Madras High Court
M/S Ramamurthy Metal Decorating ... vs The Assistant Commissioner Of ... on 8 February, 2022
T.C.A.Nos. 205 to 210 of 2011
IN THE HIGH COURT OF JUDICATURE AT MADRAS
DATED : 08.02.2022
CORAM
THE HONOURABLE MR. JUSTICE R. MAHADEVAN
AND
THE HONOURABLE MR. JUSTICE J.SATHYA NARAYANA PRASAD
T.C.A.Nos. 205 to 210 of 2011
M/s Ramamurthy Metal Decorating Industries Private Ltd.,
Sivakasi.
.. Appellant in TCA.Nos.205, 207,
208 & 209 of 2011
Sri A.Ramamurthy
.. Appellant in TCA.Nos.206 &
210 of 2011
Versus
The Assistant Commissioner of Income Tax,
Virudhunagar. .. Respondent in all TCAs
Tax Case Appeals filed under Section 260A of the Income Tax Act, 1961
against the order dated 30.08.2005 passed by the Income Tax Appellate
Tribunal, Chennai “C” Bench, in I.T.A.Nos. 1407, 1411, 1408, 1409, 1410 and
2132 /Mds/2003.
https://www.mhc.tn.gov.in/judis
T.C.A.Nos. 205 to 210 of 2011
For Appellant : Mr.P.J.Rishikesh in all TCAs
For Respondent : M/s.V.Pushpa,
Junior Standing Counsel in all TCAs
COMMON JUDGMENT
(Judgment of the Court was delivered by R. MAHADEVAN, J.)
These tax case appeals have been filed by the appellant / assessee,
challenging the common order dated 30.08.2005 passed by the Income Tax
Appellate Tribunal, 'C' Bench, Chennai, in I.T.A.Nos. 1407, 1411, 1408, 1409,
1410 and 2132 /Mds/2003, relating to the respective assessment years 1979-80,
1976-77, 1978-79, 1976-77, 1975-76 and 1977-78.
2.By order dated 01.08.2011, this court admitted the aforesaid tax case
appeals on the following substantial question of law:
“Whether on the facts and in the circumstances of the
case, the ITAT was right in holding that penalty was leviable
under section 271 (1) (c) of the Income Tax Act?"
3.The brief facts of the case would run thus:
3.1 The appellant viz., M/s.Ramamurthy Metal Decorating Industries P.
Ltd is engaged in the business of card making, tin printing and purchase and sale
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T.C.A.Nos. 205 to 210 of 2011
of safety matches; and one A.Ramamurthy is its Managing Director. For the
assessment years in question, while scrutinising the accounts of the appellants,
the assessing officer found that there were cross transactions of purchases and
sales of safety matches among the assessee group concerns and each member of
the group was found to be granting certain “rebates” to some sister concerns at
the end of the year and to be receiving similar “rebate” from them. These rebates
mostly kept hidden in the respective accounts of purchases and sales. After
examining the oral and documentary evidence, it was found by the assessing
officer that such rebates represented a systematic and ingenious process of
reducing the profits by fictitious claim and hence, the rebates debited by the
concerned assesses in their accounts were disallowed as not related to business.
3.2 Aggrieved by the orders of the assessment, the assesses went on
appeals, which were allowed and all the assessments were set aside.
3.3 In the fresh assessments, the assessing officer took the very same
stand and the second round of assessment proceedings were again set aside by
the Tribunal with direction to all the assesses to go for a permanent settlement of
the dispute with the concerned Commissioner of Income Tax. Accordingly, the
CIT, Madurai had a detailed pre-settlement discussions with all the assesses.
The terms of settlement also included a condition regarding levy of penalties
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T.C.A.Nos. 205 to 210 of 2011
under section 271(1)(c). Based on the same, the assessing officer initiated
penalty proceedings and issued show cause notices to the assesses, to which, no
reply was filed. The assessing officer completed the assessment based on the
settlement arrived at between the assesses and the department. The details of the
penalty imposed are as under:-
M/s.Ramamurthy Metal Decorating Ind. P. Ltd.
1979-1980 Rs.2,33,596/-
1975-1976 Rs.3,81,243/-
1976-1977 Rs. 37,234/-
1978-1979 Rs.3,00,530/-
Sri A.Ramamurthy
1976-1977 Rs.1,10,442/-
1977-1978 Rs. 10,330/-
3.4 Challenging the orders of assessment, the appellants filed appeals
before the CIT(A), who confirmed the penalties and dismissed the appeals.
Aggrieved by the same, the appellants went on further appeals before the
Tribunal, which also dismissed the appeals filed by the appellant. Therefore, the
present tax case appeals by the appellants / assesses.
4.Heard both sides and perused the materials available on record.
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T.C.A.Nos. 205 to 210 of 2011
5.It appears from the facts stated above that the assessing officer upon
verification of the materials placed, had concluded that the rebates claimed by
the appellants /assesses for the assessment years in question, were clearly the
profits diverted by the fictitious claims and hence, the same were disallowed. In
the second round of litigation as well, the assessing officer took the same stand
and passed the reassessment orders, which were again challenged by the
appellants. At this time, the Tribunal directed the appellants to go for a
permanent settlement of the dispute with the concerned CIT. Pursuant to the said
direction, settlement was entered into among the parties, one of the terms of
which is that penalty under section 271(1)(c) will have to be levied for the
assessment years at the minimum rate on the net excess payment disallowed,
which was treated as concealed income. Accordingly, the assessing officer
initiated the penalty proceedings, during the course of which, the assesses did
not come forward to give proper explanation by way of reply. Hence, the
assessing officer imposed penalty under section 271(1)(c) on the assesses, which
was confirmed by both the first appellant authority and the Tribunal. The
appellants questioned the said imposition of penalties by the assessing officer as
affirmed by the appellate authorities in these tax case appeals.
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T.C.A.Nos. 205 to 210 of 2011
6.To determine the substantial question of law involved herein, we
consider it necessary to quote below the relevant findings of the appellate
authorities, for ready reference:
First Appellate Authority
“The second aspect of the case is the merit of imposition of
the penalties. Although my primary decision is that all the penalties
are to be confirmed because otherwise the concerned settlements
stand vitiated, in my view even from an independent angle, these
cases definitely warrant imposition of penalties. By certain
ingenious and intricate adjustments in accounts, through kite flying
entries of rebates given and received, the 14 Members of the group
kept on playing the game of inter-diversions of profits for 6 to 7
years. The Government for almost 15 to 20 years had not collected
the concerned taxes because the matters pertaining to Assessment
Years 1975-76 to 1979-80 ultimately reached stage of settlement
only in 1994. The appellant group never came for any settlement
voluntarily. It was only on the directions of the ITAT, the
Department and the Assessee had come to the discussion table for
the eventual settlements. When the 14 concerns belonged to the
same group, price fluctuation in the market would not warrant
passing on rebates by one concern to another in a cyclical fashion.
During the course of the relevant assessment proceedings, the
group members were not able to substantiate the debits and credits
for the rebates. All these definitely indicate the attempt of the group
members not to make payments of correct taxes for the concerned
Assessment Years by artificially manipulating the income figures.
Therefore, in my opinion, these cases do not come anywhere near
the facts of any of the 7 cases mentioned before me by the
Authorised Representative of the Appellant. Therefore, even on
merit, these penalties have to be confirmed.”
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T.C.A.Nos. 205 to 210 of 2011
Tribunal
“On careful consideration of the facts and circumstance of
the case we are of the view that the assesses have failed to offer
explanation that there was no concealment of income in the returns
filed by them. Concealment of income was due to a planned
scheme resorted to by the group of assesses which was detected by
the department. The assesses were indulging in concealment of
income in a planned manner for several years. Penalty under
section 271(1)(c) under such circumstances is imposable. We
therefore uphold the orders of authorities below.”
It is thus evident from the aforesaid findings of the authorities below that the
appellants / assesses had concealed income, which was accepted after detection
and the assessment was completed as per the terms of the settlement, which
stipulated minimum penalty under section 271(1)(c). Based on the same, the
assessing officer initiated the penalty proceedings by issuing show cause notices,
to which, the appellants/assesses did not file any reply to substantiate their stand
that there was no concealment of income. Therefore, the assessing officer
imposed penalties on the appellants, which were also confirmed by the appellate
authorities.
7.At this juncture, it is apt to refer to a decision of the Supreme Court in
Mak Data (P) Ltd. v. CIT [(2013) 38 taxmann.com 448/ 358 ITR 593 (SC),
wherein, it was held as under:
“7. The AO, in our view, shall not be carried away by the
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T.C.A.Nos. 205 to 210 of 2011
plea of the assessee like “voluntary disclosure”, “buy peace”,
“avoid litigation”, “amicable settlement”, etc. to explain away its
conduct. The question is whether the assessee has offered any
explanation for concealment of particulars of income or furnishing
inaccurate particulars of income. Explanation to Section
271(1) raises a presumption of concealment, when a difference is
noticed by the AO, between reported and assessed income. The
burden is then on the assessee to show otherwise, by cogent and
reliable evidence. When the initial onus placed by the explanation,
has been discharged by him, the onus shifts on the Revenue to show
that the amount in question constituted the income and not
otherwise.
8. Assessee has only stated that he had surrendered the
additional sum of Rs.40,74,000/- with a view to avoid litigation,
buy peace and to channelize the energy and resources towards
productive work and to make amicable settlement with the income
tax department. Statute does not recognize those types of defences
under the explanation 1 to Section 271(1)(c) of the Act. It is trite
law that the voluntary disclosure does not release the Appellant-
assessee from the mischief of penal proceedings. The law does not
provide that when an assessee makes a voluntary disclosure of his
concealed income, he had to be absolved from penalty.”
Applying the ratio decidendi laid down in the aforesaid decision to the facts of
the present case, wherein, the appellants had disclosed the income, after
detection by the department and as per the terms of settlement, the assessing
officer initiated the penalty proceedings, to which, the appellants / assesses did
not submit any explanation to the effect that there was no concealment of
income or furnishing of inaccurate particulars of such income, which culminated
in imposition of penalties under section 271(1)(c), we do not find any infirmity
or illegality in initiating the penalty proceedings and the consequential orders
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T.C.A.Nos. 205 to 210 of 2011
passed by the assessing officer as confirmed by the appellate authorities.
8.In such view of the matter, all these tax case appeals are dismissed by
answering the substantial question of law against the appellants / assesses. No
costs.
(R.M.D., J.) (J.S.N.P., J.)
08.02.2022
av
Internet : Yes
Index : Yes/No
To
1. The Income Tax Appellate Tribunal,
Chennai “C” Bench
2. The Assistant Commissioner of Income Tax,
Circle -I, Virudhunagar.
3. The Commissioner of Income Tax (Appeals)-II
Madurai.
https://www.mhc.tn.gov.in/judis
T.C.A.Nos. 205 to 210 of 2011
R. MAHADEVAN, J.
and
J.SATHYA NARAYANA PRASAD, J.
av
T.C.A.Nos. 205 to 210 of 2011
08.02.2022
https://www.mhc.tn.gov.in/judis
