COMMISSIONER OF INCOME TAX,TRIVANDRUM vs. SMT.VASANTHA ANIRUDHAN,KOWDIAR,TVPM.

ITA/78/2008HC KeralaKLHC01026983200812 January 2018Author: HONOURABLE MR.JUSTICE K.VINOD CHANDRAN,HONOURABLE MR. JUSTICE ASHOK MENON12 pages
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What were the facts?

The Revenue is in appeal against an order of the Income Tax Appellate Tribunal (ITAT) concerning assessment year 1990-91. The assessee, now deceased, had an addition of Rs. 20,65,000/- made towards unexplained investment in a shopping-cum-office complex. This was later reduced by the ITAT to Rs. 17,40,000/-. Penalty was imposed at 100% of the tax sought to be evaded, amounting to Rs. 9,28,964/-. The Commissioner of Income Tax (Appeals) set aside the penalty, which was confirmed by the ITAT. The Revenue's appeal to the High Court challenges these orders.

What did the High Court hold?

The High Court held that the decision in K.P.Madhusudhanan v. CIT, which overruled P.M.Shah, meant that a notice under Section 271 was sufficient to inform the assessee of the entire provision, including the explanation. Therefore, the ground that no specific notice was issued under the explanation was unsustainable. The Court also found that if the assessee's explanations were bona fide, they would have been accepted during the assessment proceedings. The Tribunal's refusal to allow the entire claim regarding diversion of materials indicated that the explanation was not fully accepted. The Court stated that the CIT(A) had virtually sat in appeal over the Tribunal's assessment orders, and there was no ground of bona fides to set aside the penalty. The Court clarified that the addition made in the computation of income fell under Explanation 1(B) to Section 271(1). The Court was not convinced that a remand was necessary as the Tribunal had agreed with the CIT(A)'s reasoning. The Court also dismissed the argument based on the litigation policy, stating that a decision on principle was expedient. The questions of law were answered in favour of the Revenue. The orders of the Tribunal and CIT(A) were set aside, and the original order was restored. Recovery from the legal heir would be limited to the extent of the estate.

What were the issues?

1. Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that no notice was issued by the Assessing Officer intimating his intention to invoke the explanation to Section 271(1)(c), thus rendering the levy of penalty unsustainable? 2. Whether, on the facts and in the circumstances of the case, the Tribunal was right in canceling the penalty in the absence of a positive finding that the explanation offered by the assessee was bona fide? 3. Whether, on the facts and in the circumstances of the case, the assessee discharged the burden that lay on him? 4. Whether the orders of the CIT(A) and the Tribunal wrongly placed the burden on the Revenue? 5. Whether the order of the Tribunal canceling the penalty was justified and not vitiated? Assessee's contentions: The assessee argued that the Tribunal had not considered the issue independently and therefore, a remand was necessary. It was also submitted that the Central Government's litigation policy mandated no appeal if the tax effect was less than Rs. 20,00,000/-. Revenue's contentions: The Revenue contended that the Supreme Court decision in K.P.Madhusudhanan v. CIT overruled the decision in P.M.Shah, implying that a notice under Section 271 was sufficient to put the assessee on notice of the entire provision, including the explanation. The Revenue also argued that if explanations offered were bona fide, the Tribunal would have allowed them in the assessment itself. The Revenue further argued that the CIT(A)'s finding regarding bona fides was a wrong understanding of Explanation 1(B) to Section 271(1). Regarding the litigation policy, the Revenue argued that the appeal was pending since 2008 and a decision on principle was expedient, and that the policy was from 2015 with retrospective effect.

Which sections of the Income-tax Act were involved?

Section 271(1),Section 271(1)(c),Section 159(6)

AI-generated summary — verify with the full judgment below

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT: THE HONOURABLE MR.JUSTICE K.VINOD CHANDRAN & THE HONOURABLE MR. JUSTICE ASHOK MENON FRIDAY, THE 12TH DAY OF JANUARY 2018 / 22ND POUSHA, 1939 ITA.No. 78 of 2008 AGAINST THE ORDER/JUDGMENT IN ITA 140/COCH/1999 of I.T.A.TRIBUNAL,COCHIN BENCH DATED 06-11-2003 APPELLANT(S)/APPELLANT THE COMMISSIONER OF INCOME TAX, THIRUVANANTHAPURAM. BY ADVS.SRI.P.K.R.MENON, SR.COUNSEL, GOI(TAXES)

RESPONDENT(S)/RESPONDENT: SMT. VASANTHA ANIRUDHAN, L/R OF LATE G. ANIRUDHAN, VASANTHAM, KOWDIAR, THIRUVANANTHAPURAM. BY ADV. SRI.E.K.NANDAKUMAR (SR.) SRI.P.GOPINATH THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 12-01-2018, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:

ITA 78/08 APPENDIX APPELLANT'S ANNEXURES ANNEXURE-A : COPY OF ORDER OF THE ASSESSING OFFICER DATED 17.5.1995. ANNEXURE-B : COPY OF ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) DATED 29.12.1995. ANNEXURE-C : COPY OF ORDER OF THE SETTLEMENT COMMISSION. ANNEXURE

The order continues below.

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