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Income Tax Appellate Tribunal, DELHI BENCH: ‘F’, NEW DELHI
Before: SH. I.C. SUDHIR & SH. O.P. KANT
ORDER PER O.P. KANT, A.M.: This appeal by the assessee is directed against order dated 22/01/2014 of Ld. Commissioner of Income-tax (Appeals)-XVII, Laxmi Nagar, Delhi (in short ‘the CIT-A’), for assessment year 1996-97, in respect of penalty levied under section 271(1)(C) of the Income-tax Act, 1961 (in short ‘the Act’). The grounds of appeal
raised are as under:
1. The provisions of section 271(1)(c) read with Section 275 are not applicable at all.
2. There is neither concealment of income nor appellant has filed inaccurate particulars of income, thus the provisions of section 271(1)(c) are not applicable at all.
3. Without prejudice to ground that no penalty is leviable, CIT(A) has erred in enhancing the penalty.
4. Bonafide claim made, disallowed in assessment proceeding does not attract penalty at all.
5. The CIT(A) has erred in holding that appellant has not furnished any explanation with regard to addition/disallowance.
6. The CIT(A) has erred in holding that “appellant has consciously made the concealment and furnished inaccurate particulars of his income with a view to avoid imposing of tax.
7. The aforesaid grounds of appeal
are independent and without prejudice to one another. The appellant craves leave to add, amend, alter or vary any of the aforesaid grounds of appeal before or at the time of hearing.
2. The facts in brief of the case are that: (i) the assessee company was engaged in export of Knitwear during the relevant period; (ii) the assessee did not file return of income for the year under consideration on or before the due date of filing of return of income under section 139(1) of the Act i.e. 30/11/1996; (iii) the Assessing Officer issued notice under section 142(1) of the Act on 03/12/1996 for filing return of income for the year under consideration; (iv) the return of income was filed on 26/02/1999 declaring loss of Rs.11,27,27,555/-; (v) the Assessing Officer in the assessment order completed under section 144 of the Act dated 26/03/1999 assessed the income at nil ignoring the loss declared in the return; (vi) subsequently, the Ld. Commissioner of Income-tax (Central)-II, New Delhi, passed order under section 263 of the Act on 20/03/2001 setting aside the order dated 26/03/1999 of the Assessing Officer. (vii) in compliance, to the order of the Commissioner of Income-tax (Central)-II, New Delhi, the Assessing Officer made a fresh assessment dated 15/01/2002, making the following additions:
(a) Disallowance of abnormal loss Rs. 17,13,14,030 (b) Disallowance of bad debts Rs. 10,18,28,098 (c) Disallowance of bank and Rs. 36,01,817 interest charges Total Rs. 27,67,43,945 (viii) the Ld. CIT-A dismissed the appeal, but the ITAT set aside the matter to the file of the Ld. CIT-A for fresh adjudication. The Ld. CIT-A in his order dated 12/10/2010, upheld the disallowance of abnormal loss. On further appeal, the ITAT in order dated 31.10.2012 upheld the disallowance in respect of abnormal loss of Rs.17,13,14,030/- claimed by the assessee. (ix) the Assessing Officer levied penalty under section 271(1)(c) of the Act on 29.03.2012 for furnishing inaccurate particulars of income in respect of addition/disallowance of abnormal loss on the ground that no explanation with regard to the loss of stock was filed by the assessee either in the assessment/appellate proceeding or in the penalty proceeding. In the penalty order, the Assessing Officer while computing the amount of penalty considered amount of addition at Rs.12,29,47,520/- instead of Rs.17,13,14,030/- and levied the penalty of Rs.5,65, 55,859/-. (x) the Ld. CIT-A noticed the error committed by the Assessing Officer in amount of addition/disallowance of abnormal loss and accordingly issued a notice for enhancement of the penalty amount to Rs.7,88,04,440/-. After considering the submission of the assessee against the enhancement as well as against levy of penalty, the Ld. CIT-A, citing various judicial decisions enhanced the penalty levied under section 271(1)(c) of the Act to Rs.7,88,04,440/- as against the penalty of Rs.5,65,55,859/- levied by the Assessing Officer. According to the Ld. CIT-A, no evidence has been furnished by the assessee to claim that what was the stock destroyed, how it was destroyed and where it was a standing in the books of account. Aggrieved with the finding of the Ld. CIT–A on the issue of penalty, the assessee is in appeal before the Tribunal raising the grounds as reproduced above.
Before us, the Ld. counsel of the assessee filed the paper book containing 1 to 88 pages and submitted that the assessee had disclosed full information in respect of the loss in the return of income filed. He referred to page - 6 of the paper book, which is copy of profit and loss account for the year under consideration and submitted that abnormal loss of Rs.17,13,14,030/- was duly reported under the expenditure. He further referred to page 17 of the paper book, which is Schedule – L to the balance sheet and contained notes on accounts. In part ‘B’ of the said schedule, in note No. 6, it is mentioned that an amount of Rs.17,13,14,030/- has been written off on account of damage, which took place at the ‘Dichaun Kalan’ (godowns) of the company due to demolition of building by the Corporation in the absence of the director or any employee. He further referred to the decision of the Tribunal and submitted that the Tribunal in the quantum proceedings, while upholding the disallowance of abnormal loss, rejected the certificate issued by the bank dated 21/09/1995 supporting the claim of availability of stock, stating that it was not relevant to the period under consideration, whereas it was actually pertaining to the assessment year in consideration i.e. 1996-97. According to him, the Tribunal wrongly considered the accounting period for the year under consideration from 01/04/1996 to 31/03/1997 and accordingly wrongly held that the bank certificate in support of the availability of the stock was not relevant to the period under consideration. He further submitted that Ld. CIT-A, while deciding the penalty also did not admit the said bank certificate as additional evidence. According to the Ld. counsel, the assessee has submitted all the evidences and duly explained the loss claimed on account of stock damaged/stolen. The explanation furnished is bonafide as well as all the facts relating to the same and material to the computation of total income have been disclosed by the assessee and thus Explanation-1 below the section 271(1) of the Act is not attracted. The Ld. counsel further submitted that by claiming the loss, the assessee was in any way not benefiting as the claim of the loss could not have been carried forward in view of the return of income filed by the assessee being belated. In support of the contention that penalty cannot be levied for every claim disallowed by the Assessing Officer, the Ld. counsel relied on the judgment of the Hon’ble Supreme Court in the case of Reliance Petroproducts, 322 ITR 158 (SC). In view of the arguments, the Ld. counsel prayed that the penalty sustained by the Ld. CIT-A might be deleted.
4. On the other hand, the Ld. CIT(DR) relied on the order of the lower authorities and submitted that the assessee failed to explain the loss on stock claimed along with necessary evidences even before the Tribunal and there for the Explanation-1 to the sections 271(1)(c) of the Act is attracted in the case of the assessee and accordingly the penalty enhanced by the Ld. CIT-A need to be sustained.
We have heard the rival submission and perused the relevant material on record. We find that in the assessment proceeding, the assessee claimed that the stock of Rs.17,13,14,030/- was damaged in demolition drive of the Municipal Corporation and stolen. The Assessing Officer observed that against export sales of Rs.24,23,78,722/-, the cost of material utilized for export was claimed at Rs.4,27,04,735/-, which was after taking into consideration the closing stock as under:
Opening stock Rs. 38,20,25,167.00 Add : Material purchases Rs. 12,99,72,769.75 Less : Closing stock Rs. 29,79,79,171.00 Rs. 4,27,04,735.75
6. According to the Assessing Officer, when the entire stock stands accounted for, it was not understood how the claim of Rs.17,13,14,030/- on account of abnormal loss of stock was worked out and claimed in the profit and loss account. No reasonable explanation in this regard was furnished before the Assessing Officer. We have examined this question raised by the Assessing Officer. According to us, if the assessee makes entry of loss of stock in material consumed, then also the net result of the business would be same and there will not be any impact on the net loss shown by the assessee in profit and loss account. Further, in support of the claim of theft of stock before the Assessing Officer, the assessee filed copy of first information report (FIR) lodged by the assessee with the police authorities. In the said FIR, the date and hour of occurrence of theft was reported on 16 & 17/02/1997 at 12.10 in the night. In view of the copy of FIR, the Assessing Officer held that the event of theft did not occur in the year under consideration. Further, no evidence in support of goods damaged in demolition drive of Municipal Corporation, was filed before the Assessing Officer in assessment proceedings. In the penalty proceedings, also no such evidences were filed before the Assessing Officer. Accordingly, the AO levied the penalty with following observation: “3. The assessee has not furnished any explanation with regard to the above addition/disallowance so far as penalty proceedings u/s 271(1)(c) is concerned. It is seen that while explaining its case in support of these claims, during the course of assessment proceedings, appellate and also remand proceedings before the CIT(A) as well as before the A.O. the assessee was not able to prove its claims. Had the A.O. and Id. CIT(A) not taken great pains in making various queries and in scrutinizing/ examining the voluminous information/details minutely, such amounts could not have been brought to tax. It is further confirmed from the fact that return of income has been filed by assessee late by 28 months that too after issue of various notices. Further assessee has also not availed benefit of provisions of section 139(5) which provides an opportunity to an assessee (for revision/ correction of return of income including therein amounts already not offered/withdrawing inadmissible claim) by revising its returns withdrawing such wrong claims. It is only because that case was taken up in scrutiny that such additions/disallowances could be made that too after a lot of efforts were put in by CIT(A) and A.O and, therefore, penalty u/s 271(l)(c) is clearly leviable in such cases.
Explanation 1 to section 271(l)(c) has introduced a deeming provision which makes an assessee liable for penalty in respect of any amount which is added or disallowed, if the explanation offered by the assessee is either false or which he/it is not able to substantiate. In the present case, assessee was not able to substantiate its claim at any of the stages including assessment, appeal, remand and penalty proceedings.
5. Almost every tax payer (except a few small taxpayers) is aware of the fact that not all the returns are taken up for scrutiny and that only about 2% cases are scrutinized. This fact induces them to make such wrong/inadmissible claims with the intention of going scot-free, if the case is not taken up for scrutiny. Furthermore, disallowance/additions in such cases can be made only if the AO is having sufficient time & knowledge to catch hold of such deficiencies which is not practically possible/feasible in each and every case. Considering the facts of (i) non filing of return & (ii) not being able to prove correctness of its claims during proceedings spanning over a lengthy period of more than 15 years before various authorities including 03 AOs, 02 CIT(A)’s, CIT((Adm.) and ITAT; in the present case; it can be safely inferred that asses see tried to evade tax by not offering proper income to tax. Penal provisions are meant only to have deterrent effect to dissuade tax payers for making such claims and will lose its impact if not applied in cases of such violation.
The Hon'ble Delhi High Court in the case of Zoom Communication Pvt. Ltd. reported in (2010) 40 DTR (Del) 249, dated May 24, 2010 have observed as under- “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 which is not only incorrect that would give a license to unscrupulous assessee 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 for scrutiny and they would be assessed on the basis of self assessment under section 143(1) of the Act 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 malafide 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.”
Mere showing the item in the return/accounts/ tax audit report but not offering the same for taxation purpose cannot by itself take out the case from the purview of furnishing inaccurate particulars. Therefore, the omission on the part of assessee not to include an item of receipt/ income in computation of taxable income though shown in the return/accounts or to make a wrong/inadmissible claim/deduction certainly amounts to concealment or deliberate furnishing of inaccurate particulars of income as such omission is clearly attributable to an intention or desire on the part of the assessee to avoid the imposition of tax thereon. 7.1 Explanation 1 to section 147, (though not directly concerned with the provisions of section 271(1)(c)), also lays down clearly that mere production/furnishing of books of accounts/details/documents, etc. (from which A.O. could with due diligence discover something) does not amount to true, full and correct disclosure on the part of the so far as taxing of income is concerned. 7. In quantum proceeding before the Tribunal, the assessee in support of the claim of existence of stock, produced a copy of certificate issued by the bank dated 21/09/1995 and in support of the claim that demolition took place on 30/01/1996, filed information gathered under the RTI Act. In absence of any application for admitting additional evidences, the issue was not restored to the Assessing Officer. The findings of the Tribunal are reproduced as under: “4. With the assistance of learned representative, we have gone through the record carefully. The assessee has filed a paper book containing 29 pages. In this paper book, assessee has placed on record a note in respect of loss claimed due to demolition, copy of a letter dated 09th September, 1995 mitten by the assessee to die Manager, Indian Bank, Delhi seeking a certificate demonstrating the details of stock pledged with the bank. On page 22, assessee has placed on record certificate of lire bank. It also placed on record copy of an application moved under Right to Information Act, 2005 dated 15.11.2010. *The assessee has placed on page 28, the information received under the RTI Act. With the help of these documents, it was contended by the learned counsel for the assesses that the demolition taken place on 30.1.1996. Learned DR pointed out that these documents were not produced before the Assessing Officer. They cannot be placed in the paper book without seeking permission for leading additional evidence. On this objection, we put the learned counsel whether he wants to file application for permission of additional evidence. The learned counsel for the assessee submitted that assessment year involved is 1996-97. Assessee is not in a position to bring any better evidence, lie left the issue for the discretion of the ITAT. 5. On due consideration of the facts and circumstances, we are of the view that assessee miserably failed to demonstrate about the availability of the stock. The certificate from the bank is dated 21st September 1995. The accounting period for the present assessment “year is 01.04.1996 to 31.3.197. It is not at all relevant for this period. Thus, even if, we take this evidence on record and remit the issue to the Assessing Officer for re-adjudication, no fruitful purpose will be served. As far as the information collected under the RTI Act is concerned, it is oi no consequence because assessee has to first demonstrate the availability of the stock and how it was destroyed. There is no evidence qua this aspect. Therefore, we do not see any reason to interfere in the orders of the learned revenue authorities below. Ground Nos. 1 and 2 are rejected.”
We find that the date of certificate issued by the bank on 21/09/1995 has been held as in the accounting period 01/04/1996 to 31/03/1997. In our opinion, this is an apparent mistake and the said certificate dated 21/09/1995 issued by the bank, supporting the availability of stock, pertains to the assessment year in consideration, which is assessment year 96-97. In view of the observation on the said certificate, the Tribunal did not consider the information collected under the RTI Act in respect of demolition carried out by the Municipal Corporation.
The assessee filed above documents before the Ld. CIT-A and requested for admitting the same as additional evidences. The relevant part of the submission of the assessee before the Ld. CIT-A is reproduced as under: “In this regard your kind attention is drawn to fresh evidences filed with your good self consisting of pages 26 to 40 of the paper book along with petition for admission of additional evidence. The Honorable Delhi High Court in in appeal against order of ITAT has held as under “It does appear from the order passed by the tribunal that some material and documents were available with the appellant but because of passage of time and as the matter relates to assessment year 1996-97 the appellant could not furnish other documents" It further held "It is open to the petitioner to rely upon the said documents and point out practical difficulties as the case relates to assessment year 1996-97 before the AO/appellate authorities where penalty proceedings are pending.
We also notice that return was filed belatedly and, therefore, appellant could not have claimed carried forward of loss. This is another aspect which can be raised before the said authorities." Copy of the order of Delhi High Court is filed along with the written submissions. In view of the above you are requested to kindly consider the additional evidence filed in the interest of the justice From perusal of those documents you will kindly appreciate that demolition of godown took place which resulted in loss of stock. The relevant documents are: -
1. 1. Letter dated 19.09.1995 filed with Indian Bank for pledge of Goods. Page 26.
2. Confirmation letter dated 21.09.1995 issued by Indian Bank Page 27.
3. Copy of letter dated 13.12.2010 issued by MCD in response to application under RTI confirming demolition of building. Page 31-34 4. Copy of report of local Commissioner appointed by Debt Recovery tribunal confirming demolition of building and Stock damage. Page 35 - 34 The aforesaid documents confirm that building was demolished and stock was damaged. In the note on business activities appellant has explained the circumstances for the delay in filing tax return (Page 19 to 21)).”
10. Without considering the additional evidences of the assessee, the Ld. CIT-A held that no evidences were furnished by the assessee as what was the stock destroyed, how it was destroyed and where it was a standing in the books of accounts and enhanced the penalty corresponding to the amount of addition in respect of abnormal loss on stock made in the assessment order.
11. Before the learned CIT(A), the assessee submitted the circumstances under which the return was filed as under:
The assessee company along with other ground companies went through several difficulties, the offices and residences of the group companies and promoters/directors were searched on 06.04.1995. Mr. Pavan Sachdeva the main promoter/Managing Director was arrested. Employees started leaving the organization and business was fully disrupted and there was no full time employee to look after day to day operations (Detailed note in this regard is filed as part of paper books from pages 19 to 21).
12. In our considered opinion, while deciding the appeal against penalty proceeding, the Ld. CIT-A, was required to consider the additional evidences submitted by the assessee, which could explain the disallowance of loss on account of stock, irrespective of the fact that in quantum proceedings before the Tribunal, the counsel of the assessee did not prefer to file an application for admitting those evidences. The penalty under section 271(1)(c) of the Act has been levied invoking Explanation-1 , which 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,— (A) such person fails to offer an explanation or offers an explanation which is found by the Assessing Officer or the Commissioner (Appeals) or the Principal Commissioner or 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.”
In the case in hand, the explanation furnished by the assessee has not been examined in the light of evidences furnished in the course of appellate proceeding before the Ld. CIT-A, while upholding the penalty invoking Explanation -1 to the section 271(1)(c) of the Act. In view of above circumstances, in the interest of Justice, we feel it appropriate to restore the issue to the file of the Ld. CIT-A with the direction to admit the additional evidences filed by the assessee, examine the applicability of Explanation-1 to the section 271(1)(c) of the Act and decide the issue afresh in accordance with law. It is needless to mention that assessee shall be afforded sufficient opportunity of hearing. The grounds of appeal
are accordingly allowed for statistical purpose.
13. In the result, the appeal of the assessee is allowed for statistical purposes. The decision is pronounced in the open court on 21st April, 2017.