SWAPNIL BHARAT SHAH V. INCOME TAX OFFICER

TAXAP/298/2018

AI Insights

The case revolves around the imposition of a penalty on Swapnil Bharat Shah by the Income Tax Officer for concealment of income. During the assessment year 2009-2010, it was discovered through the Annual Information Return (AIR) that Shah had made substantial undisclosed cash deposits in his bank accounts. Although Shah surrendered a portion of this income during the assessment, he contested the penalty, arguing that the surrender was voluntary and that there was no additional tax liability arising from the additions made to his income. The Income Tax Appellate Tribunal and the Gujarat High Court both upheld the penalty, emphasizing that the surrender was not made voluntarily to avoid litigation but was a result of the scrutiny process initiated by the tax authorities.

• Counselvise Citation: [2018] 140 COUNSELVISE.COM (IT) 753629 (HC-GUJARAT)
• Appeal Type: Others
• Pronouncement Date: 03-04-2018
• Assessment Year: misc
• Other Referred Cases: Joint Commissioner of Income-tax v. Classic Industries Ltd., Mak Data P. Ltd v. Commissioner of Income Tax, Commissioner of Income-tax v. Gold Coin Health Food P. Ltd, Virtual Soft Systems Ltd. v. Commissioner of Income-tax, Commissioner of Income-tax v. Prithipal Singh and Co., Param Jewels P Ltd v. CIT, Escort Finance Ltd v. CIT, Reliance Petro products v. CIT
• Laws Referred To: Income Tax Act
• Result in Favour of: Revenue
• Court: HIGH COURT
• Department Lawyers: MANISH BHATT; MAUNA BHATT
• Assessee Lawyers: CHINTAN DAVE
• Keywords: AIR; Annual Information Return; Concealment of income; Peak credit theory; Penalty; Scrutiny assessment; Unexplained Cash Deposits
• Section: 271(1)(c); 68

Judgement Text

"C/TAXAP/298/2018 JUDGMENT IN THE HIGH COURT OF GUJARAT AT AHMEDABAD R/TAX APPEAL NO. 298 of 2018 FOR APPROVAL AND SIGNATURE: HONOURABLE MR.JUSTICE AKIL KURESHI and HONOURABLE MR.JUSTICE B.N. KARIA ========================================================== 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 or any order made thereunder ? ========================================================== SWAPNIL BHARAT SHAH Versus INCOME TAX OFFICER ========================================================== Appearance: MR CHINTAN DAVE FOR HLP ASSOCIATES LLP(9263) for the PETITIONER(s) No. 1 MR MANISH BHATT SENIOR COUNSEL WITH MRS MAUNA M BHATT(174) for the RESPONDENT(s) No. 1 ========================================================== CORAM: HONOURABLE MR.JUSTICE AKIL KURESHI and HONOURABLE MR.JUSTICE B.N. KARIA Date : 03/04/2018 ORAL JUDGMENT Page 1 of 10 C/TAXAP/298/2018 JUDGMENT (PER : HONOURABLE MR.JUSTICE AKIL KURESHI) 1. The assessee is in appeal against the judgment of the Income Tax Appellate Tribunal raising the following questions for our consideration : \"(A) Whether in the facts and circumstances of the case, the Appellate Tribunal was justified in confirming the imposition of penalty upon the appellant despite the fact that the element of menrea was absent? (B) Where in the facts and circumstances of the case, the Appellate Tribunal was justified in confirming the penalty levied upon the appellant just because certain additions were made during the course of assessment proceedings? (C) Whether in the facts and circumstances of the case, the Appellate Tribunal was right in law in confirming the penalty order despite the fact that the total income of the appellant after addition comes to NIL?” 2. Issue pertains to penalty levied by the Assessing Officer which came to be confirmed upto the stage of Tribunal and arises in the following background. 3. For the assessment year 2009­2010, the assessee had filed return of income on 30.3.2010 declaring a total income of Rs.1.81 lacs (rounded off). Such return was taken in scrutiny by the Assessing Officer. He had received information from the Annual Information Return (“AIR” for short) which showed that the assessee had made sizeable cash deposits in his ICICI bank account which was undisclosed. The assessee was called upon to supply the details of accounts, upon which, the assessee declared Page 2 of 10 C/TAXAP/298/2018 JUDGMENT three bank accounts in ICICI bank, Bank of Baroda and Oriental Bank of Commerce. In all these three bank accounts, the assessee had made sizeable cash deposits and withdrawals. The assessee was called upon to explain the source of such deposits. The assessee offered no explanation nor revealed the source thereof but argued that not the total deposits but the peak credit in the bank accounts which could be considered as unexplained cash credit. The Assessing Officer accepted the assessee's contention and also accepted the assessee's computation of such peak credit at Rs.19,55,500/­. He added such sum to the income of the assessee. During the course of assessment proceedings, the assessee had also argued that he had suffered a net loss of Rs.23.13 lacs (rounded off) by trading in derivatives and a further loss of Rs.1.71 lacs (rounded off) in his speculative business. The Assessing Officer disallowed the speculative loss of Rs. 1.71 lacs but allowed the derivative loss of Rs.23.13 lacs as the assessee's business loss. Eventually the assessee's assessed tax liability came to be nil as per the order of assessment dated 5.12.2011. Nevertheless, since the assessee had concealed the income and the particulars thereof, the Assessing Officer ordered initiation of penalty proceedings. Apparently because the order of assessment did not give rise to any fresh tax demand from the assessee, he did not carry this order in appeal. He however, opposed the penalty proceedings contending that against the surrendered income of 19,55,500/­,the assessee had established derivative loss of Rs. 23.13 lacs which Page 3 of 10 C/TAXAP/298/2018 JUDGMENT eventually resulted into nil tax liability. Merely because the assessee agreed to surrender the additions, penalty could not be levied. The Assessing Officer however rejected all the contentions of the assessee. He observed that if the return of the assessee was not taken in scrutiny, cash deposits of the assessee would not have been brought on record. He did not accept the assessee's contention that he had voluntarily surrendered the peak credit of 19,55,500/­. Had the cash deposits not been detected, the assessee in any case would not have agreed to surrender such income. He therefore, passed an order dated 29.6.2012 levying minimum penalty at the rate of 100% of tax sought to be evaded, worked out at Rs.5,77,433/­. 4. The assessee carried the matter in appeal before the Commissioner and reiterated the contentions. The Commissioner dismissed the appeal by an order dated 14.10.2013 observing that : “2.8 Consequently, the facts of the case require to be analysed in view of above judicial citations. It is an undisputed fact of the case that cash deposits were found in the bank account of the appellant by way of AIR transactions, whose sources could not be explained by the appellant through any cogent evidence. It is also an undisputed fact of the case that no books of accounts have been maintained by the appellant to justify the veracity of cash deposits or to justify the adequacy of the so called speculation income. It is also an undisputed fact of the case that the appellant was forced during assessment proceedings, in view of pinpointed inquiries of the Assessing Officer to offer for taxation the unexplained cash deposits of Rs. 19,55,500/­. Thus the conduct of the appellant assumes the character of a mischief committed Page 4 of 10 C/TAXAP/298/2018 JUDGMENT with a premeditated mind with the object of taking a benefit which one was not otherwise legally entitled for. The reliance of the appellant upon the decision of honourable Supreme Court in the case of Reliance Petro products is unfounded and misplaced because in that case the Honourable Court has held that if the claim of expenditure is disallowed on account of legal fiction then possibly penalty would not be leviable. It is pertinent to note in this case there is no such controversy. The issue is candid and clear indications that the appellant is resting its claim on the basis of false parameters. The cash deposits in the bank account came to be known only through AIR transaction and the said deposit were not even recorded even in the books of accounts which in any case were not maintained. It is pertinent to note that honourable Delhi High Court in the case of Escort Finance Ltd has held that penalty for concealment shall be leviable in a case where it is found that claim was made on false presumptions. Similar view has been taken by honourable jurisdictional Tribunal in the case of Param Jewels P Ltd 131 ITD 197 Hon'ble ITAT Ahmedabad wherein it was held that penalty is leviable in a case where the appellant makes a bogus or false claim.” 5. The assessee carried the matter in further appeal before the Tribunal. The Tribunal by the impugned judgment dismissed the appeal, upon which, the present appeal has been filed. 6. Learned counsel for the appellant mainly contended that : i) The assessee had surrendered the income voluntarily. That itself would not give rise to the penalty proceedings. ii) Even after making addition of the undisclosed income, there was no fresh tax liability as compared to the returned income. In such a case penalty in any case, would not be Page 5 of 10 C/TAXAP/298/2018 JUDGMENT levied. Reference in this regard was made on the judgment of Supreme Court in case of Joint Commissioner of Income­tax v. Classic Industries Ltd. reported in (2017) 393 ITR 20(SC). 7. On other other hand, learned Counsel Shri Manish Bhatt for the department opposed the appeal contending that it is incorrect to state that the assessee had surrendered the income. Only when the return was taken in scrutiny and it was found that the assessee had undisclosed bank accounts in which cash deposits were made, that the assessee came out with the peak credit theory. The assessee has not offered any explanation or disclosed the source of such cash deposits either in the assessment proceedings or even in the penalty proceedings. The Supreme Court in case of Mak Data P. Ltd v. Commissioner of Income Tax reported in (2013) 358 ITR 593 (SC) has rejected the contention that merely because the assessee agrees to a certain addition “to buy peace”, penalty proceedings cannot be initiated. Counsel submitted that that even if after making additions there is a loss albeit reduced loss as compared to the return filed, penalty would be imposed in view of explanation 4 to section 271(1) (c) of the Act as held by the Supreme Court in case of Commissioner of Income­tax v. Gold Coin Health Food P. Ltd. reported in (2008) 304 ITR 308(SC). 8. Facts are not seriously in dispute. In the assessment proceedings, the assessee was confronted with undisclosed Page 6 of 10 C/TAXAP/298/2018 JUDGMENT bank accounts and sizeable cash deposits in such bank accounts. The assessee did not claim that the cash deposits were through disclosed source of income. The assessee virtually admitted that cash deposits were undisclosed. The assessee only argued that not the entire tally of cash deposited in different accounts during the year but the peak credit thereof could be added under section 68 of the Act. The Assessing Officer accepted such a contention and added a sum of Rs. 19,55,500/­ to the income of the assessee. It is true that during the assessment proceedings the Assessing Officer also accepted the assessee's contention of derivative loss as business loss. By off­setting such added income against the business loss, assessment did not give rise to any fresh tax demand. Nevertheless, the Assessing Officer initiated penalty proceedings because of concealment of income and particulars thereof. Even in such penalty proceedings, the assessee did not offer any explanation about the cash deposits in his different undisclosed bank accounts. In that view of the matter, the Assessing Officer was justified in imposing penalty which was levied at the minimum 100% of the tax sought to be evaded. 9. There is nothing on record to suggest that the assessee agreed to the addition of such income to cut­short the litigation in view of the fact that in any case, even after making the additions, there would be no tax liability in the hands of the assessee. Even if we were to accept the assessee's contention that such surrender was to avoid Page 7 of 10 C/TAXAP/298/2018 JUDGMENT protraction of the litigation and which is often times referred to as “to buy peace” as held by the Supreme Court in case of Mak Data P. Ltd (supra), this would not necessarily avoid initiation of penalty proceedings. In the said case, it was held and observed that voluntary disclosure does not release the assessee from the mischief of penal proceedings. The law does not provide that when an assessee makes a voluntary disclosure of his concealed income, he has to be absolved from penalty. The assessee cannot explain away his conduct by suggesting “voluntary disclosure”, “ to buy peace”, “ to avoid litigation” or “for amicable settlement”. 10. The assessee's other contention that in any case since the order of assessment did not give rise to tax demand, penalty cannot be imposed is against the judgment of Supreme Court in case of Gold Coin Health Food P. Ltd.(supra). The said judgment was rendered by three­Judge Bench of the Supreme Court on a reference made to it doubting the correctness of the judgment in case of Virtual Soft Systems Ltd. v. Commissioner of Income­tax reported in (2007) 289 ITR 83(SC), in which it was held that penalty under section 271(1)(c) of the Act cannot be levied, if returned income is loss. In focus was explanation 4 to section 271(1)(c)((iii) of the Act added with effect from 1.4.2003. The Supreme Court in case of Gold Coin Health Food P. Ltd.(supra), held that such explanation was clarificatory and not substantive. Judgment in case of Virtual Soft Systems Ltd.(supra) was overruled. The Court also referred to the decision in case of Page 8 of 10 C/TAXAP/298/2018 JUDGMENT Commissioner of Income­tax v. Prithipal Singh and Co. reported in 249 ITR 670 but distinguished it observing that the said case related to assessment year 1970­1971 when explanation 4 to section 271(1)(c) was not in existence. Thus the decision in case of Gold Coin Health Food P. Ltd.(supra) was rendered by a three­Judge bench on a specific reference to consider the correctness of the judgment in case of Virtual Soft Systems Ltd.(supra). The Court overruled the decision in case of Virtual Soft Systems Ltd.(supra). Unfortunately, in case of Classic Industries Ltd.(supra), this aspect was not brought to the notice of the Supreme Court. In fact, counsel for the Revenue conceded before the Supreme Court that the issue is covered against the Revenue by virtue of judgment in case of Virtual Soft Systems Ltd.(supra), as can be seen from the said judgment of the Supreme Court which reads as under : “The present appeal has been filed against the judgment and order dated July 27, 2006 passed by the High Court of Gujarat by which the High Court has held that no penalty is leviable under section 271(1)(c) of the Income­tax Act, 1961 if the income disclosed in the return and the income assesses is nil. Learned senior counsel appearing for the appellant submitted that this question is covered against the Revenue by decision of this Court in the case of Virtual Soft Systems Ltd v. CIT reported in (2007) 9 SCC 665. Respectfully following the aforesaid decision, the judgment and order of the High Court is upheld. The appeal fails and is dismissed. There shall be no order as to costs. Pending application, if any, also stands disposed of.” Page 9 of 10 C/TAXAP/298/2018 JUDGMENT 11. Unfortunately, counsel for the Revenue, unaware of the fact that Virtual Soft Systems Ltd.(supra) was overruled in case of Gold Coin Health Food P. Ltd. (supra), only brought the former to the notice of the Supreme Court and upon which the appeal of the Revenue came to be dismissed. The appeal filed by the Revenue arose out of judgment of this Court dismissing the Revenue's appeal at the admission stage. One of the questions raised was whether the Tribunal was right in coming to the conclusion that in case of loss, penalty under section 271(1)(c) of the Act cannot be imposed in view of judgment of Supreme Court in case of Commissioner of Income­tax v. Prithipal Singh and Co. reported in 249 ITR 670. As noted, the Supreme Court in case of Gold Coin Health Food P. Ltd.(supra), overruled the judgment in case of Virtual Soft Systems Ltd.(supra) and explained the position emerging from judgment in case of Prithipal Singh and Co.(supra) pointing out that the said case pertained to assessment year 1970­1971 when explanation 4 to section 271(1)(c) of the Act was not in existence. 12. In the result, tax appeal is dismissed. (AKIL KURESHI, J) (B.N. KARIA, J) raghu Page 10 of 10 "