MALANADU TOURIST HOME vs. COMMISSIONER OF INCOME TAX

Aggrieved by these orders of the Commissioner of Income Tax, the assessee approached the Income Tax Appellate Tribunal and vide the common order dated 19.08.2011, it upheld the assessment and also justified the penalty, but reduced the penalty from 300% of the tax on the admitted income of Rs.14,00,000/- to 200%. This order is impugned.

The following questions of law arise for consideration, as re-framed by us:- (1) Was the Tribunal justified in finding that the assessment made by the AO was erroneous and prejudicial to the interest of Revenue and that there was sufficient reason for the Commissioner to invoke the provisions of Section 263 of the Act?

We heard the learned counsel for the appellant-assessee and the learned Senior Counsel, Government of India (Taxes) for the Department.

Regarding the error in calculation of the gross profit, the Commissioner has stated that Gross Profit of Rs.64.83 lakhs on a turnover of Rs.2.75 crores worked out to be only 23.63%. Additional amount of Rs.23 lakhs comes to 8%. The AO made an addition of Rs.14 lakhs which would come to 5% more. The total would be 36%. The Appellate Authority found that the average being 42%, the AO should not have made an assessment at less than 37%. It was also observed that there was admission of hidden expenditure, which proves additional income. The assessee had spent a sum of Rs.28 lakhs on the construction of a building regarding which, no verification was made by the AO. Penalty at 300% of the addition was also made.

The Tribunal has endorsed the findings of the Appellate Authority except in respect to the finding regarding the hidden expenditure, and the rate of penalty.

It was found by the AO that further additions were to be made following the scrutiny and therefore, the penalty proceedings under Section 271(1) (c) of the Act was dropped. The Commissioner has given his reasons for interference pertaining to the imposition of penalty, which was upheld by the Tribunal, except that the percentage was reduced.

We find that the Tribunal could not have substituted its own reasoning which were required to be recorded by the AO and if the AO did not record the reason, the assessee could not have found fault with it. The learned counsel for the assessee relies on the decision in (2008) 306 ITR 52 (SC) [Toyota Motor Corporation v. Commissioner of Income Tax] in support of the contention. There can be no doubt that so long as the view taken by the AO is a possible view, the same ought not to be interfered with by the Commissioner under Section 263 of the Act merely on the ground that there is another possible view of the matter. Permitting exercise of revisional power in a situation where two views are possible, would really amount to conferring some kind of an appellate power in the revisional authority. This is a course of action that must be desisted from. The calculation of the Gross Profit was made by the AO, and the assessee agreed to the additions made. We are, therefore, of the view that the changes suggested by the CIT invoking the revisional jurisdiction under Section 263 of the Act is not sustainable.

Regarding the penalty proceedings, the CIT has found that the assessee had made an attempt to conceal the income and had also attempted to falsify accounts. It is only consequent to the survey that the assessee had filed return of income and shown an additional income of Rs.23 lakhs. Even that was not found to be sufficient, and the AO had made a further addition of Rs.14 lakhs. It was held that there was a conscious attempt on the part of the assessee to destroy accounts. The CIT concluded that this was a case fit for imposing of maximum penalty of 300%.

The Tribunal agreed with the above finding of the CIT on imposing of penalty, but reduced the penalty to 200%, in view of the fact that the assessee had readily agreed to the additions suggested.

Section 271(1)(c) of the Act imposes strict liability on the assessee for concealment of income. There is no doubt that in the instant case, there was concealment by the assessee. The mere fact that he had consented to the additions made would not exonerate the assessee from the liability to pay penalty. The penalty has been reduced to 200% by the Tribunal. We do not intend to interfere with that finding of the Tribunal.

The question of law raised pertaining to the assessment proceedings is answered in favour of the assessee; and that of imposition of penalty is answered in favour of the Revenue and against the assessee. In the result, ITA No.8 of 2012, the appeal pertaining to the assessment proceedings is allowed and ITA No.20 of 2012, pertaining to the penalty proceedings is rejected. No costs. K.VINOD CHANDRAN JUDGE ASHOK MENON JUDGE APPENDIX IN ITA NO.20/12 APPELLANT'S EXHIBITS: ANNEXURE AOF THE ASSESSMENT ORDER FOR 2006-07 ISSUED BY THE INCOME TAX DEPARTMENT TO THE APPELLANT DATED 14.9.2008. ANNEXURE BOF THE ORDER U/S. 271(1) (C) OF THE ASSISTANT COMMISSIONER OF INCOME TAX, KANNUR FOR THE ASSESSMENT YEAR 2006-07 DATED 25.3.2009. ANNEXURE COF THE PENALTY ORDER ISSUED BY THE COMMISSIONER OF INCOME TAX TO THE APPELLANT DATED 29.6.2009. ANNEXURE DOF THE TRIBUNAL ORDER DATED 19.8.2011 ISSUED TO THE APPELLANT. [] jg