R.VASUKI,COIMBATORE vs. DCIT, COIMBATORE

आदेश /ORDER Per Sanjay Arora, AM: This is an Appeal by the Assessee directed against the Order by the Commissioner of Income Tax (Appeals)-1, Coimbatore (‘CIT(A)’ for short) dated 10.03.2015, dismissing the assessee’s appeal contesting the levy of penalty u/s. 271(1)(c) of the Income Tax Act, 1961 (‘the Act’ hereinafter) for the assessment year (AY) 2010-11 vide the order dated 28.08.2014.

2 ITA No.899/Mds/2015 (AY 2010-11) R.Vasuki v. Dy. CIT is a director, was subject to survey u/s. 133A of the Act on 10.09.2012 at its business premises. It was found to have credited �. 4.30 cr. as share application money in its’ books of account during financial year (f.y.) 2009-10, i.e., the relevant previous year. The company could not produce any evidence in respect of the share application money for �. 1.62 cr., stated to be received from 21 persons. The same was admitted as unexplained investment, booked in the name of several persons, agreeing to offer it for tax for the current year (AY 2010-11) vide sworn statement of Shri Ravi Chandran, Managing Director, u/s. 131 dated 10.09.2012. As the company did not revise its return, filed earlier on 20.11.2010 (at an income of �. 1,01,010/-), the same was brought to tax in its hands vide order u/s. 143(3) r/w s. 147 dated 28.03.2014 (copy on record). Several opportunities to explain the same, though to no avail, it may be mentioned, were given prior to finalizing the said assessment. However, addition to the extent of �. 1.02 cr. (forming part of �. 1.62 cr.) had been admitted as her unexplained investment by the assessee per her return dated 23.12.2013, revising her original return filed on 30.08.2010 at an income of �. 24,05,255/-. The said ‘revision’ being beyond the time prescribed for filing a revised return u/s. 139(5), the same was regularized by the issue of notice u/s. 148 on 08.01.2014, and assessed as income vide order u/s. 143(3) r/w s. 147 dated 07.02.2014. It is the penalty u/s. 271(1)(c) on this sum of �. 102 lacs, levied at 100 per cent of the tax sought to be evaded, which is the subject matter of dispute between the parties. While the assessee insists that her action in filing the ‘revised return’ was done only to purchase peace with the IT Department and avoided protracted litigation, i.e., is voluntary, with nothing adverse having been found against her, the Revenue regards it as not so but only on account of the bogus share application money having been found earlier during the course of the survey proceedings.

3 ITA No.899/Mds/2015 (AY 2010-11) R.Vasuki v. Dy. CIT The burden of proof to establish the genuineness of the credits and the capacity of the creditors, the share applicants in the present case, was on the company, which, upon enquiry, was clearly unable to establish the same. In fact, even their identity, save for two (Shri B.Kishore Kumar and his wife, Smt. Sofia Kishore) was not established. Clearly, the offering of the impugned investment to tax as her income by the assessee, a director, is only to pre-empt inclusion of the amount, to that extent, in the assessment of the company. What else could explain the assessee’s conduct; she being not one of the 21 share applicants (creditors), so that no part of the impugned sum could be ascribed to her. Notice u/s. 148 for bringing the income to the extent of �. 1.62 cr. to tax, had already been issued by the company by the Revenue as far back as on 14.12.2012. Apparently, and the clear inference that arises from the foregoing facts and circumstances is that, it is the Managing Director and the Director of the company, Surya Balaji Investments Pvt. Ltd., whose money had flown to the company in the name of the several persons, who were thus benamis or name lenders for them. How, we wonder, would the owning of �. 1.02 cr. (out of the total of �. 1.62 cr.); the balance �.60 lacs, for all we know, may have been offered in the hands of the MD, be regarded as an act of piety or benevolence on the part of the assessee? How could, one may ask, the directors of a private limited company, whose shareholders cannot exceed fifty, and in which public is not substantially interested, could not but be aware of the investments in their company? This is as the same would flow only from known sources. In fact, invitation for subscription to the share application of a private limited company is not in the public domain, so that only those persons who are in contact with its directors, or otherwise known to the management, having faith in it, as well as aware of the business and business prospects of such a company, would care to invest their hard money in the company, which may also require personal canvassing for and on behalf of the company by its management. The claim of

4 ITA No.899/Mds/2015 (AY 2010-11) R.Vasuki v. Dy. CIT the ‘revised’ return being voluntary, filed much after the date of the original return and, in fact, the date of the survey and, further, after the initiation of reassessment proceedings in the case of the company, is misconstrued. The default in not returning her true income occurs much earlier, upon filing her original return by the assessee on 30.08.2010, inasmuch as it is the omission to disclose the impugned sum, since admitted as an investment in the company, that is relevant and needs to be explained (refer: CIT v. Onkar Saran & Sons [1992] 195 ITR 1 (SC). This default or omission has not been explained at any stage. Merely stating of it being an attempt to buy peace or to avoid litigation would be of no moment; the statute not recognizing such defences, as also clarified by the Hon'ble Apex Court in Mak Data v. CIT [2013] 358 ITR 593 (SC), from which we may extract a few lines, as under:

The Assessing Officer, in our view, shall not be carried away by the plea of the assessee like “voluntary disclosure”, “buy peace”, “avoid litigation”, “amicable settlement”, etc. to explain away its conduct. The question is whether the assessee has offered any explanation for concealment of particulars of income or furnishing inaccurate particulars of income. Explanation to section 271(1) raises a presumption of concealment, when a difference is noticed by the Assessing Officer, between reported and assessed income. The burden is then on the assessee to show otherwise, by cogent and reliable evidence. When the initial onus placed by the explanation, has been discharged by him, the onus shifts on the Revenue to show that the amount in question constituted the income and not otherwise. (pgs. 597-598) The law, per Explanation 1 to s. 271(1)(c), clearly casts a burden on the assessee to furnish an explanation, and substantiate the same, proving his bona fides in-as-much as all the facts relating to the same and material to the computation of his income stand disclosed. An absence to do so leads to the statutory presumption of the assessee having concealed the particulars of his income, attracting the levy. The assessee has in the present case completely failed to furnish any explanation, much less substantiate it. The same has to be, we may clarify, only with reference to the omission (on the part of the assessee) in not returning the impugned sum per her original return filed in August, 2010.

5 ITA No.899/Mds/2015 (AY 2010-11) R.Vasuki v. Dy. CIT It is apparent that but for the survey action and enquiry by the Revenue, the assessee would not have returned her true income, which she claims to have voluntarily. The assessee has not led any evidence during the penalty proceedings to exhibit the same or any part of the impugned income as flowing from the persons in whose names the same stand credited, viz. prove their identity and capacity, much less the genuineness of the investment or the credit, which aspects give rise to a series of questions, viz., the source of the investment; the regular source/s of income of the creditors; how were they associated or known to the company, and for how long, any past relationship, etc. The disclosure is far from voluntary. We, accordingly, have no hesitation in confirming the impugned penalty. Reference in this context; the law being trite, apart from the decision in Mak Data (supra), be made to the following decisions settling the law in the matter: Union of India v. Dharmendra Textile Processors [2008] 306 ITR 277 (SC); K.P. Madhusudhanan vs. CIT [2001] 251 ITR 99 (SC); B.A. Balasubramaniam and Bros v. CIT [1999] 236 ITR 977 (SC); Addl. CIT vs. Jeevan Lal Shah [1994] 205 ITR 244 (SC); Sharma Alloys (India) Ltd. v. ITO [2013] 357 ITR 379 (Mad); and CIT vs. Nathulal Agarwala & Sons [1985] 153 ITR 292 (Pat)(FB), to name some. The ld. counsel, adducing a copy of the notice u/s. 274 dated 07.02.2014, argued before us that the penalty could not be levied in-as-much as the notice does not spell out as to whether the penalty proceedings were initiated in respect of concealment of particulars of income or for furnishing inaccurate particulars of income. Reliance is placed by him on the decision in CIT v. Manjunatha Cotton & Ginning Factory [2013] 359 ITR 565 (Kar), which is claimed to have been upheld by the Apex Court in CIT v. SSA’s Emerald Meadows (in SPL (cc) No.11485/2016). We, upon giving our careful consideration to the matter, find the plea as without merit. In Manjunatha Cotton & Ginning Factory (supra), followed by the Hon'ble Karnataka High Court in SSA’s Emerald Meadows case

6 ITA No.899/Mds/2015 (AY 2010-11) R.Vasuki v. Dy. CIT (in ITA No.380/2015), the Revenue’s appeal was dismissed as the notice u/s. 274 initiating penalty did not state the ground on which the penalty was proposed to be levied. The noticee-respondent, the court opined, must be made known the charges against him, i.e., the ground/s on which the penalty is proposed to be levied, as otherwise the principle of natural justice would stand to be offended. We have perused the said decision and find nothing stated therein as inconsistent or contrary to anything stated by us, or any principle of natural justice being violated in the present case. The said decision clearly holds penalty proceedings, though emanating from the proceedings of the assessment, as being distinct and separate there-from. Further, that penalty u/s. 271(1)(c) is a civil liability and therefore mens rea and willful concealment are not essential ingredients for attracting the same. That the imposition of penalty, however, is not automatic, even if the tax liability is admitted. That the existence of the conditions stipulated in s. 271(1)(c) should though be discernible from the assessment or the appellate order. Further, even if these conditions do not exist in the assessment order a direction to initiate assessment proceedings by the AO is a must, i.e., for initiating penalty proceedings. The basis or the ground on which the penalty is levied in the present case is whether the ‘revision’ by the assessee of her return of income, admitting additional income of �. 1.02 cr., is voluntary or not. Both in the assessment and the penalty proceedings, the assessee explained that her act was voluntary and guided only by her intent to purchase peace and avoid litigation. How, then, one may ask, can under the circumstances it be said that the assessee is not communicated or aware of the basis or the ground on which penalty is proposed to be levied, or the same are not known to her. There is, however, no explanation on merits, much less substantiated. And, in-as-much as the revision is prompted by the unearthing of the unexplained investment in the company, the same cannot be regarded as voluntary. The said decision shall therefore be of no assistance to the assessee.

7 ITA No.899/Mds/2015 (AY 2010-11) R.Vasuki v. Dy. CIT Even as we have shown the inapplicability of the said decision in the facts and circumstances of the case, we may also, if only for the sake of completeness of the discussion in the matter, advert to the legal aspect of the matter, having been examined by the Hon’ble Courts. In CIT v. Mithila Motors [1984] 149 ITR 751 (Pat), relying on the decision in Kantamani Venkata Narayana & Sons vs. Addl. ITO [1967] 63 ITR 638 (SC), wherein it was clarified that a mistake in the notice does not invalidate the penalty proceedings, it was held that even granting that the notice u/s. 274 was defective or bad in law, the penalty proceedings would not fail as no prejudice had been caused to the assessee; the head notes of the decision reading as: (pg. 756) ‘Under s. 274 of the I. T. Act, 1961, all that is required is that the assessee should be given an opportunity of show cause. No statutory notice has been prescribed in this behalf. Hence, it is sufficient if the assessee was aware of the charges he had to meet and was given an opportunity of being heard. A mistake in the notice would not invalidate penalty proceedings.’

A similar issue came up in CIT vs. Smt. Kaushalya & Others [1995] 216 ITR 660 (Bom). Relying on the decision in Mithila Motors (supra), it was held as under: ‘Sec. 274 of the Income-tax Act, 1961 contains a principle of natural justice of the assessee being heard before levying penalty. Rules of natural justice cannot be imprisoned in any straight-jacket formula. For sustaining a complaint of failure of the principles of natural justice on the ground of absence of opportunity, it has to be established that prejudice is caused to the concerned person by the procedure followed. The issuance of notice is an administrative device for informing the assessee about the proposal to levy penalty in order to enable him to explain as to why it should not be done. Mere mistake in the language used or mere non-striking of the inapplicable portion cannot by itself invalidate the notice. The entire factual background would fall for consideration in the matter and no one aspect would be decisive.’ (pg. 665(e-g)) [emphasis, ours]

The said decisions thus make it abundantly clear that the notice u/s. 274 is an embodiment of the principle of natural justice, so that where no prejudice is caused to the assessee, as where he is made well aware of the default for which the penalty is proposed to be levied in pursuance to the said notice, which is

8 ITA No.899/Mds/2015 (AY 2010-11) R.Vasuki v. Dy. CIT only an administrative device to effect the communication, and provide opportunity of hearing, penalty proceedings cannot be assailed. This, it may be noted, is despite the absence of a provision as section 292B on the statute (introduced by Taxation Laws (Amendment) Act, 1975, w.e.f. 01/10/1975) at the relevant time, which specifically mandates that an omission, mistake or defect shall not invalidate, inter alia, a notice, where it is in substance and effect in conformity with or according to the intent and purpose of the Act, i.e., to provide, per a notice u/s. 274, an opportunity to the assessee to explain his case, as her conduct in not returning her correct income in the first instance in the present case. There is in fact no dichotomy or conflict between the decision in Manjunatha Cotton & Ginning Factory (supra) and the earlier judgments cited supra, which are again based on sound principles of equity laid down by the apex court. That is, where the ratio decendi, which - of a decision, alone is binding, of the former decision is considered as that penalty proceeding initiated violating principles of natural justice is not sustainable in law. There is no such violation, nor indeed claimed, in the present case. The assessee is well aware of the nature of charge against her, i.e., non disclosure of her admitted investment in the company, Surya Balaji Investments (P.) Ltd., in which she is a director, during the relevant year as her income per her original return, explaining the same to be voluntary. The said explanation of her conduct, i.e., of her disclosure as voluntary, has on facts been regarded by us as not, so that, as per the settled law, penalty becomes exigible. A different verdict in the case of Manjunatha Cotton & Ginning Factory (supra) must, therefore, only be regarded as on the basis of the facts of the case. Further still, nothing turns on the dismissal of the SLP against the decision in SSA’s Emerald Meadows (supra) inasmuch as the same is only an in limine dismissal, which, it is well settled, does not lay down any law, as recently held once again by the Hon’ble Court in Palam Gas Service v. CIT [2017] 394 ITR 300 (SC), referring to its earlier decisions in the matter.

9 ITA No.899/Mds/2015 (AY 2010-11) R.Vasuki v. Dy. CIT The assessee has also placed ‘reliance’ on the decision in the case of Asst. CIT v. Dr. Kalpana M. Bhatt (in ITA no.1198/RJT/2010 dated 20.01.2012), wherein the Tribunal, relying on CIT v. K.Moindeen Kutti Hazi 10 taxmann.com 258 (Ker), opined that a voluntary offering of income, agreed to by the AO, shall not attract penalty. The said decision, though not referred to during hearing and, accordingly, not responded to by the Revenue, is yet considered by us inasmuch as the same stands furnished during hearing. The said decision is based on the principle that a voluntary act should not attract penalty, as held by the Hon'ble Apex Court in CIT v. Suresh Chandra Mittal [2001] 251 ITR 9 (SC), with in fact there being a reference thereto by the first appellate authority, whose findings, endorsed by the tribunal, stand extracted at para 3 of its order. In the facts of the present case, we have already clarified that the assessee’s action in ‘revising’ her return cannot be regarded as voluntary, which only follows a discovery and, in fact, an admission by the Managing Director of the company as to the share applications being unexplained. The law in the matter is well-settled, viz. Ravi & Co. v. Asst. CIT [2004] 271 ITR 286 (Mad); S.R.Arulprakasam v. ITO [1987] 163 ITR 487 (Mad); CIT v. J.K.A. Subramania Chettiar [1977] 110 ITR 602 (Mad); Ayyasami Nadar & Bros. v. CIT [1956] 30 ITR 565 (Mad), to cite some. The assessee was, accordingly, bound to explain the additional income per her ‘revised return’ or, per contra, the omission of the said disclosure per her original return, satisfying the conditions of Explanation 1 to s. 271(1)(c), even as explained by the Hon'ble Apex Court per a series of decisions cited supra. The plea as to ‘by peace’ or ‘avoid litigation’, etc., cannot be countenanced, even as explained in Mak Data (supra), which is clearly applicable in the facts of the case. Reference in this context also be made to the recent decision in CIT v. Usha International Ltd. [2012] 254 CTR 509 (Del). We decide accordingly.

10 ITA No.899/Mds/2015 (AY 2010-11) R.Vasuki v. Dy. CIT 4. In the result, the assessee’s appeal is dismissed. Order pronounced on November 01, 2017 at Chennai.

Sd/- Sd/- (धु�वु� आर.एल रे�डी) (संजय अरोड़ा) (Duvvuru RL Reddy) (Sanjay Arora) �या�यक सद�य/Judicial Member लेखा सद�य/Accountant Member चे�नई/Chennai, �दनांक/Dated, November 01, 2017 EDN आदेश क� ��त�ल�प अ�े�षत/Copy to: 1. अपीलाथ�/Appellant 2. ��यथ�/Respondent 3. आयकर आयु�त (अपील)/CIT(A) 4. आयकर आयु�त/CIT 5. �वभागीय ��त�न�ध/DR 6. गाड� फाईल/GF