TMI Blog2014 (7) TMI 556X X X X Extracts X X X X X X X X Extracts X X X X ..... being accepted by the department without scrutiny - if an assessee claims any deduction, he has to substantiate the claim by producing positive evidence-otherwise it cannot escape the rigor of penal provisions - penalty u/s 271(1)(c)cannot be imposed because an assessee takes a particular legal stand - just because something is mentioned in the return of income does not prove that the claim made in it is justified and allowable - Filing of return does not tie down the hands of an AO - The phrase particulars of income appearing in section 271(1)(c), has to be interpreted as facts leading to correct computation of income - whenever any material fact is not filed for correct computation of income or if filed is inaccurate, then penalty has to be imposed. Perusal of the provisions of Explanation 1 to the section provide that such penalty can be imposed only if the person fails to offer an explanation or offers an explanation which is found by them to be false or offers an explanation which assessee is not able to substantiate and fails to prove such explanation is bona fide and all the facts relating to the same and material to computation of total income have been disclosed by him. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are distinct from proceeding u/s. 143 and are independent of addition and disallowances. 4. Failed to prove as false the submission vide letter dated 23. 04. 2012, under section 271 (1) (c) of the Income Tax Act, 1961 which has been duly substantiated. 5. Failed to follow Supreme Court Pronouncement in case of CIT V Reliance Petro Products Ltd. [2010]322 ITR 158 (SC), wherein the Apex Court has defined the meaning of term Particulars . 6. Assessee craves for leave to add, omit or alter grounds of appeal on or before final hearing. Though there are six grounds of appeal, but the effective ground of appeal deals with imposition of penalty for concealment u/s. 271(1)(c)of the Act. 2. Assessee-company, engaged in the business of letting out of immovable property filed its return of income on 26. 08. 2009 declaring income of ₹ 82, 17, 407/-. The assessment was completed u/s. 143(3) of the Act by the AO (AO)on 25. 10. 2011 determining the income of the assessee at 2, 02, 43, 923/-. During the Assessment proceedings he found that the assessee had sold immovable property;being Unit No:II admeasuring 1422 sq. ft and one stilt car park No. 75;in Raheja Centre Premise ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3. In the appellate proceedings, First appellate Authority(FAA)held that it was not the case where simple disallowance had been made, that it was a case where taxable income had been suppressed by way of patently wrong claim of deduction u/s. 54 knowing well that it was a company not entitled for any such deduction, that in the case of Reliance petro Products Ltd. it was specifically mentioned that everything depended upon return of income, that in the case under consideration the assessee had suppressed the taxable income in the return of income, that the decisions relied upon by the assessee i. e. Atul Mohan Bindal (317ITR1) and Reliance petro Products Pvt. ltd. (322 ITR158)were not applicable to the facts of the case. He relied upon the cases of Balakrishna Textiles (193 ITR 361), Nagin Chand Shiv Sahai(6 ITR 534), Vidya Sagar Oswal (108 ITR 861), Hoshairpur Express Transport Co. Ltd. (162ITR393), Electrical Agencies Corporation(253ITR 619), Dharmendra Textile Processors Others(306 ITR 277), M V. Valliappan (170ITR 238), K. R. Hoganathan (174 ITR 658), Smt. Nayantara G. Agrawal (207 ITR 639). 4. Before us, Authorised Representative (AR) stated that the assessee had disclose ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... authorities implementing law. A person taking risk of not obeying the law of land has to be visited by penal provisions. We are aware that penalty cannot be should not be source of revenue, but at the same time it is essential to deter the assessees who interpret the Act in the manner they want and deprive the State of its due taxes. Fear of long hands of State catching the wrong doers is one of the precondition of smooth implementation of the provisions of law. Invoking penal provision and imposing exemplary penalty has become necessary as most of the returns filed by the assessee are being accepted by the department without scrutiny. A duty has been cast upon the citizens to make only and only legitimate claims. Courts are very liberal when any debatable or legitimate claim is made, but are very harsh when a claim is made that is not admissible at all. Penalty imposed by the AO. s in such cases have been invariably upheld. In the case of Sharma Alloys (India) Ltd. (357ITR379)Hon'ble Madras High Court found that machinery was not at all put to use during the year by the assessee and depreciation was claimed by it for that machinery, that the assessee had made claim for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unal. Deciding the issue in favour of the assessee, Hon'ble Court held as under The assessee had failed to offer any explanation in respect of the addition of ₹ 1, 83, 078 and it could be deemed to have concealed the particulars of income or furnished inaccurate particulars thereof, by virtue of this explanation. The Tribunal was not justified in deleting the penalty imposed by the Income-tax Officer under section 271(1)(c) of the Act. The findings given in assessment proceedings are relevant and have probative value. Where the assessee produces no fresh evidence or presents any additional or fresh circumstance in penalty proceedings, he would be deemed to have failed to discharge the onus placed on him and the levy of penalty could be justified. It is said that the Explanations appended to section 271(1)(c) of the Act entirely indicate the element of strict liability on the assessee for concealment or for giving inaccurate particulars while filing return. Courts have held that the object behind enactment of section 271(1)(c) read with the Explanations indicate that the section has been enacted to provide for a remedy for loss of revenue, that the penalty under t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e an amount is not allowed or taxed to income, as it cannot be said that the assessee had filed inaccurate particulars or concealed any income chargeable to tax. . . . . where the claim made in the return appears to be ex facie bogus, it would be treated as case of concealment or inaccurate particulars and penalty proceedings would be justified. The submission of the learned counsel for the Revenue was that merely because information in this behalf was made available in the tax audit report, would not absolve the assessee of the penalty proceedings when such a claim was ex facie bogus. She submitted that hardly 5 per cent. returns are taken up for scrutiny under section 143(2) of the Act and assessment is made under sub-section (3) of section 143 of the Act. Therefore, with the hope that his/her return may not come under scrutiny and may be assessed on the basis of self-assessment , an assessee can venture to give wrong information. Therefore, merely because information was available in the tax audit report would not absolve the assessee. What was to be seen was that whether the claim made was bogus. We are inclined to agree with the aforesaid submission of learned counsel for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion were disclosed. The AO was of the view that there was no difference of opinion as regards disallowance of these expenses and the incorrect computation given by the assessee was an act of paying less tax than what was due from it. He was of the view that the assessee was a big company, assisted by a team of tax auditors and, therefore, it was a case of concealment of income as well as of furnishing wrong particulars for computation of income. The FAA upheld the penalty imposed upon the assessee. The Tribunal accepted the contention of the assessee and deleted the penalty holding that all the relevant materials relating to that issue were duly disclosed by the assessee in the course of the assessment proceedings. (emphasis by us). On appeal to the High Court, Hon'ble Court held as under As regards the amount claimed on account of unusable and discarded assets, the Tribunal, was entirely incorrect in taking the view that the deduction claimed by the assessee was admissible to it under section 32(1)(iii). . . . . Admittedly, the assessee-company was not engaged in generation and for distribution of power, during the relevant year. Thus, the provisions, of clause (i) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessees to make wholly untenable and unsustainable claims without there being any basis for making them, in the hope that their return would not be picked up for scrutiny and they would be assessed on the basis of self-assessment under section 143(1) of the Act and even if their case is selected for scrutiny, they can get away merely by paying the tax, which in any case, was payable by them. The consequence would be that the persons who make claims of this nature, actuated by a mala fide intention to evade tax otherwise payable by them would get away without paying the tax legally payable by them, if their cases are not picked up for scrutiny. This would take away the deterrent effect, which these penalty provisions in the Act have. In the matter of Kuttookaran Machine Tools(313ITR413)it was found by the AO that the assessee had made bogus claims of investment allowance and depreciation in respect of machinery which was not purchased, installed or commissioned during the previous year. Penalty imposed by the AO for concealing the particulars of income was confirmed by both the appellate authorities. Before the Hon'ble Kerala High court it was pleaded the making a wrong cl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on about the nature and source of such cash credits were not found to be satisfactory by the Revenue and the same were considered to be income of the assessee for the previous year. In the face of this finding about falsehood of the statement made in the return, penalty for concealment was levied. Deleting the penalty, the Tribunal held that the amount in dispute had been disclosed by the assessee in Part III of the return of income, that it could not be said that the assessee had concealed the particulars of his income or furnished inaccurate particulars of such income. When the matter travelled to the Hon'ble High Court, if framed the following question: Whether, in the facts and circumstances of the case, solely on the ground that the assessee has disclosed receipts in Part III of the return filed by him, a conclusion can be reached that the assessee is not guilty of concealing particulars of his income or for furnishing inaccurate particulars ? Deciding the appeal in favour of the Revenue, the Hon'ble Court held as under: To us, it appears obvious that such a wide proposition as has been propounded by the Tribunal cannot be accepted as a matter of law. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n. To reach this stage also, inquiry will have to be undertaken of the disclosure made in the return or in the statement annexed to the return and to arrive at a finding whether the particulars disclosed are truthful, or false or not proved to be satisfactory. The principle to which the Tribunal has referred would apply in the last case. In the first case, it would be a positive case of no concealment, in the second stage, it would be a positive case of concealment and in the third case, benefit of doubt will go in favour of the assessee. But in either case, inquiry must proceed from the stage the alleged disclosure has taken place and not stop at that stage and close the inquiry at the threshold on the abstract principle that mere rejection of explanation does not result into levy of penalty. The Tribunal has obviously erred in stopping at that stage and not considering the material before it on the basis of which the authority levying penalty has come to a positive finding as noticed by us. The Tribunal appears to have ignored that even where there is some disclosure penalty may still be imposed if disclosures in the return are inaccurate. In our opinion, the principle appears ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot fall under the category of a legal stand. Secondly, just because something is mentioned in the return of income does not prove that the claim made in it is justified and allowable. Filing of return does not tie down the hands of an AO. A final decision depends upon the truthfulness of the particulars of income filed by the assessee. The phrase particulars of income appearing in section 271(1)(c), has to be interpreted as facts leading to correct computation of income. So, it can safely be said that whenever any material fact is not filed for correct computation of income or if filed is inaccurate, then penalty has to be imposed. Perusal of the provisions of Explanation 1 to the section provide that such penalty can be imposed only if the person fails to offer an explanation or offers an explanation which is found by them to be false or offers an explanation which assessee is not able to substantiate and fails to prove such explanation is bona fide and all the facts relating to the same and material to computation of total income have been disclosed by him. We are also of the opinion that bona fide belief of an assessee in making a claim has limited role for deciding the is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... opinion about the availability of exemption to a corporate assessee u/s. 54 of the Act. In other words a bare reading of section 54 would reveal even to a layman that there was no scope for getting the benefit of those provisions in respect immovable property sold by a company. So, by claiming a deduction for which it was not eligible, the assessee-company has proved its guilty mind of furnishing inaccurate particulars of income to escape the correct imposition of taxes. The penalty order in its entirety shows that the AO had been influenced by the consideration that the assessee had not only interpreted the law wrongly, but also did not furnish the details of STCG correctly. It was open to the assessee to show that claim made by it was sustainable in the quantum and as well as in penalty proceedings. However, no material was brought on record by it in the course of the penalty proceedings or in the course of the hearing before us to show that the stand taken by it was as per the provisions of section 54 of the Act. Therefore, AO was justified in holding that the particulars furnished by the assessee were not false and inaccurate. The assessee had not been able to disprove the f ..... X X X X Extracts X X X X X X X X Extracts X X X X
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