TMI Blog2016 (4) TMI 26X X X X Extracts X X X X X X X X Extracts X X X X ..... sponse to notice u/s 148 as it is not disputed that assessee did not claim any set off of loss. Thus we see no justification in alleging that assesssee has concealed any fact or furnished inaccurate particulars in any returns of income. 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. 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 in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tober, 2005. The Scheme of Arrangement for de-merger was finally approved by Hon'ble Rajasthan High Court vide its order dated 09.02.2007. The assessee is governed by regulatory laws including The Companies Act, 1956, 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 mat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cation of facts, it is found that M/s. Associated Stone Industries Ltd., Kota, PAN AACCA 3549F has not revised its return for the A.Y. 2006-07 and continued to set off its profit from the losses of the demerged unit, for which it was not entitled. 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 ₹ 2,21,82,864/-. Thus, the income equal to the amount of ₹ 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 ₹ 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ould have revised its return accordingly. But, on verification of facts, it is found that M/s.Associated Stone Industries Ltd., Kota (PAN AACCA 3549F) has not revised its return for the A.Y. 2006-07 and constituted to set of its profit from the losses of the demerged unit, for which it was not entitled. 2.4 As a result the originally assessed loss of ₹ 6,44,82,042/- u/s 143(3) vide assessment order dated. 31-12-2010 was converted into income of ₹ 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 ₹ 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 ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted 03.12.2010 during the assessment proceedings. 6. During the course of assessment proceedings u/s 147assessee agreed to pay tax on the income of mining division only with a following note submitted earlier on dated 27.12.2010. After submission of the factual position as above, we hereby inform your goodself that 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t thereof shall, for the purposes of clause (c) of this sub-section, be deemed to represent the income in respect of which particulars have been concealed. For the application of clause (B) to explanation 1, 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. (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: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... N. Shroff v. Joint CIT (2007) 291 ITR 519 (SC) and T. Ashok Pai v. CIT (2007) 292 ITR 11 (SC). Looking at the entirety of facts it emerges that: - The Textile Division has been demerged as per Scheme of Arrangement w.e.f. 16.10.2005 but the scheme of arrangement of demerger was approved by High Court on dated 09.02.2007. - In absence of sanction from High Court for demerger, audited Balance Sheet and 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 consider ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n such cases, penalty should not be imposed. In such cases rather it is the duty of the Assessing Officer to ask for further details and tax the income if it is liable to tax. In the instant case, the assessee had shown long-term capital gain and claimed exemption, but the transaction had been disclosed in the return. There was no concealment of income and penalty could not be imposed, {Chandrapal Bagga v. Income-tax Appellate Tribunal (2003) 261 ITR 67 (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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of our income and without considering demerger effect with necessary disclosure of facts. We have filed the Income Tax Return based on the status of the company and the provision of Income Tax Act applicable at the time of filing of original return. Therefore, we have not concealed the income or have furnished inaccurate particulars of income while filing the original income tax return. The law applicable is law as it stood on the date of filing of the return and not on the date 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s been decided that merely making a not sustainable claim in law does not lead to furnishing incorrect particulars. The argument of the revenue that submitting an incorrect claim for expenditure would amount to giving inaccurate particulars of such income is not correct. By no stretch of imagination can the making of an incorrect claim in law tantamount to furnishing inaccurate particulars. A mere making of the claim, which is not sustainable in law, by itself, will not amount to furnishing inaccurate 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 gui ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ccepted that demerged unit could not claim loss related to resulting company. Company submitted that in the return of income for the A.Y. 2007-08, company neither concealed income nor filed inaccurate particulars of income, however, it is worthwhile to mention that on the date of notice, isued u/s 148, assessee was liable to file revised return, however, company did not file revised return of income. It shows that if reassessment was not done in the case of assessee, company never pay tax on loss related to resulting company. In this case, 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). Pen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income filed, he had concealed income / filed inaccurate particular of income, similarly, an act of omission on the part of the assessee post filing of his return of income does not, by itself, attract this penalty if the return of income filed by him did not contain concealment / inaccurate particulars. To reiterate, it is undisputed that the return of income filed by the assessee on 27.11.2006 was a perfectly valid and correct return and did not contain any concealment / inaccurate particulars. It is nobody's case that the return of income would have or should have been otherwise. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Pvt. Ltd. vs. CIT [(2012) 348 ITR 306 (SC)] CIT v/s. Reliance Petroproducts P. Ltd. [(2010) 322 ITR 158 (SC)] T. Ashok Pai v/s. CIT [(2007) 292 ITR 11 (SC)] Mahadeswara Movies vs. CIT (1983) [144 ITR 127 (KAR)]} (iii) The assessee had disclosed all the material information relating to the computation of income. Further, there is no independent finding on the part of the AO. In fact, he has relied completely on the disclosures made by the assessee in its return and submissions. 2.7 Ld. CIT(A) however confirmed the penalty by following observations: I have considered the findings of AO and assessee'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) T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 271(1)(B), mere issuance of direction to initiate penalty is sufficient to constitute satisfaction so, this issue also goes against assessee. This ground of appeal is therefore dismsised. 2.8 Aggrieved assessee is before us. Ld. Counsel for the assessee contends that: 1. It is nowhere disputed by the ld. AO that all the relevant details about demerger scheme, its pendency and subsequently its order, everything was filed by assessee itself before ld. AO. There is no reason whatsoever that assessee concealed anything or furnished inaccurate particulars of income. Relevant details were filed in physical form as well as notes in e return wherever possible for the assesse. 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 app ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... derance of probability, human conduct, surrounding circumstances or reasonable logic. 7. More importantly, it is nowhere alleged that assessee has taken any undue advantage as it has not claimed any set off of such losses in the subsequent year i.e A.Y. 2007-2008. Since the assesse desired to close the issues it has paid all the due tax demand in this behalf. Thus there is no loss whatsoever to revenue and out right negates any suspicion that assessee concealed any income or filed inaccurate particulars of income in the return. 8. After initiation of the reassessment proceeding, the assessee again furnished all the relevant facts on record in details, submissions and case laws. The revised 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e date of filing the return. Further reliance was placed on: PWC Pvt. Ltd. vs. CIT [(2012) 348 ITR 306 (SC)] CIT v/s. Reliance Petroproducts P. Ltd. [(2010) 322 ITR 158 (SC)] T. Ashok Pai v/s. CIT [(2007) 292 ITR 11 (SC)] Mahadeswara Movies vs. CIT (1983) [144 ITR 127 (KAR)]} (vi) The assessee had disclosed all the material information relating to the computation of income. Further, there is no independent finding on the part of the AO. In fact, he has relied completely on the disclosures made by the assessee in its return and submissions. (vii) Reliance was placed on: Dilip N. Shroff V/S. JT. CIT [(2007) 291 ITR 519 (SC)] Kanbay Software India (P) Ltd. vs Dy. CIT 22 DTR 481 (Pune) No satisfaction within the 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 satis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any evidence for writing off of the amount in the books of account. As the satisfaction that the assessee had concealed income or furnished inaccurate particulars of such income is not discernible from the assessment order, the penalty order suffers from lack of jurisdiction to impose penalty. For concluding whether there was any concealment or if inaccurate particulars were furnished, the relevant time is when the return was filed. Addl. CIT v. Prem Chand Garg 24 DTR 513 (TM) (Delhi) (Trib) The fact, whether there is concealment of income or whether inaccurate particulars thereof have been furnished, is essentially a question of fact. To find out that or to decide which, all the attending circumstances have to be taken into account. The question is at 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 p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r furnishing of inaccurate particulars. (4) Mahadeswara Movies vs. CIT (1983) [144 ITR 127 (KAR)] The assessee, a film distributor, had claimed amortisation expenses that the ITO found to have already been included in profit and loss account filed by assessee alongwith return of income. This mistake readily accepted by assessee as inadvertent one. No attempt was made by the assessee to suppress any material facts. Further, in the past no such mistake had occurred was a relevant circumstance to be taken into consideration, and there was nothing improbable in the explanation that the mistake was due to inadvertence. Therefore, the levy of penalty was not justified. IF THE ASSESSEE DISCLOSES ALL MATERIAL INFORMATION OF HIS INCOME, HIS ONUS STANDS DISCHARGED. Dilip N. Shroff V/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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent in any manner. ii. The allegation of concealment or inaccurate particulars has not been established by the ld. A.O. on discovery of any new fact, information or inquiry. The entire adverse inference is drawn on nothing but asseessee's own record and Hon'ble High Court approval for demerger schemes after the income tax department is heard. In our considered view there exists no scope to hold that assesssee has concealed any fact or furnished inaccurate particulars in the return of income dtd. 27-11-2006 filed prior to approval of demerger scheme by Hon'ble Rajasthan High Court. So also in the return filed in response to notice u/s 148 as it is not disputed that assessee did not claim any set off of loss. Thus we see no justification in alleging that assesssee has concealed any fact 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d view this is not a fit case for imposition of penalty. viii. Our view is fortified by Hon'ble Supreme Court judgments in the case of Reliance Petro Products holding that when the relevant information is submitted in the return of income, it is to be held that assesse has the assesse has discharged its onus of offering a satisfactory explanation. ix. Hon'ble Supreme Court in the case of Hindustan Steels (supra) has held that penalty should not be imposed merely because it is lawful to do so. Besides technical or venial breach of law cannot be visited with stringent penalty proceedings u/s 271(1)(c). With all the record in possession of department, inadvertent non filing of revised return cannot constitute a decisive factor for imposition of penalty at the cost of host of other facts available on record demonstrating that assessee filed all the relevant details times and again suo motu. A technical default for which provisions of sec. 271(1)(a) may be attracted cannot be made a basis for penalty u/s 271(1)(c). x. In consideration of above facts and circumstances of the case, relying on the Hon'ble Supreme Court judgments in the cases of Reliance Petro Products, ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
