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Judgment
Dilip B. Bhosale, J.—In view of the divergent views expressed by learned Judges in Division Bench on the question whether this appeal deserves dismissal with costs of Rs. 1,00,000/-, the Hon''ble Chief Justice has made reference to this Court (third Judge). Both the learned Judges on merits of the case are unanimous. The question formulated by the Bench in the reference order is:
Whether the case in hand calls for dismissal without costs or with costs of Rs. 1,00,000/-?
The first Judge while dismissing the appeal in the concluding paragraph 7 observed thus.--
For the sake of arguments even if we consider the arguments that he had jewels and he sold the same and advanced the loan to the appellant, for having sold the jewels no document is produced. Therefore, it is difficult to believe the version of the creditor that he had gold worth Rs. 20.00 lakhs to sell and even if he has produced any receipt for having sold the jewel. In the circumstances, we are of the view that no substantial question of law arises in this appeal for consideration. Accordingly, the appeal is dismissed without cost.
(emphasis supplied)
The second Judge though agreed with the reasonings rendered for dismissal of the appeal, wherein the concurrent orders of the authorities below were called in question, levied exemplary costs of Rs. 1,00,000/-. The second Judge after considering overall facts and circumstances of the case in paragraphs 3 and 4 of the separate order observed thus:
Hence, in my considered opinion it is just and necessary to impose punitive cost on the appellant-assessee. Considering the fact that in this appeal the attempt of the assessee is to convert a sum of Rs. 40,00,000/- from black money to white money, the enormity of the same would be lost if appeal is dismissed in casual manner. In the facts and circumstances of the case, it is just and necessary that heavy cost is required to be imposed on the assessee for wasting the time of the Assessing Authority, Income Tax Appellate Authority, Income Tax Appellate Tribunal and in addition to that the valuable time of this Court on this unscrupulous appeal. Accordingly, it is fell by me that cost of at least Rs. 1,00,000/- is required to be imposed on the appellant.
By expressing aforesaid view regarding costs and in agreement with the finding rendered by the Senior Member of this Bench in dismissing the appeal of the assessee, it is made clear that the appeal is dismissed by imposing cost of Rs. 1,00,000/-, which the appellant-assessee shall deposit in the registry within three months from this day.
(emphasis supplied)
It is against this backdrop the Division Bench requested the Hon''ble Chief Justice to refer the matter to a third Judge to decide whether the case in hand calls for dismissal with costs or without costs of Rs. 1,00,000/-.
I have heard learned Counsel for the parties and with their assistance gone through the orders passed by both the learned Judges and so also the order of reference. While making reference, the first Judge in paragraphs 1 and 2 made the following observations:
....... While dismissing the appeal I have not levied the cost because the appeal filed by the appellant is u/s 260A of the income tax Act, 1961 which is a statutory appeal. The learned Counsel appearing for the appellant Mr. Shankar has only narrated the facts without wasting Court time. Since we did not find any substantial question of law, even without call upon the Advocate for the Revenue dismissed the appeal.
The Court cannot say that the litigant shall not exercise his right to file an appeal provided under the statute. A litigant will always be under the impression that he has a case on merits and it is for the Court to decide the same. Whenever a statutory appeal is dismissed the Court is not expected to levy the cost. More so, in the present case because the arguments are concluded and judgment is also dictated within ten minutes.
The background facts, to the extent, that are ''necessary are as under:
The assessee in the present case had filed his return of income declaring the income of Rs. 40,94,690/-. The return was processed u/s 143(1) of the Act and then selected for scrutiny. After issue of notice u/s 142(2) the assessment was made u/s 143(3) of the Act. In the course of assessment proceedings the Assessing Officer verified Schedule III to the balance sheet relating to sundry creditors and noticed that the assessee had shown outstanding balance of Rs. 20.00 lakhs each against Sri G.K. Rathod and Sri S.G. Shahapur. When the assessee was asked to prove sundry creditors by furnishing evidence in respect of their identity, genuineness of the transactions and creditworthiness of the creditors, he stated that he had obtained loan from these persons by account payee cheques in the course of business to meet urgent liability as reflected in the books of account. The Assessing Officer however found that there were unsecured loans obtained during the course of business, and therefore, asked the assessee to show cause why it should not be added u/s 68 of the Act. It was revealed that the persons who had allegedly advanced loans were not financially capable to advance such a huge loans. It is in this backdrop the Assessing Officer was of the opinion that the assessee should establish identity of the creditors, their capacity and genuineness of the transaction and since the assessee could not discharge the burden by producing prima facie evidence the said amounts were treated as unexplained cash credit in the hands of the assessee. Accordingly, the Assessing Officer made addition of Rs. 40.00 lakhs u/s 68 as unexplained monies. This order of the Assessing Officer was confirmed by the Commissioner of Income Tax (Appeals). It is pertinent to note that the Tribunal allowed the appeal partly and reduced the amount of Rs. 40.00 lakhs to Rs. 20.00 lakhs. In this backdrop the appellant approached this Court by way of the instant appeal.
At the outset, learned Counsel appearing for the assessee invited my attention to Section 260A of the income tax Act, 1961 (for short, "Act''), which provides appeal to High Court against the order passed in appeal by the Appellate Tribunal. It would be relevant to reproduce the relevant portion of Section 260A to appreciate the submissions made by learned Counsel for the parties.
The relevant portion of Section 260A of the Act reads thus:
260-A. Appeal to High Court.--(1) An appeal shall lie to the High Court from every order passed in appeal by the Appellate Tribunal, if the High Court is satisfied that the case involves a substantial question of law.
...............
(3) Where the High Court is satisfied that a substantial question of law is involved in any case, it shall formulate that question.
(4) The appeal shall be heard only on the question so formulated, and the respondents shall, at the hearing of the appeal, be allowed to argue that the case does not involve such question:
Provided that nothing in this sub-section shall be deemed to take away or abridge the power of the Court to hear, for reasons to be recorded, the appeal on any other substantial question of law not formulated by it, if it is satisfied that the case involves such question.
(5) The High Court shall decide the question of law so formulated and deliver such judgment thereon containing the grounds on which such decision is founded and may award such cost as it deems fit.
(6) .............................
(7) .............................
From bare perusal of Section 260A it is apparent that an appeal under this provision would lie to the High Court and if it involves a substantial question of law, the High Court shall formulate that question and hear only on the question so formulated. It provides that the respondent shall at the hearing of the appeal be allowed to argue that the case does not involve such question. This provision further provides that the High Court shall decide the question of law so formulated and deliver such judgment thereon containing the grounds on which such decision is founded and "may" award such costs as it deems fit. It is thus clear insofar as income tax appeals u/s 260A are concerned, they are heard in two parts/stages, namely, admission of the appeal on a substantial question of law as formulated at this stage, and final hearing of the appeal. Of course, the High Court can decide the appeal finally at the stage of admission, if both the sides are ready to argue on the substantial question of law formulated at that stage. At the stage of final hearing the High Court is obliged to decide the question of law so formulated or hold that the case does not involve such question, and deliver judgment thereon containing the grounds on which such decision is founded and in that event "may" award such costs as it deems fit. Awarding of costs is thus left to the Court. It is true that there cannot be any ceiling on the costs that could be levied and the provision confers discretion on the Court in the matters.
In the present case, the appeal was not entertained at all and it was summarily dismissed holding that it does not involve for consideration any substantial question of law. As far as dismissal of the appeal is concerned, thought the learned Judges are unanimous, the second Judge, apart from the observations in paragraphs 3 and 4 of his order, as quoted above, has further observed that "merely dismissing such frivolous appeals holding that there is no merit, would only render procedure of the Court nothing short of a joke. If any act of money laundering to convert black money into white money is not viewed seriously the frivolous assessee would continue to evolve similar tactics and may even succeed in hoodwinking the Court. Therefore, this kind of appeals should not be viewed lightly and such an act of assessee also should not be ignored by dismissing the appeals without imposing any costs".
Learned Counsel for the assessee submitted that none of the authorities below has recorded any finding that it was a case of money laundering to convert black money into white. He submitted, as a matter of fact, such was not the issue before the authorities below and it was a simple case u/s 68 of the Act, where the assessee offered no explanation about the return and source of the sum found credited in the books of accounts maintained for the previous years. He submitted that such sum is at the most would be liable to be charged to income tax as his income of the previous year. He further submitted that it would not be proper to impose punitive costs, in view of the fact that penalty proceedings u/s 271 of the Act were initiated and substantial penalty has also been levied and recovered.
At this stage, it would be appropriate to make a reference to other provisions in the Act, which, according to me are relevant. Chapter XXI of the Act, which starts with Section 271, empowers Income Tax Authorities to impose penalty on account of failure, on the part of the assessee, to comply certain provisions of this Act. Section 271 empowers Income Tax Authorities to impose penalty on account of failure, on the part of the assessee, to comply certain provisions of this Act. Section 271 empowers Income Tax Authorities to levy penalty if the assessee fails to furnish returns, comply with notice, concealment of income, etc. It would be advantageous to reproduce the part of this provision, which is relevant for our purpose. The relevant part of Section 271 reads thus:
(1) If the Assessing Officer or the Commissioner (Appeals) or the Commissioner in the course of any proceedings under this Act, is satisfied that any person.--
(a)............
(b)............
(c) has concealed the particulars of his income or furnished inaccurate particulars of such income, or
(d)..............
he may direct that such person shall pay by way of penalty.--
(i)...........
(ii)...........
(iii) in the cases referred to in clause (c) or clause (d), in addition to tax, if any, payable by him, a sum which shall not be less than, but which shall not exceed three times the amount of tax sought to be evaded by reason of the concealment of particulars of his income or fringe benefits or the furnishing of inaccurate particulars of such income or fringe benefits.
Explanations 1 to 7.......................
In the present case the Assessing Officer in the assessment order dated 29-12-2009, has clearly observed that since the assessee concealed his true income and also furnished inaccurate particulars of income within the meaning of Section 271(1)(c) of the Act the penalty proceedings under this provision have been initiated separately by issuing him a show-cause notice. This provision provides, if the Assessing Officer, in the course of any proceedings under the Act, is satisfied that if any person has concealed the particulars of his income or furnished inaccurate particulars of such income may direct that such person shall pay by way of penalty, in addition to tax, if any, payable by him, a sum which shall not be less than but which shall not exceed 3 times the amount of tax sought to be evaded by reason of concealment of particulars of his income or furnishing of inaccurate particulars of such income. This Court is informed that the penalty proceedings were taken to its logical conclusion and substantial penalty has been levied and recovered. It appears that this fact was not brought to notice of the Bench.
Chapter XXII of the Act, which starts with Section 275A also deals with offences and prosecutions on account of failure to comply the provisions of this Act. For instance, Section 276C of the Act provides for prosecution if there is wilful attempt to evade tax, etc. Section 276D provides for prosecution on account of failure to produce accounts and documents; Section 277 provides for prosecution in the event of false statement in verification; etc., and Section 277A provides for prosecution in the event of falsification of books of accounts and documents and etc. Section 280B of the Act provides that offences punishable under this chapter shall be triable by only the Special Court, notwithstanding anything contained in Criminal Procedure Code, 1973 (2 of 1974). Thus it is clear the provisions contained in Chapters XX and XXI of the Act, are sufficient enough to take care of all situations, under which the assessee can be penalised and prosecuted.
Further, Section 234B of the Act provides for charging interest for defaults in payment of advance tax and Section 234C provides interest for deferment of advance tax. In the present case the Assessing Officer has added interest under both these provisions.
In the backdrop of these provisions, a glance at Section 260A of the Act, would show that it provides a statutory appeal. In my opinion, the right to file appeal under this provision cannot be taken away. From the facts of the present case it is clear as crystal that the assessee exercised his statutory right of appeal under this provision and the Division Bench heard the same and dismissed it on merits having found that no substantial question of law is either involved or raised by the appellant-assessee.
It is true that u/s 260A of the Act costs can be imposed. However, a statute must be read harmoniously. Section 260A does not either state or indicate that punitive costs or exemplary costs can be imposed. In the absence of any such intendment or any express provision, the question of imposing exemplary or punitive costs must be considered having regard to the object of the statute. In my opinion, there is a distinction between "punitive costs" and "costs", to be imposed under sub-section (5) of Section 260A of the Act, and the distinction becomes more evident when we look at the provisions contained in Chapters XXI and XXII thereof which provide for imposing penalty and prosecution. Therefore, while dismissing the appeal summarily, in my opinion, exemplary costs need not be imposed by way of penalty or punitive in nature. In other words, an assessee while exercising the right of a statutory appeal cannot be penalised for filing the appeal. The statute provides for penalty and prosecution. Income Tax Authorities or Appellate Tribunal or this Court for that matter can issue direction in appropriate cases, to initiate penalty proceedings or prosecution. In the present case penalty has already been imposed and recovered.
In this connection my attention was invited to the judgment of the Supreme Court in Satyapal Singh Vs. Union of India (UOI) and Another, observed thus:
Exemplary costs are levied where a claim is found to be false or vexatious or where a party is found to be guilty of misrepresentation, fraud or suppression of facts. In the absence of any such finding, it will be improper to punish a litigant with exemplary costs. When the Appellate Court did not choose to levy any costs while dismissing the appeal filed by the petitioner after nine years of pendency with interim stay, the High Court, while dismissing the writ petition at preliminary hearing, ought not to have levied exemplary costs with reference to the period of pendency before the Appellate Court. We do not find any ground on which the exemplary costs of Rs. 50,000/- could be sustained. Levy of exemplary costs on ordinary litigants, as punishment for merely approaching Courts and securing an interim order, when there was no fraud, misrepresentation or suppression is unwarranted. In fact, it will be a bad precedent.
The Supreme Court in Sanjeev Kumar Jain Vs. Raghubir Saran Charitable Trust and Others, , while considering the expression "actual realistic costs" in paragraph 15 of the report quoted the observation made in Vinod Seth Vs. Devinder Bajaj and Another, and held that "imposition of costs should act as a deterrent to vexatious, frivolous and speculative litigations and defences". It is further observed that "the provisions relating to costs should not however obstruct access to Court and justice".
Having considered the aforementioned judgments of the Supreme Court it is clear that imposition of costs should act as a deterrent to vexatious, frivolous and speculative litigation or defences. Imposition of costs should not, however, obstruct access to Courts or Justice. In other words, levying of costs should not be deterrent to a litigant from approaching the Court by way of statutory appeal, such as the appeal u/s 260A of the Act. Merely because the appeal has no merit or no substantial question of law is involved or the questions raised are frivolous, in my opinion cannot be a ground to impose exemplary costs while dismissing such appeal summarily. Undoubtedly, the High Court, as contemplated under sub-section (5) of Section 260A of the Act, has power to impose costs when it decides the question of law formulated and delivering judgment thereon. In the present case the appeal was not admitted at all having found that no substantial question of law was involved.
It is in this backdrop I am of the opinion that no exemplary costs deserves to be levied in the facts of the present case. With this opinion, I direct the registry to place the matter before the Division Bench for appropriate orders.