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2015 (7) TMI 127 - CALCUTTA HIGH COURT

2015 (7) TMI 127 - CALCUTTA HIGH COURT - [2015] 376 ITR 1 (Cal) - Penalty under Section 271(1(c) - additional income due to the search operation u/s 132 - assessee disclosed the additional income only after he was confronted by the D.I (Inv), New Delhi with certain evidence - Held that:- In the case, before us the assessee on his own showing had furnished inaccurate particulars. The assessee admitted that the return originally filed by him included expenditure disallowable under Section 37(1) wh .....

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2006 and offered an explanation that there was no deliberate concealment which was not acceptable to the Assessing Officer. He as such passed an order under Section 271(1). It is, therefore not correct to say that the exercise calling for an explanation from the assessee was not undertaken.

Clause (c) of Section 271(1) originally qualified an act of concealment of income or furnishing of inaccurate particulars with the expression ‘deliberately’ which was omitted by the Finance Act, 1 .....

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ed to be a necessary ingredient for levy of penalty. But in the case of Union of India –Vs- Dharmendra Textile Processors reported [2008 (9) TMI 52 - SUPREME COURT ] it was held that the view in the case of Dilip. N. Shroff was not correct. It has been held that penalty under Section 271 (1) (c ) is a civil liability and the wilful concealment is not an essential ingredient. - Decided in favour of the Revenue. - ITA 176 of 2009, ITA 678 of 2008 - Dated:- 2-7-2015 - Hon ble Justice Girish Chandra .....

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d by Revenue. Aggrieved by the order revenue has come up in appeal. The following question of law was formulated at the time of admission of the appeal registered as ITA 678 of 2008:- Whether on the facts and in the circumstances of the case the Income Tax Appellate Tribunal was justified in confirming the Commissioner of Income Tax (Appeals) order deleting the penalty of ₹ 22,95,000/- levied by the Assessing Officer under Section 271(1(c ) of the Income Tax Act, 1961 in relation to the As .....

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ions of the Act. However Book-Profit was shown at ₹ 65,49,20,882/- u/s 115 JB of the Act. On scrutiny of the said return it was observed that assessee had disclosed additional amount of ₹ 3,40,00,000/-. The assessment was, thus, reopened u/s147 and notice u/s 148 was issued on 18.04.06 and served on the assessee. The assessee replied on 22nd April, 2006 to consider the return filed on 03.04.2006 as return filed u/s 148. A notice u/s.143(2) was issued and served on 10.05.06. In respon .....

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It was submitted by the A/R that to avoid protracted litigation and to put a quitous to the whole issue the assessee had offered this amount as disallowable item u/s 37(1) of the Act, through the return dated 3rd April 2006. Since the amount was offered as income by the assessee this amount is added back in computation of Income, in addition to the assessments made u/s 143(3) dated 28.12.2005. The computation of income is made below:- Gross total income as per order u/s 143(3) dated 28.12.2005 .....

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05.06 ₹ 62,09,21,160/- Add: Additional Amount offered by assessee in its computation as discussed above Rs.3,40,00,000/- Book profit Rs.65,49,21,160/- Since the assessee offered the additional income due to the search operation u/s 132 of the Act in the premises of UP Distillers Association, penalty proceedings u/s 271(1)(c ) is initiated separately. The assessment order dated 30th March, 2007 levying penalty in so far as the same is material for our purpose reads as follows:- In the case, .....

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ssessment U/s. 143(3) of the Income Tax Act, 1961 was completed this return is treated as invalid return. But since the assessee disclosed additional amount of ₹ 3,00,00,000/- as income which required verification in the context of the original return, the case was re-opened U/s. 147 of the Income Tax Act, 1961 and notice U/s. 148 was issued. The re-assessment proceedings U/s. 147 / 143(3) of the I.T. Act 61 were completed on 19.05.2006. It was observed that a search was conducted U/s. 132 .....

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o the whole issue the assessee had offered this amount as disallowable item U/s. 37(1) of the Act. The tax was charged in the assessment U/s. 143(3), U/s.115JB of the Act. In the so called revised return the assessee increased the Book Profit by the amount of ₹ 3,00,00,000/-. Notice U/s. 271(1)(c ) was issued on 19.05.2006 and this notice was duly served on the assessee. The assessee filed reply on lst June, 2006. The assessee submitted that the so called revised return filed by the assess .....

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the additional income only after he was confronted by the D.I (Inv), New Delhi with certain evidence. Had he not been confronted he would not have disclosed this additional amount as income/disallowable expenditure. So there was a definite concealment on the part of the assessee. As such Penalty U/s. 271(1) of the Act is leviable. In both the assessments made U/s. 143(3) & 147, taxes were charged U/s 115JB. Hence the amount of tax sought to be evaded is calculated at ₹ 22,95,000/- bei .....

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the appellant have been carefully considered. Although search might have been conducted in the premises of M/s. U.P. Distillers Association during the course of which some papers might have been found out indicating certain payments made by the assessee to M/s. U.P. Distillersz Association, such recordings in papers found out in the case of a third party, by itself, would not entitle the Department to initiate actions in the hands of the assessee, as has been held in several judicial pronouncem .....

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income. In this context it is appropriate to consider the assessee s letter dated 27.03.2006 to The Jt. Director of Income-tax(Inv), stating as under:- Your goodself has also informed that certain payments were made by us to UPDS which were in the records belonging to UPDA. At this stage, we would not like to make any comment about the genuineness of the aforesaid information. However, we are offering the amount, representing the alleged payments made by us to UPDA during the Financial Years pe .....

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income has been offered for the purpose of buying peace with the Department and to negate the course of a protracted litigation with the Department. The various decisions relied upon by the assessee and as discussed above and especially the one of the Supreme Court in the case of Suresh Chandra Mittal (supra) strongly support the view that no penalty is liable in this case proposition. It is also noted that the case of the assessee stands on a much better footing than the case of M/s. Enfield In .....

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s not a case fit for levy of penalty u/s 271(1)(c ) of the Income tax Act, 1961 and the impugned penalty is therefore, cancelled . The revenue unsuccessfully challenged the order of the CIT (Appeals) before the learned Tribunal which agreeing with the CIT (Appeals) held as follows:- Since the assessee has itself offered the additional income and the department has not brought anything positive on record to substantiate the conclusion that the assessee has mens rea of concealment of its true inco .....

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miss the grounds raised by the Revenue in case of both the appeals. Md. Nizamuddin, learned Advocate for the revenue/appellant submitted that the learned Tribunal and the CIT (Appeals) both stressed that the assessee itself offered the additional income. The department did not find out that there had been any concealment of income on the part of the assessee which, he submitted, is factually incorrect. He added that it would appear from the assessment order that the so called voluntary act arose .....

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ing out of any pricking of conscience. In any case he added that the so-called voluntary disclosure cannot alter the consequences. He, in support of his submissions, relied upon a judgment of the Apex Court in the case of Mak Data Private Limited Vs. C.I.T. reported in 2014(1) SCC 674 wherein the following view was taken:- 5. THE AO, in our view, shall not be carried away by the plea of the assessee like voluntary disclosure , buy peace , avoid litigation , amicable settlement , etc. to explain .....

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the Revenue to show that the amount in question constituted the income and not otherwise. 6. ASSESSEE has only stated that he had surrendered the additional sum of ₹ 40,74,000/- with a view to avoid litigation, buy peace and to channelize the energy and resources towards productive work and to make amicable settlement with the income tax department. Statute does not recognize those types of defences under the explanation 1 to Section 271(1)(c) of the Act. It is trite law that the voluntary .....

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e surrender of income was voluntary. AO during the course of assessment proceedings has noticed that certain documents comprising of share applications forms, bank statements, memorandum of association of companies, affidavits, copies of Income Tax Returns and assessment orders and blank share transfer deeds duly signed, have been impounded in the course of survey proceedings under Section 133A conducted on 16.12.2003, in the case of a sister concern of the assessee. The survey was conducted mor .....

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ain the source of payments made by it and to declare its true income in the return of income filed by it from year to year. The AO, in our view, has recorded a categorical finding that he was satisfied that the assessee had concealed true particulars of income and is liable for penalty proceedings under Section 271 read with Section 274 of the Income Tax Act, 1961. 7. THE AO has to satisfy whether the penalty proceedings be initiated or not during the course of the assessment proceedings and the .....

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l to the computation of the total income of any person under this Act,- (A) such person fails to offer an explanation or offers an explanation which is found by the [Assessing Officer] or the [***] [Commissioner (Appeals)] [or the [Principal Commissioner or Commissioner]] to be false, or (B) such person offers an explanation which he is [not able to substantiate and fails to prove that such explanation is bona fide and that all the facts relating to the same and material to the computation of hi .....

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d to call upon the assessee to furnish an explanation. In case the assessee fails to offer an explanation or offers an explanation which is found by the Assessing Officer to be false or the assessee offers an explanation which he is not able to substantiate and also fails to prove that the explanation offered was bona fide, it is in those cases, the amount of income concealed can be added or disallowed. He contended that in this case no such exercise was undertaken at all. He drew our attention .....

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cealed and the order passed by the Assessing Officer proposing to initiate proceeding under Section 271(1)(c) and the subsequent proceedings under the aforesaid section are all without any basis. The jurisdictional fact for initiating a penalty proceedings is altogether absent. Therefore, the order levying penalty was rightly set aside by the C.I.T.(A) which was endorsed by the learned Tribunal. He submitted that the C.I.T.(A), in its order dated 27th June, 2007, has recorded that the department .....

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lks & Sarees Vs. C.I.T., Karnataka reported in (2008) 12 SCC 458 wherein Their Lordships opined that The Tribunal is the final court of fact (see paragraph 16) He also drew our attention to paragraph 12 of the judgment, which reads as follows;- 12. The only contention raised by the learned counsel for the appellant is that the Tribunal is the final fact-finding authority and its decision on the facts can be gone into by the High Court only if a question has been referred to it which says tha .....

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e High Court exceeded its jurisdiction in coming to the conclusion that the findings recorded by the Tribunal were perverse as no question of law to that effect had either been claimed or referred by the Tribunal to the High Court for its opinion. He also drew our attention to a judgment of the Andhra Pradesh High Court in the case of CIT vs. H. Abdul Bakshi & Bros., reported in 160 ITR 94 for the following proposition:- It should be remembered that penalty proceedings are entirely distinct .....

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ment years 1983-84, 1984-85, 1985-86 and 1986-87 showing income ranging between ₹ 10,000 and ₹ 12,000. Later action under section 132 was taken against him which led to reopening of the assessment. A notice under section 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 regularised under section 148. Meanwhile the Assessing Officer took .....

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anation and the Assessing Officer too did not record any finding as to the acceptability or otherwise of the explanation of the assessee. Under these circumstances, the proviso to Explanation 1 to section 271 is not attracted. The Revenue did not at all discharge the burden to prove that there was concealment of income by the assessee. It simply rested its conclusion on the act of voluntary surrender by the assessee, which obviously was done in good faith and to buy peace. The Tribunal also plac .....

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he true position, it does not dispute certain disallowances but that does not absolve the Revenue from proving the mens rea of a quasi-criminal offence. We find ourselves in agreement with the view taken by the Tribunal. It is well settled that under section 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 to offer any explanation for .....

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ssessing 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 Assessing Officer and affirmed by the Commissioner of Income-tax (Appeals) in the facts and circumstan .....

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rein the following views were expressed:- After hearing the learned counsel for the appellant, we do not find any merit in this appeal. Undisputedly, the assessee filed the return of income declaring its total income at ₹ 47,05,230, which, inter alia, included long-term capital gain on sale of shares amounting to ₹ 29,74,951. The return was processed in terms of section 143(1)(a) of the Act on March 15, 1999. Subsequently, on the basis of some information with regard to sale proceeds .....

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d also to save himself from any penal action. Later on, on the basis of revised return, the assessment was framed and the return submitted by the assessee was regularized as it is. During the course of assessment, the aforesaid explanation given by the assessee was neither rejected nor was it held to be mala fide. The Tribunal has recorded a pure finding of fact to the effect that the Revenue has not placed on record any material or evidence to discharge its burden of proving concealment. In the .....

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Supreme Court has upheld the decision of the Madhya Pradesh High Court, CIT v. Suresh Chandra Mittal (2000) 241 ITR 124 (MP), where in similar circumstances it was held that 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 to offer any explanation for the undisclosed income or offers an explanation which is found to be false by the assessing au .....

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ing the order of the Commissioner of Income-tax (Appeals), whereby the penalty imposed under section 271(1)(c) of the Act by the Assessing Officer was ordered to be deleted. In summing up, Mr. Kapoor reiterated that there has been no concealment and no evidence of any alleged concealment was adduced in the absence whereof the penalty could not have been levied. He added that in revenue matters there is no scope for any equity. Unless the alleged concealment has been brought within the letter of .....

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of the conditions expressly stated in the section, once the section is applicable in a case the authority concerned would have no discretion in quantifying the amount and penalty must be imposed equal to the duty determined under sub-section (2) of Section 11-A. That is what Dharamendra Textile decides. The last submission advanced by Mr. Kapoor was that by the impugned judgment penalty was levied for the years 2003-04, 2004-05 and 2005-06. The present appeal is directed against a judgment of th .....

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gned judgment, in so far as the same is relatable to the assessment year 2003-04, has been challenged by any separate appeal. Mr. Kapoor submitted that in the absence of any challenge to the impugned judgment in so far as the same is relatable to the assessment year 2003-04, the present appeal is also bad because the law is that rule of consistency has to be applied. He submitted while on the same set of facts the order imposing penalty has been set aside by the learned Tribunal which is not und .....

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rned counsel on both sides. Delay condoned. Leave granted. These civil appeals filed by the Department concern Assessment Years 2003- 04 and 2002-03. The question which arises for determination in these appeals is whether the income in question is liable to be taxed as business income or as income from house property ? From the records, we find that, for the earlier Assessment year 2001-02, the Income Tax Appellate Tribunal [for short, ITAT ] has taken the view that income in question is busines .....

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icated above one has to notice the provision as regards the concealment of income appearing from Section 271(1)(c). The Section provides that:- Section 271 Failure to furnish returns, comply with notices, concealment of income, etc. Section (1) If the Assessing Officer or the Commissioner (Appeals) in the course of any proceedings under this Act, is satisfied that any person - (a)…………… (b)…………… (c) Has concealed the particular .....

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. From the letter dated 27th March, 2006 addressed by the assessee to the Joint Director of Income Tax, it appears that the assessee was informed that the summons have been issued with regard to the payments appearing to have been made by the assessee to U.P. Distilleries Association. The assessee rather than appearing on the appointed day to give evidence and to produce documents as required by the summons dated 17th March, 2006 wrote to the Joint Director of Income Tax, inter alia, as follows: .....

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uitous to the whole issue. In the light of our voluntarily surrendering the aforesaid sum as our income in the respective years to which they pertain, it is requested that no penalty/prosecution shall be imposed/launched against us. The assessee thereafter filed a revised return under the cover of a letter dated 3rd April, 2006 stating therein, inter alia, as follows:- The computation of Total Income made in this Return is inclusive of a sum of ₹ 340.00 Lacs being the alleged payments made .....

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e the amount in its Return of Income and pay tax thereof. This is being done by the Company just to buy peace and put an end to the protracted litigation. In this connection, a copy of the letter dated 27.03.2006 addressed to Jt. Director of Income Tax ( Inv.), (OSD), Unit - II, New Delhi, is enclosed and marked as Annexure - B. Since the assessee is revising income voluntarily and in good faith only to buy peace and to avoid protracted litigation, penalty proceedings and/or any consequential pe .....

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see did not expressly own up payment of a sum of ₹ 3.40 crores to U.P. Distilleries Association. It may also be true that the revenue did not adduce any proof to show that any such payment was made by the assessee to U.P. Distilleries. The omission on the part of the assessee to answer the question as regards the payment to U. P. Distilleries would attract the presumption laid down in illustration (h) to Section 114 of the Evidence Act which provides as follows:- that, if a man refuses to .....

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of the assessee is that the return already filed by him for the assessment year 2004-2005 under Section 139 includes an expenditure disallowable under Section 37 (1) of the I.T. Act, it would automatically follow that inaccurate particulars had been furnished in the return originally filed, assessment whereof was completed on 28th December, 2005. The provisions of Sub-section 1 of Section 271 noticed above suggests that if the assessee furnishes inaccurate particulars coupled with absence of sa .....

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h a sum of ₹ 3.40 crores was added by the assessee himself to his total income originally returned. The submission advanced by Mr. Kapoor that the Assessing Officer did not call for any explanation from the assessee is not factually correct because it would appear from the assessment order dated 30th March, 2007 quoted above that a notice under Section 271(1)(c) was issued to which the assessee duly replied by its letter dated 1st June, 2006 and offered an explanation that there was no del .....

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4 w.e.f. 1.4.1964 as a result concealment of income or inaccurate particulars need not originally have been furnished deliberately. The use of the expression deliberately was a pointer to show that mens rea was a necessary element. With the omission of the expression deliberately , mens rea is no longer a prerequisite for imposition of penalty. It is now a case of strict liability. In the case of Dilip N. Shroff - Vs- CIT reported in (2007) 291 ITR 519 (SC), mens rea was considered to be a neces .....

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IT Act entirely indicates the element of strict liability on the assessee for concealment or for giving inaccurate particulars while filing return. The judgment in Dilip N. Shroff case has not considered the effect and relevance of Section 276-C of the IT Act. Object behind enactment of Section 271 (1) (c) read with Explanations indicate that the said section has been enacted to provide for a remedy for loss of revenue. The penalty under that provision is a civil liability. Wilful concealment is .....

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The judgment of M. P. High Court in the case of CIT -Vs- Suresh Chandra Mittal cited by Mr. Kapoor followed that judgment of the Supreme Court. The judgement is also distinguishable on facts because in that case the Tribunal had held that the assessee had no chance of carrying through his explanation . But, in this case explanation was called for and explanation was offered by the assessee which was found not acceptable in the order dated 30th March, 2007. The views expressed in the case of CIT .....

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ittal (supra) was dismissed does not alter the position. The judgement in the case of CIT -Vs- Rajib Garg (supra) cited by Mr. Kapoor does not help the assessee for the same reason, that the views expressed therein are contrary to the views of the Apex Court in the case of Mak Data Private Limited (supra) as discussed above. There can be no quarrel with the proposition that the Tribunal is the final fact finding authority. The Tribunal was correct in observing that no independent evidence was ad .....

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