C I T vs. RAJNISH NATH AGGARWAL

In the High Court for the States of Punjab and Haryana at Chandigarh … Date of decision:24.3.2008 The Commissioner of Income Tax-II Ludhiana

Appellant Versus Shri Rajnish Nath Aggarwal

Respondent Coram: Hon’ble Mr.Justice Satish Kumar Mittal

Hon'ble Mr.Justice Rakesh Kumar Garg Present: Mr.Sanjeev Bansal, Advocate for the Revenue/appellant. Rakesh Kumar Garg,J The Revenue has filed the present appeal under Section 260-A of the Income Tax Act, 1961 (for short' the Act') against the order of the Income Tax Appellate Tribunal, Chandigarh Bench”B” Chandigarh (for short the “Tribunal”) passed in I.T.A.No. 983/CHD/2005 dated 28.2.2007 for the assessment year 2001-02 raising the following substantial question of law:- “Whether on the facts and circumstances of the case, the Hon'ble ITAT was right in law in confirming the order of CIT(A) in deleting the penalty levied u/s 271(1)(c) at Rs.4,25,720/-?” The respondent is drawing income from salary, business income, house property and income from other sources. The return in this case was filed on 22.10.2001 declaring income of Rs.4,35,110/-. The return was processed under Section 143(1) of the Act. The Assessment was framed by the Assessing Officer on 29.3.2004 at an income of Rs.16,47,990/- after making addition of Rs.12,12,880/- on account of uncorroborated freight charges. The Assessing Officer noticed that respondent had furnished inaccurate particulars of his income and had also concealed the particulars of income as the assessee had surrendered an amount of Rs.12,12,880/-, after inquiries were initiated to check the genuineness of the expenses claimed in the return. While making the assessment, the Assessing Officer rejected the request of the surrender made by the respondent and initiated penalty proceedings on this account. Penalty under Section 271(1)(c) was imposed at Rs.4,25,720/- vide order dated 23.9.2004. Feeling aggrieved against the aforesaid penalty order, the respondent preferred an appeal before the Commissioner of Income Tax(Appeals)-II, Ludhiana, who vide his order dated 14.7.2005 deleted the penalty while allowing the appeal of the assessee. Not being satisfied with the order of the Commissioner of Income Tax (Appeals)-II, the Revenue preferred an appeal before the Tribunal. The Tribunal vide its order dated 28.2.2007 upheld the order of the Commissioner of Income Tax(Appeals)-II and resultantly dismissed

the appeal of the Revenue. Hence this appeal by the Revenue. Shri Sanjeev Bansal, Advocate, learned counsel for the Revenue has vehemently argued that the assessee could not prove genuineness of the transportation expenses debited to profit and loss account as undisputedly, the Transporters to whom the payment of freight charges was made could not be traced and therefore,the expenses on account of freight charges made to these transporters could not be confirmed. It was further argued by the learned counsel for the Revenue that the surrender made by the assessee was never mutually agreed upon, as the same was rejected by the Assessing Officer, as the said surrender had been made only after investigation was carried out by the department and it was not bonafide and voluntary disclosure as the revised return was made only when the assessee came to know that there was detection of concealment by the department. Thus the penalty was rightly imposed by the Assessing Officer and therefore, the order of the Tribunal is liable to be quashed. After hearing learned counsel for the Revenue, we find no force in the contentions raised by him. In response to show cause notice issued to the assessee, reply was submitted that during the assessment proceedings, the assessee made the surrender of Rs.12,12,880/- subject to no penal action and the assessee had made the surrender just to buy peace of mind to avoid further litigation. The Madras High Court in the case of CIT Versus Jayaraj Talkies (239 ITR 914) held that mere agreement to addition of income or surrender of income did not imply concealment of income where the assessee surrendered certain amount to assessment because it was unable to substantiate its claims with necessary vouchers. The Kerala High Court in the case of CIT Vs. M. George & Brothers (160 ITR 511) held that where the assessee for one reason or the other agrees or surrenders certain amounts for assessment, the imposition of penalty solely on the basis of the assessee surrender will not be well founded. It was held by Hon'ble Supreme Court of India in the case of Sir Shadi Lal Sugar &General Mills Ltd. (168 ITR 705) that where the assessee had agreed to assessment of undisclosed income, it did not absolve the revenue from proving mens rea in quasi criminal offence. From these judicial pronouncements, it is crystal clear that the department has to prove mens rea before leving penalty under Section 271(1)(c) of the Act and it cannot be made out that the assessee has concealed income or furnished inaccurate particulars merely because he has surrendered certain amount to avoid litigation and to buy peace of mind. This High Court in the case of Commissioner of Income Tax Versus Suraj Bhan (2007) 159 Taxman (P&H) held that penalty cannot be imposed merely on account of higher income having been subsequently declared. It was a case wherein the assessee filed the revised return showing higher income and gave an explanation that he offered higher income to buy peace of mind and to avoid litigation. Similarly, the Hon'ble Apex Court in the case of Commissioner of Income Tax Versus Suresh Chander Mittal (251 ITR 9)(SC) observed that when an assessee files a revised return showing higher income and gave explanation that he offered higher income to buy peace of mind and to avoid litigation, penalty cannot be imposed merely on accoaunt of higher income having been subsequently declared.

In view of the above judicial pronouncements, we are of the view that the case of the assessee is on much better footing because no return of income was revised in this case and the transportation charges were directly made by the suppliers and not by the assessee and therefore, there is no question of concealment of income or furnishing of inaccurate particulars of income. The penalty cannot be levied merely on account of inaccurate particulars by presuming that the payments were made by the assessee, whereas the facts are otherwise. Even otherwise, the Tribunal has given a finding of fact that neither there is concealment of income nor furnishing of inaccurate particulars.

In view of the above stated categoric finding of the Tribunal, we find no error in the order of the Tribunal. Thus, no substantial question of law arises in the present appeal for our determination and the same is hereby dismissed. (RAKESH KUMAR GARG) JUDGE March 24,2008 (SATISH KUMAR MITTAL) nk JUDGE