C.I.T.UDAIPUR vs. M/S CHETAK ENTERPRISES PVT.LTD.

HIGH COURT OF JUDICATURE FOR RAJASTHAN AT JODHPUR D.B. Income Tax Appeal No. 4 / 2012 The Commissioner of Income Tax, Udaipur ----Appellant Versus M/S Chetak Enterprises Pvt.Ltd., 396-Hiran Magri, Sector-11, Udaipur. ----Respondent _____________________________________________________ For Appellant(s) : Mr.KK Bissa. For Respondent(s) : _____________________________________________________ HON'BLE MR. JUSTICE K. S. JHAVERI HON'BLE DR. JUSTICE PUSHPENDRA SINGH BHATI Judgment / Order 24/01/2018 1. By way of this appeal, the appellant has challenged the judgment and order of the Tribunal whereby the Tribunal has allowed the appeal of the assessee. 2. While admitting the appeal, this Court framed following substantial question of law :- “Whether in the facts and in the present circumstances of the case as well as in the law, the Tribunal is justified in deleting penalty levied u/s 271(1)(c) of the I.T. Act specifically after introduction of Explanation-1 below Sec.271(1)(c) of the I.T. Act?” 3. The learned Tribunal while allowing the appeal of the assessee held as under :- "10. Assessing officer while imposing the penalty upon the assess has observed that assess has surrendered an amount of Rs. 90 lacs on the ground that it was apprehending further scrutiny and to avoid that it has surrendered a particular amount of income. Thus, it cannot be said that it is a

(2 of 9) [ITA-4/2012] voluntary surrender and assessee has concealed the particulars of its real income. To our mind, assessing Officer wants to bring the case of assessee within the deeming fiction for concealment of income provided by way of explanation 1 to sec. 271(1)© of the Act. The surrender made by the assess is relevant for the addition, but for visiting the assessee with penalty, Assessing Officer has to demonstrate that assessee has concealed the particulars of income or furnished inaccurate particulars. He has to held that the explanation offered by the assessee in support of its return and the books of account are false. No such thing has been pointed out in the assessment order. The assessee has given an explanation that it has constructed the road in rural background and, therefore, some of the vouchers could not be prepared in consonance with the statutory requirements. It was a particular hardship faced by the assessee in its line of business and, therefore, it agreed for the addition. But that conscious suo moto surrender would not indicate that particulars of its income were inaccurate or it has concealed the particulars. At the mosdt, it can be charged that it fails to substantiate its claim in the books of account. In other words, it is just an estimated addition on the basis of rejection of book results. This aspect can be looked into with another angle also. The assessee had operating expenses of Rs. 8,32,24,141. Out of those expense, Assessing Officer did not doubt to the details of expense of Rs. 4,36,20,358 which relates to bitumen, cement, diesel, tyre-tubes because these expenses must have been incurred with the organization situated in cities. The expenses which were not verifiable to the satisfaction of the Assessing Officer were Rs 3,59,31,986. Out of that some of the expense are hit by sec. 40A(3) of the Act i.e. payments were made in cash instead of account payee cheque for the purchase of gitty and reti i.e. (grit & sand). Thus, there is nothing on the record which suggests that assessee has deliberately furnished inaccurate particulars or concealed the particulars of income merely on the basis of the agreed addition, penalty is not imposeable upon the assessee. As far as the amount of Rs.1,17,000 is concerned, the assessee has disclosed the details of FDRs in its account. According to it, an error has occurred for inclusion of interest income when it was confronted to the assessee it immediately surrendered the amount. In view of the above discussions, we are of the view that assessee does not deserve to be visited with penalty under sec. 271(1)(c) of the Act. The appeal of the assessee is allowed." 4. Now the issue is squarely covered by the decision of this Court in M/s. Jalan Hard Coke Pvt Ltd. vs. The Asstt. Commissioner of Income Tax (D.B. Income Tax Appeal No.48/2015) decided on 1.8.2017 wherein, it has been held as

(3 of 9) [ITA-4/2012] under :- "3. Counsel for the appellant contended that the assessing officer while imposing penalty has observed as under:- “The assessee company filed its return of income declaring loss of Rs. 46,482/- after claim of expenses of Rs. 3,51,897/- and depreciation of Rs. 1,96,979/- on building purchased during the year at Bombay on 27.3.1996. The return of income was processed u/s 143(1) on 9.3.1998. After processing u/s 143(1) processing u/s 147 were initiated by issuance and service of notice u/s 148 of the I.T. Act, 1961 after recording reasons of reopening.” 4. The CIT(A) has allowed the appeal and remitted the matter back to the Assessing Officer for reassessing the 100% penalty by observing as under:- “4.3. I have perused the penalty order as well as submission of the assessee and case laws relied on that the assessee has intentionally claimed preoperational expenditure against income from other source and depreciation on building which was not meant for business purposes. In this case assessee has not agreed to make addition and explanation filed before the AO is not relevant at all. The assessee has other objects of finance in Memorandum of Association not main object. Further, mere receipt of the interest on certain loan does not tantamount to be business. The business has different definition. The assessee has not taken any permission of banking business from RBI. There were excess funds available with the assessees which were advanced to the private parties for short time. The expenses claimed by the assessee were also pre-operation for starting of manufacturing activity as main object of the company. In this cae the ld. AO has proved the Mensrea of the assessee to evade the tax. The assessee has furnished inaccurate particular in the return of the income by claiming preoperational expenses and depreciation. There is no change of opinion in this case. The assessee did not agree to make an addition. The assessee’s explanation was false. There is no addition on the basis of estimation but the penalty imposed by the ld. AO is higher side. Therefore, I restrict this penalty @ 100% of tax sought to be evaded on concealed income. The AO is directed to calculate the penalty amount and issue fresh demand notice.” 5. But the Tribunal while accepting the view taken by the AO and reversing the view taken by CIT(A) has partly allowed the appeal of the department. 6. Counsel for the appellant has relied upon the decision of Supreme Court in case of Commissioner of Income Tax,

(4 of 9) [ITA-4/2012] Ahmedabad vs. Reliance Petroproducts Pvt. Ltd. reported in [2010] 322 ITR 158 (SC) wherein it has been held as under:- “8. Therefore, it is obvious that it must be shown that the conditions under Section 271(1)(c) must exist before the penalty is imposed. There can be no dispute that everything would depend upon the Return filed because that is the only document, where the assessee can furnish the particulars of his income. When such particulars are found to be inaccurate, the liability would arise. In Dilip N. Shroff v. Joint Commissioner of Income

Tax,

Mumbai

and

Anr. MANU/SC/3182/2007MANU/SC/3182/2007 : 2007 (6) SCC 329 this Court explained the terms "concealment of income" and "furnishing inaccurate particulars". The Court went on to hold therein that in order to attract the penalty under Section 271(1) (c), mens rea was necessary, as according to the Court, the word "inaccurate" signified a deliberate act or omission on behalf of the assessee. It went on to hold that Clause (iii) of Section 271(1) provided for a discretionary jurisdiction upon the Assessing Authority, inasmuch as the amount of penalty could not be less than the amount of tax sought to be evaded by reason of such concealment of particulars of income, but it may not exceed three times thereof. It was pointed out that the term "inaccurate particulars" was not defined anywhere in the Act and, therefore, it was held that furnishing of an assessment of the value of the property may not by itself be furnishing inaccurate particulars. It was further held that the assessee must be found to have failed to prove that his explanation is not only not bona fide but all the facts relating to the same and material to the computation of his income were not disclosed by him. It was then held that the explanation must be preceded by a finding as to how and in what manner, the assessee had furnished the particulars of his income. The Court ultimately went on to hold that the element of mens rea was essential. It was only on the point of mens rea that the judgment in Dilip N. Shroff v. Joint Commissioner of Income Tax, Mumbai and Anr. was upset. In Union of India v. Dharamendra Textile Processors (cited supra), after quoting from Section 271 extensively and also considering Section 271(1) (c), the Court came to the conclusion that since Section 271(1)(c) indicated the element of strict liability on the assessee for the concealment or for giving inaccurate particulars while filing Return, there was no necessity of mens rea. The Court went on to hold that the objective behind enactment of Section 271(1)(c) read with Explanations indicated with the said Section was for providing remedy for loss of revenue and such a penalty was a civil liability and, therefore, willful

(5 of 9) [ITA-4/2012] concealment is not an essential ingredient for attracting civil liability as was the case in the matter of prosecution under Section 276C of the Act. The basic reason why decision in Dilip N. Shroff v. Joint Commissioner of Income Tax, Mumbai and Anr. (cited supra) was overruled by this Court in Union of India v. Dharamendra Textile Processors (cited supra), was that according to this Court the effect and difference between Section 271(1)(c) and Section 276C of the Act was lost sight of in case of Dilip N. Shroff v. Joint Commissioner of Income Tax, Mumbai and Anr. (cited supra). However, it must be pointed out that in Union of India v. Dharamendra Textile Processors (cited supra), no fault was found with the reasoning in the decision in Dilip N. Shroff v. Joint Commissioner of Income Tax, Mumbai and Anr. (cited supra), where the Court explained the meaning of the terms "conceal" and inaccurate". It was only the ultimate inference in Dilip N. Shroff v. Joint Commissioner of Income Tax, Mumbai and Anr. (cited supra) to the effect that mens rea was an essential ingredient for the penalty under Section 271(1)(c) that the decision in Dilip N. Shroff v. Joint Commissioner of Income Tax, Mumbai and Anr. (cited supra) was overruled.” 6.1. He has also relied upon the decision of Rajasthan High Court in the case of Commissioner of Income Tax v/s Jawahar Kala Kendra reported in [2014] 362 ITR 515 (Raj.) wherein it has been held as under:- “11. The Hon'ble apex court considered the same related issue in the case of Mysore Minerals Ltd. v. CIT MANU/SC/0540/1999MANU/SC/0540/1999 : [1999] 239 ITR 775 (SC) and considered the concept of the term "own", "ownership" and "owned" and after referring to several authorities, observed as under (page 781): It is well-settled that there cannot be two owners of the property simultaneously and in the same sense of the term. The intention of the Legislature in enacting section 32 of the Act would be best fulfilled by allowing deduction in respect of depreciation to the person in whom for the time being vests the dominion over the building and who is entitled to use it in his own right and is using the same for the purposes of his business or profession. Assigning any different meaning would not sub-serve the legislative intent. To take the case at hand it is the appellant-assessee who having paid part of the price, has been placed in possession of the houses as an owner and is using the buildings for the purpose of its business in its own right. Still the assessee has been denied the benefit of section 32. On the other hand, the Housing Board would be denied the benefit of section 32 because in spite of its being the

(6 of 9) [ITA-4/2012] legal owner it was not using the building for its business or profession. We do not think such a benefit- tonone situation could have been intended by the Legislature. The finding of fact arrived at in the case at hand is that though a document of title was not executed by Housing Board in favour of the assessee, but the houses were allotted to the assessee by the Housing Board, part payment received and possession delivered so as to confer dominion over the property on the assessee whereafter the assessee had in its own right allotted the quarters to the staff and they were being actually used by the staff of the assessee. It is common knowledge, under the various scheme floated by bodies like housing boards, houses are constructed on large scale and allotted on part payment to those who have booked. Possession is also delivered to the allottee so as to enable enjoyment of the properly. Execution of document transferring title necessarily follows if the schedule of payment is observed by allottee. If only the allottee may default the property may revert back to the Board. That is a matter only between the Housing Board and the allottee. No third person intervenes. The part payment made by allottee are with the intention of acquiring title. The delivery of possession by Housing Board to allottee is also a step towards conferring ownership. Documentation is delayed only with the idea of compelling the allottee to observe the schedule of payment. 14. If we look to section 32(1), as reproduced hereinabove, it simply observes about owning of the properties. Therefore, owned would not mean by way of a registration by way of title deed as held by the Hon'ble apex court in the case of Mysore Minerals Ltd. (supra). If we look to section 43(1) Explanation 2, then, value of assets has to be recognised where transfer is by way of gift or inheritance and here in the case, assets have been transferred by the Government of Rajasthan to the assessee-society and for that purpose value has been adopted as the value to the previous owner and this explanation also supports the claim of the respondent-assessee.” 6.2. He has also relied upon another decision of Rajasthan High Court in the case of Commissioner of Income Tax vs. Jawahar Kala Kendra reported in [2014] 369 ITR 132 (Raj.) wherein it has been held as under:- “8. In our view, the Tribunal has rightly deleted the penalty for the reason that though the claim was disallowed by the AO, thereafter, partly allowed by the CIT(a) and further not pressed by the assessee, but the fact remains that the assessee-society was constituted as an autonomous body by an order dt. 11/08/2003 issued by the Governor of Rajasthan to preserve and

(7 of 9) [ITA-4/2012] promote art and culture of Rajasthan and to contribute to the social and cultural development of the people of the State. It is also an admitted fact that subsequent to the said order of the Governor of Rajasthan, the assessee-society came to be formed and was registered under the Societies Registration Act, 1958 and the Commissioner of Income Tax has also granted registration u/s. 12a to the assessee-society. 9. It is also an admitted fact and which has not disputed by the Revenue that possession over the property is being enjoyed by the assesseerespondent and no claim of reclaiming the assets have been made by the State Government subsequent to transfer of the assets to the assesseesociety. In our view, merely because title has not been transferred or properties not registered in the name of the assessee under the Indian Registration Act, depreciation cannot be disallowed. Admittedly possession and user is of the assessee. It would be appropriate to mention that this Court in Commissioner of Income Tax Jaipur-II Vs. M/s. Jawahar Kala Kendra, (the present assessee) vide order dt. 03/01/2014 in DB Income Tax Appeal No. 121/2012 had upheld the finding of the Tribunal for allowing depreciation to the respondent-assessee in the assessment year 2007-08 and in the aforesaid order, this Court has relied upon the judgment of the Hon'ble Apex Court in the case of Mysore Mineral Ltd. Vs. CIT: MANU/SC/0540/1999MANU/SC/0540/1999 : (1999) 239 itr 775; Delhi High Court in the case of CIT Vs. Oswal

Agro

Mills

Ltd: MANU/DE/3854/2010MANU/DE/3854/2010 : (2011) 238 CTR 113; Punjab & Haryana High Court, in the case of CIT Vs. Metalman Auto P. Ltd.: MANU/PH/2113/2011MANU/PH/2113/2011 : (2011) 336 ITR 434 (P & H) and after relying upon the said judgments ultimately observed as under:- "In our view, on the face of record, we are of the clear opinion that the assessee-society had rightly been allowed depreciation by the CIT(A) and the itat, as the assessee-society became owner of the said assets and was actually using the property in its own right as an owner on and from the date of order of the Governor and formation of society." 6.3. He has also relied upon the decision in High Court of Gujarat in the case of Bipinchandra K. Bhatia vs. Assistant Commissioner of Income Tax in tax Appeal No. 596/2006 wherein it has been held as under:- 10. In the case on hand, there is no material to show that that the assessee has consciously concealed certain particulars pertaining to his income or has supplied inaccurate particulars, deliberately. Further, it is the case of the Revenue that the explanation given

(8 of 9) [ITA-4/2012] by the assessee in connection with his income is not acceptable and it is not the case that the assessee has offered no explanation or false explanation, at all. Instead the case of the revenue is that the explanation given by the assessee cannot be accepted. In similar circumstances, this Court in the case of "Amrut Tubewell Company vs. Asst. CIT" (Supra), observed as under in Para-15; "15. So far as the penalty under Section 273(2) (a) is concerned, said section reads as under; "273(2)[a] has furnished under sub-section (1) or sub- section (2) or sub-section (3) or subsection (5) of section 209A, or under subsection (1) or subsection (2) of section 212, an estimate of the advance tax payable by him which he knew or had reason to believe to be untrue, ...]" The Tribunal has recorded that the CIT(A) confirmed the penalty imposed by the AO under this section on the ground that the difference between the earned income and the assessed income of the assessee was more and that the assessee, himself, had declared income of Rs. 75,000/- by filing revised return. The Tribunal, further, observed that the CIT(A) had found that the assessee was not able to prove the source of cash credit, and therefore, CIT(A) upheld the penalty levied by the AO, which is confirmed by the Tribunal. However, while doing so, here again, the Tribunal failed to appreciate the fact that the assessee had not furnished any details pertaining to advance tax which was untrue. On the contrary, the additions were of such nature that the assessee could not have foreseen. We are, therefore, of the opinion that the order of the Tribunal cannot be sustained and deserves to be quashed and set aside." 11. In above view of the matter, the decision of the Apex Court in "CIT vs. Khoday Eswarsa & Sons" (Supra) and of this Court in "Amrut Tubewell Company vs. Asst. CIT" (Supra), would apply to the facts of the present case. Hence, the appeal deserves to be allowed. 7. Counsel for the respondent contended that the quantum has been upheld. Therefore, it will not be appropriate to interfere and the Tribunal has rightly partly allowed the appeal preferred by the department. 8. We have heard counsel for both the parties. 9. Taking into consideration the observations made by the Supreme Court in case of Reliance Petroproducts Pvt. Ltd (supra), the view taken by the Tribunal is required to be reversed and that of CIT(A) is to be upheld." 5. In that view of the matter, the issue is answered in favour of

(9 of 9) [ITA-4/2012] the assessee and against the department. 6. Accordingly, the appeal stands dismissed in terms of the aforesaid judgment.

(DR. PUSHPENDRA SINGH BHATI)J. (K. S. JHAVERI)J. S.Phophaliya/-56