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Income Tax Appellate Tribunal, “E” BENCH, MUMBAI
Before: SHRI C.N. PRASAD & SHRI RAMIT KOCHAR
आदेश / O R D E R PER C.N. PRASAD, JM: These three appeals are filed by the assessee challenging the order of the Ld. CIT(A)-25, Mumbai dated 18.6.2014 confirming the penalty of Rs. 20,250, Rs. 46,458/- and Rs. 2,10,640/- u/s. 271(1)(c) pertaining to assessment years 2008-09 to 2010-11 respectively.
The assessee firm engaged in the business of trading in clothes and also earning rental income from property. The assessee filed return of income for all three years computing the income under the head ‘business’. The assessments were reopened u/s. 148 of the Act for the reason that assessee has shown rental income in its profit and loss account and also claimed various expenses against such income in the profit and loss account. According to the Assessing Officer, the assessee is not entitled for various deductions in computing income from house property. The assessments were completed recomputing the income of the assessee under the head ‘House Property’. Penalty proceedings u/s. 271(1)(c) were initiated for all the three years and levied penalty holding that assessee committed default within the meaning of Sec. 271(1)(c) of the Act.
The Ld. CIT(A) confirmed the penalty against which the assessee is in appeal before us.
The Ld. Counsel for the assessee submits that assessee prepared profit and loss account showing the rent and also debited certain expenses in the profit and loss account. While coming to the computation, assessee originally shown the income stated to be under business and profession and while computing this income, assessee also claimed 30% deduction which is normally claimed under the head ‘House Property’ towards repairs and maintenance. The Ld. Counsel for the assessee submits that later revised computations were filed computing the income under the head ‘House Property’. The Ld. Counsel for the assessee submits that the issue is now as to whether penalty u/s. 271(1)(c) is attracted for concealment of income on the recomputation of income under the head Income from House Property as against income from business shown by the assessee or not. The Ld. Counsel for the assessee submits that assessee has not concealed any particulars of income nor furnished inaccurate particulars of such income. He further submits that the entire income earned by the assessee was shown in its profit & loss account. However, there is a mistake in the computation where the assessee though stated that income is to be computed under income from business and profession has taken the net profit as profit and loss account and claimed 30% deduction towards expenses and shown the income as business income. He submits that this mistake was rectified while filing revised return by taking the entire rental income without claiming any other deductions except 30% u/s. 24 of the Act towards repairs and maintenance.
Ld. Counsel for the assessee further submits that the penalty notice issued by the Assessing Officer is not specific as to whether the notice is issued for concealment of income or furnishing of inaccurate particulars of income. Therefore, he submits that in view of the decision of the Karnataka High Court in the case of CIT Vs Manjunatha Ginning and Pressing (359 ITR 565), the notice itself is bad in law since there is no specific reason for which the notice has been issued. The Ld. Counsel for the assessee further places reliance on the decision of the Hon’ble Supreme Court in the case of Reliance Petroproducts Pvt. Ltd. (322 ITR 158) especially at para-8 on pages 163 & 164 and submits that when the assessee has furnished all the particulars in the return of income, penalty cannot be levied simply because the assessee has claimed certain incorrect claim of expenditure. He also places reliance on the decision of Hon’ble Bombay High Court in the case of CIT Vs M/s. Aditya Birla Nova Ltd in Income Tax Appeal No. 3899 of 2010 dated 14.8.2012 for the above proposition.
The Ld. Departmental Representative vehemently supports the orders of the lower authorities. He further submits that recomputation was filed after issue of notice of u/s. 148 of the Act. In reply, the Ld. Counsel submits that revised computations were filed before issue of notices u/s. 148 of the Act and this is evident from the letter dated 9.2.2012 filed by the assessee before the Assessing Officer.
Heard both sides, perused the orders of the lower authorities and the decisions relied on by the Ld. Counsel. The assessee credited its P&L account with the following incomes:
Assessment Rental Income Income from trading year 2008-09 9,34,528/- --- 2009-10 18,03,829/- 9,82,854 2010-11 35,40,185/- 15,73,149/- 7.1. This is a case where the assessee initially filed returns reporting its income under the head income from business. The computation of income for the assessment year 2008-09 is as under:
Particulars Amount Amount (Rs.) Amount (Rs.) Income from Business & Profession Net profit as per Profit 51,658 & Loss 1.4.207 to 6.7.2007 1st period 7.7.2007 to 31.3.2008 142,727 2nd period 194,385 Add: F.B. Tax 959
Firm Tax 230725 231,684 426,069 Less: 30% deduction 127,821 298,248 Total income 298,248 Less: Tax Payable by 92,158 the firm Divisible income 206,090
As it can be seen from the computation of income, assessee computed its income by taking net profit as per profit & loss account at Rs. 1,94,385/- and further deduction of 30% was claimed. The assessee debited its profit & loss account with the following expenses:
1) Firm I Tax Rs. 2,30,725 2) Telephone Rs. 14,759 3) Municipal Tax Rs. 4,48,566 4) Bank Charges Rs. 854 5) salary Rs. 66,000 6) F.B. Tax Rs. 959
Out of the above expenses, assessee added back in its computation F.B. Tax and Firm I Tax and deducted 30% towards maintenance expenses and arrived at divisible income and this was allocated among the partners of the firm.
The assessee filed revised computation computing the income as under: Revised Computation of Total Income Income from House Property Rent Income 968248 Less: Municipal 448566 519682
Tax Less: 30% 155905 Deduction Total Income 363777 Less:Tax payable 122407 Firm Divisible Income 241370
Therefore, as could be seen from the above, initially the assessee computed the income under the head ‘business’ and even in this computation there are many errors in the sense that assessee has taken the starting point with the income as per profit and loss account and computed its income and while computing the income, he also claimed deduction of 30% which is admissible u/s. 24 of the Act under the head ‘House Property’. It is amply clear that assessee itself is not clear the head of income under which income is to be shown. The assessee mixed up the computation under both the heads and arrived at such income. We find that assessee has disclosed the entire income in the profit and loss account, therefore, there is no concealment of income as such. However, there is a computational error and prima facie it appears that the assessee does not know how to compute the income at all and it is also not clear as to whether the assessee has taken the expert advice in computing the income. So many mistakes were made by the assessee in computation of income, glaringly it appears that the assessee was not advised by a Tax professional. The assessee filed revised computation rectifying all these mistakes and showing only the rental income and claiming 30% deduction towards repairs and maintenance admissible u/s. 24 of the Act and balance as taxable income. It is the contention of the assessee that by mistake in the original return, the assessee has not segregated income between different heads and income was shown under the head business. After noticing the mistake, assessee prepared and filed revised statement showing the rental income as property income. It is contended that it is not a case that assessee has not disclosed its income from property and therefore there is no concealment of income.
In the case of M/s. Aditya Birla Nova Ltd (supra),the Bombay High Court held as under:
“The judgment does not support Mr.Malhotra’s submission that even if an assessee has disclosed all the particulars of his income and has not furnished inaccurate particulars of his income, it is mandatory upon the Assessing Officer to levy penalty under section 271(1)(c) if a claim is made which is held to be unsustainable in law. The Supreme Court merely stated that willful concealment is not an essential ingredient for attracting a civil law liability under section 271(1)(c) read with the explanation thereto. In other words, all that the judgment holds is that the concealment need not be willful to attract penalty. However to attract the provisions of section 271, the assessee must be held to have concealed the material particulars or to have furnished inaccurate particulars. At the cost of repetition in the present case, there was no concealment of any material particulars by the respondent. Nor did the respondent furnish inaccurate particulars. The respondent disclosed all material particulars and on the basis thereof, made certain claims which have been found purely as a question of law to be not sustainable. In the present case, Explanation 1(B) is inapplicable. This is in view of the fact that it is an admitted position that the respondent 6/11 http://www.itatonline.org itxa3899-10 has neither concealed any particulars of income nor furnished inaccurate particulars of income. Explanation 1(B) would apply only where an assessee has concealed the particulars of his income or has furnished inaccurate particulars of income. Explanation 1(B) provides that in such cases if the reasons given for the concealment or furnishing of inaccurate particulars of income are found to be unsubstantiated or not bona-fide, the amount added or disallowed in computing the total income would represent income in respect of which particulars have been concealed.
12. As we noted earlier, the matter in any event stands concluded in favour of the respondent by the judgment of the Supreme Court in CIT vs. Reliance Petroproducts Pvt. Ltd. (supra) where the Supreme Court considered a similar situation. The respondent therein had disclosed all the facts and there was no concealment of income. The Supreme Court negated an identical submission. The judgment considers and interprets the judgment of the Supreme Court in Union of India & Ors. vs. Dharamendra Textile Processors & Ors. (supra). The Supreme Court after setting out Section 271 (1)(c) in paragraph 10 held as under :-
“10. ….................................................................
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 7/11 http://www.itatonline.org itxa3899-10 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 the 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 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 words concerned. 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 CIT 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 as also the decision in Union of India v. Rajasthan Spg. & Wvg. Mills and reiterated in para 13 that: (Atul Mohan Bindal case, SCC p. 597, para 13)
“13. It goes without saying that for applicability of Section 271(1)(c), conditions stated therein must exist.”
It was tried to be suggested that Section 14-A of the Act specifically excluded the deductions in respect of the expenditure incurred by the assessee in relation to income which does not form part of the total income under the Act. It was further pointed out that the dividends from the shares did not form part of the total income. It was, therefore, reiterated before us that the assessing officer had correctly reached the conclusion that since the assessee had claimed excessive deductions knowing that they are incorrect; it amounted to concealment of income. It was tried to be argued that the falsehood in accounts can take either of the two forms; (i) an item of receipt may be suppressed fraudulently; (ii) an item of expenditure may be falsely (or in an exaggerated amount) claimed, and both types attempt to reduce the taxable income and, therefore, both types amount to concealment of particulars of one's income as well as furnishing of inaccurate particulars of income.
We do not agree, as the assessee had furnished all the details of its expenditure as well as income in its return, which details, in themselves, were not found to be inaccurate nor could be viewed as the concealment of income on its part. It was up to the authorities to accept its claim in the return or not. Merely because the assessee had claimed the expenditure, which claim was not accepted or was not acceptable to the Revenue, that by itself would not, in our opinion, attract the penalty under Section 271(1) ( c ). If we accept the contention of the Revenue then in case of every return where the claim made is not accepted by the assessing officer for any reason, the assessee will invite penalty under Section 271(1)( c). That is clearly not the intendment of the legislature.
In this behalf the observations of this Court made in Sree Krishna Electricals v. State of T.N. (2009) 11 SCC 687, as regards the penalty are apposite. In the aforementioned decision which pertained to the penalty proceedings in the Tamil Nadu General Sales Tax Act, the Court had found that the authorities below had found that there were some 9/11 http://www.itatonline.org itxa3899-10 incorrect statements made in the return. However, the said transactions were reflected in the accounts of the assessee. This Court, therefore, observed: (SCC p. 688, para 7)
“7. So far as the question of penalty is concerned the items which were not included in the turnover were found incorporated in the appellant's accounts books. Where certain items which are not included in the turnover are disclosed in the dealer's own account books and the assessing authorities include these items in the dealer's turnover disallowing the exemption penalty cannot be imposed. The penalty levied stands set aside.”
The situation in the present case is still better as no fault has been found with the particulars submitted by the assessee in its return.” (emphasis supplied)
The Supreme Court also held that it was only on the point of mens-rea that in Union of India & Ors. vs. Dharmendra Textile Processors & Ors, the Supreme Court over-ruled the earlier judgment of the Supreme Court in Dilip N. Shroff vs. Jt. CIT, (2007) 291 ITR 519.
13. Mr.Malhotra submitted that Explanation 1(B) to Section 271(1) mandates the levy of penalty even where a claim for deduction is not upheld, even though the assessee has disclosed all material facts and has not suppressed any material facts. He submitted that a view to the contrary would render explanation 1(B) nugatory. His only response to the judgment of the Supreme Court in CIT vs. Reliance Petroproducts Pvt. Ltd. was that the Supreme 10/11 http://www.itatonline.org itxa3899-10 Court had failed to notice Explanation-1 to section 271(1).
We are unable to agree. In any event we are bound by the judgment of the Supreme Court. Merely because the Explanation was not referred to in the judgment of the Supreme Court in CIT vs. Reliance Petroproducts Pvt. Ltd., it cannot be said that the judgment is per-incuriam. The learned Judges having expressly considered the very section, it can hardly be suggested that they did not notice a part of the section and delivered the judgment in ignorance thereof merely because that part is not in terms noted in the judgment.”
11. In the case of CIT Vs Reliance Petroproducts, the Hon’ble Supreme Court held as under:
“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. The present is not a 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, atleast, 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 CIT v. Atul Mohan Bindal [2009] 9 SCC 5891, 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 [2008J 13 SCC 3692 as also, the decision in Union of India v. Rajasthan Spg. & Wvg. Mills [2009] 13 SCC 448 and reiterated in paragraph 13 that (page 13 of 317 ITR) :
It goes without saying that for applicability of Sec. 271(1)(c), conditions stated therein must exists.”
Thus in view of the above discussion we hold that assessee has not concealed any income or furnished inaccurate particulars of income. What we see in the computation, is only the computational errors committed by the assessee computing its income by mixing up under both the heads of income i.e. business as well as House Property. In the circumstances, we delete the penalty levied u/s. 271(1)(c) of the Act.
In the result, all the appeals filed by the assessee are allowed.
Order pronounced in the open court on 18th May, 2016.