Delhi High Court

The Commissioner Of Income Tax vs M/S Harparshad & Company Ltd. on 4 August, 2010

Author: A.K.Sikri

                               Reportable

*             IN THE HIGH COURT OF DELHI AT NEW DELHI

                             ITR No. 243/1991

                                      Date of Decision: August 4,2010


The Commissioner of Income Tax                         ....Appellant

                        Through             Ms. Prem      Lata        Bansal,
                                            Advocate

                    Versus

M/s Harparshad & Company Ltd.                         ....Respondent

                        Through             None



CORAM :-

       HON'BLE MR. JUSTICE A.K. SIKRI
       HON'BLE MS. JUSTICE REVA KHETRAPAL

       1.     Whether Reporters of Local newspapers may be
              allowed to see the Judgment?
       2.     To be referred to the Reporter or not?
       3.     Whether the Judgment should be reported in the
              Digest?


A.K. SIKRI, J. (Oral)

1. Nobody appeared on behalf of the assessee inspite of

service. Even today, there is no appearance. In these

circumstances, we have no option but to proceed with the matter

in the absence of the assessee. We have heard Mrs. Prem Lata

Bansal, Advocate for the revenue at length.

2. The Assessing Officer, in the proceedings initiated by him

under Section 271 (1) (c ) of the Income Tax Act has imposed

penalty upon the assessee herein for the concealment of income

in respect of assessment year 1979-1980. The CIT (Appeal) had

affirmed this penalty. However, Income Tax Appellate Tribunal has

set-aside the penalty order. The Revenue has approached this

Court by moving petition under Section 256 (2) of the Act seeking

reference, which petition was allowed vide order dated 07.01.1991

and direction was given to the Tribunal to draw a statement of

case and refer the following question of law for the opinion of this

Court:-

"Whether the Tribunal was correct in law in deleting the penalty imposed by the Income- tax Officer under section 271 (1) (c ) of the Income-tax Act, 1961?"

3. This question arises in the following factual backdrop. While

passing the assessment order, the Assessing Officer was of the

view that the aforesaid claim of payment of commission of Mrs.

Ritu Nanda was bogus and could not be substantiated by the

assessee even when the opportunity in this behalf was given to it.

Therefore, the Assessing Officer chose to serve show cause notice

upon the assessee under Section 271(1) (c) of the Act for

imposition of penalty. After eliciting the reply of the assessee to

the said show cause notice and given hearing, order dated

15.07.1985 was passed by the Assessing Officer thereby imposing

penalty in the sum of Rs.1,05,730/- . The assessee has approached

the CIT (Appeal) challenging the order of penalty, but

unsuccessfully, as the appeal was dismissed on 05.03.1986. In

further appeal to the ITAT, however, the assessee succeeded as

order of penalty was set-aside by the Tribunal vide order dated

11.02.1988. Before we take note of the considerations which

weighed with the Assessing Officer and the CIT (A) on the one

hand in imposing the penalty and the ITAT on the other hand in

deleting the said penalty, it would be in fitness of things to deal

with the claim for commission preferred by the assessee in the

return of income filed by it and the reasons because of which the

said claim was disallowed.

4. We have already taken note of the reasons given by the

Assessing Officer in disallowing the claim. To recapitulate in brief,

the Assessing Officer found that no services were rendered by Mrs.

Ritu Nanda as alleged for which she was purportedly given

commission @ 3% of the contract value. Further more, though the

payment of commission was claimed as given to Mrs. Ritu Nanda

as Director of the Company, at the relevant time when this

contract from Iran was signed by the assessee, she was not even

the Director. In the appeal filed by the assessee, CIT had

disallowed part of the commission. Total commission which was

claimed to have been paid to Mrs. Ritu Nanda was in the sum of

Rs.2,74,617/- and the entire amount was disallowed by the AO.

However, CIT (Appeal) disallowed the payment of commission to

the extent of Rs.1,83,978/-. Order of CIT (Appeal) in these

quantum proceedings has been perused by us. Reading thereof

would bring out certain additional facts which are as under:-

5. Amount of Rs.2,74,617/- which was paid to Mrs. Ritu Nanda

as commission represented 3% of the contract value. Mrs. Ritu

Nanda in turn had made payment to the extent of 1% to M/s

Jupiter Trading Corporation. It was found that, in fact, it was M/s

Jupiter Trading Corporation which had rendered the requisite

services. Instead of paying the commission to M/s Jupiter Trading

Corporation directly, the assessee had paid 3% of the contract

value as commission to Mrs. Ritu Nanda, who out of this

commission paid 1% thereof to M/s Jupiter Trading Corporation. It

is for this reason that for the 1% commission which was paid to

M/s Jupiter Trading Corporation against the services actually

rendered, the CIT (Appeal) had allowed the deduction. Otherwise,

in so far as payment made to Mrs. Ritu Nanda is concerned

specific and categorical finding of the CIT (Appeal) was that she

had not rendered any services for which commission was paid to

her. It would be of interest to note that the Income Tax Appellate

Tribunal also put its stamp of approval to the aforesaid findings.

The relevant portion of the ITAT order reads as under:-

"In fact no services has been rendered by Smt. Ritu Nanda and that expenditure by the way of commission leaving apart that portion which had been paid to M/s Jupiter Trading Corpn., was not incurred for the purposes of business.".

6. It was also observed that the payment was made to Smt.

Ritu Nanda who was daughter-in-law of the Managing Director of

the Company and, thus, it was a bogus payment without any

consideration.

7. We have examined the penalty proceedings keeping in view

the aforesaid aspects in mind and we are of the opinion that the

order of the Assessing Officer imposing penalty was without any

blemish and there was no cause for interference in it by the

Tribunal. The reasons given by the Tribunal in quashing these

penalty proceedings are totally irrelevant, not germane to the

issue and rather the Tribunal has lost sight of the aforesaid

aspects, which had been conclusively established in the quantum

proceedings. In the first instance, the Tribunal has observed that

when part claim was allowed by the CIT (Appeal) and only part

claim was disallowed, claim for commission was not bogus but was

only excessive. This is an observation which is contrary to record.

The Tribunal has failed to take note of the fact that part claim as

commission was allowed to the assessee not because of the

reason that Mrs. Ritu Nanda had rendered any services. It was

because of the fact that M/s Jupiter Trading Corporation had

rendered services for which it was paid 1% of the commission by

Mrs. Ritu Nanda out of 3% received by her. However, the penalty

was imposed for putting a bogus claim of payment of commission

purportedly paid to Mrs. Ritu Nanda. As far as commission to her

is concerned, it was accepted by the ITAT in quantum proceedings

that she did not render any services at all.

8. The second reason given by the Tribunal, which flows from

the first, is that it was not for the Assessing Officer to substitute its

own wisdom or business same with that of the assessee and in

case assessee chose to give excessive commission to Mrs. Ritu

Nanda, that would call for penalty. Again, while making these

observations, the Tribunal was swayed by the wrong fact that Mrs.

Ritu Nanda had rendered services and the claim was not bogus

but excessive. The findings given in assessment proceedings are

relevant and have probative value. Where the assessee produces

no fresh evidence or presents any additional or fresh circumstance

in penalty proceedings, he would be deemed to have failed to

discharge the onus placed on him and the levy of penalty could

be justified (CIT Vs. M. Habibulla 136 ITR 760 (AU). Explanation

(1) below section 271 (1) (c) suggests that the assessee would be

deemed to have failed to furnish full and accurate particulars of

income, if it failed to offer an explanation, or offers the

explanation, which is found by the ITO to be false or it has not

been able to substantiate it, in respect of any facts material to the

computation to the total income of that person under Income-tax

Act. The assessee had failed to offer any explanation in respect of

the addition of Rs.1,83,078/-, and it could be deemed to have

concealed the particulars of income or furnished inaccurate

particulars thereof, by virtue of this explanation.

9. In CIT Vs. Escorts Finance Ltd. 226 CTR (Del) 105,

principle of law was resettled in the following words:-

"It is repeatedly held by the Courts that the penalty on the ground of concealment of particulars of non-disclosure of full particulars can be levied only when in the accounts/ return an item has been suppressed dishonestly or the item has been claimed fraudulently or a bogus claim has been made. When the facts are clearly disclosed in the return of income, penalty cannot be levied and merely because an amount is not allowed or taxed to income as it cannot be said that the assessee had filed inaccurate particulars or concealed any income chargeable to tax. Further, conscious concealment is necessary. Even if some deduction or benefit is claimed by the assessee wrongly but bona fide and no

malafide can be attributed, the penalty would not be levied. A fortiorari, if there is a deliberate concealment and false/inaccurate return was filed, which was revised after the assessee was exposed of the falsehood, it would be treated as concealment of income in the original return and would attract penalty even if revised return was filed before the assessment is completed. Likewise, where claim made in the return appears to be ex facie bogus, it would be treated as case of concealment or inaccurate particulars and penalty proceedings would be justified"

10. The law has developed to the extent that even if there is no

concealment of income or furnishing of inaccurate particulars, but

on the basis thereof the claim which is made is ex facie bogus, it

may still attract penalty provision. Cases of bogus hundi loans or

bogus sales or purchases have been treated as that of

concealment or inaccuracy in particulars of income by the judicial

pronouncements.( See Krishna Vs. CIT, 217 ITR 645, Rajaram Vs.

CIT, 193 ITR 614 and Beena Metals 240 ITR 222).

11. Immediately thereafter, in Commissioner of Income Tax

Vs. Vidyagauri Natverlal and Ors. 238 ITR 91, Gujarat High

Court made a distinction between wrong claim as opposed to false

claim and held that if the claim is found to be false, the same