Punjab & Haryana H.C : In which year the deduction was allowable the penalty under section 271(1)(c) could be levied and upheld

High Court Of Punjab & Haryana

Sethi Industries Corporation vs. DCIT

Assessment Year : 1999-2000

Section : 271(1)(C)

Adarsh Kumar Goel And Ajay Kumar Mittal, JJ.

IT Appeal No. 69 Of 2009

April 6, 2011

JUDGMENT

Ajay Kumar Mittal, J. – This appeal has been preferred by the assessee under section 260A of the Income-tax Act, 1961 (in short “the Act”), against the order dated March 28, 2007, passed by the Income-tax Appellate Tribunal, Delhi Bench, New Delhi (hereinafter referred to as “the Tribunal”) in ITA No. 31/D/2004, relating to the assessment year 1999-2000, claiming the following substantial questions of law :

“(i) Whether, in the facts and circumstances of the case, when deduction itself was disputed that in which year the deduction was allowable the penalty under section 271(1)(c) could be levied and upheld ?

(ii) Whether, in the facts and circumstances of the case, penalty can be imposed for claiming the deduction in the assessment year 1999-2000 when the Department itself was of the view that the deduction is not allowable in the assessment year 1998-99 ?”

2. The facts, in brief, necessary for disposal of the appeal are that the assessee is a manufacturer of auto parts and supplier to Maruti Udyog Ltd. It filed its return of income for the assessment year 1998-99 on October 29, 1998, declaring an income of Rs. 1,46,140. The said return was revised on October 21, 1999, declaring loss of Rs. 8,53,860 on account of receipt of debit notes amounting to Rs. 10 lakhs from Maruti Udyog Ltd. The assessment order was passed on March 27, 2001, accepting the loss of Rs.6,35,767 after allowing the claim of Rs. 10 lakhs. The assessee for the year 1999-2000 filed its return of income on December 16, 1999, declaring a net loss of Rs. 5,94,541. Here, the assessee had again claimed loss amounting to Rs. 10 lakhs on account of debit note received from Maruti Udyog Ltd. The assessment was completed by the Assessing Officer on March 21, 2002, disallowing the loss of Rs. 10 lakhs on the ground that the assessee had already availed of the said loss in the assessment year 1998-99. The Assessing Officer also imposed penalty of Rs. 3,50,000 upon the assessee under section 271(1)(c) of the Act, vide order dated September 24, 2002, for concealment of income and furnishing inaccurate particulars. The assessee filed an appeal before the Commissioner of Income-tax (Appeals) (in short “the CIT(A))” against the levy of penalty by the Assessing Officer. In the meantime, the Commissioner of Income-tax (CIT), vide order dated December 26, 2002, initiated proceedings under section 263 of the Act for the assessment year 1998-99 on the ground that the loss of Rs. 10 lakhs had been wrongly allowed as the same was not written off in the books of account for the said year. The Commissioner of Income-tax (Appeals), vide order dated November 20, 2003, dismissed the appeal of the assessee against levy of penalty. Feeling aggrieved, the assessee filed appeals against the orders dated November 20, 2003, and December 26, 2002, before the Tribunal. The Revenue also filed an appeal against the order of the Commissioner of Income-tax (Appeals) deleting the addition of Rs. 10 lakhs made by the Assessing Officer in the consequential proceedings taken in pursuance of the order of the Commissioner of Income-tax dated December 26, 2002, under section 263 of the Act. The Tribunal, vide order dated March 25, 2007, allowed the appeal of the assessee and set aside the order of the Commissioner of Income-tax passed under section 263 of the Act and restored that of the Assessing Officer dated March 27, 2001, allowing deduction of Rs. 10 lakhs from income relating to the assessment year 1998-99. The appeal of the Revenue against the order deleting the addition was dismissed as the order under section 263 of the Act was set aside and it was held that the consequential proceedings thereto have become infructuous. However, the order imposing penalty under section 271(1)(c) of the Act was upheld by the Tribunal. Hence, the present appeal by the assessee.

3. We have heard learned counsel for the parties.

4. The point in issue is whether the penalty imposed under section 271(1)(c) of the Act by the Assessing Officer and sustained by the Tribunal was justified.

5. It is not in dispute that the assessee had filed the original return for the assessment year 1998-99 on October 29, 1998, which was revised claiming a loss of Rs. 10 lakhs on account of debit notes issued by Maruti Udyog Ltd. on October 21, 1999. The assessee for the next assessment year 1999-2000 filed a return on December 16, 1999, in which it had again claimed loss of Rs. 10 lakhs which had already been claimed for the assessment year 1998-99. Thus, the assessee had claimed loss of Rs. 10 lakhs twice over, i.e., one in the return filed for the assessment year 1998-99 and the second time in the return filed for the assessment year 1999-2000. The Tribunal, while upholding the penalty under section 271(1)(c) of the Act, had recorded that the explanation furnished by the assessee was not bona fide and the assessee was unable to substantiate its version. The findings recorded read as under :

“16.1 The question now is-whether the assessee furnished inaccurate particulars of income ? Section 271(1)(c), Explanation1, provides that 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 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 purpose of clause (c) of this sub-section, be deemed to represent the income in respect of which particulars have been concealed.

16.2 Explanation 1, enacts a rule of evidence under which initial onus of offering explanation about any sum added to the income is placed on the assessee. There could be two situations, namely, that the explanation is offered or the explanation is not offered. In this case, the explanation has been offered by the assessee. Clause (B) of the Explanation further requires that the explanation is to be substantiated by the assessee and if he fails to substantiate the explanation as bona fide and show that all facts relating to the same and material to computation of income have been disclosed, then, the case would get covered squarely under the Explanation. It was the explanation that the amount was claimed in the assessment year 1998-99 on legal advice. There is no evidence to that effect on record. It was also explained that the claim in this year was merely a clerical mistake. It has been held that this explanation is not bona fide because the assessee could not have forgotten that this very amount was claimed in the return for the assessment year 1998-99 less than two months ago. The claim was a very big amount and it materially altered its income. Therefore, we are of the view that the explanation is not bona fide. It has also been pointed out that no mention whatsoever was made in the return about the material fact that this very amount had also been claimed in the assessment year 1998-99. Thus, all the ingredients of clause (B) are satisfied and, therefore, in terms of Explanation 1 the impugned amount has to be deemed to represent the income in respect of which inaccurate particulars have been furnished.

16.3 Having considered the assessee’s explanation, we are of the view that the default committed by the assessee is not a technical or venial default, as substantial tax is involved. There is no doubt that the assessee had claimed the same amount twice over, second time in this year. Having claimed the amount in the assessment year 1998-99, there was no reason for the assessee to claim the same amount in this year again. The default of the assessee has been considered separately in penalty proceedings by the Assessing Officer and the learned Commissioner of Income-tax (Appeals). It is no doubt true that the levy of penalty is not mandatory. However, when the same claim is made twice over without disclosing material facts at the time of making the claim for the second time, it becomes obligatory for the authorities under that Act to examine whether the facts of the case called for imposition of penalty. We are of the view that the instant case has been considered by both the lower authorities in the right perspective and, therefore, the penalty was rightly levied and upheld respectively by them. Thus, we do not find any reason to interfere with the order of the learned Commissioner of Income-tax (Appeals).”

6. The Tribunal had concluded that the assessee had furnished inaccurate particulars of income and the same had been done deliberately. No illegality or perversity could be pointed out by the learned counsel for the assessee except an attempt was made to persuade this court to reappreciate the material on record, which is not permissible. The levy of penalty under section 271(1)(c) of the Act had, thus, rightly been sustained.

7. Accordingly, the questions of law are answered against the assessee and in favour of the Revenue. The appeal stands dismissed.

[Citation : 338 ITR 243]

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