The ADIT,(Intl.Taxn.), Ahmedabad V. Precision Drilling(Cyprus) Ltd., Baroda

ITA 1604/AHD/2009

• Counselvise Citation: [2009] 114 COUNSELVISE.COM (IT) 9135 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 month(s) 30 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-09-2009
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 08-09-2009
• Assessment Year: 2005-2006
• Appeal Filed On: 18-05-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: NEETA SHAH SENIOR
• Assessee Lawyers: ASHWIN C SHAH
• Keywords: Bonafide belief; Revised return
• Section: 271(1)(c); 143(3); 143(1); 251; 44BB; 68

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH 'B' (BEFORE S/SHRI P K BANSAL AND MAHAVIR SINGH) ITA NO.1604/AHD/2009 (ASSESSMENT YEAR: 2005-06) THE ASSISTANT DIRECTOR OF INCOME-TAX (INTL. TAXN.) AHMEDABAD, 4 TH FLOOR, NATURE VIEW BUILDING, ASHRAM ROAD, AHMEDABAD PAN: AACCP 6971 C V/S PRECISION DRILLING (CYPRUS) LIMITED, 4 TH FLOOR, LANDMARK, RACE COURSE CIRCLE, BARODA (APPELLANT) (RESPONDENT) APPELLANT BY :- SMT. NEETA SHAH, SENIOR DR RESPONDENT BY:- SHRI ASHWIN C SHAH O R D E R PER P K BANSAL (ACCOUNTANT MEMBER) : THIS APPEAL HAS BEEN FILED BY THE REVENUE AGAINST THE ORDER OF THE CIT(A ) DATED 11 TH FEBRUARY, 2009, BY WHICH THE CIT(A) HAS DELETED THE PENALTY OF RS.4,00,000/- LEVIED BY THE AO U/S 271(1)(C) OF THE INCOME-TAX ACT, 1961 [THE ACT FOR SHORT]. 2 THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E, A COMPANY INCORPORATED ON CYPRUS, IS AN INDIRECT WHOL LY OWNED SUBSIDIARY OF PRECISION DRILLING CORPORATION, A COR PORATION INCORPORATED IN THE PROVINCE OF ALBERTA, CANADA. TH E ASSESSEE COMPANY FILED ITS RETURN OF INCOME FOR THE YEAR UND ER CONSIDERATION ON 31-10-2005 REPORTING TOTAL INCOME U/S 44BB AMOUNTING TO RS.8,88,92,580/-. ON 04-10-2006 THE AS SESSEE 2 COMPANY FILED A REVISED RETURN DECLARING A TOTAL IN COME OF RS.8,85,17,120/-. THE CASE WAS SELECTED FOR SCRUTIN Y AND CALLED FOR VARIOUS DOCUMENTS AND INFORMATION TO DETERMINE THE TOTAL TAXABLE INCOME AND TAX LIABILITY OF THE ASSESSEE. T HE ASSESSEE COMPLIED WITH ALL NOTICES ISSUED BY THE AO AND PROV IDED ALL THE INFORMATION AND DOCUMENTS THAT WAS REQUIRED TO COMP LETE THE SCRUTINY ASSESSMENT. 3 THE RETURN WAS PROCESSED U/S 143(1) AND THEREAFT ER THE CASE WAS TRANSFERRED TO ACIT, CIRCLE-6, BARODA, DUE TO CHANGE IN JURISDICTION OVER CASES OF NON-RESIDENTS AND FOREIG N COMPANIES. ASSESSMENT ORDER U/S 143(3) WAS PASSED ON 17-12-200 7 AND CERTAIN ADDITIONS WERE MADE. ON THE BASIS OF THESE FACTS, PENALTY PROCEEDINGS U/S 271(1)(C) WERE INITIATED FOR FURNIS HING INACCURATE PARTICULARS OF INCOME AND THEREBY CONCEALING THE IN COME AN SHOW CAUSE NOTICE WAS ISSUED ON 17-12-2007. THE ASSESSEE VIDE ITS REPLY DATED 26-06-2008 HAS SUBMITTED AS UNDER:- THE PROVISION BEING OF A PENAL NATURE, SOME AMOUNT OF CULPABLE NEGLIGENCE OR WILLFUL OMISSION ON THE PART OF THE A SSESSEE MUST BE ESTABLISHED BEFORE PENALTY IS IMPOSED. EXISTENCE OF MENS REA IS ESSENTIAL FOR IMPOSITION OF PENALTY. IF THE DEFAULT FROM A BONAFIDE BELIEF, AND IT WAS N OT THE RESULT OF A DELIBERATE ACT OF DEFIANCE OF THE LAW, NO PENALTY I S LEVIABLE. NO PENALTY IS LEVIABLE WHEN THE ASSESSEES CONTENTI ONS WERE BASED ON VARIOUS SUPPORTING DECISIONS, WHICH WERE REJECTED B Y THE AO DURING THE ASSESSMENT PROCEEDINGS. IN THIS REGARD, RELIANCE WAS PLACED ON VARIOUS DECI SIONS OF THE HON'BLE SUPREME COURT AS WELL AS OTHER HIGH COURTS AND TRIBUNAL, WHICH ARE CITED IN THE ORDER OF THE CIT(A ). THE ASSESSEE ALSO CONTENDED THAT IN ORDER TO IMPOSE PEN ALTY, IT MUST 3 BE PROVED BEYOND DOUBT THAT THERE WAS MENS REA OR A WILLFUL INTENTION TO CONCEAL INCOME OR SUBMIT INACCURATE PA RTICULARS OF INCOME AND THIS INTENTION IS NOT AT ALL MANIFEST IN THE ASSESSEES CASE. SO FAR AS THE QUESTION OF IMPOSITION OF PENA LTY IS CONCERNED IN RESPECT OF ADDITIONS / DISALLOWANCES T HAT REMAINED SUSTAINED AFTER THE ORDER OF THE CIT(A) VALIDITY OF IMPOSITION OF PENALTY THE PROVISIONS OF SECTION 271(1)(C) READ WI TH EXPLANATION 1 THERETO AND VARIOUS JUDICIAL PRONOUNCED HAVE TO B E CONSIDERED IN THIS CONTEXT. ACCORDING TO THE ASSESSEE, THE POS ITION REGARDING IMPOSITION OF PENALTY U/S 271(1)(C) READ WITH EXPLA NATION 1 THERETO AS APPLICABLE W.E.F. 1.4.76 IS THAT PENALTY IS TO BE IMPOSED IF THE AO IS SATISFIED THAT THE PERSON HAS CONCEALED THE PARTICULARS OF INCOME OR HAS FURNISHED INACCURATE P ARTICULARS THEREOF. HOWEVER, THE AO DID NOT ACCEPT THE CONTENT IONS OF THE ASSESSEE AND OBSERVED THAT I AM CONVINCED THAT THE CASE OF THE ASSESSEE ATTRACTS PROVISIONS OF SECTION 271(1)(C) A S ASSESSEE FURNISHING INACCURATE PARTICULARS REGARDING NATURE OF INCOME AND HENCE CONCEALED THE INCOME. THE AO ACCORDINGLY LEV IED THE PENALTY OF RS.4,00,000/-. 4 WHEN THE MATTER WENT IN APPEAL BEFORE THE CIT(A) AND CONTENDED THAT THE ASSESSEE DID NOT WILLFULLY CONCE AL ANY PART OF HIS INCOME OR FURNISH INACCURATE PARTICULARS OF INC OME. FURTHER, MERELY BECAUSE CERTAIN EXPENSES CLAIMED BY THE ASSE SSEE ARE DISALLOWED BY AN AUTHORITY CANNOT MEAN THAT THE PAR TICULARS FURNISHED BY THE ASSESSEE ARE WRONG. THE CIT(A) AFT ER CONSIDERING THE SUBMISSIONS CANCELLED THE PENALTY B Y OBSERVING AS UNDER:- I HAVE CONSIDERED THE SUBMISSION OF THE APPELLANT. I FIND FROM THE LEGISLATIVE HISTORY OF THE SECTION 271(1)(C) THAT T HE PENALTY FOR 4 CONCEALMENT OR FURNISHING INACCURATE PARTICULARS OF INCOME CAN BE LEVIED ONLY WHEN THERE IS DELIBERATE, WILLFUL AND C ONSCIOUS ATTEMPT ON THE PART OF THE ASSESSEE. THEREFORE, ONE NEEDS TO F IND OUT WHETHER THERE WAS ANY DELIBERATE, WILLFUL AND CONSCIOUS ATTEMPT O N PART OF THE APPELLANT TO CONCEAL OR FURNISH INACCURATE PARTICUL ARS OF ITS INCOME. I FIND THAT THE APPELLANT HAD MADE A CLAIM IN THE R ETURN OF INCOME. DURING THE ASSESSMENT PROCEEDING ALSO THE APPELLANT HAD FILED ALL THE DETAILS. THEREFORE, THE QUESTION OF CONCEALMENT OR FILING THE INACCURATE PARTICULARS OF INCOME DOES NOT ARISE. IN VIEW OF TH E ABOVE, I AM OF THE OPINION THAT NO PENAL ACTION BE TAKEN IF THE FULL D ISCLOSURE WAS MADE BY THE APPELLANT IN RELATION TO THE FACTS OF THE CA SE. I AM OF THE OPINION THAT THE PENALTY ON THIS ISSUE BE DELETED. IN VIEW OF THE ABOVE DISCUSSION, THE PENALTY ORDER U/S 271(1)(C) OF THE I.T. ACT, 1961 PASSED BY THE AO IS HEREBY CANCELLED. 5 WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIO NS AND, PERUSED THE MATERIAL ON RECORD ALONG WITH THE ORDER OF THE TAX AUTHORITIES BELOW. WE HAVE ALSO GONE THROUGH THE CASE LAWS AS C ITED BEFORE US. SECTION 271(1)(C) READS AS UNDER: 271.(1) IF THE ASSESSING OFFICER OR THE COMMISSIONE R (APPEALS) [OR THE COMMISSIONER] IN THE COURSE OF AN Y PROCEEDINGS UNDER THIS ACT, IS SATISFIED THAT ANY P ERSON - (A) .. (B) .. (C) HAS CONCEALED THE PARTICULARS OF HIS INCOME OR FURNISHED INACCURATE PARTICULARS OF SUCH INCOME, OR (D) .. HE MAY DIRECT THAT SUCH PERSON SHALL PAY BY WAY OF PENALTY, - EXPLANATION 1- WHERE IN RESPECT OF ANY FACTS MATERI AL TO THE COMPUTATION OF THE TOTAL INCOME OF ANY PERSON UNDER THIS ACT, - (A) SUCH PERSON FAILS TO OFFER AN EXPLANATION OR OF FERS AN EXPLANATION WHICH IS FOUND BY THE ASSESSING OFFICER OR THE COMMISSIONER (APPEALS) OR THE COMMISSIONER TO BE FA LSE OR 5 (B) SUCH PERSON OFFERS AN EXPLANATION WHICH HE IS N OT ABLE TO SUBSTANTIATE AND [FAILS TO PROVE THAT SUCH EXPLA NATION IS BONA FIDE AND THAT ALL THE FACTS RELATING TO THE SA ME AND MATERIAL TO THE COMPUTATION OF HIS TOTAL INCOME HAV E BEEN DISCLOSED BY HIM], THEN, THE AMOUNT ADDED OR DISALLOWED IN COMPUTING T HE TOTAL INCOME OF SUCH PERSON AS A RESULT THEREOF SHALL, FO R THE PURPOSES OF CLAUSE (C) OF THIS SUB-SECTION BE DEEME D TO REPRESENT THE INCOME IN RESPECT OF WHICH PARTICULAR S HAVE BEEN CONCEALED. AS PER THE PROVISIONS OF SECTION 271(1)(C) THE PENA LTY UNDER THIS SECTION IS LEVIABLE IF THE AO IS SATISFIED IN THE COURSE OF ANY PROCEEDING UNDER THIS ACT THAT ANY PERSON HAS CONCEALED THE PARTICUL ARS OF HIS INCOME OR FURNISHED INACCURATE PARTICULARS OF SUCH INCOME. TH E PENALTY PROCEEDINGS AND THE ASSESSMENT PROCEEDINGS BOTH ARE DIFFERENT. EXPLANATION 1 TO SECTION 271(1)(C) IN RESPECT OF ANY FACT RELATING T O THE COMPUTATION OF TOTAL INCOME STATES THAT THE AMOUNT ADDED OR DISALL OWED IN COMPUTING THE TOTAL INCOME OF AN ASSESSEE SHALL BE DEEMED TO BE T HE INCOME IN RESPECT OF WHICH PARTICULARS HAVE BEEN CONCEALED. THIS DEEM ING PROVISION FOR CONCEALMENT IS NOT ABSOLUTE ONE. EXPLANATION 1 TO SECTION 271(1)(C) PROVIDES THAT AN AMOUNT ADDED OR DISALLOWED IN COMPUTING THE TOTAL INCOME OF A PERSO N FALLING UNDER CLAUSE (A) OR (B) OF EXPLANATION 1 SHALL, FOR THE PURPOSE OF SECTION 271(1)(C), BE DEEMED TO REPRESENT THE INCOME IN RESPECT OF WHICH PARTICULARS HAD BEEN CONCEALED. EXPLANATION 1 REFERS TO TWO SITUATIONS I N WHICH PRESUMPTION OF CONCEALMENT CREATED BY EXPLANATION 1 IS AVAILABLE. THE FIRST SITUATION IS WHERE THE ASSESSEE, IN RESPECT OF ANY FACTS MATERIA L TO THE COMPUTATION OF HIS TOTAL INCOME, FAILS TO OFFER AN EXPLANATION OR OFFERS AN EXPLANATION WHICH IS FOUND BY THE AO OR THE COMMISSIONER TO BE FALSE. THE SECOND SITUATION IS WHERE THE ASSESSEE, IN RESPECT OF ANY FACTS MATERIAL TO THE 6 COMPUTATION OF HIS TOTAL INCOME, OFFERS AN EXPLANAT ION WHICH HE IS NOT ABLE TO SUBSTANTIATE AND ALSO FAILS TO PROVE THAT S UCH EXPLANATION WAS BONA FIDE AND THAT ALL THE FACTS RELATING TO THE COMPUTA TION OF TOTAL INCOME HAVE BEEN DISCLOSED BY HIM. THE PRESUMPTION AVAILABLE UN DER EXPLANATION 1 CANNOT BE DRAWN UNLESS THE CASE OF THE ASSESSEE FAL LS UNDER EITHER OF THE CLAUSES, VIZ., CLAUSE (A) OR CLAUSE (B). THE PRESUMPTION UNDER EXPLANATION 1 IS REBUTTABLE A ND NOT CONCLUSIVE. THE ASSESSEE CAN SUBMIT THE EXPLANATION AS THE ONUS SHIFTED ON THE ASSESSEE TO PROVE THAT HE HAS NOT CONCEALED THE PAR TICULARS OF THE INCOME. THE ASSESSEE IN THIS CASE HAS DULY SUBMITTED THE EX PLANATION. NO COGENT MATERIAL OR EVIDENCE WAS BROUGHT TO OUR KNOWLEDGE W HICH MAY PROVE THAT THE REVENUE HAS DETECTED THE CONCEALMENT OR THE EXP LANATION SUBMITTED BY THE ASSESSEE WAS FALSE ONE. EVEN THERE IS NO MAT ERIAL WHICH MAY PROVE THAT THE ASSESSEE WAS NOT ABLE TO SUBSTANTIATE ITS EXPLANATION. MERELY THE ADDITION HAS BEEN MADE IN THE ASSESSMENT IN OUR OPI NION THE ASSESSEE CAN NOT BE ENTRUSTED WITH THE PENALTY BY SIMPLY INVOKIN G EXPLANATION 1. 6 THE EXPLANATION SUBMITTED BY THE ASSESSEE, IN OU R OPINION, PROVED THAT THE ASSESSEE HAS DISCHARGED HIS ONUS AN D HAS REBUTTED THE PRESUMPTIONS AVAILABLE TO THE REVENUE UNDER EXPLANA TION 1 TO SECTION 271(1)(C). THIS EXPLANATION GIVEN BY THE ASSESSEE C ANNOT BE REGARDED TO BE A FALSE EXPLANATION UNTIL AND UNLESS, IN OUR OPI NION, THE REVENUE PROVES THAT THE EXPLANATION GIVEN BY THE ASSESSEE I S FALSE. IN OUR OPINION, NO PENALTY U/S 271(1)(C) CAN BE IMPOSED ON THE ASSE SSEE. 7 IN THE CASE OF NATIONAL TEXTILES V CIT 249 ITR 125 (GUJ) THE QUESTION BEFORE THE HONBLE GUJARAT HIGH COURT WAS ABOUT THE LEVY OF PENALTY U/S 271(1)(C) IN RESPECT OF THE ADDITION MA DE U/S 68 BY RECOURSE TO EXPLANATION 1 BELOW SECTION 271(1)(C). IN THIS C ASE THE HONBLE 7 GUJARAT HIGH COURT WHILE HOLDING THE IMPOSITION OF PENALTY WAS NOT JUSTIFIED OBSERVED:- IN ORDER TO JUSTIFY THE LEVY OF PENALTY, TWO FACTO RS MUST CO-EXIST, (I) THERE MUST BE SOME MATERIAL OR CIRCUMSTANCES LEADIN G TO THE REASONABLE CONCLUSION THAT THE AMOUNT DOES REPRESEN T THE ASSESSEES INCOME. IT IS NOT ENOUGH FOR THE PURPOSE OF PENALTY THAT THE AMOUNT HAS BEEN ASSESSED AS INCOME, AND (II) THE CIRCUMSTA NCES MUST SHOW THAT THERE WAS ANIMUS, I.E., CONSCIOUS CONCEALMENT OR ACT OF FURNISHING OF INACCURATE PARTICULARS ON THE PART OF THE ASSESS EE. EXPLANATION 1 TO SECTION 271(1)(C) HAS NO BEARING ON FACTOR NO.1 BUT HAS A BEARING ONLY ON FACTOR NO.2. THE EXPLANATION DOES NOT MAKE THE ASSESSMENT ORDER CONCLUSIVE EVIDENCE THAT THE AMOUNT ASSESSED WAS IN FACT THE INCOME OF THE ASSESSEE. NO PENALTY CAN BE IMPOSED IF THE F ACTS AND CIRCUMSTANCES ARE EQUALLY CONSISTENT WITH THE HYPOT HESIS THAT THE AMOUNT DOES NOT REPRESENT CONCEALED INCOME WITH THE HYPOTHESIS THAT IT DOES. IF THE ASSESSEE GIVES AN EXPLANATION WHIC H IS UNPROVED BUT NOT DISPROVED, I.E., IT IS NOT ACCEPTED BUT CIRCUMSTANC ES DO NOT LEAD TO THE REASONABLE AND POSITIVE INFERENCE THAT THE ASSESSEE S CASE IS FALSE, THE EXPLANATION CANNOT HELP THE DEPARTMENT BECAUSE THER E WILL BE NO MATERIAL TO SHOW THAT THE AMOUNT IN QUESTION WAS TH E INCOME OF THE ASSESSEE. ALTERNATIVELY, TREATING THE EXPLANATION A S DEALING WITH BOTH THE INGREDIENTS (I) AND (II) ABOVE, WHERE THE CIRCU MSTANCES DO NOT LEAD TO THE REASONABLE AND POSITIVE INFERENCE THAT THE A SSESSEES EXPLANATION IS FALSE, THE ASSESSEE MUST BE HELD TO HAVE PROVED THAT THERE WAS NO MENS REA OR GUILTY MIND ON HIS PART. E VEN IN THIS VIEW OF THE MATTER THE EXPLANATION ALONE CAN NOT JUSTIFY LE VY OF PENALTY. ABSENCE OF PROOF ACCEPTABLE TO THE DEPARTMENT CANNO T BE EQUATED WITH FRAUD OR WILLFUL DEFAULT. IN OUR OPINION, EVEN IF THE TRIBUNAL HAS CONFIRMED THE ADDITION DOES NOT MEAN THAT THE ASSESSEE HAS CONCEALED THE INCOME OR HAS FURNISHED INACCURATE PARTICULARS OF SUCH INCOME. WHEN A DISAL LOWANCE IS MADE MERELY ON AN ESTIMATE BASIS, THE PENALTY CANNOT AUT OMATICALLY BE IMPOSED. SIMILAR VIEW WAS TAKEN BY THE HONBLE RAJA STHAN HIGH COURT IN THE CASE OF SHIVLAL TAK V/S CIT 251 ITR 373 . SIMILAR VIEW HAS BEEN TAKEN BY THE HONBLE JURISDICTIONAL H IGH COURT IN THE CASE OF NAVJIVAN OIL MILLS V CIT 252 ITR 417 (GUJ) WHERE THE AO HAS ESTIMATED THE TURNOVER AND MADE THE ADDI TION ON THE 8 BASIS OF SUCH ESTIMATE. IT WAS HELD THAT EXPLANATIO N 1 TO SECTION 271(1)(C) IS NOT APPLICABLE AND THE PENALTY COULD N OT BE LEVIED. EVEN THE HONBLE PUNJAB AND HARYANA HIGH COURT HAS ALSO TAKEN THE SIMILAR VIEW IN THE CASE OF CIT V M M RICE MILLS 253 ITR 17 (P&H) , WHEN THE ADDITION WAS MADE ON ESTIMATE BASIS. 8 IN VIEW OF THE AFORESAID FACTS, UPHOLD THE ORDER OF THE CIT(A) IN DELETING THE IMPUGNED PENALTY. THE APPEAL FILED BY THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 17-09-2009 SD/- SD/- (MAHAVIR SINGH) JUDICIAL MEMBER (P K BANSAL) ACCOUNTANT MEMBER DATE : 17-09-2009 COPY OF THE ORDER FORWARDED TO : 1. PRECISION DRILLING (CYPRUS) LIMITED, 4 TH FLOOR, LANDMARK, RACE COURSE CIRCLE, BARODA 2. THE ASSISTANT DIRECTOR OF INCOME-TAX (INTL. TAXN .) AHMEDABAD, 4 TH FLOOR, NATURE VIEW BUILDING, ASHRAM ROAD, AHMEDABAD 3. THE CIT CONCERNED 4. THE CIT(A)-XXI, AHMEDABAD 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE BY ORDER DY.R/AR, ITAT, AHMEDABAD