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TMI Blog2016 (4) TMI 26X X X X Extracts X X X X X X X X Extracts X X X X ..... Income-tax Act, 1961 and other applicable laws in this behalf. It had two division engaged in distinct activities i.e. stone division and textile division. Regular books of accounts for both divisions duly are maintained and audited, there were no adverse observation in these reports. The assesse filed its return of income A.Y. 2006-2007 declaring a loss of Rs. (-) 6,44,82,042/- along with audited accounts as well as the tax audit reports. The enclosures clearly mentioned the facts about companies pending demerger and also the likely tax effect of pending demerger application before Hon'ble Rajasthan High Court. Before filing the return in electronic form for AY 2006-07 on 27.11.2006, vide its letter dated 24.11.2006, the assessee intimated ld. AO relevant details and the facts about the demerger in contemplation and intention to file a revised return as and when the demerger scheme was finally approved by the Hon'ble Rajasthan High Court. Further as a matter of abundant caution, assessee also filed the return of income in physical form on 30.11.2006, which contained a covering letter of the same date enclosed with 152 pages notes and enclosure containing all the facts and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itled. Considering the above facts, the summarized working of the total income of M/s. Associated Industries (Kotah) Ltd. for A.Y. 2006-07 is calculated as under:- (the calculation is mentioned at page 2 of the Reasons for issue of Notice u/s 148)...... From the above, it is noted that as against the returned loss of Rs. (-) 6,44,82,042/-for A.Y. 2006-07, the total income of M/s. ASI, (kotah) Ltd., should be Rs. 2,21,82,864/-. Thus, the income equal to the amount of Rs. 8,66,64,904/- has escaped assessment in the case of M/s. Associated Stone Industries (Kotah) Ltd., Kota (PAN AACCA 3549F) Therefore, considering the above facts, I have reasons to believe that income of Rs. 8,66,64,904/- has escaped assessment in the A.Y. 2006- 07 and thus it is a fit case for issue of notice u/s 148 of the I.T. Act, 1961." 2.3 During the course of reassessment proceedings, ld. AO was of the view that from demerger order it emerged that assessee in original return has claimed the losses attributable to resulting company for which a revised return as undertaken has not been filed. The corresponding loss consequent to High Court demerger order Dtd. 9-2-2007 was reduced by ld. AO on following obser ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it was not entitled." 2.4 As a result the originally assessed loss of Rs. 6,44,82,042/- u/s 143(3) vide assessment order dated. 31-12-2010 was converted into income of Rs. 2,21,82,042/- as a result of order Dtd. 31-12-2010 passed u/s 147. Ld. AO initiated penalty proceedings u/s 271(1)(c), the sum and substance of the assesse's reply is as under:- 1. As the Hon'ble High Court has not sanctioned the scheme of Arrangement of de-merger till the due date of filing of Income Tax Return for the Asstt. Year 2006-07, hence the company has filed its Income Tax Return at loss of Rs. 64482042/- on 27.11.2006, electronically and physically with ACIT, Cir.-1, Kota on 30.11.2006, without considering the effect of de-merger. The copy of acknowledgement for submission of electronically generated acknowledgement, computation of total income with necessary notes regarding demerger, original tax audit report, Balance sheet and other relevant documents has submitted earlier vide our letter No.7948 dated 03.12.2010 during the assessment proceedings u/s 143 (3.). 2. As in electronic filing of Income tax return there is no clause in ITR to mention the above position, we have intimated about ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as we forgot to file the revised Income Tax Return for the Asstt. Year 2006-07, we hereby accept and agreed to buy the peace with the department that losses pertaining to Textile Division may be transferred to resulting company which could not been transferred at the time of filing of original return on or before due date in absence of the final approval of the Hon'ble High Court for Scheme of Arrangement of Demerger and we also agreed to pay net actual income tax on the total income of the mining division only. We have filed original Income tax return as per the circumstances and statute prevailing at that time filing of original return and thereafter, on approval of Scheme of Arrangement for Demerger by Hon'ble High Court, we have also not availed benefit of any set off during the next Assessment Year and onwards for the losses pertaining to Textile Division." We hereby further submit the in view of these facts and circumstances no penalty u/s 271 (1)(c) for concealment of particulars of income or furnishing of inaccurate particulars of such income be imposed in case of disallowances of losses pertaining Textile Division due to demerger effect. 7. According to section U ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) The assessee fails to prove that such explanation is bona fide and (3) The assessee fails to disclose all the facts relating to the same and material to the computation of his total income. (2) Kanbay Software India Ltd. vs Dy. CIT 22 DTR 481 (Pune)] As long as the information given in the income tax return is correct and complete to the best of assessee's knowledge and belief, it cannot be said that the statutory obligation under section 139(1) is contravened which, even for a civil liability for penalty being imposed, is a sine qua non. Therefore, in these facts and circumstances assesse was not liable imposition of penalty u/s 271(1)(c).of the Income Tax Act. For the application of clause (B) to explanation 1to sec. 271(1)(c), the following three conditions must cumulatively be satisfied: (1) The assessee fails to substantiate the explanation offered by it and (2) The assessee fails to prove that such explanation is bona fide and (3) The assessee fails to disclose all the facts relating to the same and material to the computation of his total income. The Madras High Court, in A.V. Thomas & Co. (India) Ltd v. CIT (1966) 59 ITR 499 (Mad) analysed the implications o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Profit & Loss Account for the year 2005-06, was prepared on dated 15.06.2006, without considering the effect of demerger of textile division and put up a note in Notes to the Accounts of statutory Audit report to that effect. - In absence of sanction from High Court for demerger before the due date of filing of Income tax return, It can not be presumed that whether Demerger Scheme will be sanction by the High Court or not or will be sanction with or without the any change. - Due to mandatory provision for filing of Income Tax Return before the due date as per the provision under section 139 (1) of Income Tax Act, 1961, hence we have filed the Income tax return timely by considering the income of textile division being a part of our income and without considering demerger effect. - Assessee duly intimated to the department about the inclusion of income of textile division alongwith the reason for the same at the time of filing of income tax return and computation of income and by way of separate letter from time to time. We have disclosed all the facts relating to not considering the demerger in the computation of total income. - While filing of Income tax return assessee neithe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7 (Raj.)}. Recently the Supreme Court in the case of Union of India v. M/s Rajasthan Spinning & Weaving Mills (2009) 224 CTR 1 (SC) held in the context of section 11AC of the Excise Act which is similar to sec. 271(1((c)-The view taken in Dharmendra Textiles has been questioned by observing that "we fail to see that how the decision of Dharmendra Textiles can be said to be hold u/s 11 C would apply to every case of nonpayment or short payment of duty regardless of conditions exclusively mentioned in the section for its application." - The Mumbai Tribunal in its another decision on 20.03.2009 in the case of VIP Industries v. ACIT 21 DTR Mum Tri 153 : AIT-2009-122- ITAT, has held that mere confirmation of addition in quantum proceedings cannot, perse, lead to confirmation of levy of penalty. The Dharmendra Textile Division is confined to conclude that mens era is not essential for invoking penalty provisions. The intention of the Supreme Court is to cover those cases where the assessee earns income but unintentionally or inadvertently fails to disclose this in the return of income. The Supreme Court has not held that in all cases where the addition is confirmed, the penalty shall m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of passing the penalty order - Jain Bros. V. Union of India (1970) 77 ITR 107 (SC). The Supreme Court in the case of Hindustan Steel Ltd. v. State of Orissa (1972) 83 ITR 26 (SC) has held that an order imposing penalty for failure to carry out a statutory obligation is the result of a quasicriminal proceeding, and penalty will not ordinarily be imposed unless the party obliged either acted deliberately in defiance of law or guilty of conduct, contumacious or dishonest, or acted in conscious disregard to its obligation. Penalty will also not be imposed merely because it is lawful to do so. Whether penalty should be imposed for failure to perform a statutory obligation is a matter of discretion of the authority to be exercised judicially and on a consideration of all the relevant circumstances. Even if a minimum penalty is prescribed, the authority competent to impose the penalty will be justified in refusing to impose penalty when there is a technical or venial breach of the provisions of the Act or where the breach flows from a bona fide belief that the offender is not liable to act in the manner prescribed by the statute. Mere technical breach should not ordinarily attract penal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ate particulars regarding the income of the assessee. If the contention of the Revenue is accepted then in case of every return where the claim made is not accepted by the A.O. for any reason, the assessee will invite penalty u/s 271(1)(c). That is clearly not the intention of the Legislature. Further reliance is placed on: J.K. Jajoo Vs. CIT (1980) 181 ITR 410 (MP) 083 CTR (MP) 041 : Held from the mere fact that a claim for certain expenditure is rejected it cannot be held; that the claim for expenditure made by the assessee was false or inaccurate to his knowledge or was as a result of gross negligence. Therefore the tribunal was not justified in holding the assessee was guilty of concealing the particulars of his income and was liable to pay penalty under provisions of 271(1)(c). CIT v. Rose Lock Factory (1993) 117 Taxman 366 (Guj.): No penalty merely because of disallowance of certain expenses bona fide claimed by assesse. Gruh Finance Ltd v. ACIT 316 ITR (AT) 440 (Ahd.): Disallowance of deduction claimed by the assessee where true and full disclosure was made, does not amount to concealment. Jhavar Properties P. Ltd v. ACIT (2009) 317 ITR (AT) 278 (Mum.): Disallowance o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , it is very clear that assessee hide true particulars of income. Hence, explanation of the assessee is neither bona fide nor reliable. Further, in view of the Explanation deeming concealment, the assessee has a duty to offer an explanation. However, where an explanation was offered and found to be unreliable, penalty becomes exigible. Also, it has been held in the case of [CIT vs. Shree Krishna Trading Co., (2002) 253 ITR 645, 649 (Kerala High Court)] that after introduction of Explanation 1 conscious concealment need not be established. It is also held in the case of Union of India vs. Dharmendra Textile Processors (2008) Taxman 65 (SC). Penalty u/s 271(1) ( c ) is civil liability and for attracting such civil liability, willful concealment is not an essential ingredient. Also, it is held that in the case of Raghuveer Soni vs. ACIT (2002) 258 ITR 239 by Rajasthan High Court that if in addition to failure to substantiate the explanation, the assessee also fails to prove that the explanation furnished by him was bona fide and that he has disclosed all material facts necessary for assessment then Explanation 1 to Section 271(1)( c ) operates. Looking to the above facts and circ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ise. In the circumstances, it is clear that there was no concealment / filing of inaccurate particulars vis-a-vis the return of income so filed. Another important aspect is that neither any fact has been found to be untrue nor A.O. has discovered any new fact. In other words, the penalty has been levied on the basis of the facts which were brought on record by assessee only, before even the assessment or reassessment proceedings were initiated. The facts clearly depict that there was neither any attempt nor intention to conceal any income or file any inaccurate particular of income but even on the basis of the circumstantial evidences as well as taking into account preponderance of probability, human conduct or surrounding circumstances., there could not have been any iota or semblance of intention to do so. Moreover, the assessee has not taken any undue advantage of its omission, as it had not claimed any set off of such losses in the subsequent year i.e A.Y. 2007-2008 and also it had paid taxes. This negates any probability of the intention to conceal income / file inaccurate particulars of income. Even after initiation of the assessment proceeding, the assessee again put all ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... #39;s submission. The assessee mainly relied on the fact that it has disclosed all the material fact before the AO. The basic facts are as under:- (i) The assessee filed its return of income on 30-11-2006. (ii) The assessee filed petition before the Hon'ble High Court for demerger of company into two companies namely M/s. Associated Stone Industries (Kotah), Ltd. and M/s. Vast Textiles Ltd. The scheme was to become effective from 16- 10-2005. (iii) The Hon'ble High Court of Rajasthan approved the scheme vide its order dated 09-02-2007. (iv) The assessee had time to file revised return till 31-03- 2008. However, no revised return was filed. (v) The assessee informed the AO on 31-1-2006 that as soon as the scheme of demerger was approved it would file revised return. However, no revised return was filed. (vi) The assessee submitted a copy of letter intimating the A.O. alongwith copy of order of Hon'ble High Court of Rajasthan, approving the scheme of demerger. (vii). The assessee filed return for A.Y. 2007-08 on 31.10.2007 without claiming cany forward losses. The assessee claimed before me that assessee has all along kept on informing the A.O about various develo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Thus there is no issue on the undisputed facts that assessee made complete and full disclosure of all relevant facts, circumstances and documents even before the assessment was taken up for scrutiny. 2. The entire basis for imposition of penalty hinges on one aspect that assesse did not file the revised return; this is without disputing the most crucial aspect that the entire disclosure was made at the time of filing the application for demerger, returns of income for AYs 2006-07 & 07-08, after the approval of demerger scheme by High Court. It is not even the case of the A.O. that the return of income filed by the assessee for A.Y. 2006-2007 which has to be the sole basis for considering the applicability of penalty provision - contained or depicted even an iota of concealment of income or furnishing any inaccurate particulars. 3. It is a fundamental requirement of law that allegation about concealment penalty or imposition thereof and filing of inaccurate particulars is always related to the particulars disclosed along with return of income filed by assesse. It has been hold so by various Hon'ble Courts by way of plethora of judgments. In other words, for levy of penalty it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d return could not be filed by the assesse due to an unintentional omission. There is no provision in the IT Act for levying concealment of income u/s 271(1)(c) for non-filing of return. The relevant provision is sec. 271(1)(a), which is neither initiated nor attracted. Thus the penalty has been imposed for not filing a return and unfounded allegation that assessee filed inaccurate particulars in return of income dtd. 27-11-06 is baseless as all the details about pending demerger application were furnished and mentioned. There can be no mistake in this return as the demerger was not approved by the time of filing of return or the assessment. Having offered a satisfactory explanation in this behalf, assessee had discharged its primary onus to submit an explanation which is corroborated by undisputed facts and substantiated by record about its truthfulness. Per contra ld. A.O. has overlooked the record, court orders and evidence and on an excuse that revised return was not filed by the assesse, arbitrarily imposed the penalty. The penalty is imposed qua original return dtd. 27-11-2006 which remains accepted on this issue and when even the scheme was not approved and all the due discl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he meaning of section 271 (1) (c) Ms. Madhushree Gupta vs. Union of India 317 ITR 107 (Del) In this case, the constitutional validity of section 271(1B) was challenged. The High Court, while upholding constitutional validity, held that the position of law both, pre and post amendment whereby section 271(1B) was inserted with retrospective effect from 1-4-1989, is similar, inasmuch as Assessing Officer will have to arrive at a prima facie satisfaction during course of assessment proceedings with regard to assessee having concealed particulars of income or furnished inaccurate particulars before he initiates penalty proceedings. The Court further held that the satisfaction of Assessing Officer that case may deserve imposition of penalty should be discernible from order passed during course of assessment proceedings. CIT vs.Rampur Engineering Co. Ltd. 309 ITR 143 (Delhi)(FB)] The High Court held that the power to impose penalty under section 271 of the Act depends upon the satisfaction of the Income-tax Officer in the course of the proceedings under the Act. It cannot be exercised if he is not satisfied and has not recorded his satisfaction about the existence of the conditions sp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t what point of time this material fact is to be found out. Generally it is with reference to the return of income and at that time it is to be seen whether there was concealment of income or furnishing of inaccurate particulars thereof in the return of income chargeable to tax. No penalty when a bonafide claim is rejected It is also a fundamental principle of penalty that no penalty can be levied just because a claim preferred by the Assessee is disallowed. Reliance, in this regard, is placed on the following decisions, among others: (1) PWC Pvt. Ltd. vs. CIT [(2012) 348 ITR 306 (SC)] There is also no question of the assessee furnishing any inaccurate particulars. All that happened in the present case is that through a bona fide and inadvertent error failed to add the provision for gratuity to its total income. This can only be described as a human error which we are all prone to make. The calibre and expertise of the assessee has little or nothing to do with the inadvertent error. That the assessee should have been careful cannot be doubted, but the absence of due care, in a case such as the present, does not mean that the assessee is guilty of either furnishing inaccurate pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /S. JT. CIT [(2007) 291 ITR 519 (SC)] Even if Explanation is taken recourse to, a finding has to be arrived at having regard to clause (A) of Explanation 1 that the Assessing Officer is required to arrive at a finding that the explanation offered by an assessee, in the event he offers one, was false. He must be found to have failed to prove that such explanation is not only not bonafide but all the facts relating to the same and material to the income were not disclosed by him. Thus, apart from his explanation being not bona fide, it should have been found as of fact that he has not disclosed all the facts which was material to the computation of his income. Kanbay Software India (P) Ltd. vs Dy. CIT 22 DTR 481 (Pune)] As long as the information given in the income tax return is correct and complete to the best of assessee's knowledge and belief, it cannot be said that the statutory obligation under section 139(1) is contravened which, even for a civil liability for penalty being imposed, is a sine qua non. 2.9 Ld. DR supported the orders of lower authorities and contends that by not filing the revised return assesse has avoided the payment of taxes and therefore, it is liab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or furnished inaccurate particulars in any returns of income. iii. a multitude of undisputed facts mentioned above clearly demonstrate that there were no effort much less intention to conceal any particulars or file any inaccurate particular of income by assessee testing it on the touchstone of preponderance of probability, human conduct, surrounding circumstances or reasonable logic. iv. There is no loss to revenue as assessee has paid all the due taxes. It has not taken any advantage as it has not claimed any set off of such losses in any manner in the subsequent year. There being repetitive and full disclosure of facts and record; there being no loss to revenue as the loss is not set off by the assesse and merely because revised return is not filed by the asssessee, it is desirable the all the surrounding circumstances, human conduct and assessee's explanation are to be considered in harmonious manner. Considering all the aspect we are not in agreement with authorities below that assessee concealed or filed inaccurate particulars of income so as to be liable for impugned penalty. v. Having filed all the relevant details on several occasions whose veracity is not at all ch ..... X X X X Extracts X X X X X X X X Extracts X X X X
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