Astral Poly Technik Pvt.Ltd., Ahmedabad V. The Income tax Officer,Ward-1(4), Ahmedabad

ITA 568/AHD/2009

• Counselvise Citation: [2009] 114 COUNSELVISE.COM (IT) 9363 (ITAT-AHMEDABAD)
• Duration Of Justice: 6 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-08-2009
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 03-08-2009
• Assessment Year: 2004-2005
• Appeal Filed On: 20-02-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: P M SHUKLA
• Assessee Lawyers: R T SHAH
• Keywords: Reasonable cause
• Section: 271(1)(c); 68; 27

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH 'B' (BEFORE S/SHRI P K BANSAL AND MAHAVIR SINGH) ITA NO.568/AHD/2009 (ASSESSMENT YEAR: 2004-05) ASTRAL POLY TECHNIK PVT. LTD., 901, PARSHWA TOWER, OPP. RAJPATH CLUB, SARKHEJ GANDHINAHAR HIGHWAY, AHMEDABAD V/S THE INCOME-TAX OFFICER, WARD-1(4), AHMEDABAD [APPELLANT] [RESPONDENT] PAN NO.: AABCA 2951 N APPELLANT BY :- SHRI R T SHAH, ADVOCATE RESPONDENT BY:- SHRI P M SHUKLA, SR. DR O R D E R PER P K BANSAL (ACCOUNTANT MEMBER): THIS APPEAL HAS BEEN FILED BY THE ASSESSEE AGAINST THE ORDER OF THE CIT( A) DATED 30-12- 2008, BY WHICH THE CIT(A) HAS SUSTAINED THE PENALTY LEVIED BY THE AO U/S 271(1)(C) OF THE INCOME-TAX ACT, 1961 [ THE ACT FOR SHORT], AMOUNTING TO RS.64,156/-. 2 THE BRIEF FACTS OF THE CASE ARE THAT THE AO WHIL E MAKING THE ASSESSMENT DISALLOWED A SUM OF RS.1,78,8 23/- DEBITED IN THE PROFIT & LOSS ACCOUNT UNDER THE HEAD MISC. INTEREST, THE INTEREST ON INCOME-TAX. THE AUDIT U/S 44AB OF THE A CT WAS ALSO CARRIED OUT BUT THE AUDITOR ALSO DID NOT POINT OUT THE SAME. THE AO INITIATED PENALTY PROCEEDINGS. THE ASSESSEE POIN TED OUT THAT 2 THIS WAS PURELY AN ERROR IN ACCOUNTING AND PRESENTA TION WHILE FINALIZING THE ACCOUNTS AT THE TIME OF PREPARING TH E P&L ACCOUNT AND WHILE GROUPING SIMILAR HEADS OF INCOME IT WAS C ONSIDERING THE NATURE OF THE INTEREST ELEMENT AND IT WAS WRONG LY GROUPED UNDER THE HEAD INTEREST AND ACCORDINGLY COULD NOT BE NOTICED WHILE PREPARING THE RETURN OF INCOME. CONSEQUENTLY, THE SAME COULD NOT HAVE BEEN VOLUNTARILY DISALLOWED AS IT IS THE PRACTICE OF THE COMPANY. THE AO IMPOSED THE PENALTY U/S 271(1)( C) HOLDING THAT THE ASSESSEE SUBMITTED INACCURATE PARTICULARS WITHOUT ANY REASONABLE CAUSE. THE ASSESSEE WENT IN APPEAL BEFO RE THE CIT(A). THE CIT(A) CONFIRMED THE PENALTY U/S 271(1) (C) VIDE ORDER DATED 30-12-2008. 3 THE LEARNED AR BEFORE US VEHEMENTLY CONTENDED TH AT THERE WAS A BONA FIDE MISTAKE ON THE PART OF THE AS SESSEE. THE ASSESSEE HAS NOT SUBMITTED ANY INACCURATE PARTICULA RS RATHER THE ACCOUNTS OF THE ASSESSEE WERE DULY AUDITED. EVEN TH E TAX AUDITORS ALSO DID NOT DISALLOW THE DEDUCTION. AS SO ON AS THE MISTAKE CAME TO THE KNOWLEDGE OF THE ASSESSEE, THE ASSESSEE IMMEDIATELY AGREED WITH THE ADDITION. THERE WAS NO CONCEALMENT ON THE PART OF THE ASSESSEE. THE LEARNED DR, ON THE OTHER HAND, RELIED ON THE ORDER OF THE AO. 4 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 TH E CASE LAWS AS CITED BEFORE US. SECTION 271(1)(C) READS AS UNDE R: 3 271.(1) IF THE ASSESSING OFFICER OR THE COMMISSIONE R (APPEALS) [OR THE COMMISSIONER] IN THE COURSE OF ANY PROCEEDINGS UNDER THIS ACT, IS SATISFIED THAT ANY PERSON - (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 COMM ISSIONER (APPEALS) OR THE COMMISSIONER TO BE FALSE OR (B) SUCH PERSON OFFERS AN EXPLANATION WHICH HE IS N OT ABLE TO SUBSTANTIATE AND [FAILS TO PROVE THAT SUCH EXPLANAT ION IS BONA FIDE AND THAT ALL THE FACTS RELATING TO THE SAME AND MATERIAL TO THE COMPUTATION OF HIS TOTAL INCOME HAVE BEEN DISCLOSED BY HIM], THEN, THE AMOUNT ADDED OR DISALLOWED IN COMPUTING T HE TOTAL INCOME OF SUCH PERSON AS A RESULT THEREOF SHALL, FOR THE PURP OSES OF CLAUSE (C) OF THIS SUB-SECTION BE DEEMED TO REPRESENT THE INCOME IN RE SPECT OF WHICH PARTICULARS 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 AN Y PROCEEDING UNDER THIS ACT THAT ANY PERSON HAS CONCEALED THE PARTICULARS O F 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 4 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 DEEMING 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 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 5 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. 5 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. 6. 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 CASE THE HONBLE 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 CIRCUMSTANCES MUST SHOW THAT THERE WAS ANIMUS, I.E., CONSCIOUS CONCEALMENT OR AC T OF FURNISHING OF INACCURATE PARTICULARS ON THE PART OF THE ASSESSEE. 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 6 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. EVEN IN THIS V IEW OF THE MATTER THE EXPLANATION ALONE CAN NOT JUSTIFY LEVY OF PENALTY. ABSENCE OF PROOF ACCEPTABLE TO THE DEPARTMENT CANNOT BE EQUATED WITH FRAUD OR WILLFUL DEFAULT. 7 NOW THE QUESTION ARISES WHETHER THE CLAIM MADE B Y THE ASSESSEE WAS A BONA FIDE OR NOT. IT IS NOT DENIED THAT THE C LAIM MADE BY THE ASSESSEE AND SUBSEQUENTLY WITHDRAWN WAS DULY SUPPORTED BY THE AU DITORS REPORT. WHETHER THE ASSESSEE IS ENTITLED TO RELY ON THE EXPERTS OPINIO N OR NOT WHILE MAKING A CLAIM, THE HONBLE GUJARAT HIGH COURT IN THE CASE OF BTX CHEMICAL LTD. V CIT 288 ITR 196 (GUJ) IN THIS REGARD HAS HELD AS UNDER:- HELD, (I) THAT IT COULD NOT BE SAID THAT THE ASSES SEE KNEW OR HAD REASONS TO BELIEVE THAT ITS CLAIM OF RS.1,83,492 AS REVENUE LOSS, WAS UNTRUE. THE ASSESSEE HAS FILED ITS RETURN OF INCOME ON JUNE 30, 1980, CLAIMING DEDUCTION OF RS.1,83,492 ON THE BASIS OF I TS CLAIM LODGED WITH THE INSURANCE COMPANY ON ACCOUNT OF LOSS AND D AMAGE TO ITS PLANT AND MACHINERY ON REPLACEMENT COST BASIS. SINCE THE ASSESSEE HAD A BONA FIDE BELIEF ON THE BASIS OF ADVICE RECEIVED FR OM ITS CHARTERED ACCOUNTANT THAT THE LOSS OCCURRED AS A RESULT OF DE STRUCTION OF ASSETS SUCH AS PLANT AND MACHINERY, BUILDINGS, ELECTRICAL INSTALLATIONS ETC., WAS OF REVENUE NATURE AND CLAIMED IT BY WAY OF DEDU CTION, IT WAS NOT A CASE OF CONCEALMENT WITHIN THE AMBIT AND SCOPE OF SECTION 271(1)(C). PENALTY COULD NOT BE LEVIED, IN RELATION TO THE DISALLOWANCE OF LOSS OF RS.1,83,492. (II) THAT THE TRIBUNAL, AS A MATTER OF FACT, FOUND THAT THE DOUBLE CLAIM FOR AN AMOUNT OF RS.1,00,112 WAS MADE DUE TO A BONA FIDE MISTAKE ON THE PART OF THE ASSESSEE. NO SOONER WAS AN ENTRY MADE IN THE TRADING ACCOUNT OF THIS YEAR, THAN WOULD IT TO AFFECT THE OPENING 7 STOCK IN THE NEXT YEAR, AND HENCE IT COULD HAVE BEE N EASILY FOUND OUT AND WOULD NOT HAVE RESULTED IN ANY ADVANTAGE TO THE ASSESSEE. THE PENALTY RELATABLE TO THE DISALLOWANCE OF LOSS OF RS .1,00,112 WAS RIGHTLY DELETED BY THE TRIBUNAL. 8 IT WAS FURTHER CONTENDED THAT THE PENALTY U/S 27 1(1)(C) CANNOT BE IMPOSED MERELY THE ADDITION CAME TO BE CONFIRMED IN THE ASSESSMENT PROCEEDINGS AND MORE PARTICULARLY WHEN THE ASSESSEE HAD MADE ITS EARLIER CLAIM BASED ON BONA FIDE BELIEF. EVEN DURING THE COURSE O F HEARING IT WAS ALSO POINTED OUT THAT THE PENALTY U/S 271(1)(C) IS NOT AUTOMATIC . IN THE CASE OF DHARMENDRA TEXTILES PROCESSORS 306 ITR 277 (SC) , IT HAS BEEN HELD THAT PENALTY U/S 271(1)(C) IS A CIVIL LIABILITY AND THAT WILLFUL CONCEALMENT AND MENS REA ARE NOT ESSENTIAL INGREDIENTS FOR IMPOSING PENALTY. THIS PROPOSITION OF LAW LAID DOWN BY THE HON'BLE SUPREME COURT IN THE CASE OF DHARMENDRA TEXTILES PROCESSORS (SUPRA) DOES NOT MEAN THAT IN ALL CASES WHERE ADDITION IS C ONFIRMED, PENALTY SHALL BE AUTOMATICALLY LEVIED. RELIANCE WAS PLACED ON THE DE CISION OF THE ITAT MUMBAI BENCH-A IN THE CASE OF ACIT V M/S VIP INDUSTRIES LT D. [ITA NO.4524/MUM/2006 AND ITA NO.4383/MUM/2006, ORDER DA TED 20-03-2004]. 9 SINCE THE LEARNED DR HAS VEHEMENTLY RELIED ON TH E DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF DHARMENDRA TEXTILES PROCESSORS (SUPRA), WE THEREFORE HAVE TO REFER TO THAT DECISION ALSO. I N THE CASE OF DHARMENDRA TEXTILES PROCESSORS (SUPRA), WE NOTED THAT THE HON'BLE SUPREME COURT H AS HELD THAT PENALTY U/S 271(1)(C) IS A CIVIL LIABILITY AND THAT WILLFUL CONCEALMENT AND MENS REA ARE NOT ESSENTIAL INGREDIENTS FOR ATTRAC TING THE CIVIL LIABILITY AS IS THE CASE IN THE MATTER OF PROSECUTION U/S 276 OF THE AC T. IT HAS FURTHER BEEN HELD IN THAT CASE THAT MENS REA IS NOT AN ESSENTIAL INGREDI ENT FOR IMPOSING THE PENALTY. THE HON'BLE SUPREME COURT IN THIS CASE NOWHERE HELD THAT IF THE ADDITION IS MADE, PENALTY IS AUTOMATIC. THIS JUDGMENT DOES NOT OVERRULE THE EXPLANATIONS APPENDED TO SECTION 271(1)(C). IT EVEN HELD THAT TH E OBJECT BEHIND THE ENACTMENT 8 OF SECTION 271(1)(C) READ WITH EXPLANATIONS INDICAT ES THAT THE SAID SECTION HAS BEEN ENACTED TO PROVIDE FOR A REMEDY FOR LOSS OF RE VENUE. THE PENALTY UNDER THAT PROVISION IS A CIVIL LIABILITY. THUS, THE RATIO LAI D DOWN IN THIS JUDGMENT WAS CONFINED TO TREATING THE WILLFUL CONCEALMENT IS NOT ESSENTIAL FOR IMPOSING THE PENALTY U/S 271(1)(C) OF THE ACT. WHERE AN ASSESSEE GENUINELY MAKES A CLAIMS FOR A PARTICULAR DEDUCTION BY DISCLOSING ALL THE NE CESSARY FACTS RELATING TO THE SAME, THAT CANNOT BE REGARDED TO BE A CONCEALMENT E VEN IF THE ASSESSEES CLAIM IS REJECTED. THIS IS THE SETTLED LAW THAT PENALTY PROC EEDINGS ARE DISTINCT FROM THE ASSESSMENT PROCEEDINGS AND, THEREFORE, IF ANY ADDIT ION IS MADE, IT DOES NOT MEAN THAT THE PENALTY WILL AUTOMATICALLY BE LEVIED. IN THE PENALTY PROCEEDINGS THE ASSESSEE IS GIVEN AN OPPORTUNITY TO EXPLAIN HIS CAS E IF HE SUCCESSFULLY EXPLAINS HIS POSITION AND IS NOT TRAPPED WITHIN THE PARAMETE RS OF SECTION 271(1)(C) ALONG WITH THE EXPLANATIONS DEEMING THE CONCEALMENT OF IN COME, PENALTY CANNOT BE IMPOSED. IN THIS CASE, WE NOTED, THE PENALTY HAS BE EN IMPOSED FOR FURNISHING THE INACCURATE PARTICULARS OF INCOME BY THE ASSESSEE. 10 IN VIEW OF OUR AFORESAID DISCUSSION, WE ARE OF THE VIEW THAT NO PENALTY U/S 271(1)(C) BE IMPOSED. WE, ACCORDINGLY, DELETE THE PENALTY IMPOSED U/S 271(1)(C). 13 IN THE RESULT, THE APPEAL IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT TODAY ON 21-08-2 009 SD/- SD/- (MAHAVIR SINGH) JUDICIAL MEMBER (P K BANSAL) ACCOUNTANT MEMBER DATE : 21-08-2009 COPY OF THE ORDER FORWARDED TO : 9 1. ASTRAL POLY TECHNIK PVT. LTD., 901, PARSHWA TOWE R, OPP. RAJPATH CLUB, SARKHEJ GANDHINAHAR HIGHWAY, AHMEDABA D 2. THE ITO, WARD-1(4), AHMEDABAD 3. CIT CONCERNED 4. CIT(A)-VI, AHMEDABAD 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE BY ORDER DEPUTY REGISTRAR ASSISTANT REGISTRAR ITAT, AHMEDABA