Reliable Construction Co. V. ASSTT. C I T

TAXAP/94/2001

AI Insights

In this case, Reliable Construction Co. appealed against the order of the Income Tax Appellate Tribunal, Rajkot Bench, which had confirmed a penalty of Rs. 2,57,406 for the assessment year 1985-86. The penalty was levied under Section 271(1)(c) of the Income Tax Act for furnishing inaccurate particulars of income. The primary issue was whether the ITAT was correct in law in confirming the penalty. The High Court examined the facts, which involved the assessee declaring a significantly lower income than what was assessed after additions made by the assessing officer. The court referenced a similar case (Income Tax Reference No. 67 of 1993) where it had previously ruled on the interpretation of Section 40(b) of the Act, which influenced its decision to quash the penalty in this case as well.

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 805808 (HC-GUJARAT)
• Appeal Type: Others
• Pronouncement Date: 19-11-2014
• Assessment Year: misc
• Other Referred Cases: Income Tax Reference No. 67 of 1993
• Laws Referred To: Income Tax Act
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: PRANAV DESAI
• Assessee Lawyers: S N SOPARKAR
• Keywords: Assessment Year 1985-86; Inaccurate particulars; Income Tax; Penalty
• Section: 271(1)(c)

Judgement Text

"O/TAXAP/94/2001 JUDGMENT IN THE HIGH COURT OF GUJARAT AT AHMEDABAD TAX APPEAL NO. 94 of 2001 FOR APPROVAL AND SIGNATURE: HONOURABLE MR.JUSTICE KS JHAVERI and HONOURABLE MR.JUSTICE K.J.THAKER ================================================================ 1 Whether Reporters of Local Papers may be allowed to see the judgment ? 2 To be referred to the Reporter or not ? 3 Whether their Lordships wish to see the fair copy of the judgment ? 4 Whether this case involves a substantial question of law as to the interpretation of the Constitution of India, 1950 or any order made thereunder ? 5 Whether it is to be circulated to the civil judge ? ================================================================ RELIABLE CONSTRUCTION CO.....Appellant(s) Versus ASSTT. C I T....Opponent(s) ================================================================ Appearance: MR SN SOPARKAR, ADVOCATE for the Appellant(s) No. 1 MR PRANAV G DESAI, ADVOCATE for the Opponent(s) No. 1 ================================================================ CORAM: HONOURABLE MR.JUSTICE KS JHAVERI and HONOURABLE MR.JUSTICE K.J.THAKER Page 1 of 4 O/TAXAP/94/2001 JUDGMENT Date : 19/11/2014 ORAL JUDGMENT (PER : HONOURABLE MR.JUSTICE KS JHAVERI) 1. By way of this appeal, the appellant-assessee has challenged the order dated 31.08.1992 passed by the Income- Tax Appellate Tribunal, Rajkot Bench, in ITA No. 1835/Ahd/1993 for assessment year 1985-86. 2. While admitting this appeal on 02.05.2001, this Court has framed the following substantial question of law: “Whether, in the facts and circumstances of the case, the ITAT was right in law in confirming penalty of Rs. 2,57,406/- levied u/s. 271(1)(c ) of the Act?” 3. The facts of the present case are that the assessee filed its return of income declaring total income at Rs. 23,700/-. The assessment was finalized in which major addition of RS. 2,93,053/- was made on account of furnishing of inaccurate particulars of interest paid to the proprietary concerns of the partner of the firm. The assessing officer held that there is nothing to indicate that some categories of interest, salary, commission and remuneration though paid by the firm to the partner were to fall outside the scope and that the assessee had tried to conceal true income by filing inaccurate particulars. The assessee appealed before Commissioner (Appeals) against these additions, and CIT(A) upheld the same. On further appeal by the assessee, the Tribunal also confirmed the same. Therefore, penalty proceedings u/s Page 2 of 4 O/TAXAP/94/2001 JUDGMENT 271(1) © was initiated for furnishing inaccurate particulars of income within the meaning of Explanation 1 of Section 271(1) (c) of the Act. 4. Heard learned advocates appearing for the parties and considered the submissions. An identical issue came up for consideration before this Court in Income Tax Reference No. 67 of 1993, where this Court vide judgement and order dated 18.11.2014 has observed as under: “12. Thus, from the above provisions, it become clear that Section 40(b) deals with the commission or interest etc. made to a partner and not to an individual, where amounts were advanced by such individual from his personal fund. 13. In the case on hand, it is an admitted position that Shri. Doshi was the sole proprietor of Saurashtra Metal Supplying Co. and Jayant Trading Company, which provided financial assistance to the assessee during the relevant assessment year. It is on the basis of this that the Tribunal held that what was paid to Mr. Doshi, whether, it is Commission or interest, is liable to be disallowed under Section 40(b) of the Act. However, while doing so the Tribunal overlooked the fact that the assessee had not paid any amount towards interest or commission to any other party for the advances made to it. Meaning thereby, the advances made by Mr. Doshi to the assessee firm were from his personal fund and the commission or interest paid by the assessee to Shri. Doshi was in his individual capacity and not as a partner. Hence, same was not liable to be disallowed in view of the clear provisions of Section 40(b) of the Act and the decisions of this Court cited, herein above. 14. In the case of Trust also, which provided financial assistance to the assessee, Shri. Doshi was one of the trustees and on the basis of the Page 3 of 4 O/TAXAP/94/2001 JUDGMENT same, the AO hold that the amount was paid by the assessee to one of the partners, i.e. Shri. Desai, which is also quite contrary to the principle of law laid down by this Court in its decisions, which are referred herein above. As a outcome of the above discussion, we are of the opinion that in view of the decisions of this Court in CHHOTALAL AND CO. (Supra) and in BHUPENDRA NAVNITLAL AND CO. (Supra) and the clear provisions of Section 40(b) of the Act, as stated above, the AO could not have disallowed the amounts paid by the assessee to Shri. Doshi. ” 5. In that view of the matter, no elaborate reasons are required more particularly when this Court has already taken a view on the same question of law vide judgement and order dated 18.11.2014 passed in Income Tax Reference No. 67 of 1993. The facts in the present case are akin to the facts in the said case. Therefore, we answer the question in favour of the assessee and against the Revenue. The penalty proceedings u/s 271 (1)(c) are hereby quashed and set aside. The present Tax Appeal is allowed accordingly. (K.S.JHAVERI, J.) (K.J.THAKER, J) divya Page 4 of 4 "