Commissioner Of Income Tax vs M/S. Sas Pharmaceuticals
2011 Latest Caselaw 2038 Del

                         REPORTABLE

*          IN THE HIGH COURT OF DELHI AT NEW DELHI

+                     ITA No.1058 of 2009

                         RESERVED ON: MARCH 01, 2011
%                       PRONOUNCED On: APRIL 08, 2011


     COMMISSIONER OF INCOME TAX               . . . Appellant

                      through :     Ms. Prem Lata Bansal, Sr.
                                    Advocate with Mr. Deepak
                                    Anand,    Jr.    Standing
                                    Counsel.

                           VERSUS


     M/S. SAS PHARMACEUTICALS               . . .Respondent

                      through:      Mr. Amar Dave with Mr.
                                    Nitin Mishra, Advocates.

CORAM :

     HON'BLE MR. JUSTICE A.K. SIKRI
     HON'BLE MR. JUSTICE M.L. MEHTA

     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.

1. This appeal arises out of the order of the Income Tax

Appellate Tribunal („the Tribunal‟ for brevity) vide which it

has affirmed the order of the CIT (A) deleting the penalty

of `32,39,393/- imposed by the Assessing Officer under

the provisions of Section 271(1)(c) of the Income Tax Act

(hereinafter referred to as „the Act‟). It so happened that

a survey was carried out at the business premises and

godown of the respondent-assessee on 06.01.2003. In

that survey, discrepancies in cash, stock and renovation

were found. When the assessee was confronted with the

same, it surrendered the amount of `88,14,676/- during

the survey. Since the survey was conducted on

06.01.2003, i.e., in the Financial Year 2002-03

corresponding to the Assessment Year 2003-04, for that

assessment year, the assessee had not filed the income

tax return and naturally the occasion to file the income tax

return had not matured. When the income tax return was

ultimately filed by the assessee on 02.12.2003, the

assessee declared its income @ `87,71,580/- including the

amount surrendered by the assessee itself. The

assessment was framed including the surrendered

amount. While passing the assessment order, the AO also

decided to initiate penalty proceedings separately on the

ground that the assessee had concealed the income.

Show cause notice was given to which the assessee

submitted the reply stating that the assessee had itself

voluntarily surrendered the amount to avoid litigation and

to buy peace of mind and had not concealed any income.

This explanation was not digested by the AO, who had the

view that the surrender was made only when

discrepancies were brought to the notice of the assessee,

which were found in cash, stock as well as renovation of

the premises done by the assessee. He, thus, was of the

opinion that had there been no survey, the assessee

would have succeeded in concealing the income and

evading tax. On this premise, penalty of `32,39,393/- was

imposed.

2. The CIT (A) deleted the penalty on the ground that there

was no concealment of income as in the return filed by the

assessee, the said income was duly reflected.

3. The Tribunal has upheld the order of the CIT (A) and

dismissed the appeal of the Revenue. It is in this factual

context that the instant appeal is preferred by the

Revenue, which was admitted on the following substantial

questions of law:

"(i) Whether ITAT was correct in law in deleting the penalty imposed by the Assessing Officer under Section 271(1)(c) of the Income Tax Act?

(ii) Whether ITAT was correct in law in holding that no concealment was made by the assessee though the assessee had surrendered the amount of `88,14,676/- during survey on account of discrepancies found in cash, stock and difference in renovation?"

4. The facts demonstrated bring forth the position that when

the survey was conducted a couple of months before the

close of Financial Year, i.e., 06.01.2006, definitely

discrepancies were found inasmuch as there was

difference in cash, stock as well as renovation expenses

are as follows:

             "Difference in cash                 `22,80,876
             Difference in stock                 ` 5,00,200
             Renovation difference               `60,33,580
                                                 `88,14,676"

5. The assessee accepted this difference and surrendered the

amount. No attempt was made by the assessee even

after this surrender to retract therefrom or to explain that

there were no such discrepancies. In fact, the position

was carried by including this amount even in the income

tax return filed by the assessee. Thus, no doubt, the

assessee has surrendered certain income during the

course of survey and discrepancies noticed by the survey

team would suggest that the assessee was not

maintaining proper accounts in respect to cash, stock and

renovation expenses, etc. Therefore, there could be a

possibility that but for this survey, the discrepancies

brought to the notice of the assessee and physical

verification of the stock and other accounts would have

gone unnoticed and the assessee might have suppressed

in the income tax return as well However, fact remains

that it has disclosed this in the return filed by it.

6. In this context, the question would be as to whether the

assessee can be imposed penalty under Section 271(1)(c)

of the Act when the assessee has shown this income in

the income tax return filed by it and contends that it has

voluntarily declared the same in the „regular return filed

for the relevant year‟.

7. To seek an answer, it would be necessary to look into the

language of Section 271(1)(c) of the Act. This provision

reads as under:

"271. Failure to furnish returns, comply with notices, concealment of income, etc.

(1) If the Assessing Officer or the Commissioner (Appeals) or the Commissioner in the course of any proceedings under this Act, is satisfied that any person-

(a)..................................

(b) .................................

(c) has concealed the particulars of his income or furnished inaccurate particulars of such income,"

8. As pointed out above, the contention of the Department is

that the intention of the assessee in maintaining false

records relating to cash, stock and renovation, etc., was

manifest, viz., to conceal the particulars of income and

furnished inaccurate particulars of such income. It was

contended that but for the said survey in which the

assessee was exposed, he would have filed the income tax

return concealing the said income and therefore,

provisions of Section 271(1)(c) of the act are clearly

attracted.

9. The learned counsel for the assessee, on the other hand,

contends that Clause (c) of Section 271(1) of the Act

makes it crystal clear that the act of „concealment‟ or

„furnishing inaccurate particulars" is relatable only in

respect of a return being filed. Therefore, in a case where

the stage of filing return itself had not been reached, there

is no question of invocation of the penal provision of

Section 271 of the Act, as is the position in the present

case. In the present case, the return was filed well within

the prescribed time, i.e., on 02.12.2003 and in the said

return the entire amount had been duly shown as income.

Therefore, invoking a penal provision merely on the basis

of assumption that the assessee „would not have included‟

the said amount while filing his return is completely

erroneous and unsustainable. It is a settled position of

law as enunciated in various judicial pronouncements that

„penalty cannot be based on presumptions and surmises‟.

It was also argued that the legislative intent in connection

with Section 271 of the Act is further fortified from the

various Explanations provided in the said provision. In

this regard, Explanation 4 is relevant wherein it is

specifically provided as to what would be included in the

expression „the amount of tax sought to the evaded‟,

which is the basis for imposition of penalty contemplated

under Section 271 (1) (c) of the Act. The perusal of the

said Explanation also clearly establishes the direct nexus

between the concealment/inaccurate particular being

furnished with the return filed.

10. To bolster this submission, the learned counsel for the

assessee took refuge of Explanation 5 and Explanation 5A

of Section 271 of the Act and submitted that these

Explanations provide that in cases of search by way of

deeming fiction, the liability towards penalty has been

prescribed even in cases where the return of income for

such year has not been furnished before the said date of

search. Therefore, wherever the legislature intended to

impose a penal liability covering a case where return was

yet to be filed, a deeming fiction has been consciously

provided. In the absence of any such deeming fiction

imposing penalty in a case of survey where return is yet to

be filed, the penal provision of Section 271 of the Act

cannot be invoked as the mandatory ingredients thereof

are not met at all.

11. He also sought to draw sustenance from the judgment of

Supreme Court in the case of Commissioner of Income

Tax, Ahmedabad Vs. Reliance Petroproducts Pvt.

Ltd. (2010) 3 SCR 510 wherein inter alia it has been

held that unless the conditions under Section 271 (1)(c) of

the Act exist in a particular case, penalty cannot be

imposed and it was further held that 271 of the Act being

a penal provision is required to be construed strictly. The

following observations made in the said judgment were

specifically referred to:

"8. Therefore, it is obvious that it must be shown that the conditions under Section 271 (1)(c) must exist before the penalty is imposed. There can be no dispute that everything would depend upon the return filed because that is the only document, where the assessee can furnish the particulars of his income. When such particulars are found to be inaccurate, the liability would arise."

12. After considering the respective submissions of the

learned counsel for the parties, we are of the view that

the argument of the learned counsel for the assessee has

to prevail as it carried substantial weight. It is to be kept

in mind that Section 271(1)(c) of the Act is a penal

provision and such a provision has to be strictly construed.

Unless the case falls within the four-corners of the said

provision, penalty cannot be imposed. Sub-section (1) of

Section 271 stipulates certain contingencies on the

happening whereof the AO or the Commissioner (Appeals)

may direct payment of penalty by the assessee. We are

concerned herewith the fundamentality provided in Clause

(c) of Section 271 (1) of the Act, which authorizes

imposition of penalty when the AO is satisfied that the

assessee has either;

(a) Concealed the particulars of his income; or

(b) Furnished inaccurate particulars of such

income.

13. It is not the case of furnishing inaccurate particular of

income, as in the income tax return, particulars of income

have been duly furnished and the surrendered amount of

income was duly reflected in the income tax return. The

question is whether the particulars of income were

concealed by the assessee or not. It would depend upon

the issue as to whether this concealment has reference to

the income tax return filed by the assessee, viz., whether

concealment is to be found in the income tax return.

14. We may, first of all, reject the contention of the learned

counsel for the Revenue relying upon the expression „in

the course of any proceedings under this Act‟ occurring in

Sub-section (1) of Section 271 of the Act and contending

that even during survey when it was found that the

assessee had concealed the particular of his income, it

would amount concealment in the course of „any

proceedings‟. The words „in the course of any proceedings

under this Act‟ are prefaced by the satisfaction of the AO

or the Commissioner of Income Tax (Appeals). When the

survey is conducted by a survey team, the question of

satisfaction of AO or the Commissioner (Appeals) or the

Commissioner does not arise. We have to keep in mind

that it is the AO who initiated the penalty proceedings and

directed the payment of penalty. He had not recorded any

satisfaction during the course of survey. Decision to

initiate penalty proceedings was taken while making

assessment order. It is, thus, obvious that the expression

„in the course of any proceedings under this Act‟ cannot

have the reference to survey proceedings, in this case.

15. It necessarily follows that concealment of particulars of

income or furnishing of inaccurate particular of income by

the assessee has to be in the income tax return filed by it.

There is sufficient indication of this in the judgment of this

Court in the case of Commissioner of Income Tax,

Delhi-I Vs. Mohan Das Hassa Nand 141 ITR 203 and

in Reliance Petroproducts Pvt. Ltd. (supra), the

Supreme Court has clinched this aspect, viz., the assessee

can furnish the particulars of income in his return and

everything would depend upon the income tax return filed

by the assessee. This view gets supported by Explanation

4 as well as 5 and 5A of Section 271 of the Act as

contended by the learned counsel for the Respondent.

16. No doubt, the discrepancies were found during the survey.

This has yielded income from the assessee in the form of

amount surrendered by the assessee. Presently, we are

not concerned with the assessment of income, but the

moot question is to whether this would attract penalty

upon the assessee under the provisions of Section 271(1)

(c) of the Act. Obviously, no penalty can be imposed

unless the conditions stipulated in the said provisions are

duly and unambiguously satisfied. Since the assessee was

exposed during survey, may be, it would have not

disclosed the income but for the said survey. However,

there cannot be any penalty only on surmises, conjectures

and possibilities. Section 271 (1) (c) of the Act has to be

construed strictly. Unless it is found that there is actually

a concealment or non-disclosure of the particulars of

income, penalty cannot be imposed. There is no such

concealment or non-disclosure as the assessee had made

a complete disclosure in the income tax return and offered

the surrendered amount for the purposes of tax.

17. We, thus, answer the questions as formulated above, in

favour of the assessee and against the Revenue finding no

fault with the decisions of the CIT (A) as well as the

Tribunal. As a result, this appeal is dismissed.

(A.K. SIKRI) JUDGE

(M.L. MEHTA) JUDGE APRIL 08, 2011 pmc