Mr. Sunil Duttt, New Delhi v. ACIT, New Delhi

IN THE INCOME TAX APPELLATE TRIBUNAL [ DELHI BENCH G DELHI ] BEFORE SHRI R. P. TOLANI JM AND SHRI K. D . RANJAN AM I. T. APPEAL NO. 1417 (DEL) OF 2009. ASSESSMENT YEAR : 2002-03. SHRI SUNIL DUTT ASSTT. COMMISSIONER OF IN COME-TAX PROP. ZOOM POLYCOATS VS. CIRCLE : 19 (1) A 452 SHASTRI NAGAR N E W D E L H I. N E W D E L H I. PAN/GIR NO. AEKPD9542G. ( APPELLANT ) ( RESPONDENT ) ASSESSEE BY : SHRI VINOD BINDAL C. A.; & MS. SWEETY KOTHARI C. A.; DEPARTMENT BY : SHRI B. KISHORE SR. D. R.; O R D E R. PER K. D. RANJAN AM : THIS APPEAL BY THE ASSESSEE FOR ASSESSMENT YEAR 200 2-03 ARISES OUT OF THE ORDER OF THE LD. CIT (APPEALS)-XXII NEW DELHI. 2. THE ONLY ISSUE FOR CONSIDERATION RELATES TO LEVY OF PENALTY UNDER SECTION 271(1)(C) OF THE INCOME-TAX ACT 1961 [HEREINAFTER REFERRED TO AS TH E ACT]. THE RELEVANT GROUND OF APPEAL REPRODUCED AS UNDER :- 1. THE CIT (APPEALS) ERRED IN LAW AND ON FAC TS IN CONFIRMING A PENALTY OF RS.4 00 472/- ON THE ADDITION OF RS.13 08 735/- MAD E UNDER SECTION 41(1) BY 2 I. T. APPEAL NO. 1417 (DEL) OF 2009. HOLDING THE OUTSTANDING CREDIT BALANCES OF RS.8 07 485/- AND LOANS OF RS.5 01 250/- AS INCOME WITHOUT APPRECIATING THE FA CT THAT NEITHER THE CREDITORS OR LENDERS HAVE REMITTED LIABILITY IN FAVOUR OF THE AS SESSEE NOR THE ASSESSEE HAS WRITTEN BACK THE SAID CREDITORS OR LOAN AMOUNT AND THEREFORE THE SAID AMOUNT CANNOT BE ASSESSED AS INCOME UNDER SECTION 41 OF TH E ACT FOLLOWING THE JUDGEMENTS OF THE SUPREME COURT IN THE CASE OF CIT VS. SUGAULI SUGAR WORKS (P) LTD. (1999) 236 ITR 518 AND CCIT VS. KESARIA TEA CO . LTD. (2002) 254 ITR 434 AND IGNORING THE FACTS AND EVIDENCES PLACED ON RECO RD. THUS THE PENALTY IMPOSED SHOULD BE DELETED. 3. THE FACTS OF THE CASE STATED IN BRIEF ARE THAT T HE ASSESSING OFFICER WHILE COMPLETING ASSESSMENT UNDER SECTION 143(3) OF THE ACT MADE DIS ALLOWANCES ON ACCOUNT OF CESSATION OF TRADING LIABILITY AMOUNTING TO RS.13 08 735/-. THE ASSESSING OFFICER INITIATED PENALTY PROCEEDINGS UNDER SECTION 271(1)(C) OF THE ACT. THE LD. CIT (A PPEALS) UPHELD THE ADDITION WHICH IN TURN WAS UPHELD BY THE TRIBUNAL. THE ADDITION WAS CONFIRMED ON THE GROUND THAT THE ASSESSEE WAS NOT ABLE TO FILE ANY CONFIRMATION IN RESPECT OF CREDIT BALAN CES. 4. DURING THE COURSE OF PENALTY PROCEEDINGS IT WAS SUBMITTED BY THE ASSESSEE THAT AS PER THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF CI T VS. SUGAULI SUGAR WORKS (1999) 236 ITR 518 (SC) AND CCIT VS. KESARIA TEA CO. LTD. (2002) 2 54 ITR 434 CONTENDED THAT ANY UNILATERAL ACTION OF NON-PAYMENT OF DEBT BY THE DEBTOR DOES NO T ABSOLVE HIM OF HIS LIABILITY TO HIS CREDIT UNLESS THE CREDITOR REMITS THE SAME IN FAVOUR OF TH E DIRECTOR. THIS CONTENTION OF THE ASSESSEE WAS REJECTED BY THE ASSESSING OFFICER ON THE GROUND THA T THESE DECISIONS WERE DISCUSSED IN DETAIL IN ASSESSMENT ORDER AND HE HAS NO AUTHORITY TO DEFER W ITH THE THEN ASSESSING OFFICER ON THE CASE LAW MENTIONED. SINCE THE ADDITION HAS BEEN CONFIRMED B Y THE LD. CIT (APPEALS) THE ASSESSING OFFICER HELD THAT THE ASSESSEE HAD FURNISHED INACCURATE PAR TICULARS OF HIS INCOME TO THE TUNE OF RS.13 08 735/- UNDER SECTION 41 OF THE ACT. HE ACC ORDINGLY IMPOSED A PENALTY UNDER SECTION 271(1)(C) OF THE ACT. 3 I. T. APPEAL NO. 1417 (DEL) OF 2009. 5. BEFORE THE LD. CIT (APPEALS) IT WAS SUBMITTED BY THE ASSESSEE THAT NOTICES WERE SENT ON WRONG ADDRESSES WITHOUT SUPPLYING THE COPIES OF ENV ELOPES TO THE ASSESSEE AND THERE WAS NO EVIDENCE THAT ANY OF THE CREDITORS REMITTED THE DUE S NOR THERE WAS ANY ALLEGATION THAT THE SAID LIABILITIES WERE NOT AUTHENTIC WHEN INCURRED. THER EFORE PENALTY UNDER SECTION 271(1)(C) COULD NOT BE LEVIED AS THE PRESUMPTION STOOD REBUTTED. THE EXPLANATION OF THE ASSESSEE IS BONAFIDE WHICH IS SUBSTANTIATED FROM THE RECORDS AND CO-OPER ATION OF THE ASSESSEE DURING THE PROCEEDINGS. IT WAS ALSO SUBMITTED THAT THE AMOUNT OF RS.13 08 7 35/- INCLUDES AN AMOUNT OF RS.5 01 250/- AS OUTSTANDING LOAN FROM TWO PARTIES WHICH DID NOT RE PRESENT TRADE CREDITS AND THEREFORE THE AMOUNT OF RS.5 01 250/- WAS NOT COVERED BY PROVISIO NS OF SECTION 41(1) OF THE ACT. HOWEVER THE LD. CIT (APPEALS) DID NOT AGREE WITH THE ASSESS EE. HE CONFIRMED THE PENALTY BY OBSERVING THAT THE ASSESSEE HAD FURNISHED INACCURATE PARTICUL ARS OF HIS INCOME WHEN HE FURNISHED THE RETURN. THIS FACT STOOD ESTABLISHED BY THE FACT THAT THE AD DITION MADE BY THE AO WAS CONFIRMED UPTO THE LEVEL OF THE TRIBUNAL. AS REGARDS THE EXPLANATION OFFERED BY THE ASSESSEE HE OBSERVED THAT THE CONTENTION OF THE ASSESSEE THAT NOTICES WERE SENT A T WRONG ADDRESS AND TWO OF THE CREDITORS WERE NOT CONVINCING. THEREFORE THE PROVISIONS OF EXPLA NATION (1) (B) WERE APPLICABLE. HE PLACED RELIANCE ON THE DECISION OF HONBLE SUPREME COURT I N THE CASE OF UNION OF INDIA VS. DHARMESH TEXTILES 306 ITR 277 (SC) FOR THE PROPOSITION THAT PENALTY UNDER SECTION 271(1)(C) IS A CIVIL LIABILITY AND WILLFUL CONCEALMENT IS NOT AN ESSENTI AL INGREDIENT FOR ATTRACTING CIVIL LIABILITY UNLIKE THE MATTER OF PROSECUTION UNDER SECTION 276-C OF TH E ACT. 6.1 BEFORE US THE LD. AR OF THE ASSESSEE SUBMITTED THAT IT IS NOT A CASE OF CONCEALMENT OF INCOME OR FURNISHING INACCURATE PARTICULARS OF INCO ME. THE TRADE LIABILITY DID NOT CEASE TO EXIST AND THEREFORE THERE WAS NO CASE OF CONCEALMENT OF INCOME OR FURNISHING OF INACCURATE PARTICULARS OF INCOME. HE ALSO SUBMITTED THAT THE ASSESSEE WAS NOT IN INDIA AND THE NOTICES ISSUED TO THE CREDITORS WERE ISSUED AT WRONG ADDRESS. HE ALSO SUBMITTED THAT THIS FACT WAS BROUGHT TO THE NOTICE OF THE LD. CIT (A) IN THE COURSE OF HEARING OF THE PENALTY PROCEEDINGS. ALL THE NOTICES WERE ISSUED AT DIFFERENT ADDRESSES BECAUSE OF WHICH THE LETTERS ISSUED UNDER SECTION 133(6) WERE RETURNED UN-SERVED. HE FURTHER SUBMITTED THAT OUT OF RS.13 08 735/- AN AMOUNT OF RS.5 01 250/- WAS AN OUTSTANDING LOAN. THE LD. CIT (APPEALS) HAS NOT APPRECIATED THE FACTUAL POSITION THAT IT WAS NOT A CASE OF CONCEALMENT OF INCOME OR FURNISHI NG OF INACCURATE PARTICULARS OF SUCH INCOME. 4 I. T. APPEAL NO. 1417 (DEL) OF 2009. HE PLACED RELIANCE ON THE DECISION OF HONBLE SUPRE ME COURT IN THE CASE OF CIT VS. RELIANCE PETROPRODUCTS LTD. (2010) 322 ITR 158 (SC). THE HO NBLE SUPREME COURT IN THE CASE OF CIT VS. RELIANCE PETROPRODUCTS LTD. (SUPRA) HELD AS UND ER :- A GLANCE AT THE PROVISIONS OF SECTION 271(1 ) OF THE INCOME-TAX ACT 1961 SUGGESTS THAT IN ORDER TO BE COVERED BY IT THERE H AS TO BE CONCEALMENT OF THE PARTICULARS OF THE INCOME OF THE ASSESSEE. SECONDL Y THE ASSESSEE MUST HAVE FURNISHED INACCURATE PARTICULARS OF HIS INCOME. TH E MEANING OF THE WORD PARTICULARS USED IN SECTION 271(1)(C) WOULD EMBRA CE THE DETAILS OF THE CLAIM MADE. WHERE NO INFORMATION GIVEN IN THE RETURN IS FOUND TO BE INCORRECT OR INACCURATE THE ASSESSEE CANNOT BE HELD GUILTY OF F URNISHING INACCURATE PARTICULARS. IN ORDER TO EXPOSE THE ASSESSEE TO PE NALTY UNLESS THE CASE IS STRICTLY COVERED BY THE PROVISION THE PENALTY PROVISION CAN NOT BE INVOKED. BY NO STRETCH OF IMAGINATION CAN MAKING AN INCORRECT CLAIM TANTAM OUNT TO FURNISHING INACCURATE PARTICULARS. THERE CAN BE NO DISPUTE TH AT EVERYTHING WOULD DEPEND UPON THE RETURN FILED BY THE ASSESSEE 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. TO ATTRACT PENALTY THE DETAILS SUPPLIED IN THE RETURN MUST NOT BE ACCURATE NOT EX ACT OR CORRECT NOT ACCORDING TO THE TRUTH OR ERRONEOUS. WHERE THERE IS NO FINDING THAT ANY DETAILS S UPPLIED BY THE ASSESSEE IN ITS RETURN ARE FOUND TO BE INCORRECT OR ERRONEOUS OR FA LSE THERE IS NO QUESTION OF INVITING THE PENALTY UNDER SECTION 271(1)(C). A ME RE MAKING OF A CLAIM WHICH IS NOT SUSTAINABLE IN LAW BY ITSELF WILL NOT AMOUNT TO FURNISHING INACCURATE PARTICULARS REGARDING THE INCOME OF THE ASSESSEE. SUCH A CLAIM MADE IN THE RETURN CANNOT AMOUNT TO FURNISHING INACCURATE PARTI CULARS. 6.2 ON THE OTHER HAND THE LD. SR. DR SUPPORTED THE ORDER OF THE LD. CIT (APPEALS). 5 I. T. APPEAL NO. 1417 (DEL) OF 2009. 7. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE MATERIAL AVAILABLE ON RECORD. IN THIS CASE THE ASSESSING OFFICER DURING THE COURSE OF ASS ESSMENT PROCEEDINGS REQUIRED THE ASSESSEE TO FILE CONFIRMATIONS. THE NOTICES ISSUED UNDER SECTI ON 133(6) OF THE ACT WERE SENT ON WRONG ADDRESS WHICH WERE RETURNED BACK ON THE BASIS OF T HESE FACTS THE ASSESSING OFFICER CONCLUDED THAT THE LIABILITY CEASE TO EXIST AND PROVISIONS OF SECT ION 41(1) OF THE ACT WERE APPLICABLE. THE ADDITIONS MADE HAD BEEN SUSTAINED UPTO THE LEVEL OF THE ITAT ON THE GROUND THAT THE ASSESSEE HAD NOT FURNISHED CONFIRMATIONS IN RESPECT OF TRADE DEB TORS. THE ASSESSING OFFICER HAD MAINLY RELIED ON THE FINDINGS IN ASSESSMENT ORDER AND FINDINGS IN THE ASSESSMENT ORDER WHICH HAS BEEN UPHELD BY THE ITAT. DURING THE COURSE OF PENALTY PROCEEDI NGS THE ASSESSEE HAS SUBMITTED THAT THE CONFIRMATION COULD NOT BE FILED AS THE NOTICES WERE SENT AT THE WRONG ADDRESS. THIS REPLY WAS SUBMITTED BEFORE THE LD. CIT (A) WHICH HAS BEEN BRU SHED ASIDE BY HIM FOR THE REASON THAT THE CONTENTION OF THE ASSESSEE WAS NOT CONVINCING. OUT OF ADDITION OF RS.13 08 375/- RS.5 01 250/- REPRESENTS THE CASH CREDITS HAVING BEEN BROUGHT FOR WARD FROM EARLIER YEARS. THEREFORE PROVISIONS OF SECTION 41(1) OF THE ACT CANNOT BE AP PLIED TO THE CASH CREDITS APPEARING AS OPENING BALANCE. THE BALANCE AMOUNT REPRESENTS THE OPENING BALANCE TRADE CREDITS. THESE CREDITS HAVE NOT BEEN REMITTED BY THE TRADE CREDITORS. THEREFOR E IT CANNOT BE PRESUMED FOR THE PURPOSE OF PENALTY THAT THE ASSESSEE HAD FURNISHED INACCURATE PARTICULARS OF THE INCOME. NO DOUBT THE ADDITION HAS BEEN SUSTAINED IN THE ABSENCE OF CONFI RMATION. IT IS NOT THE CASE OF THE ASSESSING OFFICER THAT THE TRADE CREDITORS HAVE WAIVED OFF TH E AMOUNT AND THE ASSESSEE HAD FURNISHED INACCURATE PARTICULARS BY SHOWING THE CREDIT BALANC ES IN THE BALANCE SHEET. THEREFORE IT IS NEITHER THE CASE OF CONCEALMENT NOR A CASE OF FURNISHING OF INACCURATE PARTICULARS OF SUCH INCOME. PENALTY UNDER SECTION 271(1)(C) OF THE ACT IS IMPOS ABLE UNDER EXPLANATION (1) TO SECTION 271(1)(C) IN A CASE WHERE A PERSON FAILS TO OFFER A N EXPLANATION OR OFFERS AN EXPLANATION WHICH IS FOUND BY THE ASSESSING OFFICER TO BE FALSE THE AO OR THE LD. CIT (APPEALS) OR THE LD. COMMISSIONER TO BE FALSE OR SUCH PERSON OFFERS AN E XPLANATION WHICH HE IS NOT ABLE TO SUBSTANTIATE AND FAILS TO PROVE THAT SUCH EXPLANATI ON IS BONAFIDE AND THAT ALL THE FACTS RELATING TO THE SAME AND MATERIAL TO THE COMPUTATION OF TOTAL I NCOME HAVE BEEN DISCLOSED BY HIM THEN THE AMOUNT ADDED OR DISALLOWED IN COMPUTING THE TOTAL I NCOME OF SUCH PERSON SHALL BE DEEMED TO REPRESENT THE INCOME IN RESPECT OF WHICH PARTICULAR S HAVE BEEN CONCEALED. IN THE INSTANT CASE THERE IS NO CASE OF REMITTANCE OF TRADE LIABILITIES THOUGH ADDITION ON THAT COUNT HAS BEEN SUSTAINED UPTO THE ITAT. THE ASSESSEE HAS FURNISHED EXPLANAT ION WHICH IS BONAFIDE. THE TRADE LIABILITY 6 I. T. APPEAL NO. 1417 (DEL) OF 2009. STILL EXISTS IN THE BOOKS OF THE ASSESSEE. FURTHER AN AMOUNT OF RS.5 01 250/- REPRESENTS THE CASH CREDIT OF EARLIER YEAR WHICH CANNOT BE ADDED UNDER SECTION 41(1) OF THE ACT. THEREFORE THE EXPLANATION OFFERED BY THE ASSESSEE IN OUR CONSIDE RED OPINION IS BONAFIDE AND THE ASSESSEE HAS GIVEN ALL RELEVANT FACTS AND MATERIAL WHICH WERE N ECESSARY FOR COMPUTATION OF THE TOTAL INCOME. IT IS ALSO A FACT THAT THE ADDITION SUSTAINED IS GO OD EVIDENCE BUT IT IS NOT A CONCLUSIVE EVIDENCE IN CASE OF PENALTY PROCEEDINGS TO LEVY PENALTY UNDER S ECTION 271(1)(C) OF THE ACT. THE ASSESSEE HAS OFFERED EXPLANATION WHICH IS BONAFIDE. THOUGH THE ADDITION HAS BEEN SUSTAINED UPTO ITAT BUT IT IS NOT A CASE WHERE PENALTY UNDER SECTION 271(1) (C) OF THE ACT CAN BE LEVIED AUTOMATICALLY ON THE BASIS OF ADDITION SUSTAINED. WE THEREFORE SE T ASIDE THE ORDER OF THE LD. CIT (APPEALS) AND DELETE THE PENALTY IMPOSED BY THE ASSESSING OFFICER . 8. IN THE RESULT THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. THE ORDER PRONOUNCED IN THE OPEN COURT ON : 30 TH APRIL 2010. SD/- SD/- [ R. P. TOLANI ] [ K. D. RANJAN ] JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 30 TH APRIL 2010. *MEHTA * COPY OF THE ORDER FORWARDED TO : - 1. APPELLANT. 2. RESPONDENT. 3. CIT 4. CIT (APPEALS) 5. DR ITAT NEW DELHI. TRUE COPY. BY ORDER. ASSISTANT REGISTRAR ITAT. 7 I. T. APPEAL NO. 1417 (DEL) OF 2009. 8 I. T. APPEAL NO. 1417 (DEL) OF 2009.