Allahabad High Court
C.I.T. vs M/S U.P. State on 30 April, 2012
Bench: Ashok Bhushan, Prakash Krishna
HIGH COURT OF JUDICATURE AT ALLAHABAD
AFR
RESERVED
Income Tax Reference No. 134 of 1991
Commissioner of Income Tax, Lucknow
v.
U.P. State Bridge Corporation Ltd.
Hon'ble Ashok Bhushan,J
Hon'ble Prakash Krishna,J
1. The Income Tax Appellate Tribunal, Allahabad Bench, Allahabad (hereinafter referred to as 'the Tribunal') has submitted the following question for opinion of this Court:
"Whether, on the facts and in the circumstances of the case, the Tribunal was, in law, justified in cancelling the penalty of Rs.24,10,000 imposed u/s 271(1)(c) of the Income Tax Act, 1961?"
2. The dispute relates to the assessment year 1982-83. The assessee, is a Company registered under the Companies Act and it filed its first return which was a provisional return showing a net profit of Rs.3,09,30,029/-. It claimed the following among others amounts, as deduction:
(a) Investment Allowance on trucks Rs. 5,07,396
(b) Application of Rule 115 Rs.37,58,732
(c) Donation to School in Iraq Rs. 1,71,420
Rs.44,37,548
3. The assessing Officer levied penalty of Rs.25,10,000/- holding that the assessee has concealed the particulars of its income in respect of the aforesaid three items. CIT (A) vide its order dated 20th January, 1989 allowed the appeal in part and cancelled the penalty on the amount of donation to School in Iraq but confirmed the penalty on the remaining two items. The penalty order was modified by providing that the Assessing Officer shall calculate the amount of penalty after excluding amount of Rs.1,71,420/-. In further appeal, being I.T.A. No. 643(Alld) of 1989 by the assessee-Company before the Tribunal, the Tribunal allowed the appeal in toto and deleted the penalty by the order order 15th June, 1990.
4. Sri R.K. Upadhyay, learned counsel for the department in support of the reference submits that the Tribunal was not justified in deleting the penalty in view of the fact that the investment allowance on trucks was clearly not admissible. He submits that in I.T.R. No. 114 of 1989 at the instance of assessee-Company, reference has been decided against the assessee meaning thereby the additions made in the income of the assessee and dis-allowance of deduction has been upheld by the High Court. Strong reliance was placed on Commissioner of Income-Tax v. Zoom Communication P. Ltd., (2010) 327 ITR 510 (Delhi) in support of his contention that claim for deduction, which is not found bonafide amounts to concealment of income.
5. None appeared on behalf of the assessee-respondent-Company.
6. Considered the aforesaid submissions of the learned counsel for the department.
7. The assessee claimed investment allowance of Rs.1,49,07,181/- The said claim was examined by the IAC (Assessment) but found that the assessee-Company was engaged in business of construction of bridges. IAC (Assessment) allowed investment allowance on 11 items. The matter was carried in appeal both by the department as well as by the assessee-Company. The Tribunal on the basis of decision in the case of Hydel Construction Private Limited 61 ITD 575 held that as the Generators and Cranes were not manufacturing any articles or things, investment allowance could not be allowed in respect thereof. This works out to Rs.5,07,396/- and was included in the assessee's claim of investment allowance for Rs.1,49,07,181/-. The said amount was taken by the Assessing Officer as concealed income of the assessee within the meaning of Section 271(1)(c) of the Act (hereinafter referred to as 'the Act'). The other items with regard to addition of income on account of application of Rule 115, the claim subsequently was given up by the assessee. The income was worked out to Rs.37,58,732/- and this was also treated as concealed income of the assessee. With regard to the aforesaid two items, the penalty was confirmed by the CIT(A).
8. The Tribunal found that raising a claim, which has not been ultimately found to be correct, does not amount to concealment of income. The Tribunal has noticed that the assessee has given full particulars for determination of its total income and the explanation given by the assessee is bonafide. The Tribunal has found as follows:
"It gave all the necessary details for the purpose of computation of its total income and nothing was with held by it from the eye of the I.A.C. It was a different matter that in respect of claim of investment allowance, the assessee hide a different opinion from that of the Assessing Officer. To have a different opinion and to project the figure of income on the basis of its own conviction, does not amount to an act of concealment. The assessee did bona fide believe that dumpers and trucks performed the same function and, therefore, it originally claimed investment allowance with regard thereto. The claim was followed upto the level of the CIT (Appeals). It was only before the Tribunal that the assessee did not press its claim with regard to investment allowance on the trucks. May be, by this time, the assessee felt convinced that on the logic of generators and cranes on which investment allowance was not granted by the Tribunal, the investment allowance may also not be allowable on trucks, but the point of time when an act of concealment may be said to have been committed is not the stage when the claim for investment allowance is given up before the Tribunal out at the time when the return was filed. That has, therefore, to be seen is whether at the time when the return was filed the assessee company did entertain a bonafide belief in support of its claim. If so, the charge of concealment cannot be upheld against the assessee company. The finding of the ld. CIT(Appeals), itself appears to be that "the assessee could only claim ignorance of law at the time of filing of the return which has been pleaded in the affidavit filed by the Managing Director.........." once recorded this finding he should have deleted the penalty. Going beyond this stage and levying penalty on the assessee on the footing that the assessee gave up its claim before the Tribunal could not be justified. We accordingly delete the penalty imposed on the assessee with regard to the aforesaid sum of Rs.5,07,396/-."
9. In subsequent paragraph, the Tribunal has noticed that similar position exists with regard to the addition to the assessee's total income in terms of Rule 115. Relevant portion is reproduced below:
"Similar is the position with regard to the addition to the assessee's total income in terms of Rule 115. The Managing Director of the assessee company pleaded ignorance of law and it is not the finding of the ld. CIT (Appeals) that the claim of the Managing Director was false."
10. We find that the Apex Court very recently in the case of Commissioner of Income-Tax v. Reliance Petroproducts Pvt. Ltd., (2010) 322 ITR 158 (SC), has examined the matter in detail and also considered its earlier pronouncements on the point. It has been laid down therein that Section 271 (1) (c) of the Act suggests that in order to be covered by it, 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. Where no information given in the return is found to be incorrect or inaccurate, it would not be case of inaccurate particulars, phrase used in Section 271(1)(c). It considered its earlier judgments given in the case of Dilip N. Shroff v. Joint CIT (2007) 291 ITR 519 and Union of India v. Dharmendra Textile Processors (2008) 306 ITR 277 and held that mens rea is not an essential ingredient for levy of penalty under Section 271(1)(c) of the Act. It proceeds further. The relevant paragraph for our purposes is reproduced below:
"We have already seen the meaning of the word "particulars"; in the earlier part of this judgment. Reading the words in conjunction, they must mean the details supplied in the Return, which are not accurate, not exact or correct, not according to truth or erroneous. We must hasten to add here that in this case, there is no finding that any details supplied by the assessee in its return were found to be incorrect or erroneous or false. Such not being the case, there would be no question of inviting the penalty under Section 271(1)(c) of the Act. A mere making of the claim, which is not sustainable in law, by itself, will not amount to furnishing inaccurate particulars regarding the income of the assessee. Such claim made in the Return cannot amount to the inaccurate particulars."
11. Coming to the facts of the present case, it has been found by the Tribunal as a fact that the assessee claimed investment allowance on many items. Out of them, on some items it was dis-allowed. Similarly, claim was set up with regard to Rule 115, which was dis-allowed. Applying the ratio as laid down in the case of Reliance Petroproducts Pvt. Ltd. (supra) wherein it has been laid down that a mere making of the claim, which is not sustainable in law, by itself, will not amount to furnishing inaccurate particulars regarding the income of the assessee, it would be clear that the Tribunal has committed no error in dropping the penalty proceedings. The fact that the matter was fought though unsuccessfully upto the High Court stage in ITR No. 114 of 1989, is indicative of the fact that the assessee somehow entertained the belief that its claim has been wrongly disallowed by the Assessing Authority. There may be difference of opinion with regard to certain claim between the assessee and the department on a point which is not settled and in such cases if the argument of the counsel is accepted, it would amount that the penalty under Section 271(1)(c) be imposed almost automatically as soon as the claim is not found favour with the revenue authority, which is not correct. At this stage, it is apt to consider the decision of Delhi High Court in the case of Zoom Communication P. Ltd. (supra). In this case, the penalty proceedings were initiated as on examination of accounts-book, it was found that the assessee had claimed expenses relating to administration, forming part of the profit and loss account, wrongly. The only explanation given by the assessee was that due to over-sight the said amount was not added back in the computation of income and ought to have been adjusted in the block of assets. The said amount added back to the income of the assessee. Similarly, Rs.1 Lakh had been debited under the head "income tax paid", which was not added back in the computation of income. The explanation was that it was due to over-sight. The Assessing Officer added the aforestated two amounts to the income of the assessee and initiated the penalty proceedings.
12. In this factual background, the decision was rendered in the case of Zoom Communication P. Ltd. (supra). A further reading of the judgment of the High Court would show that there the Tribunal did not record the finding that the explanation given by the assessee was a bonafide explanation. Theory of over-sight propounded by the assessee was not accepted by the Tribunal even. In this factual scenario, the High Court took the view that penalty proceedings were wrongly dropped. The High Court was of the view that if the assessee makes a claim which is not only incorrect in law but is also wholly without any basis and explanation furnishes by him for making such a claim is not found to be bonafide, then it would be liable to penalty under Section 271(1)(c) of the Act. It noticed that this was a case where the income tax return of the assessee was picked up for scrutiny. The relevant extract from Zoom Communication P. Ltd. (supra) is reproduced below:
"16. The proposition of law which emerges from this case, when considered in the backdrop of the facts of the case before the Court, is that so long as the assessee has not concealed any material fact or the factual information given by him has not been found to be incorrect, he will not be liable to imposition of penalty under Section 271(1)(c) of the Act, even if the claim made by him is unsustainable in law, provided that he either substantiates the explanation offered by him or the explanation, even if not substantiated, is found to be bonafide. If the explanation is neither substantiated nor shown to be ITA No.7/2010 Page 11 of 18 bonafide, Explanation 1 to Section 271(1)(c) would come in to play and the assessee will be liable to for the prescribed penalty.
17. ...............................................................................................................
...............................................................................................................
...............................................................................................................
18. ...............................................................................................................
...............................................................................................................
...............................................................................................................
19. It is true that mere submitting a claim which is incorrect in law would not amount to giving inaccurate particulars of the income of the assessee, but it cannot be disputed that the claim made by the assessee needs to be bonafide. If the claim besides being incorrect in law is malafide, Explanation 1 to Section 271(1) would come into play and work to the disadvantage of the assessee."
13. The relevant extract from the order of the Tribunal has already been extracted in the earlier part of the judgment. The finding recorded by the Tribunal that it was a case of bonafide dispute, is not under challenge. This clinches the issue against the department and also distinguishes the ratio which has been laid down by the Delhi High Court in the case of Zoom Communication P. Ltd. (supra); heavily relied upon by the learned standing counsel for the department.
14. Here is a case where the department does not dispute that any income was concealed by the assessee or particulars of income furnished by the assessee are in any manner incorrect. The case of the department in short is that certain claims with regard to investment allowance and under Rule 115 were not found acceptable by the revenue authorities. The question is whether in such circumstances, can it be said that the assessee has concealed the income or has furnished inaccurate particulars. In view of the ratio of Apex Court in the case of Reliance Petroproducts Pvt. Ltd. (supra), the answer is no.
15. The argument of Shri R.K. Upadhyay, learned counsel for the department proceeds on the wrong assumption that wherever a claim of an assessee is disallowed, it would be a case of concealment of income or giving inaccurate particulars of income. This is not so. Nor such a proposition can be culled out from any judicial pronouncement. It may vary from case to case, as was noticed in the case of Delhi High Court in the case of Zoom Communication P. Ltd. (supra).
16. In view of the above, we answer the aforesaid question in affirmative by holding that the Tribunal was justified in cancelling the penalty under Section 271(1)(c) of the Act. The reference is decided against the revenue and in favour of the assessee.
(Prakash Krishna,J) (Ashok Bhushan,J)
Dated:- 30th April, 2012
MK/
