Commissioenr of Income Tax vs. Dr. T. Ravi Kumar

HIGH COURT OF JUDICATURE FOR RAJASTHAN BENCH AT JAIPUR D.B. Income Tax Appeal No. 399 / 2011 C I T Kota ----Appellant Versus M/S Chambal Fertilizers And Chemical Ltd ----Respondent _____________________________________________________ For Appellant(s) : Mrs. Parinitoo Jain For Respondent(s) : Mr. Sanjay Jhanwar with Ms. Archana _____________________________________________________ HON'BLE MR. JUSTICE K.S. JHAVERI HON'BLE MR. JUSTICE VIJAY KUMAR VYAS Judgment 16/05/2017 1. By way of this appeal, the appellant has challenged the judgment and order of the Tribunal whereby the Tribunal has dismissed the appeal of the department and penalty has been imposed. 2. This court while admitting the appeal framed the following substantial questions of law:- “(i) Whether under the facts and in the circumstances of the case and in law the Tribunal was justified in upholding the order of the CIT(A) that penalty u/s 271(1)(c) (iii) explanation 4(a) cannot be levied if the returned income is loss in the cases prior to amendment in the year 2002? (ii) Whether under the facts in the circumstances of the case the Tribunal was right in law in upholding the order of the CIT (A) of cancelling the penalty of Rs. 99,68,280/- levied u/s 271(1)(c) on account of inaccurate particulars furnished by assessee in original return and detected by the Assessing Officer during scrutiny u/s 143(3)?” 3. The counsel for the appellant and the assessee has taken us to the judgment of ITAT which held as under:-

We have heard rival submissions and considered them carefully. After considering the submissions and perusing the material on record, we find that the id. CIT (A) was justified in canceling the levy of penalty by the AO. The finding of Id. CIT(A) have been recorded in paras 17 to 21 at pages 8 to 13 of his order are as under:- “17 I have considered the arguments of the Id. Counsels, which are based on facts. I have also considered the legal decisions relied upon the arguments of the AO are also considered. The findings in the assessment order and the inference drawn in the penalty order have also been perused. The appellant in its return of income for A.Y. 1995-96 has declared total depreciation loss of Rs. 446,70,45,911/- and carried forward depreciation relating to A. Y. 1994-95 of Rs. 193,70,11,434/-. The return was processed regular assessment was issued on 31.10.1996. During the course of assessment proceedings, the appellant company filed various detailed and submitted reply in response to the information called for by the AO from time to time. While replying to the detailed questionnaire, issued by the complete information of bifurcation of energy saving devices. Which are eligible for 100% depreciation and in another reply dated 17.10.1997 the appellant submitted that the investment in energy saving devices during the first half period of the accounting period (01.10.1994 to 03.10.1994) was of the value of Rs. 6,35,492/- and for the period 04.10.1999 to 31.03.1994, it was for Rs. 4,25,79,639/-. It was only while replying to the show cause notice a clerical mistake owning to date entry error was notices by the appellant and the same was rectified by stating the correct figures for 50 and 100% depreciation claim as under:- (a) Against 100% depreciation for investment up to 03.10.1994 the figure should be read as 6,35,492/- instead of Rs. 4,25,79,639/- (b) Against 50% depreciation for the investment for the period 04.10.1994 to 31.03.1995 the figures should be read as 4,25,79,639/- instead of 6,35,492/- “Based on the above mistake, the appellant also intimated to the AO the consequences of such clerical mistake by stating that net impact due to the mistake will be that the depreciation claim for energy saving devices in the computation statement Rs. 83,93,24,100/- will be reduced to Rs. 81,83,52,027/- in the same reply it was brought to the notice of the AO that due to this change the loss claim of the appellant would be reduced by Rs. 2,09,72,07/-. In view of above, the revised total depreciation claim of Rs. 3,16,84,86,154/- was intimated to the AO with a request that the same be accepted at the time of finalization of the assessment. In the reply dated 17.10.1997 the appellant company took care to enclose revised chart of depreciation as a separate Annexure-v and also requested the AO that the impact of the change in claim of

depreciation may be taken care of for A. Y. 1996-97 while determining the income/loss. At the time of assessment proceedings and while providing the information in respect of depreciation claim the clerical mistake was a bona fide one is supported by the fact that 100% depreciation had been claimed on the additions make in the second half i.e. 04.10.1994 to 31.03.1995 instead of 50% allowed and 50% had been claimed on the additions made in the first half i.e. 01.04.1994 to 03.10.1994 instead of 100 % allowed. There is sufficient force in the argument of the id. Ars that the date of capitalization in respect of the various energy saving devices had been correctly mentioned in the annexures filed, alongwith the return of income and as soon as calculation error came to appellant’s notice the appellant brought such fact to the notice of the AO vide is letter dated 20.11.1997. It is also on record that the appellant company clarified its position before the AO by filing another letter dated 23.01.1998 titled “Points regarding the inadvertent increased claim of tax on energy saving devices” wherein the assessee clearly explained its position regarding the inadvertent mistake regarding the claim of depreciation and the mistake was bona fide without any mala fide intention to avoid any tax liability. 18. On the point of the contention of the appellant company that it was not proper to impose penalty under section 271(1)(c) in case the assessed income is determined at a loss. I find sufficient force as the present appeal pertains to assessment year 1995-96 and thus the law as it stood before the amendment vide Finance Act 2002 would apply. The contention of the appellant that penalty for concealment of income cannot be imposed in their case in the absence of positive income is supported by the Supreme Court decision in the case of Virtual Soft Systems Ltd. Vs. CIT (2007) CTR 733(SC), wherein the Apex Court has held that prior to the amendment of section 271(1)(c) by Finance Act. 2002, w.e.f. 1st April 2003, penalty for concealment of income could not be levied in the absence of any positive income. The head note of the aforesaid judgment is reproduced herein below. “Penalty under s. (1) (c)- concealment assessment at loss provisions of s. 271 (1(c) (iii) prior to amendment by Finance Act, 1975, w.e.f. 1st April 1976 and after the amendment are substantially the same except that in place of the word ‘income’ in sub-cl(iii) the expressions “amount of tax sought to be evaded” has been substituted-Insertion of Expln. 4 only changed the measure or the scale as to the working of the penalty from ‘income’ to ‘tax sought to be evaded’-Sine qua non for levy of penalty i.e., there must be a positive income resulting in tax, continued to exist even after the amendment effectives form 1st April 1976-Penalty could be imposed in ‘addition to any tax”-if there was no tax no penalty could be levied-Assessment made at a reduced loss on a return declaring loss did not attract levy or penalty under s. 271(c) with or without Expln.4- This position was changed for the first time only be the amendment made by the Finance Act, 2002. It is nowhere stated at the aid amendment was clarificatory or declaratory- On the contrary, the statute clearly states that the said amendment would come into effect on 1st April 2003-Consequently, this amendment cannot be applied in respect of any penalty for concealment could not be levied in the absence of any positive income” In appellant’s case based on the facts and the submissions

placed before me I am convinced that due to a clerical mistake the excess claim of depreciation had been inadvertently made and on this point I am in agreement with the contention of the Id. Ars. That mere imposition or negligence would not constitute a deliberate act of suppression as held by the Hon’ble Supreme court in the case of Dilip N. Shroff vs. ICIT and Aother 291 ITR 519, where in the Apex Court has held that a mere omission or negligence would not constitute a deliberate act of suppression veri or suggestion falsi. The word inaccurate signifies a deliberate act or omission on the pat of the assessee”. 19. Further penalty has been imposed on disallowance of Rs. 19,881/- under Rule 6D confirmed in appeal and Rs. 6,78,228/- disallowed and confirmed in appeal on account of depreciation on guest house building and assets used in the guest on the basis of Bombay High Court decision reported in 187 ITR 660 and the AO had disallowed on the round the said decision is not pending. It is the plea of the Id. Counsel that in the assessment order the AO had been initiated penalty proceedings for this addition, hence no penalty can be charged. In respect of penalty relating to disallowance of Rs. 19,881/- being disallowance under Rule 6D, it is argued that each and every addition does not automatically result in levy of penalty and hence this imposition also deserves to be annulled. 20. I am inclined to accept the plea of the appellant that at the time of assessment the AO did not initiate penalty on claim of depreciation on guest house, etc. In the case of CIT vs. Jai Bharat Maruti Ltd. (2007) 212 CTR (Del>)250, the High Court has held that recording of satisfaction by AO is sine quo non for the purpose of initiating penalty under Section 271(1) (c). From the reading of the assessment order it is not clear that whether the AO was satisfied even prima facie that this claim is suitable for initiating penalty proceedings. The same, therefore, cannot be sustained. On the point of penalty on disallowance after appreciation of facts and circumstances of the case, no penalty is exigable as the appellant did not conceal any income or filed inaccurate particulars on income (CIT Vs. Inden Bislers(1999) 240 ITR 943, 46, 947 (Mad) (Trib); CIT vs. D. Ratnam (1995) Tax L R 504, 505. 507 (Mad) (Trib): Cit vs. Jagdish are Bhandar (1996) 84 Taxman 92, 93 (ALL) (Trib) : CIT vs. M P. Narayanan (1998) Tax LR 882, 886, 887 ( Mad) (Trib); CIT vs. M. P. Narayanan (1998) Tax Lr 882, 886, 887 ( Mad) (Trib): and CIT vs. Po;ular Lunghi Co. (1998) 147 CTR(Mad)467, 474 (Trib). 21. The facts of the appellant’s case and sequence of correspondence at the time of assessment is sufficient to establish that the appellant compnay had n intention to conceal its income or furnish inaccurate particular. The facts and figures also support appellant’s contention particularly the loss determined in the assessment for assessment year 1995-96. As already discussed the appellant had filed return showing depreciation loss of Rs. 116,70,45,911/-, which in the order section 143(3) was determined at depreciation loss of Rs. 114,47,28,440/-. The same was subsequently revised under section 154 at a loss of Rs. 114,46,13,711/- and further recomputed at Rs. 116,30,34,284/- after appeal effect . In another words the assessed figure at all stages in the case of the appellant company for A. Y. 1995-96 has been a loss and relying on the decision of Supreme Court in the case of Virtual Soft Systems ltd. vs. CIT 289 ITR 83 (SC) which is relevant to A. Y. 1996-97, the Apex Court has held that prior to the amendment made to section 271(1) (c) by the Finance Act 2002, which came into operation on 01.04.2003, no penalty for concealment could be imposed unless some tax was payable by the assessee, then the question of imposition of penalty for

concealment did not arise at all. In this decision other decisions of the Supreme Court and High Courts have been discussed. The non-imposition of penalty in a loss case has also been supported by Special Bench of Ahmedabad ITAT in the Case of ACIT vs. Apsara Processors (P) Ltd. Reportd in 92 TTJ 645. Further in the case of Mahaveer Prasad Jain vs. ACIT XXX Tax World 141 the Hon’ble ITAT, Jaipur Bench held that penalty provisions for concealment of income are not attracted in a case wherein there is no taxable income or there is a loss return. Looking to the over all facts and circumstances of the appellant’s case and after taking into consideration, the argument put forth and the written submission made by the appellant’s case is not fit for charging of penalty for concealment under Section 271(1)(c). The penalty of Rs. 99,68,280/-imposed by the AO for A. Y. 1995-1996 is therefore ordered to be deleted.” 8. The above finding of Id. CIT(A), in our considered view does not suffer from any infirmity. The Id. CIT(A) has considered the issue in right prespective. The Id.CIT(A) has ascertained that assessee had claimed loss of Rs. 116 crores and odd and carried forward depreciation relating to assessment year 1994-1995 was of Rs. 193 crores and odd. Therefor,e it cannot be held that due to any malafide intention the assessee had claimed wrong depreciation. It was ascertained by Id. CIT O that 100 % depreciation was allowable on assets of Rs. 6,35,492/- instead of Rs. 4,25,79,639/-. On this amount of Rs. 4,25,79,639/- the assessee was entitled to claim 50 % depreciation as investment in this asset was made for the period from 1.4.1994 to 31.3.1995. As stated above, due to mistake the assessee claimed depreciation in reverse manner as depreciation on the amount of Rs. 6,35,492/- was claimed @ 50% against 100% allowable and on the amount of Rs. 4,25,79,630/- it was claimed @ 100% against 50% allowable. The mistake was bonafide in nature. Therefore, it cannot be said that assessee had claimed wrong depreciation with a malafide intention. The decision relied upon by Id. A/R is squarely applicable on the facts of the present case. Therefore, in view of the detailed reasoning given by Id. CIT(A) and in view of various other case laws relied upon by Id. A/R. We hold that Id. CIT(A) was justified in canceling the levy of penalty on all the amounts. Accordingly we confirm the order of Id. CIT(A).”

(2010) 322 ITR 0158, penalty could not have been imposed and it has been held as under:- “7. As against this, Learned Counsel appearing on behalf of the respondent pointed out that the language of Section 271(1)(c) had to be strictly construed, this being a taxing statute and more particularly the one providing for penalty. It was pointed out that unless the wording directly covered the assessee and the fact situation herein, there could not be any penalty under the Act. It was pointed out that there was no

concealment or any inaccurate particulars regarding the Income were submitted in the Return. Section 271(1) (c) is as under: “271(1)

the

Assessing

Officer

or the Commissioner (Appeals) or the Commissioner in the course of any proceedings under this Act, is satisfied that any person- (c) has concealed the particulars of his income or furnished inaccurate particulars of such income. A glance at this provision would suggest that in order to be covered, there has to be concealment of the particulars of the income of the assessee. Secondly, the assessee must have furnished inaccurate particulars of his income. Present is not the case of concealment of the income. That is not the case of the Revenue either. However, the Learned Counsel for Revenue suggested that by making incorrect claim for the expenditure on interest, the assessee has furnished inaccurate particulars of the income. As per Law Lexicon, the meaning of the word "particular" is a detail or details (in plural sense); the details of a claim, or the separate items of an account. Therefore, the word "particulars" used in the Section 271(1)(c) would embrace the meaning of the details of the claim made. It is an admitted position in the present case that no information given in the Return was found to be incorrect or inaccurate. It is not as if any statement made or any detail supplied was found to be factually incorrect. Hence, at least, prima facie, the assessee cannot be held guilty of furnishing inaccurate particulars. The Learned Counsel argued that "submitting an incorrect claim in law for the expenditure on interest would amount to giving inaccurate particulars of such income". We do not think that such can be the interpretation of the concerned words. The words are plain and simple. In order to expose the assessee to the penalty unless the case is strictly covered by the provision, the penalty provision cannot be invoked. By any stretch of imagination, making an incorrect claim in law cannot tantamount to furnishing

inaccurate

particulars. In Commissioner of Income Tax, Delhi v. Atul Mohan Bindal: 2009 (9) SCC 589 where this Court was considering the same provision, the Court observed that the Assessing Officer has to be satisfied that a person has concealed the particulars of his income or furnished inaccurate particulars of such income. This Court referred to another decision of this Court in Union of India v. Dharamendra Textile Processors: 2008 (13) SCC 369 as also, the decision in Union of India v. Rajasthan Spg. & Wvg. Mills: 2009 (13) SCC 448 and reiterated in para 13 that:

“13. It goes without saying that for applicability of Section 271(1)(c), conditions stated therein must exist.” 8. Therefore, it is obvious that it must be shown that the conditions under Section 271(1)(c) must exist before the penalty is imposed. There can be no dispute that everything would depend upon the Return filed because that is the only document, where the assessee can furnish the particulars of his income. When such particulars are found to be inaccurate, the liability would

arise.

In Dilip

Shroff

v. Joint Commissioner of Income Tax, Mumbai and Anr.: 2007 (6) SCC 329 this Court explained the terms "concealment of income" and "furnishing inaccurate particulars". The Court went on to hold therein that in order to attract the penalty under Section 271(1)(c), mens rea was necessary, as according to the Court, the word "inaccurate" signified a deliberate act or omission on behalf of the assessee. It went on to hold that Clause (iii) of Section 271(1) provided for a discretionary jurisdiction upon the Assessing Authority, inasmuch as the amount of penalty could not be less than the amount of tax sought to be evaded by reason of such concealment of particulars of income, but it may not exceed three times thereof. It was pointed out that the term "inaccurate particulars" was not defined anywhere in the Act and, therefore, it was held that furnishing of an assessment of the value of the property may not by itself be furnishing inaccurate particulars. It was further held that the assessee must be found to have failed to prove that his explanation is not only not bona fide but all the facts relating to the same and material to the computation of his income were not disclosed by him. It was then held that the explanation must be preceded by a finding as to how and in what manner, the assessee had furnished the particulars of his income. The Court ultimately went on to hold that the element of mens rea was essential. It was only on the point of mens rea that the judgment in Dilip N. Shroff

Joint Commissioner of Income Tax, Mumbai and Anr. was upset. In Union of India v. Dharamendra Textile Processors (cited supra), after quoting from Section 271 extensively and also considering Section 271(1)(c), the Court came to the conclusion that since Section 271(1)(c) indicated the element of strict liability on the assessee for the concealment or for giving inaccurate particulars while filing Return, there was no necessity of mens rea. The Court went on to hold that the objective behind enactment of Section 271(1)(c) read with Explanations indicated with the said Section was for providing remedy for loss of revenue and such a penalty was a civil liability and, therefore, willful concealment is not

an essential ingredient for attracting civil liability as was the case in the matter of prosecution under Section 276C of the Act. The basic reason why decision in Dilip

Shroff

v. Joint Commissioner of Income Tax, Mumbai and Anr. (cited supra) was overruled by this Court in Union of India v. Dharamendra Textile Processors (cited supra), was that according to this Court the effect and difference

between

Section 271(1)(c) and Section 276C of the Act was lost sight of in case of Dilip

Shroff

v. Joint Commissioner of Income Tax, Mumbai and Anr. (cited supra). However, it must be pointed out that in Union of India v. Dharamendra Textile Processors (cited supra), no fault was found with the reasoning in the decision in Dilip N. Shroff v. Joint Commissioner of Income Tax, Mumbai and Anr. (cited supra), where the Court explained the meaning of the terms "conceal" and inaccurate". It was only the ultimate inference in Dilip N. Shroff v. Joint Commissioner of Income Tax, Mumbai and Anr. (cited supra) to the effect that mens rea was an essential ingredient for the penalty under Section 271(1)(c) that the decision in Dilip N. Shroff v. Joint Commissioner of Income Tax, Mumbai and Anr. (cited supra) was overruled.” 5. Counsel for the respondent contended that the order is passed after remand and what happened after remand is not known. Therefore, the matter is liable to be remitted to the ITAT. 6. Heard the learned counsel for the parties. 6.1 It is clear that the assessment was not done against the assessee and it was remitted back, therefore, question of penalty seems to be an error apparent on the face of record and therefore the order of the Tribunal is required to be quashed. 6.2 The matter is remitted back to the Tribunal which will consider the matter in the light of the decision of Supreme Court in the case of Commissioner of Income Tax Vs. Reliance Petroproducts (P) LTD. (supra). The issue is accordingly answered in favour of the assessee

against the department. The appeal stands accordingly disposed of. (VIJAY KUMAR VYAS),J.

(K.S. JHAVERI),J. //B. M. Gandhi/123