Full Judgment Text
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CASE NO.:
Appeal (civil) 2747 of 2007
PETITIONER:
Sri T. Ashok Pai
RESPONDENT:
Commissioner of Income Tax, Bangalore
DATE OF JUDGMENT: 18/05/2007
BENCH:
S.B. Sinha & Markandey Katju
JUDGMENT:
J U D G M E N T
CIVIL APPEAL NO. 2747 OF 2007
(Arising out of SLP (C) No.1194 of 2006)
S.B. Sinha, J.
1. Leave granted.
2. The assessee is in appeal before us aggrieved by and dissatisfied with
a judgment dated 29.9.2005, passed by a Division Bench of the Karnataka
High Court in ITRC No.492 of 1998 whereby and whereunder answer to the
following question was rendered in the negative.
"Whether, on the facts and in the circumstances of
the case, the Tribunal was right in holding that
penalty u/s.271(1)(C) was not exigible in the
present case?"
3. Shorn of all unnecessary details the fact of the matter is as under :
Appellant is an individual. He is an engineering graduate. Apart from
his income by way of salary, he was having shares of profit of a number of
firms besides income from proprietorship business. He has also earned
income from dividend and interest. The banker of the assessee was the
Syndicate Bank. A power of attorney was given by the appellant in its
favour. The shares of the companies which the appellant owned were
lodged with and in custody of the said Bank. Under his instructions, the
Bank used to purchase shares of various companies and kept with it the
physical possession thereof. It has also sold the shares of the appellant and
delivered the same to the brokers or the parties and also used to pay or
receive the sale proceeds and deposit the same in the bank account. The said
arrangement continued for a number of years in the past.
Tax matters of the appellant were being looked after for a number of
years by the Law Agency Division of the Syndicate Bank, Manipal, which
was authorised to file the returns of income before the tax authorities
representing the assessee herein. For the assessment year 1985-86 the return
of income on behalf of the appellant was filed on 13.2.1989. Respondent,
however, being not satisfied with the return, called for better particulars of
investments made by the appellant, whereupon a revised return was filed on
12.1.1990 furnishing all the requisite particulars to the Department. An
application was filed by him before the Settlement Commission on or about
17.1.1990 for settlement of the taxes due which was, however, rejected by
an order dated 26.9.1990. Appellant, thereafter, filed a second revised
return, upon which assessment was made by the Assessing Officer. The said
revised return was accepted by the Assessing Officer. However, a
proceedings for imposition of penalty in terms of Section 271(1)(C) of the
Income Tax Act was initiated. In the cause shown by the appellant a
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contention was raised that he had acted bona fide as the tax affairs were
being looked after by the professional group working with the Syndicate
Bank. The said contention was not accepted by the Assessing Authority.
4. The Income Tax Appellate Tribunal, however, considered the entire
materials brought on records and inter alia opined :
(1) When on discovery, some omission or some wrong statement in
the original return is found, a penalty proceeding for concealment
of any particulars of income or furnishing inaccurate particulars of
such income as contemplated under Section 271(1)(C) of the
Income Tax Act may not be attracted.
(2) The revised return having been accepted by the Department and
the penalty having not been imposed with reference to the original
return filed by assessee, he cannot be considered to be guilty of
concealment of income.
(3) The fault, if any, was with his tax counsel and even the said tax
counsel viz. the Syndicate Bank, cannot be said to have acted in a
mala fide manner in preparing the return of income of the assessee
wrongly. The bona fides of the assessee are proved by the facts
and circumstances of the case.
5. A reference was made to the High Court at the instance of the revenue
in respect of the following question :
"Whether on the facts and in the circumstances of
the case, the Tribunal was right in holding that
penalty u/s. 271(1)(C) was not exigible in the
present case?"
6. The High Court compared the returns filed by the appellant under
the Income Tax Act and the Wealth Tax Act and arrived at the following
decision :
"The principal is responsible for all the act done by
the agent. That apart, in the case on hand there is
no material to show that the agent has acted in
excess of his authority or in disobedience of the
authority given by the principal. The stand taken
by the Bank manifestly makes it clear to us that
they prepared the return of income on the basis of
information furnished by the assessee. The
assessee is an engineer and a tax payee for a
number of years cannot contend that he signed the
return of income by believing his power of
attorney holder. This contention of the assessee
cannot be believed for the reason that in his
revised return dated 12.1.1990 again declared a
loss of Rs.1,04,531/- and did not admit the capital
gains and other income. The first appellate
authority rightly holds that if the explanation of
assessee is accepted then every tax evader could
take shelter by shifting the blame on his clerk and
accountants who invariably prepare the return for
them. The contention of the assessee that because
of the negligence on the part of the Bank the
mistake of concealment has crept in is not
acceptable."
7. Mr. G. Sarangan, learned senior counsel appearing on behalf of the
appellant, would submit that the Tribunal having arrived at a finding of fact
that the appellant was not guilty of deliberate concealment of his income and
thus, having no mens rea in this behalf, the impugned judgment cannot be
sustained. In any event, it was urged, no specific question having been
referred as to whether the findings of the Tribunal are perverse or not, the
High Court committed a manifest error in differing with the findings of fact
arrived at by the Tribubnal.
8. Mr. B. Datta, learned Additional Solicitor General appearing on
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behalf of the respondent, on the other hand, would submit that the Assessing
Authority as also the Commissioner of Income Tax having arrived at a
finding of fact that the appellant was guilty of deliberate concealment of his
income, the Tribunal was not correct in interfering therewith.
9. Reference of the question to the High Court as noticed hereinbefore
was general in nature. No question was referred as to whether the finding of
the Tribunal was perverse or not. Existence of mens rea is essentially a
question of fact. The Tribunal alone, as the highest authority empowered to
determine the question of fact, would be entitled to go thereinto. We may,
however, hasten to add that the same would not mean that the High Court
will have no jurisdiction in this behalf. The High Court, it is well known,
should not ordinarily disturb the finding of fact arrived at by the Tribunal.
Question of law should generally arise only accepting the finding of fact to
be correct.
10. In Commissioner of Income-Tax v. Mukundray K. Shah (2007)
290 ITR 433, this Court observed thus :
"The above two judgments indicate that the
question as to whether payment made by the
company is for the benefit of the assessee is a
question of fact. In this case, the Tribunal has
concluded that the payment routed through MKF
and MKI was for the benefit of the assessee. This
was a finding of fact. It was not perverse.
Therefore, the High Court should not have
interfered with the said finding."
11. In K. Ravindranathan Nair v. Commissioner of Income-Tax (2001
(247) ITR 178, a three-Judge Bench of this Court opined :
"The only jurisdiction of the High Court in a
reference application is to answer the questions of
law that are placed before it. It is only when a
finding of the Tribunal on fact is challenged as
being perverse, in the sense set out above, that a
question of law can be said to arise."
12. Yet again in Century Flour Mills Ltd. v. Commissioner of Income-
Tax 2001 (247) ITR 276, it was observed by this Court :
"We have perused the order of the High Court and
heard learned counsel and are in no doubt that the
High Court was right. The Appellate Tribunal
having arrived at the finding of concealment of
income on the basis of the material on record, no
question of law arose, reference of which could be
called for."
13. It is, therefore, trite that if an explanation given by the assessee with
regard to the mistake committed by him has been treated to be bona fide and
it has been found as of fact that he had acted on the basis of wrong legal
advice, the question of his failure to discharge his burden in terms of
explanation appended to Section 271(1)(C) of the Income Tax Act would not
arise.
14. In Dilip N. Shroff v. Joint Commissioner of Income-Tax, Mumbai
(Civil Appeal Arising out of SLP (C) No.26831/2004) delivered today, this
Court observed.
"The expression "conceal" is of great
importance. According to Law Lexicon, the word
"conceal" means:
"to hide or keep secret. The word "conceal" is con
plus celare which implies to hide. It means to hide or
withdraw from observation; to cover or keep from
sight; to prevent the discovery of; to withhold
knowledge of. The offence of concealment is,
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thus, a direct attempt to hide an item of income or
a portion thereof from the knowledge of the
income tax authorities."
In Webster’s Dictionary, "inaccurate" has
been defined as:
"not accurate, not exact or correct; not according
to truth; erroneous; as an inaccurate statement,
copy or transcript."
15. It signifies a deliberate act of omission on the part of the assessee.
Such deliberate act must be either for the purpose of concealment of income
or furnishing of inaccurate particulars.
16. The term ’inaccurate particulars’ is not defined. Furnishing of an
assessment of value of the property may not by itself be furnishing of
inaccurate particulars. Even if the explanations are taken recourse to, a
finding has to be arrived at having regard clause (a) of Explanation 1 that the
Assessing Officer is required to arrive at a finding that the explanation
offered by an assessee, in the event, he offers one was false. He must be
found to have failed to prove that such explanation is not only not bona fide
but all the facts relating to the same and material to the income were not
disclosed by him. Thus, apart from his explanation being not bona fide, it
should be found as of fact that he has not disclosed all the facts which was
material to the computation of his income.
17. The explanation having regard to the decision of this Court must be
preceded by a finding as to how and as to in what manner he furnished the
particulars of his income. It is beyond any doubt or dispute that for the said
purpose the Income Tax Officer must arrive at its satisfaction in this behalf.
[See Commissioner of Income Tax v. Ram Commercial Enterprises Ltd.,
246 ITR 568 and Diwan Enterprises v. Commissioner of Income Tax, 246
ITR 571].
18. The order imposing penalty is quasi-criminal in nature and, thus,
burden lies on the department to establish that the assessee had concealed his
income. Since burden of proof in penalty proceedings varies from that in the
assessment proceeding, a finding in an assessment proceeding that a
particular receipt is income cannot automatically be adopted, though a
finding in the assessment proceeding constitute good evidence in the penalty
proceeding. In the penalty proceedings, thus, the authorities must consider
the matter afresh as the question has to be considered from a different angle.
19. It is now a well-settled principle of law that the more is the stringent
law, more strict construction thereof would be necessary. Even when the
burden is required to be discharged by an assessee, it would not be as heavy
as the prosecution. [See P.N. Krishna Lal and Others v. Govt. of Kerala and
Another, 1995 Supp (2) SCC 187]
20. The omission of the word "deliberate", thus, may not be of much
significance.
21. Section 271(1)(c) remains a penal statute. Rule of strict construction
shall apply thereto. Ingredients of imposing penalty remains the same. The
purpose of the legislature that it is meant to be deterrent to tax evasion is
evidenced by the increase in the quantum of penalty, from 20% under the
1922 Act to 300% in 1985.
22. ’Concealment of income’ and ’furnishing of inaccurate particulars’
carry different connotations. Concealment refers to deliberate act on the part
of the assessee. A mere omission or negligence would not constitute a
deliberate act of suppressio veri or suggestio falsi.
23. We may notice that in Commissioner of Income-Tax v. Jeevan Lal
Sah 1994 (205) ITR 244, this Court dealt with the amendment of Section
271(1)(C) made in the year 1964 to hold :
"Even after the amendment of 1964, the penalty
proceedings, it is evident, continue to be penal
proceedings. Similarly, the question whether the
assessee has concealed the particulars of his
income or has furnished inaccurate particulars of
his income continues to remain a question of fact.
Whether the Explanation has made a difference is
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\026 while deciding the said question of fact the
presumption created by it has to be applied, which
has the effect of shifting the burden of proof. The
entire material on record has to be considered
keeping in mind the said presumption and a
finding recorded."
24. The question came for consideration of this Court yet again in K.C.
Builders and Anr v. Assistant Commissioner of Income-Tax 2004 (265)
ITR 562 = (2004) 5 SCC 731), wherein it was held :
"One of the amendments made to the
abovementioned provisions is the omission of the
word ’deliberately’ from the expression
’deliberately furnished inaccurate particulars of
such income’. It is implicit in the word
’concealed’ that there has been a deliberate act on
the part of the assessee. The meaning of the word
’concealment’ as found in Shorter Oxfort English
Dictionary, third edition, Volume I, is as follows :
’In law, the intentional suppression of truth
or fact known, to the injury or prejudice of
another.’
The word ’concealment’ inherently carried
with it the element of mens rea. Therefore, the
mere fact that some figure or some particulars have
been disclosed by itself, even if it takes out the
case from the purview of non-disclosure, it cannot
by itself, even if it takes out the case from the
purview of non-disclosure, it cannot by itself take
out the case from the purview of non-disclosure, it
cannot by itself take out the case from the purview
of furnishing inaccurate particulars. Mere
omission from the return of an item of receipt does
neither amount to concealment nor deliberate
furnishing of inaccurate particulars of income
unless and until there is some evidence to show or
some circumstances found from which it can be
gathered that the omission was attributable to an
intention or desire on the part of the assessee to
hide or conceal the income so as to avoid the
imposition of tax thereon. In order that a penalty
under Section 271(1)(iii) may be imposed, it has to
be proved that the assessee has consciously made
the concealment or furnished inaccurate particulars
of his income."
25. The said principle has been reiterated in M/s Virtual Soft Systems
Ltd. v. Commissioner of Income Tax, Delhi 2007 (2) SCALE 612, where
it was held :
"24. Section 271 of the Act is a penal provision and there
are well established principles for the interpretation of
such a penal provision. Such a provision has to be
construed strictly and narrowly and not widely or with
the object of advancing the object and intention of the
legislature."
26. Referring to a large number of decisions, it was furthermore
observed :
"27. Every statutory provision for imposition of
penalty has two distinct components:
(i) That which lays down the conditions for
imposition of penalty.
(ii) That which provides for computation of the
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quantum of penalty.
Section 271(1)(c) and clause (iiii) relate to the conditions
for imposition of penalty, whereas, on the other hand ,
Explanation 4 to Section 271(1)(c) relates to the
computation of the quantum of penalty.
28. The provisions of Section 271(1)(c)(iii) prior to
1.4.1976, and after its amendment by the Finance Act,
1975 with effect from 1.4.1976, later provisions being
applicable to the assessment year in question, being
substantially the same except that in place of the word
’income’ in sub clause (iii) to sub clause (c) of Section
271 prior to its amendment by Finance Act, 1975, the
expression "amount of tax sought to be evaded" have
been substituted. Explanation 4 inserted for the purpose
of clause (iii) where the expression "the amount of tax
sought to be evaded", was inserted had in fact made no
difference in so far as the main criteria, namely, absence
of tax continued to exist, prior to or after 1.4.1976,
changing only the measure or the scale as to the working
of the penalty which earlier was with reference to the
’income’ and after the amendment related to the ’tax
sought to be evaded’. The sine qua non which was there
prior or after the amendment on 1.4.1976 to the fact that
there must be a positive income resulting in tax before
any penalty could be levied continued to exist. The
penalty imposed was in ’addition to any tax’. If there was
no tax, no penalty could be levied. The return filed
declaring loss and assessment made at a reduced loss did
not warrant any levy of penalty within the meaning of
Section 271(1)(c)(iii) with or without Explanation 4."
27. In Commissioner of Income Tax, Indore v. Suresh Chandra Mital
(2003) 11 SCC 729, whereupon Mr. Datta, learned Additional Solicitor
General relied, no reason was assigned and only the order of the High Court
was not interfered with. Therein, it appears, the assessee pleaded that he had
submitted the revised return of income which was not found to be sufficient.
28. In M. Janardhana Rao v. Joint Commissioner of Income Tax
(2005) 2 SCC 324, whereupon again reliance was placed by Mr. Datta, this
Court was concerned with the meaning of the substantial question of law as
obtaining in Section 271A of the Income Tax Act. We are not concerned
with the said question in the present case.
29. It is not a case where penalty has been imposed for breach of
contravention of a commercial statute where lack of or intention to
contravene or existence of bona fie may not be of much importance. It is
also not a case where penalty is mandatorily impossible. It was, therefore,
not a case where the enabling provision should have been invoked.
30. For the reasons aforementioned the impugned judgment cannot be
sustained which is set aside accordingly. The appeal is allowed. However,
in the facts and circumstances of this case, there shall be no order as to costs.