THE PR. COMMISSIONER OF INCOME TAX CIT(A) vs. M/S DECCAN MINING SYNDICATE PVT LTD

1/18 IN THE HIGH COURT OF KARNATAKA, BENGALURU

DATED THIS THE 21ST DAY OF JUNE 2018

PRESENT

THE HON’BLE DR.JUSTICE VINEET KOTHARI

AND

THE HON’BLE MRS.JUSTICE S.SUJATHA

I.T.A. No.505/2017

BETWEEN :

...APPELLANTS

(BY SRI K.V.ARAVIND, ADV.)

AND :

M/s DECCAN MINING SYNDICATE PVT. LTD., S-7, 2ND FLOOR, ESTEEM ARCADE, NO.26, RACE COURCE ROAD, BENGALURU-560001 PAN:AAACD 7081R

…RESPONDENT

(BY SRI A.SHANKAR & SRI M.LAVA, ADVS.)

THIS INCOME TAX APPEAL IS FILED UNDER SECTION 260-A OF INCOME TAX ACT 1961, ARISING OUT OF ORDER DATED 29.12.2016 PASSED IN C.O.NO.77/BANG/2014, FOR

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THE ASSESSMENT YEAR 2009-2010 PRAYING TO I. FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW STATED ABOVE. II.ALLOW THE APPEAL AND SET ASIDE THE ORDERS PASSED BY THE INCOME-TAX APPELLATE TRIBUNAL, BENGALURU IN C.O.NO.77/BANG/2014 DATED 29.12.2016 CONFIRMING THE ORDER OF THE APPELLATE COMMISSIONER AND CONFIRM THE ORDER PASSED BY THE ASST. COMMISSIONER OF INCOME TAX, CIRCLE-2(1)(1), BENGALURU & ETC.

THIS APPEAL COMING ON FOR ADMISSION, THIS DAY, Dr. VINEET KOTHARI, J., DELIVERED THE FOLLOWING:

J U D G M E N T

Mr. K.V.Aravind, Adv. for Appellants – Revenue Mr. A.Shankar & Mr. M.Lava, Advs. for Respondent – Assessee.

This Appeal has been filed by the Revenue under Section 260-A of the Income Tax Act, 1961 ['Act' for short], raising certain alleged substantial questions of law arising from the Order of the learned Income Tax Appellate Tribunal dated 29.12.2016 passed in Cross Objection No.77/Bang/2014 in I.T.A.Nos.782 to 785/Bang/2014 in ‘M/s. Deccan Mining Syndicate Pvt. Ltd., v. Deputy Commissioner of Income-tax’ for Assessment Year 2009-10, setting aside the penalty imposed on the Respondent-Assessee by the Assessing Authority.

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by the assessee-company is supported by the decision of the Hon’ble jurisdictional High Court in the case of CIT vs. Tata Elxsi (349 ITR 98), the addition is made on mere debatable point of law. So, no penalty is leviable. Therefore, we do not find any justification in the grounds of appeal filed by the revenue and are accordingly rejected. The revenue’s appeals are dismissed.

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allowed as opening stock of the beginning of the next year. Therefore, it is tax neutral and no mala fides can be attributed to the assessee- company in view of the fact that tax rates applicable to all these years is uniform. In any event, addition was made based on information filed by the assessee-company itself and it is not on account f any deletion made by the AO and therefore, assessee-company cannot be held to be guilty of furnishing inaccurate particulars of income and no penalty is exigible. The AO Office had not given finding in the penalty order as to how and in what manner the assessee had furnished inaccurate particulars of income resulting in additions to the returned income, except making a bald charge against the assessee that it had furnished the inaccurate particulars, which is an essential requisite of section 271(1)(c) of the Act. In the absence of such finding, the penalty order is liable to be quashed. Reliance in this regard is placed on the following judicial precedents the learned AO had not given finding the in the penalty order as to how and in what manner the assessee had furnished inaccurate particulars of income resulting in additions to the returned income, except making a bald charge against the

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assessee that it had furnished the inaccurate particulars, which is an essential requisite of section 271(1)(c) of the Act. In the absence of such finding, the penalty order is liable to be quashed. Reliance in this regard is placed on the following judicial precedents:

(a) CIT v. Balbir Singh (2008) 304 ITR 125/(2007) 164 Taxman 65 (Punj. & Har.) (b) National Taxtiles v. CIT (2001) 249 ITR 124/114 Taxman 203 (Guj) (c) Nainu Mal Het Chand v. CIT (2007) 294 ITR 185/160 Taxman 49 (All) (d) CIT v. Super Metal RE-rollers (P) Ltd. (2004) 265 ITR 82/135 Taxman 407 (Delhi) (e) Diwan Enterprises v. CIT (2000) 246 ITR 571 (Delhi) (f) CIT v. Shivnarayan Jamnalal & Co. (1998) 232 ITR 311/(1996) 89 Taxman 420 (MP) (g) CIT v. T.Abdul Majeed (1998) 232 ITR 50/(1997) 93 Taxman 491 (Ker)

17.1 The Hon’ble apex court in the case of Dilip N. Shroff v. Jt. CIT (2007) 291 ITR 519/161 Taxman 218 had held vide paras 56 and 57 as follows (page 546):

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“The term ‘inaccurate particular’s is not defined. Furnishing of all assessment of value of the property may not by itself be furnishing of inaccurate particulars. Even if the Explanations are taken recourse to, a finding has to be arrived at having regard to clause (a) of Explanation 1 that the Assessing Officer is required to arrive at a finding that the explanation offered by an assessee in the event he offers one, was false. He must be found to have failed to prove that such explanation is not only not bona fide but all the facts relating to the same and material to the income were not disclosed by him. Thus, apart from his explanation being not bona fide, it should have been found as of fact that he has not disclosed all the facts which was material to the computation of his income. The explanation, having regard to the decisions of the court, must be preceded by a finding as to how and in what matter he furnished the particulars of his income. It is beyond any doubt or dispute that for the said purpose the Income-tax Officer must arrive at a satisfaction in this behalf. (See CIT v. Ram Commercial Enterprises Ltd.

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[2000] 246 ITR 568 (Delhi) and Diwan Enterprises v. CIT [2000] 246 ITR 571 (Delhi)).

17.2 The AO has not found the explanation furnished by the assessee in response to the show-cause notice to be false nor found to be not bona fide. Therefore, the Explanation (1) to section 271(1)(c) of the Act is not attracted and, therefore, provisions of section 271(1)(c) of the Act are not applicable as held by the Hon’ble apex court in the case of K.P.Madhusudhanan v. CIT (2001) 251 ITR 99 (SC) and also in the case of T.Ashok Pai v. CIT (2007) 292 ITR 11 (SC), vide para 18 held as follows (page 18): “Even if the explanation are taken recourse to, a finding has to be arrived at having regard to clause (A) of Explanation 1 that the Assessing Officer is required to arrive at a finding that the explanation offered by an assessee, in the even, he offers one was false. He must be found to have failed to prove that such explanationis not only not bona fide but all the facts relating to the same and material to the income were not disclosed by him. Thus,

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apart from his explanation being not bona fide, it should have been found as of fact that he has not disclosed all the facts which was material to the computation of his income.”

17.3 Even the Hon’ble Karnataka High Court in the case of CIT v. Sandur Manganese & Iron Ores Ltd. (2010) 327 ITR 242 has laid down the same proposition of law. The reasoning of the CIT(A) that penalty is exigible because excess stock was detected during course of search proceedings is not borne out of any material or assessment records. Therefore, the finding of the CIT(A) on this is contrary to evidence on record and cannot be accepted.

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surrender cannot amount to voluntary surrender and the Assessing Authority was justified in imposing penalty under Section 271[1][c] of the Act, rejecting the explanation given by the Respondent-Assessee. He has relied upon the decision of this Court in the case of ‘Commissioner of Income Tax v. Manjunatha Cotton & Ginning Factory and Others’ [2013] 359 ITR 565 [Karnataka], while summarizing the legal position about imposition of penalty under Section 271[1][c] of the Act, holding that such imposition of penalty is not automatic and it depends upon the facts and circumstances of the case. The Co-ordinate Bench of this Court in the case of Manjunatha Cotton & Ginning Factory [supra], held as under: “Held accordingly, dismissing the appeals, (i) that merely because the assessee agreed to the addition and the assessment order was passed on the basis of this addition, when the assessee had paid the tax and the interest thereon in the absence of any material on record to show the concealment of income, it could not be inferred

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that the addition was on account of concealment. Moreover, the assessee had offered an explanation. The explanation was not found to be false. On the contrary, it was held to be bona fide. The cancellation of penalty by the Tribunal was justified. (ii) That the Tribunal was justified in holding that the entire penalty proceedings were vitiated on the ground that the notice issued was not in accordance with law. (iii) That the subject matter of the penalty proceedings was the order of the appellate authority and not the order passed by the Assessing Officer. Hence, the order of penalty by the Assessing Officer was not valid. (iv) That when two fact finding authorities were satisfied that the explanation offered by the assessee was not false and it was a bona fide though the assessee had failed to conclusively prove the explanation the levy of penalty was not justified.”

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aside by the learned Tribunal, following the decision of this Court in the case of ‘Commissioner of Income Tax v. Tata Elxsi Ltd., in 349 ITR 98. Another ground on which the penalty was imposed by the Assessing Authority was the additions made in the income on account of alleged excess stock, holding which too was set aside by the learned Tribunal vide Paragraph-17 of the impugned order quoted above holding that the said alleged excess stock was not as a result of purchases made outside the books of accounts, but was only on account of wrong entries in the books of accounts and in any case the higher stock in trade declared as closing stock in a particular year would be taken as opening stock at the beginning of the next year and therefore the tax effect of such alleged excess stock is ‘Nil’ and thus it being a tax neutral entry, the learned Tribunal found that there was no concealment on the part of the Assessee, attracting penalty under Section 271[1][c] of the Act.

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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 AO, 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.

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proceedings. The law does not provide that when an assessee makes a voluntary disclosure of his concealed income, he had to be absolved from penalty.

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amount which was surrendered later during the course of the assessment proceedings. Consequently, it is clear that the assessee had no intention to declare its true income. It is the statutory duty of the assessee to record all its transactions in the books of account, to explain the source of payments made by it and to declare its true income in the return of income filed by it from year to year. The AO, in our view, has recorded a categorical finding that he was satisfied that the assessee had concealed true particulars of income and is liable for penalty proceedings under Section 271 read with Section 274 of the Income Tax Act, 1961.

(2009) 9 SCC 589.

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Revenue and we find no illegality in the department initiating penalty proceedings in the instant case. We, therefore, fully agree with the view of the High Court. Hence, the appeal lacks merit and is dismissed.”

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learned Tribunal and consequentially setting aside the penalty under Section 271[1][c] of the Act, does not give rise to any substantial question of law requiring the consideration by this Court under Section 260-A of the Act.

Sd/- JUDGE

Sd/- JUDGE

AN/-