IT : In case assessee has not claimed any deduction in respect of its liability for payment of luxury tax, no question of addition under section 43B will arise
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[2013] 35 taxmann.com 565 (Allahabad)
HIGH COURT OF ALLAHABAD
Commissioner of Income-tax, Kanpur
v.
U.P. Hotels (P.) Ltd.*
PRAKASH KRISHNA AND RAM SURAT RAM (MAURYA), JJ.
IT REFERENCE NO. 33 OF 2002
MARCH 18, 2013
Section 43B, read with section 5 of the Income-tax Act, 1961 - Business disallowance - Certain deductions to be allowed on actual payment [Luxury tax] - Assessment years 1987-88 and 1988-89 - Assessee was engaged in hotel business - Assessing Officer held that luxury tax was payable by assessee and since no actual payment of luxury tax was made that amount was liable to be added in income of assessee under section 43B - Commissioner as well as Tribunal found that assessee had not realized amount of luxury tax which was added in its gross income - Whether amount of luxury tax which was not received cannot form part of income of any person - Held, yes - Whether question of addition under section 43B will arise only when assessee has claimed deduction and Assessing Officer finds that conditions mentioned in this section has not been satisfied - Whether since in instant case, assessee had not claimed deduction in respect of its liability for payment of luxury tax, no question of addition would arise - Held, yes [Paras 7 & 8] [In favour of assessee]
FACTS
Facts
| ■ | The assessee-company was engaged in the hotel business. The Assessing Officer held that luxury tax was payable by the assessee under the law and as no actual payment of luxury tax was made as such that amount was liable to be added in the income of the assessee under section 43B. | |
| ■ | The Commissioner (Appeals) found that the total payment of luxury tax during the year exceeded total collection of the luxury tax. The amount which was not collected could not be treated as income of the assessee and, thus, no addition could not be made. | |
| ■ | The Tribunal dismissed the appeal of the revenue. |
Revenue's submission
| ■ | Section 43B provides that deduction shall be allowed only on actual payment of any sum payable by way of tax. Luxury tax is payable by the assessee under section 4 of U.P. Taxation and Land Revenue Laws Act, 1975 read with rule 3 of U.P. Luxuries (In Hotel) Tax Rules, 1975. As the assessee had not made actual payment in this head, the amount of luxury tax which was payable by the assessee was liable to be added in his gross income. |
HELD
| ■ | The Act imposes tax on income. In order to form income of a person, the person must receive or deemed to receive any sum. The amount of luxury tax which was not received cannot form part of the income of any person. [Para 7] | |
| ■ | The Act further gives relief, deduction and exemption from payment of income-tax to the person on various income. Section 43B provides a right to the assessee to claim deduction of any sum payable by the assessee by way of tax, duty, cess or fee etc. This section imposed a condition that such deduction be allowed only in case of actual payment of the liabilities mentioned therein by the assessee. Section 43B is concerned with deduction claimed by the assessee. Thus, the scope of inquiry by the Assessing Officer under section 43B is as to whether the assessee can be allowed deduction which can only be allowed to the assessee when it has liability to pay under the law and has actually paid that amount. The question of addition will arise only when the assessee has claimed deduction and the Assessing Officer finds that conditions mentioned in this section has not been satisfied. In this case the assessee has not claimed any deduction in respect of its liability for payment of luxury tax as such no question of addition will arise. [Para 8] | |
| ■ | Section 43B does not caste duty on the assessee to realize the various amounts mentioned in it. In case, where a person has not realized luxury tax from the customers then under the law he being liable to pay it and it will be realize from him under the relevant law irrespective of the fact that he has collected or not. But it does not give the Assessing Officer any jurisdiction to add it in the gross income of the assessee. Commissioner (Appeals) as well as the Tribunal have concurrently found that the assessee has not realized the amount of luxury tax, which was added in its gross income. [Para 9] | |
| ■ | In view of the aforesaid discussions, the question referred to in this reference is answered in the affirmative i.e. against the revenue and in favour of the assessee. [Para 11] |
CASE REVIEW
Chowringee Sales Bureau (P.) Ltd. v. CIT [1973] 87 ITR 542 (SC) and Sundaram Finance Ltd. v. CIT [2012] 210 Taxman 280/ 25 taxmann.com 247(SC) (para 10) distinguished.
CASES REFERRED TO
Chowringee Sales Bureau (P.) Ltd. v. CIT [1973] 87 ITR 542 (SC) (para 6) and Sundaram Finance Ltd. v. CIT [2012] 210 Taxman 280/ 25 taxmann.com 247(SC) (para 6).
R.K. Upadhyay for the Appellant. S.K. Garg and Ashish Bansal for the Respondent.
JUDGMENT
Ram Surat Ram (Maurya), J. - At the instance of the Commissioner of Income Tax, (Central) Kanpur, the Income Tax Appellate Tribunal, Allahabad Bench, Allahabad (hereinafter referred to as the Tribunal) has referred the following questions, for opinion to this Court, under Section 256 of the Income Tax Act, 1961 (hereinafter referred to as the Act):-
"Whether on the facts and circumstances of the case, the ITAT was justified in directing the A.O. to work out the disallowance u/s 43B, on account of outstanding luxury tax liability, on the basis of actual realisation of the luxury tax and not on the basis of unrealised luxury tax although the assessee was maintaining its accounts under mercantile system."
2. The facts giving-rise to this reference are that M/S U.P. Hotels Pvt. Limited, 10/252, Maqbool Alam Road, Varanasi (the respondent) is a public limited company, and engaged in the hotel business. The respondent owned (i) Hotel Clarks Shiraz, Agra, (ii) Hotel Clarks Avadh, Lucknow and (iii) Hotel Clarks Amer, Jaipur. In the present reference, the question relates to addition of the amount of "luxury tax" payable by the respondent for the Assessment Years 1987-88 and 1988-89 under U.P. Taxation and Land Revenue laws Act, 1975 as such facts in relation to luxury tax alone are noticed in the judgment.
3. The respondent filed it's income tax return for the Assessment Year 1987-88 on 26.06.1987 showing profit of Rs. 64,20,868/- This profit was adjusted against unabsorbed carried forward loss and depreciation of Rs. 1,00,32,618/- Thus total loss of Rs. 36,11,750/- was shown. The Assessing Officer, on scrutiny of balance sheet, noticed that luxury tax of Rs. 5,24,980/- was payable on the total gross income at the rate 7%. There was no luxury tax at Jaipur, while outstanding luxury tax of Agra Unit was worked out to Rs. 4,31,759/- and Lucknow Unit was worked out to Rs. 93,221/- total Rs. 5,24,980/-. The Assessing Officer required the respondent to explain as to why this amount be not added in the gross income of the respondent. The respondent stated that luxury tax was not actually collected by the respondent as such there was no receipt of this amount, so as to form it's income. The Assessing Officer, by order dated 28.03.1990, held that luxury tax was payable by the respondent under the law and as no actual payment of luxury tax was made as such this amount was liable to added in the income of the respondent under Section 43B of the Act. The respondent filed an appeal (registered as Appeal No. 32/CC-I/VNS/1990-91) from the aforesaid order. The appeal was heard by the Commissioner of Income-tax (Appeals) II, Varanasi who by order dated 20.08.1990 found that total payment of luxury tax during the year exceeded total collection of the luxury tax. The amount which was not collected cannot be treated as income of the respondent and no addition can be made in this head. On these findings the appeal was allowed in part and the addition made in this head was deleted.
4. The respondent filed its income tax return for the Assessment Year 1988-89 on 28.06.1988 showing income of Rs. 17,30,187/- This income was adjusted against unabsorbed carried forward loss and depreciation. The Assessing Officer on scrutiny of balance sheet, noticed that luxury tax of Rs. 6,85,057/- was payable on the total gross income at the rate 7%. Similarly credit balance of Rs.1,95,295/- was payable by Lucknow Unit and there was debit of luxury tax of Rs. 2,28,426/-Thus total credit balance of Rs. 6,51,926/- is payable on the account of luxury tax. The Assessing Officer required the respondent to explain as to why this amount be not added in the gross income of the respondent. The respondent stated that luxury tax was not actually collected by the respondent as such there was no receipt of this amount, so as to form his income and has not been debited in Profit and Loss of the account. The Assessing Officer by order dated 20.03.1991 held that luxury tax was part and parcel of total receipt which should have been credited along with the hotel receipt. Since responsibility to pay luxury tax was on the respondent under the law and as no actual payment was made in this head as such this amount was liable to added in the income of the respondent under Section 43B of the Act. The respondent filed an appeal (registered as Appeal No. 52/CC-I/VNS/1991-92) from the aforesaid order. The appeal was heard by the Commissioner of Income-tax (Appeals), Varanasi, who by order dated 24.08.1992, relying upon his previous year order, allowed the appeal and deleted the additions made in this head.
5. The Revenue filed an appeal (registered as ITA No. 2597/Ahd/1990) from the the order dated 20.08.1990 and another appeal (registered as ITA No. 2311/ Ahd /1992) from the the order dated 24.08.1992. The respondent also filed cross objection. Both these appeals and cross objection were consolidated and heard by the Tribunal, who by order dated 22.09.1998 dismissed the appeals of the Revenue in respect of luxury tax. Later on at the instance of the CIT Kanpur, this reference was made.
6. Heard Sri R. K. Upadhyay, Senior Standing Counsel for the Revenue and Ashish Kumar Bansal for the respondent. Sri Upadhyay submitted that Section 43B of the Act provides that deduction shall be allowed only on actual payment of any sum payable by way of tax. Luxury tax is payable by the respondent under Section 4 of U.P. Taxation and Land Revenue laws Act, 1975 read with Rule-3 of U.P. Luxuries (In Hotel) Tax Rules, 1975. As the respondent has not made actual payment in this head as such the amount of luxury tax which was payable by the respondent was liable to be added in his gross income. He relying upon the judgment of Supreme Court in Chowringee Sales Bureau (p) Ltd. v. CIT [1973] 87 ITR 542 and Sundaram Finance Ltd. v. CIT [2012] 210 Taxman 280/ 25 taxmann.com 247submitted that the amount of tax collected but not deposited by the assessee is liable to be counted in his gross income. The orders of CIT (A) allowing the appeal of the respondent and order of the Tribunal dismissing the appeal of the Revenue are illegal.
7. We have considered the arguments of the Senior Standing Counsel. The Act imposes tax on income. The word 'income' has been defined under Section 2 (24) of the Act. Scope of total income has been provided under Section 5 of the Act as subject to the provision of this Act, total income of any previous year of a person, who is resident includes all income from whatever source derived which (a) is received or is deemed to be received in such year by or on behalf of such person; or (b) accrues or arises or is deemed to accrue or arise to him in India during such year or (c) accrues or arises to him outside India during such year. Thus in order to form income of a person, the person must receive or deemed to receive any sum. The amount of luxury tax which was not received cannot form part of the income of any person.
8. The Act further gives relief, deduction and exemption from payment of income tax to the person on various income. Section 28 provides profits and gains of business or profession. Section 29 provides that income referred to in Section 28 shall be computed in accordance with the provisions contained in Sections 30 to 43D. Section 43B provides a right to the assessee to claim deduction of any sum payable by the assessee by way of tax, duty, cess or fee etc. This Section imposed a condition that such deduction be allowed only in case of actual payment of the liabilities mentioned therein by the assessee. Section 43B of the Act is concerned with deduction claimed by the assessee. Thus the scope of inquiry by the Assessing Officer under Section 43B of the Act is as to whether the assessee can be allowed deduction which can only be allowed to the assessee when it has liability to pay under the law and has actually paid that amount. The question of addition will arise only when the assessee has claimed deduction and the Assessing Officer founds that conditions mentioned in this section has not been satisfied. In this case the respondent has not claimed any deduction in respect of its liability for payment of luxury tax as such no question of addition will arise.
9. Section 43B does not caste duty on the assessee to realize the various amounts mentioned in it. In case, where a person has not realized luxury tax from the customers then under the law he being liable to pay it and it will be realize from him under the relevant law irrespective of the fact that he has collected or not. But it does not give the Assessing Officer any jurisdiction to add it in the gross income of the assessee. CIT (A) as well as the Tribunal have concurrently found that the respondent has not realized the amount of luxury tax, which was added in his gross income.
10. The case laws relied upon by the counsel for the Revenue are not applicable in this case as in those cases the assessee had actually collected the amount of sales tax and has not paid to the Department. Accordingly it was held that such receipts would form part of the income of the assessee. Relevant portion of Sundaram Finance Ltd. case (supra), is quoted below:
"It is now well settled that in determining whether a receipt is liable to be taxed, the taxing authorities cannot ignore the legal character of the transaction which is the source of the receipt. The taxing authorities are bound to determine the true legal character of the transaction. In the present case, the assessee received Rs 36,47,585 in Assessment Year 1998-1999. As per the statement made by the learned counsel for the assessee in Court on 06.09.2012 (which statement is ordered to be taken on record and marked "X"), the said sum of Rs 36,47,585 was not kept in a separate interest-bearing bank account but it formed part of the business turnover. In view of the said statement, we see no reason to interfere with the impugned judgment. Applying the substance over form test, we are satisfied that in the present case the said sum of Rs 36,47,585 constituted income. The said amount was part of the turnover. The said amount was collected from the customers. The said amount was collected towards sales tax liability. The said amount formed part of the turnover."
11. In view of the aforesaid discussions, the question referred to in this reference is answered in the affirmative i.e. against the Department and in favour of the respondent.
LATAIT : Where returned income filed under section 153A is accepted by Assessing Officer and there is no variation in assessed income and returned income, penalty under section 271(1)(c) cannot be imposed
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[2013] 35 taxmann.com 594 (Nagpur - Trib.)
IN THE ITAT NAGPUR BENCH
Deputy Commissioner of Income-tax
v.
Purti Sakhar Karkhana*
P.K. BANSAL, ACCOUNTANT MEMBER
AND D.T. GARASIA, JUDICIAL MEMBER
AND D.T. GARASIA, JUDICIAL MEMBER
IT APPEAL NOS. 150 TO 155 (NAG.) OF 2010
[ASSESSMENT YEARS 2001-02 TO 2006-07]
[ASSESSMENT YEARS 2001-02 TO 2006-07]
DECEMBER 21, 2012
Section 271(1)(c), read with section 153A, of the Income-tax Act, 1961 - Penalty - For concealment of income [Conditions precedent] - Assessment years 2001-02 to 2006-07 - Whether search assessments made under section 153A cannot be treated as continuance of normal assessment proceedings whether abated or not and, therefore, it will not be justified to refer to returned income under section 139 for purpose of imposition of penalty under section 271(1)(c) - Held, yes - Whether further, where returned income filed under section 153A is accepted by Assessing Officer and there is no variation in assessed income and returned income, penalty under section 271(1)(c) cannot be imposed - Held, yes - Whether where provisions of section 271(1B) is not applicable in case of assessee, Assessing Officer is bound to record his satisfaction in assessment order that assessee had either concealed income or furnished inaccurate particulars of income in his return before proceeding further - Held, yes [Paras 9,13,19 & 25] [In favour of assessee]
FACTS
| ■ | There had been search in the case of the assessee along with Mehta Group under section 132. Accordingly, notices under section 153A were served to the assessee for relevant assessment years. The assessee surrendered certain amount by reducing the capital-work-in-progress under heads, 'plant and machinery', 'power plant' etc. | |
| ■ | The returned income in response to notice under section 153A was accepted by the Assessing Officer and assessment orders under section 153A were passed creating nil demand of tax. | |
| ■ | Thereafter the Assessing Officer imposed penalty under section 271(1)(c) for giving false information in the return of income. | |
| ■ | The Commissioner (Appeals) considering the fact that reduction in capital work-in-progress was offered to buy peace of mind and there was no variation in returned income and assessed income deleted the penalty. | |
| ■ | On second appeal: |
HELD
Where section 271(1B) not applicable, Assessing Officer to record satisfaction regarding concealment of income
| ■ | In the case of the assessee, there is a direction that the penalty proceeding under section 271(1)(c) is separately initiated. Now the question arises whether this direction will tantamount to be the satisfaction recorded by the Assessing Officer for the concealment of the particulars of income or furnishing of inaccurate particulars of income. This is undisputed fact that in the case of the assessee the assessments have been framed by the Assessing Officer at the same income or loss at which the assessee has filed the return in pursuance to the notice issued under section 153A. The Assessing Officer has not made any addition or disallowance while computing the total income or loss of the assessee. Therefore, section 271(1B) will not apply in the case of the assessee and the Assessing Officer is bound to record the satisfaction for the concealment of the particulars of income or furnishing of inaccurate particulars of income. In the assessment order, there is nothing which may designate that the Assessing Officer has satisfied during the course of assessment proceedings that the assessee has concealed the particulars of income or furnished the inaccurate particulars of income. This is a fact that both the charges are different charges and if the penalty has been initiated in respect of one charge, it cannot be levied for the other charge. Since section 271(1B) is not applicable in the case of the assessee, the revenue has to show that the satisfaction of the Assessing Officer to the fact that the assessee has either concealed the particulars of income or furnished inaccurate particulars of income. This is the condition precedent for initiating the penalty. Until and unless the satisfaction is arrived at in the course of any proceedings under the Act, the penalty cannot be levied. [Para 9] | |
| ■ | It is noticed that in each of the assessment years, the Assessing Officer, in the assessment order passed under section 143(3) read with section 153A, has not recorded any satisfaction but has simply mentioned that the penalty proceeding under section 271(1)(c) has been initiated separately. Nowhere the Assessing Officer noted in the assessment order his satisfaction that there was furnishing of inaccurate particulars of income by the assessee and that there is case made out for initiating proceedings under section 271(1)(c). Therefore, initiation of proceedings under section 271(1)(c), against the assessee for assessment years 2001-02 to 2006-07 is not valid in law. [Para 13] | |
| ■ | Even though the assessee has surrendered the amount of capital work-in-progress but it did not have any impact on the income of the assessee so far it relates to assessment years 2001-02 to 2005-06. The Assessing Officer observed, while framing the assessment, that penalty proceeding under section 271(1)(c) is separately initiated but it does not show how it affects the concealment of the particulars of income of the assessee or furnishing of the inaccurate particulars of the income. In fact, neither the returned income nor the assessed income is being affected by the reduction of the amount of the capital work-in-progress as surrendered by the assessee. Concealment of particulars of income or furnishing of inaccurate particulars of such income, both are the different charges. | |
| ■ | Direction for initiation of the penalty proceedings under clause (c) of sub-section (1) for constituting the satisfaction of the Assessing Officer for initiation of the penalty must be related with either of the charges i.e. the concealment of particulars of income or furnishing of inaccurate particulars of such income. The Assessing Officer, no doubt, states that the penalty proceeding under section 271(1)(c) is separately initiated but does not state or what default, whether for the concealment of particulars of income or for furnishing of inaccurate particulars of income is being initiated. [Para 16] | |
| ■ | Even the notice did not specify any specific charge for which the penalty has been initiated and ultimately the Assessing Officer levied the penalty on the assessee for giving false information in the IT return neither for concealment of particulars of income nor for furnishing inaccurate particulars of income. It is incumbent on the Assessing Officer to mention whether the penalty is levied for concealment of income or for furnishing of inaccurate particulars of income. In the absence of specific charge, the order would be bad in law. Section 271(1)(c) does not talk of levy of the penalty for giving false information in the return. The Assessing Officer levied penalty entirely for a different charge. [Para 18] | |
| ■ | Explanation 1 to section 271(1)(c) cannot be applied where charge against the assessee is in furnishing of inaccurate particulars of income since it provides deeming fiction qua concealment of the particulars of income only and cannot be extended to a case where charge on the assessee is furnishing of inaccurate particulars of income. This is not the case of the revenue that the assessee has concealed the particulars of income, therefore, no question of applicability of Explanation 1 arises. The charge in the penalty order against the assessee is for furnishing the false particulars. In the case of furnishing of the inaccurate particulars of income, since the deeming provision given under Explanation 1 is not applicable, the onus is on the revenue to prove that the assessee has filed the false particulars of income in the return filed. In the return filed in response to notice issued under section 153A, this is a fact that there is no filing of inaccurate particulars and no addition/disallowance has been made by the Assessing Officer while making assessment under section 143(3) read with section 153A. Even otherwise, the assessee has surrendered the investment made in capital work-in-progress. Source of the investment is not disputed by the revenue. It is not the case of the revenue that the assessee was not having the sufficient income to invest in the capital work-in-progress or investment shown in capital work-in-progress is made out of undisclosed income. Once source of the investment is not disputed and the assessee has sufficient source to invest in capital work-in-progress, it cannot be said that the assessee was having undisclosed income, which has been invested by the assessee and thereby the assessee has concealed the particulars of income or filed the inaccurate particulars of income. Income is different from investment. Income precedes the investment, not the investment precedes the income. It may be a case of furnishing of the inaccurate particulars of investment but not furnishing of inaccurate particulars of the income. Merely the assessee has surrendered the part of the investment in capital work-in-progress, it will not convert surrender of such investment into an income. During the assessment years 2001-02 to 2005-06, this is a fact that the assessee has not claimed any depreciation as it is only the capital work-in-progress, which was in existence and the capital work-in-progress was not transferred to the respective assets, which are entitled to depreciation. On this basis itself also, no penalty can be imposed on the assessee under section 271(1)(c). [Para 19] | |
| ■ | The assessee has disclosed loss in the return filed for the assessment years 2002-03 to 2006-07. The Assessing Officer has accepted the said loss in the assessment framed by him. The loss declared in the return has not been reduced or loss has not been converted into income due to the investment made in the capital work-in-progress surrendered by the assessee. In view of Explanation 4(a) of section 271(1)(iii), the tax sought to be evaded will be nil and both situations in clause (a) will not apply in the case of the assessee. Clause (b) of this Explanation applied to a case where Explanation 3 applies. Clause (c) is the residuary clause. In such case, it would be main difference between the tax on total income assessed and the tax on total income reduced by the amount in respect of which penalty is sought to be levied. The case of the assessee, at the most for all the assessment years can fall under clause (c) but on the basis of this clause, the tax sought to be evaded, in each of the assessment year, will be nil because the difference between the tax on total income assessed and tax on total income reduced by the amount in respect of which the Assessing Officer tried to impose the penalty is nil. Therefore, even if one agrees with the revenue that the assessee has furnished the inaccurate particulars of income to the extent he surrendered the investment in the capital work-in-progress since the tax sought to be evaded will be nil, the assessee had not to pay any amount by way of penalty as per section 271(1)(iii) read with Explanation 4. On this basis also, the penalty is liable to be deleted. [Para 22] |
Search assessment made under section 153A cannot be treated as continuance of normal assessment proceedings whether abated or not
| ■ | The existence of the words 'all other provisions of this Act shall apply to the assessment made under this section' in Expln. (i) to section 153A makes it clear that in search assessments, amongst others the provisions relating to penalty and prosecution will also be applicable. However, when normal assessment procedure covered by sub sections 139, 147, 148, 149, 151 and 153 has been completely excluded by operation of non obstante clause 'notwithstanding anything contained' the search assessments made under section 153A cannot be treated as continuance of normal assessment proceedings whether abated or not. Thus there is complete detachment of assessment proceedings under section 143 or 147 from search proceedings under section 153A. When scheme of search assessment as designed by the Legislature does not prescribe to take into account the earlier assessment proceedings whether abated or not, it will not be proper or justified to refer to returned income under section 139 for the purpose of imposition of penalty under section 271(1)(c). It follows that the concealment of income has to be seen with reference to additional income brought to tax over and above returned by the assessee in response to notice issued under section 153A. Accordingly for the purpose of imposition of penalty under section 271(1)(c) resulting as a result of search assessments made under section 153A, the original return of income filed under section 139 cannot be considered. Further in case of search initiated after 1-6-2003 a return of income is always filed on issue of notice under section 153A in respect of each assessment year falling within six assessment years immediately preceding the assessment year relevant to the previous year in which the search is conducted or requisition is made in the prescribed form and verified in the prescribed manner. Assessing Officer requires the assessee to set forth such other particulars as may be prescribed in these returns. This section also states that all the provisions of this Act, as are applicable to a return to be furnished under section 139, will apply to this return. In view of this, the Assessing Officer has to frame an assessment on the basis of the return filed under section 153A. As has been held above, the penalty under section 271(1)(c) is imposable when there is variation in assessed and returned income. If there is no variation, there will be no concealment or furnishing of inaccurate particulars of income. When there is no concealment or furnishing of inaccurate particulars of income, question of levy of penalty under section 271(1)(c) will not arise. | |
| ■ | The concept of voluntary return of income may be important in penalty proceedings initiated in course of normal assessment proceedings made under section 143(3) or 147 but not under section 153A. From above discussion it follows that where returned income filed under section 153A is accepted by the Assessing Officer, there will be no concealment of income or furnishing of inaccurate particulars of income and consequently penalty under section 271(1)(c) cannot be imposed. Section 271 does not talk of for the purpose of ascertaining the default whether of concealment of income or furnishing of inaccurate particulars of income, the return filed under section 139 or the return filed by the assessee will be considered not the return filed under section 153A. This satisfaction for concealment of particulars of income or furnishing of inaccurate particulars of income has to come from the assessment order passed in consequence of return filed under section 153A. The assessee in this case, in each of the assessment years, filed the return on 23-12-2008 showing nil income or loss. The returns filed by the assessee were duly accepted by the Assessing Officer in each of the case and assessment under section 143(3) read with section 153A were framed on the returned income. Thus, there is no variation in each of the assessment year in the returned income shown by the assessee. Prior to the filing of the returns by the assessee under section 153A, even though the proceedings under this Act had started prior to that but the Assessing Officer has not brought out any material or evidence, which may state that the assessee has furnished inaccurate particulars of income or concealed the particulars of income. In the return filed on 23-12-2008, the assessee has duly disclosed the investment in capital work-in-progress surrendered by him. Since these particulars, to which the Assessing Officer treated for the purpose of levy of penalty to be false particulars were available with the Assessing Officer in the return filed by the assessee under section 153A, in this case it cannot be said that the assessee has furnished the false particulars. | |
| ■ | Section 271(1)(c) does not authorise the Assessing Officer to compare the return filed under section 139(1) and under section 153A and compare the difference in the particulars of income in both the returns to treat such difference to be the false particulars of income. The fault has to be seen with the return filed by the assessee when an assessment under section 143(3) read with section 153A is made with reference to the return filed under section 153A and when the penalty proceeding is initiated in the order passed under section 143(3) read with section 153A, this will also relate to the satisfaction of the assessee with reference to the return filed under section 153A. Aforesaid view is also strengthened in view of the Explanation 5 given under section 271(1)(c). This Explanation is applicable in the case of the search taken place before 01-06-2007 and the assessee is found to be the owner of any money, billion, jewellery or any other valuable, article or thing. This Explanation is not applicable in the case of the assessee as it is an undisputed fact that no money, billion, jewellery or any other valuable, article or thing has been found in the case of the assessee. Had there been intention of the Legislature to look into the concealment of the particulars of the income or furnishing of inaccurate particulars of income with reference to the return filed under section 139(1), the Legislature would have provided so. On this basis also, no penalty can be imposed under section 271(1)(c) as there is no variation in the income returned in response to notice under section 153A vis-Ã -vis assessment passed under section 143(3) read with section 153A. [Para 25] |
CASE REVIEW
CIT v. S.V. Angidi Chettiar [1962] 44 ITR 739 (SC) (para 9); CIT v. Atul Mohan Bindal [2009] 183 Taxman 444 (SC) (para 13);Madhushree Gupta v. Union of India [2009] 317 ITR 107/183 Taxman 100 (para 15); Varkey Chacko v. CIT [1993] 203 ITR 885/70 Taxman 152 (SC) (para 16); CIT v. Manu Engg. Works [1980] 122 ITR 306 (Guj.) and New Sonathia Engineering Co. v. CIT [2006] 282 ITR 642/155 Taxman 513 (Guj.); Padma Ram Bharali v. CIT [1977] 110 ITR 54 (Gau.) (para 18) followed.
UOI v. Dharamendra Textiles Processors [2008] 295 ITR 244/166 Taxman 65 (SC) (para 27) and K.P. Madhusudan v. CIT [2001] 251 ITR 99/118 taxman 324 (SC) [Para 29] distinguished.
CASES REFERRED TO
Sir Sadilal Sugar & General Mills Ltd. v. CIT [1987] 168 ITR 705/33 Taxman 460A (SC) (para 4), Union of India v. Dharamendra Textile Processors [2008] 306 ITR 277/174 Taxman 571 (SC) (para 6), K.P. Madhusudhanan v. CIT [2001] 251 ITR 99/118 Taxman 324 (SC) (para 6), Ms. Madhushree Gupta v. Union of India [2009] 183 Taxman 100/317 ITR 107 (Delhi) (para 7), CIT v. N. George & Bros.[1986] 160 ITR 511/[1987] 30 Taxman 368 (Ker.) (para 7), Dilip N. Shroff v. Jt. CIT [2007] 291 ITR 519/161 Taxman 218 (SC) (para 7), Kanbay Software India (P.) Ltd. v. Dy. CIT [2009] 31 SOT 153 (Pune) (para 7), CIT v. Reliance Petroproducts (P) Ltd. [2010] 322 ITR 158/189 Taxman 322 (SC) (para 7), CIT v. S.V. Angidi Chettiar [1962] 44 ITR 739 (SC) (para 9), D.M. Manasvi v. CIT [1972] 86 ITR 557 (SC) (para 9), CIT v. Mohinder Lal [1987] 31 Taxman 450/168 ITR 101 (Punj. & (Har.) (para 9), CIT v. Ram Commercial Enterprises Ltd. [2002] 122 Taxman 620 (Delhi) (para 9), Diwan Enterprises v. CIT [2000] 246 ITR 571 (Delhi) (para 9), CIT v. Vikas Promoters (P) Ltd. [2005] 277 ITR 337/145 Taxman 300 (Delhi) (para 9), CIT v. Super Metal Re-rollers [2004] 135 Taxman 407 (Delhi)(para 9), Shri Bhagwant Finance Co. Ltd. v. CIT [2005] 147 Taxman 53 (Delhi) (para 9), CIT v. Rajan & Co. [2007] 291 ITR 340/[2005] 146 Taxman 271 (Delhi) (para 9), CIT v. Munish Iron Store [2003] 263 ITR 484/[2004] 137 Taxman 391 (Punj. & Har.) (para 9), CIT v.Dajibhai Kanjibhai [1991] 189 ITR 41/57 Taxman 16 (Bom.) (para 9), CIT v. Rampur Engg. Co. Ltd. [2009] 176 Taxman 211 (Delhi)(para 9), V.V. Projects & Investments (P) Ltd. v. Dy. CIT [2008] 300 ITR 40/171 Taxman 62 (AP) (para 9), Chennakesava Pharmaceuticals v. CIT [2013] 214 Taxman 141 (Mag.)/30 taxmann.com 385 (AP) (para 10.1), CIT v. M.K. Sharma [2008] 307 ITR 147 (Delhi) (para 11), CIT v. Atul Mohan Bindal [2009] 183 Taxman 444 (SC) (para 12), Varkey Chocko v. CIT [1993] 203 ITR 885/70 Taxman 152 (SC) (para 16), CIT v. Lakhdhir Lalji [1972] 85 ITR 77 (Guj.) (para 17), CIT v. Manu Engg. Works [1980] 122 ITR 306 (Guj.) (para 18), New Sorathia Engg. Co. v. CIT [2006] 282 ITR 642/155 Taxman 513 (Guj.) (para 18), Padma Ram Bharati v. CIT[1977] 110 ITR 54 (Gau.) (para 18), CIT v. Shaila Agarwal [2011] 16 taxmann.com 232/[2012] 204 Taxman 276 (All.) (para 24) and Dy. CIT v. Chirag Metal Rolling Mills Ltd. [2007] 162 Taxman 317 (MP) (para 36).
Milind Bhusari for the Appellant. Hitesh Shah for the Respondent.
ORDER
P.K. Bansal, Accountant Member - All these appeals filed by the Revenue since involve common issue in all the assessment years, these are being disposed of by this common order for the sake of convenience. All these appeals are against the consolidated order of CIT(A) dt. 28th May, 2010 by which the CIT(A) has deleted the penalty imposed under s. 271(1)(c) of the Act by the AO. In all these appeals, the Revenue has raised common grounds of appeal against the deletion of penalty.
2. The brief facts of the case are that there has been search in the case of the assessee along with Mehta Group under s. 132 of the Act on 23rd Aug., 2006. The assessee is a public limited company, incorporated under the Companies Act, 1956 on 20th April, 2000 for setting up an integrated plant for manufacturing of sugar, power, ethanol etc. at Village Bela, Tah. Umred, Distt. Nagpur. During the previous year relevant to assessment year under consideration, the assessee company was in the process of acquiring land, doing site development, construction of factory buildings, erecting plant and machinery and other related activities. The assessee had placed orders for supply and erection of various plant packages with various agencies including the contractors of national and international repute. Work orders were issued for execution and supply of respective items of plant and advances were paid as per terms of contract. Means of financing the project includes share money received from various individuals and bodies corporate, unsecured loans in the form of inter-corporate deposits from various companies, genuineness of which is not under dispute. The assessee-company raised secured loans from consortium of nineteen co-operative banks, Indian Renewable Energy Development Agency, New Delhi, Bank of Maharashtra and State Bank of Indore etc. The assessee-company had issued work order for executing the supply and erection of plant to various contractors/companies. These companies executed earth work and site development, civil construction etc. jobs and raised bills for these jobs. The assessee-company paid for these bills in the normal course of business and duly deducted tax at source and deposited the same. These bills were duly clubbed under the head 'Capital work-in-progress' for capitalization at a later date when the business is set up. The assessee purchased cement, steel, hardware and other machinery components etc. from various dealers/companies. The bills were duly checked and payments were made for these supplies and were debited to capital work-in-progress. Various expenses were incurred in the normal course of business during the previous years when the work of construction and erection was going on. The expenses included the interest paid by the assessee on secured loans as well as unsecured loans. There was no default of the TDS etc. The assessee has maintained the regular books of account which were duly audited. Few companies of Mehta Group supplied the capital goods and also carried out erection work for setting up the plant and machinery by the assessee. Advances were also made to Mehta Group for the execution of the work. Few companies belonging to Mehta Group made investments in the shares of the assessee-company and had also given inter-corporate deposits. Simultaneous search operation was carried out on the assessee company along with Mehta Group under s. 132 of the IT Act on 23rd Aug., 2006. Notices under s. 153A of the IT Act were received by the assessee company for the asst. yr. 2001-02 to asst. yr. 2006-07 on 23rd March. 2007. The assessee submitted the reply on 23rd April, 2007 and it was submitted that on perusal of the seized material then made available, it was fell that some of the items clubbed under capital work-in-progress were not properly accounted for. The assessee is carrying on the analysis of the capital work-in-progress and is preparing a revised statement of income considering the seized material found from the Mehta Group of companies. The reduction of the capital work-in-progress would result in reduction in claim of depreciation in future year when the business is set up and accordingly the assessee requested more time for filing the return under s. 153A and to continue assessment proceedings on the basis of the available records. It was also mentioned that assessee is facing difficulty as some of the old employees of the assessee have left the service and the information was required to be obtained from outside sources i.e. Mehta Group of companies. Whatever information was obtained from the seized material and Mehta Group of companies was being continuously analysed with its own records. A number of transactions had taken place amongst various Mehta Group of companies and, therefore, it was difficult to trace the ultimate net effect in the books of those companies. The assessee, therefore, took the initiative and revised the capital work-in-progress on lump sum basis. Thus, the assessee volunteered to rework the year-wise impact of these transactions on capital work-in-progress and accordingly intimated the AO. The assessee accordingly for the asst. yrs. 2001-02 to 2006-07 surrendered the following amount in the capital work-in-progress by reducing the amount of the capital work-in-progress amount for each of the assessment years respectively on 23rd Dec., 2008 and filed the revised return for the asst. yr. 2006-07 giving the effect of claiming the lower depreciation. In other assessment years there was no effect on the income/loss returned by the assessee in the original returns.
| Sr. No. | Asst yr. | Amount of capital work-in-progress surrendered by assessee |
| 1. | 2001-02 | 10,00.000 |
| 2. | 2002-03 | 2,73,89,041 |
| 3. | 2003-04 | 2,01,000 |
| 4. | 2004-05 | 1,87,46,067 |
| 5. | 2005-06 | 2,43,26,321 |
| 6. | 2006-07 | 3,25.00,000 |
2.1 The cumulative effect of amount surrendered by the assessee during all assessment years from 2001-02 to 2006-07 by reducing the capital work-in-progress under the various heads is as under :
| (i) Plant & machinery | Rs.9,48,85,108/- |
| (ii) Power plant | Rs.2,31,76,321/- |
| (iii) Admn. Buildings | Rs. 10,00,000/- |
| (iv) Factory Buildings | Rs. 50,00,000/- |
| TOTAL | Rs.12,40,61,429/- |
2.3 In response to notice issued under s. 153A for the asst. yrs. 2001-02 to 2005-06, the assessee stated that the return already filed by the assessee under s. 139(1) may be treated as return filed in response to notice under s. 153A of the Act. The assessment orders under s. 153A r/w s. 143(3) of the Act for all these assessment years were passed on 31st Dec., 2008 creating nil demand of tax. The details of returned income in response to notice under s. 153A as well as income assessed in each of the assessment year are given as under :
| Asst. yr. | Returned income | Assessed income | Tax |
| 2001-02 | Nil | Nil | Nil |
| 2002-03 | (-) 2,81,545 | (-) 2,81,545 | Nil |
| 2003-04 | (-) 2.65,464 | (-) 2,65,464 | Nil |
| 2004-05 | (-) 83,122 | (-) 83,122 | Nil |
| | 1,02,848(under s.115JB) | 1,02,848 | Nil |
| 2005-06 | (-) 2.13,036 | (-) 2,13,036 | Nil |
3. In the asst. yr. 2006-07, originally return was filed showing a loss of Rs. 16,86,25,367 while the return under s. 153A was filed on 23rd Dec., 2008 reducing the loss to Rs. 15,66,37,622 due to less claim of depreciation on the revised figures of capital work-in-progress as capitalized during the year. The assessment has been completed by the AO at a loss of Rs. 15.66,36,622. The assessee reduced the claim for depreciation in the asst. yr. 2006-07 due to reduction in the capitalized value of the capital work-in-progress surrendered in different assessment years. Originally the assessee had claimed depreciation at Rs. 14.5716,287, which was reduced to Rs. 13,42,12,588. There was no effect on the depreciation claimed so far it relates to the asst. yrs. 2001-02 to 2005-06 as the capital work-in-progress was not capitalized to respective asset, except the power plant during the asst. yr. 2006-07. The AO, while completing the assessment for each of the assessment years. mentioned that "penalty proceedings under s. 271(1)(c) of the IT Act, 1961 is initiated separately". (English translation). Accordingly, show-cause notice dt. 31st Dec., 2008 was issued to the assessee for each of the, assessment years to the following terms :
"Sub : Show-cause notice under s. 271(l)(c) of the IT Act. 1961- reg.
Whereas in the course of proceedings before me for the asst. yr. 2001-02, it appears that you have concealed the particulars of your income or furnished inaccurate particulars of such income.
You are requested to appear before me at 11.00 A.M. on 17th Feb., 2009 and show-cause why an order imposing a penalty on you should not be made under s. 271 of the IT Act, 1961. If you do not wish to avail yourself of this opportunity of being heard in person or through an Authorized Representative, you may show-cause in writing on or before the said date, which will be considered before any such order is made under s. 271 of the Act."
4. The assessee agitated the issue of show-cause notice. In reply to the show-cause notice, the assessee stated that notice under s. 153A was received by the assessee on 22nd March, 2007. In the reply dt. 12th April, 2007, the assessee stated that the figures of capital work-in-progress booked during the previous years relevant to asst. yrs. 2001-02 to 2007-08 were likely to go under revision on account of surrender, the assessee was contemplating, whereby the cost of capital work-in-progress would be reduced. The assessee had volunteered to analyze reduction in the cost of capital work-in-progress when the assessee got the opportunity to learn about certain information out of the material seized from premises of Mehta Group. The notice was received by the assessee only on 7th Feb., 2008. The assessee surrendered certain amount of the capital work-in-progress much before the initiation of the assessment proceedings and the surrender is not the outcome of the finding of the AO during the assessment proceedings. No material was found during the course of assessment proceedings or search on which basis the AO could have held that the assessee has concealed the particulars or furnished inaccurate particulars of income. The assessee relied on the decision of Hon'ble Supreme Court in the case of Sir Shadilal Sugar and General Mills Ltd. v. CIT [1987] 168 ITR 705/33 Taxman 460A for the-proposition that the assessee agreeing for the addition does not follow that the amount agreed to be added as income is correct (sic- concealed) income. There may be hundred and one reasons for such additions when the assessee realizes the true position, it does not dispute certain additions but that does not mean that the assessee has filed the inaccurate particulars. Reliance was also placed on certain other decisions. The AO, in each of the assessment year, levied the penalty on the assessee for furnishing false particulars amounting to Rs. 4,10,000 for asst. yr. 2001-02, Rs. 1,10,00,000 in asst. yr. 2002-03, Rs. 75,00,000 in the asst. yr. 2003-04, Rs. 68,00,000 in the asst. yr. 2004-05, Rs. 90,00,000 in the asst. yr. 2005-06 and Rs. 1,10,00.000 in the asst. yr. 2006-07.
5. The assessee went in appeal before the CIT(A). The CIT(A) deleted the penalty in each of the assessment years by passing a consolidated order dt. 28th May, 2010 by holding as under :
"19. 1 have gone through the findings of the AO in his penalty orders, the remand report of the AO as well as the detailed submissions of the appellant. The appellant company was incorporated on 10th April, 2000. During the asst. yrs. 2001-02 to 2005-06, it was in the process of acquiring land, doing site development, construction of factory buildings, erecting plant and machineries and other related activities during the assessment years under consideration. The appellant-company had placed orders for supply and erection of various plant packages with various agencies including the contractors of national and international repute and work orders were issued for execution and supply of respective items of plant and advances were paid as per terms of contract. The means of financing the project included share money received from various individuals and bodies corporate, unsecured loans in the form of Inter Corporate Deposits (ICDs) from various companies. The appellant-company raised secured loans from consortium of nineteen co-operative banks, Indian Renewable Energy Development Agency (IREDA), New Delhi, and Bank of Maharashtra and State Bank of Indore. The assessee-company had issued work order for executing the supply and erection of plant to various contractors/companies. These companies executed earthwork and site development, civil construction etc. jobs and raised bills for these jobs. The appellant-company paid for these bills in the normal course of business and duly deducted tax at source and deposited the same. These bills were duly clubbed under the head capital work-in-progress (CWIP) for capitalisation at a later date. The appellant-company incurred various expenses in the normal course of business throughout the various previous years during which work of construction and erection was going on. The expenses included the interest paid by the appellant on secured loans as well as unsecured Loans while making payment of interest on ICDs tax was deducted at source and deposited into Government treasury. All interest and expenses were clubbed and shown under the head CWIP. The advances paid by the appellant company to various contractors and sub-contractors for executing the work were also clubbed and shown under CWIP, in the balance sheet, with a proper disclosure by way of a statement in notes to accounts. Few companies belonging to Mehta Group also did the work of supply and erection. Advances were paid to the Mehta Group companies for execution of work.
20. The company was incorporated for setting up of an integrated plant for manufacturing sugar, power, ethanol etc. The commercial production of the entire projects were to start from December, 2006 onwards, but crushing of sugarcane started during asst. yr. 2006-07. However, search and seizure action was carried on the appellant-company along with Mehta Group under s. 132 of the IT Act. 1961 on 23rd Aug., 2006. The notices under s. 153A of the Act were received by the appellant-company for the asst. yr. 2001-02 to asst. yr. 2006-07 on 23rd March, 2007. The appellant has filed replies to these notices on 23rd April, 2007 and it was submitted in that letter that on perusal of the seized material then made available it was felt that some of the items clubbed under CWIP may not be fully explainable to the satisfaction of the AO. It was also mentioned that on careful analysis the CWIP appeared to be on higher side and hence the appellant was preparing a revised statement of income considering the seized material, found from Mehta Group of companies, The appellant had stated that reduction in CWIP would result in reduction in claim of depreciation in the future years. These facts were brought to the notice of the AO. prior to the commencement of the assessment proceedings. Subsequent to the search in response to notice under s. 153A of the Act, returns were filed showing reduced figures of CWIP for these years. The AO has accepted the returned loss in these cases in his assessment orders under s. 153A r/w s. 143(3) of the Act, dt. 31st Dec., 2008, but has initiated and levied penalties under s. 271(1)(c) of the Act on the amounts reduced from CWIP, which were surrendered by the appellant.
21. I have perused the orders imposing penalty under s. 271(1)(c) of IT Act, 1961 and it is evident from the same that penalty is imposed only for the reason that in the course of assessment assessee has agreed for reduction in the amount shown in CWIP in the returns of earlier years. The matter was discussed with AO in the course of appellate proceedings. In the case of assessee it is undisputed fact on record that reduction in CWIP is not based on any documents or evidence found in the course of search from assessee. It is on the basis of search at Mehta Group and assessee had verified the value of CWIP and revised and reduced the same to buy peace of mind and avoid vexed litigation. In fact in the case of assessee all advances given to Mehta Group of companies were through proper banking channel and was duly recorded in the books of account of assessee. In the case of Mehta Group of companies in search conducted certain transactions with the assessee company could not be fully reconciled and therefore could not be explained by the assessee. The assessee company has given advances as well as paid interest to Mehta Group of companies and such amounts paid have not been claimed as revenue expenditure in any of the assessment years for which penalty under s. 271(1)(c) of the Act has been levied in the case of assessee. In fact in the case of assessee up to asst. yr. 2005-06 as production of sugar has not commenced and therefore there is no question of computing income from business, to which the various advances/interest payments made to Mehta Group of companies relate. The amount of advances/interest has not been claimed as expenditure in the return of income of assessee and the aforesaid sums not being assessable as business income at the hands of assessee, hence no charge of concealment or furnishing inaccurate particulars of income can be held against assessee. The AO has not disputed the source of giving advance and interest payment made to Mehta Group of companies. The advances as well as interest payment to Mehta Group of companies are through proper banking channel and are duly recorded in regular books of account of the said company much prior to the date of search. The assessee has also made due compliance of deduction of tax at source in respect of interest payments made by assessee-company and also in respect of advances for construction activity of the project. The transactions having been duly disclosed, could not be said to have been hidden by assessees from the Revenue authorities. The transaction of assessee with Mehta Group has no bearing on the taxable income of various years under consideration. It is on account of assessee's non-reconciliation of accounts with Mehta Group the assessee, in order to buy peace of mind and avoid vexed litigation had agreed to revise the value of CWIP in the case of assessee. It has also been the case of AO that assessee has claimed higher loss which stands reduced as a result of assessment. Perusal of assessment orders/penalty orders indicates that CWIP is revised on the basis of offer of the assessee alone and does not refer to any specific seized document. In view of above there is no case for levy of penalty under s. 271(1)(c) of IT Act, 1961. It is also evident from record that amount offered to reduce the value of CWIP was made by the assessee much before the questionnaire issued to assessee and was voluntary. This is evident from the letter dt. 23rd April, 2007 of the assessee to the AO. The perusal of the assessment orders would indicate that income returned and income assessed are same. It is also seen that the reduction of the value of CWIP by the appellant-company has no bearing on the computation of income or loss for the year under consideration inasmuch as the value of CWIP was not at all taken into consideration for computing the income/loss during the year under consideration, On above factual admitted position, no penalty under s. 271(1)(c) of IT Act, 1961 is exigible. In the case of assessee the AO has not established that assessee has concealed income or furnished inaccurate particulars of income in respect of income or loss to be computed for the previous years under consideration. In view of above there is no case for imposition of penalty under s. 271(1)(c) of the Act in the case of assessee. The perusal of orders imposing penalty and assessment orders for all the years clearly indicates that it is a mere offer of assessee to reduce the value of CWIP, which is accepted by the AO. The reduction in CWIP was made in order to buy peace and avoid vexed litigation.
22. The appellant has submitted various case law in his support. The ratio of these citations supports the case of the appellant. In a given case and on consideration of facts and circumstances of the case the penalty may or may not be exigible. In this regard reliance is placed on the ratio of the decision of the Hon'ble Apex Court in the case of Hindustan Steel Ltd. v. State of Orissa (1972) 83 ITR 26 (SC).It was held in CIT v. Shyamlal M. Soni (2005) 276 ITR 156 (MP) that where the disclosure was made to buy peace of mind and to co-operate with the Department and to avoid litigation, no penalty under s. 271(1)(c) of the Act could be levied in case where income returned in the revised return is accepted and assessed in the hands of the assessee, even though revised returns were filed after search and subsequent inquiries made by the Department during the course of assessment proceedings. In the case of CIT v. Suresh Chandra Mittal (2000) 158 CTR (MP) 26/241 ITR 124 (MP)the assessee's returns were originally filed showing meager income. Later on in pursuance of notice under s. 148 of the Act revised returns were filed showing higher income to purchase peace of mind and to avoid litigation. The revised returns were accepted and regularized. On initiation of penalty proceedings and the levy of penalty under s. 271(1)(c) of the Act the Hon'ble Tribunal held that no penalty could be levied. The Hon'ble High Court held that once the revised return was regularized and accepted without any objection, the declaration of income made by the assessee to buy peace and avoid litigation has to be treated as bona fide and the Hon'ble Tribunal was justified in cancelling penalty. The Hon'ble Supreme Court in an appeal against the said order in CIT v. Suresh Chandra Mittal (2001) 170 CTR 182/251 ITR 9held that the assessee had originally filed showing meager income. When after action under s. 132 of IT Act, 1961 a notice under s. 148 of the Act was served on the assessee. he filed revised return showing higher income. Eventually assessment orders were passed and returns submitted under s. 148 of the Act were regularized, in penalty proceedings under s. 271(1)(c) of the Act the assessee claimed that he had offered additional income to buy peace of mind and avoid litigation. Penalty orders were passed and CIT(A) confirmed them. The Hon'ble Tribunal held that the penalty orders had rested simply on the act of voluntary surrender alone by the assessee in good faith and hence no penalty could be levied. The Hon'ble High Court agreed with the Tribunal. The Hon'ble Supreme Court concurred with the view of Hon'ble High Court and Tribunal.
24. Thus, in the facts and circumstances of the present cases it is seen that the reduction in CWTP is offered to buy peace of mind and to avoid vexed litigation. The income as shown in the returns is accepted by the AO without any objection and any variations as are evident from the assessment orders of the AO. The ratio laid down by the Hon'ble Apex Court in the case of CIT v. Suresh Chandra Mittal (supra) fully supports the case of the assessee.
23. Thus, considering the totality of facts and circumstances of the case and considering the ratio laid down by various Courts, I am of the considered opinion that no penalty is exigible under s. 271(1)(c) of the Act for asst. yrs. 2001-02 to 2006-07 and hence, the AO is not justified in levying penalties in this case. Accordingly the penalties levied for asst. yrs. 2001-02 to 2006-07 by the AO are hereby cancelled."
6. The learned Departmental Representative vehemently contended that CIT(A) was not correct in law in deleting the penalty in each of the assessment years. This is a clear-cut case where the assessee has furnished inaccurate particulars of income in respect of the capital work-in-progress. The surrender of the capital work-in-progress by the assessee itself proves that the assessee at the time of filing of the original return has not filed the accurate particulars of income. The assessee surrendered the capital work-in-progress only when there has been search in the Mehta Group of the companies. Mehta Group of companies have not only executed the capital work for installation of the plant and civil construction for the company but it also invested in the shares and provided the inter-corporate deposits to the assessee. Had there been no search, the assessee would have not come forward for the surrender of the capital work-in-progress. The reliance was placed on the decision of Hon'ble Supreme Court in the case of Union of India v. Dharmendra Textile Processors [2008] 306 ITR 277/174 Taxman 571 for the proposition of law that mens rea is not an essential ingredient for the levy of the penalty under s. 271(1)(c). It is a civil liability. The AO need not to prove intention of the assessee and the AO has no discretion except to levy the penalty wherever the assessee has committed the default. Reliance was also placed on the decision of the Supreme Court in the case of K.P. Madhusudan v. CIT [2001] 251 ITR 99/118 Taxman 324.
7. The learned Authorised Representative, on the other hand, relied on the order of C1T(A) and contended that the CIT(A) has rightly deleted the penalty ft was contended that the AO, while initiating the penalty, was not satisfied for which default he is initiating the proceedings for me levy of the penalty. Furnishing of the inaccurate particulars and concealment of income, both are the different defaults. Expln. 1 is applicable only in respect of me concealment of particulars of the income and not for furnishing the inaccurate particulars of income. During the year in which the capita.' work-in-progress has been surrendered, there is no impact on the income of the assessee as it is only the capital work-in-progress which got reduced. Ultimately there is no difference in the income returned and income assessed. Reliance was placed on the decision of Hon'ble Delhi High Court in the case of Ms. Madhushree Gupta v. Union of India [2009] 183 Taxman 100/317 ITR 107 for the proposition of the law that even after insertion of s. 271 (1B), the AO has to arrive at a piima faciesatisfaction during the course of proceedings with regard to assessee having concealed the particulars of income or submitted inaccurate particulars of income. No such satisfaction has been arrived at for initiating the proceedings under s. 271(1)(c) of the Act. Even otherwise also, it is a case where no seized material is available with the AO. The assessee voluntarily filed the reply on 23rd April, 2007 that some of the items clubbed under the capital work-in-progress may not be fully explained to the satisfaction of the AO. The capital work-in-progress appears on higher side considering the seized material found from the Mehta Group of companies. No material proving the undisclosed income was found in the case of the assessee. The assessee accordingly reduced the capital work-in-progress just to buy peace. Even no material found in the case of Mehta Group is brought on record. No proceeding under S.153C was initiated. The source of expenditure being incurred on the capital work-in-progress is not disputed by the AO. The revision/surrender of the portion of the capital work-in-progress does not mean that the amount of the capital work-in-progress submitted earlier was false. The portion of the advance paid to Mehta Group might have been reduced in capital work-in-progress. The assessee has not concealed any income nor has furnished any inaccurate particulars of the income. The assessments for the asst. yrs. 2001-02 to 2006-07 were completed by the AO vide order dt. 31stDec 2008 resulting in nil demand thereby accepting the returned income. This proves that there is neither any concealment nor furnishing of inaccurate particulars of income. No satisfaction has been recorded. Reliance was placed on the decision of Hon'ble Kerala High Court in the case of CIT v. N. George & Bros. [1986] 160 ITR 511/[1987] 30 Taxman 368 for the proposition of law that though the return did not show certain" items of income, but there was simultaneous disclosure by the assessee, then in such a case it would be incorrect to levy penalty. Reliance was also placed on the decision of Hon'ble Supreme Court in the case of Dilip N. Shroff v. Jt. CIT [2007] 291 ITR 519/161 Taxman 218 the penalty under s. 271(1)(c) is not automatic and the factors enumerated in cls. (A) and (B) of Expln. 1 have to be satisfied. Referring to the decision of Dharmendra Textile Processors (supra), it was pointed out that this decision nowhere states that the penalty is automatic. In this regard attention was drawn towards the decision of Tribunal, Pune Bench in the case of Kanbay Software India (P.) Ltd. v. Dy. CIT [2009] 31 SOT 153 and that of CIT v. Reliance Petroproducts (P.) Ltd. [2010] 322 ITR 158/189 Taxman 322 (SC).Explanation 5 was not applicable in the case of the assessee as no assets were found in the case of the assessee. Even that was not the case of the AO. The assessee was not entitled to claim any depreciation of capital work-in-progress in asst. yrs. 2001-02 to 2005-06. Upon capitalization of capital work-in-progress, the assessee claimed depreciation for the first time in asst. yr. 2006-07. There was reduction on the depreciation claimed for the asst. yr. 2006-07, therefore, the assessee filed return in the asst. yr. 2006-07 only although the figures of the surrender were rightly furnished for all the years. The returned income for the asst. yrs. 2001-02 to 2005-06 was not affected even after considering the surrender. Hence in the opinion of the assessee, filing of the return revising the income as originally filed was not warranted for asst. yrs. 2001-02 to 2005-06. Alternatively, by referring to Expln. 4 r/w s. 271(1)(c), it was pointed out that the penalty has been levied on the amount of tax sought to be evaded by reason of concealment of particulars of income or furnishing of inaccurate particulars of the income. Expln. 4 defines the tax sought to be evaded. Neither cl. (A), (B) or (C) of this Explanation is applicable in the case of the assessee. The surrender made by the assessee in reducing the capital work-in-progress in the asst. yrs. 2001-02 to 2005-06 does not reduce the loss declared in the return or convert that loss into income. The loss or income assessed in each of the assessment years, remains the same. Thus, there is no tax which remains evaded and, therefore, there cannot be any penalty on this basis also.
8. We have carefully considered the rival submissions and perused the material available on record along with various case law brought to our knowledge and even cited during the course of hearing at the Bar. It has been a matter of dispute as to whether the AO is required to record his satisfaction before initiating the penalty proceedings under s. 271 of the Act. To settle this issue, the Legislature has inserted sub-s. (1B) in s. 271 by Finance Act, 2008 w.e.f. 1st April, 1989 which is reproduced as under :
"Where any amount is added or disallowed in computing the total income or loss of an assessee in any order of assessment or reassessment and the said order contains a direction for initiation of penalty proceedings under cl. (c) of sub-s. (1), such an order of assessment or reassessment shall be deemed to constitute satisfaction of the AO for initiation of the penalty proceedings under the said cl. (c)."
9. This provision creates a legal fiction by which satisfaction of the AO is deemed to have been recorded in case where an addition or disallowance is made by the AO and a direction for initiation of the penalty proceedings is issued. The said provision is made effective retrospectively w.e.f. 1st April, 1989. Fiction is created for a definite purpose and it is limited to the purpose for which it is created and cannot extend beyond its legitimate field. The legal fiction has to be interpreted strictly as it is intended to enlarge the meaning of a particular word or to include materials which otherwise may or may not fall within the main provision. If we interpret s. 271(1B), it is apparent that a direction for initiation of the penalty proceedings in the order shall be deemed to constitute satisfaction of the AO for initiation of the penalty proceedings under s. 271(1)(c) if any amount is added or disallowed in computing the total income or loss of an assessee in any order of assessment or reassessment. Satisfaction for concealment of the particulars of income or furnishing of inaccurate particulars of income has to be made out in the course of any proceedings under this Act if we look to the main provision of s. 271(1)(c). The satisfaction so made out has a relevancy to the assessment year. Sec. 271(1 B) is an exception for recording of the satisfaction. If the provision of s. 271 (1B) is applicable, recording of the satisfaction during the course of assessment proceeding is not necessary, (in the case of the assessee, we noted that there is a direction that the penalty proceeding under s. 271(l)(c) is separately initiated. Now the question arises whether this direction will tantamount to be the satisfaction recorded by the AO for [the concealment of the particulars of income or furnishing of [inaccurate particulars of income. This is undisputed fact that in the case of the assessee the assessments have been framed by the AO at [the same income or loss at which the assessee has filed the return in 'pursuance to the notice issued under s. 153A. The AO has not made any addition or disallowance while computing the total income or loss of the assessee. In our opinion, s. 271 (1B) will not apply in the case of the assessee and the AO is bound to record the satisfaction for the concealment of the particulars of income or furnishing of inaccurate particulars of income. We have gone through the assessment order for each of the assessment year and we find that in the assessment order, anything which may designate that the AO has satisfied during the course of assessment proceedings that the assessee has concealed the particulars of income or furnished the inaccurate particulars of income. This is a fact that both the charges are different charges and if the penalty has been initiated in respect of one charge, it cannot be levied for the other charge. We are of the firm view that since s. 271(1B) is not applicable in the case of the assessee, then the Revenue has to show that the satisfaction of the AO to the fact that the assessee has either concealed the particulars of income or furnished inaccurate particulars of income. This is the condition precedent for initiating the penalty. Until and unless the satisfaction is arrived at in the course of any proceedings under the Act, the penalty cannot be levied. This view was taken by Hon'ble Supreme Court in the case of CIT v. S. V. Angidi Chettiar [1962] 44 ITR 739 while construing the provision of s. 28(1)(c) of the IT Act, 1922 and reiterated in the case of D.M. Manasvi v. CIT [1972] 86 ITR 557. While constituting (sic- construing) the provision of s. 271(1)(c) of the IT Act, Full Bench of Hon'ble Punjab & Haryana High Court in the case of CIT v. Mohinder Lal [1987] 31 Taxman 450/168 ITR 101, held that it is the satisfaction of the ITO in the course of assessment proceedings regarding the concealment of income which constitutes the basis for levy of penalty. Subsequently, a question arises as to whether such satisfaction must be recorded in the assessment order. Divergent views had been expressed by the High Courts. It has been held in the following cases that recording of the satisfaction by the A.O in the assessment order is sine qua non for initiating penalty proceedings under the above section. Mere observation "penalty proceedings are being initiated separately" is not enough.
| (1) | CIT v. Ram Commercial Enterprises Ltd. [2002] 122 Taxman 620 (Delhi) | |
| (2) | Diwan Enterprises v. CIT [2000] 246 ITR 571 (Delhi) | |
| (3) | CIT v. Vikas Promoters (P.) Ltd. [2005] 277 ITR 337/145 Taxman 300 (Delhi) | |
| (4) | CIT v. Super Metal Re-rollers [2004] 135 Taxman 407 (Delhi) | |
| (5) | Shri Bhagwant Finance Co. Ltd. v. CIT [2005] 147 Taxman 53 (Delhi) | |
| (6) | CIT v. Rajan & Co. [2007] 291 ITR 340/[2005] 146 Taxman 271 (Delhi) | |
| (7) | CIT v. Munish Iron Store [2003] 263 ITR 484/[2004] 137 Taxman 391 (Punj. & Har.) | |
| (8) | CIT v. Dajibhai Kanjibhai [1991] 189 ITR 41/57 Taxman 16 (Bom.) | |
| (9) | CIT v. Rampur Engg. Co. Ltd. [2009] 176 Taxman 211 (Delhi) | |
| (10) | V. V. Projects and Investments (P.) Ltd. v. Dy. CIT [2008] 300 ITR 40/171 Taxman 62 (AP) |
10. Thus, the jurisdictional High Court has also taken the similar view in the case of Dajibhai Kanjibhai (supra) relying on the decision of Hon'ble Supreme Court in the case of S. V. Angidi Chettiar (supra) as under:
"The power to impose penalty under s. 271(1)(c) of the IT Act, 2 961, depends upon the satisfaction of the ITO in the course of the assessment proceedings under the Act. It cannot be exercised if he is not satisfied and has not recorded his satisfaction about the existence of the conditions specified in cls. (a), (b) and (c) of s. 271(1) before the assessment proceedings are concluded."
10.1 The Hon'ble Andhra Pradesh High Court in the case of Chennakesava Pharmaceuticals v. CIT [2013] 214 Taxman 141 (Mag.)/30 taxmann.com 385 observed as under :
"In CIT v. Rampur Engineering Co. Ltd. (2008) 16 DTR-(Del)(FB) 281 (2009) 221 CTR (Del)(FB) 32 : (2009) 309 ITR 143 (Del)(FB), a Full Bench of the Delhi High Court considered the correctness of the decision of the Delhi High Court in CIT v. Ram Commercial Enterprises Ltd. (2001) 167 CTR (Del) 321 : (2000) 246 ITR 568 (Del)and after considering the decision in DM. Manasvi v. CIT 1972 CTR (SC) 437 : (1972) 86 ITR 557 (SC), held as follows (p. 148) :
'In our opinion, the legal position is well-settled in view of the Supreme Court decisions in CIT & Anr. v. S.V. Angidi Chettiar (1962) 44 ITR 739 (SC)and DM. Manasvi v. CIT 1972 CTR (SC) 437 : (1972) 86 ITR 557 (SC),that power to impose penalty under s. 271 of the Act depends upon the satisfaction of the ITO in the course of the proceedings under the Act. It cannot be exercised if he is not satisfied and has not recorded his satisfaction about the existence of the conditions specified in cls. (a), (b) and (c) before the proceedings are concluded. It is true that mere absence of the words 'I am satisfied' may not be fatal but, such a satisfaction must be spelt out from the order of the. assessing authority as to the concealment of income or deliberately furnishing inaccurate particulars. In the absence of a clear finding as to the concealment of income or deliberately furnishing inaccurate particulars, the initiation of penalty proceedings will be without .jurisdiction. In our opinion, the law is correctly laid down in CIT vs. Ram Commercial Enterprises Ltd.(2001) 167 CTR (Del) 321 : (2000) 246 ITR 568 (Del)and we are in respectful agreement with the same. The reference is answered accordingly.'
In V.V. Projects & Investments (P) Ltd. v. Dy. CIT (2008) 216 CTR (AP) 196 : (2008) 6 DTR (AP) 265 : (2008) 300 ITR 40 (AP),a Division Bench of this Court considered the decisions in DM. Manasvi v. CIT 1972 CTR (SC) 437 : (1972) 86 ITR 557 (SC). CIT v.Munish Iron Store (2004) 186 CTR (P&H) 159 : (2003) 263 ITR 484 (P&H), CIT v. Vikas Promoters (P) Ltd. (2005) 194 CTR (Del) 384 : (2005) 277 ITR 337 (Del)and CIT v. Ram Commercial Enterprises Ltd. (2001) 167 CTR (Del) 321 : (2000) 246 ITR 568 (Del)and held :
"From the legal position noticed above, it is clear that the AO has to form his own opinion and record his satisfaction of concealment of income or furnishing of inaccurate particulars of income before initiating penalty proceedings under s. 271(1)(c) of the Act. It is also clear that such satisfaction of the AO must be spelt out in the order of assessment itself but cannot be assumed from the issue of notice under s. 271(1)(c) of the Act. Failure to record such satisfaction amounts to a jurisdictional defect which cannot be cured. It is also relevant to note that whether the assessee has concealed his income or has deliberately furnished inaccurate particulars thereof is essentially a finding of fact which has to be spelt out by way of recording the satisfaction of the AO as required under s. 271(1) of the Act. Therefore, in the absence of such a finding in the assessment order no penalty proceedings can be initiated.'
It rejected the contention of the Revenue that the penalty proceedings are independent and it is sufficient if the satisfaction is recorded in the order levying penalty. It also referred to Dilip N. Shroff v. Jt. CIT (2007) 210 CTR (SC) 228 : (2007) 291 ITR 519 (SC)and noted that the Supreme Court in that case had held that the order imposing penalty under s. 271(1)(c) being penal in nature, the rule of strict construction shall apply."
11. In Dilip N. Shroffs case (supra), the Supreme Court approved the judgment in Ram Commercial Enterprises Ltd.'s case (supra) and also held that s. 271(1)(c) being a penal provision must be strictly construed and that mens rea is necessary ingredient for penalty under s. 271(1)(c) of the Act. But, in Dharmendra Textile Processors (supra), the Supreme Court held that the penalty under s. 271(1)(c) is a civil liability and "wilful" concealment is not an essential ingredient for attracting civil liability. It overruled only that portion of the judgment inDilip N. Shroffs case (supra) wherein the Supreme Court had held that the mens rea was essential ingredient for imposing penalty under s. 271(1)(c) of the Act. This was pointed out in Reliance Petroproducts Pvt. Ltd.'s case (supra).
In Reliance Petroproducts (P) Ltd.'s case (supra), the Supreme Court also held that imposition of penalty is unwarranted when there is no finding in the assessment order that details supplied by the assessee were found to be false. This indicates that the view taken by the Delhi High Court in Ram Commercial Enterprises Ltd.'scase (supra) which has been approved in Dilip N. Shroffs case (supra) continues to be valid and this part of the judgment in Dilip N. Shroffs's case (supra) has not been overruled and continues to be good law. Moreover, the decision of the Delhi High Court in Ram Commercial Enterprises (supra) was also followed by the same High Court in CIT v. M. K. Sharma [2008] 307 ITR 147 (Delhi) and SLP(C) No. 17591 of 2008 filed against the said decision was dismissed by the Supreme Court on 18th July, [2008 (see (2008) 306 ITR (St) 2].
12. Moreover, the decision in Ram Commercial Enterprises (supra) was approved by the Full Bench of the Delhi High Court in Rampar Engineering Co., Ltd.'s case (supra). Even in Reliance Petroproducts (supra) (the undersigned was the author of the judgment before Tribunal) the Supreme Court had held that imposition of penalty is unwarranted when there is no finding in the assessment order that detail supplied by the assessee were found to be false. Even Honble Supreme Court in the case CIT v. Atul Mohan Bindal [2009] 183 Taxman 444 has held that the conditions as stated under s. 271(1)(c) must exist for "imposing the penalty under s. 271(1)(c). In view of this and the decision of the jurisdictional High Court in the case of Dajibhai Kanjibhai (supra), the recording of the satisfaction by the AO during the course of assessment proceedings, i.e. in the assessment order is the foundation and backbone of initiating the penalty proceedings under s. 271(1)(c). To overrule these decisions, s. 271 (1B) was inserted by the Finance Act 2008, but we have already held in the preceding paras that this section is not applicable on the facts and circumstances of the case.
13. Applying the above principle and the fact that the provision of s. 271 (1B) is not applicable in the case of the assessee, the AO in this case should have recorded his satisfaction in the assessment order that the assessee had either concealed the income or furnished the inaccurate particulars of the income in his return before proceeding further. We notice that in each of the assessment years, the AO, in the assessment order passed under s. 143(3) r/w s. 153A, has not recorded any satisfaction but has simply mentioned that the penalty proceeding under s. 271(1)(c) has been initiated separately (English translation). Nowhere the AO noted in the assessment order his satisfaction that there was furnishing of inaccurate particulars of income by the assessee and that there is case made out for initiating proceedings under s. 271(1)(c) of the Act. Therefore, we are of the view that initiation of proceedings under s. 271(1)(c), against the assessee for asst. yrs. 2001-02 to 2006-07 is not valid in law. Accordingly, on this basis itself, we dismiss the ground taken by the Revenue.
14. Even Constitutional validity of s. 271(1B) provision was challenged before Hon'ble Delhi High Court in the case of Ms. Madhushree Gupta (supra). The scope of the amendment was explained at p. 146 as under :
"In our opinion, the impugned provision only provides that an order initiating penalty cannot be declared bad in law because it states that the penalty proceedings are initiated, if otherwise it is discernible from record that the AO has arrived at prima facie satisfaction for initiation of penalty proceedings. The issue is of discernibility of the 'satisfaction' arrived at by the AO during the course of proceeding before him."
"The presence of prima facie satisfaction for initiation of penalty / proceedings was and remains a jurisdictional fact which cannot be (wished away as the provision stands even today, i.e. post amendment." (p. 147)
"If there is no material to initiate penalty proceedings; an assessee will be entitled to recourse to a Court of law." (p. 147).
15. In view of the above judgment, it is clear that the satisfaction of the authority is still a condition precedent, which must be discernible from the order and such satisfaction must be based on some material on record. In this case, we noted that the AO even though completed the assessment in each of the assessment years at the income as has been returned by the assessee. Even no demand, whatsoever, has been created. The returned income as well as the assessed income in each of the assessment year, are given as under :
| Asst. yr. | Returned income | Assessed income |
| 2001-02 | Nil | Nil |
| 2002-03 | (-) 2,81,545 | (-) 2,81,545 |
| 2003-04 | (-) 2,65,464 | (-) 2,65,464 |
| 2004-05 | (-) 83,122 | (-) 83,122 |
| | 1,02,848 (u/s. 115JB) | 1,02,848 |
| 2005-06 | (-) 2,13,036 | (-)2,13,036 |
16. Even though the assessee has surrendered the amount of capital work-in-progress but it did not have any impact on the income of the assessee so far it relates to asst. yrs. 2001-02 to 2005-06. The AO observed, while framing the assessment, that penalty proceeding under s. 271(1)(c) is separately initiated but it does not show how it affects the concealment of the particulars of income of the assessee or furnishing of the inaccurate particulars of the income. In fact, neither the returned income nor the assessed income is being affected by the reduction of the amount of the capital work-in-progress as surrendered by the assessee. Concealment of particulars of income or furnishing of inaccurate particulars of such income, both are the different charges. The preamble of s. 27l(1)(c) clearly states that if the AO, in the course of any proceedings under this Act, is not (sic) satisfied that any person has concealed the particulars of the income or furnished inaccurate particulars of such income, the satisfaction, therefore, in our opinion, must be related either with the concealment of the particulars of income of the assessee or furnishing of inaccurate particulars of such income. Direction for initiation of the penalty proceedings under cl. (c) of sub-s. (1) for constituting the satisfaction of the AO for initiation of the penalty-must be related with either of the charges i.e. the concealment of particulars of income or furnishing of inaccurate particulars of such income. The AO, no doubt, states that the penalty proceeding under s. 271(1)(c) is separately initiated but does not state for what default, whether for the concealment of particulars of income or for furnishing of inaccurate particulars of income is being initiated. Even Hon'ble Supreme Court in Varkey Chacko v. CIT[1993] 203 ITR 885/70 Taxman 152 has held that a penalty for concealment of particulars of income or for furnishing inaccurate particulars of income can be imposed only when the assessing authority is satisfied that there has been such concealment or furnishing of inaccurate particulars. A penalty proceeding, therefore, can be initiated only after an assessment order has been made which finds such concealment or furnishing of inaccurate particulars. Therefore, in our opinion, the penalty proceedings on this basis also are bound to be quashed.
17. Now coining to another argument, we noted that in this case the AO ultimately levied the penalty under s. 271(1)(c) of the Act for furnishing the false particulars in the return by the assessee. Sec. 271(1)(c) stipulates that penalty proceedings can be initiated on two charges : (i) concealment of particulars of income and (ii) furnishing of Inaccurate particulars of income. This is settled law in view of the decision of CIT v. Lakhdhir Lalji [1972] 85 ITR 77 (Guj.)that if the penalty proceedings are initiated on charge of concealment then penalty would be levied on the charge of furnishing of inaccurate particulars of income and vice versa. In this case, as pointed out in earlier para, the AO initiated the penalty proceedings by mentioning in the notice as under :
"Whereas in the course of proceedings before me for the asst. yr. 2001 02, it appears that you have concealed the particulars of your income or furnished inaccurate particulars of such income."
18. Thus even the notice did not specify any specific charge for which the penalty has been initiated and ultimately the AO levied the penalty on the assessee for giving false information in the IT return neither for concealment of particulars of income nor for furnishing inaccurate particulars of income. In our opinion, it is incumbent on the AO to mention whether the penalty is levied for concealment of income or for furnishing of inaccurate particulars of income. In the absence of specific charge, the order would be bad in law. Sec. 271(1)(c) does not talk of levy of the penalty for giving false information in the return. The AO levied penalty entirely for a different charge. Our view that there must be specific charge is duly supported by the decisions of Hon'ble Gujarat High Court in the cases of CIT v. Manu Engg. Works [1980] 122 ITR 306, New Sorathia Engg. Co. v. CIT [2006] 282 ITR 642/155 Taxman 513, Padma Ram Bharali v. CIT [1977] 110 ITR 54 (Guj.) on this basis itself the orders were held to be bad in law. Gujrat High Court in the case of New Sorathia Engineering Co. Ltd. (supra) held as under:
"It is incumbent upon the AO to state whether the penalty was being levied for concealment of particulars of income by the assessee or whether any inaccurate particulars of income had been furnished by the assessee……………………..
Held, that the penalty order and the order of the CIT(A) showed that no clear-cut finding had been reached. The Tribunal had failed to appreciate this legal issue. The ratio in CIT v.Manu Engg. Works (1979) 8 CTR 141 / (1980) 122 ITR 306 (Guj) was applicable and the order of penalty could not be upheld by the Tribunal. The order was invalid."
19. Both the charges are entirely different. The word 'conceal' as per Webster Dictionary means : 'to hide, withdraw or to remove from observation, cover or keep from sight, to keep secret, to avoid disclosing or divulging'. That means particulars of income. On the other hand, where the particulars are disclosed but said disclosure is not correct, true or accurate, any good amount in furnishing of inaccurate particulars of income. Thrust of the Legislature is upon the particulars of income. In the case of Kanbay Software India (P) Ltd. (supra), it was held that the expression 'particular' refers to facts, details or the information about someone or something. Thus, the details or information about the income will deal with actual details of income and cannot be extended to areas which are subjective, such as status of taxability of income, admissibility of deduction and interpretation of the law. Hon'ble Supreme Court accordingly in the case of Reliance Petroproducts (P.) Ltd. (supra) (the undersigned was the author of this judgment before the-Tribunal) held that merely rejection of a legal claim would not amount to furnishing of inaccurate particulars of income. Hon'ble Supreme Court upheld the view of the Tribunal by holding that 'mere making of the claim, which is not sustainable in law, by itself will not amount to furnishing of inaccurate claim or furnishing of inaccurate particulars regarding the income of the assessee'. Expln. 1 to s. 271(1)(c) cannot be applied where charge against the assessee is in furnishing of inaccurate particulars of income since it provides deeming fiction qua concealment of the particulars of income only and cannot be extended to a case where charge on the assessee is furnishing of inaccurate particulars of income. This is not the case of the Revenue that the assessee has concealed the particulars of income, therefore, no question of applicability of Expln. 1 arises. The charge in the penalty order against the assessee is for furnishing the false particulars. In the case of furnishing of the inaccurate particulars of income, in our opinion, since the deeming provision given under Expln. 1 is not applicable, the onus is on the Revenue to prove that the assessee has filed the false particulars of income in the return filed. In the return filed in response to notice issued under s. 153A, this is a fact there is no filing of inaccurate particulars and no addition/disallowance has been made by the AO while making assessment under s. 143(3) r/w s. 153A. Even otherwise, in the case of the assessee, we noted that the assessee has surrendered the investment made in capital work-in-progress. Source of the investment is not disputed by the Revenue, ft is not the case of the Revenue that the assessee was nothaving the sufficient income to invest in the capital work-in-progress or investment shown in capital work-in-progress is made out of undisclosed income. Once source of the investment is not disputed and the assessee has sufficient source to invest in capital work-in-progress, it cannot be said that the assessee was having undisclosed income, which has been invested by the assessee and thereby the assessee has concealed the particulars of income or filed the inaccurate particulars of income. Income is different from investment. Income precedes the investment, not the investment precedes the income. It may be a case of furnishing of the inaccurate particulars of investment but not furnishing of inaccurate particulars of the income. Merely the assessee has surrendered the part of the investment in capital work-in-progress, it will not convert surrender of such investment into an income. During the asst. yrs. 2001-02 to 2005-06, this is a fact that the assessee has not claimed any depreciation as it is only the capital work-in-progress, which was in existence and the capital work-in-progress was not transferred to the respective assets, which are entitled to depreciation. On this basis itself also, we are of the firm view that nopenalty can be imposed on the assessee under s. 271(1)(c) of the Act.
20. Even we noted that in this case, no penalty can be quantified under s. 271(l)(c) even if it is held that the assessee has committed the default liable to penalty under s. 271(1)(c). We have gone through the provisions of s. 271(1)(c) of the Act, which state that if the AO, in the course of any proceedings under this Act, is satisfied that any person has concealed the particulars of his income or furnished inaccurate particulars of such income, he may direct such person to pay penalty but how the penalty is to be quantified, has been provided under s. 271(1)(iii) of the Act, which reads as under :
"(iii) in the cases referred to in cl. (c) or cl. (d), in addition to tax, if any, payable by him, a sum which shall not be less than, but which shall not exceed three times, the amount of tax sought to be evaded by reason of the concealment of particulars of his income or fringe benefits or the furnishing of inaccurate particulars of such income or fringe benefits."
21. This clause provides that in addition to the tax payable, penalty shall be leviable under cl. (c) not less than but shall not exceed three times the amount of tax sought to be evaded by reason of concealment of particulars of income or furnishing of inaccurate particulars of income. Expln. 4 defines the expression 'the amount of tax sought to be evaded'. It contains three clauses, which are applicable in different situations. These clauses are reproduced as under :
| "(a) | in any case where the amount of income in respect of which particulars have been concealed or inaccurate particulars have been furnished has the effect of reducing the loss declared in the return or converting that loss into income, means the tax that would have been chargeable on the income in respect of which particulars have been concealed or inaccurate particulars have been furnished had such income been the total income; | |
| (b) | in any case to which Expln. 3 applies, means the tax on the total income assessed (as reduced by the amount of advance tax, tax deducted at source, tax collected at source and self-assessment tax paid before the issue of notice under s. 148); | |
| (c) | in any other case, means the difference between the tax on the total income assessed and the tax that would have been chargeable had such total income been reduced by the amount of income in respect of which particulars have been concealed or inaccurate particulars have been furnished." |
22. Clause (a) is applicable to a case where the returned figure is loss. This clause states two situations : (i) where the effect of amount of the income in respect of which particulars have been concealed or incorrect particulars have been furnished, effect of such amount is reducing the loss declared in the return or the second situation is that such amount converts the loss into income. The tax sought to be evaded shall mean the tax that could have been chargeable on the income in respect of which particulars have been concealed or inaccurate particulars have been furnished. In the case of the assessee, the assessee has disclosed loss in the return filed for the asst. yrs. 2002-03 to 2006-07. The AO has accepted the said loss in the assessment framed by him. The loss declared in the return has not been reduced or loss has not been converted into income due to the investment made in the capital work-in-progress surrendered by the assessee. In view of Expln. 4(a) in our opinion, the tax sought to be evaded will be nil and both situations in cl. (a) will not apply in the case of the assessee. Clause (b) of this Explanation applied to a case where Expln. 3 applies. Clause (c), in our opinion, is the residuary clause. In such case, it would be main difference between the tax on total income assessed and the tax on total income reduced by the amount in respect of which penalty is sought to be levied. The case of the assessee, at the most for all the assessment years can fall under cl. (c) but on the basis of this clause, the tax sought to be evaded, in each of the assessment year, will be nil because the difference between the tax on total income assessed and tax on total income reduced by the amount in respect of which the AO tried to impose the penalty is nil. Therefore, even if we agree with the Revenue that the assessee has furnished the inaccurate particulars of income to the extent he surrendered the investment in the capital work-in-progress since the tax sought to be evaded will be nil, the assessee had not to pay any amount by way of penalty as per s. 271(1)(iii) r/w Expln. 4 of the IT Act. On this basis also, we are of the firm view that the penalty is liable to be deleted.
23. Now the question arises whether AO can impose the penalty under s. 271(1)(c) in a case where the assessee has submitted the return under s. 153A showing a particular income and the assessment has been framed by the AO on the same income as returned without any variation. The preamble of s. 271(1) states that if the AO, in the course of any proceeding under this Act, is satisfied that any person has concealed the particulars of income or furnished inaccurate particulars of such income, he may direct such person to pay the penalty. The concealment of the particulars of income or furnishing of particulars of inaccurate income is always with reference to the return filed by the assessee. Sec. 153A was inserted into statute w.e.f. 1st June, 2003 by the Finance Act, 2003 which reads as under :
"153A.Notwithstanding anything contained in s. 139, s. 147, s. 148, s. 149, s. 151 and s. 153, (in the case of a person where a search is initiated under s. 132 or books of account, other documents or any assets are requisitioned under s. 132A after the 31st May, 2003, the AO shall-
| (a) | issue notice to such person requiring him to furnish within such period, as may be specified in the notice, the return of income in respect of each assessment year falling within six assessment years referred to in cl. (b), in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be prescribed and the provisions of this Act shall, so far as may be, apply accordingly as if such return required to be furnished under s. 139; | |
| (b) | assess or reassess the total income of six assessment years immediately preceding the assessment year relevant to the previous year in which such search is conducted or requisition is made : |
Provided that the AO shall assess or reassess the total income in respect of each assessment year falling within such six assessment years :
Provided further that assessment or reassessment, if any, relating to any assessment year falling within the period of six assessment years referred to in this section pending on the date of initiation of the search under s. 132 or making of requisition under s. 132A, as the case may be, shall abate.
Explanation : For the removal of doubts, it is hereby declared that,-
| (i) | save as otherwise provided in this s. 153B and s. 153C, all other provisions of this Act shall apply to the assessment made under this section: | |
| (ii) | in an assessment or reassessment made in respect of an assessment year under this section, the tax shall be chargeable at the rate or rates as applicable to such assessment year." |
24. Sec. 153A deals with the provision of framing the assessment in the case of search or requisition. It is seen that this section starts with anon obstante clause relating to normal assessment procedure covered by ss. 139, 147, 148, 149, 151 and 153 in respect of searches made after 31st May, 2003. The sections, so excluded, relate to filing of return, assessment and reassessment proceedings. Further, s. 153A intends to assess or reassess total income of six assessment years immediately preceding the assessment year relevant to the previous year in which such search is conducted or requisition is made. Thus, the legislative intention is not to assess escaped income as in s. 147 or undisclosed income as was assessed under s. 158BC of the Act. The first proviso to s. 153A makes it clear, that notice under s. 153A will be for each such six assessment years for assessment or reassessment of total income. Second proviso to s. 153A provides that such notice will have the effect of abating all the pending assessment or reassessment proceedings, so as to avoid multiplicity of proceedings, which was a feature of block assessment. Hon'ble Allahabad High Court in the case CIT v. Shaila Agarwal [2011] 16 taxmann.com 232/[2012] 204 Taxman 276 has held that the word 'abatement' is referable to something, which is pending alive, or is subject to deduction. The abatement refers to suspension or termination of the proceedings either of the main action, or the proceedings ancillary or collateral to it. The word is commonly used in the legislations, which provide for abatement of action/suit; abatement of legacies; abatement of nuisance; and all actions for such nature, which have the pendency or continuance. The proceedings, which have already terminated are not liable for abatement unless statute expressly provides for such consequence thereof. The word pending' occurring in the second proviso to s. 153A of the Act, is also significant. It is qualified by the words "on the date of initiation of the search", and makes it abundantly clear that only such assessment or reassessment proceedings are liable to abate. The pendency of an appeal in the Tribunal against the order of assessment against which an appeal has been decided by CIT(A) is not a continuation of the proceedings of assessment.
25. Thus while s. 153A prescribes for assessment or reassessment of total income in search cases, s. 153B prescribes the time-limit for completion of assessment under s. 153A. Sec. 153C relates to the cases where books of account or documents or assets seized under s. 132 or requisition made under s. 132A belong to a person other than a person in whose case search under s. 132 or requisition under s. 132A was made. Thus provisions of ss. 153A, 153B and 153C are completed code for search assessments wherein search has been initiated after 31st May, 2003. (The existence of the words "all other provisions of this Act shall apply to the assessment made under this section" in Expln. (i) to s. 153A makes it clear that in search assessments, amongst others the provisions relating to penalty and prosecution will also be applicable. However, when normal assessment procedure covered by ss. 139, 147, 148, 149, 151 and 153 has been completely excluded by operation of non obstante clause "notwithstanding anything contained" the search assessments made under s. s. 153A of the Act cannot be treated as continuance of normal assessment proceedings whether abated or not. Thus there is complete detachment of assessment proceedings under s. 143 or 147 from search proceedings under s. 153A of the Act. When scheme of search assessment as designed by the Legislature does not prescribe to take into account the earlier assessment proceedings whether abated or not, it will not be proper or justified to refer to returned income under s. 139 for the purpose of imposition of penalty under s. 27l(l)(c) of the Act. It follows that the concealment of income has to be seen with reference to additional income brought to tax over and above returned by the assessee in response to notice issued under s. 153A of the Act. Accordingly in our considered opinion for the purpose of imposition of penalty under s. 271(1)(c) resulting as a result of search assessments made under s 153A, the original return of income filed under s. 139 cannot be considered. Further in case of search initiated after 1st June, 2003 a return of income is always filed on issue of notice under s. 153A in respect of each assessment year falling within six assessment years immediately preceding the assessment year relevant to the previous year in which the search is conducted or requisition is made in the prescribed form and verified in the prescribed manner. AO requires the assessee to set forth such other particulars as may be prescribed in these returns. This section also state* that all the provisions of this Act, as are applicable to a return to be furnished under s. 139, will apply to this return. In view of this, the AO has to frame an assessment on the basis of the return filed under s. 153A. As has been held above, the penalty under s. 271(1)(c) is imposable when there is variation in assessed and returned income. If there is no variation, there will be no concealment or furnishing of inaccurate particulars of income. When there is no concealment or furnishing of inaccurate particulars of income, question of levy of penalty under s. 271(1)(c) of the Act will not arise. This is settled position of law. In view of the decision of Hon'ble Supreme Court in the case of Brij Mohan v. CIT (supra) that the act of concealment of particulars of income or furnishing of the inaccurate particulars of income takes place when the return is filed. (The concept of voluntary return of income may be important in penalty proceedings initiated in course of normal assessment proceedings made under s. 143(3) or 147 but not under s. 153A. From above discussion it follows that where returned income filed under s. 153A is accepted by the AO, there will be no concealment of income or furnishing of inaccurate particulars of income and consequently penalty under s. 271(1)(c) cannot be imposed. Sec. 271 does not talk of for the purpose of ascertaining the default whether of concealment of income or furnishing of inaccurate particulars of income, the return filed under s. 139 or the return filed by the assessee will be considered not the return filed under s. 153A of the Act. This satisfaction for concealment of particulars of income or furnishing of inaccurate particulars of income has to come from the assessment order passed in consequence of return filed under s. 153A. The assessee in this case, in each of the assessment years, filed the return on 23rd Dec., 2008, showing nil income or loss as stated in earlier para. The returns filed by the assessee were duly accepted by the AO in each of the case and assessments under s. 143(3) r/w s. 153A were framed on the returned income. Thus, there is no variation in each of the assessment year in the returned income shown by the assessee. Prior to the filing of the returns by the assessee under s. 153A. even though the proceedings under this Act had started prior to that but the AO has not brought out any material or evidence, which may state that the assessee has furnished inaccurate particulars of income or concealed the particulars of income. In the return filed on 23rd Dec., 2008, the assessee has duly disclosed the investment in capital work-in-progress surrendered by him. Since these particulars, to which the AO treated for the purpose of levy of penalty to be false particulars were available with the AO in the return filed by the assessee under s. 153A, in our opinion, in this case it cannot be said that the assessee has furnished the false particulars. Sec. 271(1)(c) does not authorise the AC to compare the return filed under s. 139(1) and under s. 153A and compare the difference in the particulars of income In both the returns to treat such difference to be the false particulars of income. The fault has to be seen with the return filed by the assessee when an assessment under s. 143(3) r/w s. 153A is made with reference to the return filed under s. 153A and when the penalty proceeding is initiated in the order passed under s. 143(3) r/w s. 153A, this will also relate to the satisfaction of the assessee with reference to the return filed under s. 153A. Our aforesaid view is also strengthened in view of the Expln. 5 given under s. 271(1)(c) of the Act. This Explanation is applicable in the case of the search taken place before 1st June, 2007 and the assessee is found to be the owner of any money, bullion, jewellery or any other valuable, article or thing. This Explanation is not applicable in the case of the assessee as it is an undisputed fact that no money, bullion, jewellery or any other valuable, article or thing has been found in the case of the assessee. Had there been intention of the Legislature to look into the concealment of the particulars of the income or furnishing of inaccurate particulars of income with reference to the return filed under s. 139(1), the Legislature would have provided .so. On this basis also, in our opinion, no penalty can be imposed under s. 271(1)(c) of the Act as there is no variation in the income returned in response to notice under s. 153A vis-a-vis assessment passed under s. 143(3) r/w s. 271(1)(c) (sic-153A) of the Act.
26. Since the learned Departmental Representative has vehemently relied on the decision of Hon'ble Supreme Court in the caseDharamendra Textile Processors (supra) we, therefore, have to refer that "decision also. In the case of Dharmendra Textile Processors(supra), we noted that Hon'ble Supreme Court has held that the penalty under s. 271(1)(c) is civil liability (wilful concealment) and mens rea is not necessary ingredient to tax the civil liability as is the case in the matter of prosecution under s. 276 of the IT Act. It has further been held that in that ease that mens rea is not an essential ingredient for imposing the penalty. Hon'ble Supreme Court in this case nowhere held that if the addition is made, penalty is automatic and has to be imposed. This judgment has not overruled the Explanation appended to s. 271(1)(c) and does not also absolve the parties to discharge their burden to prove. We have already held that in the case of furnishing of inaccurate particulars of income, burden of proof lies on the Revenue while in the case of concealment of particulars of income, initial burden lies on the assessee in view of Expln. 1 appended to s. 271(1)(c) of the Act. Thus, the ratio laid down was confined to treating the wilful concealment is not essential for imposing penalty under s. 271(1)(c) of the Act. Where an assessee genuinely makes a claim for particular deduction or disclosing of the necessary fact relating to the same that cannot be regarded to be concealment if the assessee's claim is rejected. This is the settled law that the penalty proceedings are different from the assessment proceedings and, therefore, if any addition is made, it does not mean that the penalty will automatically be levied. The case of the assessee is even much stronger as in the case of the assessee there is no addition being made by the AO with reference to the return filed under s. 153A and prior to the filing of the return under s. 153A, the AO has not brought out any material on record which may prove that the assessee has filed the false particulars ofincome. Penalty proceeding is initiated separately with the logic that in penalty proceedings the assessee is given an opportunity to explain its case and if he successfully explains his position, the AO has to drop penalty proceeding. In this case, we noted that the AO has imposed the penalty for furnishing the false, particulars by the assessee. Sec. 271(1)(c) deals with two situations for imposing penalty; assessee has concealed the particulars of income or has furnished inaccurate particulars of such income. Expln. 1 is applicable only in case of first situation i.e. the amount added or disallowed in the total income be deemed to represent the income in respect of which the particulars have been concealed.
27. Now the question arises whether under the facts and circumstances, it can be said that the assessee has filed false particulars of income ? The assessee has shown the investment in capital work-in-progress in the return filed under s. 153A at a reduced figure as compared to the figure taken in the return filed prior to the search. Thus, returns were duly supported by the audited P&L a/c as well as the balance sheet, auditors' reports and certificate. The assessee has disclosed all the necessary particulars. The assessee subsequently revised the figures of investment in capital work-in-progress, which does not have any impact on the income assessed just to buy peace in response to notice issued under s. 153A. This fact has not been disputed by the AO. The AO has not brought out any material on record, even though there had been search in the case of the assessee on the basis of which it can be said that the assessee has furnished inaccurate particulars of its income even though the onus to prove that the assessee has furnished the false particulars of income lies on the Department as Expln. 1 is not applicable as has been held by us in the earlier paras. Therefore, in our opinion, the decision of Hon'ble Supreme Court in the case ofDharmendra Textile Processors (supra) will not assist the Revenue and is not applicable to the facts of the case before us. This decision has been discussed by Hon'ble Supreme Court in the case of ReliancePetroproducts (supra) (this decision at the Tribunal was authored by the undersigned) in the following terms :
"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 learned 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. In Brij Mohan v. CIT [1979] 12 CTR (SC) 198 : (2009) 30 (I) ITCL 339 (SC) : (2009) 317 ITR 1 (SC) : 2009 (9) SCC 589, where this Court was considering the same provision, the Court observed that the AO has to be satisfied that a person has concealed the particulars of his income or furnished inaccurate particulars of such income. This Court referred to another decision of this Court in Union of India & Ors. v. Dharamendra Textile Processors & Ors. [2008] 219 CTR (SC) 617 : (2008) 14 DTR (SC) 114 : 208 (13) SCC 369, as also, the decision in Union of India v. Rajasthan Spg. & Wvg. Mills 2009 (13) SCC 448 and reiterated in para 13 that :
'13. It goes without saying that for applicability of s. 271(1)(c), conditions stated therein must exist.'
8. Therefore, it is obvious that it must be shown that the conditions under s. 271(1)(c) must exist before the penalty is imposed. There can be no dispute that everything would depend upon the return filed because that is the only document, where the assessee can furnish the particulars of his income. When such particulars are found to be inaccurate, the liability would arise. In Dilip N. Shroff v. Jt. CIT & Anr. (2007) 210 CTR (SC) 228 : (2007) 291 1TR 519 (SC) : (2007) 16 (I) ITCL 246 (SC) : 2007 (6) SCC 329,this Court explained the terms 'concealment of income' and 'furnishing inaccurate particulars'. The Court went on to hold therein that in order to attract the penalty under s. 271(1)(c), mens rea was necessary, as according to the Court, the word 'inaccurate' signified a deliberate act or omission on behalf of the assessee. It went on to hold that cl. (iii) of s. 271(1) provided for a discretionary jurisdiction upon the assessing authority, inasmuch as the amount of penalty could not be less than the amount of tax sought to be evaded by reason of such concealment of particulars of income, but it may not exceed three times thereof. It was pointed out that the term 'inaccurate particulars' was not defined anywhere in the Act and, therefore, it was held that furnishing of an assessment of the value of the property may not by itself be furnishing inaccurate particulars. It was further held that the assessee must be found to have failed to prove that his explanation is not only not bona fide but all the facts relating to the same and material to the computation of his income were not disclosed by him. It was then held that the explanation must be preceded by a finding as to how and in what manner, the assessee had furnished the particulars of his income. The Court ultimately went on to hold that the element of mens rea was essential. It was only on the point of mens rea that the judgment in Dilip N. Shroff v. Jt. CIT (supra) was upset. In Union of India vs. Dharamendra Textile Processors (supra), after quoting from s. 271 extensively and also considering s. 271(1)(c), the Court came to the conclusion that since s. 271(1)(c) indicated the element of strict liability on the assessee for the concealment or for giving inaccurate particulars while filing return, there was no necessity of mens rea. The Court went on to hold that the objective behind enactment of s. 271(1)(c) r/w Explanations indicated with the said section was for providing remedy for loss of revenue and such a penalty was a civil liability and, therefore, wilful concealment is not an essential ingredient for attracting civil liability as was the case in the matter of prosecution under s. 276C of the Act. The basic reason why decision in Dilip N. Shrojf v. Jt. CIT (supra) was overruled by this Court in Union of India vs. Dharamendra Textile Processors (supra), was that according to this Court the effect and difference between s. 271(1)(c) and s. 276C of the Act was lost sight of in case of Dilip N. Shroff v. Jt. CIT & Anr. (supra). However, it must be pointed out that in Union of India v. Dharamendra Textile Processors (cited supra), no fault was found with the reasoning in the decision in Dilip N. Shroff v.Jt. CIT (cited supra), where the Court explained the meaning of the terms "conceal and inaccurate". It was only the ultimate inference in Dilip N. Shroff v. Jt. CIT (cited supra) to the effect that mens rea was an essential ingredient for the penalty under s. 271(1)(c) that the decision in Dilip N. Shroff v. Jt. CIT (supra) was overruled."
28. Now coming to the order of the Supreme Court in the case of K.P. Madhusudhanan (supra) as has been relied on by the learned Departmental Representative we find that in this case the Apex Court held as under :
"We find it difficult to accept as correct the two judgments aforementioned. The Expln. to s. 271(1)(c) is apart of s. 271. When the ITO or the AAC issues to an assessee a notice under s. 271, he makes the assessee aware that the provisions thereof are to be used against him. These provisions include the Explanation. By reason of the Explanation, where the total income returned by the assessee is less than 80 per cent of the total income assessed under s. 143 or 144 or 147, reduced to the extent therein provided, the assessee is deemed to have concealed the particulars of his income or furnished inaccurate particulars thereof unless he proves that the failure to return the correct income did not arise from any fraud or neglect on his part. The assessee is. therefore, by virtue of the notice under s. 271 put to notice that if he does not prove, in the circumstances stated in the Explanation, that his failure to return his correct income was not due to fraud or neglect, he shall be deemed to have concealed the particulars of his income or furnished inaccurate particulars thereof and, consequently, be liable to the penalty provided by that section. No express invocation of the Explanation to s 271 in the notice under s. 271 is, in our view, necessary before the provisions the Explanation therein are applied. The High Court at Bombay was therefore, in error in the view that it took and the Division Bench in the impugned judgment was right."
29. In this case, the facts were that the assessee partnership firm filed a return of income at Rs. 6,76,890. The assessment was completed at Rs. 7,90,170 including a sum of Rs. 93,000 as income from other sources. During the course of assessment proceedings the AO noticed that a demand draft and telegraphic transfer were not entered by the assessee in its cash book on the dates on which the same were purchased and made respectively. When this was pointed out to the assessee the assessee submitted a letter dt. 28th Aug., 1989, stating that as sufficient cash balance was not available to it on the date of the transaction, it obtained hand loans from friends as it expected to repay such loans within a short time. No entries were made in the books of account in respect thereof. The assessee since was unable to furnish evidence for such loans, offered the amount of Rs. 93,000 as additional income. Penalty proceedings were initiated by the AO under s. 271(l)(c). The AO did not agree with the explanation of the assessee and noted that it had itself offered the addition of Rs. 93,000. Applying Expln. 1(B) to s. 271(1)(c), the AO imposed upon the assessee penalty of Rs. 37,975. The Tribunal cancelled the penalty for the reason that in the notice initiating penalty proceedings the assessee was not intimated about the proposed action under Expln. 1(B) to s. 271(1)(c) but the High Court cm a reference held that the imposition of penalty was valid. Under these facts when the matter went before the Hon'ble Supreme Court, the Hon'ble Supreme Court held in the above manner. In this judgment we also noted that the Supreme Court has observed that by reason of the addition of Expln, 1(B) to s. 271(1)(c) the view taken by the Apex Court in the case of Sir Shadiial Sugar & General Mills Ltd. (supra) can nolonger be said to be applicable. This clearly shows that the penalty under s. 271(1)(c) was confirmed in the case ofK.P. Madhusudhan (supra) in view of the Explanation to s. 271(1)(c). This case is also concerned with the law prior to 1st April, 1976. We have already held that in the case of the assessee Explanation is not applicable and even there is no evidence on record that the AO has detected the additional income not shown by the assessee and in consequence thereof the assessee has declared the additional income. The assessee surrendered the gift to be taken its income as the assessee expressed his inability to produce the concerned donor although the evidences were produced to discharge his onus entrusted under s. 68 of the IT Act. Therefore, we are of the view that the decision in the case of K.P. Madhusudhan (supra) will not assist the Revenue and will not be applicable to the facts of the case before us.
30. We also noted that in the case of Dharamendra Textile Processors (supra) the Hon'ble Apex Court has held as under :
"We are of the view that there is a conflict of opinions between the judgments of the Division Bench of this Court in the case of Dilip N. Shroff v. Jt. CIT (2007) 210 CTR (SC) 228 : (2007) 8 Scale 304 on the one hand and on the other hand we have another judgment of this Court in the case of Chairman, SEBI v. Shriram Mutual Fund (2006) 5 SCC 361.Secondly, it may be pointed out that the object behind the enactment of s. 271(1)(c) r/w the Explanations quoted above indicates that the said section has been enacted to provide for a remedy for loss of revenue. The penalty under the said section is a civil liability. Wilful concealment is not an essential ingredient for attracting the civil liability as is the case in the matter of prosecution under s. 276C of the Act. While considering an appeal against an order made under s. 271(1)(c) what is required to be examined is the record which the officer imposing the penalty had before him and if that record can sustain the finding that there had been concealment, that would be sufficient to sustain the penalty. Keeping in mind these two circumstances, we are of the view that the judgment of the Division Bench in the case of Dilip N. Shroff v. Jt. C1T (supra) needs consideration. The Explanations added to s. 271(1)(c) in their entirety also indicate the element of strict liability on the assessee for concealment or for giving inaccurate particulars while filing returns. The judgment in Dilip N. Shroffs case (supra) has also not considered the provisions of s. 276C of the IT Act. Therefore, in our view, the judgment in the case of Dilip N. Shroff v. Jt. CIT (supra) needs consideration by the Larger Bench of this Court particularly when it has ramifications not only regarding the provisions of the IT Act but also with regard to the provisions of ss. 3A and 11AC of the Central Excise Act and r. 96ZQ(5) of the Central Excise Rules.
For the aforestated reasons, we direct the Registry to place our order in this batch of civil appeals before the Hon'ble Chief Justice of India for appropriate directions.
Before concluding, we may mention that in the present cases, the assessee had challenged the vires of r. 96ZQ(5). By the impugned judgment, the Gujarat High Court has read down the said rule incorporating the mens rea requirement. It is made clear that if /the Larger Bench takes a view to say that the penalty under the said clause is mandatory, then it would still be open to the assessee to challenge the vires of the said r. 96ZQ(5) and, therefore, in that event, the matter has to be kept before the Division Bench for passing appropriate orders."
31. In the aforesaid case also, we also noted that the Hon'ble Apex Court has held that the record before the AO must speak of that the assessee has concealed the income. We have already held that in the case before us there is no material or evidence being brought on recordor before us which may prove that the assessee has concealed the particulars of income and the Revenue has detected the additional income except the allegation sent by ADI that the assessee has received accommodation entry. This judgment also in our opinion will not be applicable to the facts of the case before us.
32. We have also gone through the decision of the Hon'ble Apex Court in the case of Suresh Chandra Mittal (supra), which affirmed the decision of the Hon'ble Madhya Pradesh High Court as Suresh Chandra Mittal (supra), wherein the Hon'ble High Court has held as under :
"In the present case though it is true that the assessee had not surrendered at all and that he had done so on the persistent queries made by the AO but once the revised assessment was regularized by the Revenue and once the assessing authority had failed to take any objection in the matter, the declaration of income made by the assessee in his revised returns and his explanation that he had done so to buy peace with the Department and to come out of vexed litigation could be treated as bona fide in the facts and circumstances of the case. Therefore, the Tribunal was justified in cancelling the penalty levied by the AO and affirmed by the CIT(A) in the facts and circumstances of the case. This reference is accordingly answered in the affirmative holding that the Tribunal was justified in doing so."
33. The facts relating to this case are that the assessee had filed the IT return showing the meager income. Action under s. 132 was taken against the assessee which led to reopening of the assessment. A notice under s. 148 was served on him and pursuant thereto he filed revised returns of income for these assessment years showing higher income. Eventually the assessment orders were passed and the returns submitted were regularized under s. 148. In the penalty proceedings under s. 271(1)(c) the assessee claimed that he had offered additional income to buy place of mind and avoid litigation. Penalty orders were passed and the CIT(A) confirmed the orders. But the Tribunal held that the Revenue had not discharged its burden of proving concealment and had simply rested its conclusion on the acts of voluntary surrender done by the assessee in good faith and that penalty could not be levied. On a reference the Hon'ble High Court held that it is well-settled that under s. 271(1)(c) the initial burden lies on the Revenue to establish that the assessee has concealed the income or had furnished inaccurate particulars of such income. The burden shifts to the assessee only if he fails to offer any explanation for the undisclosed income or offers an explanation which is found to be false by the assessing authority. However, the proviso to Expln. 1 provides for shifting of this burden again where the explanation offered by the assessee is found to be bona fide. It was further held that though it is true that the assessee had not surrendered at all and that he had done so on the persistent queries made by the AO. but once the revised assessment was regularized by the Revenue and once the assessing authority had failed to take any objection in the matter, the declaration of income made by the assessee in his revised returns and his explanation that he had done so to buy peace with the Department and to come out of the vexed litigation could be treated as bona fide in the facts and circumstances of the case. Therefore, the Tribunal was justified in cancelling the penalty levied by the AO and affirmed by the CIT(A) in the facts and circumstances of the case. In our opinion, the case of the assessee is at a better footing than the case of Suresh ChandraMittal (supra). In the case before us the assessee has surrendered the investment in capital work-in-progress by reducing the value of capital work-in-progress which has the effect of lower claim of depreciation in the asst. yr. 2006-07 onwards. This was done by the assessee to be in peace and avoid the litigation. There is no evidence on record that this surrender was made on the persistent queries and evidence being brought on record by the Revenue that the assessee had disclosed capital work-in-progress at a higher figure. This decision differs from the decision of K. P. Madhusudan (supra) mainly due to the fact, that in the case of K.P. Madhusudan (supra) even though assessee has surrendered additional income but the AO was not satisfied with the explanation of the assessee regarding the additional income and hence levied penalty by invoking the Expln. 1(B) to s. 271(1)(c). The Court has also found that the explanation given by the assessee was vague and fanciful which was not the case in the case of Suresh Chandra Mittal (supra). In the case of Suresh Chandra Mittal (supra), we find that when the assessee has surrendered additional income and the returns were regularized by issuing notice under s. 147 as is the case of the assessee, the AO felled to take any objection and accepted the explanation offered by the assessee.
34. The crux of the two decisions given by the Hon'ble Supreme Court appearing in the same ITR was different inasmuch as the MP High Court in Suresh Chandra Mittal (supra) which was subsequently confirmed in Suresh Chandra Mittal (supra) was really concerned with the following :
"From p. 126
We find ourselves in agreement with the view taken by the Tribunal. It is well-settled that under s. 271(1)(c), the initial burden lies on the Revenue to establish that the assessee had concealed the income or had furnished inaccurate particulars of such income. The burden shifts to the assessee only if he fails offer any explanation for the disclosed income or offers an explanation which is found to be false by the assessing authority. However, the proviso to Expln. 1 provides for shifting of this burden again where the explanation offered by the assessee is found to he bona fide."
35. Whereas on the other hand, what the Supreme Court was concerned with Suresh Chandra Mittal (supra) was as to whether, even after the insertion of the Expln. 1below s. 271(1)(c), it was necessary for the Revenue to prove mens rea. It would appear that the two issues as to whether the initial burden even after the insertion of Expln. 1 lay with the Department and as to whether the Department still had to prove mens rea, are different and, therefore, it may not be possible to suggest that the aforesaid two decisions of the Supreme Court conflicted with each other. In the case before us penalty has not been imposed by invoking the Explanation to s. 271(1)(c).
36. In case of Dy. CIT v. Chirag Metal Rolling Mills Ltd. [2007] 162 Taxman 317 (MP) the Hon'ble MP High Court has observed as under after considering aforesaid two decisions of Hon'ble Apex Court :
"So far as Full Bench of Kerala High Court, in the matter of CIT v. India Sea foods (supra) and CIT v. Suresh Chandra Mittal (supra) is concerned, is based on the law laid down by the Hon'ble Apex Court in the matter of Sir Shadilal (supra). So far as K.P. Madhusudhan's case (supra) which was delivered on 21st Aug., 2001, is concerned, in this case the Hon'ble Apex Court has considered the Explanation to s. 271(1)(c) and has held that since in the case of Sir Shadilal (supra) the Revenue was required (to prove) mens rea of quasi-criminal offence, therefore, the Legislature has added the Explanation. That view in the matter of Sir Shadilal(supra) can no longer be said to be applicable.
Explanation 1 to s. 271 has been substituted by the Taxation Laws (Amendment) Act, 1975 w.e.f. 1st April, 1976, according to which if a person fails to offer an explanation or offers an explanation which is found by the AO to be false or offers an explanation which he is not able to substantiate and fails to prove that such explanation is bona fide and all the facts relating to the same material to the computation of his total income have been disclosed by him, then the amount added or disallowed in computing the total income of such person as a result thereof shall, for the purpose of cl. (c) of this sub-section, be deemed to represent the income in respect of which particulars have been concealed. In the matter of K.P. Madhusudhan (supra) it has also been observed by Hon'ble Apex Court when the ITO issues to an assessee a notice under s. 271, he makes the assessee aware that the provisions thereof are to be used against him. These provisions include Explanation. By reason of the Explanation, where the total income returned by the assessee is less than 80 per cent of the total income assessed under s. 143 or 144 or 147, reduced to the extent therein provided, the assessee is deemed to have concealed the particulars of his income or furnished inaccurate particulars thereof, unless he proves that the failure to return the correct income and did not arise from any fraud or neglect on his part. The assessee is, therefore, by virtue of the notice under s. 271 but to notice that if he does not prove, in the circumstances stated in the Explanation, that his failure to return his correct income was not due to fraud or neglect, he shall be deemed to have concealed the particulars of his income or furnished inaccurate particulars thereof and, consequently, be liable to the penalty provided by that section."
37. The combined reading of Expln. 1 to s. 271(1)(c) of the Act and the verdict of Hon'ble Apex Court in the matters of Sir Shadilal(supra) and K.P. Madhusudhan (supra) it is crystal clear that prior to Expln. 1 the position of law was if assessee agrees for addition of his income to buy peace then it will not follow that agreed amount to be added was concealed income and the Revenue was required to prove the otherwise. Because of this view taken by the Hon'ble Apex Court in the matter of Sir Shadilal (supra) the Expln. 1 to s. 271(1)(c) was added to the IT Act and after taking into consideration the Explanation, Hon'ble Apex Court in the matter of K.P. Madhusudhan (supra) has laid down that no separate enquiry is necessary for- imposing the penalty. However, from plain reading of Explanation, it is evident that some sort of enquiry is necessary, therefore, the proceedings initiated by the Revenue for imposing the penalty under s. 271(1)(c) of the Act shall be treated as proceedings and the assessee is at liberty to show his bona fides in that proceedings. If the assessee fails to show his bona fides, in that case penalty can be imposed by the Revenue.
38. We have already held that the decision of the Hon'ble Supreme Court in the case of K.P. Madhusudhan (supra) will not apply to the facts of the case but the decision in the case of Suresh Chandra Mittal (supra) in our view is applicable to the facts of the case before us and accordingly is binding on us. Therefore, the penalty on the basis of this judgment is also liable to be quashed and accordingly; we cancel the same.
39. In view of aforesaid discussion we confirm the order of the CIT(A) deleting the penalty levied under s. 271(1)(c) in each of the assessment years.
40. In the result, all the appeals of the Revenue stand dismissed.
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