Commissioner of Income Tax vs Unique Precured Retraders

These three appeals have been filed by the revenue, against the common judgment of the Tribunal, dated 4-1-2005. The appeals were admitted on different dates, by different orders, framing following substantial question of law, being as under:

Whether on the facts and in the circumstances of the case, when return is submitted in pursuance of notice u/s 148 showing higher income than returned in original return, as a result of survey in the premises of the assessee during which assessee has surrendered income in addition to the income assessed originally and the assessment has been made at such returned income, whether presumption under Explanation 1 to Section 271(1)(c) could be raised about the concealment of particulars of income to initiate proceedings for levy of penalty during the course of such reassessment ?

The matters relate to same assessee, but to three different assessment years, being 1995-96, 1996-97 and 1997-98, and involve common question, and are therefore being decided by this common judgment.

The necessary facts are, that the assessee submitted returns, for the relevant assessment years, and for the assessment years 1995-96 and 1996-97, returns were processed u/s 143(1)(a), while the return for the assessment year 1997-98 had not been so processed. It is during this time, i.e. on 22-10-1997, a survey was conducted in the factory premises of the assessee, and certain discrepancies were pointed out. During this survey, statements of one of the partners of the firm were recorded by the survey team, the partner, has explained the discrepancies inasmuch as, in answer to question No. 16, relating to receipts of Rs. 15,43,451 during October, 1995, to March, 1997, it was given out, that during this period, the work was done in the name of Unique Tyre and Trade, and the plant was given on contract, to Sabir Mohammad, whose address is not known, and the contract was given @ Rs. 2,000 per month, and that, the income of this contract is not entered in books of account. It was also explained while answering the question No. 17, that since Sabir was not literate, Shantilal was maintaining the register, then on a second thought, he gave out that the receipt is of his firm, and is not entered in the books of account, and offered to surrender 15 per cent of the receipt as income, to be levied to tax, then in answer to question No. 18, relating to the claims to three different amounts, during the assessment years 1995-96, 1996-97 and also 1997-98, expenditure on account of discount and claim, so also commission and rebate, it was deposed, that the particulars of this claim, i.e. confirmation or other details from the concerned parties is not available, it was given out, that actually the expenditure was incurred, but it is not possible to get it verified to the extent of 100 per cent, therefore, in order to purchase peace of mind, he surrendered the total amount of Rs. 1,00,000 for the assessment year 1995-96 and Rs. 1,70,000 for the assessment year 1996-97, and prayed, that he may be exempted form liability of penalty and interests. It is this surrendered amount, which is bone of contention, inasmuch as, after the survey, the assessee filed revised return, disclosing the income, as surrendered, those returns were accepted, and assessment orders have been passed, but at the same time, in the assessment order, penalty proceedings u/s 271(1)(c) were ordered to be initiated. Accordingly, notices were issued, and assessing officer, passed order, imposing penalty for the three different assessment years.

These orders were challenged in appeal, by the assesses, and three appeals were decided by common order, by the learned Commissioner (Appeals), who set aside the penalty, by holding inter alia, that the assessee had voluntarily surrendered the income, and in the statement, he has not admitted, that he has concealed income, and since, nothing was produced on the side of the revenue, to establish, that the assessee had concealed the income, rather the surrender was made to purchase peace, and in the background of the fact, that the wife of the partner had undergone major operation, and his brother-in-law also died untimely. In such disturbed set (state) set of mind, this surrender was made, and it could not be said to be the case of concealment, within the meaning of Section 271(1)(c), read with Explanation 1. The learned Commissioner (Appeals) relied upon the various judgments, including the judgment of Honble Supreme Court, and other High Courts, and thus, set aside the impugned order.

This setting aside has been confirmed by the learned Tribunal. The learned Tribunal, relied upon the judgment of Bombay Bench of the Tribunal, in the case of (2003) 87 ITD 69 and quoted the portion thereof which was relied upon in extenso. In this judgment, the judgment of Honble Supreme Court in case of Commissioner of Income Tax Vs. Suresh Chandra Mittal, and M/s. K.P. Madhusudhanan Vs. Commissioner of Income Tax, Cochin, were considered and followed. Learned Tribunal also relied upon the judgment of the Jaipur Bench of the Tribunal, confirming the order of the learned Commissioner (Appeals).

Learned Counsel for the revenue, relying upon the judgment of Honble the Supreme Court, in The Chairman, SEBI Vs. Shriram Mutual Fund and Another, contended, that mens rea is not one of the essential ingredient, for attracting liability, u/s 271. It was also contended that the learned Tribunal, and the learned Commissioner (Appeals), have proceeded on the basis, that the surrender made by the assessee, was on the condition of any proceedings for penalty or interest were not to be initiated, while from a look at the statement of the partner of the assessee firm, it is clear, that there was no such condition. In such circumstances, since admittedly, the assessee had filed return, showing enhanced income, and it was only in the course of survey, that it came to light, that the assessee had earned higher income, which he concealed, while the assessee surrendered it, and filed revised return, in pursuance of notice u/s 148 and, therefore, the presumption arises under Explanation 1 to 271(1)(c), about concealment of the particulars of income, and thus, the assessing officer was right in imposing penalty, and the order of the learned Commissioner (Appeals), and the learned Tribunal, are required to be set aside.

On the other hand, learned Counsel for the assessee, placed reliance on the judgment of Honble Supreme Court, in CIT v. M. Pachamuthu and Anr. (2007) 295 ITR 502 (Mad), and then on a latest judgment of Honble Supreme Court, in Sudarshan Silks and Sarees Vs. Commissioner of Income Tax, Karnataka, . Learned Counsel also relied upon the judgment of this Court in Shiv Lal Tak v. CIT (2001) 251 ITR 373 (Raj) and supported the impugned orders.

We have gone through the judgments cited at the Bar. In our view, the judgment in Sudarshans case (supra) clinches the controversy, apart from the fact, that the judgments in Suresh Chandra Mittal and K.P. Madhusudhanan (supra) also support the case of the assessee. In Sudarshans case, it has further been held, that the finding recorded by the Tribunal, or the authorities below, on the question of liability of penalty, is essentially finding of fact, and unless, those findings are alleged to be perverse, or to be vitiated on other counts, available u/s 260A, High Court cannot interfere with them. In this sequence, we may gainfully refer to the judgment cited by the learned Counsel for the revenue, in Union of India and Ors. v. Dharmendra Textile Processors and Ors. (2007) 295 ITR 244 (SC) wherein it was noticed, that there is a direct conflict, between two judgments of Honble Supreme Court, being in Dilip N. Shroff v. Jt. CIT (2007) 8 SCALE 304 and Chairman, SEBI v. Shriram Mutual Fund (supra) on the question, about requirement of mens rea for attracting liability of penalty, and the question has been referred for consideration, to the larger Bench.

In that view, if two learned authorities below had followed one line of reasoning, and has declined to maintain the penalty, it cannot be said, that the findings could not have been arrived at, or are required to be interfered with by this Court, in view of the judgment of Honble Supreme Court, in Sudarshans case.

Accordingly, the question as framed, is answered, as above. The appeals thus have no force and are dismissed.