Delhi High Court

Dy. Cit vs Kanjimal & Sons on 25 May, 2001

Equivalent citations: (2001) 74 TTJ Del 328

ORDER

Smt. Diva Singh, J.M.

This is an appeal filed by the revenue against the order dated 28-7-1994, of Commissioner (Appeals)-V, New Delhi . It pertains to the assessment year 1986-87.

2. The revenue has raised the following ground before us :

"On the facts and the circumstances of the case, the Commissioner (Appeals) has erred in law in deleting the penalty under section 273(2)(a) by relying on the order of her predecessor for the assessment year 1980-81 who cancelled the penalty levied under section 273(2)(a) on the basis of Delhi High Court order that penalty under section 273 cannot be initiated in the case of reassessment whereas in the present case, the penalty under section 273 has been initiated during the course of a regular assessment."

3. The learned Departmental Representative submitted that relief in the present appeal had been granted by the Commissioner (Appeals) relying upon the order for the assessment year 1980-81, wherein the decision of the Supreme Court had been relied upon in D.M. Manasvi v. CIT (1972) 86 ITR 557 (SC). The Supreme Court in D.M. Manasvi v. CIT (supra) held that it is not essential that the notice to the person proceeded against should have also been issued during the course of assessment proceedings. On the facts of that case, penalty proceedings were validly initiated and the Supreme Court also held that there was no relevant material before the Tribunal to hold that the assessed had deliberately concealed particulars of his income. Accordingly, the submission was that the decision of the Apex Court was a case, in which the notice had been issued at the reassessment stage whereas the facts of the present case are that the notice was initiated at the assessment stage itself. As such, the decision was not applicable. Reliance was placed on the assessment order and it was submitted that on account of a surrender of Rs. 5 lakh in the relevant assessment year, the penal provisions under section 273(2)(a) were attracted.

4. In support of the impugned order, the authorised representative of the assessed submitted that in order to decide whether there was a contravention of the provisions of the Act, it is relevant to keep in mind whether the assessed at that point of time "knew" or "had reason to believe to be untrue". Our attention was invited to paper book page No. 7, wherein it is borne out that the original return was filed by the assessed on 31-7-1986, declaring income of Rs. 9,60,160. Subsequently, revised return was filed on 7-12-1988, declaring an income of Rs. 14,60,160. Payment was made vide demand draft of Rs. 20,20,000 vide receipt no. Q284320 on 13-9-1985, in Form No. 29 estimating the income at Rs. 9 lakh. Form 29 was filed for revised estimate of income of Rs. 9,75,000 on 14-3-1986, vide receipt no. T114722 to a demand of Rs. 2,20,000.

5. Search was conducted on the premises of the assessed-firm wherein the assessed surrendered on 11-3-1988, an amount of Rs. 30,00,000. This amount was spread over from assessment years 1980-81 to 1988-89 and in the relevant assessment year, an amount of Rs. 5,00,000 was surrendered. It was contended that this surrender was made so as to settle and avoid disputes and to buy peace. It was also submitted that the settlement/disclosure was made by the assessed on the understanding that assessed will not be liable for any interest or penalty in this respect. it was also submitted that all taxes, in accordance with the revised return, had been paid by the assessed. It was also submitted that no proceedings under section 271(1)(c) (sic-were initiated) because of the settlement were initiated against the assessed-firm. Moreover, penal proceedings under the present section were initiated in 1980-81 and were quashed by the Commissioner (Appeals) and against these, no second appeal has been filed by the revenue. Thus, seen in this background, it was contended that minus the amount of Rs. 5 lakh, the total income assessed was Rs. 10,36,154. On this, tax of Rs. 2,25,688 was worked out. 75 per cent of this amount was Rs. 1,69,266 and the assessed had paid under section 210 an amount of Rs. 2,20,002. Thus, the penalty order was quashed by the Commissioner (Appeals) on appreciating all these facts.

6. Learned Departmental Representative strongly objected to the stand of the assessed in relying upon the settlement/disclosure allegedly entered into by the assessed-firm and the revenue authorities. His argument was firstly, if there is any settlement at all, it is only for initiation of penalty of section 271(1)(c) and secondly, the argument of entering into a settlement or a contract with the revenue authorities, not to initiate penalty action against the assessed is no longer good law after the decision of the Apex Court in the case of Union of India & Ors. v. Banwari Lal Aggarwal (1999) 238 ITR 461 (SC) and the said decision of the Apex Court had been relied upon by the Kerala High Court in the case of CIT v. D.K.B. & Co. (2000) 243 ITR 618 (Ker).

7. On this point, the authorised representative of the assessed interjected that even on merits, the penalty had not been validly levied. Notice had been issued under a different section and the penalty had been levied in a different section.

For this purpose, our attention was invited to paper book pages Nos. 9 and 10 placed before us by him. A perusal of these pages shows that general cyclostyled notice was issued to the assessed on 31-3-1989, and on 28-11-1990, a notice only stating that penalty proceedings under section 273 of the Income Tax Act for assessment year 1986-87 were fixed for hearing on 10-12-1990. On the basis of this, the argument put forth was that the penalty had not been initiated properly and as such, assessed was deprived of the opportunity of being heard. For this purpose, our attention was invited to the impugned order at page 2. Reliance was placed on the Third Member case decided by the Tribunal in the case of ITO v. Siyaram Bros. (1985) 13 ITD 883 (TM) (Del) for the proposition that the vague and indefinite notice issued by the Income Tax Officer as to the default, the assessed was supposed to have committed for which penalty was sought to be imposed, was not a light charge to be winked at. Reliance was placed upon the decision of the Kerala High Court in the case of J.N. Subramania Iyer v. Union of India & Anr. for the same proposition. Reliance was also placed upon the decision of the Bombay High Court in the case of CIT v. Kaushlaya & Ors. (1995) 216 ITR 660 (Bom).

8. This line of argument was strongly objected to by the learned Departmental Representative who invited our attention to the paper book pages Nos. 14 to 18, contending that the assessed was not deprived of the opportunity of being heard as by his detailed reply to the Deputy Commissioner in response to the notice for levy of penalty, all the arguments which the assessed had made before the Tribunal were basically reiterated from the said letter dated 10-12-1990. As such, at this point of time, the assessed would not be correct in stating that he has not been afforded an opportunity as in that said detailed reply, there is not a whisper by the assessed that the notice for levy of penalty has not been correctly initiated.

9. The authorised representative of the assessed, placed reliance on Sir Shadilal Sugar & Gen. Mills Ltd. v. CIT (1987) 168 ITR 705 (SC) and decision of the Madhya Pradesh High Court in the case of CIT v. Punjab Tyres (1986) 162 ITR 517 (MP). Reliance was also placed on the decision of H.H. Maharani Sharmishtha Bai Holkar v. Addl. CIT (1981) 129 ITR 13 (MP). Reliance was also placed in the case of Addl. CIT v. Bipan Lal Kuthiala (1975) 98 ITR 343 (P&H) for the proposition that the provision of sections 271 & 273 of the Income Tax Act are in pari materia, thus if penalty under section 271 is of penal nature so is the penalty under section 273. Following the ratio in the decision of the Supreme Court in Anwar Ali v. CIT (1970) 76 ITR 696 (SC), the burden of proving that an estimate of advance tax, submitted by the assessed was false to his knowledge or was believed by him to be inaccurate is on the Income Tax Department. Reliance was also placed on CIT v. Offshore India Ltd. (1994) 209 ITR 473 (Cal) and CIT v. Punjab Tyres (supra).

10. In reply, the learned Departmental Representative reiterated that all the decisions cited by the authorised representative of the assessed are no longer good law and much water has flown in the Ganges since then. Accordingly, it was contended that the onus is now placed upon the assessed.

11. We have heard the rival submissions and perused the material placed on our record. The decision relied upon before us and the paper book filed by the assessed have also been considered. Having gone through the entire plethora of material and arguments, we are of the considered opinion that the argument of the assessed, in support of the impugned order that the penalty proceedings were not validly initiated do not have much force. In principle we are in full agreement with the arguments put forth by the learned authorised representative that in a given situation where the notice is issued under the different section and the penalty is imposed under an entirely different section, the defense which the assessed could have put forth in order to meet the charge faced by him would be severely handicapped and in effective terms it would amount to denying him the opportunity of being heard in the real and actual term of the meaning. We fully concur with the arguments put forth by the learned authorised representative that audi altern partem constitutes the very basis and foundation of the principles of natural justice and no one can be condemned unheard. Consequently, the act of an administrative authority or quasi-judicial authority to penalise an assessed without giving him an opportunity of representing his case on account of initiating penalty proceedings under a different section and levying penalty under entirely a different section, would go to the very root of the matter and in appropriate facts and circumstances would call for quashing the penalty order itself. Having thus held keeping this principle in mind and applying it to the facts of the case before us, it is seen that the case of the assessed does not fall under the four corners of this principle. A perusal of the paper book per page 14 to 18 placed before us clearly bear out the fact that whatever defense the assessed would put in order to face the initiation of the penalty imposed under section 273(2)(a) of the Act has been put by the assessed in this letter. A perusal of this clearly shows that the arguments put forth before us in fact are a reiteration of the contents of this letter which was placed before the authorities below, seen in this background, it can no longer be said that the assessed was deprived of the opportunity of being heard as the assessed has effectively presented his case in order to meet the charge levied against him. As such the evidence on record clearly bears out the fact that the assessed was not in the dark in order to put forth his defense and as such he has not suffered any handicap. In fact all that the assessed would have done in order to present his case is already a matter of record by way of his written submissions. Accordingly, agreeing in principle with the arguments of the learned authorised representative, the same do not help the case of the assessed before us.

12. Coming to the applicability of the decision relied upon by the Commissioner (Appeals) in the case of the assessed it is seen that the Apex Court held in D.M. Manasvi v. CIT (supra) that it is not essential that the notice of the person proceeded against should have also been issued during the course of the assessment proceedings. On the facts of that case, penalty proceedings were validly initiated. Seen in this background, it is seen that the decision instead of supporting the case of the assessed supports the case of the revenue before us, as the penalty proceedings were initiated during the assessment proceedings itself.

13. The authorised representative of the assessed has also placed reliance on H.H. Maharani Sharmishtha Bai Holkar v. Addl. CIT (supra) for the proposition that there is no difference in language of sections 271(1)(a) and 273(c) and both are in fact pari materia. A perusal of this judgment shows that their Lordships of the Madhya Pradesh High Court held therein that mens read is not a necessary ingredient of the provisions, contained in section 271(1)(a) and there is no material difference in the language of section 271(1)(a) and section 273(c), so far as this aspect is concerned. Their Lordships further held that the onus is on the assessed to show reasonable cause for default. No reasonable cause was shown and in the facts of the case, the levy of penalty was held to be valid therein. This decision of the Madhya Pradesh High Court accordingly also does not help the case of the assessed. In fact, the argument put forth by the learned authorised representative in support of contention that the mens read or the guilty intent has to be examined in such cases, so as to establish reasonable cause is held to be by this judgment not relevant.

14. On the aspect of the argument of the authorised representative of the assessed that mens read is relevant to the issue and the reasonable cause has to be established, we are of the considered opinion that by virtue of the provisions of section 273B of the Act, the requirement for establishing a reasonable cause for the said failure is specifically out in the case of penalty under section 273(2)(a) of the Act. As such, no authority is required to buttress this view. In fact, in the course of the argument, the authorised representative was specifically asked to address arguments on this issue and apart from relying on various decisions of the courts, while adjudicating upon the penal provisions of sections 271, 273, etc., of the Act, the authorised representative of the assessed could not say anything in his defense over the issue of applicability of section 273B of the Act, by which the said penal section requiring reasonable cause is specifically out.

15. It is seen that the point at issue revolves around the finding that at the time of filing his statement/estimate of income, did the assessed know or had reason to believe that he had filed inaccurate particulars of his income. The arguments of the authorised representative of the assessed have been manifold, namely; 1. the mens read of the assessed at the point of time,. 2. the reasonable cause in forming such a belief., 3. the enhancement in income was made by way of a settlement arrived at between the assessed and the department on a subsequent date which could not have been anticipated by the assessed. It was also argued that the case of the assessed was out of the purview of the decision of the Apex Court in the case of CIT v. Banwari Lal (supra) as it was not arising out of a contract or an agreement. Various decisions have been relied upon in order to support the arguments of the assessed.

16. In order to arrive at a conclusion, it is necessary first to examine the decisions relied upon by the assessed. In CIT v. Offshore India Ltd., (supra) it is seen that levy of penalty under section 273(2)(b) was held to be not valid in the facts of that case as the bona fide-belief of the assessed cannot be doubted as to non-applicability of a provision. It is seen that the said decision is not applicable to the point in issue before us, as the requirement of a bona fide belief by virtue of section 273B of the Act is not ousted.

17. In CIT v. Punjab Tyres (supra), it was held that the levy of penalty under section 271(1)(c) is not valid as admission made by assessed surrendering a certain amount does not amount to concealment of income. There, no evidence was adduced by the department, showed that the assessed has consciously concealed particulars of his income in regard to unexplained investment.

18. In Sir Shadi Lal Sugar & General Mills Ltd. & Anr. v. CIT (supra), the Apex Court held :

"Held, reversing the decision of the High Court on that question, that the Tribunal had considered all the facts and the admission made by the appellant as well as the time of the admission. The appellant had only accepted certain amounts as taxable; it had not been accepted by the appellant that it had deliberately furnished inaccurate particulars or concealed any income. This was not a case where there was no evidence to support the Tribunal conclusion. Nor had the Tribunal acted on material which was irrelevant to the enquiry of considered material partly relevant and partly irrelevant or based its decision partly on conjecture, surmises or suspicion. In preferring one view to another view of factual appreciation, the High Court transgressed the limits of its jurisdiction on a reference in answering the question that it had reframed against the appellant.

From the assessed agreeing to additions to his income, it does not follow that the amount agreed to be added was concealed income. There may be a hundred and one reasons for such admission, i.e., when the assessed realises the true position, it does not dispute certain disallowances but that does not absolve the revenue from proving the mens read of quasi-criminal offence."

19. As opposed to this, the learned Departmental Representative has placed reliance on the latest decision of the Supreme Court in the case of Union of India v. Banwari Lal Aggarwal (supra), wherein the Apex Court categorically observed :

"Furthermore, there is nothing on record which could lead the High Court to the conclusion that any understanding was given to the respondent that no penal action could be taken. Learned counsel for the respondent is also unable to draw our attention to any provision of the Income Tax Act whereby a compromise assessment could have been arrived at between the respondent and the Commissioner ..........."

20. Support has also been derived by the revenue from the decision of the Kerala High Court in the case of CIT v. D.K.B. & Co. (supra) wherein the assessed agreed to the addition provided the penalty was not imposed. Their Lordships of the Kerala High Court held that the department is not precluded from taking penalty proceedings and the matter was remanded for consideration of assesseds explanation on merits. It was also held in the said judgment that there is no estoppel against the statute. Their Lordships further go on to examine the issue of the applicability of the two decisions of the Apex Court namely, Union of India v. Banwari Lal Aggarwal and Sir Shadi Lal Sugar & General Mills Ltd. in the following words :

"It is the settled position in law that there cannot be estoppel against a statute. There is no provision in the statute which permits a compromise assessment. The above position was indicated by the Apex Court in Union of India v. Banwari Lal Aggarwal (1999) 238 ITR 461 (SC). It cannot be laid down as a principle of universal application that whenever an assessment has been completed by accepting the offer of an assessed, no penalty can be imposed, It has not been so observed by the Apex Court in Sir Shadilal Sugar and General Mills Ltd. v. CIT (1987) 168 ITR 705 (SC), as the Tribunal held. Its conclusion has been arrived at by a clear misappreciation of the ratio laid down in the said case."

21. Thus, after examining the cases cited before us, we are of the opinion that on the facts of the case in the present circumstances, there is no requirement to read mens read and reasonable cause on the part of the assessed. Consequently, initiation of the penal proceeding., are not vitiated by the fact that assessed has been able to meet the charge faced by him and in fact, has said everything which he could have said in his defense before the assessing officer in reply to the notice of imposition of penalty. Coming to the aspect of the settlement arrived at by the assessed with the department firstly, the settlement if at all is only for the purpose of not initiating penalty proceedings under section 271(1)(c), secondly and more importantly even if there is contract of this effect, the same is contrary to the provisions of the Act and no authority under Income Tax Act is empowered to give this consent on behalf of the state that a surrender will not be visited by a penal action under any of the sections of the Act. Our opinion is fortified by the decision of the Apex Court in the case of Union of India v. Banwari Lal Aggarwal (supra) and the argument that in the case of the assessed, no penalty under section 271(1)(c) has been initiated or for that matter initiation of penalty proceedings under section 273(2)(a) had been quashed by the Commissioner (Appeals) do not give rise to a situation where the Tribunal will quash the penal proceedings. Moreover, coming to the aspect of the assessed at the relevant point of time knew or had reason to believe, we are firmly of the opinion that the surrender made by the assessed "to buy peace" is a conscious act on the part of the assessed which in the absence of any other reason to the contrary would presume that the assessed had concealed his income in the relevant period. By way of making a surrender, peace is presumed to be bought by the assessed by stopping the search proceedings launched against the assessed. Examined in the scenario, where the assessed does not make a surrender, the search and seizure operations would be presumed to be carried on to their logical conclusion and the revenue would, in such circumstances, be clearly able to establish that the basis of his filing the estimate was not correct. The department having been stopped from carrying on the search and seizure operation to its logical conclusion by way of surrender is, in fact, stopped from looking into the financial affairs of the assessed and thus, in these circumstances, the assessed cannot be allowed to turn around and say that the revenue is required to prove that the assessed at the relevant point of time did know or had reason to believe that the particulars which he was filing were not accurate. In fact, the contention of the assessed in the subsequent years clearly bears out the fact that all along the assessed had been concealing income and it was exclusively in the know of the assessed that while estimating his income under section 273(2)(a) of the Act, he was clearly filling inaccurate information, Accordingly, the ground raised by the revenue is allowed.

22. In the result, the impugned order is set aside and the penalty order is upheld by us.