THE COMMISSIONER OF INCOME TAX V. M/S STEEL CENTRE

ITA/151/2008

AI Insights

The case revolves around the appeal by the Commissioner of Income Tax and the Assistant Commissioner of Income-Tax against M/s. Steel Centre concerning the imposition of a penalty under Section 271(1)(c) of the Income Tax Act, 1961. The penalty was initially imposed following a survey at the assessee's premises, which led to the filing of revised returns declaring higher incomes. The ITAT later set aside this penalty, a decision which was contested by the Revenue in the High Court. The primary legal contention was whether the assessee had concealed income or furnished inaccurate particulars in its returns. The High Court, after examining the circumstances under which the revised returns were filed and the subsequent payments made by the assessee, agreed with the ITAT's decision to set aside the penalty.

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 738571 (HC-KARNATAKA)
• Appeal Type: Others
• Pronouncement Date: 03-06-2014
• Assessment Year: misc
• Other Referred Cases: COMMISSIONER OF INCOME TAX v/s MANJUNATHA COTTON & GINNING FACTORY
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: A SHANKAR; M LAVA
• Assessee Lawyers: K V ARAVIND
• Keywords: Concealment of income; Inaccurate particulars of income; Penalty; Revised return; Survey
• Section: 143(3); 271(1)(c); 133A; 260A

Judgement Text

" 1 IN THE HIGH COURT OF KARNATAKA AT BANGALORE DATED THIS THE 03RD DAY OF JUNE 2014 PRESENT THE HON'BLE MR.JUSTICE N.KUMAR AND THE HON'BLE MR. JUSTICE B.MANOHAR ITA NO.151/2008 BETWEEN: 1. The Commissioner of Income Tax, C.R Building, Attavara, Mangalore. 2. The Assistant Commissioner of Income-Tax, Circle -1 (1), C.R Building, Attavara, Mangalore. ….Appellants (Sri.K.V.Aravind, Advocate) AND: M/s.Steel Centre, Azizuddin Road, Bunder, Mangalore. ….Respondent (By Sri.A.Shankar & Sri.M.Lava, Advocates) 2 ITA Filed u/S.260A of I.T.Act, 1961 arising out of order dated 05.10.2007 passed in ITA.No.469/Bang/2007 for the Assessment Year 2004- 2005, praying that this Hon’ble Court may be pleased to i. formulate the substantial questions of law stated therein, ii. allow the appeal and set aside the order passed by the ITAT, Bangalore in ITA.469/Bang/2007 dated 05.10.2007 and confirm the order of the Appellate Commissioner confirming the order passed by the Asst. Commissioner of Income Tax (Circle (1)), Mangalore, in the interest of justice and equity. This appeal is coming on for hearing this day, N. KUMAR J., delivered the following: J U D G M E N T The Revenue has preferred this appeal against the order passed by the Income Tax Appellate Tribunal, Bangalore Bench ‘A’ (for short ‘the Tribunal’) upholding the order of the Appellate Authority setting aside the order imposing penalty under Section 271(1)(c) of the Income Tax Act, 1961 (for short ‘the Act’). 2. The appeal was admitted on 19-03-2009 to consider the following substantial questions of law: 3 1. Whether the Tribunal was right in holding that there was no concealment of income nor did the assessee furnish inaccurate particulars of income to levy penalty u/s.271(1) (c) of the Act as some of the creditors could not be produced before the Assessing officer and additional income was offered voluntarily to buy peace with the Department? 2. Whether the Tribunal was right in not taking into consideration that the assessee had filed original return dated 12.10.2004 for a sum of Rs.13,95,200/- which was revised after a survey was conducted on 09.02.1995 by filing a revised return declaring a sum of Rs.30,45,200/- and on further enquiries, assessee filed a further revised return on 20.04.2005 declaring a sum of Rs.1,16,46,350/- which clearly showed concealment of income and consequently recorded a perverse finding? 3. The assessee is a merchant of Iron and Steel. The assessee filed his return of income on 12-10-2004 declaring the income of Rs.13,95,200/-. A Survey was conducted in his business premises on 9-2-2005 under Section 133A of the Act. The assessee filed revised return on 15-2-2005 declaring the income of Rs.30,45,200/- which included the additional income of 4 Rs.16,50,000/- offered at the time of survey on account of difference in valuation of stock and expenses of staff and coolie. At the time of assessment, the Assessing Officer asked the assessee for filing confirmation letters from the Creditors and also to produce the Creditors. Some of the persons who were shown as its creditors in the return of income filed by the assessee had confirmed the balances and responded immediately. However, there was no clarity or reply or some confusion existed in respect of six creditors. The Assessing Authority issued letters to the assessee regarding non- confirmation of the balances and silence on the part of these creditors. The assessee was also asked in these letters to show cause why the difference in creditors account should not be added as its income from undisclosed sources. The assessee sought for time because of various problems and things which required urgent attention of its creditors. The assessee had also offered to produce the creditors to prove the 5 genuineness. It was made clear to the assessee that unless and until the assessee proves the genuineness of all these creditors to the extent of balances shown by it in its return of income along with the connected statements, the negative and adverse differences will be treated as its income of the year in addition to what is shown in the returns already filed. At this stage, the assessee engaged the services of a Chartered Accountant. After several adjournments and meetings, the assessee expressed its inability to produce the parties or other definite and conclusive evidences to prove the transactions. It is clear from the order of the Assessing Authority that the parties had met Joint Commissioner of Income Tax, Range-I, Mangalore. As is clear from the order of the Commissioner of Income Tax (Appeals) ( for short ‘First Appellate Authority’), there was a meeting between the assessee and the learned Joint Commissioner of Income Tax, in the course of which, it was agreed that the assessee could offer the 6 balances due to the creditors as additional income for the year under appeal. Based on the ledger account of creditors, a table was prepared showing the name of the creditors, opening balance, purchases during the year, payments during the year and closing balance. The amount of purchases made by the assessee from the creditors are not in dispute, inasmuch as, the assessee had furnished in the penalty proceedings the evidence for having purchased the goods in the shape of copies of purchase invoice and proof of movement of goods through sales tax check post. However, the assessee agreed to write off the sundry creditors which amounts to Rs.86,01,156/-. Therefore, he agreed for addition and paid tax with interest. It is only thereafter, he filed a revised return on 20-04-2005 showing the income of Rs.1,16,46,360/-. The Assessing Authority passed an order accepting the second revised return. The order itself shows that the assessee paid all taxes due by it on this re-revised return of income. The order further 7 discloses that the assessee appeared before the Assessing Authority on various dates and filed all the details and clarification sought for. Therefore, he accepted the income of Rs.1,16,46,360/-. However, he issued notice under Section 271(1)(c) of the Act for penalty. 4. After considering the objections filed by the assessee and taking note of the various judgments relied upon by him, the Assessing Authority held that the assessee has committed breech of duty and concealed its particulars of income and furnished inaccurate particulars in the return of income filed on 12-10-2004 declaring the income of Rs.13,95,200/- and so levying of penalty is the only option open to him as the ultimate disclosure came to Rs.1,02,51,160/-. He proceeded to levy penalty of Rs.43,00,000/- as this being the first instance of default and levy of penalty under clause (c) of sub-Section (1) of Section 271 of the 8 Act. Aggrieved by the said order, the assessee preferred an appeal before the First Appellate Authority. The Appellate Authority on re-examination of the entire evidence on record and after taking note of the various judgments on which reliance was placed held that the assessee had furnished two revised returns out of his compulsion. The fact that two revised returns had to be furnished itself proves that there was guilty mind and the concealment was willful. It is further held that the Assessing Officer had collected evidence during the course of survey regarding the genuineness of the expenses and during the course of assessment proceedings regarding genuineness of the creditors. Therefore he was of the view that initiation of penalty proceedings and the order passed by the Assessing Authority is proper and therefore declined to interfere with the said order. However, he gave a partial relief insofar as payment of interest is concerned. Aggrieved 9 by the said order, the assessee preferred an appeal to the Tribunal. 5. The Tribunal on re-appreciation of the entire evidence on record held that the purchases have not been disputed by the Assessing Officer in his order. According to the assessee, the purchases were made on credit and subsequently the payments were made to the parties. Only with a view to buy peace from the department, since some of the creditors could not be produced before the Assessing Officer, the assessee was advised to write off the amounts in respect of those parties and thereby offered additional income by way of second revised returns. There is no finding that the purchases are bogus and consequently no addition was made on account of bogus purchases. The purchases were really accepted which are supported by the details. So far as the parties were concerned, they were not under the control of the assessee. They may not have 10 appeared before the Assessing Officer for various reasons. Only because the parties could not be produced before the Assessing Officer, the purchases cannot be said to be bogus and consequently it is not established that there was any concealment of income or the assessee willfully furnished any inaccurate particulars of income. So far as the disallowance of coolie expenses and staff expenses are concerned, some of the expenses were not supported by the bills and vouchers thereon. Therefore, the assessee voluntarily offered a sum of Rs.6,00,000/- for disallowance. No incriminating material was found at the time of survey. Therefore, the ingredient in respect of concealment of income is not present. Accordingly, tribunal allowed the appeal setting aside the order of imposing penalty and cancelled the order of the Assessing Officer. Aggrieved by the said order, the Revenue is in appeal before this court. 11 6. Learned counsel appearing for the Revenue assailing the impugned order contended that when admittedly after the survey, a revised return was filed on 15-2-2005 showing the income as Rs.30,45,200/-, it only represents the concealed income. Further, the assessee also filed a second revised returns on 20-4-2005 showing the income of Rs.1,16,45,350/-, which again shows the suppression of income by the assessee. Merely because it paid the tax for purchasing peace from the department is not sufficient to absolve it from the liability of paying penalty as held by the Apex Court. In view of the aforesaid admitted facts, if the survey had not been conducted, there would not have been two revised returns and therefore, he submits that a case for imposing penalty is made out and the Tribunal was in error in setting aside the well considered order passed by the Assessing Authority as well as the First Appellate Authority. Therefore, he 12 seeks for restoration of the order passed by the Assessing Authority. 7. Per contra, learned counsel appearing for the assessee submitted that it is not a case of search and seizure and it is only a case of survey. No doubt, in the returns filed on 12-10-2004 the income was shown as Rs.13,95,200/- and after survey, a revised return was filed showing the income of Rs.30,45,200/- which is nothing but a difference in valuation of stock expenses and expenses on staff and coolies. No incriminating materials were found at the time of survey. However, to substantiate its defense, when the Assessing Authority called upon him to produce the creditors before them along with confirmation letters, the assessee was able to produce some of the creditors and also gave confirmation letters. Only in respect of six creditors who were not willing to come before the Assessing Officer and also give confirmation letters, the assessee 13 was helpless. At that stage, negotiation took place between the assessee, Assessing Officer and his higher officers and on their advice, the assessee agreed to write off those creditors and offered it for tax. The bona fide of the assessee should be gathered from the facts that, not only he filed second revised return on 20-4-2005 showing the income of Rs.1,16,46,350/-, he promptly paid the tax due thereon with interest very much before the assessment order was passed. These facts had not been properly appreciated and taken note by the Assessing Authority as well as the First Appellate Authority and they came to the conclusion that there was suppression of income. It is in those circumstances, the Tribunal rightly set aside the said order and held that merely because the assessee was not able to substantiate the defense which it had taken and when it is not shown that the defense taken is false, the penalty should be imposed. Therefore, he submits 14 that no case for interference is made out and sought for dismissal of the appeal. 8. From the aforesaid facts it is clear that the assessee filed a return on 12-10-2004, declaring the income of Rs.13,95,200/-. Subsequently on 9-2-2005, a survey was conducted, no incriminating materials were collected. The assessee offered to file a revised returns representing the difference in valuation of stock, expenses on staff and coolie and accordingly, filed a revised return on 15-2-2005 showing the income as Rs.30,45,200/-. Thereafter, in the course of investigation, the assessee had produced all his books of accounts, invoices, check post certificates, delivery notes showing supplies. When the Assessing Authority insisted that he should secure confirmation letters from the creditors and also produce them before him, the assessee was successful in getting the confirmation letters from several creditors and was able to produce 15 them before the Assessing Officer. Only in respect of six creditors, it could not secure their presence. When the assessee pleaded its inability, it appears, the higher officers in the department asked him to write off the said amount and offer the said amount for tax. Accordingly, the assessee filed a second revised returns on 20-4-2005 showing the income as Rs.1,16,45,350/-. Immediately it paid the tax as well as the interest due thereon. It is thereafter, the Assessing Authority proceeded to pass an order on 14-07-2005 under Section 143(3) of the Act. 9. This court had an occasion to consider the scope of Section 271(1)(c) of the Act in the case of COMMISSIONER OF INCOME TAX v/s MANJUNATHA COTTON & GINNING FACTORY reported in (2013) 92 DTR (Kar) 111. After reviewing the entire case law, it was held that imposition of penalty is not automatic. Imposition of penalty even if the tax liability is admitted is not automatic. Even if the assessee has not 16 challenged the order of assessment levying tax and interest and has paid tax and interest that by itself would not be sufficient for the authorities either to initiate penalty proceedings or impose penalty, unless it is discernible from the assessment order that, it is on account of such unearthing or enquiry concluded by authorities it has resulted in payment of such tax or such tax liability came to be admitted and if not it would have escaped from tax net as opined by the Assessing Officer in the assessment. Only when no explanation is offered or the explanation offered is found to be false or when the assessee fails to prove that the explanation offered is not bona fide, an order imposing penalty could be passed. If the explanation offered, even though not substanatiated by the assessee, but is found to be bona fide and all facts relating to the same and material to be computation of his total income have been disclosed by him, no penalty could be imposed. Sending printed form where all the ground mentioned in 17 Section 271 are mentioned would not satisfy requirement of law. The assessee should know the grounds which he has to meet specifically. Otherwise, principles of natural justice is offended. On the basis of such proceedings, no penalty could be imposed to the assessee. 10. Therefore, in the instant case, after the returns were filed, in the course of survey proceedings, it was found that there was difference in valuation of stock and expenses on staff and coolie. The assessee without a murmur filed second revised return and offered it for tax and paid tax and interest promptly. In the course of assessment proceedings, the assessee tried to justify its returns and had produced before the authorities all its books of accounts, invoices, check post certificates and delivery notes. When the Assessing Authority called upon the assessee to secure the confirmation letters and also to produce the creditors before him, the 18 assessee was successful in getting confirmation letters from everyone, but could not produce some of the creditors. Only in respect of those creditors whose presence it could not secure which was six in number, the assessee agreed to write off the said persons and offered it for tax. Hence, the assessee was called upon to file second revised returns which it promptly filed and paid the tax with interest. It is not a case where the assessee did not offer any explanation nor the explanation offered by it was found to be false or not found to be bona fide. Partially it was successful in proving its defense. Therefore, it is a case where, the assessee was not successful in establishing his defense. Therefore, there was no intention either to suppress information or to file any incorrect statement. At this juncture it is pertinent to note that in the notice issued to the assessee, the department has not made it clear what is the accusation against the assessee and it was full of blanks. In those circumstances, the Tribunal on 19 proper consideration of the entire material on record and after taking note of the law on the point as decided by the various courts, rightly held that there is no suppression of material facts and was justified in setting aside the order passed by the First Appellate Authority as well as the Assessing Authority. 11. In that view of the matter, we do not see any merit in the appeal. Accordingly, the appeal is dismissed. The substantial questions of law framed in this appeal are answered in favour of the assessee and against the Revenue. No costs. Sd/- JUDGE Sd/- JUDGE mpk/-* "