PUNEET SALUJA,NEW DELHI vs. ITO, NEW DELHI

4.1 I have carefully considered the written submissions filed by the Ld. AR and penalty order passed by the AO. From the penalty order, it is established that AO imposed penalty specifically holding that creation of AOP was an after-thought with the sole motive of minimizing the effect of taxability on the income, which was not disclosed in the return.

4.1.1 From perusal of Sec. 271(1)(c), it is seen that the provisions of Sec 271 (1)(c) are attracted only when the conditions stipulated in Section 271 (1)(c) are met. Explanation 1 to Sec 27(1 )(c) sets out the circumstances which justifies levy of penalty. It reads as under:

Explanation 1. Where in respect of any facts material to the computation of the total income of any person under this Act,-

Such person fails to offer an explanation or offers an explanation which is found (A) by the Assessing Officer or the Commissioner (Appeals) or the Commissioner to be false, or (B). Such person offers an explanation which he is not able to substantiate and fails to prove that such explanation is bona fide and that all the facts relating to the same and material to the computation of his total income have been disclosed by him. then, the amount added or disallowed in computing the total income of such person as a result thereof shall, for the purposes of clause (c) of this sub-section be deemed to represent the income in respect of which particulars have been concealed.

The implication of the Explanation as under: (1) Every difference between reported and assessed income needs an explanation. (2) If no explanation is offered, levy of penalty may be justified. (3) If explanation is offered, but is found to be false, penalty will be exigible. (4) If explanation is offered and it is not found to be false, penalty may not be leviable,- (a) such explanation is bona fide. (b) the Assessee had made available to the Assessing Officer all the facts and materials necessary in computation of income

It is seen that in the instant case, at the time of survey on 09.01.2007, statement of Sh. Gunjeev Saluja and Sh. G.S.Saluja was recorded and they admitted that assessee was the proprietor of M/s AVI Impex, but no books of accounts were found to be maintained and the income was not included in the ITR filed. However on 19.03.2007, Sh. Gunjeev Saluja changed his statement and claimed that M/s AVI Impex was an AOP of M/s Gunjeev saluja and others and came into existence on 22.11.2003. To substantiate the claim, a copy of the agreement of the AOP was prepared on 30.03.2005 and it was claimed before the AO that AOP was effective from 01.04.2004. It was also submitted that above agreement was notorized by one Sh. Harish Girotra, Advocate. But when enquiry was made by the AO, it was gathered that Sh. Harish Girotra, Advocate did not notarize the document executed on 30.03.2005, and he became the notary only on 27.09.06. It has further been established by the AO that PAN to the alleged AOP namely M/s Gunjeev Saluja and others was allotted only in March, 2007 and no application for allotment of PAN was made earlier, which established that PAN was applied in the name of the AOP subsequent to the Survey. Further, during the course of assessment proceedings, AO confronted the denial of Sh. Girtora, Advocate, as discussed above, but assessee failed to substantiate his claim with regard to execution of document on 30.03.2005. Further, it has also been established by the AO that ITR filed in the status of AOP M/s Gunjeev Saluja and others for the AY 2005-06 was filed only 30.03.2007, AY 2006- 07 on 23.04.2007 and AY 2007-08 was filed only on 31.5.07, which clearly establish the fact that all these returns were filed subsequent to the date of survey. Apart from the above, it was noticed by the AO that accounting opening form of bank account, clearly establish the fact that bank account was opened by the assessee and it was signed by Sh. G.S.Saluja in the capacity as Proprietor. 4.1.2 4.1.3 From the above, it is clear that as per Explanation 1 to section 271, all the above conditions found to be applicable in the case of the appellant. Appellant during the assessment, penalty and even appellate stage failed to offer any cogent reply duly supported with documentary evidence to substantiate his claim. For the reasons discussed above in the penalty order, it is established beyond doubt that, whatever explanation has been given by the assessee has been found to be not reliable. Subsequent to the survey proceedings, altogether new submissions have been made. At the time of survey proceedings, it was admitted that assessee was the proprietor of M/s AVI Impex but later it was claimed that this concern was the AOP of M/s Gunjeev Saluja and others and it came to existence on 22.11.2003. But considering the detailed discussion on the above issue clearly establish that whatever claim has been made is devoid of any merit as entire claim is nothing but an after-thought to mitigate the tax liability and even the malafide intent of the assessee in the entire factual circumstances gets established.

4.1.4 Thus, it is established beyond doubt that, provisions of section 271(1)(c) are clearly applicable in the case of the appellant. With the insertion of Explanation 1 to section 271(1)(c) the onus is now on the assessee to establish his innocence and righteous conduct. It is held in the case of Kanbay Software India (P) Ltd. Vs. DCIT Circle 8, Pune (2009) 31 SOT 153 that, even when the liability under section 271(1)(c) is viewed as a civil liability, while the onus is certainly not on the tax authorities to establish mens rea of the assessee, the explanation of the assessee is still to be examined by the adjudicating authority on its own merits. Considering this ratio, in the instant case, it is established beyond doubt that assessee has no explanation duly supported with documentary evidence to explain the source of deposit of Rs. 10,77,905/- in the bank account maintained with PNB.

4.1.5 Keeping in view the totality of the facts and circumstances of the case, I would like to mention here the recent Hon’ble Apex Court Judgment. Hon’ble Supreme Court in the case of MAK Data P. Ltd. vs CIT, 1 SCC 674 [Civil Appeal No. 9772 of 2013 arising out of Special Leave Petition (Civil) No. 18389 of 2013] has pronounced the judgment in respect of section 271(1)(c), which has again raised the vexed issue of levy of penalty u/s 271 (1)(c). In this case, Apex court has laid down that even if income surrendered during the assessment proceedings to buy the peace, penalty can still be levied by Assessing officer. The facts of the case discussed by the Hon’ble Apex Court are as under:

Assessee filed return of income for A.Y. 2004-05 declaring total income of Rs. 16,17,040. During the course of assessment proceedings, AO found that certain documents comprising share application forms, bank statements, MOA of companies, affidavits, return of income were impounded in survey u/s 133A on sister concern of the assessee. On 26.10.2006, show cause notice was issued seeking information relating share applications and bank transfer deeds signed by applicants. In reply assessee offered 40.74 lakhs as income in the following words, “The offer of surrender is by way of voluntary disclosure of without admitting any concealment whatsoever or with any intention to conceal and subject to noninitiation of penalty proceedings and prosecution.”

(i). AO after verifying the details of share application money accepted the surrender made by the assessee and accordingly concluded the assessment u/s 143(3). AO also initiated penalty proceedings for concealment of income and not furnishing true particulars of income and imposed penalty of Rs. 14.61 lakhs. On appeal, CTT(A) confirmed the order of AO. On further appeal, ITAT allowed the plea of the assessee on the ground that there was no concealment and amount was voluntarily surrendered by assessee. Aggrieved by the order of ITAT, revenue took the matter to High court who pronounced the judgment against the assessee confirming the order of the AO. On appeal to Supreme Court it was held as under: Judgment of Apex Court: 1. Whenever there is a difference between the returned and assessed income, onus is on the assessee to substantiate the claim by cogent and reliable evidence. When initial onus placed by the Explanation-i to Section 271(1X0) is discharged by the assessee, burden of proving the ground to levy the penalty is on Revenue.

(ii). Assessee’s plea like “voluntary disclosure”, “buy peace”, “avoid litigation”, “amicable settlement”, etc. are not recognized by the statute under Explanation-i. Voluntary disclosure made by the assessee does not release the appellant from the mischief of penal proceedings and income tax law does not absolve assessee from penalty when voluntary disclosure is made.

3.Surrender of income cannot be termed as “voluntary”, as it was offered for taxation after detection was made by the AO in the search proceedings conducted on sister concern of assessee. If assessee’s intention was to declare correct income, it would have done so at the time filing return of income.

4.1.6 The above judgment is important in the sense that it lays down a ratio that, assessee cannot circumvent the provisions of section 271 (1Kc) merely by making voluntarily disclosure in assessment proceedings. Even if all the particulars are disclosed and there is no discrepancy in the particulars disclosed in return of income to that with books of account, onus is still on the assessee to substantiate why a particular income or expenses was treated in a specific way in return of income, which is different from the way A.O. is treating.

4.1.7 Thus in the first instance, it recognizes the burden on the part of assessee for advancing the explanation for all the claims made in return of income and only after assessee is able to substantiate his claim with cogent and reliable evidence, burden shifts on revenue. Further, Court also lay down that Assessee cannot plead bonafide after particular discrepancy is detected by AO as it raises presumption that assessee was holding back the issue to escape from it; If genuine bonafide exists, it must be proved by way of an evidence.

4.1.8 In addition to the above, I place reliance on the following rulings:

Hon'ble Gujrat High Court in the case of A.M. Shah & Co. v.CIT [1999] 238 ITR 415 [2000] 108 Taxman 137 (Guj) observed that there cannot be a straight jacket formula for detection of these defaults of concealment or of furnishing inaccurate particulars of income, in terms of provisions of sec. 27l(l)(c) of the Act read with explanation 1 thereto and the judicial pronouncements in the case of B.A. Balasubramaniam & Bros. Co. v. CIT [2001] 116 Taxman 842 (SC),CIT v. B.A. Baiasubramaniam & Bros. Co. [1985] 152 ITR 529 / 20 Taxman 215(Mad.), CIT v. Mussadilal Ram Bharose [1987] 165 ITR 14 /30 Taxman 546H; CIT v. K.R. Sadayappan [1990] 185 ITR 49/51 Taxman 304 , Addl. CIT v. Jeevan Lai Sah[1994] 205 ITR 244 / 73 Taxman 182 (SC) and K.P. Madhusudanan v. CIT [2001] 251 ITR 99/ 118 Taxman 324 (SC), it is well established that whenever there is difference between the returned and assessed income, there is inference of concealment. The Explanation 1 to sec. 271 (1)(c) of the Act raises a presumption that can be rebutted by the assessee with reference to facts of the case. Thus, the onus is on the assessee to rebut the inference of concealment. The onus laid down upon the assessee to rebut the presumption raised under Explanation 1 would not be discharged by any fantastic or fanciful explanation. It is not the law that any and every explanation has to be accepted. In CIT v. K.P. Madhusudanan [2000]246 ITR 218/[2002] 125 Taxman 265, Hon'ble Kerala High Court came to the conclusion that penalty was liable to be imposed in a case where the assessee could offer no acceptable explanation for the income not disclosed or the inaccurate particulars he had furnished in his return.

- Hon'ble Apex Court in Union of India vs. Dharmendra Textile processors (SC) 306 ITR 277, Guljag Industries Ltd. vs. CTO (SC) 293 ITF 584 and CIT vs. Atul Mohan Bindal (SC) 317 ITR 1 have held that 'mens rea' not essential for civil liability of penalty- Penalties under fiscal statutes are for breach of civil liabilities - Willful concealment is not an essential ingredient for attracting civil liability as is the case in the matter of prosecution u/s 276C.

After distinguishing the decision in CIT vs. Reliance Petroproducts Pvt. Ltd. (2010)322 ITR 158 where Hon’ble Apex Court decision was rendered because two views were possible in that case, Hon'ble Delhi High Court in CIT v. Zoom Communication)Ltd[2010] 191 TAXMAN 179 (Delhi), have held:

It is true that mere submitting a claim which is incorrect, in law, would not amount to giving inaccurate particulars of the income of the assessee, but it cannot be disputed that the claim made by the assessee needs to be bona fide. If the claim besides being incorrect, in law, is mala fide the Explanation l to section 271(1) would come into play and work to the disadvantage of the assessee. [Para 19] The Court cannot overlook the fact that only a small percentage of the income-tax returns are picked up for scrutiny. If the assessee makes a claim of the appellant which is not only incorrect in law, but is also wholly without any basis and the explanation furnished by the appellant for making such a claim is not found to be bonafide, it would not be difficult to say that he would still not be liable to penalty under section 271(1)©. If one takes the view that a claim which is wholly untenable in law and has absolutely no foundation on which it could be made, the assessee would not be liable to imposition of penalty, even if he was not acting bona fide while making a claim of this nature, that would give a license to the unscrupulous assessees to make wholly untenable and unsustainable claims without there being any basis for making them ,in the hope that their return would not be picked up for scrutiny and they would be assessed on the basis of self-assessment under section 143(1) and even if their case is selected for scrutiny, they can get away merely by paying the tax, which, in any case, was payable by them. The consequence would be that the persons, who make claims of this nature, actuated by a mala fide intention to evade tax otherwise payable by them, would get away without paying the tax legally payable by them, if their cases are not picked up for scrutiny. This would take away the deterrent effect, which these penalty provisions in the Act have.

In a recent decision dt. 29/07/2013 in the case of CIT vs. HCIL Kalindee ARSSPL in and in the case of CIT vs. HCIL ARSSPL Triveni (3V) in IT A "Nos. 481/2012 Hon’bie Delhi High Court has upheld the penalty u/s 271 (l)(c) imposed by the AO where inadmissible deduction claimed u/s 80IA was disallowed and added to the income of the assessee. In these cases also the appellant claimed that the deduction u/s 80IA of the Act were claimed on the basis of certificate of Charted Accountant. While upholding the penalty imposed by the AO, the Hon'ble Jurisdictional High Court have held as under:

"Penalty provisions are not criminal and do not require culpable mens rea. Whether or not the assessee had acted malafidely is not the relevant question to be asked and answered. The relevant question to be asked and answered is whether the assessee has discharged the onus and satisfied the conditions mentioned in Explanation 1 to Section 271 (1) (c) of the Act.

Penalty under Section 271 (l)(c) of the Act is imposed when an assessee has concealed his income or furnished inaccurate particulars. In terms of the explanation quoted above, we have to examine whether the case falls within sub-clause (A) or (B) and the effect thereof. Sub-clause (A) applies when the assessee fails to furnish any explanation or when an explanation is found to be false. In the present case, sub-clause (A) would not be applicable as assessee has furnished an explanation, and the explanation has not been found to be "factually" false. The assessee had made a wrong claim for deduction under Section 80IA and, therefore, had furnished inaccurate particulars as the claim was not admissible. Sub-clause (B) of the explanation is, therefore, applicable and we have to examine the two conditions whether: (I) The assessee has been able to show that the explanation was bonafide; and (2) Facts and material relating to computation of his income had been disclosed.

9 .Onus of establishing that the assessee satisfied the two conditions is on him i.e. the assessee. We shall examine the first condition i.e. whether the explanation of the assessee was bonafide. The second condition is satisfied.

4.1.9 Further, the decisions relied on by the A/R are not applicable in the instant case. In the case of CIT v. Reliance Pertoproducts Pvt. Ltd. [2010] 322 ITR 158 (SC) it was held that penalty was not imposable because two views were possible in that case. In the instant appeal it is clearly established that the appellant has furnished inaccurate particulars of income, the explanation of the appellant is not bonafide but just an after-thought with the malafide intention. Further, it is not a case where two opinions on a point is involved, but the fact is that entire explanation given by the appellant before the AO and before me is totally devoid of any merits, as discussed in the above paras. Similarly, it is held that facts and circumstances of the case i.e. CIT Vs. Manjunath Cotton and Ginning Factory of the Karnataka High Court are distinct and distinguishable and not found to be directly applicable. 4.1.8 On the basis of ratio of above judicial pronouncement, and that of relied upon by the AO in the penalty order, it is held that appellant failed to discharge his onus while filing the return of income by disclosing the true and full particulars of income for the assessment year under consideration. Thus, it is held that Assessing officer has rightly imposed the penalty u/s. 271(1)(c) of the Act for furnishing inaccurate particulars of income by the assessee to the extent of Rs.50,48,792/- on which penalty of Rs. 16,99,422/- has been imposed being 100% of tax sought to be evaded. Thus, action of the AO is upheld in imposing penalty u/s 271 (1 )(c) of the Act of Rs.16,99,422/-.”