COMMISSIONER OF INCOME TAX vs. KARTAR SINGH

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ITA/63/2008HC Punjab & HaryanaPHHC01080639200821 April 2008Author: MR JUSTICE RAKESH KUMAR GARG4 pages
AI SummaryDismissed

What did the High Court hold?

The High Court held that the substantial questions of law raised by the Revenue, specifically questions 1 and 2, had already been answered by this Court in previous judgments. In ITA No. 490 of 2007 (decided on 26.03.2008), the Court held that interest on enhanced compensation accrues only after the issue is finally decided and should be spread over annually from the date of possession. In ITA No. 579 of 2007 (decided on 04.02.2008), the Court held that when the matter of enhanced compensation and interest was debatable with two possible views, the assessee's claim based on one such view could not be treated as concealment or furnishing of inaccurate particulars to attract penalty under Section 271(1)(c). The Revenue's counsel conceded that questions 1 and 2 were covered by these prior judgments and did not address arguments on questions 3 and 4, stating they were also covered by question 2. Therefore, the High Court found no merit in the Revenue's appeal and dismissed it. The operative direction was dismissal of the appeal.

What were the facts?

The assessee, Shri Kartar Singh, received interest on enhanced compensation of Rs. 11,89,053/- on 26.10.1996. For assessment year 1997-98, his income was assessed at Rs. 12,49,410/- against a returned income of Rs. 1,70,640/-. The Commissioner of Income Tax (Appeals) upheld the additions. Penalty proceedings under Section 271(1)(c) were initiated. The Income Tax Officer imposed a penalty for furnishing inaccurate particulars leading to concealment of income. The CIT(A) cancelled the penalty, holding that interest on enhanced compensation is taxable on accrual basis and there was no deliberate defiance of law. The Revenue appealed to the Income Tax Appellate Tribunal (ITAT), which dismissed the appeal, relying on a Special Bench decision and Supreme Court pronouncements that the assessee's claim was based on a possible view and could not be treated as concealment.

What were the issues?

The High Court had to decide the following substantial questions of law raised by the Revenue: 1. Whether the ITAT was right in holding that the assessee's view regarding the non-taxability of interest on enhanced compensation was bonafide? This question turns on Section 271(1)(c) of the Income Tax Act, 1961. 2. Whether the ITAT erred in deciding that proving contumacious intent is an essential ingredient for levying penalty under the Income Tax Act, contrary to judicial pronouncements? This question also relates to Section 271(1)(c). 3. Whether the ITAT's order was in contravention of judicial pronouncements like Thirupathy Kumar Khemka Vs. Commissioner of Income Tax? 4. Whether the ITAT should have at least confirmed the penalty to the extent of interest on enhanced compensation received on accrual basis, as the assessee had not filed a return voluntarily? Contentions: Revenue: Argued that the ITAT erred in its findings on questions 1 and 2. They also contended that the ITAT's order was in contravention of judicial pronouncements and that penalty should have been confirmed to some extent. The Revenue relied on the principle that breach of a civil obligation attracts penalty irrespective of guilty intention. Assessee: The judgment does not record specific arguments made by the assessee before the High Court. However, the ITAT's reasoning, upheld by the High Court, indicates the assessee's contention was that their claim regarding the taxability of interest on enhanced compensation was based on a possible view and was made bona fide.

Which sections of the Income-tax Act were involved?

Section 260-A,Section 143(3),Section 271(1)(c)

AI-generated summary — verify with the full judgment below

Cause title — parties, addresses and appearances
IN THE HIGH COURT OF PUNJAB & HARYANA AT CHANDIGARH I.T.A. NO. 63 OF 2008 DATE OF DECISION: 21.04.2008 COMMISSIONER OF INCOME TAX, FARIDABAD ...APPELLANT VERSUS SHRI KARTAR SINGH C/O RRA TAX INDIA (ADVISORS & ADVOCATES), C.8, BASEMENT-II, EAST OF KAILASH, NEW DELHI. ...RESPONDENT CORAM: HON'BLE MR. JUSTICE SATISH KUMAR MITTAL HON'BLE MR. JUSTICE RAKESH KUMAR GARG Present: Mr.Yogesh Putney, Advocate for the appellant-assessee. -.- RAKESH KUMAR GARG, J. The assessee has filed the present appeal under Section 260-A of the Income Tax Act, 1961 (hereinafter referred to as the “Act”) against the order dated 14.06.2007 passed by the Income Tax Appellate Tribunal, Delhi Bench `G' New Delhi in I.T.A. No. 547/Del/2006 for the assessment year 1998-99. The assessee had received interest on enhanced compensation amounting to Rs.11,89,053/- on 26.10.1996 consequent upon acquisition of land by the Land Acquisition Officer, HUDA Gurgaon. The assessment for the assessment year 1997-98 was completed at an income of Rs. 12,49,410/- vide order dated 31.1.2003 under Section 143(3) of the Act against the returned income of Rs. 1,70,640/-. Aggrieved against the assessment order, assessee preferred n appeal before the Commissioner of Income Tax (Appeals) (hereinafter referred to as the 'CIT(A)'), who vide his order dated 3.3.2004 dismissed the appeal and confirmed

the additions made in the assessment order. The penalty proceedings under Section 271 (1) (c) of the Act were initiated in terms of notice dated 31.01.2003 requiring the assessee to show cause as to why penalty should not be imposed. Vide letter dated 04.02.2005 the assessee was given an opportunity to show cause as to why penalty under Section 271 (1) (c) of the Act should not be imposed. The counsel for the assessee by writing a letter requested that penalty proceedings under Section 271 (1)(c) of the Act be stayed till the decision of the Income Tax Appellate Tribunal, Delhi (hereinafter referred to as the ITAT) in his appeal filed against the order of the CIT(A). The Income Tax Officer, Ward-4, Gurgaon vide order dated 31.3.2005 imposed a penalty upon the assessee under Section 271(1) (c) of the Act on account of furnishing inaccurate particulars of income leading to concealment of income. Aggrieved against the said order, the assessee filed an appeal before the CIT(A), Panchkula, who vide order dated 21.11.2005 held that interest on enhanced compensation is taxable on accrual basis and, therefore, in such a situation, there was no deliberate defiance of law proved against the assessee. Consequently, the penalty order under Section 271 (1)(C) of the Act was cancelled. Aggrieved against the order of the CIT(A), the revenue filed an appeal before the ITAT, which was dismissed vide order dated 14.6.2007, observing as under:- “....in its recent decision rendered by Delhi Special Bench of ITAT in the case of DCIT Vs. Padam Prakash (HUF)-(2006) 10 SOT 1, it has been held that chargeability of interest income on enhanced compensation to tax is still governed by the decision of Hon'ble well as in the case of Hindustan Housing & Land Development Trust-161 ITR 524 in the absence of any change in the relevant statutory provision and accordingly, the same is to be assessed on accrual basis from year to year. This decision of the Special Bench of ITAT as well as the judicial pronouncements of Hon'ble Apex Court relied upon by the Tribunal in the said decision clearly shows that the claim of the assessee about the chargeability of interest on enhanced compensation on accrual basis was based on a possible view and making of such claim bona fide on the basis of a possible

view, in our opinion, could not be treated as concealment of its income by the assessee or furnishing of inaccurate particulars of such income so as to attract the penal provisions of Section 271 (1) (c) as rightly held by the learned CIT(A).” The revenue has challenged the order dated 14.6.2007 passed by the Tribunal and has sought to raise the following substantial questions of law:- “1. Whether on the facts and circumstances of the case, the Hon'ble ITAT was right in holding that the view of assessee regarding non-taxability of interest on enhanced compensation was bonafide?

2.

That the Hon'ble ITAT erred in deciding that proving contumacious intent is an essential ingredient in levy of penalty in contravention of the provisions of a Civil Statute like Income Tax Act in spite of there being so many judgments that breach of a civil obligation attracts levy of penalty whether the contravention was made by the defaulter with any guilty intention or not?

3.

That the order of the Hon'ble ITAT is in contravention of the (Mad)?

4.

That the Hon'ble ITAT at least should have confirmed the penalty to the extent of interest on enhanced compensation received on accrual basis as the assessee had not filed return voluntarily?” Shri Yogesh Putni, learned counsel for the Revenue has very fairly conceded that question Nos. 1 and 2 as raised by the Revenue have already been answered by the judgment of this Court passed in ITA No. 490 of 2007 decided on 26.3.2008 and ITA No. 579 of 2007 decided on 4.2.2008 respectively. He has not addressed any arguments with regard to question Nos. 3 and 4 and has stated that in fact these questions are covered by question No.2 only.

In ITA No. 490 of 2007 decided on 26.3.2008, this Court has held that interest on enhanced compensation would not accrue till the issue of enhanced compensation is finally decided and thereafter on attaining the finality of determination of enhanced compensation by the court, the interest accrued to the assessee has to be spread over on an annual basis right from the date of delivery of possession till the date of order of the Court on the time basis. In ITA No. 579 of 2007 on similar facts, it was held by this Court that the matter relating to enhanced compensation and interest was still in dispute and the same was a highly debatable issue as two views were clearly possible on the said issue and thus the claim of the assessee was based on one possible view (although the said claim was not accepted in the quantum proceedings on a difference of opinion) and therefore, such claim made by the assessee could not be treated as concealment of income by the assessee or furnishing of inaccurate particulars of such income so as to attract the penal provisions of Section 271 (1)(c) of the Act.

In view of the above facts, we are not inclined to interfere in the impugned order passed by the Tribunal. The appeal being without any merit, is dismissed. (RAKESH KUMAR GARG) JUDGE 21.4.2008 (SATISH KUMAR MITTAL) MK JUDGE

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