High Court Of Delhi
CIT vs. Harparshad & Company Ltd.
Section 271(1)(c), Expln. 1
Asst. Year 1979-80
A.K. Sikri & Ms. Reva Khetrapal, JJ.
IT Ref. No. 243 of 1991
4th August, 2010
Counsel Appeared :
Ms. Prem Lata Bansal, for the Appellant : None, for the Respondent
JUDGMENT
A.K. SIKRI, J. :
Nobody appeared on behalf of the assessee in spite of service. Even today, there is no appearance. In these circumstances, we have no option but to proceed with the matter in the absence of the assessee. We have heard Mrs. Prem Lata Bansal, advocate for the Revenue at length.
2. The AO, in the proceedings initiated by him under s. 271(1)(c) of the IT Act has imposed penalty upon the assessee herein for the concealment of income in respect of asst. yr. 1979-80. The CIT (A) had affirmed this penalty. However, Tribunal has set aside the penalty order. The Revenue has approached this Court by moving petition under s. 256(2) of the Act seeking reference, which petition was allowed vide order dt. 7th Jan., 1991 and direction was given to the Tribunal to draw a statement of case and refer the following question of law for the opinion of this Court :
“Whether the Tribunal was correct in law in deleting the penalty imposed by the ITO under s. 271 (1)(c) of the IT Act, 1961 ?”
3. This question arises in the following factual backdrop. While passing the assessment order, the AO was of the view that the aforesaid claim of payment of commission of Mrs. Ritu Nanda was bogus and could not be substantiated by the assessee even when the opportunity in this behalf was given to it. Therefore, the AO chose to serve show-cause notice upon the assessee under s. 271(1) (c) of the Act for imposition of penalty. After eliciting the reply of the assessee to the said show-cause notice and given hearing, order dt. 15th July, 1985 was passed by the AO thereby imposing penalty in the sum of Rs. 1,05,730. The assessee has approached the CIT(A) challenging the order of penalty, but unsuccessfully, as the appeal was dismissed on 5th March, 1986. In further appeal to the Tribunal, however, the assessee succeeded as order of penalty was set aside by the Tribunal vide order dt. 11th Feb., 1988. Before we take note of the considerations which weighed with the AO and the CIT(A) on the one hand in imposing the penalty and the Tribunal on the other hand in deleting the said penalty, it would be in fitness of things to deal with the claim for commission preferred by the assessee in the return of income filed by it and the reasons because of which the said claim was disallowed.
We have already taken note of the reasons given by the AO in disallowing the claim. To recapitulate in brief, the AO found that no services were rendered by Mrs. Ritu Nanda as alleged for which she was purportedly given commission @ 3 per cent of the contract value. Further more, though the payment of commission was claimed as given to Mrs. Ritu Nanda as director of the company, at the relevant time when this contract from Iran was signed by the assessee, she was not even the director. In the appeal filed by the assessee, CIT had disallowed part of the commission. Total commission which was claimed to have been paid to Mrs. Ritu Nanda was in the sum of Rs. 2,74,617 and the entire amount was disallowed by the AO. However, CIT(A) disallowed the payment of commission to the extent of Rs. 1,83,978. Order of CIT(A) in these quantum proceedings has been perused by us. Reading thereof would bring out certain additional facts which are as under : Amount of Rs. 2,74,617 which was paid to Mrs. Ritu Nanda as commission represented 3 per cent of the contract value. Mrs. Ritu Nanda in turn had made payment to the extent of 1 per cent to M/s Jupiter Trading Corporation. It was found that, in fact, it was M/s Jupiter Trading Corporation which had rendered the requisite services. Instead of paying the commission to M/s Jupiter Trading Corporation directly, the assessee had paid 3 per cent of the contract value as commission to Mrs. Ritu Nanda, who out of this commission paid 1 per cent thereof to M/s Jupiter Trading Corporation. It is for this reason that for the 1 per cent commission which was paid to M/s Jupiter Trading Corporation against the services actually rendered, the CIT(A) had allowed the deduction. Otherwise, insofar as payment made to Mrs. Ritu Nanda is concerned specific and categorical finding of the CIT(A) was that she had not rendered any services for which commission was paid to her. It would be of interest to note that the Tribunal also put its stamp of approval to the aforesaid findings. The relevant portion of the Tribunal order reads as under : “In fact no services has been rendered by Smt. Ritu Nanda and that expenditure by the way of commission leaving apart that portion which had been paid to M/s Jupiter Trading Corpn., was not incurred for the purposes of business.”
It was also observed that the payment was made to Smt. Ritu Nanda who was daughter-in-law of the managing director of the company and, thus, it was a bogus payment without any consideration.
We have examined the penalty proceedings keeping in view the aforesaid aspects in mind and we are of the opinion that the order of the AO imposing penalty was without any blemish and there was no cause for interference in it by the Tribunal. The reasons given by the Tribunal in quashing these penalty proceedings are totally irrelevant, not germane to the issue and rather the Tribunal has lost sight of the aforesaid aspects, which had been conclusively established in the quantum proceedings. In the first instance, the Tribunal has observed that when part claim was allowed by the CIT(A) and only part claim was disallowed, claim for commission was not bogus but was only excessive. This is an observation which is contrary to record. The Tribunal has failed to take note of the fact that part claim as commission was allowed to the assessee not because of the reason that Mrs. Ritu Nanda had rendered any services. It was because of the fact that M/s Jupiter Trading Corporation had rendered services for which it was paid 1 per cent of the commission by Mrs. Ritu Nanda out of 3 per cent received by her. However, the penalty was imposed for putting a bogus claim of payment of commission purportedly paid to Mrs. Ritu Nanda. As far as commission to her is concerned, it was accepted by the Tribunal in quantum proceedings that she did not render any services at all.
The second reason given by the Tribunal, which flows from the first, is that it was not for the AO to substitute its own wisdom or business same with that of the assessee and in case assessee chose to give excessive commission to Mrs. Ritu Nanda, that would call for penalty. Again, while making these observations, the Tribunal was swayed by the wrong fact that Mrs. Ritu Nanda had rendered services and the claim was not bogus but excessive. The findings given in assessment proceedings are relevant and have probative value. Where the assessee produces no fresh evidence or presents any additional or fresh circumstance in penalty proceedings, he would be deemed to have failed to discharge the onus placed on him and the levy of penalty could be justified [CIT vs. M. Habibullah (1982) 29 CTR (All) 281 : (1982) 136 ITR 716 (All)]. Explanation (1) below s. 271(1)(c) suggests that the assessee would be deemed to have failed to furnish full and accurate particulars of income, if it failed to offer an explanation, or offers the explanation, which is found by the ITO to be false or it has not been able to substantiate it, in respect of any facts material to the computation to the total income of that person under IT Act. The assessee had failed to offer any explanation in respect of the addition of Rs. 1,83,078, and it could be deemed to have concealed the particulars of income or furnished inaccurate particulars thereof, by virtue of this Explanation.
9. In CIT vs. Escorts Finance Ltd. (2009) 226 CTR (Del) 105 : (2009) 28 DTR (Del) 293, principle of law was resettled in the following words : “It is repeatedly held by the Courts that the penalty on the ground of concealment of particulars of non-disclosure of full particulars can be levied only when in the accounts/return an item has been suppressed dishonestly or the item has been claimed fraudulently or a bogus claim has been made.
When the facts are clearly disclosed in the return of income, penalty cannot be levied and merely because an amount is not allowed or taxed to income as it cannot be said that the assessee had filed inaccurate particulars or concealed any income chargeable to tax. Further, conscious concealment is necessary. Even if some deduction or benefit is claimed by the assessee wrongly but bona fide and no mala fide can be attributed, the penalty would not be levied. A fortiorari, if there is a deliberate concealment and false/inaccurate return was filed, which was revised after the assessee was exposed of the falsehood, it would be treated as concealment of income in the original return and would attract penalty even if revised return was filed before the assessment is completed. Likewise, where claim made in the return appears to be ex facie bogus, it would be treated as case of concealment or inaccurate particulars and penalty proceedings would be justified.”
10. The law has developed to the extent that even if there is no concealment of income or furnishing of inaccurate particulars, but on the basis thereof the claim which is made is ex facie bogus, it may still attract penalty provision. Cases of bogus hundi loans or bogus sales or purchases have been treated as that of concealment or inaccuracy in particulars of income by the judicial pronouncements. [See Krishna Kumari Chamanlal & Anr. vs. CIT (1995) 127 CTR (Bom) 458 : (1996) 217 ITR 645 (Bom), Rajaram & Co. vs. CIT (1991) 99 CTR (Guj) 161 : (1992) 193 ITR 614 (Guj) and Beena Metals vs. CIT (1999) 154 CTR (Ker) 150 : (1999) 240 ITR 222 (Ker)].
11. Immediately thereafter, in CIT vs. Vidyagauri Natverlal & Ors. (1999) 153 CTR (Guj) 546 : (1999) 238 ITR 91 (Guj), Gujarat High Court made a distinction between wrong claim as opposed to false claim and held that if the claim is found to be false, the same would attract penalty. We may also take note of the following observations of the Supreme Court in the case of Union of India & Ors. vs. Dharamendra Textile Processors & Ors. (2008) 219 CTR (SC) 617 : (2008) 14 DTR (SC) 114 : (2008) 306 ITR 277 (SC) : (2008) 13 SCC 369.
12. The Explanations appended to s. 272(1)(c) of the IT Act entirely indicates the element of strict liability on the assessee for concealment or for giving inaccurate particulars while filing return. The judgment in Dilip N. Shroff vs. Jt. CIT (2007) 210 CTR (SC) 228 : (2007) 291 ITR 519 (SC) has not considered the effect and relevance of s. 276C of the IT Act. Object behind enactment of s. 271(1) (c) read with Explanations indicate that the said section has been enacted to provide for a remedy for loss of revenue. The penalty under that provisions is a civil liability. Wilful concealment is not an essential ingredient for attracting civil liability as is the case in the matter of prosecution under s. 276C of the IT Act.
13. Thus, we answer the question as formulated in the negative that is against the assessee and in favour of the Revenue.
[Citation : 328 ITR 53]
