Commissioner of Income Tax vs Mathura Commercial Co.

We have heard Sri Dhananjay Awasthi, learned counsel appearing for the appellant and Sri Ashish Bansal, learned counsel appearing for the assessee. This appeal u/s 260A of the income tax Act, 1961, has been filed by the Department against the judgment and order dated September 12, 2002, of the income tax Appellate Tribunal.

In the appeal the following two questions of law have been framed for consideration:

Whether, on the facts and in the circumstances of the case, the hon''ble Tribunal is legally justified in holding that the Assessing Officer should prove mens rea of the assessee that it concealed the income to evade tax?

Whether, on the facts and in the circumstances of the case, the hon''ble income tax Appellate Tribunal is legally correct to uphold the order of the Commissioner of income tax (Appeals), Agra, cancelling the penalty u/s 271(1)(c) imposed at Rs. 2,10,000 without appreciating the fact that the revised return was filed only on the detection of bogus liabilities?

A return was filed by the assessee in the year 1991-92 on October 31, 1991. In the return, the assessee had shown various outstanding amounts against different parties. The Assessing Officer issued notices to the assessee to explain and the assessee was granted opportunity by the Assessing Officer with regard to different entries showing the outstanding amounts. The Assessing Officer doubted the genuineness of the liabilities. The assessee took time for bringing confirmation of the entries. There were 20 such entries showing outstanding amounts. The assessee could produce confirmation with regard to only 15 such parties and with regard to five such entries, the assessee was given a notice as to why the said outstanding amounts be not deleted or added in the income of the assessee. The assessee filed a revised return surrendering the aforesaid outstanding amounts regarding the five entries. Five persons, namely, Gulshan Bardanawala, Akil Ahmad Boriwala, Satish Chand Gupta and Co., Yakub Bardanawala and Mohd. Hussain Bardanawala. The assessment was made. Notice for imposing penalty u/s 271(1)(c) was issued and the Assistant Commissioner of income tax, vide his order dated September 29, 1993, imposed penalty of Rs. 2,10,000. The Assistant Commissioner of income tax held that the assessee deliberately concealed the income and furnished incorrect particulars. For imposing the penalty an appeal was filed by the assessee. The Commissioner of income tax (Appeals), vide his order dated August 1, 1994, allowed the appeal and cancelled the penalty. The Department went in appeal before the income tax Appellate Tribunal and the same has been dismissed on September 12, 2004.

Sri Dhananjay Awasthi, learned, counsel for the appellant, vehemently submitted that filing of the revised return u/s 139(5) of the Act was a kind of notice issued by the Assessing Officer to include the said outstanding amount as income, hence, the disclosure was not voluntary. He submitted that the Assessing Officer has rightly held that the present was a case of furnishing incorrect particulars inviting penalty u/s 271(1)(c). He submits that any disclosure for the particulars of ending the litigation or buying peace cannot be said to be voluntary disclosure nor such disclosure can absolve the assessee from, the penalty u/s 271(1)(c). Sri Dhananjay Awasthi in support of his submission has relied on two judgments of this court and one judgment of the Delhi High Court, namely, Standard Hind Company Vs. Commissioner of Income Tax and Another, , CIT Vs. Mak Data Ltd., and Bajrang Glass Emporium v. CIT [2013] 30 taxmann.com 18 (All) : [2014] 361 ITR 376 (All) Sri Ashish Bansal, learned counsel appearing for the assessee, refuting the submission has contended that while submitting the return, the assessee himself has deleted the aforesaid outstanding entries and since on account of riots as noticed by the Commissioner of income tax (Appeals)-II, the assessees were not traceable. He submitted the fact that out of 20 entries shown by the assessee as the outstanding liabilities 15 confirmation could be obtained and it was only five traders out of which four belonging to one particular community of Muslims, the confirmation could not be obtained. The present was not a case of disclosure of any inaccurate particulars or making any false statement. He submitted that the explanation given by the assessee for deleting the said entries in the revised return was based upon correct facts which has rightly been believed by the Commissioner of income tax (Appeals)-II as well as the Tribunal. He submitted that no question of law was raised in the appeal and the appeal deserves to be dismissed.

The Tribunal by considering the submission has noticed the relevant paragraph 2.5 to the following effect:

2.5 The Commissioner of income tax (Appeals) cancelled the penalty levied u/s 271(1)(c) for the reason that the Assessing Officer railed to make proper enquiries into the genuineness of the appellant''s claim with the persons in whose names the liabilities were shown to be outstanding. According to Commissioner of income tax (Appeals), the Assessing Officer has impounded the vouchers related to purchase of bardana as far back as in October, 1992, but no inquiry was made in regard to cuttings, erasers, etc. The Assessing Officer found that most of the suppliers of bardana were genuine as no addition was made as he issued notice to about 20 persons. While addition was made only in regard to five persons. According to the Commissioner of income tax (Appeals), the books of account for the subsequent year, could be summoned to ascertain the correct position regarding the payment made in the subsequent year by the assessee. Further, the Assessing Officer could have also rejected the offer of the assessee for surrendering. The assessment was not got barred by limitation as the same could be completed up to March 31, 1994. Further, the imposition of penalty by invoking the provisions of section 271(1)(c), as it stood prior to April 1, 1976, is also not justified. According to the Commissioner of income tax (Appeals), if it is presumed that the Assessing Officer intended to invoke the existing Explanation, he should have expressed the intention of doing so and should give opportunity to the assessee to offer his comments. Penalty proceedings being quasi-criminal in nature, the appellant must have been provided with opportunity to rebut the presumption raised against him. The Assessing Officer levied penalty on the basis of assessment completed where also he has failed to give clear findings as to the nature of concealment. The Commissioner of income tax (Appeals) also mentioned in her order that there is no mention in the order that the penalty on account of concealment of income or furnishing inaccurate particulars will be initiated against the assessee. It is only towards the close of the assessment order that he has simply mentioned in a routine manner ''penalty proceedings u/s 140A and section 271(1)(c) have been initiated separately''.

The findings recorded by the Tribunal as contained in paragraph 3.2 are to the following effect:

3.2 . . . But, in the instant case, nothing was concealed. The revised return was filed only for the reasons that the dealers belong to a particular community who had left the town during riots due to Ram Janma Bhumi and Babari Masjid dispute or otherwise refused to give confirmation letter. So, the assessee opted to surrender the amount to end the litigation. This could have been verified by the Assessing Officer by making local enquires and on going through the books of account of the subsequent assessment years in which the amount was paid to the dealers. Similarly, in the case of Mohd. Ibrahim Azimulla Vs. Commissioner of Income Tax, , the jurisdictional High Court has held that the acceptance of revised return of income u/s 139(5) depends on the fulfillment of certain essentials. It is only a disclosure in the revised return in the circumstances mentioned in the section which will ensure to the benefit of the assessee, as the disclosure may be voluntary yet dishonest. If the revised return showing the correct higher income is to cover up what was in the knowledge of the assessee or made in bad faith then it will not come within the ambit of section 139(5), nor can the assessee claim any benefit on it. But, in the instant case, disclosure was voluntary as the income tax Officer did not mention any reason to hold that the disclosure was not voluntary. We further noted that the Assessing Officer has erred in invoking the provisions of section 271(1)(c) by mentioning that since the difference in the return and the assessed income is more than 20 per cent, the onus lies upon the assessee to rebut the presumption raised by the said Explanation. The Assessing Officer''s reliance placed upon the various case law in this regard is also not called for. The case law relied upon are required only when the Explanation becomes applicable. The said Explanation was deleted from the statute book with effect from April 1, 1976, by the Taxation Laws (Amendment) Act, 1975. The penalty proceedings being quasi-criminal in nature, the Assessing Officer should prove the mens rea of the assessee that it concealed the income to evade tax. No such evidence was brought on record by the Assessing Officer. Therefore, only for the reasons that the amount was surrendered by filing revised return of income, penalty u/s 271(1)(c) cannot be levied.

There cannot be any dispute to the proposition that the penalty is leviable u/s 271(1)(c) when any person has concealed the particulars of his income or furnished inaccurate particulars of such income. The present is not a case of concealment of particulars of any income of the assessee. At best, the case could have proceeded on the ground that the assessee ''furnished inaccurate particulars of such income.

From the order passed by the Commissioner of income tax (Appeals)-II as well as the Tribunal, it is clear that the assessee has shown in his initial return filed on October 31, 1991, twenty entries showing outstanding as on March 31, 1991, against the different parties. The assessee was asked to bring confirmation of the aforesaid outstanding amount. The Assessing Officer doubted the genuineness of the transactions. The Assessing Officer in fact issued notice to 20 such parties against whom outstanding were shown. The assessee could bring confirmation with regard to 15 transactions but with regard to 5 parties who became untraceable, the revised return was filed deleting the said entries.

The findings recorded by the Tribunal as contained in paragraph 3.1 are to the following effect:

3.1 . . . The Assessing Officer issued notices to about 20 parties out of that only five were picked up, where the assessee could not obtain the confirmation letter for the reasons that those parties were not available at the time of requirement of the Assessing Officer. Therefore, the assessee surrendered the credits appearing in the names of those five persons to buy peace and to co-operate with the Department. In view of these submissions, it was pleaded that the Commissioner of income tax (Appeals) has rightly cancelled the penalty.

The assessee has come with the explanation for filing a revised return by deleting the outstanding entries with regard to the aforesaid five traders. The reason was noticed by the Tribunal that the dealers being belonging to a particular community had left the town during riots due to Ram Janma Bhumi and Babari Masjid dispute or otherwise refused to give confirmation letters. The mere fact that the assessee could not obtain confirmation letters of the said outstanding entries from only five traders out of 15 in no manner can be said that in his return filed on October 31, 1991, he mentioned inaccurate particulars. In the revised return those entries were deleted by the assessee on account of he having not been able to file the requisite confirmation letters or proof. In the said circumstances, it cannot be said that he filed any inaccurate particulars on which penalty could have been imposed u/s 271(1)(c).

The judgment relied on by the learned counsel for the appellant in Bajrang Glass Emporium v. CIT (supra) where it was held that in the case of surrender of income by the assessee without offering plausible explanation whether he can be absolved from the charge of penalty for concealment of income. The Division Bench has held that such an assessee cannot be absolved from the charge of penalty for concealment. The ratio is that the assessee cannot be absolved from the charge of penalty. He does not offer any plausible explanation in the present, the explanation offered by the assessee was plausible and is rightly been accepted by the Commissioner of income tax (Appeals)-II as well as the Tribunal. Thus, the judgment in Bajrang Glass Emporium v. CIT (supra) does not help the appellant in the present case. The other judgment of this court relied on by the appellant in the case of Standard Mind Co. v. CIT (supra) was a case where the court found that the revised return was a specific concealment for a particular month was detected by the Assessing Officer. The court held that it was a clear case of concealment of income and furnishing of wrong particulars, hence penalty was rightly imposed. There cannot be dispute in the proposition as laid down in the said judgment. The judgment of the Delhi High Court in the case of CIT v. Mak Data Ltd. (supra) was a case where the Assessing Officer required the assessee to produce evidence as to the nature and source of the amount received as share capital, the creditworthiness of the applicants and the genuineness of transactions, the assessee simply surrendered certain amount. The Assessing Officer made addition of the said amount and also levied penalty u/s 271(1)(c) specially on the ground that in the absence of any explanation in respect of surrender of income the first part of clause (A) of Explanation 1 u/s 271(1)(c) was attracted. Therefore, the levy of penalty was justified. The said case is on own footing also does not help the appellant.

In view of the above we have carefully gone through the orders of the Commissioner of income tax (Appeals)-II as Well as the Tribunal where the absence of notice has been recorded simply holding that an explanation given by the assessee for submitting the revised return was acceptable. The present case is not a case of mentioning of inaccurate particulars or concealment. We do not find any substantial question of law in the appeal. The appeal is dismissed.