The Commissioner Of Income Tax-Ii vs Mahavir Irrigation Pvt. Ltd.
2011 Latest Caselaw 3687 Del

*     IN THE HIGH COURT OF DELHI AT NEW DELHI

%                       Judgment Reserved on: 2nd November, 2010
                        Judgment Pronounced on: August 03, 2011


+                           ITA No.1266/2009


THE COMMISSIONER OF INCOME TAX-II             ..... Appellant
              Through: Mr. Sanjeev Sabharwal, Sr. Standing
                       Counsel with Mr. Utpal Saha,
                       Advocates

                                 versus

MAHAVIR IRRIGATION PVT. LTD.                      ..... Respondent
               Through:     Mr.M.S.Syali, Sr. Advocate with
                            Mr. Mahua Kalra, Mr.Mayank Nagi
                            and Mr. Sumit K. Singh, Advocate
CORAM:
HON'BLE MR. JUSTICE A.K. SIKRI
HON'BLE MR. JUSTICE SURESH KAIT

1.    Whether the Reporters of local papers may be allowed to see
      the judgment?                                   YES
2.    To be referred to the Reporter or not?          YES
3.    Whether the judgment should be reported in the YES
      Digest?

SURESH KAIT, J.

1. The Assessee is a private limited company engaged in the

business of providing service in connection with obtaining orders

from Government Departments and has carried on the same business

during the year under consideration as in the past besides acting as a

liaison and service agent of M/s Daewoo Motors (India) Limited. The

assessee filed its return of income declaring loss of Rs.5,38,2000/- for

the assessment year 1998-99 in question, on 30.11.1998 and the same

was assessed under the provisions of Section 143 (3) of the Act.

2. On 05.03.2001, the Assessing Officer completed the assessment

assessing the total income of the assessee at Rs.88,582/- being interest

chargeable to tax under the head „income from other sources‟. The

CIT (Appeals) vide order dated 31.10.2002 upheld the view taken by

the Assessing Officer. CIT (Appeals), while examining the issue noticed

that a sum of Rs.3 crores received by the assessee on 02.03.1998 from

M/s Daewoo Motors India Ltd by virtue of clause 8 to 11 of the MOU

between the DMIL and the assessee were shown in the balance sheet

as on 31.03.1998 under the head „trade deposits‟ in the liability side.

The CIT (Appeals) after examining the said agreement was of the

opinion that the receipt of Rs.3 crores was in the nature of revenue

receipt pertaining to the assessment year 1998-1999 and since it has

not been disclosed and offered for taxation by the assessee in return

on income, CIT (Appeals) proceeded the matter by issuing notice

under Section 251(2) of the Act for enhancement of income.

3. After giving due opportunity to the assessee, the matter was

considered and the CIT (Appeals) held that the receipt of Rs. 3 crores

was in the nature of income and should be taxed in assessment year

1998-1999. Consequent to this, CIT (Appeals) made an enhancement

of Rs. 3 crores and after recording its satisfaction with respect to the

concealment in body of appeal and further initiated penalty

proceedings under Section 271 (1) (c) of the Act by mentioning as

under:-

"Further, penalty proceedings under Section 271 (1)

(c) of the Act have been separately initiated in regard to concealment of the particulars of this income of Rs.3 crores and furnishing of inaccurate particulars by labelling this amount as „deposit‟"

4. Vide order dated 27.12.2004, the ITAT confirmed the order of

CIT (Appeals) in quantum proceedings. Order of the ITAT has also

been upheld by this Court.

5. Vide order dated 30.06.2005 the CIT(Appeals) passed order

holding that the Assessee has concealed the particulars of its income

to the extent of Rs.3 crores and further directed the Assessing Officer

to calculate the penalty on the sum equivalent to Rs.3 crores on

which 100% of the tax was sought to be evaded. Directions were

further given to the Assessing Officer to make proper computation of

the penalty amount and issue fresh demand notice and challan.

6. This order of CIT (A) was challenged by the assessee and vide

order dated 31.05.1998, ITAT has allowed the appeal against the

order in penalty proceeding under Section 271 (1)(c) and set aside the

order of CIT (Appeals). The Revenue/Department has preferred to

challenge the order dated 31.03.2008 of ITAT resulting in the instant

appeal.

7. The substantial question of law arises before us as we have

admitted vide order dated 02.11.2010 as under:-

"Whether the ITAT erred in deleting the penalty under Section 271 (1)(c) on tax sought to be evaded by assessee declaring its income as refundable security deposits under liability?"

8. For convenience Section 271(1)(c) of the Tax is re-produced as under:-

"271 Failure to furnish returns, comply with notice, concealment of income, etc., (1) If the Income-tax Officer or the Appellate Assistant Commissioner, in the course of any proceedings under this Act, is satisfied that any person-

(c)has concealed the particulars of his income or deliberately furnished inaccurate particulars of such income, He may direct that such person shall pay by way of penalty,--

(iii) in the cases referred to in clause (c), in addition any tax payable by him, a sum which shall not be less than twenty per cent, but which shall not exceed one and a half times the amount of the tax, if any, which would have been avoided if the income as returned by such person had been accepted as the correct income"

9. The counsel for the Revenue has drawn our attention to the

financial terms of the MOU which are as under:-

""8 That in consideration of the work, duties and functions undertaken by MIL to be performed under this MOU, DMIL will pay to MIL fee in the sum equal to 1% of the value of the contract that may be awarded by the DTC to DMIL pursuant to the DTC Tender, subject to a minimum of Rs.3 crores. 9 That the fee payable by DMIL to MIL in terms of clause 8 ante, will be deemed to accrue on the date on which the contract between the DTC and DMIL is signed or on which the DTC places an order on the DMIL for the supply of the buses, as the case may be, and DMIL under to make payment of the fee to MIL within 15 days of its accrual.

10 That DMIL will make an interest free deposit of Rs. 3 crores with MIL within six months from the date of this MOU that this deposit will be adjusted against the fee that may become payable to MIL in terms of Clause 8 ante.

11 That in the event of DMIL withdrawing from its offer against the DTC Tender or no order is being placed in its by DTC for any reason whatsoever, the amount paid to MIL under Clause 10 ante, shall not be refundable by MIL. "

10. Learned counsel for the Revenue has further pointed out

towards the judgment of Supreme Court in the case of CIT Vs. Durga

Prasad More, [1971] 82 ITR 540 , wherein it was held that "if all that

an assessee who wants to evade tax is to have some recitals made in a

document either executed by him or executed in his favour then the

door will be left wide open to evade tax. A little probing was

suffering in the present case to show that the apparent was not the

real. The taxing authorities were not required to put on blinkers while

looking at the documents produced before them. They were entitled

to look into the surrounding circumstances to find out the reality of

recitals made in those documents."

11. It is argued that the reality of the MOU is that on signing of the

MOU and acceptance of assignment the assessee got the sum of Rs.3

crores which was not refundable under any circumstances and was

not conditional upon any future rendering of services. It was,

therefore, an income flowing from a commercial transaction

assessable on receipt.

12. It was argued that keeping the MOU into the view, the

assessee was engaged to act as the representative of DMIL and a sum

of Rs.3 crores was received by the assessee on 02.03.1998 as per

clause 10 above which was its income. However, in the return filed

by the assessee for the considering year, the assessee did not show the

amount as its income. The amount was shown in the balance sheet as

on 31.03.1998 under the „trade deposits‟ in the liabilities side.

Therefore, it was a clear case of concealment of income and penalty

was rightly imposed.

13. As against the above, Mr. Syali, learned Senior Advocate

appearing for the respondent, reiterated his arguments which were

advanced before the Tribunal and accepted by the Tribunal thereby

deleting the penalty imposed by the CIT(A). Mr. Syali also submitted

that in the facts and circumstances of this case, the Tribunal rightly

held that there was no concealment of any particulars of income by

the assessee; the assessee had disclosed all the particulars of the

aforesaid MOU; the claim of the assessee was bona fide and two

views in the matter were possible. Therefore, it was not a case of

imposition of penalty.

14. We have considered the submissions of counsel for both the

parties. No doubt, in the first blush, the argument of the learned

counsel appears to be convincing when one goes into the

circumstances in which, in the first round of litigation relating to

quantum proceedings, the receipt of Rs. 3 crores by the assessee from

DMIL was treated as income. The Tribunal while confirming the

quantum addition had interpreted the provisions of the MOU and

particularly clause 11 on which the Tribunal commented that this

clause was a clever piece of drafting and the syntax of this clause had

been so structured so as to give impression that except only on the

happening of one of the two contingencies stipulated therein, the

security deposit could not be appropriate by the assessee as its

income. We may also mention at this stage that the aforesaid

decision of the ITAT was upheld by this Court in the appeal filed by

the assessee and vide orders dated 11th October, 2006, the said appeal

(ITA No.255/2002) was dismissed, inter alia, observing as under:-

"There is no room for controversy that so far as the present payment is concerned it was a minimum payment in terms of Clause 8. Larger amounts

could have been receivable by the assessee had a contract been placed on the DMIL by the Delhi Transport Corporation (DTC). Clause 11 uses the words for any reason whatsoever making it amply clear that the payment of Rs.3 crores would not be as reclaimable by DMIL. Referring to the CIT(A)‟s order which holds that the appellant could retain the amount even where it renders no service whatsoever. Mr. Bhushan contends that it would be inconceivable that the sum of Rs.3 crores, which is a minimum commission or assured commission, could be retained by the assessee even if he had refused to render any service. We are of the view that this is reading too much into the words used by the authorities below. Reliance has also been placed on Commissioner of Income-Tax, Tamil Nadu-I v. A.V.M. Ltd., [1984] 146 ITR 355, which is a decision of the Division Bench of the Madras High Court. The facts there were totally different. The assessee was carrying on business as a distributor of cinematograph films and had taken security deposits from exhibitors which was to be adjusted against receipts by way of ticket sales. This is not the case where. For the same reason the decision in Commissioner of Income-Tax v. T.V. Sundram Iyengar and Sons Ltd., [1996] 222 ITR 344 is not of any advantage to the Appellant. The question there was at what stage would a deposit of a capital nature become an income in the hands of the assessee. On our reading of the Agreement between the Appellant and DMIL, the amount of Rs.3 crores had already been accrued to them as income in the year in which it was received by the appellant. No substantial question of law arises.

15. So far so good. However, in the penalty proceedings it is open

to the assessee to still demonstrate that no case for imposition of

penalty is made out as there was no concealment on its part and that

the claim made was bona fide. Legal position is abundantly clear by a

series of judgments that quantum proceedings are independent

proceedings and only when the ingredients of Section 271(1)(c) are

satisfied, penalty can be imposed. When we look into the matter

from this angle, we find that these ingredients have not been satisfied

in this case.

16. In the first instance, we find that the Tribunal has rightly held in

the impugned order that the assessee had not concealed the

particulars of income. In this respect, it would be interesting to point

out that not only the assessee had disclosed the receipt of aforesaid

amount of Rs.3 crores from M/s. DMIL, albeit, showing it as a liability

at that time (as according to the assessee the same had not been

converted into income) the Assessing Officer, in fact, went into this

aspect specifically and accepting the stand taken by the assessee, did

not treat the said receipt as income. The issue was dealt with by the

AO in the quantum proceedings. The assessment order makes an

explicit reference to the receipt of Rs. 3 crores in the following

words:-

"During the year under consideration, there is an increase of Rs.3 as security deposit. The assessee was asked to explain the same. As regard the deposit of Rs. 3 crores is reflected in the bank account as per photocopy submitted by the assessee, it has been explained by the assessee vide its letter dated 05.03.2001 as under:-

The receipt of Rs. 3 crores as security deposit by the assessee company from M/s Daewoo Motors (I) Ltd flows from the MOU entered into between them. The relevant clasue 8, 9, 10 and 11 of the MOU have been reproduced in our letter dated 06.02.2001. We refer to them again. In terms of clause 9 of the MOU, the fee payable by DMIL to MIL will accrue on the date on which the contract between the DTC and DMIL is signed or on which the DTC places an order on DMIL for the supply of buses. The order or the contract has yet not been awarded by DTC and hence the security deposit of Rs.3 cores has not yet changed its character and remains as a security deposit with the assessee company."

17. This would amply demonstrate that the assessee had not

concealed the particulars of his income nor it is a case where the

assessee deliberately furnished inaccurate particulars of such income.

This would also demonstrate that two views were possible and the

claim of the assessee was bona fide.

18. We may add at this stage that some of the observations of the

Tribunal in the impugned order relating to interpretation of the

clauses of the MOU may not be correct. This is more so when this

Court also, while dismissing the quantum appeal of the assessee,

interpreted these very clauses. Therefore, we may not entirely agree

with the observations of the ITAT occurring in paras 19 to 22.

However, still in view of the position explained by us in the

foregoing paras, we are inclined to accept the conclusion of the

Tribunal that the claim of the assessee about the amount in question

being security deposit was bona fide as it was based on the possible

interpretation of relevant clauses of the MOU. This is more so when

the amount of Rs.3 crores in question paid to the assessee was not

treated as income even by M/s. DMIL and this position was found to

be correct by the Assessing Officer on inquiry made on M/s. DMIL. It

may be that the claim of the assessee was not found to be acceptable

in quantum proceedings on merits. However, as it was not a case of

concealment, the provisions of Section 271(1)(c) attracting levy of

penalty would not be applicable more so when all material facts

relevant to the said claim were duly furnished by the assessee before

the Assessing Officer.

19. We may usefully refer to the judgment of the Apex Court in

Commissioner of Income Tax v. Reliance Petroproducts Pvt. Ltd.,

[2010] 322 ITR 158 (SC). After taking note of various earlier

pronouncements on the subject and reiterating that for imposition of

penalty conditions stated in Section 271(1)(c) must exist. The Court

explained the terms "concealment of income" and "furnishing

inaccurate particulars" in the following manner:-

..... We are not concerned in the present case with the mens rea. However, we have to only see as to whether in this case, as a matter of fact, the assessee has given inaccurate particulars. In Webster's Dictionary, the word "inaccurate" has been defined as:

"not accurate, not exact or correct; not according to truth; erroneous; as an inaccurate statement, copy or transcript."

We have already seen the meaning of the word "particulars" in the earlier part of this judgment. Reading the words in conjunction, they must mean the details supplied in the Return, which are not accurate, not exact or correct, not according to truth or erroneous. We must hasten to add here that in this case, there is no finding that any details supplied by the assessee in its Return were found to be incorrect or

erroneous or false. Such not being the case, there would be no question of inviting the penalty under Section 271(1)(c) of the Act. A mere making of the claim, which is not sustainable in law, by itself, will not amount to furnishing inaccurate particulars regarding the income of the assessee. Such claim made in the Return cannot amount to the inaccurate particulars."

20. As a result, the question is answered in the negative, that is in

favour of the assessee and against the Revenue and this appeal is

dismissed.

(SURESH KAIT) JUDGE

(A.K.SIKRI) JUDGE

August 03, 2011 „HP‟/Mk