M/S B AND B INFRATECH LIMITED ,BANGALORE vs. THE INCOME TAX OFFICER WARD-1(1)(3), BANGALORE

The appeal filed by the assessee is directed against the order dated 22-06-2018 passed by Ld CIT(A)-3, Bengaluru for assessment year 2005-06, wherein he has confirmed the penalty levied by the AO u/s 271(1)(c) of the Act.

We heard the parties and perused the record. The assessing officer, in the reassessment proceedings, re- computed the book profit u/s 115JB of the Act by disallowing the claim for deduction of Rs.43.00 lakhs, being the amount relating to waiver benefits received by the assessee from banks on account of One Time Settlement of Loan. The assessee, though disclosed the same in the Profit and Loss account as its income, yet excluded it from Net Profit while computing book profit u/s 115JB of the Act. Hence the AO, in the reassessment proceedings, re-computed the book profit by disallowing the above said claim. The Ld CIT(A) confirmed the same and the appeal filed by the assessee before Tribunal was also dismissed. Hence the assessing officer passed penalty order imposing a penalty of Rs.4,45,860/- u/s 271(1)(c) of the Act in respect of above said addition. The penalty order was confirmed by Ld CIT(A) and hence the assessee has filed this appeal before us.

At the time of hearing, the assessee furnished a copy of penalty notice issued by the AO and submitted that the AO has not struck off the inapplicable portion out of the two limbs mentioned in sec.271(1)(c) of the Act. Accordingly he submitted that the impugned penalty order will get vitiated as per the decision of Hon’ble Karnataka High Court rendered in the case of Manjunatha Cotton & Ginning Factory (359 ITR 565)(Kar). The Ld A.R further submitted that the AO did mention about the limb in the assessment order also and he has levied penalty in the penalty order under both the limbs. He submitted that the AO cannot levy penalty under both the limbs.

The Ld A.R also submitted that the assessee has duly disclosed the fact of waiver of loan by bank and the waiver benefit was duly credited to the Profit and Loss account. Since the assessee considered the same as Capital receipt, it excluded the impugned amount from the Net profit while computing book profit. He submitted that there are decisions supporting the view of the assessee that the capital receipts should be excluded from the Net profit while computing “book profit” u/s 115JB of the Act, if the same is credited in Profit and Loss account. Accordingly he submitted that the issue is debatable one and hence AO was not justified in levying penalty u/s 271(1)(c) of the Act.

We heard Ld D.R and perused the record. The penalty u/s 271(1)(c) of the Act is levied either of the two limbs, viz., for concealment of particulars of income or furnishing of inaccurate particulars of income. We notice that the assessing officer has not mentioned the nature of charge in the assessment order and has only stated that “Penalty proceedings u/s 271(1)(c) is initiated separately”. In the penalty notice also, the AO has not struck off inapplicable charge/limb. Hence it appears that he was not clear about the reason for which the penalty proceedings have been initiated. The following observations made by the AO in the penalty order would show that the AO was not clear in his mind about the charge under which he has imposed the penalty:-

It is now well settled proposition of law that the expressions “concealment of particulars of income” and “furnishing of inaccurate particulars of income” connote different meanings. This legal position has been explained by Hon’ble Supreme Court in the case of Dilip N Shroff, which has been reproduced by Hon’ble Supreme Court in the case of T. Ashok Pai vs. CIT (292 ITR 11). For the sake of convenience, we extract below the observations made by Hon’ble Supreme Court in the case of T. Ashok Pai (supra):-

It signifies a deliberate act of omission on the part of the assessee. Such deliberate act must be either for the purpose of concealment of income or furnishing of inaccurate particulars.

The term 'inaccurate particulars' is not defined. Furnishing of an assessment of value of the property may not by itself be furnishing of inaccurate particulars. Even if the explanations are taken recourse to, a finding has to be arrived at having regard clause (a) of Explanation 1 that the Assessing Officer is required to arrive at a finding that the explanation offered by an assessee, in the event, he offers one was false. He must be found to have failed to prove that such explanation is not only not bona fide but all the facts relating to the same and material to the income were not disclosed by him. Thus, apart from his explanation being not bona fide, it should be found as of fact that he has not disclosed all the facts which was material to the computation of his income.

The explanation having regard to the decision of this Court must be preceded by a finding as to how and as to in what manner he furnished the particulars of his income. It is beyond any doubt or dispute that for the said purpose the Income Tax Officer must arrive at its satisfaction in this behalf. [See Commissioner of Income Tax v. Ram Commercial Enterprises Ltd., 246 ITR 568 and Diwan Enterprises v. Commissioner of Income Tax, 246 ITR 571].

The order imposing penalty is quasi-criminal in nature and, thus, burden lies on the department to establish that the assessee had concealed his income. Since burden of proof in penalty proceedings varies from that in the assessment proceeding, a finding in an assessment proceeding that a particular receipt is income cannot automatically be adopted, though a finding in the assessment proceeding constitute good evidence in the penalty proceeding. In the penalty proceedings, thus, the authorities must consider the matter afresh as the question has to be considered from a different angle.

It is now a well-settled principle of law that the more is the stringent law, more strict construction thereof would be necessary. Even when the burden is required to be discharged by an assessee, it would not be as heavy as the prosecution. [See P.N. Krishna Lal and Others v. Govt. of Kerala and Another, 1995 Supp (2) SCC 187]

The omission of the word "deliberate", thus, may not be of much significance.

Section 271(1)(c) remains a penal statute. Rule of strict construction shall apply thereto. Ingredients of imposing penalty remains the same. The purpose of the legislature that it is meant to be deterrent to tax evasion is evidenced by the increase in the quantum of penalty, from 20% under the 1922 Act to 300% in 1985.

'Concealment of income' and 'furnishing of inaccurate particulars' carry different connotations. Concealment refers to deliberate act on the part of the assessee. A mere omission or negligence would not constitute a deliberate act of suppressio veri or suggestio falsi.

We may notice that in Commissioner of Income-Tax v. Jeevan Lal Sah 1994 (205) ITR 244, this Court dealt with the amendment of Section 271(1)(C) made in the year 1964 to hold :

The question came for consideration of this Court yet again in K.C. Builders and Anr v. Assistant Commissioner of Income-Tax 2004 (265) ITR 562 = (2004) 5 SCC 731), wherein it was held : "One of the amendments made to the abovementioned provisions is the omission of the word 'deliberately' from the expression 'deliberately furnished inaccurate particulars of such income'. It is implicit in the word 'concealed' that there has been a deliberate act on the part of the assessee. The meaning of the word 'concealment' as found in Shorter Oxfort English Dictionary, third edition, Volume I, is as follows : 'In law, the intentional suppression of truth or fact known, to the injury or prejudice of another.' The word 'concealment' inherently carried with it the element of mens rea. Therefore, the mere fact that some figure or some particulars have been disclosed by itself, even if it takes out the case from the purview of non-disclosure, it cannot by itself, even if it takes out the case from the purview of non- disclosure, it cannot by itself take out the case from the purview of non- disclosure, it cannot by itself take out the case from the purview of furnishing inaccurate particulars. Mere omission from the return of an item of receipt does neither amount to concealment nor deliberate furnishing of inaccurate particulars of income unless and until there is some evidence to show or some circumstances found from which it can be gathered that the omission was attributable to an intention or desire on the part of the assessee to hide or conceal the income so as to avoid the imposition of tax thereon. In order that a penalty under Section 271(1)(iii) may be imposed, it has to be proved that the assessee has consciously made the concealment or furnished inaccurate particulars of his income."”

In the instant case, we have noticed that the assessing officer was not clear on the charge/limb he wanted to invoke in respect of disallowance made by him while computing book profit. In the assessment order, he has not referred to any of the link. In the penalty order, the AO states initially that it is a case of concealment of income, but proceeds to levy penalty for concealment of income and furnishing of inaccurate particulars of income. As per the decision rendered by Hon’ble Supreme Court in the case of Dilip N Shroff (supra), the addition may fall under any of the two limbs. In fact, we notice that the assessee has fully disclosed all the particulars relating to waiver benefits in its return of income. Hence it cannot certainly a case of furnishing of inaccurate particulars of income at all. All these factors would show that the AO was not clear as to charge for which he has initiated penalty proceedings.

In any case, we have noticed that the AO has also not struck off inapplicable limb in the penalty notice, which further fortifies the case that the assessing officer has not applied his mind. Hence, as per the decision rendered by Hon’ble Karnataka High Court in the case of Manjunatha Cotton & Ginning Factory (supra), the penalty order is liable to be quashed. Accordingly we quash the orders passed by tax authorities.

In the result, the appeal of the assessee is allowed.