S,Bhaskar Sait, Trichur V. ACIT, Trichur

ITA 265/COCH/2010

• Counselvise Citation: [2012] 119 COUNSELVISE.COM (IT) 7472 (ITAT-COCHIN)
• Duration Of Justice: 1 year(s) 9 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-01-2012
• Appeal Filed By: Assessee
• Bench Allotted: DB
• Next Hearing Date: 22-11-2011
• Assessment Year: 2003-2004
• Appeal Filed On: 20-04-2010
• Court: TRIBUNAL
• Department Lawyers: S VIJAYAPRABHA
• Assessee Lawyers: DAVIS CHAKKALAKKAL
• Keywords: Business income; Reasonable cause; Ignorance of law
• Section: 142(1); 148; 139

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH, COCHIN BEFORE S/SHRI N.R.S.GANESAN, JM AND SANJAY AROR A, AM I.T.A NOS. 264 & 265/COCH/2010 ASSESSMENT YEARS: 2002-03 & 2003-04 S.BHASKAR SAIT, PAWAR HOUSE, ARISTO ROAD, CHELAKKOTTUKARA, TRICHUR. [PAN:AKKPS 4457G] VS. THE ASSISTANT COMMISSIONER OF INCOME-TAX, CIRCLE-2(1), RANGE-2, TRICHUR. (ASSESSEE-APPELLANT) (REVENUE-R ESPONDENT) ASSESSEE BY SHRI DAVIS CHAKKALAKKAL, ADV. REVENUE BY MS. S. VIJAYAPRABHA, JR. DR DATE OF HEARING 22/11/2011 DATE OF PRONOUNCEMENT 25/01/2012 O R D E R PER SANJAY ARORA, AM: THESE ARE A SET OF TWO APPEALS BY THE ASSESSEE CON TESTING THE CONFIRMATION OF THE LEVY OF PENALTY U/S. 271B OF THE INCOME-TAX ACT, 19 61 ('THE ACT' HEREINAFTER) FOR TWO CONSECUTIVE ASSESSMENT YEARS (BEING AYS 2002-03 & 2 003-04) BY THE COMMISSIONER OF INCOME-TAX (APPEALS)-V, KOCHI (CIT(A) FOR SHORT) VIDE HIS COMBINED ORDER (FOR BOTH THE YEARS) DATED 17-12-2009. 2.1 IT WOULD BE RELEVANT TO RECOUNT THE BACKGROUND FACTS OF THE CASE. THE ASSESSEE, AN INDIVIDUAL, IS IN THE BUSINESS OF SILVER REFINING, WITH AN ANNUAL TURNOVER IN THE RANGE OF ` 3 LAKHS. THE ASSESSEE IS ON THE RECORDS OF THE INCOM E TAX DEPARTMENT FOR THE LAST MANY YEARS. HE COMMENCED A NEW BUSINESS, I.E., TRADING IN BULLION, BUYING AND SELLING GOLD BARS, PER A PROPRIETORSHIP FIRM M/S. AISWARYA BULLI ONS, DURING THE PREVIOUS (FINANCIAL) YEAR RELEVANT TO A.Y. 2002-03. WHILE THE BUYING WA S FROM MMTC, ERNAKULAM, THE SALE, I.T.A. NOS.264 & 265 /COCH/2010 S.BHASKAR SAIT VS. ACIT, TRICHUR 2 AS IT APPEARS, IS IN THE OPEN MARKET. THE ASSESSEE DID NOT FILE ANY RETURN OF INCOME U/S. 139 FOR THE RELEVANT YEARS. NOTICES U/S. 148 FOR B OTH THE YEARS WERE ISSUED ON 31-12- 2004, AND WHICH WERE AGAIN NOT COMPLIED WITH. NOTI CES U/S. 142(1) WERE THEN ISSUED ON 28.04.2005, AND IN RESPONSE TO WHICH THE ASSESSEE F ILED RETURNS OF LOSS FOR BOTH THE YEARS, AS UNDER:- (AMOUNT IN ` ) A.Y./HEAD OF INCOME BUSINESS INCOME (*) LTCG TOTAL 2002-03 (174752) (11947) (186699) 2003-04 (466006) (@) 267546 (198460) (*) THE FIGURES IN BRACKET REPRESENT NEGATIVE SUMS. (@) BUSINESS INCOME IS ONLY IN RESPE CT OF BUSINESS OF REFINING OF SILVER. THE ASSESSMENT FOR BOTH THE CONSECUTIVE YEARS WAS, HOWEVER, COMPLETED AT AN INCOME OF ` 55,31,068/- AND ` 11,89,049/- RESPECTIVELY. THE BULLION BUSINESS WAS IN FACT DISCLOSED DURING THE COURSE OF THE ASSESSMENT PROCEEDINGS, AS IT APPEARS, AT THE INSTANCE OF THE DEPARTMENT; THE TRADING FIGURES IN RESPECT OF WHICH ARE AS UNDER: (AMOUNT IN ` LAKHS) A.Y. PURCHASE SALE 2002-03 274.10 263.13 2003-04 96.95 69.78 2.2 AS THE ASSESSEE HAD NOT GOT HIS ACCOUNTS AUDITE D U/S. 44AB OF THE ACT, MUCH LESS FURNISHED A REPORT THERE-UNDER BY THE DUE DATE OF F URNISHING THE RETURN OF INCOME, I.E., 31- 10-2003 AND 31-10-2004 RESPECTIVELY FOR THE TWO CON SECUTIVE YEARS, OR EVEN LATER, PENALTY U/S. 271B STOOD LEVIED AT ` 1 LAKH AND ` 34,889/- , I.E., IN TERMS OF THE SAID SECTION, FOR THE TWO CONSECUTIVE YEARS RESPECTIVELY, AFTER SHOW-CAUS ING THE ASSESSEE IN THE MATTER. THE SAME WAS CONFIRMED IN APPEAL, SO THAT THE ASSESSEE IS IN SECOND APPEAL. 3. WE HAVE HEARD THE PARTIES, AND PERUSED THE MATER IAL ON RECORD. 3.1 THE ASSESSEES CASE IS THAT THIS IS THE FIRS T TIME HIS SALES HAD EXCEEDED THE THRESHOLD LIMIT AT ` 40 LAKHS, I.E., IN TERMS OF S. 44AB, AND HE WAS NOT AWARE OF THE STATUTORY OBLIGATION TO GET HIS ACCOUNTS AUDITED THEREUNDER. FURTHER, BEING A NEW BUSINESS, HE WAS I.T.A. NOS.264 & 265 /COCH/2010 S.BHASKAR SAIT VS. ACIT, TRICHUR 3 NOT FAMILIAR WITH ITS PROCEDURES, WHICH CONSEQUENTL Y LED TO SEVERAL SHORTCOMINGS, RESULTING IN SUFFERING HUGE LOSS IN THE BULLION BUS INESS, WHICH FORCED HIM TO CLOSE THE SAME. THE DECLINE IN THE TURNOVER FOR THE SECOND YE AR, VIS--VIS THE FIRST YEAR OF BUSINESS, ITSELF BEARS THIS OUT. FURTHER, AS HE HAD NO INTENT ION TO CARRY FORWARD THE SAID BUSINESS, NO FORMALITIES IN ITS RESPECT, INCLUDING AUDIT OF ACCO UNTS, WERE COMPLETED. IGNORANCE OF LAW MAY NOT BE AN EXCUSE, BUT AT THE SAME TIME WHERE TH E SAME RESULTS IN A BONA FIDE OMISSION, AS IN THE INSTANT CASE, PENALTY IS NOT EX IGIBLE. 3.2 THE ASSESSEES EXPLANATION DID NOT FIND FAVOUR WITH THE AUTHORITIES BELOW FOR THE FOLLOWING REASONS:- A) THAT THE ASSESSEE IS A REGULAR ASSESSEE WITH TH E INCOME TAX DEPARTMENT FOR THE PAST MANY YEARS; B) THAT HE DID NOT FILE HIS RETURNS OF I NCOME FOR THE RELEVANT YEARS; C) HE HAD, HOWEVER, FILED HIS RETURNS WI TH THE STATE SALES TAX DEPARTMENT FOR BOTH THE YEARS, ALSO GETTING HIS ACCOUNTS AUDITED THERE -UNDER; D) NO RETURNS OF INCOME WERE FILED EVEN AFTER THE ISSUE OF NOTICES U/S. 148 DATED 31- 12-2004; E) THE RETURNS SUBSEQUENTLY FILED U/S. 142(1) WERE WITHOUT REFERENCE TO THE BULLION BUSINESS, THE TURNOVER IN WHICH EXCEEDED ` 40 LAKHS FOR BOTH THE YEARS; AND F) INCURRING LOSS IN THE BULLION BUSINESS, OR ITS SUBSEQUENT CLOSURE/DISCONTINUANCE, AS CLAIMED BY THE ASSESSEE , IS NOT A RELEVANT FACTOR. 3.3 WE HAVE GIVEN OUR CAREFUL CONSIDERATION TO THE RESPECTIVE CASES OF BOTH THE PARTIES. BEFORE EXAMINING THE FACTS, IT WOULD BE RELEVANT TO STATE/VISIT THE LAW ATTENDING THE SAME. THE DEFAULT IN NOT GETTING THE ACCOUNTS FOR THE REL EVANT YEARS AUDITED U/S. 44AB AND, CONSEQUENTLY, NON-FURNISHING OF THE AUDIT REPORT TH ERE-UNDER, BEING ADMITTED, WHAT HAS TO BE SEEN FOR THE PURPOSE OF LEVY OF PENALTY/S FOR TH E SAID DEFAULT IS WHETHER THERE EXISTED A REASONABLE CAUSE FOR THE SAME; THE PENALTY U/S. 271 B BEING SUBJECT TO S. 273B, SO THAT REASONABLE CAUSE/S SAVES PENALTY. EVEN OTHERWISE, T HE APEX COURT HAS IN THE CASE OF HINDUSTAN STEEL LTD. VS. STATE OF ORISSA (1972) 83 ITR 26 (SC) HELD THAT PENALTY SHALL NOT I.T.A. NOS.264 & 265 /COCH/2010 S.BHASKAR SAIT VS. ACIT, TRICHUR 4 BE LEVIED MERELY BECAUSE IT IS LEGAL TO DO SO, SO T HAT WHERE THERE IS A BONA FIDE OMISSION, OR THE DEFAULT ARISES DUE TO A GENUINE MISTAKE, PEN ALTY MAY NOT BE LEVIED. THE QUESTION, GIVEN THE LAW, THUS, THAT PENALTY IS NOT AUTOMATIC, THEREFORE, BOILS DOWN TO DETERMINING WHETHER THE IMPUGNED OMISSION IS, IN THE FACTS AND CIRCUMSTANCES OF THE INSTANT CASE, A BONA FIDE ONE. THE PRIMARY FACTS OF THE CASE, LISTED AT PARA 3.2 OF THIS ORDER WHILE ENUMERATING THE REVENUES CASE, ARE NOT DENIED (BY THE ASSESSEE) OR DISPUTED, AND ARE RELEVANT IN THIS REGARD. THE SAME, RATHER, SHOW OTH ERWISE. THE ASSESSEE DELIBERATELY OMITTED TO DISCLOSE THE BULLION BUSINESS TO THE DEP ARTMENT. WHY? ONLY HE CAN TELL, AND HE HAS NOT. THIS IS IN FACT SURPRISING AS HE CLAIMS TO HAVE INCURRED LOSS IN THE SAID BUSINESS, AND WHICH COULD BE CLAIMED ONLY WHERE IT IS DULY REPORTED TO THE REVENUE. WHATEVER MAY BE THE MOTIVATION FOR SUCH CONCEALMENT , IT IS DECIDEDLY NOT IGNORANCE OF LAW; THE ASSESSEE HAVING MAINTAINED ACCOUNTS IN ITS RESPECT AND ALSO GOT HIS ACCOUNTS AUDITED UNDER THE SALES TAX ACT, AT LEAST FOR THE F IRST YEAR. NOW, IT CAN NOT BE THAT THE ASSESSEE IS AWARE OF THE STATUTORY OBLIGATION FOR A UDIT OF ACCOUNTS UNDER THE SAID ACT (S. 27A OF KGST ACT, 1963), AND NOT UNDER THE ACT, EVEN AS BOTH ARE TO BE CARRIED OUT ONLY BY A COMPETENT ACCOUNTANT, WITH THE RELEVANT PROVIS ION (S. 44AB) BEING ON THE STATUTE FOR THE LAST NEARLY THREE DECADES, WHILE THE REQUIREMEN T FOR AUDIT UNDER THE STATE LEGISLATION IS OF A MUCH LATER, NAY, RECENT, ORIGIN. THERE IS THER EFORE NO QUESTION OF THE ASSESSEE BEING NOT AWARE OF HIS THIS OBLIGATION UNDER THE GIVEN FA CTS AND CIRCUMSTANCES, WHICH RATHER SHOW OF HIM BEING IN FACT AWARE OF THE LEGAL REQUIR EMENT OF AUDIT. WE SAY SO EMPHATICALLY AS EVEN ASSUMING OF BEING UNAWARE, THE ASSESSEE WOULD ONLY BE SUITABLY INSTRUCTED BY HIS AUDITOR. THE ASSESSEE ALSO CLAIMS TO HAVE INCURRED A HUGE LOSS IN THE BULLION BUSINESS, WHICH WAS RESPONSIBLE FOR ITS NON DISCLOSURE. THE NON-DIS CLOSURE IS THUS ADMITTEDLY DELIBERATE, WHICH INFERENCE IN ANY CASE INFLICTS ANY POSITIVE A CTION BY AN ASSESSEE. THE INCURRING OF LOSS IS, HOWEVER, IRRELEVANT, AND HAS NO BEARING ON THE DEFAULT UNDER REFERENCE, WHICH ONLY PERTAINS TO THE NON-AUDIT OF THE ACCOUNTS, I.E., A REQUIREMENT WHICH IS INDEPENDENT OF THE BUSINESS RESULTS. IN FACT, THE ARGUMENT WOULD QUALI FY TO BE A VALID ONE, REQUIRING A CLOSER EXAMINATION OF THE ASSESSEES CASE, HAD HE REPORTED THE OPERATING RESULTS OF, OR THE LOSS FROM, THE SAID BUSINESS VOLUNTARILY TO THE REVENUE. IN OTHER WORDS, EVEN IF THE ASSESSEE I.T.A. NOS.264 & 265 /COCH/2010 S.BHASKAR SAIT VS. ACIT, TRICHUR 5 HAD INCURRED A LOSS, ITS NON-DISCLOSURE TO THE REVE NUE REMAINS A MYSTERY, AS THE TWO HAVE NO APPARENT RELATION. IF ANYTHING, THE SAME AGAIN O NLY SHOWS OF THE ASSESSEE BEING IN THE KNOW OF THE LEGAL OBLIGATION AS TO AUDIT. FURTHER, THE ARGUMENT IS AN ALIBI OR AT LEAST INVALID AS THE REVENUE HAS IN FACT ASSESSED A POSIT IVE INCOME FROM HIS SAID BUSINESS, AS IT IS ONLY THE INCOME AS ASSESSED THAT CAN BE CONSIDER ED AS HAVING BEEN ACTUALLY INURED OR ARISEN. IN VIEW OF THE FORGOING, WE ARE IN AGREEMEN T WITH THE FINDINGS OF THE AUTHORITIES BELOW THAT NO BONA FIDE OMISSION OR GENUINE MISTAKE ATTENDS THE IMPUGNED D EFAULTS AND, CONSEQUENTLY, CONFIRM AND ENDORSE THE SAME. 3.4 WE MAY ALSO EXPRESS OUR FINDING/S UNDER THE SPECIFIC TERMS OF S. 273B. `REASONABLE CAUSE, AS EXPLAINED BY THE COURTS OF LAW, WITH REF ERENCE TO THE HUMAN ACTION, IS THAT WHICH WOULD CONSTRAIN A PERSON OF AVERAGE INTELLIGE NCE AND ORDINARY PRUDENCE. THE EXPRESSION REASONABLE IS NOT SUSCEPTIBLE OF A CLE AR AND PRECISE DEFINITION, THOUGH IT CAN BE DESCRIBED AS RATIONAL ACCORDING TO THE DICTATES OF REASON AND IS NOT EXCESSIVE OR IMMODERATE. THE WORD REASONABLE HAS IN LAW THE PRIMA FACIE MEANING OF REASONABLE WITH REGARD TO THOSE CIRCUMSTANCES OF WHICH THE ACT OR, CALLED UPON TO ACT REASONABLY, KNOWS OR OUGHT TO KNOW. REASONABLE CAUSE CAN BE REA SONABLY SAID TO BE A CAUSE WHICH PREVENTS A MAN OF AVERAGE INTELLIGENCE AND ORDINARY PRUDENCE, ACTING UNDER NORMAL CIRCUMSTANCES, WITHOUT NEGLIGENCE OR INACTION OR WA NT OF BONA FIDES (REFER: AZADI BACHAO ANDOLAN VS. UNION OF INDIA , 252 ITR 471 (PG. 475)). THE APPELLANTS ACTION IN DULY DISCLOSING HIS TURNOVER TO THE STATE DEPARTMENT, AN D GETTING HIS ACCOUNTS AUDITED THEREUNDER, DISPROVE HIS CASE OF BEING UNAWARE OF H IS LEGAL OBLIGATION, WHILE HE HAS NOT ISSUED ANY REASONABLE EXPLANATION FOR THE NON-DISCL OSURE OF HIS BULLION BUSINESS TO THE REVENUE, SO THAT THE ASSESSEES INACTION OR DEFAULT CAN BY NO MEANS BE CONSIDERED AS HAVING ARISEN OUT OF A REASONABLE CAUSE, MUCH LESS BEEN PROVEN TO BE SO. 3.5 THE ASSESSEE HAS, BEFORE US, RELIED ON TH E DECISION IN THE CASE OF CIT VS. ASHOKA DAIRY , 149 TAXMAN 732 (P&H). WE ARE UNABLE TO UNDERSTAN D AS TO HOW THE SAID DECISION IS RELEVANT OR APPLICABLE IN THE FACTS AND CIRCUMST ANCES OF THE INSTANT CASE. THE FINDING AS I.T.A. NOS.264 & 265 /COCH/2010 S.BHASKAR SAIT VS. ACIT, TRICHUR 6 TO THE ASSESSEES EXPLANATION FOR THE DEFAULT AS CO NSTITUTING A `REASONABLE CAUSE OR A ` BONA FIDE OMISSION IS A FINDING OF FACT, TO BE RENDERED ON THE BASIS OF THE EXPLANATION WITH REFERENCE TO THE GIVEN FACTS OF THE CASE. IN THE FACTS OF THAT CASE, BOTH THE FIRST AND THE SECOND APPELLATE AUTHORITY FOUND THE ASSESSEE T O HAVE A REASONABLE EXPLAINED THE DEFAULT. THE DEFAULT WAS OF A DELAYED FURNISHING OF THE AUDIT REPORT U/S. 44AB FOR THE A.Y. 1985-86, I.E., THE YEAR IN WHICH THE PROVISION WAS BROUGHT ON THE STATUTE. THE STATEMENT OF LAW, AS MADE IN THIS ORDER, IS IN AGREEMENT WITH TH E EXPLANATION BY THE HONBLE COURT IN THE CITED CASE, SO THAT THE SAID RELIANCE, IN FACT, IS SUPPORTIVE OF THIS ORDER. THE RELIANCE BY THE ASSESSEE ON THE SAID DECISION IS MISPLACED. 4. IN THE RESULT, THE ASSESSEES APPEALS FOR BOTH T HE YEARS ARE DISMISSED. SD/- SD/- (N.R.S.GANESAN) (SANJAY ARORA) JUDICIAL MEMBER ACCOUNTANT MEMBER PLACE: ERNAKULAM DATED: 25TH JANUARY, 2012 GJ COPY TO: 1. SHRI S.BHASKAR SAIT, PAWAR HOUSE, ARISTO ROAD, C HELAKKOTTUKARA, TRICHUR. 2. THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE -2(1), RANGE-2, TRICHUR. 3. THE COMMISSIONER OF INCOME-TAX (APPEALS)-V, KOCH I. 4. THE COMMISSIONER OF INCOME-TAX, TRICHUR. 5. D.R., I.T.A.T., COCHIN BENCH, COCHIN. 6. GUARD FILE BY ORDER (ASSISTANT REGISTRAR) ITAT, COCHIN BENCH.