PENALTY U.S. 271.1(c) confirmed for reason that assesse is not an individual but company which is an AOP consisting of other corporate giants – the case should have been prepared and represented with full ground work. The view also need reconsideration.

[CA DEV KUMAR KOTHARI]

2019 (9) TMI 193 - MADRAS HIGH COURT M/S. CHEMMANCHERRY ESTATES COMPANY, CHENNAI-1., THE COMMISSIONER OF INCOME TAX, TAMIL NADU-VIII, CHENNAI VERSUS THE INCOME TAX OFFICER, WARD- VIII (2) , CHENNAI-6. Dated: - 09 August 2019

Case law referred to on point of S.271.1. c and distinguished and not followed.

Commissioner of Income Tax Versus M/s. Gem Granites - 2013 (11) TMI 1375 - MADRAS HIGH COURT

Scope of this article:

Scope of this article is restricted only to reason as stated in the title of article. This reason presumes that the assesse has brain, mind and conscience which also seems wrong. Other reasons for confirmation of penalty are not discussed because full facts about treatment in accounts, heading of accounts applied, notes on accounts by management, disclosures made by management by way of notes on accounts and directors report, auditors note or qualification about tax provision, any opinion of experts on the issue relied on and dispute if any, about consideration of land as urban land, taxation as urban land , extension of urban area etc. are not foreseeable on reading of the judgment.

Company and AOP of company:

While confirming penalty it appears that the Tribunal and High Court were influenced by fact that the assesse is not an individual but an AOP of some giant companies. With due respect, author feels that this is not good reason because:

A company and any member company of an AOP of companies is not a living person and have no brain, mind, soul and conscience of its own.

All companies act through human agencies. In case of companies, the Board of Directors take help of Accounts department for nature of income and expenses, Tax executives and also tax professionals who are qualified and /or experienced persons in field of accounting and taxation. Hereinafter such person or group of persons is referred to as Return Preparer Team (RPT) Therefore, mistake if any made is committed by living persons who are entrusted with work of tax laws.

In case it is a large company or an AOP of large companies, it is usual that services of experts are availed for accounts, audits, and tax compliances. As the size of constituent companies is mentioned as ‘giant corporates’, it is likely that the computation and Return of Income was prepared and finalised by experts.

Tax laws are very complex and there are possible different views. A view adopted by Return Preparer Team (RPT) can only be applied by a company or and AOP of companies.

Work of RPT for making provision for income tax is subject to an examination by audit team also. Auditors being very close to facts and circumstances are also expected to closely examine such vital aspects, particularly when it is material in aspect and amount both. If the auditors have not given any informative note or qualification about tax provision, it can be assumed that assesse had explained and auditors were satisfied about tax provision, which is based on computation or draft computation of income made by auditee - company or AOP or other entity as the case may be.

In case of an individual assesse, also if Return of Income is prepared by other persons, on whom individual rely, the assesse has to rely on such persons or team of persons to whom assesse has assigned work of account and tax matter and to whom he consider a guide and an expert. For example, author observed that even very brilliant and competent doctors and engineers in his family , relations and friends always expressed surprise that how an asset can be Debit and a liability a credit in accounts? Can we say that a person of other field can understand even basics of Income-tax Act so as to expect him that he can himself file a perfect return of income? The obvious answer is NO.

Similarly in case of companies the directors of company are usually entrepreneurs and business persons. They rely on other persons from profession of accountancy and taxation for preparing accounts and income tax returns. Author has also observed that some businessmen who try to look after tax matters personally and attend even hearing before AO and CIT(A), could not work properly for tax matters and for this reason they had also suffered loss of progress in business. Therefore, even if extend the meaning and consider the Board of Directors of company as brain, mind, soul and conscience of company, it is ground reality that they rely on other persons.

We also notice that the ground reality is that digital signature of directors are in majority of cases not personally used and placed by director himself, but it is placed by another professional who look after filing of Returns under different enactments. This is ground reality, whatever be the legal position. Therefore, considering the Board of Directors of a company as its brain, mind, soul and conscience is far away from ground reality.

Sale proceed of agricultural land is revenue or receipt from agricultural income is one of notion in mind of many and we find that claim of exemption are being preferred by many and there are some reported judgments also on this issue. If in accounts such income is credited as agricultural income, it is likely that it is claimed exempt, unless RPT has probed into the matter deeply.

Recently the Author also came across one such case in which excess of sale value over cost was considered as agricultural income in accounts and Return of income. On enquiry it was found that the Return Prepare Team (RPT) has considered that it is revenue derived from agricultural land because there is no tax collection at source u.s. 194IA which is not applicable to agricultural land as per heading of the section , it was inferred by RP T that on sale of agricultural land sold for more than ₹ 50 lakh there was no TCS that means that is not taxable as income under I.T. Act. So there was a wrong presentation in ROI. If the RPT had worked properly, in fact there was no taxable long-term capital gains after considering allowable inflated cost of acquisition.

There can be a mistake on principal or on interpretation or inadvertent mistake or mistake of computation by RPT, even if RPT includes highly qualified professionals. For mistake of RPT, assesse being a company or AOP of companies cannot be held responsible to hold responsible for concealing income or furnishing inaccurate particulars of income that too knowingly and with conciseness.

Various important judgments on S. 271.1. (c) were not referred and relied on, on behalf of assesse.

The assessee was consciously aware of real position and knowingly furnished inaccurate particulars:

The view of Ld. AO that, quote:

“the assessee was consciously aware of real position and knowingly furnished inaccurate particulars”

Unquote

View of Ld. AO has been approved by honourable High Court. As discussed earlier assesse being a company or AOP of companies has no brain, mind or conscience. Therefore, with due respect author feels that the approval of the view of Ld. AO by the High Court requires reconsideration.

Therefore, reasons that assesse is not an individual but a company / AOP of companies which are giant corporates and that assesse was consciously aware of real position and knowingly furnished inaccurate particulars is not a good reason for confirming levy of penalty u/s 271.1.(c).

Weakness in representation:

With due respect to the team which represented the case before the Tribunal and High Court, author feels that there was lack in preparation and on behalf of assesse there must be more ground work done to find out circumstances in which and reasoning due to which the impugned income was considered as agricultural income.