M/S. KITE MAKER vs. THE INCOME TAX OFFICER

M/s. Kite Maker/assessee is the appellant. The Income Tax Officer, Ward-2(3), Kochi/Revenue is the respondent.

The assessee challenges the order dated 25.09.2018 of the Income Tax Appellate Tribunal (for short 'Tribunal'), Cochin Bench, in I.T.A. No.320/Coch/2017 to the extent the order is against the assessee. The issues canvassed in the appeal relate to the return filed by the assessee for the Assessment Year 2010-

The substantial questions of law raised in the appeal are mixed questions of fact and law arising under Section 271(1)(c)

The circumstances necessary for disposing of the appeal are in a limited sphere and are stated thus: The subject matter of the appeal relates to the penalty proceedings for the omission or commission of assessee in either disclosing the income or paying the tax for the Assessment Year 2010-11. On 06.06.2011 the assessee filed the return for the Assessment Year 2010-11, declaring a total income of Rs.1,64,990/-. The return was processed under Section 143(1) of the Act and order of assessment dated 26.03.2013 was passed. The Assessing Officer added the suppressed income received by the assessee and applied for TDS deducted from the assessee for the same period. The concluding portion in the order dated 26.03.2013 reads as follows: “Hence the books of the assessee is rejected as it is not a reliable source for arriving at the assessee's income. This point was discussed with the assessee and a proposal to assessee the -4- income at 12% of the total receipts was made and the assessee has not objected to this. The total income is therefore fixed at Rs.27,38,409/-. The assessment is completed as under: Total income assessed : Rs. 27,38,409/- Total income assessed(r/o) : Rs. 27,38,410/- Tax payable : Rs. 5,88,800/- Assessed u/s. 143(3) of the IT Act. Demand notice & Calculation sheet enclosed. The demand should be paid as per Demand Notice enclosed.” (emphasis supplied)

1 To the same effect is the computation on determining the tax payable by the assessee as Rs.5,88,800/-. The Assessing Officer, through Annexure-B order dated 26.09.2013, made under Section 271(1)(c) of the Act, levied penalty of Rs.20,51,700/- under Section 271(1)(c) of the Act. The basis for the penalty is that the tax sought to be evaded by the assessee amounted to Rs.10,25,850/- and 200% penalty on the tax sought to be evaded was levied. On appeal, filed by the assessee, before the Commissioner of Income Tax (Appeals), the -5- Commissioner set aside the order of penalty in Annexure-C dated 09.03.2017. In the appeal filed by the Revenue before the Tribunal in I.T.A. No.320/Coch/2017, the Tribunal in-part set aside the order of the CIT (Appeals) and directed a minimum penalty of 100% under Section 271(1)(c) and prescribed the penalty payable by the assessee as Rs.10,25,850/-. Hence, the appeal at the instance of the assessee.

The following substantial questions of law are framed for decision. “ i. In the facts and circumstances of the case, ought not the Tribunal have held that there cannot be a levy of penalty under Sec.271 (1) (c) on "estimated income” by the assessing authority. ii. In the facts and circumstances of the case, ought not the Tribunal have held that the assessee was entitled for credit of tax deducted at source on the extent of Rs.4,63,824/- which was not given credit even while arriving at penalty proceedings.”

Advocate Mr Anil D Nair argues that the order of Tribunal in Annexure-D dated 25.09.2018 is firstly untenable -6- and has not actually appreciated the reasoning of the CIT (Appeals) for completely relieving the assessee of the rigour of penalty under Section 271(1)(c) of the Act. That being the case, the order, to that extent, of the Tribunal is liable to be set aside. Alternatively, it is argued that even if the omission and commission of the assessee warrant levy of penalty, it is accepted by the Tribunal that it shall be at the minimum of 100% under Section 271(1)(c) of the Act, the amount shall not come to Rs.10,25,850/-, but it is limited to the extent of tax evaded by the assessee. It is elaborated by arguing that the penalty envisaged could be on account of an omission in disclosing the income and consequent commission is not payment of tax, payable in that behalf. Therefore, the parameter for deciding the penalty shall be the tax evaded but not the entire tax assessed on the assessee. He relies on Section 271(1)(c), which reads thus:

1 According to him, the charging section is clear in its purport and extent of application while determining the -8- factor/quantum for penalty. The determining factor is not the total tax payable by the assessee. Applied thus, the penalty of Rs.10,25,850/- is illegal and unauthorized. According to him, it shall be less and penalty shall be determined only at the lesser amount.

Mr Christopher Abraham argues that the Commissioner’s view was contrary to the mandate of Section 271(1)(c). The reasons recorded by the Tribunal are available in the circumstances of the case. No ground warranting interference is made out. According to him, the assessee is not seriously raising a ground on the order of the Tribunal dealing with the order of CIT(Appeals) in Annexure-C. He submits that the substantial issue for consideration is only the quantum of penalty payable by the assessee, assuming all the circumstances as admitted between the parties. It was faintly suggested that the matter need to go back to the Assessing Officer for -9- determination afresh, after considering the scope of Section 271(1)(c) read with (iii) of the Act.

We have heard the counsel, perused the record.

1 Section 271(1)(c) deals with levy of penalty in case where any person has concealed the particulars of his income or furnished inaccurate particulars of such income resulting in evasion of tax. Then, the question is: what is the penalty payable - whether on total tax assessed or on the tax evaded by the assessee. The Tribunal treated the penalty amount as Rs.10,25,850/-. The plain meaning of the section leads to the conclusion that the criteria for determination of penalty is the tax sought to be evaded but not the total tax payable by the assessee. As already noticed from the computation statement in Annexure-A the total tax payable by the assessee is Rs.10,25,850/-. The difference of tax is lesser than that which was found to have been evaded by the assessee. Therefore, the -10- penalty shall be quantified or qualified by such figures. For the said purpose, we are persuaded not to remit the matter to any of the authorities.

2 From the details available in the record, we have heard the counsel on the quantum of penalty, it has been stated that penalty of 100% works out to Rs.5,62,918/-. As noted at the beginning of our discussion, the questions of law involve consideration of Section 271(1)(c) of the Act and the error of fact in appreciating what is the actual tax sought to be evaded by the assessee. The discussion is concluded by holding that the penalty is determined on the amount of tax sought to be evaded, by the concealment of income etc.., but not on the total tax chargeable on the assessee. For the above reasons, the questions are answered in favour of the assessee and against the Revenue, by holding that the penalty of 100% of the tax sought to be evaded works out to -11- Rs.5,62,918/-. Income Tax Appeal is allowed as indicated above. No order as to costs. S.V.BHATTI JUDGE VIJU ABRAHAM JUDGE jjj -12-