ACIT, Aligarh v. M/S Avtar Singh Darshan Singh, Aligarh

IN THE INCOME TAX APPELLATE TRIBUNAL AGRA BENCH AGRA BEFORE SHRI R.K. GUPTA JUDICIAL MEMBER AND SHRI P.K. BANSAL ACCOUNTANT MEMBER ITA NOS.593 & 594/AGR/2008 ASST. YEARS: 2000-01 & 2001-02 A.C.I.T. CIRCLE-1 VS. M/S. AVTAR SINGH DARSH AN SINGH ALIGARH. UDAI SINGH JAIN ROAD ALIGARH. (PAN : AALFA 8911 H) (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI R.C. SHARMA JR. D.R. RESPONDENT BY: SHRI PANKAJ GARGH ADVOCATE ORDER PER P.K. BANSAL A.M.: THESE APPEALS HAVE BEEN FILED BY THE REVENUE AGAINS T THE ORDERS OF THE CIT(A) DATED 03.06.2008 BY WHICH THE CIT(A) HAS DELETED THE PENA LTY AMOUNTING TO RS.5 63 363/- FOR THE A.Y. 2000-01 AND RS.4 77 480/- FOR THE A.Y. 2001-02 LEVIED BY THE A.O. UNDER SECTION 271(1)(C) OF THE INCOME-TAX ACT 1961 (THE ACT HE REINAFTER). 2. BOTH THESE APPEALS FILED BY THE REVENUE INVOLVE COMMON ISSUES THEREFORE THE SAME ARE BEING DISPOSED OF BY THIS COMMON ORDER. 3. IN BOTH THE APPEALS THE ASSESSING OFFICER LEVIE D THE PENALTY UNDER SECTION 271(1)(C) OF THE ACT TO RS.5 63 363/- AND RS.4 77 480/- UNDER SE CTION 271(1)(C) BY INVOKING EXPLANATION-1 TO SECTION 271(1)(C) BY HOLDING THAT THE ASSESSEE H AS FILED INACCURATE PARTICULARS OF INCOME AND HAS THUS CONCEALED THE INCOME IN EACH OF THE A.Y. 2 4. WHEN THE MATTER WENT BEFORE THE CIT(A) THE CIT( A) DELETED THE PENALTY LEVIED BY OBSERVING AS UNDER IN A.Y. 2000-01 :- I HAVE CONSIDERED THE SUBMISSIONS OF THE LEARNED A R WITH REFERENCE TO VARIOUS JUDICIAL PRONOUNCEMENTS RELIED UPON BY HIM. THE PENALTY U/S 271(1)(C) IS ATTRACTED ONLY WHEN IT IS A CASE OF DESIGNED CON CEALMENT OF INCOME AND HOLDING BACK OF TRUE PARTICULARS OF PRIMARY FACTS. IN THIS CASE THERE APPEARS NO SUCH CONCEALMENT OF INCOME OR HOLDING BACK OF ANY T RUE PARTICULARS OF PRIMARY FACTS BECAUSE ALL THE FACTS REGARDING PAYMENT OF IN TEREST TO PARTNERS WERE IN THE RECORDS. THE FACTS BROUGHT ON RECORD CLEARLY SHOW THAT THE APPELLANT WAS UNDER A BONA-FIDE BELIEF THAT PARTNERS ARE ENTITLED FOR I NTEREST ON THE AMOUNT OF CAPITAL CONTRIBUTED BY THEM TOWARDS PARTNERSHIP BUSINESS A S HAS BEEN PROVIDED IN THE PARTNERSHIP DEED AND ACCORDINGLY THE INTEREST WAS P ROVIDED TO THE PARTNERS. THE AO DISALLOWED SUCH INTEREST ON THE GROUND THAT THE APPELLANT HAS WRONGLY CLAIMED DEDUCTION OF INTEREST TO PARTNERS WITHOUT R EDUCING THEIR CAPITAL BY THE AMOUNT OF LOSS INCURRED. SUCH DISALLOWANCE CANNOT BE TREATED AS CONCEALMENT OF INCOME OR FURNISHING OF INACCURATE PARTICULARS T HEREOF. IT SHALL BE WORTHWHILE TO NOTE HERE THAT MENS REA IS AN ESSENTIAL INGRED IENT OF CONCEALMENT AND THE AO HAS NOWHERE PROVED THE REQUIRED MENS REA I.E. THE GUILTY MIND OF THE APPELLANT DURING THE COURSE OF PENALTY PROCEEDINGS. THE PENALTY PROCEEDINGS BEING A QUASI-CRIMINAL NATURE THE FACTS NECESSARY TO ATTRACT THE PENALTY PROVISIONS SHALL BE PROVED STRICTLY. IT HAS BEEN H ELD BY HONBLE SUPREME COURT IN THE CASE OF ANANTHARAM VEERASINGHAIAH AND COMPAN AY VS. CIT (1980) 123 ITR 457 THAT A FINDING IN THE ASSESSMENT PROCEEDING S THAT A PARTICULAR RECEIPT IN INCOME CANNOT AUTOMATICALLY BE ADOPTED AS A FINDING TO THAT EFFECT IN A PENALTY PROCEEDINGS. IN CASE OF CIT VS. KISAN CHAND TARA CHAND (1999) 151 TAXATION 72 (MP) AND THIRUAROORAN SUGAR LIMITED VS. ASSISTANT CIT (2000) 117 STC 457 (SC) IT WAS HELD THAT WHERE THE CLAIM OF ASSESSEE WAS UNDER A BONA FIDE BELIEF FROM THE MERE FACT THAT THE CLAIM OF THE ASSESSEE HAS BEEN NEGATIVED BY THE ASSESSING OFFICER IT DOES NOT AMO UNT TO CONCEALMENT OF INCOME OR FURNISHING OF INACCURATE PARTICULARS. THE HONB LE DELHI HIGH COURT IN CASE OF ADDITIONAL CIT VS. DELHI CLOTH AND GENERAL MILLS COMPANY LIMITED (1986) 157 ITR 822 HELD THAT PENALTY FOR CONCEALMENT OF I NCOME CAN BE IMPOSED ONLY IF THERE IS A CONSCIOUS AND DELIBERATE CONCEALMENT ON THE PART OF THE ASSESSEE. IN THE APPELLANTS CASE THE AO HAS NOT BROUGHT ON RECORD ANYTHING TO ESTABLISH THAT THERE IS A CONSCIOUS AND DELIBERATE CONCEALMENT ON THE PART OF THE APPELLANT. THE LEARNED AR HAS ALSO CONTENDED THAT IN THE ASSES SMENT ORDER PASSED U/S 147/143(3) DATED 18.09.2006 THE AO HAS NOT INI TIATED PENALTY PROCEEDINGS U/S 271(1)(C). THIS CONTENTION OF THE LEARNED AR A PPEARS CORRECT BECAUSE IN THE ASSESSMENT ORDER THERE IS NO MENTION REGARDING INIT IATION OF PENALTY PROCEEDINGS UNDER SECTION 271(1)(C). 3 CONSIDERING THE ENTIRE FACTS AND CIRCUMSTANCES OF T HE CASE AS DISCUSSED ABOVE IT IS HELD THAT THIS IS NOT A FIT CASE FOR L EVY OF PENALTY U/S. 271(1)(C) OF I.T. ACT. THE PENALTY SO LEVIED BY THE AO AT RS.5 63 36 3/- IS THEREFORE DELETED. 5. SIMILAR TYPE OF FINDING GIVEN BY THE CIT(A) WHIL E DELETING THE PENALTY IMPOSED FOR THE A.Y. 2001-02. 6. BEFORE US THE LD. D.R. VEHEMENTLY CONTENDED THA T THE CLAIM OF THE ASSESSEE IN RESPECT OF THE INTEREST TO THE PARTNERS AND SET OFF OF UNAB SORBED DEPRECIATION WAS NOT BONAFIDE AND ULTIMATELY INTEREST ON CAPITAL WAS DISALLOWED AND S IMILARLY THE CLAIM OF THE SET OFF OF THE BROUGHT FORWARD LOSS IT WAS ALSO DISALLOWED. THE A SSESSEE HAS WRONGLY CLAIMED THE DEDUCTION IN RESPECT OF THE INTEREST AND REMUNERATION TO THE PARTNER AMOUNTING TO RS.14 63 278/- AND DUE TO THE WRONG CLAIM THE PROCEEDINGS UNDER SECTION 14 7 WERE INITIATED AND IN THE ASSESSMENT PASSED UNDER SECTION 143(3) READ WITH SECTION 147 T HE DISALLOWANCE WAS MADE. EXPLANATION 1 TO SECTION 271(1)(C) WAS CLEARLY APPLICABLE AND T HEREFORE THE PENALTY UNDER SECTION 271(1)(C) WAS IMPOSABLE TO THE EXTENT OF THE TAX SOUGHT TO BE EVADED. 7. LD. A.R. ON THE OTHER HAND VEHEMENTLY CONTENDE D THAT THE CLAIM OF THE ASSESSEE UNDER SECTION 271(1)(C) WAS BONAFIDE ONE. MERELY DISALLO WANCE HAS BEEN MADE FOR THE INTEREST AND REMUNERATION TO THE PARTNERS DOES NOT MEAN THAT THE CLAIM OF THE ASSESSEE WAS NOT BONAFIDE. THE ASSESSEE HAS NOT SUBMITTED ANY INACCURATE PARTI CULARS NOR CONCEALED THE PARTICULARS OF THE INCOME. THE ASSESSEE HAS DULY SUBMITTED THE EXPLAN ATION AND ACCORDINGLY DISCHARGED THE ONUS AS ENTRUSTED UNDER EXPLANATION 1 TO SECTION 271(1)( C). 8. WE HAVE HEARD THE PARTIES AND CAREFULLY CONSIDER ED THE RIVAL SUBMISSIONS AND PERUSED THE ORDERS OF THE AUTHORITIES BELOW. WE NOTED THAT THE A.O. HAS IMPOSED THE PENALTY ON THE ASSESSEE UNDER SECTION 271(1)(C) OF THE ACT ON THE BASIS OF THE FACTS THAT THE ASSESSEE HAS 4 SUBMITTED INACCURATE PARTICULARS IN RESPECT OF HIS INCOME AND HAS THUS CONCEALED THE INCOME AS PER THE OBSERVATIONS MADE IN HIS ORDER. 9. SECTION 271(1)(C) READS AS UNDER :- 271.(1) IF THE ASSESSING OFFICER OR THE COMMISSION ER (APPEALS) [OR THE COMMISSIONER] IN THE COURSE OF ANY PROCEEDINGS UNDE R THIS ACT IS SATISFIED THAT ANY PERSON - (A) .. (B) .. (C) HAS CONCEALED THE PARTICULARS OF HIS INCOME OR FURNISHED INACCURATE PARTICULARS OF SUCH INCOME OR (D) .. HE MAY DIRECT THAT SUCH PERSON SHALL PAY BY WAY OF PENALTY - EXPLANATION 1- WHERE IN RESPECT OF ANY FACTS MATERI AL TO THE COMPUTATION OF THE TOTAL INCOME OF ANY PERSON UNDER THIS ACT - (A) SUCH PERSON FAILS TO OFFER AN EXPLANATION OR OF FERS AN EXPLANATION WHICH IS FOUND BY THE ASSESSING OFFICER OR THE COMMISSIONER (APPEA LS) OR THE COMMISSIONER TO BE FALSE OR (B) SUCH PERSON OFFERS AN EXPLANATION WHICH HE IS N OT ABLE TO SUBSTANTIATE AND [FAILS TO PROVE THAT SUCH EXPLANATION IS BONA FIDE AND THA T ALL THE FACTS RELATING TO THE SAME AND MATERIAL TO THE COMPUTATION OF HIS TOTAL INCOME HAVE BEEN DISCLOSED BY HIM] THEN THE AMOUNT ADDED OR DISALLOWED IN COMPUTING T HE TOTAL INCOME OF SUCH PERSON AS A RESULT THEREOF SHALL FOR THE PURPOSES OF CLAUSE (C) OF THIS SUB-SECTION BE DEEMED TO REPRESENT THE INCOME IN RESPECT OF WHICH PARTICULAR S HAVE BEEN CONCEALED. 10. FROM THE PERUSAL OF THE AFORESAID SECTION IT I S APPARENT THAT PENALTY U/S 271(1)(C ) IS LEVIABLE IF THE A.O. IS SATISFIED IN THE COURSE OF ANY PROCEEDINGS UNDER THIS ACT THAT ANY PERSON HAS CONCEALED THE PARTICULARS OF HIS INCOME OR FURN ISHED INACCURATE PARTICULARS OF THE INCOME. THE PENALTY PROCEEDINGS AND THE ASSESSMENT PROCEEDI NGS BOTH ARE DIFFERENT. EXPLANATION 1 TO SECTION 271(1)(C) STATES THAT THE AMOUNT ADDED OR D ISALLOWED IN COMPUTING THE TOTAL INCOME OF THE ASSESSEE SHALL BE DEEMED TO BE THE INCOME IN RE SPECT OF WHICH PARTICULARS HAVE BEEN CONCEALED. THIS DEEMING PROVISION IS NOT ABSOLUTE ONE BUT IS REBUT TABLE ONE. IT ONLY SHIFTS THE 5 ONUS ON THE ASSESSEE. EXPLANATION 1 REFERS TO THE TWO SITUATIONS IN WHICH PRESUMPTION OF THE CONCEALMENT OF THE PARTICULARS OF INCOME IS DEEMED. THE FIRST SITUATION IS WHERE THE ASSESSEE IN RESPECT OF ANY FACT MATERIAL TO THE COMPUTATION OF HIS TOTAL INCOME FAILS TO OFFER AN EXPLANATION OR OFFERS AN EXPLANATION WHICH IS FOUND BY THE A.O . OR THE COMMISSIONER TO BE FALSE. THE SECOND SITUATION IS WHERE THE ASSESSEE IN RESPECT O F ANY FACTS MATERIAL TO THE COMPUTATION OF HIS TOTAL INCOME OFFERS AN EXPLANATION WHICH THE ASSE SSEE IS NOT ABLE TO SUBSTANTIATE AND ALSO FAILS TO PROVE THAT SUCH EXPLANATION WAS BONAFIDE ONE AND THAT ALL THE FACTS RELATING TO THE COMPUTATION OF TOTAL INCOME HAVE BEEN DISCLOSED BY HIM. THE PRESUMPTION AVAILABLE UNDER EXPLANATION TO SECTION 271(1)(C) CANNOT BE DRAWN U NLESS THE CASE OF THE ASSESSEE FALLS UNDER EITHER OF THE CLAUSES (A) OR (B). 11. IN THIS CASE WE NOTED THAT THE A.O. HAS NOT BR OUGHT OUT ANY SPECIFIC CHARGE FOR WHICH THE PENALTY HAS BEEN IMPOSED ON THE ASSESSEE UNDER SECTION 271(1)(C) OF THE ACT. HE HAS NOT BROUGHT OUT WHETHER THE ASSESSEE HAS CONCEALED THE PARTICULARS OF INCOME OR WHETHER THE ASSESSEE HAS FURNISHED INACCURATE PARTICULARS OF IN COME. THIS IS APPARENTLY CLEAR FROM THE FINDING OF THE A.O. GIVEN IN HIS ORDER. 12. WE HAVE GONE THROUGH THE DECISION OF THE GUJARA T HIGH COURT IN THE CASE OF NEW SORATHIA ENGINEERING CO. LTD. 282 ITR 642 IN WHIC H IT WAS HELD AS UNDER: IT IS INCUMBENT UPON THE ASSESSING OFFICER 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 BE EN FURNISHED BY THE ASSESSEE. 6 HELD THAT THE PENALTY ORDER AND THE ORDER OF THE C OMMISSIONER (APPEALS) SHOWED THAT NO CLEAR CUT FINDING HAD BEEN REACHED. THE TRIBUNAL HAD FAILED TO APPRECIATE THIS LEGAL ISSUE. THE RATIO IN CIT V. M ANU ENGINEERING WORKS 132 ITR 306 (GUJ) WAS APPLICABLE AND THE ORDER OF PENAL TY COULD NOT BE UPHELD BY THE TRIBUNAL. THE ORDER WAS INVALID. 13. WE NOTED THAT SIMILAR VIEW HAS BEEN TAKEN BY A BENCH OF I.T.A.T. DELHI IN ITA NO.2275/DEL/2009 IN THE CASE OF RAJ RANI MITTAL TO WHICH THE UNDERSIGNED IS THE AUTHOR. SINCE THE A.O. HAS NOT BROUGHT OUT ANY SPECIFIC CHARGE WH ETHER THE PENALTY HAS BEEN IMPOSED ON THE CONCEALMENT OF INCOME OR FOR FURNISHING OF INACCURA TE PARTICULARS OF INCOME IN MY VIEW THE PENALTY CANNOT BE SUSTAINED. WE HAVE ALSO GONE THR OUGH THE DECISION OF THIS BENCH IN ITA NO.296/AGR./2007 IN THE CASE OF SHRI CHANDRA SHEKHA R GUPTA AND NOTED THAT THE CASE OF THE ASSESSEE IS ALSO COVERED BY THAT DECISION. 14. EVEN OTHERWISE ALSO PENALTY UNDER SECTION 271( 1)(C) CANNOT BE SUSTAINED IN VIEW OF THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE O F CIT VS. RELIANCE PETROPRODUCTS PVT. LTD. 322 ITR 158 (SC) IN WHICH IT WAS HELD AS UNDER :- A GLANCE AT THE PROVISIONS OF SECTION 271(1)(C) OF THE INCOME-TAX ACT 1961 SUGGESTS THAT IN ORDER TO BE COVERED BY IT T HERE HAS TO BE CONCEALMENT OF THE PARTICULARS OF THE INCOME OF THE ASSESSEE. SEC ONDLY 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 PROV ISION CANNOT BE INVOKED. BY NO STRETCH OF IMAGINATION CAN MAKING AN INCORRECT C LAIM TANTAMOUNT TO FURNISHING INACCURATE PARTICULARS. THERE CAN BE NO DISPUTE THAT EVERYTHING WOULD DEPEND UPON THE RETURN FILED BY THE ASSESSEE BECAUSE THAT IS THE ONLY DOCUMENT WHERE THE ASSESSEE CAN FURNISH THE PARTICU LARS OF HIS INCOME. WHEN SUCH PARTICULARS ARE FOUND TO BE INACCURATE THE LI ABILITY WOULD ARISE. TO ATTRACT 7 PENALTY THE DETAILS SUPPLIED IN THE RETURN MUST NO T BE ACCURATE NOT EXACT OR CORRECT NOT ACCORDING TO THE TRUTH OR ERRONEOUS. WHERE THERE IS NO FINDING THAT ANY DETAILS SUPPLIED 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 AMOU NT TO FURNISHING INACCURATE PARTICULARS REGARDING THE INCOME OF THE ASSESSEE. SUCH A CLAIM MADE IN THE RETURN CANNOT AMOUNT TO FURNISHING INACCURATE PARTI CULARS. 15. WE ACCORDINGLY CONFIRM THE ORDER OF THE CIT(A ) DELETING THE PENALTY FOR THE A.YS. 2000-01 AND 2001-02. 16. IN THE RESULT BOTH THE APPEALS FILED BY THE RE VENUE STAND DISMISSED. (ORDER PRONOUNCED IN THE OPEN COURT ON 15.04.2010) . SD/- SD/- (R.K. GUPTA) (P.K. BANSAL) JUDICIAL MEMBER ACCOUNTANT MEMBER PLACE: AGRA DATE: 15 TH APRIL 2010. PBN/* COPY OF THE ORDER FORWARDED TO: 1. APPELLANT 2. RESPONDENT BY ORDER 3. CIT CONCERNED 4. CIT (APPEALS) CONCERNED 5. DR ITAT AGRA BENCH AGRA 6. 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