Bombay High Court
Mr.Shanti Ramanand Sagar And ... vs The Commr. Of Income Tax, .B.C.I on 17 November, 2017
Bench: S.C. Dharmadhikari
Judgment-ITR.22.2000.doc
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
INCOME TAX REFERENCE NO. 22 OF 2000
1. Mr. Shanti Ramanand Sagar }
son of Late Dr. Ramanand Sagar }
residing at Sagar Bhavan, }
Road No. 12-A, JVPD, }
Mumbai 400 049 }
}
2. Mr. Anand Ramanand Sagar }
son of Late Dr. Ramanand Sagar }
residing at Sagar Vila, }
Road No. 12-A, JVPD, }
Mumbai 400 049 }
}
3. Mr. Prem Ramanand Sagar }
son of Late Dr. Ramanand Sagar }
residing at Sagar Vila, }
Road No. 12-A, JVPD, }
Mumbai 400 049 }
}
4. Mr. Moti Ramanand Sagar }
son of Late Dr. Ramanand Sagar }
Residing at 6, New Shantivan }
Building, Oberoi Complex, }
Sab TV Lane, Andheri (W), }
Mumbai 400 053 }
}
5. Mrs. Sarita Choudhari }
Married Daughter of }
Late Dr. Ramanand Sagar, }
residing at B-29, Greater }
Kailash I, New Delhi. }
}
6. Mr. Jyoti Subash Sagar }
Grandson of Late Dr. Ramanand }
Sagar having his office at 1401, }
A/1, Aston Building, Sundarvan }
Complex, Lokhandwala Road, }
Andheri (West), Mumbai 400 053 } Applicants
versus
Page 1 of 33
J.V.Salunke,PA
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Judgment-ITR.22.2000.doc
Commissioner of Income-Tax }
Mumbai } Respondent
Ms. Aarti Sathe with Ms. Garima Kapoor
for the applicants.
Mr. P. C. Chhotaray for the respondents.
CORAM :- S. C. DHARMADHIKARI &
PRAKASH. D. NAIK, JJ.
Reserved on 25 th September, 2017
Pronounced on 17 th November, 2017
JUDGMENT :- (Per S. C. Dharmadhikari, J.)
1. This reference is at the instance of the assessee. The
assessee sold a movie, namely, "Charas" to M/s. Prakash Pictures
on minimum guarantee basis for Rs.13,70,000/-. The assessment
year in this case is 1977-78. Since the assessee had shown only
Rs.3,90,917/-, the assessment was reopened under section
147(a) of the Income Tax Act, 1961. In response to the notice
under section 148 of the Act, the assessee returned an income of
Rs.4,98,530/- as against the earlier returned loss of
Rs.6,93,200/-. The Assessing Officer observed that the addition of
Rs.9,79,083/-, made on account of minimum guarantee
realisation was upheld by the AAC and the addition was accepted
by the assessee. In view of these facts, penalty of Rs.6,46,588/-
was levied under section 271(1)(c) of the Act.
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Judgment-ITR.22.2000.doc
2. The Commissioner of Income Tax (Appeals) cancelled this
penalty on the ground that since the assessee had shown the
balance income in his return for assessment year 1978-79 which
was filed on 20th January, 1979, there was no concealment.
However, on further appeal, the Tribunal restored the penalty.
3. The Tribunal assigned reasons and for restoring the
penalty. The Tribunal held that non-availability of the agreement
does not mean that the nature of the transaction cannot be
disclosed. If the assessee had declared a loss, he thwarted his tax
liability for two years by not declaring the entire receipts in the
assessment year 1977-78. The tribunal recorded a finding that
even after the set-off of brought forward losses, the current year's
loss would have been converted into positive income with the
inclusion of the balance receipt of the minimum guarantee
amount. By declaring the balance amount in the subsequent year,
the assessee certainly furnished inaccurate particulars of income
for the year under appeal and either avoided or deferred his tax
liability.
4. It is in these circumstances that the tribunal also rejected
Miscellaneous Application No. 198/M/98 seeking a rectification of
the finding of the tribunal that the losses could have been
converted into positive income with the inclusion of balance
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Judgment-ITR.22.2000.doc
receipt of the minimum guarantee amount. This miscellaneous
application was rejected on 1st February, 1999.
5. That is how the tribunal was moved by the assessee seeking
a reference of certain questions terming them as questions of law
for answer and opinion of this court. That is how the tribunal
passed an order on 25th June, 1999 and referred the following
questions for this court's opinion and answer.
"1. Whether on the facts and in the circumstances of the
case the Tribunal was right in law in reversing the order of
the CIT(A) and confirming the levy of the penalty U/s.
271(1)(c) of the I. T. Act when factually the assessee's
income was a loss for both the assessment years i.e.
assessment year 1977-78 and assessment year 1978-79.
2. Whether on the facts and in the circumstances of the
case there was any evidence before the Tribunal to justify
in law in confirming the levy of the penalty on I. T. U/s.
271(1)(c) of the Income-Tax Act."
6. Ms. Sathe appearing for the assessee would submit that the
first question, which is referred for answer and opinion of this
court is answered by a judgment in the case of Commissioner of
Income-Tax vs. Gold Coin Health Food P. Ltd. 1. This is a Hon'ble
Supreme Court decision and therefore, we should not answer this
question.
7. As far as the second question, which is reproduced above,
Ms. Sathe would submit that we must peruse firstly the Assessing
1 (2008) 304 ITR 308
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Officer's order and at page 8 of the paper book. She would submit
that the assessee did not have the nature of the income. In other
words, the nature of the income was not known. The amount was
treated as a deposit by the assessee. This was because the
assessee was not sure whether the film would do well or
otherwise. There is absolutely no question of concealment
because the assessee may treat the amount as an advance or a
minimum guarantee. There was no difference, inasmuch as the
question was not of thwarting any liability, but ascertaining the
exact nature of the income. In any event, as the assessee says
that this was not a deliberate or intentional act, it is held so by the
Commissioner of Income Tax (Appeals). He had rightly come to
the conclusion that what was shown as deposit from M/s. Prakash
Pictures was shown as income in the return for assessment year
1978-79 filed on 20th January, 1979. The re-opening of the
assessment for the present year is on the basis of an audit
objection dated 9th July, 1981. The assessee had a sizable carried
forward loss as already assessed so that whichever way the
assessee viewed this issue, there would be a negative income to be
returned. The assessee, therefore, did not benefit in any manner
by showing a part of this income as the income of the next year.
This was declared by the assessee before any detection of the
omission. The Commissioner of Income Tax (Appeals) also found
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Judgment-ITR.22.2000.doc
from the record that the order was passed under section 264 for
assessment year 1978-79, in which the income originally
assessed on the basis of the earlier return of the assessee has
been reduced by the same amount by which the income to this
assessment year has been increased and treated as concealed
income.
8. Ms. Sathe would invite our attention to pages 14 and 15 of
this paper book to submit that there was at best a technical
default which neither resulted in any benefit to the assessee nor
was there any loss to the Revenue. Hence, this was not a case
where the penalty could have been imposed.
9. Ms. Sathe then submitted that the Tribunal has committed
a patent error in holding that there was a part declaration by the
assessee of his liability. There was, thus, an attempt to thwart the
tax liability and show it for two years, namely, assessment year
1977-78 and 1978-79. Therefore, she would submit that the
observations in para 7 of the Tribunal's order are erroneous.
Thus, Ms. Sathe would submit that there was no evidence to
justify the imposition of penalty. The ingredients of the provision
were not at all attracted much less satisfied.
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Judgment-ITR.22.2000.doc
10. Ms. Sathe relied upon the following judgments and decisions
in support of her arguments:-
(i) Commissioner of Income Tax vs. manilal Tarachand,
(2002) 254 ITR 630;
(ii) Commissioner of Income Tax vs. Gold Coin Health
Food P. Ltd., (2008) 304 ITR 308;
(iii) Commissioner of Income Tax vs. Reliance
Petroproducts Pvt. Ltd., (2010) 322 ITR 158;
(iv) Price Waterhouse Cooppers Pvt. Ltd. vs.
Commissioner of Income Tax and Anr., (2012) 348
ITR 306.
11. On the other hand, Mr. Chhotaray appearing on behalf of
the Revenue would submit that the penalty has been rightly
imposed. He would submit that it was imposed for non-
disclosure/non-filing of materials and relevant particulars. There
is no question of any mens-rea. Mr. Chhotaray would, therefore,
submit that if one peruses the order passed by the Assessing
Officer, it is evident that he concluded that there was no
disclosure about the minimum guarantee. Mr. Chhotaray then
invites our attention to page 30 of the paper book and submits
that Ms. Prakash Pictures said that it paid Rs.13,70,000/-,
whereas the respondent assessee is disclosing only Rs.3,90,917/-.
There is absolutely no material by which the authorities could
conclude as to why there was no disclosure of the income in the
assessment year 1977-78. Mr. Chhotaray would submit that both
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Judgment-ITR.22.2000.doc
acts, namely, furnishing inaccurate particulars of income or
concealment of income attract penalty. Mr. Chhotaray
emphasises that the assessee did not act bonafide. The Revenue
had to resort to the power to re-open the assessment to bring the
amount to tax. Mr. Chhotaray invited our attention to section
4(1) of the Income Tax Act, 1961 to submit that there is no
liberty to manipulate but there is a positive obligation to disclose
all particulars.
12. Mr. Chhotaray relies upon the following judgments and
decisions in support of his arguments:-
(i) Union of India vs. Dharmendra Textiles Processors
and Ors., (2008) 306 ITR 277;
(ii) Commissioner of Income Tax vs. Zoom
Communication P. Ltd., (2010) 327 ITR 510;
(iii) Mak Data P. Ltd. vs. Commissioner of Income Tax-II,
Judgment in Civil Appeal No. 9772 of 2013, decided on
30th October, 2013 (Supreme Court).
13. For appreciating these contentions, one must peruse the
order of the Assessing Officer. The Assessing Officer passed an
order on 8th March, 1990. He held that though the assessee
maintains that he has not concealed any particulars, but it is
evident that there was increase in the income. The assessee
pointed out that during the year, the income from one of the
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distributors was treated as advance. In the revised return, in
response to notice under section 148, the income was shown on
minimum guarantee basis and the mistake in the earlier year
occurred due to non-availability of agreement. The distributor
had claimed the same as minimum guarantee while the asessee
treated as an advance. The total receipts were accurately shown
and there was in fact no concealment, but a technical error. It is
in these circumstances it was urged that the assessee acted
bonafide. However, the Assessing Officer found from the record
that in the original assessment, which was completed on 14 th
March, 1980, the loss was determined at Rs.4,04,703/- as against
returned loss of Rs.4,80,530/-. Subsequently, it came to light that
the picture "Charas" was sold on minimum guarantee basis to
M/s. Prakash Pictures for Rs.13,70,000/-. Out of this amount, the
assessee disclosed only Rs.3,90,917.62. The particulars of this
income were also not disclosed. Therefore, the re-opening of the
assessment had to be done. In that, the assessee filed a return
showing income of Rs.4,98,530/- and the assessment was
subsequently completed on total income of Rs.86,280/- after
setting off the brought forward loss amounting to Rs.6,93,200/-.
The addition of amount of Rs.9,79,083/- on account of minimum
guarantee realisation was upheld in appeal by order dated 13 th
November, 1981. This decision was accepted by the assessee.
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Judgment-ITR.22.2000.doc
14. That is how the Assessing Officer concluded that the
assessee had knowingly filed inaccurate particulars of his total
income, thereby attracting section 271(1)(c) of the Income Tax
Act, 1961. This provision, at the relevant time as also now reads
as under:-
At the relevant time:-
"271. (1) If the Income-Tax Officer or the Appellate
Assistant Commissioner or the Commissioner (Appeals) in
the course of any proceedings under this Act, is satisfied
that any person-
(a) has without reasonable cause failed to furnish
the return of total income which he was required to
furnish under sub-section (1) of section 139 or by notice
given under sub-section (2) of section 139 or section
148 or has without reasonable cause failed to furnish it
within the time allowed and in the manner required by
sub-section (1) of section 139 or by such notice, as the
case may be, or
(b) has without reasonable cause failed to comply
with a notice under sub-section (1) of section 142 or
sub-section (2) of section 143 or fails to comply with a
direction issued under sub-section (2A) of section 142,
or
(c) has concealed the particulars of his income or
furnished inaccurate particulars of such income,
he may direct that such person shall pay by way of
penalty,-
(i) in the cases referred to in clause (a);
(a) in the case of a person referred to in sub-section
(4A) of section 139, where the total income in respect
of which he is assessable as a representative assessee
does not exceed the maximum amount which is not
chargeable to income-tax, a sum not exceeding one
per cent of the total income computed under this act
without giving effect to the provisions of sections 11
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and 12, for each year or part thereof during which the
default continued;
(b) in any other case, in addition to the amount of
the tax, if any, payable by him, a sum equal to two
percent of the assessed tax for every month during
which the default continued.
Explanation. - In this clause, "assessed tax" means tax
as reduced by the sum, if any, deducted at source under
Chapter XVIIB or paid in advance under Chapter XVIIC;
(ii) in the cases referred to in clause (b), in addition
to any tax payable by him, a sum which shall not be less
than ten per cent but which would have been avoided if
the income returned by such person had been accepted
as the correct income;
(iii) in the cases referred to in clause (c) in addition
to any tax payable by him, a sum which shall not be less
than, but which shall not exceed twice, the amount of
tax sought to be evaded by reason of the concealment of
particulars of his income or the furnishing of inaccurate
particulars of such income:
Provided that if in a case falling under clause (c), the
amount of income (as determined by the Income-tax
Officer on assessment) in respect of which the
particulars have been concealed or inaccurate
particulars have been furnished, exceeds a sum of
twenty-five thousand rupees, the Income-tax Officer
shall not issue any direction for payment by way of
penalty without the previous approval of the Inspecting
Assistant Commissioner.
Explanation 1 : Where in respect of any facts material to
the computation of the total income of any person under
this Act, -
(A) such person fails to offer an explanation or
offers an explanation which is found by the Income-tax
Officer or the Appellate Assistant Commissioner or the
Commissioner (Appeals) to be false, or
(B) such person offers an explanation which he is
not able to substantiate,
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then, the amount added or disallowed in computing the
total income of such person as a result thereof shall, for the
purposes of clause (c) of this sub-section, be deemed to
represent the income in respect of which particulars have
been concealed.
Provided that nothing contained in this Explanation shall
apply to a case referred to in clause (B) in respect of any
amount added or disallowed as a result of the rejection of
any explanation offered by such person, if such
explanation is bona fide and all the facts relating to the
same and material to the computation of his total income
have been disclosed by him.
Explanation 2 : Where the source of any receipt, deposit,
outgoing or investment in any assessment year is claimed
by any person to be an amount which had been added in
computing the income or deducted in computing the loss in
the assessment of such person for any earlier assessment
year or years but in respect of which no penalty under
clause (iii) of this sub-section had been levied, that part of
the amount so added or deducted in such earlier
assessment year immediately preceding the year in which
the receipt, deposit, outgoing or investment appears (such
earlier assessment year hereafter in this Explanation
referred to as the first preceding year) which is sufficient
to cover the amount represented by such receipt, deposit
or outgoing or value of such investment (such amount or
value hereafter in this Explanation referred to as the
utilised amount) shall be treated as the income of the
assessee, particulars of which had been concealed or
inaccurate particulars of which had been furnished for the
first preceding year; and where the amount so added or
deducted in the first preceding year is not sufficient to
cover the utilised amount, that part of the amount so
added or deducted in the year immediately preceding the
first preceding year which is sufficient to cover such part
of the utilised amount as is not so covered shall be treated
to be the income of the assessee, particulars of which had
been concealed or inaccurate particulars of which had been
furnished for the year immediately preceding the first
preceding year and so on, until the entire utilised amount
is covered by the amounts so added or deducted in such
earlier assessment years.
Explanation 3 : Where any person who has not previously
been assessed under the Indian Income-tax Act, 1922 (11
of 1922) or under this Act fails, without reasonable cause,
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to furnish within the period specified in sub-clause (iii) of
clause (a) of sub-section (1) of section 153 a return of his
income which he is required to furnish under section 139
in respect of any assessment year commencing on or after
the 1st day of April, 1974, and, until the expiry of the
period aforesaid, no notice has been issued to him under
sub-section (2) of section 139 or section 148 and the
Income Tax Officer or the Appellate Assistant
Commissioner or the Commissioner (Appeals) is satisfied
that in respect of such assessment year such person has
taxable income, then, such person shall, for the purposes
of clause (c) of this sub-section, be deemed to have
concealed the particulars of his income in respect of such
assessment year, notwithstanding that such person
furnishes a return of his income at any time after the
expiry of the period aforesaid in pursuance of a notice
under section 148.
Explanation 4 : for the purpose of clause (iii) of this sub-
section, the expression "the amount of tax sought to be
evaded", -
(a) in any case where the amount of income in
respect of which particulars have been concealed or
inaccurate particulars have been furnished exceeds the
total income assessed, means the tax that would have
been chargeable on the income in respect of which
particulars have been concealed or inaccurate
particulars have been furnished had such income been
the total income;
(b) in any case to which Explanation 3 applies,
means the tax on the total income assessed;
(c) in any other case, means the difference between
the tax on the total income assessed and the tax that
would have been chargeable had such total income been
reduced by the amount of income in respect of which
particulars have been concealed or inaccurate
particulars have been furnished.
(1A) Where any penalty is imposable by virtue of
Explanation 2 to sub-section (1), proceedings for the
imposition of such penalty may be initiated
notwithstanding that any proceedings under this Act in
the course of which such penalty proceedings could have
been initiated under sub-section (1) have been completed.
(2) When the person liable to penalty is a registered firm
or an unregistered firm which has been assessed under
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clause (b) of section 183, then notwithstanding anything
contained in the other provisions of this Act, the penalty
imposable under sub-section (1) shall be the same amount
as would be imposable on that firm if that firm were an
unregistered firm.
(3) Notwithstanding anything contained in this section, -
(a) no penalty for failure to furnish the return of
his total income under sub-section (1) of section 139
shall be imposed under sub-section (1) on an assessee
whose total income does not exceed the maximum
amount not chargeable to tax in his case by one
thousand five hundred rupees;
(b) where a person has failed to comply with a
notice under sub-section (2) of section 139 or section
148 and proves that he has no income liable to tax, the
penalty imposable under section (1) shall not exceed
twenty-five rupees;
(c) no penalty shall be imposed under sub-section
(1) upon any person assessable under clause (i) of sub-
section (1) of section 160, read with section 161, as the
agent of a non-resident for failure to furnish the return
under sub-section (1) of section 139:
Provided that nothing contained in clause (a) or clause
(b) shall apply to a case referred to in sub-clause (a) of
clause (i) of sub-section (1).
(4) If the assessing Officer or the Appellate Assistant
Commissioner, or the Commissioner (Appeals) in the
course of any proceedings under this Act, is satisfied that
the profits of a registered firm have been distributed
otherwise than in accordance with the shares of the
partners as shown in the instrument of partnership on the
basis of which the firm has been registered under this Act,
and that any partner has thereby returned his income
below its real amount, he may direct that such partner
shall, in addition to the tax, if any, payable by him, pay by
way of penalty a sum not exceeding one and a half times
the amount of tax which has been avoided, or would have
been avoided if the income returned by such partner had
been accepted as his correct income; and no refund or
other adjustment shall be claimable by any other partner
by reason of such direction."
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Now:-
"271. (1) If the Assessing officer or the Commissioner
(Appeals) or the Principal Commissioner or Commissioner
in the course of any proceedings under this Act, is satisfied
that any person
(a) *****
(b) has failed to comply with a notice under sub-
section (2) of section 115WD or under sub-section (2) of
section 115WE or under sub-section (1) of section 142
or sub-section (2) of section 143 or fails to comply with
a direction issued under sub-section (2A) of section 142,
or
(c) has concealed the particulars of his income or
furnished inaccurate particulars of such income, or
(d) has concealed the particulars of the fringe
benefits or furnished inaccurate particulars of such
fringe benefits,
he may direct that such person shall pay by way of
penalty, -
(i) *****
(ii) in the cases referred to in clause (b) in addition
to tax, if any, payable by him, a sum of ten thousand
rupees for each such failure;
(iii) in the cases referred to in clause (c) or clause
(d), in addition to tax, if any, payable by him, a sum
which shall not be less than, but which shall not exceed
three times, the amount of tax sought to be evaded by
reason of the concealment of particulars of his income or
fringe benefits or the furnishing of inaccurate
particulars of such income or fringe benefits.
Explanation 1. - Where in respect of any facts material to
the computation of the total income of any person under
this Act, -
(A) such person fails to offer an explanation or
offers an explanation which is found by the Assessing
Officer or the Commissioner (Appeals) or the Principal
Commissioner or Commissioner to be false, or
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(B) such person offers an explanation which he is
not able to substantiate and fails to prove that such
explanation is bona fide and that all the facts relating to
the same and material to the computation of his total
income have been disclosed by him,
then, the amount added or disallowed in computing the
total income of such person as a result thereof shall, for the
purposes of clause (c) of this sub-section, be deemed to
represent the income in respect of which particulars have
been concealed.
Explanation 2. - Where the source of any receipt, deposit,
outgoing or investment in any assessment year is claimed
by any person to be an amount which had been added in
computing the income or deducted in computing the loss in
the assessment of such person for any earlier assessment
year or years but in respect of which no penalty under
clause (iii) of this sub-section had been levied, that part of
the amount so added or deducted in such earlier
assessment year immediately preceding the year in which
the receipt, deposit, outgoing or investment appears (such
earlier assessment year hereafter in this Explanation
referred to as the first preceding year) which is sufficient
to cover the amount represented by such receipt, deposit
or outgoing or value of such investment (such amount or
value hereafter in this Explanation referred to as the
utilised amount) shall be treated as the income of the
assessee, particulars of which had been concealed or
inaccurate particulars of which had been furnished for the
first preceding year; and where the amount so added or
deducted in the first preceding year is not sufficient to
cover the utilised amount, that part of the amount so
added or deducted in the year immediately preceding the
first preceding year which is sufficient to cover such part
of the utilised amount as is not so covered shall be treated
to be the income of the assessee, particulars of which had
been concealed or inaccurate particulars of which had been
furnished for the year immediately preceding the first
preceding year and so on, until the entire utilised amount
is covered by the amounts so added or deducted in such
earlier assessment years.
Explanation 3. - Where any person fails, without
reasonable cause, to furnish within the period specified in
sub-section (1) of section 153 a return of his income which
he is required to furnish under section 139 in respect of
any assessment year commencing on or after the 1 st day of
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April, 1989, and until the expiry of the period aforesaid, no
notice has been issued to him under clause (i) of sub-
section (1) of section 142 or section 148 and the Assessing
Officer or the Commissioner (Appeals) is satisfied that in
respect of such assessment year such person has taxable
income, then, such person shall, for the purposes of clause
(c) of this sub-section, be deemed to have concealed the
particulars of his income in respect of such assessment
year, notwithstanding that such person furnishes a return
of his income at any time after the expiry of the period
aforesaid in pursuance of a notice under section 148.
Explanation 4. - For the purposes of clause (iii) of this sub-
section, -
(a) the amount of tax sought to be evaded shall be
determined in accordance with the following formula-
(A-B) + (C-D)
where,
A = amount of tax on the total income assessed as per
the provisions other than the provisions contained in
section 115JB or section 115JC (herein called
general provisions);
B = amount of tax that would have been chargeable
had the total income assessed as per the general
provisions been reduced by the amount of income in
respect of which particulars have been concealed or
inaccurate particulars have been furnished;
C = amount of tax on the total income assessed as per
the provisions contained in section 115JB or section
115JC;
D = amount of tax that would have been chargeable
had the total income assessed as per the provisions
contained in section 115JB or section 115JC been
reduced by the amount of income in respect of which
particulars have been concealed or inaccurate
particulars have been furnished:
Provided that where the amount of income in respect
of which particulars have been concealed or
inaccurate particulars have been furnished on any
issue is considered both under the provisions
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contained in section 115JB or section 115JC and
under general provisions, such amount shall not be
reduced from total income assessed while
determining the amount under item D:
Provided further that in a case where the provisions
contained in section 115JB or section 115JC are not
applicable, the item (C-D) in the formula shall be
ignored;
(b) where in any case the amount of income in
respect of which particulars have been concealed or
inaccurate particulars have been furnished has the
effect of reducing the loss declared in the return or
converting that loss into income, the amount of tax
sought to be evaded shall be determined in accordance
with the formula specified in clause (a) with the
modification that the amount to be determined for item
(A-B) in that formula shall be the amount of tax that
would have been chargeable on the income in respect of
which particulars have been concealed or inaccurate
particulars have been furnished had such income been
the total income.
(c) where in any case to which Explanation 3
applied, the amount of tax sought to be evaded shall be
the tax on the total income assessed as reduced by the
amount of advance tax, tax deducted at source, tax
collected at source and self-assessment tax paid before
the issue of notice under section 148.
Explanation 5. - Where in the course of a search initiated
under section 132 before the 1st day of June, 2007, the
assessee is found to be the owner of any money, bullion,
jewellery or other valuable article or thing (hereafter in
this Explanation referred to as assets) and the assessee
claims that such assets have been acquired by him by
utilising (wholly or in part) his income,-
(a) for any previous year which has ended before
the date of the search, but the return of income for such
year has not been furnished before the said date or,
where such return has been furnished before the said
date, such income has not been declared therein; or
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(b) for any previous year which is to end on or after
the date of the search, then, notwithstanding that such
income is declared by him in any return of income
furnished on or after the date of the search, he shall, for
the purposes of imposition of a penalty under clause (c)
of sub-section (1) of this section, be deemed to have
concealed the particulars of his income or furnished
inaccurate particulars of such income, unless, -
(1) such income is, or the transactions resulting in
such income are recorded, -
(i) in a case falling under clause (a), before the
date of the search; and
(ii) in a case falling under clause (b), on or before
such date,
in the books of account, if any, maintained by him
for any source of income or such income is
otherwise disclosed to the Principal Chief
Commissioner or Chief Commissioner or Principal
Commissioner or Commissioner before the said
date; or
(2) he, in the course of the search, makes a
statement under sub-section (4) of section 132 that
any money, bullion, jewellery or other valuable article
or thing found in his possession or under his control,
has been acquired out of his income which has not
been disclosed so far in his return of income to be
furnished before the expiry of time specified in sub-
section (1) of section 139, and also specifies in the
statement the manner in which such income has been
derived and pays the tax, together with interest, if
any, in respect of such income.
Explanation 5A. - Where, in the course of a search initiated
under section 132 on or after the 1st day of June, 2007, the
assessee is found to be the owner of -
(i) any money, bullion, jewellery or other valuable
article or thing (hereafter in this Explanation referred
to as assets) and the assessee claims that such assets
have been acquired by him by utilising (wholly or in
part) his income for any previous year; or
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(ii) any income based on any entry in any books of
account or other documents or transactions and he
claims that such entry in the books of account or other
documents or transactions represents his income
(wholly or in part) for any previous year,
which has ended before the date of search and, -
(a) where the return of income for such previous
year has been furnished before the said date but such
income has not been declared therein; or
(b) the due date for filing the return of income for
such previous year has expired but the assessee has not
filed the return,
then, notwithstanding that such income is declared by him
in any return of income furnished on or after the date of
search, he shall, for the purposes of imposition of a penalty
under clause (c) of sub-section (1) of this section, be
deemed to have concealed the particulars of his income or
furnished inaccurate particulars of such income.
Explanation 6. - Where any adjustment is made in the
income or loss declared in the return under the proviso to
clause (d) of sub-section (1) of section 143 and additional
tax charged under that section, the provisions of this sub-
section shall not apply in relation to the adjustment so
made.
Explanation 7. - Where in the case of an assessee who has
entered into an international transaction or specified
domestic transaction defined in section 92B, any amount is
added or disallowed in computing the total income under
sub-section (4) of section 92C, then, the amount so added
or disallowed shall, for the purposes of clause (c) of this
sub-section, be deemed to represent the income in respect
of which particulars have been concealed or inaccurate
particulars have been furnished, unless the assessee
proves to the satisfaction of the Assessing Officer or the
Commissioner (Appeals) or the Principal Commissioner or
Commissioner that the price charged or paid in such
transactions was computed in accordance with the
provisions contained in section 92C and in the manner
prescribed under that section, in good faith and with due
diligence.
(1A)Where any penalty is imposable by virtue of
Explanation 2 to sub-section (1), proceedings for the
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imposition of such penalty may be initiated
notwithstanding that any proceedings under this Act in
the course of which such penalty proceedings could have
been initiated under sub-section (1) have been completed.
(1B) Where any amount is added or disallowed in
computing the total income or loss of an assessee in any
order of assessment or reassessment and the said order
contains a direction for initiation of penalty proceedings
under clause (c) of sub-section (1), such an order of
assessment or reassessment shall be deemed to constitute
satisfaction of the Assessing Officer for initiation of the
penalty proceedings under the said clause (c).
(2) When the person liable to penalty is a registered firm
or an unregistered firm which has been assessed under
clause (b) of section 183, then notwithstanding anything
contained in the other provision of this act, the penalty
imposable under sub-section (1) shall be the same amount
as would be imposable on that firm if that firm were an
unregistered firm.
(3) *****
(4) If the Assessing Officer or the Commissioner
(Appeals) in the course of any proceedings under this Act,
is satisfied that the profits of a registered firm have been
distributed otherwise than in accordance with the shares
of the partners as shown in the instrument of partnership
on the basis of which the firm has been registered under
this Act, and that any partner has thereby returned his
income below its real amount, he may direct that such
partner shall, in addition to the tax, if any, payable by him,
pay by way of penalty a sum not exceeding one and a half
times the amount of tax which has been avoided, or would
have been avoided if the income returned by such partner
had been accepted as his correct income; and no refund or
other adjustment shall be claimable by any other partner
by reason of such direction.
(4A)and (4B) *****
(5) The provisions of this section as they stood
immediately before their amendment by the Direct Tax
Laws (Amendment) Act, 1989 shall apply to and in
relation to any assessment for the assessment year
commencing on the 1st day of April, 1988, or any earlier
assessment year and references in this section to the other
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provisions of this Act shall be construed as references to
those provisions as for the time being in force and
applicable to the relevant assessment year.
(6) Any reference in this section to the income shall be
construed as a reference to the income or fringe benefits,
as the case may be, and the provisions of this section shall,
as far as may be, apply in relation to any assessment in
respect of fringe benefits also.
(7) The provisions of this section shall not apply to and in
relation to any assessment for the assessment year
commencing on or after the 1st day of April, 2017."
15. To our mind, Mr. Chhotaray is right in his contentions for
the simple reason that the assessee could not have got away by
urging that the copy of the agreement with M/s. Prakash Pictures
was not available. The assessee should have been candid and
honest in disclosing that the agreement with M/s. Prakash
Pictures resulted in the assessee obtaining the sum of
Rs.13,70,000/-. The assessee would have received this sum in
respect of the distribution right of the picture "Charas" in Bombay
Territory. The assessee, in the original file, did not disclose fully
and truly all the particulars of income for the relevant year. The
assessee maintains that the amount was not to be realised fully,
but it was inaccurate in the sense that the distributor
M/s.Prakash Pictures was also assessed to tax. M/s. Prakash
Pictures produced the record and which referred that the
assessee before us was paid the same price of Rs.13,70,000/-.
M/s. Prakash Pictures debited this amount as the cost of
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acquisition of the picture. It is in these circumstances that we
find that the assessee managed to thwart the tax liability as
rightly held by the Tribunal. This finding of fact rendered by the
Tribunal cannot be termed as perverse. The Commissioner of
Income Tax (Appeals), namely, the first appellate authority was
carried away by the fact that the sum of Rs.13,70,000 was split in
two parts, namely, Rs. 3,90,917/- and Rs.9,79,083/- respectively
shown as minimum guarantee receipt and as advance from the
distributor. However, the explanation of the asessee was that
there is no concealment and at the time the accounts were
framed, the assessee did not have the agreement between the
parties so that it was not clear as to what was the minimum
guarantee commission and what was the advance. Thus, this was
a technical error. This argument somehow found favour with the
Commissioner as is apparent from his reasoning from para 1.2 at
pages 14-15 of the order.
16. The Tribunal rightly came to the conclusion that it was
immaterial as to whether the agreement was available or
otherwise. However, it is not possible that the agreement in
writing was not available. Even if formal written agreement was
not available, it certainly would have been on the basis of some
prior negotiations. The assessee and M/s. Prakash Pictures are
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both in film making and distributing business. Hence, they ought
to have known the nature of transaction despite non-availability
of the agreement. Secondly, the assessee cannot depend on the
other party to the transaction for making entries in his book. In
other words, the assessee cannot say that he did not know how
M/s. Prakash Pictures had treated the transaction. The Tribunal
rightly held that such a lapse cannot be treated as technical
error. The second argument that there was no tax effect and
hence there was no mens-rea is equally baseless. If the assessee
had included the entire receipts in the year under consideration,
he would have ended up paying tax for the present year because
even after setting off the brought forward losses, as mentioned
earlier, the loss would have been converted into positive income
with the inclusion of the balance receipt. Further, by virtue of
losses of the assessment year 1977-78 and earlier years being
wiped out, the assessee could not have availed of the benefit of
further unabsorbed losses during the assessment year 1978-79.
Thus, the Tribunal concluded that by not including the entire
receipts in the assessment year 1977-78, the assessee was able to
thwart his tax liability for two years, namely, assessment year
1977-78 and 1978-79. Thus, by deferring the declaration to the
subsequent year, the assessee certainly furnished inaccurate
particulars of income for the year under appeal and either
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avoided or deferred his tax liability. The reasoning in that behalf
in para 7 of the Tribunal's order is as under:-
"7. By declaring part receipts in assessment year 1978-
79, vis-a-vis the department one can broadly claim that
there was no concealment. But by deferring the
declaration to the subsequent year the assessee certainly
furnished inaccurate particulars of income for the year
under appeal and either avoided or deferred his tax
liability. It has also to be appreciated that when the
assessee takes up the assessment for agreement year
1977-78, the return for assessment year 1978-79 and the
particulars thereof cannot be expected to be before him.
Even if the agreement for assessment year 1977-78 is
taken up after furnishing of the return for A. Y. 1978-79, it
cannot be expected by the AO to ascertain said mote that
part receipts are declared in the subsequent year. Firstly,
it may not be out of place to mention that M/s. Prakash
Pictures had claimed the entire amount as MG during the
year under consideration. Thus we have no hesitation in
restoring the penalty of Rs.6,46,588/- cancelled by the
CIT(A)."
17. We are, therefore, of the opinion that none of the decisions
relied upon by Ms. Sathe are of any assistance.
18. In the case of the Commissioner of Income-Tax vs. Manilal
Tarachand2, the Gujarat High Court was dealing with a case
where the amount received by the assessee had been returned by
the assessee in his return of income for the assessment year
1975-76. The Income Tax Officer initiated re-assessment
proceedings based on this disclosure made by the assessee for
assessment year 1975-76. The Commissioner of Income Tax
initiated proceedings under section 263 of the Act stating that the
2 (2002) 254 ITR 630
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assessment order framed on 8th March, 1985 under section
143(3) read with section 147 of the Income Tax Act, 1961 was
erroneous insofar as it was prejudicial to the interest of the
Revenue as the Income Tax Officer had failed to mention the point
regarding initiation of penalty proceedings under section 271(1)
(c) on account of concealment of income or furnishing inaccurate
particulars of income. The assessee resisted the notice for
revision on two fold count. Firstly, it was contended that the
provisions of section 263 did not empower the Commissioner of
Income Tax to assume jurisdiction on account of failure to initiate
penalty proceedings at the time of assessment. Secondly, it was
contended that in view of the facts and circumstances of the case,
it could not be said that the assessee had concealed or furnished
inaccurate particulars of income for which penalty proceedings
could be initiated. The Commissioner of Income Tax did not
accept the submissions resulting in the assessee going in appeal
before the Tribunal. The Tribunal relied upon certain decisions
and came to the conclusion that the Commissioner was not
justified in interfering in his revisionary jurisdiction under
section 263 of the Income Tax Act, 1961.
19. It is such an issue before the Gujarat High Court in which it
came to the conclusion that this is not a case where penalty could
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Judgment-ITR.22.2000.doc
be imposed on the assessee on the charge of either concealment of
income or furnishing inaccurate particulars of income. The
dispute in the assessment between the Department and the
assessee was to the effect that as to which year the compensation
received by the assessee was taxable. The assessee was under the
belief that he would be liable to capital gains tax only on receipt of
the compensation and accordingly had shown the liability to
capital gains tax in his return of income for the assessment year
1975-76. Though for the purposes of reassessment proceedings,
the Income Tax Officer would be within his powers to initiate
proceedings under section 147 for the assessment year 1973-74,
it is not possible to hold that penalty under section 271(1)(c)
could be levied for the said assessment year. Thus, these facts
were peculiar and in that backdrop, the finding of fact was
recorded. That was recorded for the simple reason that the
assessee, an individual had been assessed to tax for assessment
year 1973-74. However, in the re-assessment, the Assessing
Officer brought to tax long term capital gains in relation to the
compensation received in land acquisition proceedings, which,
admittedly, the assessee had not disclosed in the income for the
year under consideration. However, this amount received by the
assessee in return of income for the assessment year was
disclosed in the return of income for assessment year 1975-76.
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While re-assessing the income, the Income Tax Officer did not
impose any penalty. The issue was, this penalty should have been
imposed and to that extent, the Commissioner came to the
conclusion that section 263 of the Income Tax Act, 1961 confer in
him enough powers to direct the initiation of penalty proceedings.
It is that peculiar aspect of the matter which led to the High Court
holding that there was on facts also no penalty leviable for this
was not a case where the assessee concealed the income or
furnished inaccurate particulars thereof. We do not think that
this decision is of any assistance.
20. In the case of Commissioner of Income Tax vs. Reliance
Petroproducts Pvt. Ltd.3, the Hon'ble Supreme Court came to the
conclusion that the assessee must have furnished inaccurate
particulars of income. The word "particulars" used in section
271(1)(c) would embrace the details of the claim made. When no
information given in the return is found to be incorrect or
inaccurate, the assessee cannot be held guilty of furnishing
inaccurate particulars. It is in that context that the Hon'ble
Supreme Court came to the conclusion that there ought to be a
finding that no details were supplied by the assessee in his
returns. When there is no finding that any details supplied by the
3 (2010) 322 ITR 158
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assessee in its returns are found to be inaccurate or erroneous or
false, there is no question of inviting the penalty under section
271(1)(c). This was a case where a claim was made which was
not sustainable in law. That by itself does not amount to
furnishing inaccurate particulars regarding income of the
assessee. We are, therefore, of the opinion that this decision also
is of no assistance because in the facts and circumstances of the
present case case, the assessee, as a matter of record, had only
disclosed part of the income derived from the sale of the picture
"Charas" to M/s. Prakash Pictures. That the later part was not
admittedly declared, but came to be returned in the subsequent
assessment years is admitted. Secondly, the argument that the
nature of the transaction was not known has been rejected by two
concurrent findings and which are not perverse. The Tribunal
found that the entire receipts were not included in the order
under consideration for that would have resulted in the assessee
paying tax. The attempt was to avoid the liability.
21. Lastly, the decision in the case of Price Waterhouse Coopers
Pvt. Ltd. vs. Commissioner of Income-Tax and Anr. 4 is also of no
assistance because in that case the Hon'ble Supreme Court noted
that the imposition of penalty was not justified because in the
4 (2012) 348 ITR 306
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assessment year 2000-01, the assessee, which provides
multidisciplinary management consultancy services, filed a
return of income on 30th November, 2000 under section 139(6)
read with section 139(6A) and what it did was it filed a
statement. A form had to be filled in because the assessee was
required to file its tax audit report. The statement contains
particulars, but it indicated that the provision towards payment
of gratuity was not allowable. The assessee claimed a deduction
thereon in its return of income. On the basis of the return and the
statement, an assessment order was passed under section 143(3)
of the Act on 26th March, 2003. The assessee claimed that
through inadvertence, this deduction was claimed and it also
seems to have been overlooked by the Assessing Officer. Much
later, the Assessing Officer issued a notice to re-open the
assessment and he did not indicate any reason why it was issued
except to state that income for the assessment year 2000-01 had
escaped assessment. In response to the notice, the assessee filed
its return under protest on 16 th February, 2004 and also
requested for the grounds for re-opening the assessment. Since
after the reasons were communicated, the assessee realised that
he has committed a mistake and addressed a letter to the
Assessing Officer stating that there was no willful suppression of
facts by the assessee but that a genuine mistake or omission had
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been committed, which also appears to have been overlooked by
the Assessing Officer before whom the tax audit report was
placed. Accordingly, the assessee filed a revised return on the
same day. The re-assessment was passed on the same day and
the assessee then paid the tax due as well as the interest thereon.
It is, therefore, the Hon'ble Supreme Court termed these as
unfortunate circumstances in which the penalty proceedings
under section 271(1)(c) of the Income Tax Act, 1961 were
initiated against the assessee. The penalty was determined,
against which an appeal was filed, which also has been rejected.
The Tribunal also upheld the imposition of penalty. Significantly,
the Tribunal mentioned that the assessee had made a mistake
which could be described as a silly mistake, since the assessee is a
high-caliber and competent organisation, it was not expected to
make such a mistake. Accordingly, the Tribunal reduced the
penalty to 100%. It is in these circumstances, the Hon'ble
Supreme Court found that the Calcutta High Court erred in
dismissing the appeal. All the observations made by the Hon'ble
Supreme Court in this case so as to allow the appeal and set aside
the orders imposing penalty ought to be viewed in the backdrop
of these facts and circumstances. On facts, therefore, even this
decision is distinguishable.
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22. To our mind, the reliance placed by Mr. Chhotaray on
section 271(1)(c) as also the judgment in the case of Union of
India and Ors. vs. Dharmendra Textiles Processors and Ors. 5 is
apposite. There is no question of mens-rea, as the Hon'ble
Supreme Court concludes in this decision and also in para 27
holds that the Explanation appended to section 271(1)(c)
entirely indicates the element of strict liability on the assessee for
concealment or for giving inaccurate particulars while filing the
returns. The object behind the enactment of section 271(1)(c)
read with the Explanations indicates that the said section has
been enacted to provide for a remedy for loss of revenue. The
penalty under that provision is a civil liability. Willful
concealment is not an essential ingredient for attracting civil
liability as is the case in the matter of prosecution under section
276C of the Income Tax Act, 1961.
23. Once we come to this conclusion that we need not refer to
the other judgments cited by Mr. Chhotaray but his reliance on an
unreported judgment of the Hon'ble Supreme Court, rendered in
the case of Mak Data P. Ltd. vs. Commissioner of Income Tax-II6 is
equally accurate. This judgment essentially follows and applies
the view in the case of Dharmendra Textiles (supra). Therefore, a
5 (2008) 306 ITR 277
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voluntary disclosure in all cases cannot absolve the assessee from
the liability to pay penalty.
24. For the aforesaid reasons, we find that the questions
forwarded to this court for its opinion would have to be answered
in favour of the Revenue and against the assessee. They are
answered accordingly. The reference is disposed of.
(PRAKASH.D.NAIK, J.) (S.C.DHARMADHIKARI, J.)
J.V.Salunke,PA
