Commissioner of Income Tax vs Rajiv Bhatara <BR> CIT Vs Rakesh Bhatara

Ajay Kumar Mittal, J.—This order shall dispose of IT Appeal Nos. 427 and 428 of 2009, as according to the learned counsel for the

parties, the facts and the law point involved in both the appeals are identical. However, the facts are being taken from IT Appeal No. 428 of 2009.

IT Appeal No. 428 of 2009 has been preferred by the Revenue under s. 260A of the IT Act, 1961 (in short, ""the Act"") against the order dt. 27th

Feb., 2009, Annex. A. 7 passed by the income tax Appellate Tribunal, Amritsar Bench, Amritsar (in short, ""the Tribunal"") in ITA No.

324/Asr/2007, for the asst. yr. 1996-97. Both the appeals were admitted on 3rd May, 2010 to consider the following substantial questions of law:

(I) Whether on the facts and in the circumstances of the case, the findings of the Tribunal that the assessee was not guilty of furnishing inaccurate

particulars of income were made without properly appreciating the facts available on record?

(II) Whether on the facts and in the circumstances of the case and in view of the provisions contained in s. 271(1)(c) of the IT Act, 1961 and

Explanations thereto, the Tribunal was right in law in confirming the deletion of penalty by the CIT(A) without considering judgment of Supreme

Court in the case of Union of India (UOI) and Others Vs. Dharamendra Textile Processors and Others,

Briefly, the facts necessary for adjudication of the controversy involved, as narrated in the appeal may be noticed. The assessee filed its IT

return on 30th Sept., 1996 declaring income of Rs. 2,83,340 and agricultural income at Rs. 18,800. It was processed under s. 143(1)(a) of the

Act. The assessee was earning rental income, interest from different firms and banks as well as agricultural income. Its case was selected for

scrutiny and notices under ss. 142(1) and 143(2) of the Act were issued to the assessee. During the assessment proceedings, it was noticed that

the assessee had received compensation against acquisition of land at village Kamaspur, Tehsil and District Sonepat at Rs. 30,96,724. The

assessee annexed a note to the return claiming exemption from capital gain tax. The AO asked the assessee to substantiate his claim for exemption.

The assessee filed written submissions dt. 18th Sept., 1998 including a copy of Gazette notification regarding acquisition of land. According to the

assessed, the land was purchased between 7th June, 1993 to 6th July, 1993 through 13 different purchase deeds but the same were called for by

the Land Acquisition Collector, Haryana and were never returned. The land belonging to different persons was about 40 kanals and the value of

investment of each person including the assessee was at Rs. 9,02,419. However, no copy of purchase deed was ever produced before the AO.

The AO collected the photocopy of the notification registered with the Halqa Patwari. The assessee pleaded before the AO that the impugned

property was situated beyond 8 kms. from the municipal limits of Sonepat and claimed exemption from capital gain tax. The assessee produced a

letter dt. 19th June, 1996 from SDE, Maintenance Sub Division PWD (B & R) Sonepat in this regard. The AO also independently inquired from

the Land Acquisition Collector, Haryana, Faridabad as well as the Divisional and Town Planner, Haryana regarding the distance of the land of the

assessee from the municipal limits of Sonepat. After collecting Information regarding the distance from various authorities, the AO came to the

conclusion that the impugned property was situated within 8 kms. of municipal limits of Sonepat. Thereafter, the AO on the basis of this conclusion

asked the assessee vide letter dt. 13th Oct., 1998 to show cause as to why the amount of capital gain be not treated as short-term capital gain

liable to capital gain tax under the Act. The assessee submitted its reply dt. 26th Nov., 1998 stating that exemption was sought on the basis of

certificate obtained from PWD authorities, Sonepat and as such the property could not be treated as capital asset for the purpose of determination

of capital gain. Consequently, the AO rejected the claim of the assessee and brought the impugned capital gain under the capital gain tax.

Assessment was completed under s. 143(3) of the Act at the total income of Rs. 56,31,400 vide order dt. 31st Dec., 1998, Annex. A. 1 against

returned income of Rs. 2,83,330. The AO also initiated penalty proceedings under s. 271(1)(c) of the Act for furnishing inaccurate particulars of

income. Notice under s. 274 r/w s. 271(1)(c) of the Act was issued on 18th Jan., 1999. Aggrieved by the order, the assessee filed an appeal

before the CIT(A). Vide order dt. 28th Sept., 1999, Annex. A. 2, the CIT(A) dismissed the appeal. Not satisfied with the order, the assessee

filed appeal before the Tribunal. Vide order dt. 28th Dec., 2000, Annex. A.3, the Tribunal allowed the appeal, set aside the order of CIT(A) and

restored the matter for fresh adjudication by the CIT(A). The CIT(A) after considering the matter vide order dt. 21st June, 2001, Annex. A. 4

held that capital gain with reference to transfer of land in question was chargeable to tax confirming the action of the AO in making the addition of

Rs. 30,96,724. The assessee did not prefer any appeal before the Tribunal against the order passed by the CIT(A). Thereafter, the AO

proceeded to complete the penalty proceedings already initiated under s. 271(1)(c) of the Act for furnishing inaccurate particulars of its income by

issuing show-cause notice on 17th Feb., 2006. After considering the explanation furnished by the assessee, penalty of Rs. 17,82,750 was imposed

under s. 271(1)(c) of the Act vide order dt. 24th March, 2006. Aggrieved by the order, the assessee went in appeal before the CIT(A) who vide

order dt. 29th March, 2007 deleted penalty of Rs. 17,82,750. Not satisfied with the order, the Revenue filed appeal before the Tribunal. Vide

order dt. 27th Feb., 2009, Annex. A. 7, impugned herein, the Tribunal dismissed the appeal. Hence the present appeal by the Revenue.

Learned counsel for the appellant-Revenue submitted that an addition of Rs. 17,11,065 was sustained in the income of the assessee on account

of capital gains arising from acquisition of agricultural land which was within 8 kms. from municipal limits of Sonepat. It was urged that the AO had

rightly levied penalty under s. 271(1)(c) of the Act as the assessee had furnished inaccurate particulars in as much as certificate furnished by the

assessee that the land was beyond 8 kms. from the limits of the Municipal Committee, Sonepat, was not correct. Relying upon the judgment of the

apex Court in Union of India (UOI) and Others Vs. Dharamendra Textile Processors and Others, it was submitted that the CIT(A) as well as the

Tribunal were in error in deleting the penalty.

Opposing the prayer made by learned counsel for the Revenue, learned counsel for the assessee, besides supporting the order passed by the

CIT(A) and the Tribunal, submitted that the assessee had appended photocopy of the cheque received from the Land Acquisition Collector dt.

22nd Nov., 1995 and certificate dt. 19th June, 1996 obtained from Sub Divisional Engineer, PWD wherein it was shown that the distance of the

village in which the land of the assessee was situated was 8.2 kms. from the municipal limits of Sonepat. Relying upon judgments in Commissioner

of Income Tax I Vs. Sidhartha Enterprises, , Commissioner of Income Tax, Ahmedabad Vs. Reliance Petroproducts Pvt. Ltd., , CIT vs. B.B.

Singhal (IT Appeal No. 725 of 2010 dt. 5th Jan., 2011), CIT Vs. Raj Overseas, CIT vs. Dabwali Transport Co. (IT Appeal No. 872 of 2010 dt.

15th March, 2011), Commissioner of Income Tax Vs. Deep Tools (P) Ltd., and Price Waterhouse Coopers Pvt. Ltd. Vs. Commissioner of

Income Tax, Kolkata-I, , it was argued that there was no intention of furnishing inaccurate particulars on the part of the assessee and the Tribunal

as well as the CIT(A) had rightly deleted the penalty. The reliance was placed upon following observations recorded by the apex Court In Price

water house Coopers (P) Ltd.''s case (supra):

Having heard learned counsel for the parties, we are of the view that the facts of the case are rather peculiar and somewhat unique. The

assessee is undoubtedly a reputed firm and has great expertise available with it. Notwithstanding this, it is possible that even the assessee could

make a ''silly'' mistake and indeed this has been acknowledged both by the Tribunal as well as by the High Court.

The fact that the tax audit report was filed along with the return and that it unequivocally stated that the provision for payment was not

allowable under s. 40A(7) of the Act indicates that the assessee made a computation error in its return of income. Apart from the fact that the

assessee did not notice the error, it was not even noticed even by the AO who framed the assessment order. In that sense, even the AO seems to

have made a mistake in overlooking the contents of the tax audit report.

The contents of the tax audit report suggest that there is no question of the assessee concealing its income. There is also no question of the

assessee furnishing any inaccurate particulars. It appears to us that all that has happened in the present case is that through a bona fide and

inadvertent error, the assessee while submitting its return, 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 particulars or attempting to conceal its income.

We are of the opinion, given the peculiar facts of this case, that the imposition of penalty on the assessee is not justified. We are satisfied that

the assessee had committed an inadvertent and bona fide error and had not intended to or attempted to either conceal its income or furnish

inaccurate particulars.

After hearing learned counsel for the parties, we do not find any merit in these appeals.

The Tribunal while upholding deletion of penalty by the CIT(A) noticed that the assessee had furnished a certificate dt. 19th June, 1996 from

Sub Divisional Engineer Maintenance Sub Division, B & R wherein it was specified that distance from Sonepat Municipal Committee to village

Kamaspur, Tehsil and District Sonepat was 8.2 kms. It was also noticed that there were various certificates wherein different distances had been

mentioned. After considering the matter, the Tribunal came to the conclusion that there was no intention on the part of the assessee to furnish

inaccurate particulars. It was recorded as under:

......There is no evidence to prove that there was deliberate concealment of income by the assessee because the certificate relied upon by the

assessee is not acted upon and that itself cannot lead to levy of penalty and it cannot be said that the assessee has committed an offence under s.

271(1)(c) of the Act. The Department has not proved that the certificate furnished by the assessee was found to be false and thus it is not possible

to infer that the assessee has furnished inaccurate particulars of income. The proceedings under s. 271(1)(c) of the Act being in the nature of penal

proceedings, the onus is on the Revenue to prove that the assessee was guilty of offence of deliberate non-disclosure and procurement of the

multiple certificates from the various authorities, there was no evidence brought on record to show that the certificates produced by assessee were

bogus. Admittedly, certificate produced by the assessee is from Government agency, who has also given a certificate that he is a competent

authority to issue certificate. This being the position, the Department has not brought on record anything to show that the authority who has given a

certificate is not competent to issue the certificate. The AO procured certificates from different authorities and he has never questioned the

authority who has issued a certificate with SDE, Maintenance, Sub Division, PWD (B & R), Sonepat, where he stated that the distance of the

property from the municipal limit is beyond 8 kms. was not examined. The AO never questioned the authority who has given the certificate. It was

held in the case of The Commissioner of Income Tax Madras Vs. Khoday Eswarsa and Sons, that penalty proceedings being penal in character,

the Revenue itself has to establish that the receipt of the amount in dispute constitutes income of the assessee. Apart from the falsity of the

explanation given by the assessee, the Department must have before it before levying penalty cogent material or evidence from which it could be

inferred that the assessee has consciously concealed the particulars of his income or had deliberately furnished inaccurate particulars in respect of

the same and that the disputed amount is a revenue receipt. No doubt, in the original assessment proceedings for computing the tax the evidence

with the AO may be a good item of evidence but not in the penalty proceedings. Further, it is to be noted that very mere fact the explanation of the

assessee was found to be false in the assessment, but for levy of penalty there should be material to establish that the assessee had consciously

concealed the particulars of income or had deliberately furnished inaccurate particulars of income. In the present case, penalty has been levied on

the basis of rejection of the explanation/certificate given by the assessee regarding distance of the property from the municipal limits of Sonepat. On

the facts set out above, we find that the inference drawn by the AO that the assessee has consciously concealed the particulars is not based on the

falsity of the explanation given by the assessee. We are saying this because the AO though collected the multiple certificates which are showing

different distance of the property from the municipal limit of Sonepat, there was a confusion regarding correct distance of the property from the

municipal limit of Sonepat. Because of this the Tribunal directed the learned CIT(A) to once again determine the correct distance of the property

from the municipal limits of Sonepat and thereafter assessment was completed. There was no positive and definite material with the AO to show

that the certificate was bogus. The SDE, Maintenance Sub Division, PWD (B & R) is a Government authority and this was procured by the

assessee for the purpose of assessment which was not acted upon and there was no finding regarding the fact that the authority is not competent

person to issue the certificate and there was no finding that the assessee has followed the devices to reduce the tax burden by procuring certificate

from the wrong authority. Further, there was no fresh material apart from the material procured in the course of assessment proceedings. Penalty

proceedings and assessment proceedings are two independent proceedings and the penalty order cannot be solely based on the reasons given in

the original order of assessment. The authorities are expected to consider the fresh material at the time of penalty proceedings. The AO cannot

proceed penalty proceedings merely on the basis of findings given in the assessment proceedings. The assessee''s inability to explain the

discrepancies cannot be the reason for levy of penalty. The material already gathered or inference already drawn by the AO did not find any

further support from further enquiries in the penalty proceedings. On the other hand, the assessee was able to produce certificate from the authority

who has issued a certificate that the distance of the impugned property is more than 8 kms. from the municipal limit of Sonepat and the District

Town Planner is a competent authority to issue a certificate. The AO has never alleged in the assessment order or penalty order that the

Government authority who has issued a certificate to the assessee is not a competent authority to issue the certificate or the certificate is bogus or it

was obtained through unfair means. Being so, in our opinion, penalty cannot be levied. The AO treated the penalty proceedings as mere

continuance of the assessment proceedings and did not bother to make its penalty proceedings as self contained one, as such penalty order is not

sustainable. Mere cross reference to the compliance to levy penalty and the AO is duty bound to consider the entire material at the item or levying

the penalty afresh, independently of the assessment proceedings to levy penalty. This has not been done by the AO. As such, penalty cannot be

sustained. The evidence on record has not spelt out a case of penalty ambiguously and as such penalty cannot be levied. Hence, we confirm the

deletion of penalty.

Further, this Court in Sidhartha Enterprisers case (supra) held as under:

The judgment of the Hon''ble Supreme Court in Dharamendra Textile (supra) cannot be read as laying down that in every case where particulars of

income are inaccurate, penalty must follow. What has been laid down is that qualitative difference between criminal liability under s. 276C and

penalty under s. 271(1)(c) had to be kept in mind and approach adopted to the trial of a criminal case need not be adopted while considering the

levy of penalty. Even so, concept of penalty has not undergone change by virtue of the said judgment. Penalty is imposed only when there is some

element of deliberate default and not a mere mistake. This being the position, the finding having been recorded on facts that the furnishing of

inaccurate particulars was simply a mistake and not a deliberate attempt to evade tax, the view taken by the Tribunal cannot be held to be

perverse.

Still further, the Hon''ble apex Court in CIT vs. Reliance Petroproducts (P) Ltd. (supra) had held that mere making of a claim which was

ultimately found to be unsustainable may not by itself amount to furnishing of inaccurate particulars regarding the income. It was recorded as under:

We have already seen the meaning of the word ''particulars'' in the earlier part of this judgment. Reading the words in conjunction, they must mean

the details supplied in the return, which are not accurate, not exact or correct, not according to truth or erroneous. We must hasten to add here

that in this case, there is no finding that any details supplied by the assessee in its return were found to be incorrect or erroneous or false. Such not

being the case, there would be no question of inviting the penalty under s. 271(1)(c) of the Act. 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. Such claim made in the return

cannot amount to the inaccurate particulars.

In view of the above, the substantial questions of law are answered against the Revenue and in favour of the assessee. Consequently, both the

appeals are dismissed.