 | Depreciation cannot be claimed without use of asset in the business |
| Posted on 19 July 2013 by Diganta Paul | |
CourtINCOME TAX APPELLATE TRIBUNAL BriefThe assessee is a private limited company. During the year, it was engaged in the business of import, export, trade and otherwise deal in food, canned and tinned processed foods and foodstuffs and consumable provisions for human or animal consumption. The assessee was also engaged in the manufacturing operations, however, the same is stopped in the year 2000. The return of income was filed declaring loss of Rs.4,32,89,050/- and the assessment was completed at a loss of Rs.2,02,34,254/- u/s 143(3) of the Income-tax Act, 1961 on 27.02,.2006. the penalty was initiated on the disallowance of depreciation of Rs.37,95,956/- claimed on plant and machinery. The penalty was levied of Rs.13,95,014/- being 100% of the tax to be evaded by order dated 31.03.2008 CitationDCIT, Circle 11 (1), New Delhi.(APPELLANT) Vs. M/s. Speciality Food India (P) Ltd., (Formerly known as Purnia Pet Care India Ltd.),M – 5A, Connaught Place, New Delhi.(PAN: AAACE2226P) (RESPONDENT) Judgement IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH 'G': NEW DELHI) SHRI U.B.S. BEDI, JUDICIAL MEMBER and BEFORE SHRI B.C. MEENA, ACCOUNTANT MEMBER ITA No.680/Del./2012 (ASSESSMENT YEAR : 2003-04) DCIT, Circle 11 (1), New Delhi. (APPELLANT) Vs. M/s. Speciality Food India (P) Ltd., (Formerly known as Purnia Pet Care India Ltd.), M – 5A, Connaught Place, New Delhi. (PAN: AAACE2226P) (RESPONDENT) ASSESSEE BY: Shri Rupesh Jain, Advocate and Ms. Shaily Gupta, FCA REVENUE BY: Smt. Renuka Jain Gupta, Senior DR ORDER PER B.C. MEENA, ACCOUNTANT MEMBER: This appeal filed by the revenue emanates from the order of the CIT (Appeals)-XIII, New Delhi dated 01.11.2011 for the Assessment Year 2003- 04. 2. The assessee is a private limited company. During the year, it was engaged in the business of import, export, trade and otherwise deal in food, canned and tinned processed foods and foodstuffs and consumable provisions for human or animal consumption. The assessee was also engaged in the manufacturing operations, however, the same is stopped in the year 2000. The return of income was filed declaring loss of Rs.4,32,89,050/- and the assessment was completed at a loss of Rs.2,02,34,254/- u/s 143(3) of the Income-tax Act, 1961 on 27.02,.2006. the penalty was initiated on the disallowance of depreciation of Rs.37,95,956/- claimed on plant and machinery. The penalty was levied of Rs.13,95,014/- being 100% of the tax to be evaded by order dated 31.03.2008. 3. The CIT (A) has granted the relief by holding as under:- "6.4. I have considered the submissions of the ld. Counsel and the facts on record. As per the facts on record, the present case is not a case of detection of receipts not reflected in Profit and Loss account return of income or bogus expenditure booked in Profit and Loss or making of a false claim, which is prohibited by the statute and therefore against the tenets of the Act itself. In the appellant's case the issue is whether claiming of depreciation, in the facts and circumstances of the case would amount to filing of inaccurate particulars of income, particularly when the facts relating to the issue stand disclosed in the return of income. 6.5 It is seen that on application of explanation 1 to section 271(1)(c) in the instant case there is no concealment of income or filing of inaccurate particulars of income. The AO's view that appellant has filed in rate particulars of income by claiming the inadmissible depreciation, hence penalty u/s 271 (1)(c) is leviable cannot be upheld as a the appellant is found to not have defaulted under any of the sub clauses of explanation 18 to section 271(1)(c). 6.6 As per the appellant, the claim for depreciation for correctly made in the return as (i) as activity of manufacturing of food products, was only temporarily suspended and (ii) it had income from trading activity which was in the nature of business income, therefore the business activity was been carried on. The appellant' found adequate support in judicial precedents for making the claim of depreciation in such circumstances (as referred to in para 6.2 supra). The view taken by the AD and as upheld by the appellate authorities is on account of difference of opinion on interpretation of facts and application of law thereon. In the instant case the appellant has the year but in later years production shifted to animal food products, thus only temporary lull., business only downsized, depreciation claimed only on the retained fixed assets), the explanation given by the appellant has not been found to be malafide, the judicial rulings relied upon by the appellant did give it sufficient reason to believe that its claim for the depreciation was a bonafide one. In the return of income the appellant had disclosed that its long term business strategies were being revived and that it had losses, the sale of part of fixed assets (2/3rd) was also disclosed. 6.7 On almost similar issue of claim of lull in business/discontinuance of business/admissibility of deprecation when business not wound up / when company not wound up etc there are a plethora of judgments both in favour as well as against the assessee's as has been demonstrated in the submissions of the ld. Counsel referred to in para 6.2 supra. When a claim made in the return of income is disallowed on account of the issue being debatable, there being difference of opinion between the AO and the assessee on account of varying factual and legal interpretations which can be settled only by the higher judicial courts, then making of such a claim in the return of income will not amount to filing of inaccurate particulars of income as has been held by the Hon'ble Apex Court in the case of Reliance Petroproducts Pvt. Ltd. 322 ITR 158:- "We do not agree} as the assessee had furnished all the details of its expenditure as well as income in its return, which details, in themselves} were not found to be inaccurate nor could be viewed as the concealment of income on its part. It was up to the authorities to accept its claim in the return or not. Merely because the assessee had claimed the expenditure, which claim was not accepted or was not acceptable to the Revenue, that by itself would not, in our opinion, attract the penalty under section 271 (1)(c). If we accept the contention of the Revenue then in' case of every return where the claim made is not accepted by the Assessing Officer for any reason} the assessee will invite penalty under section 271 (1)(c). That is clearly not the intendment of the Legislature II". 6.8 Similarly the Delhi High Court in the case of Zoom Communications Pvt. Ltd. 327 ITR 510 has observed that if the assessee has not concealed any material fact or the factual information given by the assessee has not been found to be incorrect, the assessee will not be liable to imposition of penalty u/s 271 (1)(c) even if the claim made by the assessee is unsustainable in law, provided that the assessee substantiates the explanation offered by it or the explanation even if not substantiated is found to be bonafide. This judgment applies squarely in the case of the appellant as all material facts have been disclosed in the return of income and the explanation given for claiming the expenditure as revenue expenditure is a bonafide one (rulings in favour of the appellant on the issue of depreciation. 6.9 Furthermore it has been held in CIT vs. Eastern Medikit Ltd. by the Hon'ble Delhi High Court that no penalty is impossible when two views are possible. In the case of CIT vs Bacardi Martin India Ltd. 288 ITR 585 the Delhi High Court held that merely because there was a difference of opinion between the assessee and the AO it cannot be said that the assessee had intention to conceal income. Hon'ble Calcutta High Court in the case of Burmah Shell Oil Storage and Distributing Co. of India Ltd. vs. Income Tax Officer reported in 112 ITR 592 (Cal.) held as under:- "Rejection of any legal contentions raised by any party and refusal to entertain any claim for deduction made on cogent legal grounds can never constitute concealment or furnishing of inaccurate particulars and no Income tax Officer can, therefore, be satisfied that an assessee has concealment his income or has furnished inaccurate particulars, only because the income-tax officer has chosen to reject the calculation on behalf of the assessee in support of the assessee's claim for deduction and has disallowed such claims for deduction put forward on legal grounds. 6.10 Further in the case of CIT VS. Harshwardhan Chemicals and Mineral Ltd. 259 ITR 112 (Raj.) the Hon'ble Appellate Tribunal deleted penalty by holding: "Where an arguable, controversial or debatable deduction is claimed, the claim could not be said to be false, otherwise, it would become impossible for any assessee to raise any claims or deduction which might be debatable and it was not the intention of the Legislature to make punishable such claims, if they were not accepted." On further appeal by revenue the Hon'ble Rajasthan High Court held as under:- "Held affirming the decision of the Appellate Tribunal, that no penalty was leviable in view of the finding of the Tribunal that when the assessee had claimed deduction of an amount that was debatable it could not be said that the assessee had concealed any income or furnished inaccurate particulars for evasion of tax, and in view of the finding of the Tribunal no case was made out for interference." 6.11 The Hon'ble Supreme Court in case of CIT VS. Reliance Petroproducts P. Ltd. 322 ITR 158 has held that penalty u/s 271 (1)(c) will not lie merely if an incorrect! inadmissible claim has been made in the return and when all material facts having been disclosed in the return of income. The Hon'ble Court has observed as under: "A glance at this provision would suggest that in order to be covered, there has to be concealment of the particulars of the income of the assessee. Secondly, the assessee must have furnished inaccurate particulars of his income. The present is not a case of concealment of the income. That is not the case of the Revenue either. However, the Ld. Counsel for Revenue suggested that by making incorrect claim of the expenditure on interest, the assessee has furnished inaccurate particulars of the income. As per Law Lexicon, the meaning of the word "particulars" is a detail or details (in plural sense); the details of a claim, or the separate items of an accounts. Therefore, the word "particulars" used in the section 271 (1) (c) would embrace the meaning of the details of the claim made. It is an admitted position in the present case that no information given in the return was found to be incorrect or inaccurate. It is not as if any statement made or any detail supplied was found to be factually incorrect. Hence, at least, prima facie, the assessee cannot be held guilty of furnishing inaccurate particulars. The Ld. Counsel argued that "submitting an incorrect claim in law for the expenditure on interest would amount to giving inaccurate particulars of such income". We do not think that such can be the interpretation of the concerned words. The words are plain and simple. In order to expose the assessee to the penalty unless the case is strictly covered by the provision, the penalty provision cannot be invoked. By any stretch of imagination, making an incorrect claim in law cannot tantamount to furnishing inaccurate particulars." 6.12 Recently the Hon'ble Delhi High Court in the case of Devsons Pvt. Ltd. vs. CIT 329 ITR 483 applying the ratio laid down by the Apex Court in the case of Reliance Petroproducts Pvt. Ltd. and Delhi High Court in the case of Bacardi Martin India Ltd. 288 ITR 585, Nath Brothers Exim International Pvt. Ltd. 288 ITR 670 held that penalty was not imposable u/s 271(1)(c) in a case where all particulars were disclosed by the assessee. 6.13 Respectfully following the ratio of the above judgments which have held that penalty is not imposable on debatable issues or claims/deductions disallowed on account of varying legal interpretations and where particulars have been disclosed by the assessee it is held that penalty u/s 271 (1)(c) is not imposable in the present case. Accordingly the penalty order u/s 271(1)(c) dated 31.03.2008 imposing the penalty of Rs.1395014/- is quashed. In effect the appeal is treated as allowed for statistical purposes." 4. Now, revenue is in appeal before us taking following grounds of appeal:- "1. On the facts and circumstances of the case and in law, the Ld. CIT (A) has erred in deleting the penalty imposed u/s 271(1)(c) of the I.T. Act, 1961, to the tune of Rs.13,95,014/- 2. The appellant craves leave to add, alter or amend any ground of appeal raised above at the time of hearing." 5. The only issue involved in the appeal is against the deleting of penalty imposed u/s 271(1)(c) of Income-tax Act, 1961 to the tune of Rs.13,95,014/-. 6. While pleading on behalf of the revenue, the ld. DR submitted that the assessee company has stopped manufacturing activities in the year 2000. The manufacturing activity has not started till date. The assessee has also sold land building and plant and machinery. Thus, there was no intention of assessee to restart the manufacturing activities. In such situation, claiming depreciation on the WDV during the year was completely a false claim. Therefore, the facts of assessee's case are nearer to the facts in the case of CIT vs. Zoom Communications Pvt. Ltd. reported in 129 Taxman 179 (Delhi) where the Hon'ble Delhi High Court did not accept the plea of inadvertence in making claim for deduction of income-tax as the circumstances in which the claim was made could not be explained. Similarly, the facts also falls within the ratio of decision of Hon'ble Delhi High Court in the case of CIT vs. Gurbachan Lal reported in 250 ITR 157 where it was held that initially burden of discharging of the onus under Explanation 1 is on the assessee which automatically come into operation where explanation offered by the assessee was found false by the Assessing Officer. Further assessee has not furnished any satisfactory explanation as to why a prima facie inadmissible claim was made in the return of income. More so, there was no intention to restart the manufacturing activities. Since assessee has failed to give any satisfactory explanation for making the claim of depreciation in the return of income, it was patently a false claim which itself made assessee liable for levy of penalty u/s 271(1)(c). Ld. DR further submitted that the claim of depreciation during the year was not only inadmissible claim of deduction but it was contrary to the plain words of the statue on which no two opinions are possible. On facts, this case is distinguishable from the facts of Reliance Petroproducts Pvt. Ltd. (supra). Therefore, assessee's reliance on the Hon'ble Supreme Court decision in the case of Reliance Petroproducts Pvt. Limited – 322 ITR 158 is not of any help. By making false claims in the form of depreciation, an attempt has been made to reduce the taxable income and such action on the part of the assessee amounts to the furnishing inaccurate particulars of income. Therefore, CIT (A) was not justified in deleting the penalty u/s 271(1)(c) of the Income-tax Act, 1961. The audited accounts for the relevant financial period and the balance sheet and Schedule III in the fixed assets show that the leasehold land at the beginning of the year was Rs.1,66,56,000/- and net block at the end of the year on 31.03.2007 was nil. Similarly, the WDV of the building at the end of the year was also nil. The WDV for plant and machinery at the beginning of the year was Rs.7,53,82,000/- and at the end of the year, the net block was only Rs.13,11,000/-. These facts clearly show that the assessee has sold majority of the plant and machinery and whole of building and land. These facts also show that there was no intention of the assessee to continue or restart the same business of manufacturing. The ld. DR submitted that the facts of the case are completely at variance from the facts of the case laws relied upon by the CIT (A). There was no arguable, controversial or debatable issue was involved. There was no legal contention involved in claiming the false depreciation. Therefore, the CIT (A) was not justified in deleting the penalty by holding that the issue was debatable on account of varying legal interpretation and the particulars have been disclosed by the assessee. The ld. DR pleaded to set aside the order of the CIT (A) and restore the order of the Assessing Officer. 7. On the other hand, the ld. AR submitted as under:- The assessee was a private limited company. It was engaged in the form of manufacturing, trading and otherwise deal in food, meat, eggs, poultry, vegetables, canned and tinned processed foods and foodstuffs and consumable provision of every description for human or animal consumption. The return was filed declaring a loss of Rs.4,32,89,050/-. The depreciation of Rs.37,95,956/- was claimed in the return of income. This depreciation was disallowed by the Assessing Officer. It was confirmed by the ITAT vide its order dated 23.12.2010 in ITA No.1460/Del/2008. Ld. AR submitted that although the assessee has not done any manufacturing activity during the year but depreciation was claimed on the plant and machinery on the premises that there is a temporary lull and assessee intends to start the manufacturing business. This manufacturing activity was temporarily suspended on account of the labour problem. The assessee resumed the business of trading in pet foods in the year 2005-06, therefore, there was no discontinuation of business of assessee so as to disallow the depreciation. The assessee has not concealed or filed any inaccurate particulars of income in respect of the depreciation claim. The disallowance was on account of bonafide difference of opinion between the assessee and the Assessing Officer, therefore, penalty u/s 271(1)(c) has been rightly deleted by CIT (A). Ld. AR relied on the case laws relied upon by the CIT (A) while deleting the penalty. The ld. AR relied on the following case laws:- (i) CIT vs. Aretic Investments (P) Ltd. – 190 Taxman 157; (ii) CIT v. Reliance Petroproducts Pvt. Ltd. – 322 ITR 158; (iii) Decision of Hon'ble Delhi High Court in the case of CIT vs. Mahanagar Telephone Nigam Ltd. – ITA No.626/2011; (iv) Decision of Hon'ble Delhi High Court in the case of CIT vs. Societex – ITA No.1190/2011; (v) CIT vs. Devsons Logistics Pvt. Ltd. – 329 ITR 483; (vi) Decision of Hon'ble Delhi High Court in the case of CIT vs. Mahavir Irrigation (P) Ltd. – ITA No.1266/2009; (vii) Decision of Hon'ble Delhi High Court in the case of ACIT vs. C&C Construction – ITA No.1492/2011; (viii) CIT vs. Kriti Resorts (P) Ltd. – 243 CTR 341; (ix) CIT vs. HMA Udyog Pvt. Ltd. – 159 Taxman 349; (x) CIT vs. M/s. Auric Investment & Securities Ltd. – 301 ITR 121; (xi) CIT vs. IFCI Limited – 328 ITR 611; (xii) CIT vs. M.S. Bindra & Sons Pvt. Ltd. – 336 ITR 125; (xiii) Narang International Hotel (P) Ltd. vs. DCIT – 137 ITD 53 (TM) (xiv) CIT vs. Vibros Organics Ltd. – 159 Taxman 56. 8. We have considered the pleadings of both the sides. We have also perused the paper book filed by the ld. AR containing pages 1 to 112. We have also gone through the case laws relied upon by both the sides. The assessee was engaged in manufacturing and selling of food items. During the year, no manufacturing activity was carried out which was clear from the audited accounts where opening stock was nil and quantity manufactured during the year was also shown as nil. The assessee has stopped manufacturing activity in the year 2000. Assessee has not started manufacturing activity till date. Only the trading activity was resumed in the financial year ended on 31.03.2005 relevant to Assessment Year 2005-06. As per the Form 3CD attached with the return of income for the year under consideration, the Annexure 2 for Clause 14 of the Form the written down value of building other than residential building was of Rs.3,53,80,368/- as on 31.03.2002. Thus, this was opening WDV of building. However, as on 31.03.2003, the written down value of building is nil. This fact shows that building was sold out during the year. Assessee was not having factory, godown or office at the end of the year. In respect of plant and machinery, the written down value as on 31.03.2002 was Rs.2,76,38,427/-. As on 31.03.2003, the WDV was Rs.1,07,70,855/-. As per clause 32 of Form No.3CD, there has been no production during the year. The stock-in-trade at the end of the year was nil. Schedule 3 for fixed assets also show that the leasehold land and building were nil on 31.03.2003. All these facts clearly establish that stopping of manufacturing activity in the year 2000 was not on account of temporary lull in the business. The facts show that assessee was intended to close the manufacturing activities. This further established by th fact that assessee has not started the manufacturing activity till date. The trading activity restarted in financial year 2004-05 was having nothing to do with the plant and machinery. These facts make the assessee's case distinguishable from the case laws relied upon by the CIT (A) as well as ld. AR during the pleadings before us. The assessee has deliberately furnished inaccurate particulars of income by way of making false depreciation claim. In our considered view, the claim of depreciation on the plant and machinery was a prima facie inadmissible claim made in the return of income. Since the assessee has failed to make a satisfactory explanation for makings such patently false claim in the return of income, the CIT (A) was not at all justified in deleting the penalty. There is nothing on record which could establish that claim was due to varying legal interpretation. Therefore, we set aside the order of the CIT (A) and restore the order of Assessing Officer for levying the penalty u/s 271(1)(c) of the Income-tax Act, 1961. 9. In the result, the appeal of the revenue is allowed. Order pronounced in open court on this 3rd day of May, 2013. Sd/- Sd/- (U.B.S. BEDI) (B.C. MEENA) JUDICIAL MEMBER ACCOUNTANT MEMBER Dated the 3rd day of May, 2013 TS Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(A)-XIII, New Delhi. 5. CIT(ITAT), New Delhi. AR, ITAT NEW DELHI. |
IT : Where assessee had not filed return of income timely, it could be prosecuted under section 276CC on presumption that there existed a culpable mental state as onus to prove that delay was not wilful was on assessee and not on department
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[2013] 35 taxmann.com 99 (Delhi)
HIGH COURT OF DELHI
Assistant Commissioner of Income-tax
v.
Nilofar Currimbhoy*
P.K. BHASIN, J.
CRL. M.C. NO. 2110 OF 2010
MARCH 13, 2013
Section 276CC, read with section 278E, of the Income-tax Act, 1961 - Offence and prosecution - Failure to furnish return of income - Assessment year 1994-95 - Assessee filed return of income on 1-5-1995 for assessment year 1994-95 - Revenue initiated prosecution under section 276CC on ground that delay was wilful and no valid reasons were given by assessee for late filing of return - However, trial Court and Sessions Court discharged assessee on ground that revenue could not prove wilful failure of assessee - Revenue filed petition for reversal of orders of Courts - Whether, where assessee had not filed return timely, revenue could be permitted to raise a presumption regarding culpable mental state of assessee, and therefore, it would be for assessee to establish that failure was not wilful - Held, yes - Whether, therefore, where such presumption had not been taken into consideration by Courts, their orders were to be set aside and assessee was to be prosecuted under section 276CC - Held, yes [Paras 8 and 12] [In favour of revenue]
FACTS
| ■ | For the assessment year 1994-95 the assessee filed the return of income on 1-5-1995. The revenue's case was that inspite of several notices issued to assessee, she had filed the return of income beyond the statutory period. Therefore, delay in filing return was wilful and deliberate and thus, she was liable to be prosecuted and punished under section 276CC. | |
| ■ | However, the trial Court and the Sessions Court discharged the assessee. | |
| ■ | The revenue then filed the petition for reversal of orders of both the Courts and contended that the trial Court should have presumed the delay to be wilful on ground that no valid and cogent reasons had been rendered by assessee for filing the return after statutory period, instead of holding that in pre-charge evidence adduced by the department it had failed to establish that delay by assessee was wilful. | |
| ■ | On the other hand the assessee contended that she had applied for the compounding of the offence before filing of the complaint against her and the same had not been decided. |
HELD
| ■ | After having considered the record of the trail Court and the submissions made by the Counsel for the parties it is viewed that the learned trial had wrongly discharged the assessee and the revisional Court also erred in affirming the trial Court's order. It is not in dispute that the assessee had not filed the return for the assessment year 1994-95 within prescribed period and not even within the period within which the revenue had required her to do so on it being found that she had not filed her return. The assessee had not even responded to the communications, as referred to in the complaint, sent to her by the revenue requiring her to file her return or to show the proof of filing if it had been filed within the prescribed time. So, the offence under Section 276CC stood committed by that time and for that offence the Department could file a criminal complaint against her after obtaining requisite sanction from the competent authority which it did obtain and complaint was filed in Court. After the complaint had been filed the trial Court had found a prima facie for taking cognizance of the said offence and so the assessee was summoned. In the pre-charge evidence adduced by the Department the aforesaid facts were reiterated by the departmental witnesses and the same were not challenged also during their cross-examination on behalf of the assessee. However, the trial Court on an erroneous view that it was for the complainant Department to show that failure to file the return within time discharged the assessee by holding that wilful default on the part of the assessee was not established. That conclusion was also erroneous and unsustainable as the learned trial Court conveniently ignored existence of section 278-E which permits raising of a presumption in favour of the Department regarding the existence of culpable mental state (mens rea) on the part of the assessee and non consideration of that provision of law led to the passing of a wrong order of discharge of the accused assessee. [Para 7] | |
| ■ | The decision of the Apex Court in case of Prakash Nath Khanna squarely applies to the facts of the case in hand. It would be for the respondent to establish during the trial that her failure to file her return was not wilful. The Courts below went wrong in going into the question as to whether the Explanation offered by the assessee in response to the show- cause notice given to her before the filing of the complaint in Court was rightly rejected or not. Once the complaint stood filed the trial Court was only required to examine whether cognizance should be taken or not and once it was decided to take cognizance and to summon the assessee the trial Court thereafter was required to examine whether in the pre-charge evidence the complainant had been able to show that the assessee had not filed her return for the assessment year in question within the prescribed period, which fact in the present case was not even disputed by the assessee. So, after raising the presumption under section 278-E the trial Court should have framed the charge against the assessee leaving it to him show during the trial thereafter that there was no wilful default on her part. [Para 8] | |
| ■ | Just because the assessee had applied for the compounding of the offence before the filing of the complaint against her in Court, as is was being claimed by her, and the same according to her had not been decided before the filing of the complaint it could not be said that the complaint was not maintainable, as was also the submission of the assessee not was the trial Court required to examine at the stage of charge as to why the department was not compounding the offence in the case of the respondent herein. If she was aggrieved by any action or inaction on the part of the authority competent to take the decision on her request for compounding she would have had recourse to legal remedies instead of waiting for the prosecution to be launched by the department. [Para 10] | |
| ■ | The revisional Court also did not go into the aforesaid aspects and simply affixed its seal of approval to the order of the trail Court and, therefore, its order also cannot be sustained. [Para 11] | |
| ■ | This petition and, is, accordingly, allowed. The impugned orders of the trial Court and the revisional Court are set aside. [Para 12] |
CASE REVIEW
Prakash Nath Khanna v. CIT [2004] 266 ITR 1/135 Taxman 327 (SC) (para 8) followed.
CASES REFERRED TO
Prakash Nath Khanna v. CIT [2004] 266 ITR 1/135 Taxman 327 (SC) (para 5) and V.P. Punj v. Asstt. CIT 2001 VI AD (Delhi) 501 (para 5).
Tiger Singh for the Petitioner. H.R. Khan Suhel for the Respondent.
ORDER
1. - The respondent was discharged by the Court of Additional Chief Metropolitan Magistrate, Delhi vide order dated 22nd August, 2008 for the commission of the offence punishable under Section 276-CC of the Income-tax Act, 1961 on the ground that the complainant (Income-tax Department) had failed to establish in its pre-charge evidence adduced by it in its complaint case (being Complaint Case No. 35/1999) that her failure to submit the income tax return for the assessment year 1994-95 was wilful. That decision of the learned Additional Chief Metropolitan Magistrate was affirmed by the Sessions Court vide order dated 29th September, 2009 when it was challenged by the complainant by way of a revision petition (being Revision Petition No. 06/2008). The complainant felt aggrieved by the revisional Court's order also and so it filed the present petition under Section 482 of the Code of Criminal Procedure, 1973 and Article 227 of the Constitution of India for setting aside the orders of the trial Court as well as of the revisional Court.
2. The relevant facts stated in the complaint of the petitioner-complainant are as follows:-
"4. That for the assessment year 1994-1995, the accused was to file the Income Tax return by 31.10.1994 but it was found by scanning the relevant records of the Income tax Department that she had not furnished the Income Tax Returns and, therefore, a Caution Notice dated 7.11.1994 was sent to the accused-respondent and the same was duly served upon the assessee/accused through the process-server of the Income tax Department. The copy of the said Caution Notice is attached herewith and is marked as Annexure B. The said notice had made it clear that in case she (accused/Assessee) had filed the Income tax Returns else-where in that event the copy of the Income Tax Return alongwith the proof of filing of the said return should be furnished by 25.11.1994.
5. The said caution notice, however, was not complied withby the accused-respondent and no representation/reply was received. Another statutory notice u/s 142(1) of the Income Tax Act dated 9.1.1995 was duly served upon the Assessee/Accused/ respondent on 11.1.1995 by the Process-Server of the Income tax Department. By virtue of the service of the said notice, the Assessee/Accused was to file the Income Tax return within 30 days from the receipt of the said notice, but the said notice sent by the Income tax Department of the complainant was not complied with by the accused-assessee and no response of any nature whatsoever was received from the Assessee-accused respondent.
6. That the Assessee/accused filed the Income Tax return for the relevant Assessment year 1994-1995 only on 1st May, 1995 whereas the Assessee/Accused was required statutorily to file the said returns latest by 31st October, 1994 ..............................................................................
7. That a show-cause notice dated 21.8.1998 was served upon the Assessee/Accused seeking the explanation of the accused/Assessee for late filing of the returns............. The accused/Assessee had replied to the said show-cause notice vide his reply dated 4th September, 1998 ..........................................................................
8. That the accused/Assessee has not rendered any valid and cogent reasons for filing the Income Tax Return for the Assessment year, 1994-95 after the lapse of 7 months. The delay on the part of the accused/Assessee in filing the Return for the relevant Assessment years, mentioned hereinabove, is wilful, deliberate, malicious and the accused has not demonstrated any paucity of funds or any valid and cogent reasons beyond her control. It is pertinent to mention here that the accused/Assessee is a habitual defaulter in filing the late returns.
9. That the accused-respondent has, thus, committed the offence under Section 276-CC of the Income-tax Act, 1961, as amended upto date and she is liable to be prosecuted and punished for the same."
3. After examining the complaint the trial Court summoned the respondent vide order dated 11th February, 1999. However, after the respondent entered appearance before the trial Court and pre-charge evidence of the petitioner-complainant had been recorded the trial Court, as noticed already, discharged the respondent vide impugned order dated 22nd August, 2008 which was affirmed by the Sessions Court when challenged by the petitioner-complainant by way of a revision petition.
4. The present petition was then filed by the petitioner-complainant seeking reversal of the orders of both the Courts below.
5. Mr. Tiger Singh, learned counsel for the petitioner had submitted that there was admittedly long delay on part of the respondent herein in filing her income tax return for the assessment year 1994-95 and, therefore, the trial Court should have presumed the delay to be wilful relying upon the provisions of Section 278-E of the Income Tax Act instead of holding that in the pre-charge evidence adduced by the Department it had failed to establish that the delay was wilful and discharging the respondent. In support of his submission learned counsel placed reliance on one judgment of the Supreme Court in "Prakash Nath Khanna v. CIT [2004] 266 ITR 1/135 Taxman 327 and one judgment of this Court in "V.P. Punj v. Asstt. CIT 2001 VI AD (Delhi) 501.
6. On the other hand it was submitted by Mr. H.R. Khan Suhel, the learned counsel appearing on behalf of the respondent that the Courts below had rightly discharged the respondent. It was also submitted that the Department having accepted the delayed return and penalty etc. for the delayed filing of the return and that too before the issuance of the final show-cause notice before launching her prosecution could not have subsequently proceeded to prosecute the respondent. It was also argued that the respondent's request for compounding of the offence was also arbitrarily rejected by the Department even though in routine such like offences were compounded by the Department almost in every case on payment of some penalty which the respondent was ready to pay even now.
7. After having considered the record of the trial Court and the submissions made by the counsel for the parties this Court is of the view that the learned trial had wrongly discharged the respondent and the revisional Court also erred in affirming the trial Court's order. It is not in dispute that the respondent had not filed the return for the assessment year 1994-95 within prescribed period and not even within the period within which the petitioner-complainant was required her to do so on it being found that she had not filed her return. The respondent had not even respondent to the communications, as referred to in the complaint, sent to her by the petitioner-complainant requiring her to file her return or to show the proof of filing if it had been filed within the prescribed time. So, the offence under Section 276 CC stood committed by that time and for that offence the Department could file a criminal complaint against her after obtaining requisite sanction from the competent authority which it did obtain and complaint was filed in Court. After the complaint had been filed the trial Court had found a prima facie for taking cognizance of the said offence and so the respondent was summoned. In the pre-charge evidence adduced by the Department the aforesaid facts were reiterated by the departmental witnesses and the same were not challenged also during their cross-examination on behalf of the respondent. However, the learned trial Court on an erroneous view that it was for the complainant Department to show that failure to file the return within time discharged the respondent by holding that wilful default on the part of the respondent was not established. That conclusion was also erroneous and unsustainable as the learned trial Court conveniently ignored existence of Section 278-E in the Income Tax Act which permits raising of a presumption in favour of the Department regarding the existence of culpable mental state (mens rea) on the part of the assessee and non-consideration of that provision of law led to the passing of a wrong order of discharge of the accused-assessee, respondent herein. Section 278-E was considered by the Supreme Court in the case of Prakash Nath (supra), which was cited by Mr. Tiger Singh, and the Supreme Court had observed as under:
"22. Whether there was wilful failure to furnish the return is a matter which is to be adjudicated factually by the Court which deals with the prosecution case. Section 278-E is relevant for this purpose and the same reads as follows:
'278-E: Presumption as to culpable mental state-
(1) In any prosecution for any offence under this Act which requires a culpable mental state on the part of the accused, the Court shall presume the existence of such mental state but it shall be a defence for the accused to prove the fact that he had no such mental state with respect to the Act charged as an offence in that prosecution.
Explanation : In this sub-section, "culpable mental state" includes intention, motive or knowledge of a fact or belief in, or reason to believe, a fact.
(2) For the purposes of this section, a fact is said to be proved only when the court believes it to exist beyond reasonable doubt and not merely when its existence is established by a preponderance of probability'
23. There is a statutory presumption prescribed in Section 278-E. The Court has to presume the existence of culpable mental state, and absence of such mental state can be pleaded by an accused as a defence in respect to the act charged as an offence in the prosecution. Therefore, the factual aspects highlighted by the appellants were rightly not dealt with by the High Court. This is a matter for trial. It is certainly open to the appellants to plead absence of culpable mental state when the matter is taken up for trial."
8. This decision of the Apex Court squarely applies to the facts of the case in hand. It would be for the respondent to establish during the trial that her failure to file her return was not wilful. The Courts below went wrong in going into the question as to whether the Explanation offered by the respondent in response to the show-cause notice given to her before the filing of the complaint in Court was rightly rejected or not. Once the complaint stood filed the trial Court was only required to examine whether cognizance should be taken or not and once it was decided to take cognizance and to summon the respondent the trial Court thereafter was required to examine whether in the pre-charge evidence the complainant had been able to show that the respondent had not filed her return for the assessment year in question within the prescribed period, which fact in the present case was not even disputed by the respondent. So, after raising the presumption under Section 278-E the trial Court should have framed the charge against the respondent leaving it to him show during the trial thereafter that there was no wilful default on her part.
9. Section 278-E came to be considered by this Court also in V.P. Punj's case(supra), which was also relied upon by the learned counsel for the petitioner and the Single Judge bench had held that the sufficiency of the Explanation of the defaulter assessee is a question of fact regarding which no finding can be given at the stage of charge but the presumption of mens rea against the accused under Section 278-E has to be pressed into service by the Court at the charge stage.
10. Just because the respondent had applied for the compounding of the offence before the filing of the complaint against her in Court, as is was being claimed by her, and the same according to her had not been decided before the filing of the complaint it could not be said that the complaint was not maintainable, as was also the submission of the learned counsel for the respondent not was the trial Court required to examine at the stage of charge as to why the department was not compounding the offence in the case of the respondent herein. If she was aggrieved by any action or inaction on the part of the authority competent to take the decision on her request for compounding she should have had recourse to legal remedies instead of waiting for the prosecution to be launched by the department.
11. The revisional Court also did not go into the aforesaid aspects and simply affixed its seal of approval to the order of the trial Court and, therefore, its order also cannot be sustained.
12. This petition and, is, accordingly, allowed. The impugned orders of the trial Court and the revisional Court are set aside and the matter is now remanded back to the Court of the Additional Chief Metropolitan Magistrate with the direction for framing charge under Section 276-CC of the Income-tax Act against the respondent and to try her in accordance with law. It is however, clarified that nothing observed by this Court in this order shall be considered by the trial Court to be any final expression of opinion on the merits of the complainant's case or the respondent's Explanation which she had tendered in response to show-cause notice given to her before the filing of the complaint in Court by the Income-tax Department.
ESHA__._,_.___
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