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Income Tax Appellate Tribunal, MUMBAI BENCHES “E”, MUMBAI
Before: Shri JOGINDER SINGH, & Shri G. MANJUNATHA
Per Joginder Singh (Judicial Member) Both these appeals are by the assessee, aggrieved by the impugned orders both dated 27/03/2014 of the Ld. First Appellate Authority, Mumbai. First, we shall take up wherein, the only ground raised by the assessee pertains to disallowing a sum of `2,32,249/- i.e. 5% of the travelling, advertisement, staff welfare, office, repair and maintenance expenses on ad-hoc basis and disallowing salaries and wages of `55 lakhs on ad-hoc basis.
During hearing, the ld. counsel for the assessee, Shri Prakash G. Jhunjhunwala, did not press the appeal and the ground raised therein. The Ld. DR, Shri V. Justin, had no objection to the request of the assessee. Considering the request of the ld. counsel for the assessee and no objection from the Ld. DR, this appeal of the assessee is dismissed as not pressed.
2. Now, we shall take up the penalty appeal of the assessee in confirming the penalty of ` 16,99,500/-, imposed u/s 271(1)(c) of the the First Appellate Authority.
2.1. The contention of the ld. counsel for the assessee is that there is delay of 47 days for filing the appeal may be condoned. The assessee has filed an application for condonation of delay supported by an affidavit, explaining the reasons of delay. The ld. counsel reiterated the contents of the application/affidavit by pleading that the delay may be condoned. On the other hand, the ld. DR, contended that the assessee is to explain the delay of each day, therefore, the delay may not be condoned.
2.2. We have considered the rival submissions and perused the material available on record. In view of the assertions made by the ld. respective counsel, so far as, condonation of delay is concerned no doubt filing of an appeal is a right granted under the statute to the assessee and is not an automatic privilege, therefore, the assessee is expected to be vigilant in adhering to the manner and mode in which the appeals are to be filed in terms of the relevant provisions of the Act. Nevertheless, a liberal approach has to occurred for bona-fide reasons on the part of the assessee or the Revenue in filing the appeals. In matters concerning the filing of appeals, in exercise of the statutory right, a refusal to condoned the delay can result in a meritorious matter being thrown out at the threshold, which may lead to miscarriage of justice. The judiciary is respected not on account of its power to legalize in justice on technical grounds but because it is capable of removing injustice and is expected to do so.
2.3. The Hon’ble Apex Court in a celebrated decision in Collector, Land Acquisition vs Mst. Katiji & Ors. 167 ITR 471 opined that when technical consideration and substantial justice are pitted against each other, the courts are expected to further the cause of substantial justice. This is for the reason that an opposing party, in a dispute, cannot have a vested right in injustice being done because of a non- deliberate delay. Therefore, it follows that while considering matters relating to the condonation of delay, judicious and liberal approach is to be adopted. If sufficient cause is found to exist, which is bona-fide one, and not due to such cases. The expression ‘sufficient cause’ is adequately elastic to enable the courts to apply law in a meaningful manner, which sub-serves the end of justice- that being the life purpose of the existence of the institution of the courts.
When substantial justice and technical consideration are pitted against each other, the cause of substantial justice deserves to be preferred. The Hon’ble Apex Court in Vedabhai vs Santaram 253 ITR 798 observed that inordinate delay calls of cautious approach. This means that there should be no malafide or dilatory tactics. Sufficient cause should receive liberal construction to advance substantial justice. The Hon’ble Apex Court in 167 ITR 471 observed as under:-
“3. The legislature has conferred the power to condone delay by enacting section 51 of the Limitation Act of 1963 in order to enable the courts to do substantial justice to parties by disposing of matters on de merits. The expression “sufficient cause” employed by the legislature is adequately elastic to enable the courts to apply the law in a meaningful manner which subserves the ends of justice that being the life-purpose of the existence of the institution of courts. It is common knowledge that this court has been making a justifiably liberal 2.4. Furthermore, the Hon'ble Supreme Court in the case of Vedabai Alia Vaijayanatabai Baburao Patil vs. Shantaram Baburao Patil 253 ITR 798 held that the court has to exercise the discretion on the facts of each case keeping in mind that in construing the expression ‘sufficient cause’, the principle of advancing substantial justice is of prime importance. The court held that the expression “sufficient cause” should receive liberal construction.
2.5. The decision of the Tribunal in People Infocom Private Ltd. v/s CIT (ITA No.210/Mum/2013) order dated 19/05/2016, M/s Neutron Services Centre Pvt. Ltd vs ITO (ITA No.1180/Mum/2012) order dated 18/02/2016, Shri Saidatta Coop-. Credit Society Ltd. v/s ITO (ITA No.2379/Mum/2015) order dated 15/01/2016 and Mr. Nikunj Barot (Prop. Enigma) vs ITO (ITA No.4887/Mum/2015) order dated 06/01/2016, wherein, substantial delay was condoned, supports the case of the present assessee. Having made the aforesaid observation and various decisions discussed hereinabove, narrated by the assessee, wherein, he has stated the reasons which caused the delay, we are satisfied that there were bonafide reason, which were beyond the control of the assessee, therefore, the delay is condoned.
Now, we shall take up the appeal of the assessee on merit. The crux of arguments on behalf of the assessee is that the disallowance were made by the Ld. Assessing Officer on estimate basis and identically for Assessment Year 2007- 08 and 2008-09, the claim of the assessee was accepted though u/s 143(1) of the Act. It was explained that survey was carried out and there is no finding that the expenses were inflated and nothing incriminating was found. It was pleaded that the assessee made surrender of `55 lakh to buy peace with the Department as the assessee was in custody and the assessee during custody period, was asked to substantiate the claim, which could not be done. The crux of the argument is that the surrender was made to buy peace with the Department, therefore, the penalty may be deleted. On the other hand, the Ld. DR contended that penalty can be levied even on a estimate basis for which Chandrakanta, 205 ITR 607 (MP), CIT vs S. Krishnaswamy & Sons, 219 ITR 157, A.M. Shah & Co. vs CIT, 238 ITR 415 (Guj.) and CIT vs Mohammad Warasat Hussain, 177 ITR 405 (Pat.).
3.1. We have considered the rival submissions and perused the material available on record. The facts, in brief, are that the assessee is a partnership firm, declared income of `6,24,135/- in its return filed on 30/09/2009. A survey action was carried out u/s 133A of the Act at the premises of the assessee on 15/01/2009. The Ld. Assessing Officer while framing the assessment u/s 143(3) of the Act made disallowance of `55 lakh towards salary and wages on ad- hoc basis and further ` 2,32,249/- i.e. 5% of the travelling, advertisement, staff welfare, office, repair and maintenance expenses on ad-hoc basis. The Ld. Assessing Officer levied penalty of `16,99,500/- u/s 271(1)(c) of the Act, which was confirmed by the First Appellate Authority. The assessee is in appeal before this Tribunal. ‘ leading to addition made to the total income, penalty order, conclusion drawn in the impugned order, material available on record, assertions made by the ld. respective counsel, if kept in juxtaposition and analyzed, there is no dispute to the fact that the assessee was in custody during the relevant time and could not furnished the necessary documents as asked by the Ld. Assessing Officer. This is also an admitted fact that disallowance was made on ad-hoc basis and the assessee to buy peace with the Department made the surrender. Now, question arises, whether the penalty u/s 271(1) can be said to be justified. Considering the totality of facts explained before us and since, the assessee was in custody during the relevant period, when the assessee was asked to produce the necessary documents, to substantiate its claim, it may not be possible to furnish the same. The assessee to buy peace with the Department made a surrender and paid the taxes thereupon. In such a situation, the decision in CIT v. SDV Chandru 266 ITR 175 (Mad) wherein it was held by the Hon'ble High Court that where the assessee has not disclosed his income in the returns date of search and in the statement given u/s 132(4), the assessee admits the receipt of undisclosed income for those years and therefore pays taxes on the undisclosed income, such undisclosed income would be immunized from the levy of penalty. Similarly, in the case of CIT v. Suresh Chand Mital 241 ITR 124 (MP) wherein the Hon'ble High Court had held that where the assessee gives an explanation that additional income is declared to buy peace with the Department and to come out with the vexed litigation, penalty u/s 271(1)(c) was held to be not leviable. Similarly, in the case of CIT v. Suraj Bhan 294 ITR 481 (P&H) wherein pursuant to search & seizure operation, the assessee filed revised return declaring higher income and the Hon'ble Court had held that since the assessee surrendered additional income to buy peace of mind no inference of admission of concealment could be drawn comes to the rescue of the assessee. The Hon'ble jurisdictional High Court in CIT vs Hira Lal Doshi, (ITA No.2331 of 2013) order dated 09/02/2016 on the issue when the assessee made the surrender buy peace with the portion from the aforesaid order is reproduced hereunder:-
“This Appeal has been filed by the Revenue under Section 260A of the Income Tax Act, 1961( the “Act”) assailing the order dated 1st May, 2013 passed by the Income Tax Appellate Tribunal (Tribunal). The impugned order dated 1st May, 2013 deleted the penalty imposed under Section 271(1)(c) of the Act relating to Assessment Year 2006-2007.
The Revenue has urged the following question of law for our consideration:-
“Whether on the facts and circumstances of the case and in law, the ITAT is justified in deleting the penalty u/s.271(1)(c) of the I. T. Act,1961 on the income which was offered for taxation during survey and return of income was revised after detection by department”
3 The Respondent-assessee had originally filed a return of income on 31st October, 2006 declaring a total income of Rs.9.69/- lakhs. In its return of income, as filed an amount of Rs.1.62 Crores was credited to its capital account being Long Term Capital Gain on sale of shares. However, no income on account of the above was offered for taxation. Thereafter, on 5th October, 2007, during a course of survey, the Respondent-assessee declared additional income of Rs. 5 Crores which included an amount of Rs.1.62 Crores for Assessment Year 2006-07 which had not been returned as income being long term capital gains in view of exemption claimed under Section 10(38) of the Act.
On 29th October, 2007 the Respondent-assessee filed a revised return of income for the Assessment Year 2006-07,wherein an amount of Rs.1.62 Crores was returned as part of income totally aggregating to Rs.1.72 Crores. On 25th November, 2008, the Assessing Officer completed the assessment proceedings under Section 143(3) of the Act determining a total income at Rs.1.74 Crores. The Assessment order also initiated penalty proceeding under Section 271(1)(c) of the Act, for claiming incorrect exemption.
12 & 4979/Mum/2014 M/s Taurus Transport 5. By an order dated 27th May, 2009 the Assessing Officer imposed a penalty of Rs.55.79 lakhs under Section 271(1)(c) of the Act for having concealed particulars of income and furnishing inaccurate particulars thereof. This on the ground that the amount of Rs.1.62 Crores had originally been claimed as Long Term Capital Gain being exempt in its regular return of income. However, the same was withdrawn and offered to tax as business only consequent to the survey on 5th October, 2007.
Being aggrieved by the order imposing penalty, the Respondent-assessee preferred an appeal to the Commissioner of Income Tax(Appeals) (CIT[A]). By an order dated 27th May, 2010 the CIT(A) deleted the penalty on the ground that the amount of Rs.1.62 Crores had been declared as capital gains in the original return of income. Besides inter-alia noting in the order that “It is also pertinent to note that all details relating the transactions have been duly disclosed in the return of income.” Further the order of the CIT(A) observes that during the course of proceeding before him sufficient evidence in the form of brokers note, copy of balance- sheet, copy of Demat account, evidence of payment for shares etc has been produced in support of the transaction for him to prima facie conclude that the amount of Rs.1.62 Crores appears to be attributable to Long Term Capital Gain.
On further appeal by the Revenue, the Tribunal by the impugned order dated 1st May, 2013 upheld the findings of the CIT(A) holding the same to be reasonable. In particular, the impugned order records the fact that the Respondent assessee had disclosed its income of Rs.1.62 Crores but had claimed the same to be a capital gain which is exempt. The impugned order further holds that as the particulars of income had been disclosed in the return of income, the levy of penalty under Section 271(1)(c) of the Act was not justified. In support it places reliance upon the decision of the Apex Court in Commissioner of Income Tax v/s Reliance Petroleum Products Private Limited reported in 322 ITR 158. Further it holds that mere change in head of income by the Assessing Officer from that claimed, would not attract penalty. In support, reliance was placed upon the decision of this Court in Commissioner of Income Tax v/s M/s. Bennett Coleman and Co.Ltd (Income Tax Appeal(L)No.2117 of 2012 rendered on 26th February, 2013. The impugned order also records the fact that the amount claimed as long term capital gain under Section 10(38) of the Act while filing its regular return of income on 31st October, 2006 was offered as part of 13 & 4979/Mum/2014 M/s Taurus Transport business income during survey of proceeding only by to buy peace. In the circumstances, the impugned order upheld the deletion of penalty of the CIT(A).
Mr. Malhotra, learned counsel appearing in support of the Appeal submits as under:-
(a) The Commissioner of Income Tax(Appeals) has referred to brokers note, copy of balance sheet, copy of Demat Account, bank statement etc to reach a conclusion that prima facie the income appears to be on account of Long Term Capital Gain. This is totally unjustified as no remand report was called for from the Assessing Officer and the Revenue was given no opportunity to contest the same;
(b) The justification by the Assessee of having made the disclosure of Rs.1.62 Crores as business income when originally claimed as capital gain was for the purposes of buying peace is not available as held by the Apex Court in Mak Data P. Ltd v/s Commissioner of Income Tax- II(Civil Appeal No.9772 of 2013 rendered on 30th October, 2013; and (c) That a change of head of income during the assessment proceeding would warrant penalty upon a defaulting assessee if the same has an impact on the tax payable. Thus the decision of this Court in Bennett Column Ltd(supra) will not apply. In the above view, it is submitted that the appeal be admitted.
9 Mr. Malhotra's contention that the order of the CIT(A) was in breach of principles of natural justice in as much as no remand report was called for by the CIT(A) in respect of the fresh evidence led by the Respondent-assessee before him is not even mentioned in the memo of appeal. We find that there is nothing on record to indicate that no remand report were called for by the CIT(A). However,when confronted, Mr Malhotra submits that evidence of no remand report having been called for is the absence of it being mentioned in the order of the CIT(A). Thus, he wants us to infer that no remand report was called for. However, it is also to be noted that before the Tribunal, the Revenue did not raise this issue. This could equally lead to the inference that either the remand report was called for or at the very least, in any event, the Revenue did not have any grievance on the remand report not being called for before the Tribunal. This submission on behalf of the Revenue requires determination of facts which have to be determined by the Tribunal.
The reliance by the Revenue upon the decision of the Apex Court in Mak Data P. Ltd(supra) to contend that the justification of having deleted and accepted the amount of Rs.1.62 Crores as business income, to buy peace is not available. We find that the facts in that case are completely distinguishable and the observations made therein would not be universally applicable. In that case, a sum of Rs.40.74 lakhs had never been disclosed to the Revenue. During the course of survey, the assessee therein had surrendered that amount with a covering letter that this surrender has been made to avoid litigation and buy peace with the Revenue. In the aforesaid circumstances, the Apex Court held that the words like “to avoid litigation and buy peace” is not sufficient explanation of an assessee's conduct. It held that the assessee had to offer an explanation for the concealment of income and/or furnishing of inaccurate particulars of income by leading cogent and reliable evidence. The Apex Court further records that in the facts of the case before it the surrender of income was not voluntary but was made only on the account of detection by the Assessing Officer during the course of survey. Further, the Apex Court also records the fact that the survey was conducted more than 10 months before the assessee filed its return of income. However, the assessee therein had not declared this income in its return of income filed subsequent to the survey which again indicated the fact that he had no intention to declare its true income. In any event, the facts in the present case as found by the CIT(A) and the Tribunal is that the Respondent assessee had disclosed an amount of Rs.1.62 Crores in the original return by crediting the same to its capital account being Long Term Capital Gain on the sale of share. Thus, the Appellant was under bonafide belief that the income from long term capital gain was exempt from tax. Thus, the decision of the Apex Court would not apply to the facts arising in the present case .
The contention on behalf of the Revenue that in case there is a tax impact by virtue of change of head during the assessment proceedings then penalty is imposable and the decision of this Court in M/s. Bennett Coleman(supra) would not apply. In such a case, Mr. Malhotra, for the Revenue emphasized the fact that in M/s Bennett Coleman(supra) the Court was dealing with the change of head of income but not with regard to a claim for full exemption from 15 & 4979/Mum/2014 M/s Taurus Transport payment of tax as in this case. We are unable to accept the aforesaid submission. According to us, the distinction sought to made on behalf of the Revenue is not acceptable as the ratio of the decision in M/s Bennett Coleman(supra) is where complete disclosure of income had been made in the return of income and head of the income undergoes a change at the hands of the Assessing Officer would not by itself justify the imposition of penalty under Section 271(1)(c) of the Act.”
We find that the Commissioner of Income Tax(A) during the penalty proceedings had again examined the issue whether the claim of capital gain made in the regular return of income to the extent of Rs.1.62 Crores with the particulars in support of the same. On examination, the CIT(A) reaches a prima facie conclusion that the income could be regarded as long term capital gain. Once the aforesaid conclusion has been reached coupled with two further facts viz. the authorities have rendered a finding of fact that the Respondent-assessee had not concealed its income nor filed inaccurate particulars attributable to capital gains in its regular return of income, the view taken to delete the penalty is a possible view.
13 In the present fact, the view taken by the CIT(A) as well as the Tribunal is a reasonable and possible view. Nothing has been shown to us to hold that the findings of the CIT(A) and Tribunal was perverse and/or arbitrary warranting any interference by this Court. It may be pointed out that even in the Memo of Appeal, it is not urged by the Revenue that the finding of the CIT(A) and Tribunal are in any manner perverse.
14 In the above view, we see no reason to entertain the question as proposed, as it does not give rise to any substantial question of law. Accordingly, the Appeal is dismissed. No order as to costs.” 3.3. Though the ld. DR has sighted various decisions as mentioned above, but following the decision from Hon'ble jurisdictional High Court in Hira Lal Doshi (supra) and the material facts available on record, we are of the view that quantum and penalty additions are all together different and during the relevant period, the assessee, being in judicial custody, could not file the necessary evidence and made surrender to buy peace with the Department and paid taxed thereupon, therefore, at least, the penalty u/s 271(1)(c) will not survive. Thus, this appeal of the assessee is allowed. pressed, whereas, the penalty appeal (ITA No.4979/Mum/2014) is allowed.
This Order was pronounced in the open court in the presence of ld. representative of both sides at the conclusion of the hearing on 13/09/2017.