2011-VIL-732-ITAT-DEL

Equivalent Citation: [2011] 10 ITR 330

Income Tax Appellate Tribunal DELHI

ITA NO. 3537 (DELHI) OF 2010

Date: 25.02.2011

ASSISTANT COMMISSIONER OF INCOME-TAX

Vs

DINESH GOEL

BENCH

SHRI G.E. VEERABHADRAPPA, AND SHRI I.P. BANSAL, JJ.

JUDGMENT

(1) On the facts and in the circumstances of the case, the assessee learned Commissioner of Income-tax (Appeals) has erred in law and on the facts in deleting the penalty imposed by the Assessing Officer at Rs.2,43,118 under section 271(1)(c) of the Income-tax Act, 1961.

(2) The appellant craves leave to add, alter or amend any of the grounds of appeal before or during the course of the hearing of the appeal.

2. A sum of Rs. 7,36,723 was claimed by the assessee out of his other business incomes by making the following narration :

"Set off and carry forward of business loss of 25 per cent. share in M/s. Gee Marketing Network in which the assessee was a partner."

3. The Assessing Officer issued a show-cause notice to the assessee as to why such amount should not be disallowed and in the show-cause notice dated December 15, 2006, the Assessing Officer required the assessee to submit explanation in this regard as follows :

"You have claimed business loss for Rs. 7,36,723 which was transferred from M/s. GMN. You have to justify that a return was audited by a qualified chartered accountant and such type manner to conceal the income from taxable income is a deliberately uncorrectable mistake. Therefore, you are deserved to penalise under section 271(1)(c) of the Income-tax Act, 1961 for furnishing inaccurate particulars with income-tax return."

4. In response to the said query of the Assessing Officer no details whatsoever were submitted by the assessee. Hence, the addition was made by the Assessing Officer by making the following observations in the assessment order :

"During the course of assessment proceedings it has been revealed that the assessee has claimed business loss of Rs. 7,36,723 which was transferred from M/s. GMN in which the assessee was a partner. The assessee was asked vide note sheet entries on November 22, 2006 and show-cause notice dated December 15, 2006 with explanation that you have to justify set off and carry over of business loss and why it may not be added back in your taxable income. The assessee was also show-caused that why not be penalty proceedings initiated against you as per the income-tax provisions under section 271(1)(c) of the Income-tax Act, 1961, for inaccurate particulars furnished with the return. Thereafter, the entire business loss is disallowed and penalty proceedings have been initiated for concealment of income."

5. Accordingly, the claim of the assessee regarding the business loss of Rs. 7,36,723 was not admitted.

6. Against the show-cause notice issued for levy of penalty, the assessee did not submit any reply and, therefore, the Assessing Officer inferred that the assessee has nothing to state in defence and, accordingly, he has held that the assessee has furnished inaccurate particulars of his income and the assessee's act cannot be regarded as an innocent act as the same was a conscious act. It will be relevant to reproduce the following observations of the Assessing Officer from the penalty order :

"During the course of assessment proceedings, it was found that assessee had adjusted loss of Rs. 7,36,723 of his partnership concern, which was not allowable. Hence, this adjustment was disallowed and penalty proceedings under section 271(1)(c) of the Income-tax Act were initiated vide a show cause notice dated December 27, 2006 fixing the case for January 27, 2006. Nobody attended in response to this notice. Thereafter another show-cause notice under section 271(1)(c) of the Income-tax Act dated May 29, 2007 was issued fixing the case for June 11, 2007. However, on June 11, 2007 also neither anybody attended nor any request for adjournment was made. This clearly shows that the assessee has nothing to state in his defence for the default which has occurred and narrated and accordingly penalty proceedings are decided on the basis of material available on record.

The assessee had wrongly adjusted the loss of his partnership concern amounting to Rs. 7,36,723 against the business income of his proprietary concern thereby reducing the taxable income in his own hand. The said adjustment was against the law and therefore the same was disallowed and penalty proceedings under section 271(1)(c) of the Income-tax Act was initiated. The case of the assessee falls within the ambit of section 271(1)(c) of the Income-tax Act, 1961 as the assessee has furnished inaccurate particulars of income. The act of the assessee cannot be regarded as an innocent act as the same is a conscious act. This act is an act of gross and willful neglect on his part and he has furnished inaccurate particulars deliberately which is not capable of being regarded as innocent act. The assessee cannot afford to be routinely careless and casual while submitting the returns. The assessee certainly does have a duty to verify the particulars furnished by him and ensure that the particulars furnished are indeed accurate.

Falsehood in accounts can take either of two forms, either an item of receipt may be suppressed fraudulently, or an item of expenditure may be falsely (or in an aggregated amount) claimed. Both types are attempt to reduce the taxable income. Both types of amount to concealment of particulars of one's income as well as furnishing of inaccurate particulars of income. Penalty must be imposed for either or both such attempts. A reference can be made to the judicial pronoun-cement by various High Courts as detailed below :

 (1) CIT v. India Sea Foods [1976] 105 ITR 708 (Ker.) ;

 (2) Nagin Chand Shiv Sahai v. CIT [1938] 6 ITR 534 (Lah.) ; and

 (3) CIT v. Gates Foam and Rubber Co. [1973] 91 ITR 467 (Ker.)."

7. It was only before the Commissioner of Income-tax (Appeals), it was claimed by the assessee that he was under bona fide belief that he is entitled to get loss incurred by him in respect of the aforementioned firm. It was submitted that it was only a mistake committed by the assessee which could even be rectified. Reliance was made to the decision of the hon'ble Supreme Court in the case of CIT v. Reliance Petro products (P.) Ltd. [2010] 322 ITR 158 and considering these submissions of the assessee, the learned Commissioner of Income-tax (Appeals) has deleted the addition on the ground that the assessee had shown all the details in computation of income and it was not a case where the learned Assessing Officer has made any discovery of new facts indicating concealment or furnishing of inaccurate particulars of income and applying the ratio of the aforementioned decision of the hon'ble Supreme Court in the case of Reliance Petro products (P.) Ltd. (supra), the penalty has been deleted. The Department is aggrieved, hence, in appeal.

8. This case was first heard on December 31, 2010 when it was argued by the learned authorised representative that it was simply a case of non-acceptance of the assessee's plea regarding allowability of loss arising to him in respect of a firm in which he was a partner and the issue is covered by the aforementioned decision of the hon'ble Supreme Court. However, at the time of dictation, it was found that the claim of the assessee of business loss of Rs. 7,36,723 was regarding the concern in which the assessee was a partner. Taking note of such fact, it was considered proper to call for the assessment record and the present case was refixed for clarification on December 31, 2010 itself and the learned Departmental representative was required to submit the assessment record. The case was fixed on January 21, 2011 and, thereafter, it was adjourned to February 18, 2011 on which date both parties had appeared.

9. The learned Departmental representative, after narrating the facts, submitted that the assessee has made a claim which could not be supported by him either by the provisions of the Income-tax Act or by showing any decision. She submitted that in response to a query raised by the Assessing Officer regarding justification of such claim, the assessee did not submit any reply. She submitted that in response to show-cause notice, no explanation whatsoever was filed by the assessee. Thus, she submitted that the case of the assessee clearly falls within the ambit of section 271(1)(c) and Explanation 1 thereto as the assessee has submitted inaccurate particulars of his income. He submitted that the assessee cannot place reliance upon the aforementioned decision of the hon'ble Supreme Court as, in that case, the claim of the assessee was not wholly unsubstantiable whereas in the present case the claim of the assessee is wholly unsubstantiable. She referred to the recent decision of the hon'ble Delhi High Court in the case of CIT v. Zoom Communication (P.) Ltd. [2010] 327 ITR 510  in which the aforementioned decision of the hon'ble Supreme Court was considered and it was held that penalty in cases of claims which are wholly unsubstantial in law is to be upheld and, thus, she pleaded that the learned Commissioner of Income-tax (Appeals) has wrongly deleted the penalty and his order should be set aside and that of the Assessing Officer be restored.

10. On the other hand, relying upon the order of the Commissioner of Income-tax (Appeals) and the aforementioned decision of the hon'ble Supreme Court it was submitted by the assessee that the order of the Commissioner of Income-tax (Appeals) should be upheld.

11. We have carefully considered the rival submissions in the light of the material placed before us. Right from the beginning the assessee has not been able to substantiate the claim made by him in the return of income. Apparently, the losses that arose to the assessee out of the firm are not allowable in the hands of the partners. It is also not the case of the assessee that any of the provisions contained in the Income-tax Act support such claim. The details on the basis of which such claim was made were not even filed either before the Assessing Officer or the Commissioner of Income-tax (Appeals). During the course of hearing before us, the assessee has submitted the computation of statement of income in respect of Gee Marketing Network and the computation is as follows :

"Computation statement of income :

 

This firm has closed its business activities during this financial year. Hence, net loss of Rs. 29,46,893.21 is distributed among partners in their profit sharing ratio and to be carried over by partners. The firm had discontinued its business. This is the last financial year of business activities of the firm.

for Gee Marketing Network,

Sd/- (Parikshit Goel),

Partner."

12. As it can be seen that it is not even the loss of the current financial year, but it is a loss pertaining to the assessment years 2002-03 and 2003-04. For the current financial year the assessee has earned profit from the said firm. Therefore, the loss consists of earlier years which has been carried forward in the hands of the firm and again are claimed by the assessee in the hands of the partner which claim is wholly unsubstantiable in law. During the course of assessment proceedings, the assessee did not submit any explanation as this fact has been ascertained from the assessment record. During the course of penalty proceedings also the assessee did not give any reply. Therefore, no explanation whatsoever has been submitted by the assessee before the Assessing Officer in response to show-cause notice against levy of penalty. Therefore, it is found that the assessee has not submitted any explanation regarding this claim either in the assessment proceedings or in the penalty proceedings. Therefore, the facts of the present case are entirely different from the facts in the case of. Reliance Petroproducts (P.) Ltd. (supra). In the said case, the assessee had made a claim of interest expenditure against the exempted income of dividend. Thus, the disallowance was made under section 14A. It is found that the return in that case was filed by the assessee on January 31, 2001, i.e., prior to the introduction of the Finance Act, 2001 vide which section 14A was introduced with retrospective effect from April 1, 1962. Therefore, in that case, it was according to the bona fide belief of the assessee the deduction of interest expenditure was claimed against exempted income and the issue at the time of filing the return was debatable one. As per the well settled law, the crucial date to see the conduct of the assessee is the date of filing of the return on which impugned claim has been made and it is clear from the following observations of their Lordships of the hon'ble Supreme Court in the case of Reliance Petroproducts (P.) Ltd. (supra):

"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. In Dilip N. Shroff v. Joint CIT [2007] 291 ITR 519 (SC) ; [2007] 6 SCC 329, this court explained the terms 'concealment of income' and 'furnishing inaccurate particulars'. . ." (p. 164)

13. The assessee in the present case has not been able to show that on the date on which he has filed the return, it was the bona fide belief of the assessee according to which such claim could be made. The computation of income in the case of Gee Marketing Network itself will show that earlier those losses were never carried forward in the hands of the partners, but were carried on in the hands of the firm itself. That fact itself shows that the claim of the assessee is not bona fide and the assessee is aware of the fact that claim of losses in respect of the firm cannot be claimed in the hands of its partners.

14. The decision in the case of Reliance Petroproducts (P.) Ltd. (supra) will not be applicable to the facts of the present case and it has also been distinguished in the aforementioned decision of Zoom Communication (P.) Ltd. 's case (supra) by the hon'ble jurisdictional High Court in the following words:

"In the case of Reliance Petroproducts (P.) Ltd. [2010] 322 ITR 158 (SC), the addition made by the Assessing Officer in respect of the interest claimed as a deduction under section 36(1)(iii) of the Act was deleted by the Commissioner of Income-tax (Appeals) though it was later restored, by the Tribunal, to the Assessing Officer. The appeal filed by the assessee against the order of the Tribunal was admitted by the High Court. It was, in these circumstances, that the Tribunal came to the conclusion that the assessee had neither concealed the income nor filed inaccurate particulars thereof. In recording this finding, the Tribunal felt that if two views of the claim of the assessee were possible, the explanation offered by it could not be said to be false. This, however, is not the factual position in the case before us. The facts of the present case thus are clearly distinguishable." (p. 518)

15. The hon'ble Delhi High Court has further observed that it is true that mere making a claim which is incorrect in law would not amount to giving inaccurate particulars of the income of the assessee, but, it cannot be disputed that a claim made by the assessee needs to be bona fide. If the claim besides being incorrect in law is mala fide, Explanation 1 to section 271(1)(c) would come into play and work to the disadvantage of the assessee. Their Lordships of the hon'ble Delhi High Court have further observed that court should not overlook the fact that only a small percentage of the income-tax returns are picked up for scrutiny and if the assessee makes such a claim which is not only incorrect in law, but is also wholly without any basis and the explanation furnished by the assessee for making such a claim is not found to be bona fide, then, it would be difficult to say that the assessee still is not liable to penalty. Reference can be made to the following observations of their Lordships (page 518 of 327 ITR) :

"It is true that mere submitting a claim which is incorrect in law would not amount to giving inaccurate particulars of the income of the assessee, but it cannot be disputed that the claim made by the assessee needs to be bona fide. If the claim besides being incorrect in law is mala fide, Explanation 1 to section 271(1)(c) would come into play and work to the disadvantage of the assessee.

The court cannot overlook the fact that only a small percentage of the income-tax returns are picked up for scrutiny. If the assessees makes a claim which is not only incorrect in law but is also wholly without any basis and the explanation furnished by him for making such a claim is not found to be bona fide, it would be difficult to say that he would still not be liable to penalty under section 271(1)(c) of the Act. If we take the view that a claim which is wholly untenable in law and has absolutely no foundation on which it could be made, the assessee would not be liable to imposition of penalty, even if he was not acting bona fide while making a claim of this nature, that would give a licence to unscrupulous assessees to make wholly untenable and unsustainable claims without there being any basis for making them, in the hope that their return would not be picked up for scrutiny and they would be assessed on the basis of self-assessment under section 143(1) of the Act and even if their case is selected for scrutiny, they can get away merely by paying the tax, which in any case, was payable by them. The consequence would be that the persons who make claims of this nature, actuated by a mala fide intention to evade tax otherwise payable by them would get away without paying the tax legally payable by them, if their cases are not picked up for scrutiny. This would take away the deterrent effect, which these penalty provisions in the Act have.

We find that the assessee before us did not explain either to the income-tax authorities or to the Income-tax Appellant Tribunal as to in what circumstances and on account of whose mistake, the amounts claimed as deductions in this case were not added, while computing the income of the assessee-company. We cannot lose sight of the fact that the assessee is a company which must be having professional assistance in computation of its income and its accounts are compulsorily subjected to audit. In the absence of any details from the assessee, we fail to appreciate how such deductions could have been left out while computing the income of the assessee-company and how it could also have escaped the attention of the auditors of the company." (p.518)

16. It has also has also been mentioned that the assessee has not explained either before the Assessing Officer or the Commissioner of Income-tax (Appeals) or before the Tribunal that in what circumstances such claim, which was wholly unsubstantiable in law, was made by the assessee. In the absence of any explanation submitted by the assessee in this regard, it is held that Explanation 1 to section 271(1)(c) is attracted as the assessee did not furnish any explanation with regard to such claim. Therefore, keeping in view the aforementioned discussion, we are of the opinion that the learned Commissioner of Income-tax (Appeals) has wrongly deleted the penalty and his order is to be set aside and that of the Assessing Officer is to be restored. We direct accordingly. The appeal filed by the Revenue is allowed.

17. In the result, the appeal filed by the Revenue is allowed.

 

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