Madras H.C : Where seller stated that he had not made any sales and given only bills to assessee and assessee had not chosen to cross-examine said seller, penalty under section 271(1)(c) was rightly levied upon assessee

High Court Of Madras

CIT vs. Mahaveer Mirror Industries (P.) Ltd.

Assessment Years : 2000-01 And 2001-02

Section : 271(1)(c)

Elipe Dharma Rao And M. Venugopal, JJ.

Tax Case (Appeal) Nos. 58 And 59 Of 2008

April 26, 2011

JUDGMENT

Elipe Dharma Rao, J. – Since the issue involved in both these tax appeals are one and the same and they are inter-connected, they were heard together and disposed of by this common judgment.

2. The facts and the case culled out from the statement of facts filed by the Revenue goes as follows :

The assessee is a dealer in glass, mirror and plywood. The assessment for the relevant assessment years under consideration were taken up for scrutiny and after survey under section 133 of the Income-tax Act, 1961 (in short “the Act”), and the same was completed under section 143(3) of the Act on March 26, 2003. During the assessment year 1999-2000, the assessee made purchases from various proprietary concerns of Shri Chandrakant T. Shah and his associates. The said Chandrakant T. Shah in his sworn statement has stated that he had not made any sale on goods or supplied any materials to the assessee. On the other hand, he had supplied only the bills. In view of the statement made of Chandrakant T. Shah and in view of the claim of the assessee that the purchases and sales are quantitatively verifiable, the books of account maintained by the assessee were rejected and assessment was completed on the basis of the difference in the gross profit ratio between the assessee and rate prevailing in the market. Finally, the Assessing Officer by two separate orders dated August 28, 2003, had levied penalty on the ground that the provisions of clause (B) of Explanation 1 to section 271(1)(c) of the Act are attracted since the assessee was not able to furnish particulars regarding the source of goods purchased and evidence in connection with the actual price paid. Aggrieved by the orders passed by the Assessing Officer, the assessee preferred appeals in I. T. A. Nos. 230 of 2003-04 and 231 of 2003-04 before the Commissioner of Income-tax (Appeals) (in short “the CIT(A”), who by a common order dated June 29, 2005, reversed the orders of the Assessing Officer thereby deleted the penalty holding that since the levy of penalty relates to addition based on the profit ratio under the head “Business income”, there is no case for levy of penalty under section 271(1)(c) of the Act. Against the said order, the Revenue preferred appeals in I. T. A. Nos. 2148 and 2149 of 2005 before the Income-tax Appellate Tribunal (in short “the Tribunal”), which, by order dated April 27, 2007, confirmed the order of the Commissioner of Income-tax (Appeals) and dismissed the appeals preferred by the Revenue. Aggrieved by the common order passed by the Tribunal, the Revenue has come with the present appeals.

3. These appeals were admitted on the following substantial question of law :

“Whether, in the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was right in confirming the order of the Commissioner of Income-tax (Appeals) in deleting the penalty under section 271(1)(c) of the Income-tax Act in respect of the gross profit addition under the head ‘Profits and gains of business’ for the assessment years 2000-01 (T. C. No. 58 of 2008) and 2001-02 (T. C. No. 59 of 2008) ?”

4. Learned standing counsel appearing for the Revenue would submit that the assessee has not furnished the details of parties from whom the purchases were made and though an opportunity was given to cross-examine Mr. Chandrakant T. Shah from whom the assessee claimed to have purchased goods, the assessee had not availed of the opportunity and this vital fact was not taken into consideration by the Tribunal before passing the impugned order. He also submitted that the Tribunal failed to note that adoption of the gross profits ratio by the Assessing Officer to arrive at the taxable income of the assessee does not absolve the assessee from the liability to penalty leviable under section 271(1)(c) of the Act for having concealed the particulars of his income by resorting to the method of obtaining invoice of the goods at the higher price than the actual cost.

5. In support of such contention, the learned standing counsel relied on the decisions of the Supreme Court reported in CIT v. Mussadilal Ram Bharose [1987] 165 ITR 14/30 Taxman 546 and Union of India v. Dharamendra Textile Processors [2008] 306 ITR 277/174 Taxman 571 (SC).

6. Learned counsel appearing for the assessee supported the decision of the appellate authority as well as the Tribunal. He would submit that the Tribunal, on assessment of the facts of the case, has rightly deleted the penalty and the order does not require any interference from this court.

7. Heard the learned counsel appearing for the parties and perused the materials on record.

8. According to the Revenue, the assessee has produced various bills towards the purchases made from various proprietary concerns of Shri Chandrakanth T. Shah and his associates for the year 1999-2000. To test the veracity of the bills, the Revenue examined the said Shri Chandrakanth T. Shah, who in his sworn statement, stated that he had supplied only the bills and not made any sales of goods/materials to the assessee. Because of the inability on the part of the assessee to produce the confirmation from the suppliers concerned at the time of assessment proceedings and under the impression that the assessee-company would have purchased the materials without bills elsewhere and utilised the bills supplied by Shri Chandrakanth T. Shah as a substitute and since the assessee has not chosen to cross-examine Shri Chandrakanth T.Shah, the Assessing Officer proceeded to levy penalty under section 271(1)(c) of the Act on the footing that there is concealment of income and non-furnishing of particulars by the assessee. In appeal, the appellate authority following his earlier order, deleted the penalty holding that the assessee has not intentionally and deliberately concealed the income or furnished inaccurate particulars of income warranting the levy of penalty under section 271(1)(c) of the Act.

9. The point for consideration in these appeals is as to whether the assessee has concealed the particulars of his income or furnished in accurate particulars of such income ?

10. Before delving the question of concealment of particulars, it would be profitable to note down the relevant provisions of the Act. Chapter XXI of the Act relates to penalties imposable. Section 271 deals with failure to furnish returns, comply with notices, concealment of income, etc., which is as follows :

“271.(1) If the Assessing Officer or the Commissioner (Appeals) or the Commissioner in the course of any proceedings under this Act, is satisfied that any person-. . .

(b) has failed to comply with a notice under sub-section (2) of section 115WD or under sub-section (2) of section 115WE or under sub-section (1) of section 142 or sub-section (2) of section 143 or fails to comply with a direction issued under sub-section (2A), or section 142, or

(c) has concealed the particulars of his income or furnished inaccurate particulars of such income, or

(d) has concealed the particulars of the fringe benefits or furnished inaccurate particulars of such fringe benefits, he may direct that such person shall pay by way of penalty. . .

Explanation 1.-Where in respect of any facts material to the computation of the total income of any person under this Act,-

(A) such person fails to offer an explanation or offers an explanation which is found by the Assessing Officer or the Commissioner (Appeals) or the Commissioner to be false, or

(B) such person offers an explanation which he is not able to substantiate and fails to prove that such explanation is bona fide and that all the facts relating to the same and material to the computation of his total income have been disclosed by him, then, the amount added or disallowed in computing the total income of such person as a result thereof shall, for the purposes of clause (c) of this sub-section be deemed to represent the income in respect of which particulars have been concealed.”

11. A reading of the aforesaid section along with Explanation 1(A) and (B) makes it clear that if the Assessing Officer in the course of assessment proceedings, is satisfied that the assessee has concealed the particulars of his income or furnished inaccurate particulars of such income, he is empowered to levy penalty subject to the explanation given by the assessee found to be false or not bona fide.

12. In the present case, admittedly, for the relevant assessment years, the assessee in his assessment has stated that purchases have been made from one Shri Chandrakanth T. Shah. In order to test the veracity of the statement made by the assessee and purely relying on the sales of the company, the Assessing Officer examined the proprietor of the concern, namely, Shri Chandrakanth T. Shah, who, not only denied the sale of goods but also admitted that he has furnished the bills and not the materials. In order to give an opportunity to the assessee, he was allowed to cross-examine Shri Chandrakanth T. Shah, but the assessee has not chosen to do the same. Therefore, the Assessing Officer has come to the conclusion that the action of the assessee comes within the meaning of concealment and that the explanation offered is inadequate and accordingly, passed the order levying penalty under section 271(1)(c) of the Act. One has to see whether the attitude of the assessee in obtaining only the bills and not the materials/goods from Shri Chandrakanth T. Shah would amount to concealment of particulars of income or furnishing of inaccurate particulars in order to attract the provisions of section 271(1)(c).

13. All the three authorities, viz., the Assessing Officer, the first appellate authority and the Tribunal, have not disputed the fact that the assessee had not purchased any material from Shri Chandrakanth T. Shah and it has not chosen to cross-examine the said Shri Chandrakanth T. Shah, though a specific opportunity was given by the authorities. When the Assessing Officer proceeded on the footing that the aforesaid attitude of the assessee tantamounts to concealment of particulars of income, the appellate authority and the Tribunal have proceeded on the footing that the attitude of the assessee is not an intentional and willful one and, therefore, the question of imposing penalty does not arise.

14. From the facts of the case, we are unable to appreciate as to how the appellate authority and the Tribunal have come to a conclusion that the Assessing Officer has not made out sufficient case to establish that the assessee has intentionally and deliberately concealed the income or furnished inaccurate particulars of income warranting the levy of penalty under section 271(1)(c) of the Act as it relates to gross profit addition under the head “Profits and gains of business”. It is crystal clear that the seller in his sworn statement has stated that he had not made any sales and had given only the bills and, for the reasons best known to the assessee, it has not chosen to even cross-examine the seller. We do not know what also is required to attract the provisions of section 271(1)(c) of the Act, when there is clear finding that bills were only supplied and not the goods. The Tribunal as well as the appellate authority have not controverted or distinguished this fact by relying on any statement or material documents produced on the side of the assessee. The appellate authority has simply rejected the case of the Assessing Officer by following its earlier decision. It is not even discussed in the appellate order as to how the facts are similar. The Tribunal, without going into the facts of the case and the documents produced, has simply confirmed the decision of the appellate authority. A reading of the impugned order would show that no cogent reason was given by the Tribunal to come to a conclusion that the Assessing Officer has failed to establish that the assessee has intentionally and deliberately concealed the income.

15. In this context, the learned counsel for the respondent submitted that the Assessing Officer has erred in ignoring the facts and the legal position that the additions made on the grounds of reduction in the gross profit ratio, ought not to be taken for levy of penalty as the additions to income are eventually due to estimation of profit and the estimate made by the Assessing Officer without taking cognizance of composition of materials sold, volume of transactions for specified items, volume of wastage incurred and price competitiveness due to locational factors, etc., and the income estimated being much higher than that returned by the appellant, would not come under concealment on the part of the appellant.

16. We are unable to accept this contention of the assessee. The rebuttal on the said of the assessee must be on materials relevant and cogent. It is for the fact finding body to judge the relevancy and sufficiency of the materials. If such a fact finding body bearing the aforesaid principles in mind comes to the conclusion that the assessee has discharges the onus, it becomes a conclusion of fact. Admittedly, in the present case, the assessee has not produced evidence/materials to the satisfaction of the authority. On the other hand, the Assessing Officer has found that actually no purchases were made and only bills were got from one Shri Chandrakanth T. Shah.

17. Before coming to a conclusion, we deem it appropriate that it would also be relevant to find out the legal position. The Revenue has relied on two decisions of the Supreme Court, which were referred to above, in order to establish that the assessee has concealed the income and furnished inaccurate particulars warranting penalty under section 271(1)(c).

18. In Dharamendra Textile Processors (supra), the Supreme Court while considering the Explanations to section 271(1)(c), held as follows (headnote) :

“The Explanations appended to section 271(1)(c) of the Income-tax Act, 1961, indicate the element of strict liability on the assessee for concealment or for giving inaccurate particulars while filing the return. The object behind the enactment of section 271(1)(c) read with the Explanations indicates that the section has been enacted to provide for a remedy for loss of revenue. The penalty under that provision 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 section 276C.”

19. The Supreme Court in Mussadilal Ram Bharose (supra), while dealing with the onus of the assessee in producing the relevant materials before the authorities concerned, in paragraph 18, observed as follows (page 22) :

“The position, therefore, in law is clear. If the returned income is less than 80 per cent. of the assessed income, the presumption is raised against the assessee that the assessee is guilty of fraud or gross or wilful neglect as a result of which he has concealed the income but this presumption can be rebutted. The rebuttal must be on materials relevant and cogent. It is for the fact-finding body to judge the relevancy and sufficiency of the materials. If such a fact-finding body, bearing the aforesaid principles in mind, comes to the conclusion that the assessee has discharged the onus, it becomes a conclusion of fact. No question of law arises. In this case, the Tribunal has borne in mind the relevant principles of law and has also judged the facts on record. It is not a case that there was no evidence or there was such evidence on which no reasonable man could have accepted the explanation of the assessee. In that view of the matter, in our opinion, the Tribunal rightly rejected the claim for reference under section 256(1) and the High Court correctly did not entertain the application for reference under section 256(2) of the Act. The appeal, therefore, fails and is accordingly dismissed with costs.”

20. Following the aforesaid judgment of the Supreme Court, this court in Kamal Basha v. Dy. CIT [2009] 316 ITR 58 (Mad) observed that the object behind the enactment of section 271(1)(c) read with the Explanations indicates that the said section has been enacted to provide for a remedy for loss of revenue. The penalty under that provision is a civil liability.

21. In the light of the aforesaid decisions of the Supreme Court and this court and the factual conclusion arrived at in the preceding paragraphs, we are inclined to interfere with the order of the Tribunal. Accordingly, the substantial question of law is answered in favour of the Revenue.

22. In the result, the tax case appeals are allowed. No costs.

[Citation : 353 ITR 553]

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