Full Judgment Text
®
1
IN THE HIGH COURT OF KARNATAKA AT
BENGALURU
RD
DATED THIS THE 3 DAY OF MARCH 2015
PRESENT
THE HON’BLE MR.JUSTICE VINEET SARAN
AND
THE HON’BLE MRS.JUSTICE S SUJATHA
ITA NO.297/2014
BETWEEN
1.
THE COMMISSIONER OF INCOME TAX
C R BUILDING, QUEENS ROAD
BANGALORE
2.
THE DEPUTY COMMISSIONER OF INCOME-TAX
CIRCLE-11(1)
RASHTROTHANA BHAVAN
NRUPATHUNGA ROAD
BANGALORE 560 001
... APPELLANTS
(BY SRI K V ARAVIND, ADV.)
AND
M/S. ANKITA ELECTRONICS PVT LTD.,
NO.7/4, ANKITA HOUSE
MOUNT JOY ROAD, OPP. BULL TEMPLE
HANUMANTHANAGAR
BANGALORE 560019
... RESPONDENT
THIS ITA IS FILED UNDER SECTION 260-A OF INCOME
TAX ACT 1961, ARISING OUT OF ORDER DATED:14/02/2014
2
PASSED IN ITA NO.120/BANG/2013, FOR THE ASSESSMENT
YEAR 2001-2002.
THIS APPEAL COMING ON FOR ADMISSION THIS
DAY, VINEET SARAN J ., DELIVERED THE FOLLOWING:
JUDGMENT
The question raised in this appeal is as to in what
circumstances an issue involved would be considered as
debatable and as to whether when the tax imposed on the
assessee is under challenge and the appeal filed by the assessee
against the assessment proceedings has been admitted by the
High Court on the substantial question of law, still penalty can
be imposed under Section 271(1)(c) of the Income Tax Act ?
2. This appeal has been filed by the Revenue
challenging the order of the Tribunal, which has dismissed the
appeal of the Revenue and the penalty imposed under Section
271(1)(c) of the Income Tax Act, 1961 (hereinafter referred to
as ‘the Act’ for brevity) has been disallowed.
3. Brief facts of the case are :
The assessee is involved in the business of Computer
consumables. For the assessment year 2001-2002, by order
dated 26.03.2004 passed under Section 143(3) of the Act,
3
certain deductions claimed by the assessee towards salary paid
to two lady Directors and to another person was disallowed, as
well as another sum of Rs.26,00,000/- was disallowed under
Section 68 of the Act, and also the interest given on the loans
was disallowed (totaling amount to Rs.33,90,940/-). The
disallowance was confirmed on merits by the Commissioner of
Income Tax (Appeals). The appeal of the assessee before the
Tribunal was also dismissed. The assessee then filed an appeal
before the High Court, which has been admitted on 04.06.2012
(being ITA No.282/2011) on the following substantial
questions of law:
(A) Whether on the facts and circumstances of the case, the
Hon’ble Tribunal was right in law in upholding the
action of the Learned Respondent under section 147
when the mandatory conditions for exercise of such
powers did not exist and the action was barred by
limitation of time?
(B) Whether on the facts and in the circumstances of the case,
the Hon’ble Tribunal was right in law in holding that
the appellant was barred from seeking reasons for
reopening the assessment at the appellate stage when
examination of such reasons is necessary for determining
4
the correctness or otherwise of initiation of proceedings
under section 147?
(C) Whether on the facts and in the circumstances of the case,
the Hon’ble Tribunal was right in law in upholding the
disallowance of Rs.60,000 in respect of remuneration
paid to directors of the appellant Company by invoking
section 40A(2) of the IT Act?
(D) Whether on the facts and in the circumstances of the case,
the Hon’ble Tribunal was right in law in upholding the
disallowance of Rs.66,000 in respect of salary paid to
Ms.Namratha G Patel?
(E) Whether on the facts and in the circumstances of the case,
the Hon’ble Tribunal was right in upholding the
addition of Rs.26 lakhs treating the same as
unexplained cash credits under section 68 of the Act?
(F) Whether on the facts and in the circumstances of the case,
the Hon’ble Tribunal was right in law in upholding the
disallowance of Rs.3,64,940 in respect of interest paid to
loan creditors?
4. After the confirmation of disallowance by the
Tribunal vide order dated 18.03.2011 with regard to the
assessment made under Section 143(3) of the Act, the
Assessing Authority initiated penalty proceedings on
5
27.11.2006 against the respondent-assessee under Section
271(1)(c) of the Act. Vide order dated 25.10.2011 penalty of
Rs.13,42,000/- was levied for concealment of income. The
appeal filed by the assessee challenging the order of penalty
was allowed by the Commissioner of Income Tax (Appeals).
Challenging the said order, the Revenue filed an appeal before
the ITAT which has also been dismissed by order dated
14.02.2014. Aggrieved by the said orders, this appeal has been
filed wherein a prayer has been made in deciding the following
questions of law:
1. Whether on the facts and circumstances of the case, the
Tribunal is right in law in holding that the issues are
debatable is correct and the penalty under Section
271(1)(c) is not exigible without appreciating that a
mere admission of the appeal under section 260A by
itself does not make the issues debatable ?
2. Whether on the facts and circumstances of the case, the
Tribunal is right in law in relying on the Mumbai
Tribunal order in the case of Nayan Builders &
Developers P.Ltd. in ITA
No.2379/Mumbai/2009 dated 18.03.2011without
6
appreciating that the facts of the relied upon case are
different and distinct from that of the present case?
5. We have heard Sri K.V.Aravind, learned Counsel
appearing for the appellants at length and appreciate the
fairness with which he has presented the case and placed
before us various decisions on the questions at hand.
6. While dismissing the appeal, the Tribunal has
observed that the additions in respect of which penalty under
Section 271(1)(c) of the Act was levied, have been admitted by
the High Court for consideration and thus found that the
additions made were debatable and would lead credence to the
bonafides of the assessee. It thus held that the matter of
imposing penalty under Section 271(1)(c) of the Act, was not
exigible in the case on hand.
7. The Tribunal placed reliance on decision of the
ITAT, Mumbai in the case of Nayan Builders & Developers
Pvt. Ltd., which had also held that “the admission of
substantial questions of law by the High Court lends credence
to the bona fides of the assessee in claiming deduction. Once it
7
turns out that the claim of the assessee could have been
considered for deduction as per a person properly instructed
in law and is not completely debarred at all, the mere fact of
confirmation of disallowance would not per se lead to the
imposition of penalty.”
8. The assessee in the present case had disclosed all
the materials on which it was claiming deduction. The matter
as to whether the deduction was to be given or not, was taken
up by the revenue authorities and it was held that certain
deductions claimed by the assessee were to be disallowed. It is
not disputed that the questions regarding the disallowance of
the deductions claimed by the assessee is under consideration
by the High Court, as the appeal filed by the assessee has been
admitted, on the substantial questions of law which have been
reproduced hereinabove.
9. The mere admission of the appeal by the High
Court on the substantial questions of law as have been quoted
above, would make it apparent that the additions made were
debatable. The Tribunal has thus rightly held that the
8
admission of substantial questions of law by the High Court
leads credence to the bona fide of the assessee and therefore,
the penalty is not exigible under Section 271(1)(c) of the Act.
Merely because the claim of the assessee has been rejected by
the revenue authorities would not make the assessee liable for
penalty.
10. Learned Counsel for the appellants has
vehemently argued that the question of concealment is a
question of fact which has been determined by the Tribunal
and as such, once such a question of fact has been so
determined and finalized, the assessee would certainly be liable
for payment of penalty.
11. The other submission of learned Counsel for the
appellants is that inaccurate particulars were provided by the
assessee in its return, and as such, on such ground the penalty
proceedings have rightly been initiated.
12. The information supplied by the assessee in its
return cannot be said to be concealment of any information.
The facts that are borne out in this case are that the assessee
9
had provided certain particulars with regard to payment of
salary and loans which had been taken by the Company from
certain individuals. The questions as to whether the benefit of
the payment of salary or the loans which were taken is to be
given to the assessee has yet not been finalized, as on those
very questions, the appeal filed by the assessee has been
admitted by the High Court and the said questions are thus yet
to be finally answered. In the aforesaid circumstances, there
would always be a doubt in the mind of the assessee with
regard to the correctness of the disallowance claimed by it.
13. Penalty can be imposed under Section 271(1)(c)
of the Act for concealment of particulars of income or
furnishing inaccurate particulars of such income. The extract
of the relevant provisions of Section 271(1)(c) of the Act is
reproduced below:
“271(1) If the Assessing Officer or the Commissioner
(Appeals) or the Principal Commissioner or Commissioner in
the course of any proceedings under this Act, is satisfied that
any person-
(a) xxxxxx
(b) xxxxxx
10
(c) has concealed the particulars of his income or
furnished inaccurate particulars of such income, or
(d) xxxxxx
he may direct that such person shall pay by way of penalty- ”
The relevant words ‘particulars’ and ‘inaccurate’ have been
dealt with by the Apex Court at length in the case of
Commissioner of Income Tax –vs- Reliance Petroproducts
(P) Ltd. reported in (2010) 322 ITR 158 , wherein it has been
held that “Reading the words “inaccurate” and “particulars” 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.” It was held that “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.”
14. In the present case, the details of the claim were
provided by the assessee. The question is as to whether on
such details, deductions could be allowed or not is still in
doubt. Such questions have been admitted for determination
by the High Court in the appeal filed by the assessee. The
11
Apex Court in the aforesaid case of Reliance Petroproducts
(supra) also held that “merely because the assessee had
claimed the expenditure, which claim was not acceptable to the
revenue, that by itself would not, in our opinion, attract the
penalty under Section 271(1)(c). If we accept the contention
of the Revenue then in case of every return where the claim
made is not accepted by AO for any reason, the assessee will
invite penalty under Section 271(1)(c). That is clearly not the
intendment of the legislature”.
15. In view of the aforesaid decision, we do not find
any good ground to differ with the view taken by the Tribunal
and we are also of the opinion that no substantial question of
law, as framed by the appellant in the appeal, requires
determination by this Court.
16. As such, the appeal stands dismissed. No
order as to costs.
SD/-
JUDGE
SD/-
JUDGE
JT/TL
1
IN THE HIGH COURT OF KARNATAKA AT
BENGALURU
RD
DATED THIS THE 3 DAY OF MARCH 2015
PRESENT
THE HON’BLE MR.JUSTICE VINEET SARAN
AND
THE HON’BLE MRS.JUSTICE S SUJATHA
ITA NO.297/2014
BETWEEN
1.
THE COMMISSIONER OF INCOME TAX
C R BUILDING, QUEENS ROAD
BANGALORE
2.
THE DEPUTY COMMISSIONER OF INCOME-TAX
CIRCLE-11(1)
RASHTROTHANA BHAVAN
NRUPATHUNGA ROAD
BANGALORE 560 001
... APPELLANTS
(BY SRI K V ARAVIND, ADV.)
AND
M/S. ANKITA ELECTRONICS PVT LTD.,
NO.7/4, ANKITA HOUSE
MOUNT JOY ROAD, OPP. BULL TEMPLE
HANUMANTHANAGAR
BANGALORE 560019
... RESPONDENT
THIS ITA IS FILED UNDER SECTION 260-A OF INCOME
TAX ACT 1961, ARISING OUT OF ORDER DATED:14/02/2014
2
PASSED IN ITA NO.120/BANG/2013, FOR THE ASSESSMENT
YEAR 2001-2002.
THIS APPEAL COMING ON FOR ADMISSION THIS
DAY, VINEET SARAN J ., DELIVERED THE FOLLOWING:
JUDGMENT
The question raised in this appeal is as to in what
circumstances an issue involved would be considered as
debatable and as to whether when the tax imposed on the
assessee is under challenge and the appeal filed by the assessee
against the assessment proceedings has been admitted by the
High Court on the substantial question of law, still penalty can
be imposed under Section 271(1)(c) of the Income Tax Act ?
2. This appeal has been filed by the Revenue
challenging the order of the Tribunal, which has dismissed the
appeal of the Revenue and the penalty imposed under Section
271(1)(c) of the Income Tax Act, 1961 (hereinafter referred to
as ‘the Act’ for brevity) has been disallowed.
3. Brief facts of the case are :
The assessee is involved in the business of Computer
consumables. For the assessment year 2001-2002, by order
dated 26.03.2004 passed under Section 143(3) of the Act,
3
certain deductions claimed by the assessee towards salary paid
to two lady Directors and to another person was disallowed, as
well as another sum of Rs.26,00,000/- was disallowed under
Section 68 of the Act, and also the interest given on the loans
was disallowed (totaling amount to Rs.33,90,940/-). The
disallowance was confirmed on merits by the Commissioner of
Income Tax (Appeals). The appeal of the assessee before the
Tribunal was also dismissed. The assessee then filed an appeal
before the High Court, which has been admitted on 04.06.2012
(being ITA No.282/2011) on the following substantial
questions of law:
(A) Whether on the facts and circumstances of the case, the
Hon’ble Tribunal was right in law in upholding the
action of the Learned Respondent under section 147
when the mandatory conditions for exercise of such
powers did not exist and the action was barred by
limitation of time?
(B) Whether on the facts and in the circumstances of the case,
the Hon’ble Tribunal was right in law in holding that
the appellant was barred from seeking reasons for
reopening the assessment at the appellate stage when
examination of such reasons is necessary for determining
4
the correctness or otherwise of initiation of proceedings
under section 147?
(C) Whether on the facts and in the circumstances of the case,
the Hon’ble Tribunal was right in law in upholding the
disallowance of Rs.60,000 in respect of remuneration
paid to directors of the appellant Company by invoking
section 40A(2) of the IT Act?
(D) Whether on the facts and in the circumstances of the case,
the Hon’ble Tribunal was right in law in upholding the
disallowance of Rs.66,000 in respect of salary paid to
Ms.Namratha G Patel?
(E) Whether on the facts and in the circumstances of the case,
the Hon’ble Tribunal was right in upholding the
addition of Rs.26 lakhs treating the same as
unexplained cash credits under section 68 of the Act?
(F) Whether on the facts and in the circumstances of the case,
the Hon’ble Tribunal was right in law in upholding the
disallowance of Rs.3,64,940 in respect of interest paid to
loan creditors?
4. After the confirmation of disallowance by the
Tribunal vide order dated 18.03.2011 with regard to the
assessment made under Section 143(3) of the Act, the
Assessing Authority initiated penalty proceedings on
5
27.11.2006 against the respondent-assessee under Section
271(1)(c) of the Act. Vide order dated 25.10.2011 penalty of
Rs.13,42,000/- was levied for concealment of income. The
appeal filed by the assessee challenging the order of penalty
was allowed by the Commissioner of Income Tax (Appeals).
Challenging the said order, the Revenue filed an appeal before
the ITAT which has also been dismissed by order dated
14.02.2014. Aggrieved by the said orders, this appeal has been
filed wherein a prayer has been made in deciding the following
questions of law:
1. Whether on the facts and circumstances of the case, the
Tribunal is right in law in holding that the issues are
debatable is correct and the penalty under Section
271(1)(c) is not exigible without appreciating that a
mere admission of the appeal under section 260A by
itself does not make the issues debatable ?
2. Whether on the facts and circumstances of the case, the
Tribunal is right in law in relying on the Mumbai
Tribunal order in the case of Nayan Builders &
Developers P.Ltd. in ITA
No.2379/Mumbai/2009 dated 18.03.2011without
6
appreciating that the facts of the relied upon case are
different and distinct from that of the present case?
5. We have heard Sri K.V.Aravind, learned Counsel
appearing for the appellants at length and appreciate the
fairness with which he has presented the case and placed
before us various decisions on the questions at hand.
6. While dismissing the appeal, the Tribunal has
observed that the additions in respect of which penalty under
Section 271(1)(c) of the Act was levied, have been admitted by
the High Court for consideration and thus found that the
additions made were debatable and would lead credence to the
bonafides of the assessee. It thus held that the matter of
imposing penalty under Section 271(1)(c) of the Act, was not
exigible in the case on hand.
7. The Tribunal placed reliance on decision of the
ITAT, Mumbai in the case of Nayan Builders & Developers
Pvt. Ltd., which had also held that “the admission of
substantial questions of law by the High Court lends credence
to the bona fides of the assessee in claiming deduction. Once it
7
turns out that the claim of the assessee could have been
considered for deduction as per a person properly instructed
in law and is not completely debarred at all, the mere fact of
confirmation of disallowance would not per se lead to the
imposition of penalty.”
8. The assessee in the present case had disclosed all
the materials on which it was claiming deduction. The matter
as to whether the deduction was to be given or not, was taken
up by the revenue authorities and it was held that certain
deductions claimed by the assessee were to be disallowed. It is
not disputed that the questions regarding the disallowance of
the deductions claimed by the assessee is under consideration
by the High Court, as the appeal filed by the assessee has been
admitted, on the substantial questions of law which have been
reproduced hereinabove.
9. The mere admission of the appeal by the High
Court on the substantial questions of law as have been quoted
above, would make it apparent that the additions made were
debatable. The Tribunal has thus rightly held that the
8
admission of substantial questions of law by the High Court
leads credence to the bona fide of the assessee and therefore,
the penalty is not exigible under Section 271(1)(c) of the Act.
Merely because the claim of the assessee has been rejected by
the revenue authorities would not make the assessee liable for
penalty.
10. Learned Counsel for the appellants has
vehemently argued that the question of concealment is a
question of fact which has been determined by the Tribunal
and as such, once such a question of fact has been so
determined and finalized, the assessee would certainly be liable
for payment of penalty.
11. The other submission of learned Counsel for the
appellants is that inaccurate particulars were provided by the
assessee in its return, and as such, on such ground the penalty
proceedings have rightly been initiated.
12. The information supplied by the assessee in its
return cannot be said to be concealment of any information.
The facts that are borne out in this case are that the assessee
9
had provided certain particulars with regard to payment of
salary and loans which had been taken by the Company from
certain individuals. The questions as to whether the benefit of
the payment of salary or the loans which were taken is to be
given to the assessee has yet not been finalized, as on those
very questions, the appeal filed by the assessee has been
admitted by the High Court and the said questions are thus yet
to be finally answered. In the aforesaid circumstances, there
would always be a doubt in the mind of the assessee with
regard to the correctness of the disallowance claimed by it.
13. Penalty can be imposed under Section 271(1)(c)
of the Act for concealment of particulars of income or
furnishing inaccurate particulars of such income. The extract
of the relevant provisions of Section 271(1)(c) of the Act is
reproduced below:
“271(1) If the Assessing Officer or the Commissioner
(Appeals) or the Principal Commissioner or Commissioner in
the course of any proceedings under this Act, is satisfied that
any person-
(a) xxxxxx
(b) xxxxxx
10
(c) has concealed the particulars of his income or
furnished inaccurate particulars of such income, or
(d) xxxxxx
he may direct that such person shall pay by way of penalty- ”
The relevant words ‘particulars’ and ‘inaccurate’ have been
dealt with by the Apex Court at length in the case of
Commissioner of Income Tax –vs- Reliance Petroproducts
(P) Ltd. reported in (2010) 322 ITR 158 , wherein it has been
held that “Reading the words “inaccurate” and “particulars” 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.” It was held that “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.”
14. In the present case, the details of the claim were
provided by the assessee. The question is as to whether on
such details, deductions could be allowed or not is still in
doubt. Such questions have been admitted for determination
by the High Court in the appeal filed by the assessee. The
11
Apex Court in the aforesaid case of Reliance Petroproducts
(supra) also held that “merely because the assessee had
claimed the expenditure, which claim was not acceptable to the
revenue, that by itself would not, in our opinion, attract the
penalty under Section 271(1)(c). If we accept the contention
of the Revenue then in case of every return where the claim
made is not accepted by AO for any reason, the assessee will
invite penalty under Section 271(1)(c). That is clearly not the
intendment of the legislature”.
15. In view of the aforesaid decision, we do not find
any good ground to differ with the view taken by the Tribunal
and we are also of the opinion that no substantial question of
law, as framed by the appellant in the appeal, requires
determination by this Court.
16. As such, the appeal stands dismissed. No
order as to costs.
SD/-
JUDGE
SD/-
JUDGE
JT/TL