICE U/S.148 OF THE ACT WAS SERVED ON THE ASSESSEE, HE FILED REVISED RETURN SHOWING HIGHER INCOME. EVENTUALLY ASSESSMENT ORDERS WERE PASSED AND RETURNS SUBMITTED UNDER SECTION 148 OF THE ACT WERE REGULARIZED. IN PENALTY PROCEEDINGS U/S. 271(L)(C) OF THE ACT THE ASSESSEE CLAIMED THAT HE HAD OFFERED ADDITIONAL INCOME TO BUY PEACE OF MIND AND AVOID LITIGATION. PENALTY ORDER WERE PASSED AND CIT(A) CONFIRMED THEM. THE HON'BLE TRIBUNAL HELD THAT THE PENALTY ORDERS HAD RESTED SIMPLY ON THE ACT OF VOLUNTARY SURRENDER ALONE BY THE ASSESSEE IN GOOD FAITH AND HENCE NO PENALTY COULD BE LEVIED. THE HON'BLE HIGH COURT AGREED WITH THE TRIBUNAL. THE HON'BLE SUPREME COURT CONCURRED WITH THE VIEW OF HON'BLE HIGH COURT AND TRIBUNAL. 23. THUS, IN THE FACTS AND CIRCUMSTANCES OF THE PRESENT CASES IT IS SEEN THAT THE REDUCTION IN CAPITAL WORK IN PROGRESS IS OFFERED TO BUY PEACE OF MIND AND TO AVOID VEXED LITIGATION. THE INCOME AS SHOWN IN THE RETURNS ARE ACCEPTED BY THE AO WITHOUT ANY OBJECTION AND ANY VARIATION AS ARE EVIDENT FROM THE ASSESSMENT ORDERS OF THE AO. THE RATIO LAID DOWN BY THE HON'BLE APEX COURT IN THE CASE OF CIT VS. SURESH CHANDRA MITTAL, 251 ITR 9 (SC) FULLY SUPPORTS THE CASE OF THE ASSESSEE. 24. THUS, CONSIDERING THE TOTALITY OF FACTS AND CIRCUMSTANCES OF THE CASE AND CONSIDERING THE RATIO LAID DOWN BY VARIOUS COURTS, I AM OF THE CONSIDERED OPINION THAT NO PENALTY IS EXIGIBLE U/S 271(L)(C) OF THE ACT FOR ASSESSMENT YEARS 2001-02 TO 2006-07 AND HENCE, THE ASSESSING OFFICER IS NOT JUSTIFIED IN LEVYING PENALTIES IN THIS CASE. ACCORDINGLY THE PENALTIES LEVIED FOR ASSESSMENT YEARS 2001-02 TO 2006-07 BY THE AO ARE HEREBY CANCELLED. 6. THE LEARNED D. R. VEHEMENTLY CONTENDED THAT CIT(A) WAS NOT CORRECT IN LAW IN DELETING THE PENALTY IN EACH OF THE ASSESSMENT YEAR. THIS IS A CLEAR CUT CASE WHERE THE ASSESSEE HAS FURNISHED INACCURATE PARTICULARS OF INCOME IN RESPECT OF THE CAPITAL WORK-IN-PROGRESS. THE SURRENDER OF THE CAPITAL WORK- 13 I.T.A. NO. 150 TO 155/NAG/2010 14 IN-PROGRESS BY THE ASSESSEE ITSELF PROVES THAT THE ASSESSEE AT THE TIME OF FILING OF THE ORIGINAL RETURN HAS NOT FILED THE ACCURATE PARTICULARS OF INCOME. THE ASSESSEE SURRENDERED THE CAPITAL WORK-IN-PROGRESS ONLY WHEN THERE HAS BEEN SEARCH IN THE MEHTA GROUP OF THE COMPANIES. MEHTA GROUP OF COMPANIES HAS NOT ONLY EXECUTED THE CAPITAL WORK FOR INSTALLATION OF THE PLANT AND CIVIL CONSTRUCTION FOR THE COMPANY BUT IT ALSO INVESTED IN THE SHARES AND PROVIDED THE INTER CORPORATE DEPOSITS TO THE ASSESSEE. HAD THERE BEEN NO SEARCH, THE ASSESSEE WOULD HAVE NOT COME FORWARD FOR THE SURRENDER OF THE CAPITAL WORK- IN-PROGRESS. THE RELIANCE WAS PLACED ON THE DECISION OF HON'BLE SUPREME COURT IN THE CASE OF UNION OF INDIA & ORS. VS. DHARMENDRA TEXTILE PROCESSORS & ORS. [2008] 306 ITR 277 FOR THE PROPOSITION OF LAW THAT MENS REA IS NOT AN ESSENTIAL INGREDIENT FOR THE LEVY OF THE PENALTY U/S 271(1)(C). IT IS A CIVIL LIABILITY. THE ASSESSING OFFICER NEED NOT TO PROVE INTENTION OF THE ASSESSEE AND THE ASSESSING OFFICER HAS NO DISCRETION EXCEPT TO LEVY THE PENALTY WHEREVER THE ASSESSEE HAS COMMITTED THE DEFAULT. RELIANCE WAS ALSO PLACED ON THE DECISION OF SUPREME COURT IN THE CASE OF KP MADHUSUDAN 251 ITR 99. 7. THE LEARNED A. R., ON THE OTHER HAND, RELIED ON THE ORDER OF CIT(A) AND CONTENDED THAT THE CIT(A) HAS RIGHTLY DELETED THE PENALTY. IT WAS CONTENDED THAT THE ASSESSING OFFICER, WHILE INITIATING THE PENALTY, WAS NOT SATISFIED FOR WHICH DEFAULT HE IS INITIATING THE PROCEEDINGS FOR THE LEVY OF THE PENALTY. FURNISHING OF THE INACCURATE PARTICULARS AND CONCEALMENT OF INCOME, BOTH ARE THE DIFFERENT DEFAULTS. EXPLANATION 1 IS APPLICABLE ONLY IN RESPECT OF THE CONCEALMENT OF PARTICULARS OF THE INCOME AND NOT FOR FURNISHING THE INACCURATE 14 I.T.A. NO. 150 TO 155/NAG/2010 15 PARTICULARS OF INCOME. DURING THE YEAR IN WHICH THE CAPITAL WORK-IN-PROGRESS HAS BEEN SURRENDERED, THERE IS NO IMPACT ON THE INCOME OF THE ASSESSEE AS IT IS ONLY THE CAPITAL WORK-IN-PROGRESS WHICH GOT REDUCED. ULTIMATELY THERE IS NO DIFFERENCE IN THE INCOME RETURNED AND INCOME ASSESSED. RELIANCE WAS PLACED ON THE DECISION OF HON'BLE DELHI HIGH COURT IN THE CASE OF MS. MADHUSHREE GUPTA BRITISH AIRWAYS PLC VS. UNION OF INDIA 317 ITR 107 FOR THE PROPOSITION OF THE LAW THAT EVEN AFTER INSERTION OF SECTION 271(1B), THE ASSESSING OFFICER HAS TO ARRIVE AT A PRIMA FACIE SATISFACTION DURING THE COURSE OF PROCEEDINGS WITH REGARD TO ASSESSEE HAVING CONCEALED THE PARTICULARS OF INCOME OR SUBMITTED INACCURATE PARTICULARS OF INCOME. NO SUCH SATISFACTION HAS BEEN ARRIVED AT FOR INITIATING THE PROCEEDINGS U/S 271(1)(C) OF THE ACT. EVEN OTHERWISE ALSO, IT IS A CASE WHERE NO SEIZED MATERIAL IS AVAILABLE WITH THE ASSESSING OFFICER. THE ASSESSEE VOLUNTARILY FILED THE REPLY ON 23/04/2007 THAT SOME OF THE ITEMS CLUBBED UNDER THE CAPITAL WORK-IN-PROGRESS MAY NOT BE FULLY EXPLAINED TO THE SATISFACTION OF THE ASSESSING OFFICER. THE CAPITAL WORK-IN- PROGRESS APPEARS ON HIGHER SIDE CONSIDERING THE SEIZED MATERIAL FOUND FROM THE MEHTA GROUP OF COMPANIES. NO MATERIAL PROVING THE UNDISCLOSED INCOME WAS FOUND IN THE CASE OF THE ASSESSEE. THE ASSESSEE ACCORDINGLY REDUCED THE CAPITAL WORK-IN-PROGRESS JUST TO LIE IN PEACE. EVEN NO MATERIAL FOUND IN THE CASE OF MEHTA GROUP IS BROUGHT ON RECORD. NO PROCEEDINGS U/S153C WAS INITIATED. THE SOURCE OF EXPENDITURE BEING INCURRED ON THE CAPITAL WORK-IN- PROGRESS IS NOT DISPUTED BY THE ASSESSING OFFICER. THE REVISION/SURRENDER OF THE PORTION OF THE CAPITAL WORK-IN-PROGRESS DOES NOT MEAN THAT THE AMOUNT OF THE CAPITAL WORK-IN-PROGRESS SUBMITTED EARLIER WAS FALSE. THE PORTION OF THE 15 I.T.A. NO. 150 TO 155/NAG/2010 16 ADVANCE PAID TO MEHTA GROUP MIGHT HAVE BEEN REDUCED IN CAPITAL WORK-IN- PROGRESS. THE ASSESSEE HAS NOT CONCEALED ANY INCOME NOR HAS FURNISHED ANY INACCURATE PARTICULARS OF THE INCOME. THE ASSESSMENTS FOR THE ASSESSMENT YEAR 2001-02 TO 2006-2007 WERE COMPLETED BY THE ASSESSING OFFICER VIDE ORDER DATED 31/12/2008 RESULTING IN NIL DEMAND THEREBY ACCEPTING THE RETURNED INCOME. THIS PROVES THAT THERE IS NEITHER ANY CONCEALMENT NOR FURNISHING OF INACCURATE PARTICULARS OF INCOME. NO SATISFACTION HAS BEEN RECORDED. RELIANCE WAS PLACED ON THE DECISION OF HON'BLE KERALA HIGH COURT IN THE CASE OF CIT VS. M. GEORGE & BROTHERS [1960] 160 ITR 511 FOR THE PROPOSITION OF LAW THAT THOUGH THE RETURN DID NOT SHOW CERTAIN ITEMS OF INCOME, BUT THERE WAS SIMULTANEOUS DISCLOSURE BY THE ASSESSEE, THEN IN SUCH A CASE IT WOULD BE INCORRECT TO LEVY PENALTY. RELIANCE WAS ALSO PLACED ON THE DECISION HON'BLE SUPREME COURT IN THE CASE OF DILIP N. SHROFF VS. JT. CIT & ANR. [2007] 291 ITR 519 THAT PENALTY U/S 271(1)(C) IS NOT AUTOMATIC AND THE FACTORS ENUMERATED IN CLAUSES (A) AND (B) OF EXPLANATION 1 HAVE TO BE SATISFIED. REFERRING TO THE DECISION OF DHARMENDRA TEXTILE PROCESSORS & ORS. (SUPRA), IT WAS POINTED OUT THAT THIS DECISION NOWHERE STATES THAT THE PENALTY IS AUTOMATIC. IN THIS REGARD ATTENTION WAS DRAWN TOWARDS THE DECISION OF I.T.A.T., PUNE BENCH IN THE CASE OF KANBAY SOFTWARE INDIA PVT. LTD. VS. DY. CIT [2009] 122 TTJ (PUNE) 721 AND THAT OF COMMISSIONER OF INCOME-TAX VS. RELIANCE PETROPRODUCTS PVT. LTD. [2010] 322 ITR 158 (SC). EXPLANATION 5 WAS NOT APPLICABLE IN THE CASE OF THE ASSESSEE AS NO ASSETS WERE FOUND IN THE CASE OF THE ASSESSEE. EVEN THAT WAS NOT THE CASE OF THE ASSESSING OFFICER. THE ASSESSEE WAS NOT ENTITLED TO CLAIM ANY DEPRECIATION OF CAPITAL WORK-IN-PROGRESS IN ASSESSMENT YEAR 2001-02 TO 16 I.T.A. NO. 150 TO 155/NAG/2010 17 2005-06. UPON CAPITALIZATION OF CAPITAL WORK-IN-PROGRESS, THE ASSESSEE CLAIMED DEPRECIATION FOR THE FIRST TIME IN A.Y.2006-07. THERE WAS REDUCTION ON THE DEPRECIATION CLAIMED FOR THE ASSESSMENT YEAR 2006-2007, THEREFORE, THE ASSESSEE FILED RETURN IN THE ASSESSMENT YEAR 2006-2007 ONLY ALTHOUGH THE FIGURES OF THE SURRENDER WERE RIGHTLY FURNISHED FOR ALL THE YEARS. THE RETURNED INCOME FOR THE ASSESSMENT YEAR 2001-02 TO 2005-06 WAS NOT AFFECTED EVEN AFTER CONSIDERING THE SURRENDER. HENCE IN THE OPINION OF THE ASSESSEE, FILING OF THE RETURN REVISING THE INCOME AS ORIGINALLY FILED WAS NOT WARRANTED FOR ASSESSMENT YEAR 2001-2002 TO 2005-2006. ALTERNATIVELY, BY REFERRING TO EXPLANATION 4 READ WITH SECTION 271(1)(C), IT WAS POINTED OUT THAT THE PENALTY HAS BEEN LEVIED ON THE AMOUNT OF TAX SOUGHT TO BE EVADED BY REASON OF CONCEALMENT OF PARTICULARS OF INCOME OR FURNISHING OF INACCURATE PARTICULARS OF THE INCOME. EXPLANATION 4 DEFINES THE TAX SOUGHT TO BE EVADED. NEITHER CLAUSE (A), (B) OR (C) OF THIS EXPLANATION IS APPLICABLE IN THE CASE OF THE ASSESSEE. THE SURRENDER MADE BY THE ASSESSEE IN REDUCING THE CAPITAL WORK- IN-PROGRESS IN THE ASSESSMENT YEAR 2001-02 TO 2005-06 DOES NOT REDUCE THE LOSS DECLARED IN THE RETURN OR CONVERT THAT LOSS INTO INCOME. THE LOSS OR INCOME ASSESSED IN EACH OF THE ASSESSMENT YEAR, REMAINS THE SAME. THUS, THERE IS NO TAX WHICH REMAINS EVADED AND, THEREFORE, THERE CANNOT BE ANY PENALTY ON THIS BASIS ALSO. 8. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD ALONG WITH VARIOUS CASE LAWS BROUGHT TO OUR KNOWLEDGE AND EVEN CITED DURING THE COURSE OF HEARING AT THE BAR. IT HAS BEEN 17 I.T.A. NO. 150 TO 155/NAG/2010 18 A MATTER OF DISPUTE AS TO WHETHER THE ASSESSING OFFICER IS REQUIRED TO RECORD HIS SATISFACTION BEFORE INITIATING THE PENALTY PROCEEDINGS U/S 271 OF THE ACT. TO SETTLE THIS ISSUE, THE LEGISLATURE HAS INSERTED SUB SECTION (1B) IN SECTION 271 BY FINANCE ACT, 2008 WITH EFFECT FROM 01/04/1989 WHICH IS REPRODUCED AS UNDER: WHERE ANY AMOUNT IS ADDED OR DISALLOWED IN COMPUTING THE TOTAL INCOME OR LOSS OF AN ASSESSEE IN ANY ORDER OF ASSESSMENT OR REASSESSMENT AND THE SAID ORDER CONTAINS A DIRECTION FOR INITIATION OF PENALTY PROCEEDINGS UNDER CLAUSE (C) OF SUB-SECTION (1), SUCH AN ORDER OF ASSESSMENT OR REASSESSMENT SHALL BE DEEMED TO CONSTITUTE SATISFACTION OF THE ASSESSING OFFICER FOR INITIATION OF THE PENALTY PROCEEDINGS UNDER THE SAID CLAUSE(C). 9. THIS PROVISION CREATES A LEGAL FICTION BY WHICH SATISFACTION OF THE ASSESSING OFFICER IS DEEMED TO HAVE BEEN RECORDED IN CASE WHERE AN ADDITION OR DISALLOWANCE IS MADE BY THE ASSESSING OFFICER AND A DIRECTION FOR INITIATION OF THE PENALTY PROCEEDINGS IS ISSUED. THE SAID PROVISION IS MADE EFFECTIVE RETROSPECTIVELY WITH EFFECT FROM 01/04/89. FICTION IS CREATED FOR A DEFINITE PURPOSE AND THEY ARE LIMITED TO THE PURPOSE FOR WHICH THEY ARE CREATED AND CANNOT EXTEND BEYOND THEIR LEGITIMATE FIELD. THE LEGAL FICTION HAS TO BE INTERPRETED STRICTLY AS IT IS INTENDED TO ENLARGE THE MEANING OF A PARTICULAR WORD OR TO INCLUDE MATERIALS WHICH OTHERWISE MAY OR MAY NOT FALL WITHIN THE MAIN PROVISION. IF WE INTERPRET SECTION 271(IB), IT IS APPARENT THAT A DIRECTION FOR INITIATION OF THE PENALTY PROCEEDINGS IN THE ORDER SHALL BE DEEMED TO CONSTITUTE SATISFACTION OF THE ASSESSING OFFICER FOR INITIATION OF THE PENALTY PROCEEDINGS U/S 271(1)(C) IF ANY AMOUNT IS ADDED OR DISALLOWED IN COMPUTING THE TOTAL INCOME OR LOSS OF AN ASSESSEE IN ANY ORDER OF ASSESSMENT OR REASSESSMENT. 18 I.T.A. NO. 150 TO 155/NAG/2010 19 SATISFACTION FOR CONCEALMENT OF THE PARTICULARS OF INCOME OR FURNISHING OF INACCURATE PARTICULARS OF INCOME HAS TO BE MADE OUT IN THE COURSE OF ANY PROCEEDINGS UNDER THIS ACT IF WE LOOK TO THE MAIN PROVISION OF SECTION 271(1). THE SATISFACTION SO MADE OUT HAS A RELEVANCY TO THE ASSESSMENT YEAR. SECTION 271(IB) IS AN EXCEPTION FOR RECORDING OF THE SATISFACTION. IF THE PROVISIONS OF SECTION 271(IB) IS APPLICABLE, RECORDING OF THE SATISFACTION DURING THE COURSE OF ASSESSMENT PROCEEDING IS NOT NECESSARY. IN THE CASE OF THE ASSESSEE, WE NOTED THAT THERE IS A DIRECTION THAT THE PENALTY PROCEEDINGS U/S 271(1)(C) IS SEPARATELY INITIATED. NOW THE QUESTION ARISES WHETHER THIS DIRECTION WILL TANTAMOUNT TO BE THE SATISFACTION RECORDED BY THE ASSESSING OFFICER FOR THE CONCEALMENT OF THE PARTICULARS OF INCOME OR FURNISHING OF INACCURATE PARTICULARS OF INCOME. THIS IS UNDISPUTED FACT THAT IN THE CASE OF THE ASSESSEE THE ASSESSMENTS HAVE BEEN FRAMED BY THE ASSESSING OFFICER AT THE SAME INCOME OR LOSS AT WHICH THE ASSESSEE HAS FILED THE RETURN IN PURSUANCE TO THE NOTICE ISSUED U/S 153A. THE ASSESSING OFFICER HAS NOT MADE ANY ADDITION OR DISALLOWANCE WHILE COMPUTING THE TOTAL INCOME OR LOSS OF THE ASSESSEE. IN OUR OPINION, SECTION 271(1B) WILL NOT APPLY IN THE CASE OF THE ASSESSEE AND THE ASSESSING OFFICER IS BOUND TO RECORD THE SATISFACTION FOR THE CONCEALMENT OF THE PARTICULARS OF INCOME OR FURNISHING OF INACCURATE PARTICULARS OF INCOME. WE HAVE GONE THROUGH THE ASSESSMENT ORDER FOR EACH OF THE ASSESSMENT YEAR AND WE FIND THAT IN THE ASSESSMENT ORDER, ANYTHING WHICH MAY DESIGNATE THAT THE ASSESSING OFFICER HAS SATISFIED DURING THE COURSE OF ASSESSMENT PROCEEDINGS THAT THE ASSESSEE HAS CONCEALED THE PARTICULARS OF INCOME OR FURNISHED THE INACCURATE PARTICULARS OF INCOME. THIS IS 19 I.T.A. NO. 150 TO 155/NAG/2010 20 A FACT THAT BOTH THE CHARGES ARE DIFFERENT CHARGE AND IF THE PENALTY HAS BEEN INITIATED IN RESPECT OF ONE CHARGE, IT CANNOT BE LEVIED FOR THE OTHER CHARGE. WE ARE OF THE FIRM VIEW THAT SINCE SECTION 271(1B) IS NOT APPLICABLE IN THE CASE OF THE ASSESSEE THEN THE REVENUE HAS TO SHOW THAT THE SATISFACTION OF THE ASSESSING OFFICER TO THE FACT THAT THE ASSESSEE HAS EITHER CONCEALED THE PARTICULARS OF INCOME OR FURNISHED INACCURATE PARTICULARS OF INCOME. THIS IS THE CONDITION PRECEDENT FOR INITIATING THE PENALTY. UNTIL AND UNLESS THE SATISFACTION IS ARRIVED AT IN THE COURSE OF ANY PROCEEDINGS UNDER THE ACT, THE PENALTY CANNOT BE LEVIED. THIS VIEW WAS TAKEN BY HON'BLE SUPREME COURT IN THE CASE OF COMMISSIONER OF INCOME TAX, MADRAS, AND ANOTHER VS. S. V. ANGIDI CHETTIAR 44 ITR 739 WHILE CONSTITUTING THE PROVISION OF SECTION 28(1)(C) OF THE I.T. ACT, 1922 AND REITERATED IN THE CASE OF D.M. MANASVI 86 ITR 557 SC . WHILE CONSTITUTING THE PROVISION OF SECTION 271(1)(C) OF THE I.T. ACT, FULL BENCH OF HON'BLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF COMMISSIONER OF INCOME TAX VS. MOHINDER LAL 168 ITR 101, HELD THAT IT IS THE SATISFACTION OF THE INCOME TAX OFFICER IN THE COURSE OF ASSESSMENT PROCEEDINGS REGARDING THE CONCEALMENT OF INCOME WHICH CONSTITUTES THE BASIS FOR LEVY OF PENALTY. SUBSEQUENTLY, A QUESTION ARISES AS TO WHETHER SUCH SATISFACTION MUST BE RECORDED IN THE ASSESSMENT ORDER. DIVERGENT VIEWS HAD BEEN EXPRESSED BY THE HIGH COURTS. IT HAS BEEN HELD IN THE FOLLOWING CASES THAT RECORDING OF THE SATISFACTION BY THE ASSESSING OFFICER IN THE ASSESSMENT ORDER IS CINE QUA NON FOR INITIATING PENALTY PROCEEDINGS UNDER THE ABOVE SECTION. MERE OBSERVATION PENALTY PROCEEDINGS ARE BEING INITIATED SEPARATELY IS NOT ENOUGH. 20 I.T.A. NO. 150 TO 155/NAG/2010 21 (1) COMMISSIONER OF INCOME-TAX VS. RAM COMMERCIAL ENTERPRISES LTD. 246 ITR 568 (2) DIWAN ENTERPRISES VS. COMMISSIONER OF INCOME-TAX 246 ITR 571 (3) COMMISSIONER OF INCOME-TAX V. VIKAS PROMOTERS (P.) LTD. [2005] 277 ITR 337 (DEL) (4) COMMISSIONER OF INCOME-TAX V. SUPER METAL RE-ROLLERS [2004] 265 ITR 82 (DEL) (5) SHRI BHAGWANT FINANCE CO. LTD. V. CIT [2006] 280 ITR 412 (DEL) (6) COMMISSIONER OF INCOME-TAX V. RAJAN AND CO. [2007] 291 ITR 340 (DEL) (7) COMMISSIONER OF INCOME-TAX V. MUNISH IRON STORE [2003] 263 ITR 484 (P&H) (8) COMMISSIONER OF INCOME-TAX VS. DAJIBHAI KANJIBHAI 189 ITR 41(MUM) (9) COMMISSIONER OF INCOME-TAX V. RAMPUR ENGINEERING CO. LTD. [2009] 309 ITR 143 (DEL) (10) V. V. PROJECTS AND INVESTMENTS P. LTD. V. DEPUTY COMMISSIONER OF INCOME-TAX [2008] 300 ITR 40 (AP) 10. THUS, THE JURISDICTIONAL HIGH COURT HAS ALSO TAKEN THE SIMILAR VIEW IN THE CASE OF CIT VS. DAJIBHAI KANJIBHAI [1991] 189 ITR 41 RELYING ON THE DECISION OF HON'BLE SUPREME COURT IN THE CASE OF CIT VS. S. V. ANGIDI CHETTIAR [1962] 44 ITR 739 AS UNDER: THE POWER TO IMPOSE PENALTY U/S 271(1)(C) OF THE I.T. ACT, 1961, DEPENDS UPON THE SATISFACTION OF THE INCOME TAX OFFICER IN THE COURSE OF THE ASSESSMENT PROCEEDINGS UNDER THE ACT. IT CANNOT BE EXERCISED IF HE IS NOT SATISFIED AND HAS NOT RECORDED HIS SATISFACTION ABOUT THE EXISTENCE OF THE CONDITIONS SPECIFIED IN CLAUSES (A), (B) AND (C) OF SECTION 271(1) BEFORE THE ASSESSMENT PROCEEDINGS ARE CONCLUDED. 10.1 THE HON'BLE ANDHRA PRADESH HIGH COURT IN THE CASE OF CHENNAKESAVA PHARMACEUTICALS VS. CIT [2012] 349 ITR 196 (AP) HAS OBSERVED AS UNDER: IN RAMPUR ENGINEERING CO. LTD.'S CASE [2009] 309 ITR 143 (DELHI) [FB], A FULL BENCH OF THE DELHI HIGH COURT CONSIDERED THE CORRECTNESS OF THE DECISION OF THE DELHI HIGH COURT IN RAM 21 I.T.A. NO. 150 TO 155/NAG/2010 22 COMMERCIAL ENTERPRISES LTD.'S CASE [2000] 246 ITR 568 (DELHI) AND AFTER CONSIDERING THE DECISION IN MANASVI'S CASE [1972] 86 ITR 557 (SC), HELD AS FOLLOWS (PAGE 148) : 'IN OUR OPINION, THE LEGAL POSITION IS WELL SETTLED IN VIEW OF THE SUPREME COURT DECISIONS IN CIT V. S. V. ANGIDI CHETTIAR [1962]44 ITR 739 (SC) AND D. M. MANASVI V. CIT [1972] 86 ITR 557(SC),THAT POWER TO IMPOSE PENALTY UNDER SECTION 271 OF THE ACT DEPENDS UPON THE SATISFACTION OF THE INCOME-TAX OFFICER IN THE COURSE OF THE PROCEEDINGS UNDER THE ACT. IT CANNOT BE EXERCISED IF HE IS NOT SATISFIED AND HAS NOT RECORDED HIS SATISFACTION ABOUT THE EXISTENCE OF THE COND ITIONS SPECIFIED IN CLAUSES (A), (B) AND (C) BEFORE THE PROCEEDINGS ARE CONCLUDED. IT IS TRUE THAT MERE ABSENCE OF THE WORDS I AM SATISFIED MAY NOT BE FATAL BUT SUCH A SATISFACTION MUST BE SPELT OUT FROM THE ORDER OF THE ASSESSING AUTHORITY AS TO THE CONCEALMENT OF INCOME OR DELIBERATELY FURNISHING INACCURATE PARTICULARS. IN THE ABSENCE OF A CLEAR FINDING AS TO THE CONCEALMENT OF INCOME OR DELIBERATELY FURNISHING INACCURATE PARTICULARS, THE INITIATION OF PENALTY PROCEEDINGS WILL BE WITHOUT JURISDICTION. IN OUR OPINION, THE LAW IS CORRECTLY LAID DOWN IN RAM COMMERCIAL ENTERPRISES LTD. [2000] 246 ITR 568 (DELHI) AND WE ARE IN RESPECTFUL AGREEMENT WITH THE SAME. THE REFERENCE IS ANSWERED ACCORDINGLY.' IN V. V. PROJECTS AND INVESTMENTS PVT. LTD.'S CASE [2008] 300 ITR 40 (AP), A DIVISION BENCH OF THIS COURT CONSIDERED THE DECISIONS IN MANASVI'S CASE [1972] 86 ITR 557 (SC), MUNISH IRON STORES' CASE [2003] 263 ITR 484 (P&H) VIKAS PROMOTERS PVT. LTD.'S CASE [2005] 277 ITR 337 (DELHI), RAM COMMERCIAL ENTERPRISES LTD.'S CASE [2000] 246 ITR 568 (DELHI) AND HELD (PAGE 46) : 'FROM THE LEGAL POSITION NOTICED ABOVE, IT IS CLEAR THAT THE ASSESSING OFFICER HAS TO FORM HIS OWN OPINION AND RECORD HIS SATISFACTION OF CONCEALMENT OF INCOME OR FURNISHING OF INACCURATE PARTICULARS OF INCOME BEFORE INITIATING PENALTY PROCEEDINGS UNDER SECTION 271(1)(C) OF THE ACT. IT IS ALSO CLEAR THAT SUCH SATISFACTION OF THE ASSESSING OFFICER MUST BE SPELT OUT IN THE ORDER OF ASSESSMENT ITSELF BUT CANNOT BE ASSUMED FROM THE ISSUE OF NOTICE UNDER SECTION 271(1)(C) OF THE ACT. FAILURE TO RECORD SUCH SATISFACTION AMOUNTS TO A JURISDICTIONAL DEFECT WHICH CANNOT BE CURED. IT IS ALSO RELEVANT TO NOTE THAT WHETHER THE ASSESSEE HAS CONCEALED HIS INCOME OR HAS DELIBERATELY FURNISHED INACCURATE PARTICULARS THEREOF IS ESSENTIALLY A 22 I.T.A. NO. 150 TO 155/NAG/2010 23 FINDING OF FACT WHICH HAS TO BE SPELT OUT BY WAY OF RECORDING THE SATISFACTION OF THE ASSESSING OFFICER WAS REQUIRED UNDER SECTION 271(1) OF THE ACT. THEREFORE, IN THE ABSENCE OF SUCH A FINDING IN THE ASSESSMENT ORDER NO PENALTY PROCEEDINGS CAN BE INITIATED.' IT REJECTED THE CONTENTION OF THE REVENUE THAT THE PENALTY PROCEEDINGS ARE INDEPENDENT AND IT IS SUFFICIENT IF THE SATISFACTION IS RECORDED IN THE ORDER LEVYING PENALTY. IT ALSO REFERRED TO DILIP N. SHROFF V. JOINT CIT [2007] 291 ITR 519 (SC) AND NOTED THAT THE SUPREME COURT IN THAT CASE HAD HELD THAT THE ORDER IMPOSING PENALTY UNDER SECTION 271(1)(C) BEING PENAL IN NATURE, THE RULE OF STRICT CONSTRUCTION SHALL APPLY. 11. IN DILIP N. SHROFFS CASE [2007] 291 ITR 519 (SC), THE SUPREME COURT APPROVED THE JUDGMENT IN RAM COMMERCIAL ENTERPRISESLTD.'S CASE [2000] 246 ITR 568 (DELHI) AND ALSO HELD THAT SECTION 271(L)(C)BEING A PENAL PRO VISION MUST BE STRICTLY CONSTRUED AND THAT MENS REA IS NECESSARY INGREDIENT FOR PENALTY UNDER SECTION 271(1) (C) OF THE ACT. BUT, IN UNION OF INDIA V. DHARMENDRA TEXTILE PROCESSSORS [2008] 306 ITR 277 (SC), THE SUPREME COURT HELD THAT THE PENALTY UNDER SECTION 271(1)(C) IS A CIVIL LIABILITY AND 'WILFUL' CONCEALMENT IS NOT AN ESSENTIAL INGREDIENT FOR ATTRACTING CIVIL LIABILITY. IT OVERRULED ONLY THAT PORTION OF THE JUDGMENT IN DILIP N. SHROFFS CASE [2007] 291 ITR 519 (SC) WHEREIN THE SUPREME COURT HAD HELD THAT THE MENS REA WAS ESSENTIAL INGREDIENT FOR IMPOSING PENALTY UNDER SECTION 271(L)(C) OF THE ACT. THIS WAS POINTED OUT IN RELIANCE PETROPRODUCTS PVT. LTD.'S CASE [2010] 322 ITR 158 (SC). IN RELIANCE PETROPRODUCTS PVT. LTD.'S CASE [2010] 322 ITR 158 (SC), THE SUPREME COURT ALSO HELD THAT IMPOSITION OF PENALTY IS UNWARRANTED WHEN THERE IS NO FINDING IN THE ASSESSMENT ORDER THAT DETAILS SUPPLIED BY THE ASSESSEE WERE FOUND TO BE FALSE. THIS INDICATES THAT THE VIEW TAKEN BY THE DELHI HIGH COURT IN 23 I.T.A. NO. 150 TO 155/NAG/2010 24 RAM COMMERCIAL ENTERPRISES LTD.'S CASE [2000] 246 ITR 568 (DELHI) WHICH HAS BEEN APPROVED IN DILIP N. SHROFFS CASE [2007] 291 ITR 519 (SC) CONTINUES TO BE VALID AND THIS PART OF THE JUDGMENT IN DILIP N. SHROFFS CASE [2007] 291 ITR 519 (SC) HAS NOT BEEN OVER RULED AND CONTINUES TO BE GOOD LAW. MOREOVER, THE DECISION OF THE DELHI HIGH COURT IN RAM COMMERCIAL 22 ENTERPRISES [2000] 246 ITR 568 (DELHI) WAS ALSO FOLLOWED BY THE SAME HIGH COURT IN CIT V. M. K. SHARMA [2008] 307 ITR 147 (DELHI) AND SLP(C) NO. 17591 OF 2008 FILED AGAINST THE SAID DECISION WAS DISMISSED BY THE SUPREME COURT ON JULY 18, 2008 (SEE [2008] 306 ITR (ST.) 2). 12. MOREOVER, THE DECISION IN RAM COMMERCIAL ENTERPRISES WAS APPROVED BY THE FULL BENCH OF THE DELHI HIGH COURT IN RAMPUR ENGINEERING CO, LTD.'S CASE [2009] 309 ITR 143 (DELHI) [FB]. EVEN IN RELIANCE PETROPRODUCTS [2010] 322 ITR 158 (SC) (THE UNDERSIGNED WAS THE AUTHOR OF THE JUDGEMENT BEFORE TRIBUNAL) THE SUPREME COURT HAD HELD THAT IMPOSITION OF PENALTY IS UNWARRANTED WHEN THERE IS NO FINDING IN THE ASSESSMENT ORDER THAT DETAILS SUPPLIED BY THE ASSESSEE WERE FOUND TO BE FALSE. EVEN HONBLE SUPREME COURT IN THE CASE OF CIT VS. ATUL MOHAN BINDAL 317 ITR 1 (SC) HAS HELD THAT THE CONDITIONS AS STATED UNDER SECTION 271(1)(C) MUST EXIST FOR IMPOSING THE PENALTY U/S 271(1)(C). IN VIEW OF THIS AND THE DECISION OF THE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. DAJIBHAI KANJIBHAI [1991] 189 ITR 41, THE RECORDING OF THE SATISFACTION BY THE ASSESSING OFFICER DURING THE COURSE OF ASSESSMENT PROCEEDINGS, I.E. IN THE ASSESSMENT ORDER IS THE FOUNDATION AND BACKBONE OF INITIATING THE PENALTY PROCEEDINGS U/S 271(1)(C). TO OVERRULE THESE DECISIONS, SECTION 271(1B) INSERTED BY THE FINANCE ACT 2008, BUT WE HAVE ALREADY HELD IN THE PRECEDING PARAS THAT THIS SECTION IS NOT APPLICABLE ON THE FACTS AND CIRCUMSTANCES OF THE CASE. 24 I.T.A. NO. 150 TO 155/NAG/2010 25 13. APPLYING THE ABOVE PRINCIPLE AND THE FACT THAT THE PROVISION OF SECTION 271(1B) IS NOT APPLICABLE IN THE CASE OF THE ASSESSEE. THE ASSESSING OFFICER IN THIS CASE SHOULD HAVE RECORDED HIS SATISFACTION IN THE ASSESSMENT ORDER THAT THE ASSESSEE HAD EITHER CONCEALED THE INCOME OR FURNISHED THE INACCURATE PARTICULARS OF THE INCOME IN HIS RETURN BEFORE PROCEEDING FURTHER. WE NOTICE THAT IN EACH OF THE ASSESSMENT YEARS, THE ASSESSING OFFICER, IN THE ASSESSMENT ORDER PASSED U/S 143(3) READ WITH SECTION 153A, HAS NOT RECORDED ANY SATISFACTION BUT HAS SIMPLY MENTIONED THAT THE PENALTY PROCEEDINGS U/S 271(1)(C) HAS BEEN INITIATED SEPARATELY (ENGLISH TRANSLATION). NOWHERE THE ASSESSING OFFICER NOTED IN THE ASSESSING OFFICER HIS SATISFACTION THAT THERE WAS FURNISHING OF INACCURATE PARTICULARS OF INCOME BY THE ASSESSEE AND THAT THERE IS CASE MADE OUT FOR INITIATING PROCEEDINGS U/S 271(1)(C) OF THE ACT. THEREFORE, WE ARE OF THE VIEW THAT INITIATION OF PROCEEDINGS U/S 271(1)(C), AGAINST THE ASSESSEE FOR ASSESSMENT YEAR 2001-02 TO 2006-07 ARE NOT VALID IN LAW. ACCORDINGLY, ON THIS BASIS ITSELF, WE DISMISS THE GROUND TAKEN BY THE REVENUE. 14. EVEN CONSTITUTIONAL VALIDITY OF SECTION 271(1B) PROVISION WAS CHALLENGED BEFORE HONBLE DELHI HIGH COURT IN THE CASES OF MADHUSHREE GUPTA & BRITISH AIRWAYS 317 ITR 143(DEL).THE SCOPE OF THE AMENDMENT WAS EXPLAINED AT PAGE 146 AS UNDER:- IN OUR OPINION, THE IMPUGNED PROVISION ONLY PROVIDES THAT AN ORDER INITIATING PENALTY CANNOT BE DECLARED BAD IN LAW BECAUSE IT STATES THE PENALTY PROCEEDINGS ARE INITIATED, IF OTHERWISE IT IS 25 I.T.A. NO. 150 TO 155/NAG/2010 26 DISCERNIBLE FROM RECORD THAT THE AO HAS ARRIVED AT PRIMA FACIE SATISFACTION FOR INITIATION OF PENALTY PROCEEDINGS. THE ISSUE IS OF DISCERNIBILITY OF THE SATISFACTION ARRIVED AT BY THE AO DURING THE COURSE OF PROCEEDING BEFORE HIM. THE PRESENCE OF PRIMA FACIE SATISFACTION FOR INITIATION OF PENALTY PROCEEDINGS WAS AND REMAINS A JURISDICTIONAL FACT WHICH CANNOT BE WISHED AWAY AS THE PROVISION STANDS EVEN TODAY, I.E POST AMENDMENT. (P 147) IF THERE IS NO MATERIAL TO INITIATE PENALTY PROCEEDINGS; AN ASSESSEE WILL BE ENTITLED TO RECOURSE TO A COURT OF LAW .( P 147) 15. IN VIEW OF THE ABOVE JUDGMENT, IT IS CLEAR THAT THE SATISFACTION OF THE AUTHORITY IS STILL A CONDITION PRECEDENT, WHICH MUST BE DISCERNIBLE FROM THE ORDER AND SUCH SATISFACTION MUST BE BASED ON SOME MATERIAL ON RECORD. IN THIS CASE, WE NOTED THAT THE ASSESSING OFFICER EVEN THOUGH COMPLETED THE ASSESSMENT IN EACH OF THE ASSESSMENT YEAR AT THE INCOME AS HAS BEEN RETURNED BY THE ASSESSEE. EVEN NO DEMAND, WHATSOEVER, HAS BEEN CREATED. THE RETURNED INCOME AS WELL AS THE ASSESSED INCOME IN EACH OF THE ASSESSMENT YEAR, IS GIVEN AS UNDER: ASSTT. YEAR RETURNED INCOME ASSESSED INCOME --------------- --------------------------------- ------------------------------ 2001-02 NIL NIL 2002-03 (-)2,81,545 (-)2,81,545 2003-04 (-)2,65,464 (-)2,65,464 2004-05 (-) 83,122 (-) 83,122 1,02,848 (US/115JB) 1,02,848 2005-06 (-)2,13,036 (-)2,13,036 26 I.T.A. NO. 150 TO 155/NAG/2010 27 16. EVEN THOUGH THE ASSESSEE HAS SURRENDERED THE AMOUNT OF CAPITAL WORK-IN-PROGRESS BUT IT DID NOT HAVE ANY IMPACT ON THE INCOME OF THE ASSESSEE SO FAR IT RELATES TO ASSESSMENT YEAR 2001-02 TO 2005-06. THE ASSESSING OFFICER OBSERVED, WHILE FRAMING THE ASSESSMENT, THAT PENALTY PROCEEDINGS U/S 271(1)(C) OF THE I.T. ACT IS SEPARATELY INITIATED BUT IT DOES NOT SHOW HOW IT AFFECTS THE CONCEALMENT OF THE PARTICULARS OF INCOME OF THE ASSESSEE OR FURNISHING OF THE INACCURATE PARTICULARS OF THE INCOME. IN FACT, NEITHER THE RETURNED INCOME NOR THE ASSESSED INCOME IS BEING AFFECTED BY THE REDUCTION OF THE AMOUNT OF THE CAPITAL WORK-IN-PROGRESS AS SURRENDERED BY THE ASSESSEE. CONCEALMENT OF PARTICULARS OF INCOME OR FURNISHING OF INACCURATE PARTICULARS OF SUCH INCOME, BOTH ARE THE DIFFERENT CHARGES. THE PREAMBLE OF SECTION 271(1) (C) CLEARLY STATES THAT IF THE ASSESSING OFFICER, IN THE COURSE OF ANY PROCEEDINGS UNDER THIS ACT, IS NOT SATISFIED THAT ANY PERSON HAS CONCEALED THE PARTICULARS OF THE INCOME OR FURNISHED INACCURATE PARTICULARS OF SUCH INCOME, THE SATISFACTION, THEREFORE, IN OUR OPINION, MUST BE RELATED EITHER WITH THE CONCEALMENT OF THE PARTICULARS OF INCOME OF THE ASSESSEE OR FURNISHING OF INACCURATE PARTICULARS OF SUCH INCOME. DIRECTION FOR INITIATION OF THE PENALTY PROCEEDINGS UNDER CLAUSE (C) OF SUB SECTION (1) FOR CONSTITUTING THE SATISFACTION OF THE ASSESSING OFFICER FOR INITIATION OF THE PENALTY MUST BE RELATED WITH EITHER OF THE CHARGES I.E. THE CONCEALMENT OF PARTICULARS OF INCOME OR FURNISHING OF INACCURATE PARTICULARS OF SUCH INCOME. THE ASSESSING OFFICER, NO DOUBT, STATES THAT THE PENALTY PROCEEDINGS U/S 271(1)(C) IS SEPARATELY INITIATED BUT DOES NOT STATE FOR WHAT DEFAULT, WHETHER FOR THE CONCEALMENT OF PARTICULARS OF INCOME OR FOR FURNISHING OF INACCURATE PARTICULARS OF INCOME IS BEING INITIATED. 27 I.T.A. NO. 150 TO 155/NAG/2010 28 EVEN HONBLE SUPREME COURT IN VARKEY CHACKO V CIT 203 ITR 885 (SC) HAS HELD THAT A PENALTY FOR CONCEALMENT OF PARTICULARS OF INCOME OR FOR FURNISHING INACCURATE PARTICULARS OF INCOME CAN BE IMPOSED ONLY WHEN THE ASSESSING AUTHORITY IS SATISFIED THAT THERE HAS BEEN SUCH CONCEALMENT OR FURNISHING OF INACCURATE PARTICULARS. A PENALTY PROCEEDING, THEREFORE, CAN BE INITIATED ONLY AFTER AN ASSESSMENT ORDER HAS BEEN MADE WHICH FINDS SUCH CONCEALMENT OR FURNISHING OF INACCURATE PARTICULARS. THEREFORE, IN OUR OPINION, THE PENALTY PROCEEDINGS ON THIS BASIS ALSO ARE BOUND TO BE QUASHED. 17. NOW COMING TO ANOTHER ARGUMENT, WE NOTED THAT IN THIS CASE THE ASSESSING OFFICER ULTIMATELY LEVIED THE PENALTY U/S 271(1)(C) OF THE ACT FOR FURNISHING THE FALSE PARTICULARS IN THE RETURN BY THE ASSESSEE. SECTION 271(1) (C) STIPULATES THAT PENALTY PROCEEDINGS CAN BE INITIATED ON TWO CHARGES: (I) CONCEALMENT OF PARTICULARS OF INCOME AND (II) FURNISHING OF INACCURATE PARTICULARS OF INCOME. THIS IS SETTLED LAW IN VIEW OF THE DECISION OF COMMISSIONER OF INCOME TAX, GUJARAT I VS. LAKHDHIR LALJI 85 ITR 77 THAT IF THE PENALTY PROCEEDINGS ARE INITIATED ON CHARGE OF CONCEALMENT THEN PENALTY WOULD BE LEVIED ON THE CHARGE OF FURNISHING OF INACCURATE PARTICULARS OF INCOME AND VICE VERSA. IN THIS CASE, AS POINTED OUT IN EARLIER PARAGRAPH, THE ASSESSING OFFICER INITIATED THE PENALTY PROCEEDINGS BY MENTIONING IN THE NOTICE AS UNDER:- WHEREAS IN THE COURSE OF PROCEEDINGS BEFORE ME FOR THE AY 2001-02, IT APPEARS THAT YOU HAVE CONCEALED THE PARTICULARS OF YOUR INCOME OR FURNISHED INACCURATE PARTICULARS OF SUCH INCOME. 28 I.T.A. NO. 150 TO 155/NAG/2010 29 18. THUS EVEN THE NOTICE DID NOT SPECIFY ANY SPECIFIC CHARGE FOR WHICH THE PENALTY HAS BEEN INITIATED AND ULTIMATELY THE AO LEVIED THE PENALTY ON THE ASSESSEE FOR GIVING FALSE INFORMATION IN THE INCOME-TAX RETURN NEITHER FOR CONCEALMENT OF PARTICULARS OF INCOME NOR FOR FURNISHING INACCURATE PARTICULARS OF INCOME. IN OUR OPINION, IT IS INCUMBENT ON THE ASSESSING OFFICER TO MENTION WHETHER THE PENALTY IS LEVIED FOR CONCEALMENT OF INCOME OR FOR FURNISHING OF INACCURATE PARTICULARS OF INCOME. IN THE ABSENCE OF SPECIFIC CHARGE, THE ORDER WOULD BE BAD IN LAW. SECTION 271(1)(C) DOES NOT TALK OF LEVY OF THE PENALTY FOR GIVING FALSE INFORMATION IN THE RETURN. THE AO LEVIED PENALTY ENTIRELY FOR A DIFFERENT CHARGE. OUR VIEW THAT THERE MUST BE SPECIFIC CHARGE IS DULY SUPPORTED BY THE DECISION OF HON'BLE GUJARAT HIGH COURT IN THE CASE OF MANU ENGG. WORKS 122 ITR 306(GUJ), NEW SORATHIA ENGG. CO 282 ITR, 642(GUJ), PADMA RAM BHARALI 110 ITR 54 (GAU) ON THIS BASIS ITSELF THE ORDERS WERE HELD TO BE BAD IN LAW. GUJRAT HIGH COURT IN THE CASE OF NEW SORATHIA ENGINEERING CO. LTD., 282 ITR 642, HELD AS UNDER: IT IS INCUMBENT UPON THE ASSESSING OFFICER TO STATE WHETHER THE PENALTY WAS BEING LEVIED FOR CONCEALMENT OF PARTICULARS OF INCOME BY THE ASSESSEE OR WHETHER ANY INACCURATE PARTICULARS OF INCOME HAD BEEN FURNISHED BY THE ASSESSEE. HELD, THAT THE PENALTY ORDER AND THE ORDER OF THE COMMISSIONER (APPEALS) SHOWED THAT NO CLEAR CUT FINDING HAD BEEN REACHED. THE TRIBUNAL HAD FAILED TO APPRECIATE THIS LEGAL. ISSUE. THE RATIO IN CIT V. MANU ENGINEERING WORKS 132 ITR 306(GUJ) WAS APPLICABLE AND THE ORDER OF PENALTY COULD NOT BE UPHELD BY THE TRIBUNAL. THE ORDER WAS INVALID. 29 I.T.A. NO. 150 TO 155/NAG/2010 30 19. BOTH THE CHARGES ARE ENTIRELY DIFFERENT. THE WORD CONCEAL AS PER WEBSTER DICTIONARY MEANS: TO HIDE, WITHDRAW OR TO REMOVE FROM OBSERVATION, COVER OR KEEP FROM SIGHT, TO KEEP SECRET, TO AVOID DISCLOSING OR DIVULGING. THAT MEANS PARTICULARS OF INCOME. ON THE OTHER HAND, WHERE THE PARTICULARS ARE DISCLOSED BUT SAID DISCLOSURE IS NOT CORRECT, TRUE OR ACCURATE, ANY GOOD AMOUNT IN FURNISHING OF INACCURATE PARTICULARS OF INCOME. THRUST OF THE LEGISLATURE IS UPON THE PARTICULARS OF INCOME. IN THE CASE OF KANBAY SOFTWARE INDIA PVT. LTD. VS. DY. CIT [2009] 122 TTJ (PUNE) 721, IT WAS HELD THAT THE EXPRESSION PARTICULAR REFERS TO FACTS, DETAILS OR THE INFORMATION ABOUT SOMEONE OR SOMETHING. THUS, THE DETAILS OR INFORMATION ABOUT THE INCOME WILL DEAL WITH ACTUAL DETAILS OF INCOME AND CANNOT BE EXTENDED TO AREAS WHICH ARE SUBJECTIVE, SUCH AS STATUS OF TAXABILITY OF INCOME, ADMISSIBILITY OF DEDUCTION AND INTERPRETATION OF THE LAW. HON'BLE SUPREME COURT ACCORDINGLY IN THE CASE OF COMMISSIONER OF INCOME-TAX VS. RELIANCE PETROPRODUCTS PVT. LTD. [2010] 322 ITR 158 (SC) (THE UNDERSIGNED WAS THE AUTHOR OF THIS JUDGEMENT BEFORE THE TRIBUNAL) HELD THAT MERELY REJECTION OF A LEGAL CLAIM WOULD NOT AMOUNT TO FURNISHING OF INACCURATE PARTICULARS OF INCOME. HON'BLE SUPREME COURT UPHELD THE VIEW OF THE TRIBUNAL BY HOLDING THAT MERE MAKING OF THE CLAIM, WHICH IS NOT SUSTAINABLE IN LAW, BY ITSELF WILL NOT AMOUNT TO FURNISHING OF INACCURATE CLAIM OR FURNISHING OF INACCURATE PARTICULARS REGARDING THE INCOME OF THE ASSESSEE. EXPLANATION 1 TO SECTION 271(1)(C) CANNOT BE APPLIED WHERE CHARGE AGAINST THE ASSESSEE IS IN FURNISHING OF INACCURATE PARTICULARS OF INCOME SINCE IT PROVIDES DEEMING FICTION QUA CONCEALMENT OF THE PARTICULARS OF INCOME ONLY AND CANNOT BE EXTENDED TO A CASE WHERE CHARGE BY THE ASSESSEE IS FURNISHING 30 I.T.A. NO. 150 TO 155/NAG/2010 31 OF INACCURATE PARTICULARS OF INCOME. THIS IS NOT THE CASE OF THE REVENUE THAT THE ASSESSEE HAS CONCEALED THE PARTICULARS OF INCOME, THEREFORE, NO QUESTION OF APPLICABILITY OF EXPLANATION 1 ARISES. THE CHARGE IN THE PENALTY ORDER AGAINST THE ASSESSEE IS FOR FURNISHING THE FALSE PARTICULARS. IN THE CASE OF FURNISHING OF THE INACCURATE PARTICULARS OF INCOME, IN OUR OPINION, SINCE THE DEEMING PROVISION GIVEN UNDER EXPLANATION 1 IS NOT APPLICABLE, THE ONUS IS ON THE REVENUE TO PROVE THAT THE ASSESSEE HAS FILED THE FALSE PARTICULARS OF INCOME IN THE RETURN FILED. IN THE RETURN FILED IN RESPONSE TO NOTICE ISSUED U/S 153A, THIS A FACT THERE IS NO FILING OF INACCURATE PARTICULARS AND NO ADDITION/DISALLOWANCE HAS BEEN MADE BY THE ASSESSING OFFICER WHILE MAKING ASSESSMENT UNDER SECTION 143(3) R.W. SECTION 153A. EVEN, OTHERWISE, IN THE CASE OF THE ASSESSEE, WE NOTED THAT THE ASSESSEE HAS SURRENDERED THE INVESTMENT MADE IN CAPITAL WORK-IN-PROGRESS. SOURCE OF THE INVESTMENT IS NOT DISPUTED BY THE REVENUE. IT IS NOT THE CASE OF THE REVENUE THAT THE ASSESSEE WAS NOT HAVING THE SUFFICIENT INCOME TO INVEST IN THE CAPITAL WORK-IN-PROGRESS OR INVESTMENT SHOWN IN CAPITAL WORK-IN-PROGRESS IS MADE OUT OF UNDISCLOSED INCOME. ONCE SOURCE OF THE INVESTMENT IS NOT DISPUTED AND THE ASSESSEE HAS SUFFICIENT SOURCE TO INVEST IN CAPITAL WORK-IN-PROGRESS, IT CANNOT BE SAID THAT THE ASSESSEE WAS HAVING UNDISCLOSED INCOME, WHICH HAS BEEN INVESTED BY THE ASSESSEE AND THEREBY THE ASSESSEE HAS CONCEALED THE PARTICULARS OF INCOME OR FILED THE INACCURATE PARTICULARS OF INCOME. INCOME IS DIFFERENT FROM INVESTMENT. INCOME PRECEDES THE INVESTMENT, NOT THE INVESTMENT PRECEDES THE INCOME. IT MAY BE A CASE OF FURNISHING OF THE INACCURATE PARTICULARS OF INVESTMENT BUT NOT FURNISHING OF INACCURATE PARTICULARS OF THE INCOME. MERELY 31 I.T.A. NO. 150 TO 155/NAG/2010 32 THE ASSESSEE HAS SURRENDERED THE PART OF THE INVESTMENT IN CAPITAL WORK-IN- PROGRESS, IT WILL NOT CONVERT SURRENDER OF SUCH INVESTMENT INTO AN INCOME. DURING THE ASSESSMENT YEAR 2001-02 TO 2005-06, THIS IS A FACT THAT THE ASSESSEE HAS NOT CLAIMED ANY DEPRECIATION AS IT IS ONLY THE CAPITAL WORK-IN- PROGRESS, WHICH WAS IN EXISTENCE AND THE CAPITAL WORK-IN-PROGRESS WAS NOT TRANSFERRED TO THE RESPECTIVE ASSETS, WHICH ARE ENTITLED TO DEPRECIATION. ON THIS BASIS ITSELF ALSO, WE ARE OF THE FIRM VIEW THAT NO PENALTY CAN BE IMPOSED ON THE ASSESSEE U/S 271(1)(C) OF THE ACT. 20. EVEN WE NOTED THAT IN THIS CASE, NO PENALTY CAN BE QUANTIFIED U/S 271(1)(C) EVEN IF IT IS HELD THAT THE ASSESSEE HAS COMMITTED THE DEFAULT LIABLE TO PENALTY U/S 271(1)(C). WE HAVE GONE THROUGH THE PROVISIONS OF SECTION 271(1)(C) OF THE ACT, WHICH STATES THAT IF THE ASSESSING OFFICER, IN THE COURSE OF ANY PROCEEDINGS UNDER THIS 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 PENALTY BUT HOW THE PENALTY IS TO BE QUANTIFIED, HAS BEEN PROVIDED U/S 271(1)(III) OF THE ACT, WHICH READS AS UNDER: (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 PARTICULARS OF SUCH INCOME OR FRINGE BENEFITS. 21. THIS CLAUSE PROVIDES THAT IN ADDITION TO THE TAX PAYABLE, PENALTY SHALL BE LEVIABLE UNDER CLAUSE (C) NOT LESS THAN BUT SHALL NOT EXCEED THREE TIMES THE AMOUNT OF TAX SOUGHT TO BE EVADED BY REASON OF CONCEALMENT OF PARTICULARS OF INCOME OR FURNISHING OF INACCURATE PARTICULARS OF INCOME. EXPLANATION 4 DEFINES THE EXPRESSION THE AMOUNT OF TAX SOUGHT TO BE EVADED. IT CONTAINS 32 I.T.A. NO. 150 TO 155/NAG/2010 33 THREE CLAUSES, WHICH ARE APPLICABLE IN DIFFERENT SITUATIONS. THESE CLAUSES ARE REPRODUCED AS UNDER :- [(A) IN ANY CASE WHERE THE AMOUNT OF INCOME IN RESPECT OF WHICH PARTICULARS HAVE BEEN CONCEALED OR INACCURATE PARTICULARS HAVE BEEN FURNISHED HAS THE EFFECT OF REDUCING THE LOSS DECLARED IN THE RETURN OR CONVERTING THAT LOSS INTO INCOME, MEANS THE TAX THAT WOULD HAVE BEEN CHARGEABLE ON THE INCOME IN RESPECT OF WHICH PARTICULARS HAVE BEEN CONCEALED OR INACCURATE PARTICULARS HAVE BEEN FURNISHED HAD SUCH INCOME BEEN THE TOTAL INCOME;] (B) IN ANY CASE TO WHICH EXPLANATION 3 APPLIES, MEANS THE TAX ON THE TOTAL INCOME ASSESSED [AS REDUCED BY THE AMOUNT OF ADVANCE TAX, TAX DEDUCTED AT SOURCE, TAX COLLECTED AT SOURCE AND SELF-ASSESSMENT TAX PAID BEFORE THE ISSUE OF NOTICE UNDER SECTION 148]; (C) IN ANY OTHER CASE, MEANS THE DIFFERENCE BETWEEN THE TAX ON THE TOTAL INCOME ASSESSED AND THE TAX THAT WOULD HAVE BEEN CHARGEABLE HAD SUCH TOTAL INCOME BEEN REDUCED BY THE AMOUNT OF INCOME IN RESPECT OF WHICH PARTICULARS HAVE BEEN CONCEALED OR INACCURATE PARTICULARS HAVE BEEN FURNISHED. 22. CLAUSE (A) IS APPLICABLE TO A CASE WHERE THE RETURNED FIGURE IS LOSS. THIS CLAUSE STATES TWO SITUATIONS: (I) WHERE THE EFFECT OF AMOUNT OF THE INCOME IN RESPECT OF WHICH PARTICULARS HAVE BEEN CONCEALED OR INCORRECT PARTICULARS HAVE BEEN FURNISHED, EFFECT OF SUCH AMOUNT IS REDUCING THE LOSS DECLARED IN THE RETURN OR THE SECOND SITUATION IS THAT SUCH AMOUNT CONVERTS THE LOSS INTO INCOME. THE TAX SOUGHT TO BE EVADED SHALL MEAN THE TAX THAT COULD HAVE BEEN CHARGEABLE ON THE INCOME IN RESPECT OF WHICH PARTICULARS HAVE BEEN CONCEALED OR INACCURATE PARTICULARS HAVE BEEN FURNISHED. IN THE CASE OF THE ASSESSEE, THE ASSESSEE HAS DISCLOSED LOSS IN THE RETURN FILED FOR THE ASSESSMENT YEARS 2002-03 TO 2006-07. THE ASSESSING OFFICER HAS ACCEPTED 33 I.T.A. NO. 150 TO 155/NAG/2010 34 THE SAID LOSS IN THE ASSESSMENT FRAMED BY HIM. THE LOSS DECLARED IN THE RETURN HAS NOT BEEN REDUCED OR LOSS HAS NOT BEEN CONVERTED INTO INCOME DUE TO THE INVESTMENT MADE IN THE CAPITAL WORK IN PROGRESS SURRENDERED BY THE ASSESSEE. IN VIEW OF EXPLANATION 4(A), IN OUR OPINION, THE TAX SOUGHT TO BE EVADED WILL BE NIL AND BOTH SITUATIONS IN CLAUSE (A) WILL NOT APPLY IN THE CASE OF THE ASSESSEE. CLAUSE (B) OF THIS EXPLANATION APPLIED TO A CASE WHERE EXPLANATION 3 APPLIES. CLAUSE (C), IN OUR OPINION, IS THE RESIDUARY CLAUSE. IN SUCH CASE, IT WOULD BE MAIN DIFFERENCE BETWEEN THE TAX ON TOTAL INCOME ASSESSED AND THE TAX ON TOTAL INCOME REDUCED BY THE AMOUNT IN RESPECT OF WHICH PENALTY IS SOUGHT TO BE LEVIED. THE CASE OF THE ASSESSEE, AT THE MOST FOR ALL THE ASSESSMENT YEARS CAN FALL UNDER CLAUSE (C) BUT ON THE BASIS OF THIS CLAUSE, THE TAX SOUGHT TO BE EVADED, IN EACH OF THE ASSESSMENT YEAR, WILL BE NIL BECAUSE THE DIFFERENCE BETWEEN THE TAX ON TOTAL INCOME ASSESSED AND TAX ON TOTAL INCOME REDUCED BY THE AMOUNT IN RESPECT OF WHICH THE ASSESSING OFFICER TRIED TO IMPOSE THE PENALTY IS NIL. THEREFORE, EVEN IF WE AGREE WITH THE REVENUE THAT THE ASSESSEE HAS FURNISHED THE INACCURATE PARTICULARS OF INCOME TO THE EXTENT HE SURRENDERED THE INVESTMENT IN THE CAPITAL WORK IN PROGRESS SINCE THE TAX SOUGHT TO BE EVADED WILL BE NIL, THE ASSESSEE HAD NOT TO PAY ANY AMOUNT BY WAY OF PENALTY AS PER SECTION 271(1)(III) READ WITH EXPLANATION 4 OF THE I.T. ACT. ON THIS BASIS ALSO, WE ARE OF THE FIRM VIEW THAT THE PENALTY IS LIABLE TO BE DELETED. 23. NOW THE QUESTION ARISES WHETHER ASSESSING OFFICER CAN IMPOSE THE PENALTY U/S 271(1)(C) IN A CASE WHERE THE ASSESSEE HAS SUBMITTED THE RETURN 34 I.T.A. NO. 150 TO 155/NAG/2010 35 U/S 153A SHOWING A PARTICULAR INCOME AND THE ASSESSMENT HAS BEEN FRAMED BY THE ASSESSING OFFICER ON THE SAME INCOME AS RETURNED WITHOUT ANY VARIATION. THE PREAMBLE OF SECTION 271(1) STATES THAT IF THE ASSESSING OFFICER, IN THE COURSE OF ANY PROCEEDING UNDER THIS ACT, IS SATISFIED THAT ANY PERSON HAS CONCEALED THE PARTICULARS OF INCOME OR FURNISHED INACCURATE PARTICULARS OF SUCH INCOME, HE MAY DIRECT SUCH PERSON TO PAY THE PENALTY. THE CONCEALMENT OF THE PARTICULARS OF INCOME OR FURNISHING OF PARTICULARS OF INACCURATE INCOME IS ALWAYS WITH REFERENCE TO THE RETURN FILED BY THE ASSESSEE. SECTION 153A WAS INSERTED INTO STATUTE WITH EFFECT FROM 1 ST JUNE, 2003 BY THE FINANCE ACT, 2003 WHICH READS AS UNDER :- 153A. NOT WITHSTANDING ANYTHING CONTAINED IN SECTION 139, SECTION 147, SECTION 148, SECTION 149, SECTION 151 AND SECTION 153, IN THE CASE OF A PERSON WHERE A SEARCH IS INITIATED UNDER SECTION 132 OR BOOKS OF ACCOUNT, OTHER DOCUMENTS OR ANY ASSETS ARE REQUISITIONED UNDER SECTION 132A AFTER THE 31 ST DAY OF MAY, 2003, THE ASSESSING OFFICER SHALL (A) ISSUE NOTICE TO SUCH PERSON REQUIRING HIM TO FURNISH WITHIN SUCH PERIOD, AS MAY BE SPECIFIED IN THE NOTICE, THE RETURN OF INCOME IN RESPECT OF EACH ASSESSMENT YEAR FALLING WITHIN SIX ASSESSMENT YEARS REFERRED TO IN CLAUSE (B), IN THE PRESCRIBED FORM AND VERIFIED IN THE PRESCRIBED MANNER AND SETTING FORTH SUCH OTHER PARTICULARS AS MAY BE PRESCRIBED AND THE PROVISIONS OF THIS ACT SHALL, SO FAR AS MAY BE, APPLY ACCORDINGLY AS IF SUCH RETURN REQUIRED TO BE FURNISHED UNDER SECTION 139; (B) ASSESS OR REASSESS THE TOTAL INCOME OF SIX ASSESSMENT YEARS IMMEDIATELY PRECEDING THE ASSESSMENT YEAR RELEVANT TO THE PREVIOUS YEAR IN WHICH SUCH SEARCH IS CONDUCTED OR REQUISITION IS MADE : PROVIDED THAT THE ASSESSING OFFICER SHALL ASSESS OR REASSESS THE TOTAL INCOME IN RESPECT OF EACH ASSESSMENT YEAR FALLING WITHIN SUCH SIX ASSESSMENT YEARS: 35 I.T.A. NO. 150 TO 155/NAG/2010 36 PROVIDED FURTHER THAT ASSESSMENT OR REASSESSMENT, IF ANY, RELATING TO ANY ASSESSMENT YEAR FALLING WITHIN THE PERIOD OF SIX ASSESSMENT YEARS REFERRED TO IN THIS SECTION PENDING ON THE DATE OF INITIATION OF THE SEARCH UNDER SECTION 132 OR MAKING OF REQUISITION UNDER SECTION 132A, AS THE CASE MAY BE, SHALL ABATE. EXPLANATION.- FOR THE REMOVAL OF DOUBTS, IT IS HEREBY DECLARED THAT, - (I) SAVE AS OTHERWISE PROVIDED IN THIS SECTION 153B AND SECTION 153C, ALL OTHER PROVISIONS OF THIS ACT SHALL APPLY TO THE ASSESSMENT MADE UNDER THIS SECTION; (II) IN AN ASSESSMENT OR REASSESSMENT MADE IN RESPECT OF AN ASSESSMENT YEAR UNDER THIS SECTION, THE TAX SHALL BE CHARGEABLE AT THE RATE OR RATES AS APPLICABLE TO SUCH ASSESSMENT YEAR. 24. SECTION 153A DEALS WITH THE PROVISION OF FRAMING THE ASSESSMENT IN THE CASE OF SEARCH OR REQUISITION. IT IS SEEN THAT THIS SECTION STARTS WITH A NON- OBSTANTE CLAUSE RELATING TO NORMAL ASSESSMENT PROCEDURE COVERED BY SECTIONS 139, 147, 148, 149, 151 AND 153 IN RESPECT OF SEARCHES MADE AFTER 31 ST MAY, 2003. THE SECTIONS, SO EXCLUDED, RELATE TO FILING OF RETURN, ASSESSMENT AND RE-ASSESSMENT PROCEEDINGS. FURTHER SECTION 153A INTENDS TO ASSESS OR REASSESS TOTAL INCOME OF SIX ASSESSMENT YEARS IMMEDIATELY PRECEDING THE ASSESSMENT YEAR RELEVANT TO THE PREVIOUS YEAR IN WHICH SUCH SEARCH IS CONDUCTED OR REQUISITION IS MADE. THUS THE LEGISLATIVE INTENTION IS NOT TO ASSESS ESCAPED INCOME AS IN SECTION 147 OR UNDISCLOSED INCOME AS WAS ASSESSED U/S 158BC OF THE ACT. THE FIRST PROVISO TO SEC. 153A MAKES IT CLEAR, THAT NOTICE UNDER SEC. 153A WILL BE FOR EACH SUCH SIX ASSESSMENT YEARS FOR ASSESSMENT OR RE-ASSESSMENT OF TOTAL INCOME. SECOND PROVISO TO SECTION 153A PROVIDES THAT SUCH NOTICE WILL HAVE THE EFFECT OF ABATING ALL THE PENDING 36 I.T.A. NO. 150 TO 155/NAG/2010 37 ASSESSMENT OR RE-ASSESSMENT PROCEEDINGS, SO AS TO AVOID MULTIPLICITY OF PROCEEDINGS, WHICH WAS A FEATURE OF BLOCK ASSESSMENT. HONBLE ALLAHABAD HIGH COURT IN THE CASE CIT (CENTRAL), KANPUR V SHAILA AGARWAL [2011] 16 TAXMAN.COM 232 (ALL.) HAS HELD THAT THE WORD ABATEMENT IS REFERABLE TO SOMETHING, WHICH IS PENDING ALIVE, OR IS SUBJECT TO DEDUCTION. THE ABATEMENT REFERS TO SUSPENSION OR TERMINATION OF THE PROCEEDINGS EITHER OF THE MAIN ACTION, OR THE PROCEEDINGS ANCILLARY OR COLLATERAL TO IT. THE WORD IS COMMONLY USED IN THE LEGISLATIONS, WHICH PROVIDE FOR ABATEMENT OF ACTION / SUIT; ABATEMENT OF LEGACIES; ABATEMENT OF NUISANCE; AND ALL ACTIONS FOR SUCH NATURE, WHICH HAVE THE PENDENCY OR CONTINUANCE. THE PROCEEDINGS, WHICH HAVE ALREADY TERMINATED ARE NOT LIABLE FOR ABATEMENT UNLESS STATUTE EXPRESSLY PROVIDES FOR SUCH CONSEQUENCE THEREOF. THE WORD PENDING OCCURRING IN THE SECOND PROVISO TO SECTION 153A OF THE ACT, IS ALSO SIGNIFICANT. IT IS QUALIFIED BY THE WORDS ON THE DATE OF INITIATION OF THE SEARCH, AND MAKES IT ABUNDANTLY CLEAR THAT ONLY SUCH ASSESSMENT OR REASSESSMENT PROCEEDINGS ARE LIABLE TO ABATE. THE PENDENCY OF AN APPEAL IN THE TRIBUNAL AGAINST THE ORDER OF ASSESSMENT AGAINST WHICH AN APPEAL HAS BEEN DECIDED BY COMMISSIONER (APPEALS) IS NOT A CONTINUATION OF THE PROCEEDINGS OF ASSESSMENT. 25. THUS WHILE SECTION 153A PRESCRIBES FOR ASSESSMENT OR REASSESSMENT OF TOTAL INCOME IN SEARCH CASES, SECTION 153B PRESCRIBES THE TIME LIMIT FOR COMPLETION OF ASSESSMENT UNDER SEC. 153A. SECTION 153C RELATES TO THE CASES WHERE BOOKS OF ACCOUNTS OR DOCUMENTS OR ASSETS SEIZED UNDER SEC. 132 OR REQUISITION MADE UNDER SEC. 132A BELONG TO A PERSON OTHER THAN A 37 I.T.A. NO. 150 TO 155/NAG/2010 38 PERSON IN WHOSE CASE SEARCH UNDER SEC. 132 OR REQUISITION UNDER SEC. 132A WAS MADE. THUS PROVISIONS OF SECTIONS 153A, 153B AND 153C ARE COMPLETED CODE FOR SEARCH ASSESSMENTS WHEREIN SEARCH HAS BEEN INITIATED AFTER 31 ST MAY, 2003. THE EXISTENCE OF THE WORDS ALL OTHER PROVISIONS OF THIS ACT SHALL APPLY TO THE ASSESSMENT MADE UNDER THIS SECTION IN EXPLANATION (I) OF SECTION 153A MAKES IT CLEAR THAT IN SEARCH ASSESSMENTS, AMONGST OTHERS THE PROVISIONS RELATING TO PENALTY AND PROSECUTION WILL ALSO BE APPLICABLE. HOWEVER, WHEN NORMAL ASSESSMENT PROCEDURE COVERED BY SECTIONS 139, 147, 148, 149, 151 AND 153 HAS BEEN COMPLETELY EXCLUDED BY OPERATION OF NON- OBSTANTE CLAUSE NOTWITHSTANDING ANYTHING CONTAINED THE SEARCH ASSESSMENTS MADE U/S SECTION 153A OF THE ACT CANNOT BE TREATED AS CONTINUANCE OF NORMAL ASSESSMENT PROCEEDINGS WHETHER ABATED OR NOT. THUS THERE IS COMPLETE DETACHMENT OF ASSESSMENT PROCEEDINGS U/S 143 OR 147 FROM SEARCH PROCEEDINGS U/S 153A OF THE ACT. WHEN SCHEME OF SEARCH ASSESSMENT AS DESIGNED BY THE LEGISLATURE DOES NOT PRESCRIBE TO TAKE INTO ACCOUNT THE EARLIER ASSESSMENT PROCEEDINGS WHETHER ABATED OR NOT, IT WILL NOT BE PROPER OR JUSTIFIED TO REFER TO RETURNED INCOME U/S 139 FOR THE PURPOSE IMPOSITION OF PENALTY U/S 271(1)(C) OF THE ACT. IT FOLLOWS THAT THE CONCEALMENT OF INCOME HAS TO BE SEEN WITH REFERENCE TO ADDITIONAL INCOME BROUGHT TO TAX OVER AND ABOVE RETURNED BY THE ASSESSEE IN RESPONSE TO NOTICE ISSUED U/S 153A OF THE ACT. ACCORDINGLY IN OUR CONSIDERED OPINION FOR THE PURPOSE OF IMPOSITION OF PENALTY U/S 271(1)(C) RESULTING AS A RESULT OF SEARCH ASSESSMENTS MADE U/S 153A, THE ORIGINAL RETURN OF INCOME FILED U/S 139 CANNOT BE CONSIDERED. FURTHER IN CASE OF SEARCH INITIATED AFTER 1.6.2003 A RETURN OF INCOME IS ALWAYS FILED ON 38 I.T.A. NO. 150 TO 155/NAG/2010 39 ISSUE OF NOTICE U/S 153A IN RESPECT OF EACH ASSESSMENT YEAR FALLING WITHIN SIX ASSESSMENT YEARS IMMEDIATELY PRECEDING THE ASSESSMENT YEAR RELEVANT TO THE PREVIOUS YEAR IN WHICH THE SEARCH IS CONDUCTED OR REQUISITION IS MADE IN THE PRESCRIBED FORM AND VERIFIED IN THE PRESCRIBED MANNER. AO REQUIRES THE ASSESSEE TO SET FORTH SUCH OTHER PARTICULARS AS MAY BE PRESCRIBED IN THESE RETURNS. THIS SECTION ALSO STATES THAT ALL THE PROVISIONS OF THIS ACT, AS ARE APPLICABLE TO A RETURN TO BE FURNISHED U/S 139, WILL APPLY TO THIS RETURN. IN VIEW OF THIS, THE ASSESSING OFFICER HAS TO FRAME AN ASSESSMENT ON THE BASIS OF THE RETURN FILED U/S 153A. AS HAS BEEN HELD ABOVE, THE PENALTY U/S 271(1)(C) IS IMPOSABLE WHEN THERE IS VARIATION IN ASSESSED AND RETURNED INCOME. IF THERE IS NO VARIATION, THERE WILL BE NO CONCEALMENT OR FURNISHING OF INACCURATE PARTICULARS OF INCOME. WHEN THERE IS NO CONCEALMENT OR FURNISHING OF INACCURATE PARTICULARS OF INCOME, QUESTION OF LEVY OF PENALTY U/S 271(1)(C) OF THE ACT WILL NOT ARISE. THIS IS SETTLED POSITION OF LAW. IN VIEW OF THE DECISION OF HON'BLE SUPREME COURT IN THE CASE OF BRIJ MOHAN VS. COMMISSIONER OF INCOME-TAX 120 ITR 1 (SC) THAT THE ACT OF CONCEALMENT OF PARTICULARS OF INCOME OR FURNISHING OF THE INACCURATE PARTICULARS OF INCOME TAKES PLACE WHEN THE RETURN IS FILED. THE CONCEPT OF VOLUNTARY RETURN OF INCOME MAY BE IMPORTANT IN PENALTY PROCEEDINGS INITIATED IN COURSE OF NORMAL ASSESSMENT PROCEEDINGS MADE U/S 143(3) OR 147 BUT NOT U/S 153A. FROM ABOVE DISCUSSION IT FOLLOWS THAT WHERE RETURNED INCOME FILED U/S 153A IS ACCEPTED BY THE ASSESSING OFFICER, THERE WILL BE NO CONCEALMENT OF INCOME OR FURNISHING OF INACCURATE PARTICULARS OF INCOME AND CONSEQUENTLY PENALTY U/S 271(1)(C) CANNOT BE IMPOSED. SECTION 271 DOES NOT TALK OF FOR THE PURPOSE OF 39 I.T.A. NO. 150 TO 155/NAG/2010 40 ASCERTAINING THE DEFAULT WHETHER OF CONCEALMENT OF INCOME OR FURNISHING OF INACCURATE PARTICULARS OF INCOME, THE RETURN FILED U/S 139 OR THE RETURN FILED BY THE ASSESSEE WILL BE CONSIDERED NOT THE RETURN FILED U/S 153A OF THE ACT. THIS SATISFACTION FOR CONCEALMENT OF PARTICULARS OF INCOME OR FURNISHING OF INACCURATE PARTICULARS OF INCOME HAS TO COME FROM THE ASSESSMENT ORDER PASSED IN CONSEQUENCE OF RETURN FILED U/S 153A. THE ASSESSEE IN THIS CASE, IN EACH OF THE ASSESSMENT YEARS, FILED THE RETURN ON 23/12/2008 SHOWING NIL INCOME OR LOSS AS STATED IN EARLIER PARAGRAPH. THE RETURNS FILED BY THE ASSESSEE WERE DULY ACCEPTED BY THE ASSESSING OFFICER IN EACH OF THE CASE AND ASSESSMENT U/S 143(3) READ WITH SECTION 153A WERE FRAMED ON THE RETURNED INCOME. THUS, THERE IS NO VARIATION IN EACH OF THE ASSESSMENT YEAR IN THE RETURNED INCOME SHOWN BY THE ASSESSEE. PRIOR TO THE FILING OF THE RETURNS BY THE ASSESSEE U/S 153A, EVEN THOUGH THE PROCEEDINGS UNDER THIS ACT HAD STARTED PRIOR TO THAT BUT THE ASSESSING OFFICER HAS NOT BROUGHT OUT ANY MATERIAL OR EVIDENCE, WHICH MAY STATE THAT THE ASSESSEE HAS FURNISHED INACCURATE PARTICULARS OF INCOME OR CONCEALED THE PARTICULARS OF INCOME. IN THE RETURN FILED ON 23/12/2008, THE ASSESSEE HAS DULY DISCLOSED THE INVESTMENT IN CAPITAL WORK-IN-PROGRESS SURRENDERED BY HIM. SINCE THESE PARTICULARS, TO WHICH THE ASSESSING OFFICER TREATED FOR THE PURPOSE OF LEVY OF PENALTY TO THE FALSE PARTICULARS WERE AVAILABLE WITH THE ASSESSING OFFICER IN THE RETURN FILED BY THE ASSESSEE U/S 153A, IN OUR OPINION, IN THIS CASE IT CANNOT BE SAID THAT THE ASSESSEE HAS FURNISHED THE FALSE PARTICULARS. SECTION 271(1)(C) DOES NOT AUTHORISE THE ASSESSING OFFICER TO COMPARE THE RETURN FILED U/S 139(1) AND U/S 153A AND COMPARE THE DIFFERENCE IN THE PARTICULARS OF INCOME IN BOTH 40 I.T.A. NO. 150 TO 155/NAG/2010 41 THE RETURNS TO TREAT SUCH DIFFERENCE TO BE THE FALSE PARTICULARS OF INCOME. THE FAULT HAS TO BE SEEN WITH THE RETURN FILED BY THE ASSESSEE WHEN AN ASSESSMENT U/S 143(3) READ WITH SECTION 153A IS MADE WITH REFERENCE TO THE RETURN FILED U/S 153A AND WHEN THE PENALTY PROCEEDINGS IS INITIATED IN THE ORDER PASSED U/S 143(3) READ WITH SECTION 153A, THIS WILL ALSO RELATE TO THE SATISFACTION OF THE ASSESSEE WITH REFERENCE TO THE RETURN FILED U/S 153A. OUR AFORESAID VIEW IS ALSO STRENGTHENED IN VIEW OF THE EXPLANATION 5 GIVEN U/S 271(1)(C) OF THE ACT. THIS EXPLANATION IS APPLICABLE IN THE CASE OF THE SEARCH TAKEN PLACE BEFORE 01/06/2007 AND THE ASSESSEE IS FOUND TO BE THE OWNER OF ANY MONEY, BILLION, JEWELLERY OR ANY OTHER VALUABLE, ARTICLE OR THING. THIS EXPLANATION IS NOT APPLICABLE IN THE CASE OF THE ASSESSEE AS IT IS AN UNDISPUTED FACT THAT NO MONEY, BILLION, JEWELLERY OR ANY OTHER VALUABLE, ARTICLE OR THING HAS BEEN FOUND IN THE CASE OF THE ASSESSEE. HAD THERE BEEN INTENTION OF THE LEGISLATURE TO LOOK INTO THE CONCEALMENT OF THE PARTICULARS OF THE INCOME OR FURNISHING OF INACCURATE PARTICULARS OF INCOME WITH REFERENCE TO THE RETURN FILED U/S 139(1), THE LEGISLATURE WOULD HAVE PROVIDED SO. ON THIS BASIS ALSO, IN OUR OPINION, NO PENALTY CAN BE IMPOSED U/S 271(1)(C) OF THE ACT AS THERE IS NO VARIATION IN THE INCOME RETURNED IN RESPONSE TO NOTICE U/S 153A VIZ-A-VIZ ASSESSMENT PASSED U/S 143(3) READ WITH SECTION 271(1)(C) OF THE ACT. 26. SINCE THE LEARNED D. R. HAS VEHEMENTLY RELIED ON THE DECISION OF HON'BLE SUPREME COURT IN THE CASE OF UNION OF INDIA V. DHARAMENDRA TEXTILE PROCESSORS [2007] 295 ITR 244 (SC) WE, THEREFORE, HAVE TO REFER THAT DECISION ALSO. IN THE CASE OF DHARMENDRA TEXTILE PROCESSORS (SUPRA), WE NOTED THAT 41 I.T.A. NO. 150 TO 155/NAG/2010 42 HON'BLE SUPREME COURT HAS HELD THAT THE PENALTY U/S 271(1)(C) IS CIVIL LIABILITY (WILFUL CONCEALMENT) AND MENS REA ARE NOT NECESSARY INGREDIENTS FOR TAX THE CIVIL LIABILITY AS IS THE CASE IN THE MATTER OF PROSECUTION U/S 276 OF THE I.T. ACT. IT HAS FURTHER BEEN HELD THAT IN THAT CASE THAT MENS REA IS NOT AN ESSENTIAL INGREDIENT FOR IMPOSING THE PENALTY. HON'BLE SUPREME COURT IN THIS CASE NOWHERE HELD THAT IF THE ADDITION IS MADE, PENALTY IS AUTOMATIC AND HAS TO BE IMPOSED. THIS JUDGMENT HAS NOT OVERRULED THE EXPLANATION APPENDED TO SECTION 271(1)(C) AND DOES NOT ALSO ABSOLVE THE PARTIES TO DISCHARGE THEIR BURDEN TO PROVE. WE HAVE ALREADY HELD THAT IN THE CASE OF FURNISHING OF INACCURATE PARTICULARS OF INCOME, BURDEN OF PROOF, LIES ON THE REVENUE WHILE IN THE CASE OF CONCEALMENT OF PARTICULARS OF INCOME, INITIAL BURDEN LIES ON THE ASSESSEE IN VIEW OF EXPLANATION 1 APPENDED TO SECTION 271(1)(C) OF THE ACT. THUS, THE RATIO LAID DOWN WAS CONFINED TO TREATING THE WILFUL CONCEALMENT IS NOT ESSENTIAL FOR IMPOSING PENALTY U/S 271(1)(C) OF THE ACT. WHERE AN ASSESSEE GENUINELY MAKES A CLAIM FOR PARTICULAR DEDUCTION OR DISCLOSING OF THE NECESSARY FACT RELATING TO THE SAME THAT CANNOT BE REGARDED TO BE CONCEALMENT IF THE ASSESSEES CLAIM IS REJECTED. THIS IS THE SETTLED LAW THAT THE PENALTY PROCEEDINGS ARE DIFFERENT FROM THE ASSESSMENT PROCEEDINGS AND, THEREFORE, IF ANY ADDITION IS MADE, IT DOES NOT MEAN THAT THE PENALTY WILL AUTOMATICALLY BE LEVIED. THE CASE OF THE ASSESSEE IS EVEN MUCH STRONGER AS IN THE CASE OF THE ASSESSEE THERE IS NO ADDITION BEING MADE BY THE ASSESSING OFFICER WITH REFERENCE TO THE RETURN FILED U/S 153A AND PRIOR TO THE FILING OF THE RETURN U/S 153A, THE ASSESSING OFFICER HAS NOT BROUGHT OUT ANY MATERIAL ON RECORD WHICH MAY PROVE THAT THE ASSESSEE HAS FILED THE FALSE PARTICULARS OF 42 I.T.A. NO. 150 TO 155/NAG/2010 43 INCOME. PENALTY PROCEEDINGS IS INITIATED SEPARATELY WITH THE LOGIC THAT IN PENALTY PROCEEDINGS THE ASSESSEE IS GIVEN AN OPPORTUNITY TO EXPLAIN ITS CASE IF HE SUCCESSFULLY EXPLAINS HIS POSITION, THE ASSESSING OFFICER HAS TO DROP PENALTY PROCEEDING. IN THIS CASE, WE NOTED THAT THE ASSESSING OFFICER HAS IMPOSED THE PENALTY FOR FURNISHING THE FALSE PARTICULARS BY THE ASSESSEE. SECTION 271(1)(C) DEALS WITH TWO SITUATIONS FOR IMPOSING PENALTY; HAS CONCEALED THE PARTICULARS OF INCOME OR HAS FURNISHED INACCURATE PARTICULARS OF SUCH INCOME. EXPLANATION 1 IS APPLICABLE ONLY IN CASE OF FIRST SITUATION I.E. THE AMOUNT ADDED OR DISALLOWED IN THE TOTAL INCOME BE DEEMED TO REPRESENT THE INCOME IN RESPECT OF WHICH THE PARTICULARS HAVE BEEN CONCEALED. 27. NOW THE QUESTION ARISES WHETHER UNDER THE FACTS AND CIRCUMSTANCES, IT CAN BE SAID THAT THE ASSESSEE HAS FILED FALSE PARTICULARS OF INCOME. THE ASSESSEE HAS SHOWN THE INVESTMENT IN CAPITAL WORK-IN-PROGRESS IN THE RETURN FILED U/S 153A AT A REDUCED FIGURE AS COMPARED TO THE FIGURE TAKEN IN THE RETURN FILED PRIOR TO THE SEARCH. THUS, RETURNS WERE DULY SUPPORTED BY THE AUDITED PROFIT & LOSS ACCOUNT AS WELL AS THE BALANCE SHEET, AUDITORS REPORTS AND CERTIFICATE. THE ASSESSEE HAS DISCLOSED ALL THE NECESSARY PARTICULARS. THE ASSESSEE SUBSEQUENTLY REVISED THE FIGURES OF INVESTMENT IN CAPITAL WORK-IN- PROGRESS, WHICH DOES NOT HAVE ANY IMPACT ON THE INCOME ASSESSED JUST TO BUY PEACE IN RESPONSE TO NOTICE ISSUED U/S 153A. THIS FACT HAS NOT BEEN DISPUTED BY THE ASSESSING OFFICER. THE ASSESSING OFFICER HAS NOT BROUGHT OUT ANY MATERIAL ON RECORD, EVEN THOUGH THERE HAD BEEN SEARCH IN THE CASE OF THE ASSESSEE ON THE BASIS OF WHICH IT CAN BE SAID THAT THE ASSESSEE HAS FURNISHED 43 I.T.A. NO. 150 TO 155/NAG/2010 44 INACCURATE PARTICULARS OF ITS INCOME EVEN THOUGH THE ONUS TO PROVE THAT THE ASSESSEE HAS FURNISHED THE FALSE PARTICULARS OF INCOME LIES ON THE DEPARTMENT AS EXPLANATION 1 IS NOT APPLICABLE AS HAS BEEN HELD BY US IN THE EARLIER PARAGRAPHS. THEREFORE, IN OUR OPINION, THE DECISION OF HON'BLE SUPREME COURT IN THE CASE OF DHARMENDRA TEXTILE PROCESSORS (SUPRA) WILL NOT ASSIST THE REVENUE AND IS NOT APPLICABLE TO THE FACTS OF THE CASE BEFORE US. THIS DECISION HAS BEEN DISCUSSED BY HONBLE SUPREME COURT IN THE CASE OF RELIANCE PETROPRODUCTS (SUPRA) (THIS DECISION AT THE TRIBUNAL WAS AUTHORED BY THE UNDERSIGNED) IN THE FOLLOWING TERMS:- IT IS AN ADMITTED POSITION IN THE PRESENT CASE THAT NO INFORMATION GIVEN IN THE RETURN WAS FOUND TO BE INCORRECT OR INACCURATE. IT IS NOT AS IF ANY STATEMENT MADE OR ANY DETAIL SUPPLIED WAS FOUND TO BE FACTUALLY INCORRECT. HENCE, AT LEAST, PRIMA FACIE , THE ASSESSEE CANNOT BE HELD GUILTY OF FURNISHING INACCURATE PARTICULARS. THE LEARNED COUNSEL ARGUED THAT 'SUBMITTING AN INCORRECT CLAIM IN LAW FOR THE EXPENDITURE ON INTEREST WOULD AMOUNT TO GIVING INACCURATE PARTICULARS OF SUCH INCOME'. WE DO NOT THINK THAT SUCH CAN BE THE INTERPRETATION OF THE CONCERNED WORDS. THE WORDS ARE PLAIN AND SIMPLE. IN ORDER TO EXPOSE THE ASSESSEE TO THE PENALTY UNLESS THE CASE IS STRICTLY COVERED BY THE PROVISION, THE PENALTY PROVISION CANNOT BE INVOKED. BY ANY STRETCH OF IMAGINATION, MAKING AN INCORRECT CLAIM IN LAW CANNOT TANTAMOUNT TO FURNISHING INACCURATE PARTICULARS. IN COMMISSIONER OF INCOME TAX, DELHI V. ATUL MOHAN BINDAL (2009) 30 (I) ITCL 339 (SC) : (2009) 317 ITR 1 (SC) : 2009 (9) SCC 589 , WHERE THIS COURT WAS CONSIDERING THE SAME PROVISION, THE COURT OBSERVED THAT THE ASSESSING OFFICER HAS TO BE SATISFIED THAT A PERSON HAS CONCEALED THE PARTICULARS OF HIS INCOME OR FURNISHED INACCURATE PARTICULARS OF SUCH INCOME. THIS COURT REFERRED TO ANOTHER DECISION OF THIS COURT IN UNION OF INDIA V. DHARAMENDRA TEXTILE PROCESSORS 2008 (13) SCC 369 , AS ALSO, THE DECISION IN UNION OF INDIA V.RAJASTHAN SPG. & WVG. MILLS 2009 (13) SCC 448 AND REITERATED IN PARA 13 THAT: '13. IT GOES WITHOUT SAYING THAT FOR APPLICABILITY OF SECTION 271(1)(C), CONDITIONS STATED THEREIN MUST EXIST.' 44 I.T.A. NO. 150 TO 155/NAG/2010 45 8. THEREFORE, IT IS OBVIOUS THAT IT MUST BE SHOWN THAT THE CONDITIONS UNDER SECTION 271(1)(C) MUST EXIST BEFORE THE PENALTY IS IMPOSED. THERE CAN BE NO DISPUTE THAT EVERYTHING WOULD DEPEND UPON THE RETURN FILED BECAUSE THAT IS THE ONLY DOCUMENT, WHERE THE ASSESSEE CAN FURNISH THE PARTICULARS OF HIS INCOME. WHEN SUCH PARTICULARS ARE FOUND TO BE INACCURATE, THE LIABILITY WOULD ARISE. IN DILIP N. SHROFF V. JOINT COMMISSIONER OF INCOME TAX, MUMBAI & ANR. (2007) 16 (I) ITCL 246 (SC) : (2007) 291 ITR 519 (SC) : 2007 (6) SCC 329, THIS COURT EXPLAINED THE TERMS 'CONCEALMENT OF INCOME' AND 'FURNISHING INACCURATE PARTICULARS'. THE COURT WENT ON TO HOLD THEREIN THAT IN ORDER TO ATTRACT THE PENALTY UNDER SECTION 271(1)(C), MENS REA WAS NECESSARY, AS ACCORDING TO THE COURT, THE WORD 'INACCURATE' SIGNIFIED A DELIBERATE ACT OR OMISSION ON BEHALF OF THE ASSESSEE. IT WENT ON TO HOLD THAT CLAUSE (III) OF SECTION 271(1) PROVIDED FOR A DISCRETIONARY JURISDICTION UPON THE ASSESSING AUTHORITY, INASMUCH AS THE AMOUNT OF PENALTY COULD NOT BE LESS THAN THE AMOUNT OF TAX SOUGHT TO BE EVADED BY REASON OF SUCH CONCEALMENT OF PARTICULARS OF INCOME, BUT IT MAY NOT EXCEED THREE TIMES THEREOF. IT WAS POINTED OUT THAT THE TERM 'INACCURATE PARTICULARS' WAS NOT DEFINED ANYWHERE IN THE ACT AND, THEREFORE, IT WAS HELD THAT FURNISHING OF AN ASSESSMENT OF THE VALUE OF THE PROPERTY MAY NOT BY ITSELF BE FURNISHING INACCURATE PARTICULARS. IT WAS FURTHER HELD THAT THE ASSESSEE MUST BE FOUND TO HAVE FAILED TO PROVE THAT HIS EXPLANATION IS NOT ONLY NOT BONA FIDE BUT ALL THE FACTS RELATING TO THE SAME AND MATERIAL TO THE COMPUTATION OF HIS INCOME WERE NOT DISCLOSED BY HIM. IT WAS THEN HELD THAT THE EXPLANATION MUST BE PRECEDED BY A FINDING AS TO HOW AND IN WHAT MANNER, THE ASSESSEE HAD FURNISHED THE PARTICULARS OF HIS INCOME. THE COURT ULTIMATELY WENT ON TO HOLD THAT THE ELEMENT OF MENS REA WAS ESSENTIAL. IT WAS ONLY ON THE POINT OF MENS REA THAT THE JUDGMENT IN DILIP N. SHROFF V. JOINT COMMISSIONER OF INCOME TAX, MUMBAI & ANR. WAS UPSET. IN UNION OF INDIA V. DHARAMENDRA TEXTILE PROCESSORS (CITED SUPRA), AFTER QUOTING FROM SECTION 271 EXTENSIVELY AND ALSO CONSIDERING SECTION 271(1)(C), THE COURT CAME TO THE CONCLUSION THAT SINCE SECTION 271(1)(C) INDICATED THE ELEMENT OF STRICT LIABILITY ON THE ASSESSEE FOR THE CONCEALMENT OR FOR GIVING INACCURATE PARTICULARS WHILE FILING RETURN, THERE WAS NO NECESSITY OF MENS REA . THE COURT WENT ON TO HOLD THAT THE OBJECTIVE BEHIND ENACTMENT OF SECTION 271(1)(C) READ WITH EXPLANATIONS INDICATED WITH THE SAID SECTION WAS FOR PROVIDING REMEDY FOR LOSS OF REVENUE AND SUCH A PENALTY WAS A CIVIL LIABILITY AND, THEREFORE, WILLFUL CONCEALMENT IS NOT AN ESSENTIAL INGREDIENT FOR ATTRACTING CIVIL LIABILITY AS WAS THE CASE IN THE MATTER OF PROSECUTION UNDER SECTION 276-C OF THE ACT. THE BASIC REASON WHY DECISION IN DILIP N. SHROFF V. JOINT COMMISSIONER OF INCOME TAX, MUMBAI & ANR. (CITED SUPRA) WAS OVERRULED BY THIS COURT IN UNION OF INDIA V. DHARAMENDRA TEXTILE PROCESSORS (CITED SUPRA), WAS THAT ACCORDING TO THIS COURT THE EFFECT AND DIFFERENCE BETWEEN SECTION 271(1)(C) AND SECTION 276-C OF THE ACT WAS LOST SIGHT OF IN CASE OF DILIP N. SHROFF V. JOINT COMMISSIONER OF INCOME TAX, MUMBAI & 45 I.T.A. NO. 150 TO 155/NAG/2010 46 ANR. (CITED SUPRA). HOWEVER, IT MUST BE POINTED OUT THAT IN UNION OF INDIA V. DHARAMENDRA TEXTILE PROCESSORS (CITED SUPRA), NO FAULT WAS FOUND WITH THE REASONING IN THE DECISION IN DILIP N. SHROFF V. JOINT COMMISSIONER OF INCOME TAX , MUMBAI & ANR. (CITED SUPRA), WHERE THE COURT EXPLAINED THE MEANING OF THE TERMS 'CONCEAL' AND INACCURATE'. IT WAS ONLY THE ULTIMATE INFERENCE IN DILIP N. SHROFF V. JOINT COMMISSIONER OF INCOME TAX, MUMBAI & ANR. (CITED SUPRA) TO THE EFFECT THAT MENS REA WAS AN ESSENTIAL INGREDIENT FOR THE PENALTY UNDER SECTION 271(1)(C) THAT THE DECISION IN DILIP N. SHROFF V. JOINT COMMISSIONER OF INCOME TAX, MUMBAI & ANR. (CITED SUPRA) WAS OVERRULED. 28. NOW COMING TO THE ORDER OF THE SUPREME COURT IN THE CASE OF K.P.MADHUSUDHANAN V. CIT (2001) 251 ITR 99 (SC) AS HAS BEEN RELIED ON BY THE LD. DR WE FIND THAT IN THIS CASE THE APEX COURT HELD AS UNDER:- WE FIND IT DIFFICULT TO ACCEPT AS CORRECT THE TWO JUDGMENTS AFOREMENTIONED. THE EXPLANATION TO SECTION 271(1)(C) IS APART OF SECTION 271. WHEN THE INCOME-TAX OFFICER OR THE APPELLATE ASSISTANT COMMISSIONER ISSUES TO AN ASSESSEE A NOTICE UNDER SECTION 271, HE MAKES THE ASSESSEE AWARE THAT THE PROVISIONS THEREOF ARE TO BE USED AGAINST HIM. THESE PROVISIONS INCLUDE THE EXPLANATION. BY REASON OF THE EXPLANATION, WHERE THE TOTAL INCOME RETURNED BY THE ASSESSEE IS LESS THAN 80 PER CENT OF THE TOTAL INCOME ASSESSED UNDER SECTION 143 OR 144 OR 147, REDUCED TO THE EXTENT THEREIN PROVIDED, THE ASSESSEE IS DEEMED TO HAVE CONCEALED THE PARTICULARS OF HIS INCOME OR FURNISHED INACCURATE PARTICULARS THEREOF, UNLESS HE PROVES THAT THE FAILURE TO RETURN THE CORRECT INCOME DID NOT ARISE FROM ANY FRAUD OR NEGLECT ON HIS PART. THE ASSESSEE IS, THEREFORE, BY VIRTUE OF THE NOTICE UNDER SECTION 271 PUT TO NOTICE THAT IF HE DOES NOT PROVE, IN THE CIRCUMSTANCES STATED IN THE EXPLANATION, THAT HIS FAILURE TO RETURN HIS CORRECT INCOME WAS 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 PROVIDED BY THAT SECTION. NO EXPRESS INVOCATION OF THE EXPLANATION TO SECTION 271 IN THE NOTICE UNDER SECTION 271 IS, IN OUR VIEW, NECESSARY 46 I.T.A. NO. 150 TO 155/NAG/2010 47 BEFORE THE PROVISIONS OF THE EXPLANATION THEREIN ARE APPLIED. THE HIGH COURT AT BOMBAY WAS, THEREFORE, IN ERROR IN THE VIEW THAT IT TOOK AND THE DIVISION BENCH IN THE IMPUGNED JUDGMENT WAS RIGHT. 29. IN THIS CASE, THE FACTS WERE THAT THE ASSESSEE PARTNERSHIP FIRM FILED A RETURN OF INCOME AT RS.6.76,890/-. THE ASSESSMENT WAS COMPLETED AT RS.7,90,170/- INCLUDING A SUM OF RS.93,000/- AS INCOME FROM OTHER SOURCES. DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE AO NOTICED THAT A DEMAND DRAFT AND TELEGRAPHIC TRANSFER WERE NOT ENTERED BY THE ASSESSEE IN ITS CASH BOOK ON THE DATES ON WHICH THE SAME WERE PURCHASED AND MADE RESPECTIVELY. WHEN THIS WAS POINTED OUT TO THE ASSESSEE, THE ASSESSEE SUBMITTED A LETTER DT.28 TH AUGUST,1989 STATING THAT AS SUFFICIENT CASH BALANCE WAS NOT AVAILABLE TO IT ON THE DATE OF THE TRANSACTION, IT OBTAINED HAND LOANS FROM FRIENDS AS IT EXPECTED TO REPAY SUCH LOANS WITHIN A SHORT TIME. NO ENTRIES WERE MADE IN THE BOOKS OF ACCOUNT IN RESPECT THEREOF. THE ASSESSEE SINCE WAS UNABLE TO FURNISHED EVIDENCE FOR SUCH LOANS, OFFERED THE AMOUNT OF RS.93,000/- AS ADDITIONAL INCOME. PENALTY PROCEEDINGS WERE INITIATED BY THE AO UNDER SECTION 271(1)(C). THE AO DID NOT AGREE WITH THE EXPLANATION OF THE ASSESSEE AND NOTED THAT IT HAD ITSELF OFFERED THE ADDITION OF RS.93,000/-. APPLYING EXPLANATION 1(B) OF SECTION 271(1)(C), THE AO IMPOSED UPON THE ASSESSEE PENALTY OF RS.37,975/-. THE TRIBUNAL CANCELLED THE PENALTY FOR THE REASON THAT IN THE NOTICE INITIATING PENALTY PROCEEDINGS THE ASSESSEE WAS NOT INTIMATED ABOUT THE PROPOSED ACTION UNDER EXPLANATION 1(B) TO SECTION 271(1)(C) BUT THE HIGH COURT ON A REFERENCE HELD THAT THE IMPOSITION OF PENALTY WAS VALID. UNDER 47 I.T.A. NO. 150 TO 155/NAG/2010 48 THESE FACTS WHEN THE MATTER WENT BEFORE THE HONBLE SUPREME COURT, THE HONBLE SUPREME COURT HELD IN THE ABOVE MANNER. IN THIS JUDGMENT WE ALSO NOTED THAT THE SUPREME COURT HAS OBSERVED THAT BY REASON OF THE ADDITION OF EXPLANATION 1(B) TO SECTION 271(1)(C) THE VIEW TAKEN BY THE APEX COURT IN THE CASE OF SIR SADILAL SUGAR AND GENERAL MILLS LTD. VS CIT 168 ITR 705 CAN NO LONGER BE SAID TO BE APPLICABLE. THIS CLEARLY SHOWS THAT THE PENALTY UNDER SECTION 271(1)(C) WAS CONFIRMED IN THE CASE OF K P MADHUSUDHAN V CIT 251 ITR 99 IN VIEW OF THE EXPLANATION TO SECTION 271(1)(C). THIS CASE IS ALSO CONCERNED WITH THE LAW PRIOR TO 1.4.1976. WE HAVE ALREADY HELD THAT IN THE CASE OF THE ASSESSEE EXPLANATION IS NOT APPLICABLE AND EVEN THERE IS NO EVIDENCE ON RECORD THAT THE AO HAS DEDUCTED THE ADDITIONAL INCOME NOT SHOWN BY THE ASSESSEE AND IN CONSEQUENCE THEREOF THE ASSESSEE HAS DECLARED THE ADDITIONAL INCOME. THE ASSESSEE SURRENDERED THE GIFT TO BE TAKEN ITS INCOME AS THE ASSESSEE EXPRESSED HIS INABILITY TO PRODUCE THE CONCERNED DONOR ALTHOUGH THE EVIDENCES WERE PRODUCE TO DISCHARGE HIS ONUS ENTRUSTED UNDER SECTION 68 OF THE INCOME TAX ACT. THEREFORE, WE ARE OF THE VIEW THAT THE DECISION IN THE CASE OF K P MADHUSUDHAN V CIT 251 ITR 99 WILL NOT ASSIST THE REVENUE AND WILL NOT BE APPLICABLE TO THE FACTS OF THE CASE BEFORE US. 30. WE ALSO NOTED THAT IN THE CASE OF UNION OF INDIA AND OTHERS V. DHARAMENDRA TEXTILE PROCESSORS AND OTHERS (2007) 295 ITR 244 (SC) THE HON'BLE APEX COURT HAS HELD AS UNDER :- 48 I.T.A. NO. 150 TO 155/NAG/2010 49 WE ARE OF THE VIEW THAT THERE IS A CONFLICT OF OPINIONS BETWEEN THE JUDGMENTS OF THE DIVISION BENCH OF THIS COURT IN THE CASE OF DILIP N. SHROFF V. JOINT CIT [2007] 8 SCALE 304 ON THE ONE HAND AND ON THE OTHER HAND WE HAVE ANOTHER JUDGMENT OF THIS COURT IN THE CASE OF CHAIRMAN, SEBI V. SHRIRAM MUTUAL FUND [2006] 5 SCC 361. SECONDLY, IT MAY BE POINTED OUT THAT THE OBJECT BEHIND THE ENACTMENT OF SECTION 271(1)(C) READ WITH THE EXPLANATIONS QUOTED ABOVE INDICATES THAT THE SAID SECTION HAS BEEN ENACTED TO PROVIDE FOR A REMEDY FOR LOSS OF REVENUE. THE PENALTY UNDER THE SAID SECTION IS A CIVIL LIABILITY. WILLFUL CONCEALMENT IS NOT AN ESSENTIAL INGREDIENT FOR ATTRACTING THE CIVIL LIABILITY AS IS THE CASE IN THE MATTER OF PROSECUTION UNDER SECTION 276C OF THE ACT. WHILE CONSIDERING AN APPEAL AGAINST AN ORDER MADE UNDER SECTION 271(1)(C) WHAT IS REQUIRED TO BE EXAMINED IS THE RECORD WHICH THE OFFICER IMPOSING THE PENALTY HAD BEFORE HIM AND IF THAT RECORD CAN SUSTAIN THE FINDING THAT THERE HAD BEEN CONCEALMENT, THAT WOULD BE SUFFICIENT TO SUSTAIN THE PENALTY. KEEPING IN MIND THESE TWO CIRCUMSTANCES, WE ARE OF THE VIEW THAT THE JUDGMENT OF THE DIVISION BENCH IN THE CASE OF DILIP N. SHROFF V. JOINT CIT [2007] 8 SCALE 304 NEEDS CONSIDERATION. THE EXPLANATIONS ADDED TO SECTION 271(1)(C) IN THEIR ENTIRETY ALSO INDICATE THE ELEMENT OF STRICT LIABILITY ON THE ASSESSEE FOR CONCEALMENT OR FOR GIVING INACCURATE PARTICULARS WHILE FILING RETURNS. THE JUDGMENT IN DILIP N. SHROFFS CASE [2007] 8 SCALE 304 (SC) HAS ALSO NOT CONSIDERED THE PROVISIONS OF SECTION 276C OF THE INCOME-TAX ACT. THEREFORE, IN OUR VIEW, THE JUDGMENT IN THE CASE OF DILIP N. SHROFF V. JOINT CIT [2007] 8 SCALE 304 (SC) NEEDS CONSIDERATION BY THE LARGER BENCH OF THIS COURT PARTICULARLY WHEN IT HAS RAMIFICATIONS NOT ONLY REGARDING THE PROVISIONS OF THE INCOME-TAX ACT BUT ALSO WITH REGARD TO THE PROVISIONS OF SECTIONS 3A AND 11AC OF THE CENTRAL EXCISE ACT AND RULE 96ZQ(5) OF THE CENTRAL EXCISE RULES. FOR THE AFORE STATED REASONS, WE DIRECT THE REGISTRY TO PLACE OUR ORDER IN THIS BATCH OF CIVIL APPEALS BEFORE THE HON'BLE CHIEF JUSTICE OF INDIA FOR APPROPRIATE DIRECTIONS. BEFORE CONCLUDING, WE MAY MENTION THAT IN THE PRESENT CASES, THE ASSESSEE HAD CHALLENGED THE VIRUS OF RULE 96ZQ(5). BY THE IMPUGNED JUDGMENT, THE GUJARAT HIGH COURT HAS READ DOWN THE SAID RULE INCORPORATING THE MENSREA REQUIREMENT. IT IS MADE CLEAR THAT IF THE LARGER BENCH TAKES A VIEW TO SAY THAT THE PENALTY UNDER THE SAID CLAUSE IS MANDATORY, THEN IT WOULD STILL BE OPEN TO THE ASSESSEE TO CHALLENGE THE VIRUS OF THE SAID RULE 96ZQ(5) 49 I.T.A. NO. 150 TO 155/NAG/2010 50 AND, THEREFORE, IN THAT EVENT, THE MATTER HAS TO BE KEPT BEFORE THE DIVISION BENCH FOR PASSING APPROPRIATE ORDERS. 31. IN THE AFORESAID CASE ALSO, WE ALSO NOTED THAT THE HONBLE APEX COURT HAS HELD THAT THE RECORD BEFORE THE AO MUST SPEAK OF THAT THE ASSESSEE HAS CONCEALED THE INCOME. WE HAVE ALREADY HELD THAT IN THE CASE BEFORE US THERE IS NO MATERIAL OR EVIDENCE BEING BROUGHT ON RECORD OR BEFORE US WHICH MAY PROVE THAT THE ASSESSEE HAS CONCEALED THE PARTICULARS OF INCOME AND THE REVENUE HAS DEDUCTED THE ADDITIONAL INCOME EXCEPT THE ALLEGATION SENT BY ADI THAT THE ASSESSEE HAS RECEIVED ACCOMMODATION ENTRY. THIS JUDGMENT ALSO IN OUR OPINION WILL NOT BE APPLICABLE TO THE FACTS OF THE CASE BEFORE US. 32. WE HAVE ALSO GONE THROUGH THE DECISION OF THE HON'BLE APEX COURT IN THE CASE OF CIT V. SURESH CHANDRA MITTAL (2001) 251 ITR 9 (SC), WHICH AFFIRMED THE DECISION OF THE OF THE HON'BLE MADHYA PRADESH HIGH COURT REPORTED AS CIT VS. SURESH CHANDRA MITTAL (2000) 241 ITR 124, WHEREIN THE HON'BLE HIGH COURT HAS HELD AS UNDER:- IN THE PRESENT, CASE THOUGH IT IS TRUE THAT THE ASSESSEE HAD NOT SURRENDERED AT ALL AND THAT HE HAD DONE SO ON THE PERSISTENT QUERIES MADE BY THE ASSESSING OFFICER, BUT ONCE THE REVISED ASSESSMENT WAS REGULARIZED BY THE REVENUE AND ONCE THE ASSESSING AUTHORITY HAD FAILED TO TAKE ANY OBJECTION IN THE MATTER, THE DECLARATION OF INCOME MADE BY THE ASSESSEE IN HIS REVISED RETURNS AND HIS 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. THEREFORE, THE TRIBUNAL WAS JUSTIFIED IN CANCELING THE PENALTY LEVIED BY THE ASSESSING OFFICER AND AFFIRMED BY THE COMMISSIONER OF INCOME-TAX (APPEALS) IN THE FACTS AND CIRCUMSTANCES OF THE CASE. THIS REFERENCE IS ACCORDINGLY 50 I.T.A. NO. 150 TO 155/NAG/2010 51 ANSWERED IN THE AFFIRMATIVE HOLDING THAT THE TRIBUNAL WAS JUSTIFIED IN DOING SO. 33. THE FACTS RELATING TO THIS CASE ARE THAT THE ASSESSEE HAD FILED THE INCOME-TAX RETURN SHOWING THE MEAGER INCOME. WHEN AFTER ACTION UNDER SECTION 132 WAS TAKEN AGAINST THE ASSESSEE WHICH LED TO REOPENING OF THE ASSESSMENT. A NOTICE UNDER SECTION 148 WAS SERVED ON HIM AND PURSUANT THERETO HE FILED REVISED RETURNS OF INCOME FOR THESE ASSESSMENT YEARS SHOWING HIGHER INCOME. EVENTUALLY THE ASSESSMENT ORDERS WERE PASSED AND THE RETURNS SUBMITTED WERE REGULARIZED UNDER SECTION 148. IN THE PENALTY PROCEEDINGS UNDER SECTION 271(1)(C) THE ASSESSEE CLAIMED THAT HE HAD OFFERED ADDITIONAL INCOME TO BUY PEACE OF MIND AND AVOID LITIGATION. PENALTY ORDERS WERE PASSED AND THE COMMISSIONER (APPEALS) CONFIRMED THE ORDERS. BUT THE APPELLATE TRIBUNAL HELD THAT THE REVENUE HAD NOT DISCHARGED ITS BURDEN OF PROVING CONCEALMENT AND HAD SIMPLY RESTED ITS CONCLUSION ON THE ACTS OF VOLUNTARY SURRENDER DONE BY THE ASSESSEE IN GOOD FAITH AND THAT PENALTY COULD NOT BE LEVIED. ON A REFERENCE THE HONBLE HIGH COURT HELD THAT IT IS WELL SETTLED THAT UNDER SECTION 271(1)(C) THE INITIAL BURDEN LIES ON THE REVENUE TO ESTABLISH THAT THE ASSESSEE HAS 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 PROVIDES FOR SHIFTING OF THIS BURDEN AGAIN WHERE THE EXPLANATION OFFERED BY THE ASSESSEE IS FOUND TO BE BONA FIDE. IT WAS FURTHER HELD THAT 51 I.T.A. NO. 150 TO 155/NAG/2010 52 THOUGH IT IS TRUE THAT THE ASSESSEE HAD NOT SURRENDERED AT ALL AND THAT HE HAD DONE SO ON THE PERSISTENT QUERIES MADE BY THE AO, BUT ONCE THE REVISED ASSESSMENT WAS REGULARIZED BY THE REVENUE AND ONCE THE ASSESSING AUTHORITY HAD FAILED TO TAKE ANY OBJECTION IN THE MATTER, THE DECLARATION OF INCOME MADE BY THE ASSESSEE IN HIS REVISED RETURNS AND HIS EXPLANATION THAT HE HAD DONE SO TO BUY PEACE WITH THE DEPARTMENT AND TO COME OUT OF THE VEXED LITIGATION COULD BE TREATED AS BONA FIDE IN THE FACTS AND CIRCUMSTANCES OF THE CASE. THEREFORE, THE TRIBUNAL WAS JUSTIFIED IN CANCELING THE PENALTY LEVIED BY THE AO AND AFFIRMED BY THE CIT(A) IN THE FACTS AND CIRCUMSTANCES OF THE CASE. IN OUR OPINION, THE CASE OF THE ASSESSEE IS AT A BETTER FOOTING THAN THE CASE OF SURESH CHANDRA MITTAL (SUPRA). IN THE CASE BEFORE US THE ASSESSEE HAS SURRENDERED THE INVESTMENT IN CAPITAL WORK IN PROGRESS BY REDUCING THE VALUE OF CAPITAL WORK IN PROGRESS WHICH HAS THE EFFECT OF LOWER CLAIM OF DEPRECIATION IN THE ASSESSMENT YEARS 2006-07 ONWARDS. THIS WAS DONE BY THE ASSESSEE TO BE IN PEACE AND AVOID THE LITIGATION. THERE IS NO EVIDENCE ON RECORD THAT THIS SURRENDER WAS MADE ON THE PERSISTENT QUERIES AND EVIDENCE BEING BROUGHT ON RECORD BY THE REVENUE THAT THE ASSESSEE HAD DISCLOSED CAPITAL WORK IN PROGRESS AT A HIGHER FIGURE. THIS DECISION DIFFERS FROM THE DECISION OF K P MADHUSUDAN(SUPRA) MAINLY DUE TO THE FACT THAT IN THE CASE OF THE K P MADHUSUDAN EVEN THOUGH ASSESSEE HAS SURRENDERED ADDITIONAL INCOME BUT THE AO WAS NOT SATISFIED WITH THE EXPLANATION OF THE ASSESSEE REGARDING THE ADDITIONAL INCOME AND HENCE LEVIED PENALTY BY INVOKING THE EXPLANATION I B OF SECTION 271(1)(C). THE COURT HAS ALSO FIND THAT THE EXPLANATION GIVEN BY THE ASSESSEE WAS VAGUE AND FANCIFUL WHICH WAS NOT THE 52 I.T.A. NO. 150 TO 155/NAG/2010 53 CASE IN THE CASE OF SHRI SURESH CHANDRA MITTAL (SUPRA). IN THE CASE OF SURESH CHANDRA MITTAL, WE FIND THAT WHEN THE ASSESSEE HAS SURRENDERED ADDITIONAL INCOME AND THE RETURNS WERE REGULARIZED BY ISSUING NOTICE UNDER SECTION 147 AS IS THE CASE OF THE ASSESSEE, THE A.O. FAILED TO TAKE ANY OBJECTION AND ACCEPTED THE EXPLANATION OFFERED BY THE ASSESSEE. 34. THE CRUX OF THE TWO DECISIONS GIVEN BY THE HONBLE SUPREME COURT APPEARING IN THE SAME ITR WERE DIFFERENT INASMUCH AS THE MP HIGH COURT IN 241 ITR 124 WHICH WAS SUBSEQUENTLY CONFIRMED IN 251 ITR 09 WAS REALLY CONCERNED WITH THE FOLLOWING: FROM PAGE 126 WE FIND OURSELVES IN AGREEMENT WITH THE VIEW TAKEN BY THE TRIBUNAL. IT IS WELL SETTLED THAT UNDER SECTION 271(1)(C), 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 DISCLOSED INCOME OR OFFERS AN EXPLANATION WHICH IS FOUND TO BE FALSE BY THE ASSESSING AUTHORITY. HOWEVER, THE PROVISO TO EXPLANATION 1 PROVIDES FOR SHIFTING OF THIS BURDEN AGAIN WHERE THE EXPLANATION OFFERED BY THE ASSESSEE IS FOUND TO BE BONA FIDE. 35. WHEREAS ON THE OTHER HAND, WHAT THE SUPREME COURT WAS CONCERNED WITH IN 251 ITR 99 WAS AS TO WHETHER, EVEN AFTER THE INSERTION OF THE EXPLANATION 1 BELOW SECTION 271(1)(C), IT WAS NECESSARY FOR THE REVENUE TO PROVE MENS REA. IT WOULD APPEAR THAT THE TWO ISSUES AS TO WHETHER THE INITIAL BURDEN EVEN AFTER THE INSERTION OF EXPLANATION 1 LAY WITH THE DEPARTMENT AND AS TO WHETHER THE DEPARTMENT STILL HAD TO PROVE MENS REA, ARE DIFFERENT AND, THEREFORE, IT MAY NOT BE POSSIBLE TO SUGGEST THAT THE AFORESAID TWO DECISIONS OF 53 I.T.A. NO. 150 TO 155/NAG/2010 54 THE SUPREME COURT CONFLICTED WITH EACH OTHER. IN THE CASE BEFORE US PENALTY HAS NOT BEEN IMPOSED BY INVOKING THE EXPLANATION TO SECTION 271(1)(C). 36. IN CASE OF DCIT V CHIRAG METAL ROLLING MILLS LIMITED 207 CTR 395, THE HONBLE MP HIGH COURT HAS OBSERVED AS UNDER AFTER CONSIDERING AFORESAID TWO DECISIONS OF HONBLE APEX COURT: SO FAR AS FULL BENCH OF KERALA HIGH COURT, IN THE MATTER OF CIT V INDIA SEA FOODS (SUPRA) AND CIT V SURESH CHANDRA MITTAL (SUPRA) ARE CONCERNED, ARE BASED ON THE LAW LAID DOWN BY THE HONBLE APEX COURT IN THE MATTER OF SIR SHADILAL (SUPRA). SO FAR AS K P MADHUSUDHANS CASE (SUPRA) WHICH WAS DELIVERED ON 21 ST AUGUST, 2001 IS CONCERNED, IN THIS CASE THE HONBLE APEX COURT HAS CONSIDERED THE EXPLANATION TO SECTION 271(1)(C) AND HAS HELD THAT SINCE IN THE CASE OF SIR SHADILAL (SUPRA) THE REVENUE WAS REQUIRED (TO PROVE) MENS REA OF QUASI-CRIMINAL OFFENCE, THEREFORE, THE LEGISLATURE HAS ADDED THE EXPLANATION. THAT VIEW IN THE MATTER OF SIR SHADILAL (SUPRA) CAN NO LONGER BE SAID TO BE APPLICABLE. EXPLANATION 1 TO SEC. 271 HAS BEEN SUBSTITUTED BY THE TAXATION LAWS (AMENDMENT) ACT, 1975 W.E.F. 1 ST APRIL, 1976. ACCORDING TO WHICH IF A PERSON FAILS TO OFFER AN EXPLANATION OR OFFERS AN EXPLANATION WHICH IS FOUND BY THE AO TO BE FALSE OR OFFERS AN EXPLANATION WHICH HE IS NOT ABLE TO SUBSTANTIATE AND FAILS TO PROVE THAT SUCH EXPLANATION IS BONA FIDE AND ALL THE FACTS RELATING TO THE SAME 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 PURPOSE OF CL.(C) OF THIS SUB-SECTION, BE DEEMED TO REPRESENT THE INCOME IN RESPECT OF WHICH PARTICULARS HAVE BEEN CONCEALED. IN THE MATTER OF K P MADHUSUDHAN (SUPRA) IT HAS ALSO BEEN OBSERVED BY HONBLE APEX COURT WHEN THE ITO ISSUES TO AN ASSESSEE A NOTICE UNDER S. 271, HE MAKES THE ASSESSEE AWARE THAT THE PROVISIONS THEREOF ARE TO BE USED AGAINST HIM. THESE PROVISIONS INCLUDE EXPLANATION. BY REASON OF THE EXPLANATION, WHERE THE TOTAL INCOME RETURNED BY THE ASSESSEE IS LESS THAN 80 PER CENT OF THE TOTAL INCOME ASSESSED UNDER S. 143 OR 144 OR 147, REDUCED TO THE EXTENT THEREIN PROVIDED, THE ASSESSEE IS DEEMED TO HAVE CONCEALED THE PARTICULARS OF HIS 54 I.T.A. NO. 150 TO 155/NAG/2010 55 INCOME OR FURNISHED INACCURATE PARTICULARS THEREOF, UNLESS HE PROVES THAT THE FAILURE TO RETURN THE CORRECT INCOME AND DID NOT ARISE FROM ANY FRAUD OR NEGLECT ON HIS PART. THE ASSESSEE IS, THEREFORE, BY VIRTUE OF THE NOTICE UNDER S. 271 BUT TO NOTICE THAT IF HE DOES NOT PROVE, IN THE CIRCUMSTANCES STATED IN THE EXPLANATION, THAT HIS FAILURE TO RETURN HIS CORRECT INCOME WAS 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 PROVIDED BY THAT SECTION. 37. THE COMBINED READING OF EXPLANATION 1 TO SEC. 271(1)(C) OF THE ACT AND THE VERDICT OF HONBLE APEX COURT IN THE MATTER OF SIR SHADILAL (SUPRA) AND K P MADHUSUDHAN (SUPRA) IT IS CRYSTAL CLEAR THAT PRIOR TO EXPLANATION 1 THE POSITION OF LAW WAS IF ASSESSEE AGREES FOR ADDITION OF HIS INCOME TO BUY PEACE THEN IT WILL NOT FOLLOW THAT AGREED AMOUNT TO BE ADDED WAS CONCEALED INCOME AND THE REVENUE WAS REQUIRED TO PROVE THE OTHERWISE. BECAUSE OF THIS VIEW TAKEN BY THE HONBLE APEX COURT IN THE MATTER OF SIR SHADILAL (SUPRA) THE EXPLANATION 1 TO SEC. 271(1)(C) WAS ADDED TO THE IT ACT AND AFTER TAKING INTO CONSIDERATION THE EXPLANATION, HONBLE APEX COURT IN THE MATTER OF K P MADHUSUDHAN (SUPRA) HAS LAID DOWN THAT NO SEPARATE ENQUIRY IS NECESSARY FOR IMPOSING THE PENALTY. HOWEVER, FROM PLAIN READING OF EXPLANATION, IT IS EVIDENT THAT SOME SORT OF ENQUIRY IS NECESSARY, THEREFORE, THE PROCEEDINGS INITIATED BY THE REVENUE FOR IMPOSING THE PENALTY UNDER SEC. 271(1)(C) OF THE ACT SHALL BE TREATED AS PROCEEDINGS AND THE ASSESSEE IS AT LIBERTY TO SHOW HIS BONA FIDES IN THAT PROCEEDINGS. IF THE ASSESSEE FAILS TO SHOW HIS BONA FIDES, IN THAT CASE PENALTY CAN BE IMPOSED BY THE REVENUE. 55 I.T.A. NO. 150 TO 155/NAG/2010 56 38. WE HAVE ALREADY HELD THAT THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF K P MADHUSUDHAN (SUPRA) WILL NOT APPLY TO THE FACTS OF THE CASE BUT THE DECISION IN THE CASE OF SURESH CHANDRA MITTAL (SUPRA) IN OUR VIEW IS APPLICABLE TO THE FACTS OF THE CASE BEFORE US AND ACCORDINGLY IS BINDING ON US. THEREFORE, THE PENALTY ON THE BASIS OF THIS JUDGMENT IS ALSO LIABLE TO BE QUASHED AND ACCORDINGLY; WE CANCEL THE SAME. 39. IN VIEW OF AFORESAID DISCUSSION WE CONFIRM THE ORDER OF THE CIT(A) DELETING THE PENALTY LEVIED U/S 271(1)(C) IN EACH OF THE ASSESSMENT YEARS. 40. IN THE RESULT, ALL THE APPEALS OF THE REVENUE STANDS DISMISSED. (ORDER PRONOUNCED IN THE OPEN COURT ON 21.12.12) SD/- SD/- ( D. T. GARASIA ) ( P. K. BANSAL ) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED:21.12.12. *CL SINGH *A* COPY FORWARDED TO THE: 1. APPELLANT. 2. RESPONDENT. 3. CIT (A) 4. CIT 5. DR 6. GUARD FILE ASSISTANT REGISTRAR 56