High Court Of Karnataka
CIT Vs. BPL Sanyo Finance Ltd.
Assessment Year : 1997-98
Section : 271(1)(c), 32
Dilip B. Bhosale And B. Manohar, Jj.
IT Appeal No. 652 Of 2006
September  11, 2013
JUDGMENT
Dilip B. Bhosale, J. –Â This appeal under section 260A of the IT Act, 1961 (for short “the Act”) is directed against the order dated 28-10-2005 rendered by the Income-tax Appellate Tribunal, Bangalore Bench “A” (for short “Tribunal”) in ITA No. 2171/Bang/2004, whereby, the appeal filed by the respondent has been partly allowed.
2. The appeal before the Tribunal was arising from the order dated 4th June, 2004 passed by the Commissioner of Income-tax (Appeals) Bangalore (for short “the appellate authority”) in an appeal against levy of penalty under section 271(l)(c) of the Act. The penalty was levied by the Dy. CIT, Central Circle-II (1), Bangalore (for short “the Assessing Officer or AO”) vide order dated 26thSept., 2002.
3. This Court while admitting the appeal on 23rd Aug., 2007, had formulated the following substantial question of law for consideration:
“Whether on the facts and in the circumstances of case and in law, the Tribunal was justified in holding that there is neither concealment of income nor furnishing of inaccurate particulars for levy of penalty under s. 271(1)(c) of the act despite the detection in the course of survey that 100 per cent depreciation claimed in respect of the alleged sale and lease back from M/s Bellary Steel & Alloys Ltd. (for short “Bellary Steel”) was held to be false claim by the assessing authority ?”
4. Having regard to the order of the Tribunal and the contentions urged by learned counsel for the parties, in the present appeal, we will have to examine whether levy of penalty under s. 271(1)(c) of the Act is legally sustainable in the light of the fact, which surfaced in the survey under s. 133A of Act, that claim of 100 per cent depreciation made by the respondent-assessee was not only false but was made in respect of non-existent goods, and that penalty is liable to be levied not only for concealing the income but also for furnishing inaccurate particulars; and whether on the facts and in the circumstances of the case and in law,is it possible to hold that the respondent-assessee was unaware about non-existence of assets/goods, as claimed by them, and was cheated by Bellary Steel & Alloys Ltd. (for short “Bellary Steel”). The assets/goods involved in these proceedings is a form of Special Grade Cast Iron Rollers (for short “rolls”). The concerned assessment year is 1997-98. The respondent-assessee claimed 100 per cent depreciation claiming to have had leased the rolls to Bellary Steel.
5. The respondent M/s BPL Sanyo Finance Ltd (for short “the assessee”) was in the leasing business. They had filed return of income for the asst. year 1997-98, i.e. for the financial year 1st April, 1996 to 31st March; 1997, on 28th Nov., 1997 under s. 139, declaring a total income of Rs. 1,26,50,375 as applicable under s. 115JA of the Act. The return of income was processed and accordingly an intimation to the assessee, under s. 143(1) of the Act was given. On 8th Sept., 1998 it was taken up for scrutiny under s. 143(3) of the Act. The assessee under s. 139(5) of the Act filed revised returns on 18th Jan., 1999 seeking correction of the rate of depreciation, from 40 per cent, as claimed in the original returns, to 20 per cent on the leased vehicles. The AO concluded the assessment accepting the correction in respect of the rate of depreciation, as claimed in the revised returns. Thus, till 13th March, 2000, i.e., when the original assessment was made, the claim of the assessee was found acceptable and accepted as such.
6. It appears that in the course of scrutiny, it was noticed that the assessee had claimed 100 per cent depreciation on rolls, claiming that they had purchased the rolls from BM Steels (P) Ltd. (for short “BM Steel”) and leased to Bellary Steel. That led the concerned authority to conduct survey under s. 133A of the Act at the premises of Bellary Steel on 1st June, 2000. In the course of survey, various incriminating documents were seized/found. An inventory of rolls at the premises of Bellary Steel revealed that they had only 361 rolls in their stock as against 3702 rolls accounted both as purchased and leased by financial institutions and leasing companies, like the assessee in the present case. Based on the information received and the materials collected at the said survey, the AO initiated proceedings under s. 147 by issuing notice under s. 148 on 11th Jan., 2001 to the assessee, recording reasons inter alia that income chargeable to tax had escaped assessment. In response to the notice, the assessee filed return on 28th March, 2001. The return filed by the assessee had further been taken up for scrutiny and accordingly notice was issued on 30th Aug., 2001. In response to the notice, one Mr. H.V. Gowthama, chartered accountant and Authorised Representative appeared and filed detailed reply. The MD of the assessee, Mr. M.A. Uppal, was also summoned on 11th Oct., 2001 and his statement on oath was recorded. A report of the supplementary survey dated 14th July, 2000 received by the office of the AO on 5th Dec, 2012 was also placed on record.
7. It was brought to the notice of the assessee that in the course of survey conducted at the premises of Bellary Steel, it was found that the said company was engaged in bogus lease transactions enabling the finance/leasing companies to claim 100 per cent depreciation in respect of non-existent assets. It was also brought to their notice that supplier of rolls B.M. Steel from Chennai was neither capable of manufacturing the rolls nor had supplied any rolls to Bellary Steel. It was also ascertained that Bellary Steel did not require the number of rolls that they had shown as taken on lease for manufacturing quantity of steel, that they produced year-wise. Mr. Madhava, the MD of Bellary Steel, in the course of enquiry, confessed to the fact that Bellary Steel was raising funds for capital expenditure by means of lease transaction in respect of non-existent assets. It is in this backdrop, the assessee was informed that they were not entitled to depreciation, as claimed, on non-existent rolls allegedly leased to Bellary Steel. In other words, they were informed that they were not entitled to claim 100 per cent depreciation on the non-existent rolls allegedly leased to Bellary Steel. Accordingly, the assessee was called upon to explain why the alleged bogus claim of depreciation should not be disallowed and taxable income for the year 1997-98 be computed afresh.
8. The assessee was asked to submit/file detailed statement in response with the supporting materials. The assessee accordingly filed response dated 25th Sept., 2001 stating in detail about the transaction. They also placed all the documents on record in support of their claim. In short, they justified their claim of 100 per cent depreciation claiming it to be genuine. In the present appeal, we are not examining the reassessment order and hence we do not deem it necessary to narrate further facts in detail. Suffice it to say that, reassessment was completed on 15th March, 2002 wherein, the claim of depreciation on the rolls leased to Bellary Steel was disallowed as withdrawn by the assessee.
9. It would be, however, necessary to see what did the assessee in the Letter dated 8th March, 2002, addressed to the AO, had stated. By this letter, at the outset, the assessee withdrew their claim of 100 per cent depreciation and requested not to levy penalty in view of the peculiar facts of the case. The case made out in the letter, in short, was that during the financial year 1997-98, M/s Kotak Mahindra introduced Bellary Steel to them and requested to finance by way of leasing rolls for which they would be eligible for 100 per cent depreciation. The assessee was also informed that several other leasing companies and financial institutions had leased rolls and equipments to Bellary Steel. The assessee was also given to understand that the equipments/assets were required for the purpose of expansion programme of Bellary Steel. Accordingly they agreed for entering into a lease transaction with Bellary Steel since they were eligible for 100 per cent depreciation on the assets (rolls) to be leased. The assessee claim that they believed that the entire transaction was bona fide and accordingly entered into lease agreement to support the purchase of rolls. The rolls, according to the asssessee were procured by Bellary Steel directly from B.M. Steel and they were also transported to their factory at Bellary by Sri Balaji Roadways. The assessee in support of the entire transaction placed on record the necessary documents like sale deed, lorry receipt, installation certificate, board resolution, project report, personal guarantee of managing director, etc. They also placed on record that initially lease rent was paid by Bellary Steel regularly and as their cheques of the lease rent started bouncing they filed criminal case against them.
10. It is in this backdrop and having regard to the report of survey, a request was made by the assessee to allow them to withdraw their claim of 100 per cent depreciation on the rolls and as a result thereof, the assessment order was passed by the AO on 15th March, 2002.
11. Simultaneously penalty proceedings under s. 271(l)(c) of the Act were also initiated against the assessee. The AO after having considered the entire materials placed on record and the admissions given by the assessee in respect of the transaction and so also on the basis of oral evidence on record levied penalty of Rs. 43,47,753 on the assessee. The order of the AO was confirmed by the appellate authority. The Tribunal, however, reversed the orders passed by the authorities below, vide order dated 28th Oct., 2005, which is impugned in the present appeal.
12. The case of the Revenue against the assessee is that the assessee was a voluntary participant in a bogus lease transaction claiming 100 per cent depreciation on non-existent assets. They also demonstrated the undue haste in entering into lease deed/transaction without verifying the capacity of B.M. Steel to manufacture rolls. They even did not verify whether goods/rolls, owned by them, were actually taken delivery of and transported to Bellary Steel by Balaji transport. Even after the alleged delivery of rolls they did not verify its use. The rolls were not insured. No inspection of the rolls was done at any point of time as they do it in respect of motor vehicles which they give on lease. They admittedly have/had independent man power to inspect the leased goods and they also seem to be very particular in carrying out inspection at regular intervals. Despite having such infrastructure, no inspection at any point of time of the rolls was done. From this conduct, it was submitted on behalf of the Revenue, the only inference that could be drawn is that the assessee was aware that they had financed/leased non-existent rolls. Further the case of the Revenue is that the assessee after having realized that it was not possible for them to justify or support the transaction and that the authorities have sufficient evidence to infer that it was a bogus transaction, they agreed for withdrawal of their claim of 100 per cent depreciation.
13. The Tribunal after having considered the case of both sides and the materials placed on record in para 6.3 observed thus :
“6.3 The present transaction of lease is a finance lease and not an operating lease. In a finance lease transaction, the lessee who requires certain equipments for its purpose, approaches the lessor with a proposal. The lessee selects the material and also selects the specification for the same. What type of equipment is required is determined by lessee. Similarly the manufacturer who can produce such made to order equipment is also selected by lessee. Thus, the lessor is neither to verify what type of equipment is required nor to verify the capacity of the manufacturer. When the lessee himself has produced the pro forma invoice, transporter receipts, installation certificate and accepted all the terms of lease, there is no reason with the lessor to doubt the genuineness of transaction. The lessor is to ensure that his money is safe. For this purpose, the lessor insisted for post-dated cheques, obtained collateral security by way of shares valuing more than lease transaction, and obtained other documents like lease deed, guarantee from managing director etc. In absence of any reason to doubt the transaction and in view of categorical statement by lessee, particularly when nine quarterly instalments of lease rentals were received on due dates, the assessee never gets a whisper about anything wrong in such lease transaction. Even if assessee was to claim 100 per cent depreciation on such assets leased, the tax thereon would be merely 35 per cent. No prudent man, particularly a public limited company, will enter into transaction to lose 100 per cent of the capital merely to save 35 per cent thereof as a tax. To add to this, the assessee pays tax on entire lease rent which effectively and substantially reduces any tax advantage available by way of claim of depreciation. In the net result it will still lose more than 65 per cent of its own money, which no person will ever do. Thus, there is no reason to believe that the assessee was ever a voluntary participant in the bogus lease transaction. On the contrary, the assessee is duped by systematic fraud played by BSAL upon the appellant. The power available to the AO either ‘to verify or summon the manufacturer, to summon the transporter, to summon the lessee or examine the managing director is not available to the appellant. The appellant has to carry on its business transaction in a commercial way i.e. it runs on trust and not by doubt or suspecting at every point, particularly when it has no reason to do so. It is a different proposition that having been made aware by AO regarding non-genuine nature of transaction, the assessee instead of litigating further, chose to withdraw the claim of depreciation. It is settled law that merely because certain additions/disallowances are made in assessment proceedings, it is not conclusive to levy penalty for concealment of particulars of income or for inaccurate particulars of income. The conduct of assessee at the time when it filed return of income is material, at which point the assessee was always under bona fide belief that the transaction is genuine and claim is admissible as per law. This belief is further strengthened as the same was accepted even in scrutiny assessment made under s. 143(3) on 13th March, 2000. Thus, it can be concluded that the assessee neither concealed particulars of income nor furnished inaccurate particulars of income. The assessee is merely a victim of fraud played upon it to which it was never a party. Penalty under s. 271(1)(c) is not attracted in such situation.”
14. The observations made by the Tribunal, at the outset, in our opinion, are based on surmise and conjecture. The Tribunal lost sight of the fact that the assessee being the lessor was owner of the rolls. Merely because, lessee had taken responsibility of selection of rolls and its transportation to Bellary, it would not be correct to state that the lessor was not suppose to verify what were the goods purportedly leased by them and to find capacity of its manufacturer. If such view is taken, we are afraid, that would encourage the instances, such as the present case, to claim 100 per cent depreciation in respect of non-existent goods. The lessor in such cases, is not only expected to ensure that his monies are safe but he should also ensure that he is getting involved in a genuine transaction of lease.
15. The conduct of the assessee/lessor, in the present case, to get his monies secured by taking all care on paper including taking post-dated cheques, would show that he was either negligent in participating in this transaction or he was aware that the entire transaction was on paper only to gain tax benefits. The conduct of the lessor/assessee is relevant to draw either of the inferences. If the assessee was held to be negligent, perhaps the order of levy of penalty will have to be set aside and if, on the facts and circumstances of the case, if it is found that the transaction was bogus and was only on paper and that the assessee was aware about it, the order of levy of penalty will have to be confirmed. When the cheques started bouncing, it was necessary for the assessee not only to lodge criminal complaint/initiate proceedings under s. 138 of the Negotiable Instruments Act but to proceed against the lessee to take possession of the leased rolls. The assessee has not placed any materials on record to show whether they took the criminal proceeding initiated by them against Bellary Steel to its logical conclusion and that what steps were taken to recover their monies or rolls. In the latter part of the judgment we would also demonstrate that the claim of the assessee/lessor that they were being cheated is not correct. Inference drawn by the Tribunal that they were innocent and were not aware about the ill-intentions of lessee, as observed earlier, is based on surmise and conjecture. In any case, having regard to the facts and circumstances of this case, it cannot be stated that the assessee/lessor neither “concealed” particulars of income nor furnished “inaccurate particulars” of income, as observed by the Tribunal. On the facts and circumstances of the case, it would be stretching too far to hold that the assessee, who claims to be the victim of fraud, was not a party to the bogus lease transaction of non-existent assets.
16. Then the Tribunal, thereafter, considered the statement and letter dated 3rd Oct., 2000 of Sri S. Madhava, Managing Director of Bellary Steel and after considering the contents thereof, observed thus :
“Even reading the aforesaid statement by Shri S Madhava, it cannot be conclusively proved that BSAL never obtained any SGCI rollers. There is no mention, as to which transaction is not genuine or which manufacturer is non-existing. The rollers are eligible for 100 per cent depreciation which get damaged even during trial production. Thus, there is no categorical statement by said S. Madhava to suggest that lease transaction between appellant and BSAL is bogus. Learned Departmental Representative has stressed that certain conduct of appellant is unbelievable like the appellant not verifying the capacity of vendor, the appellant not verifying the capacity of transporter, the appellant not physically verifying installation. The transaction may be unbelievable from the point of view of AO, but as far as appellant is concerned, if it has no reason to doubt the genuineness of the transaction, the appellant will not do all such activities the appellant is merely interested in ensuring its lease, earning lease rentals and securing its interest. This was done by receiving proper invoices, transport receipts, post-dated cheques, entering into lease deed, obtained guarantees from directors, availing collateral security in the form of shares of listed companies, the value of which is exceeding the leased assets. When the lease proposal was moved by Kotak Mahindra Group, a well renowned finance advisor in India and the company is promoted by eminent personalities, the appellant has no reason to doubt. Till the survey was conducted at the premises of BSAL and the result of such enquiry was confronted to the appellant on 30th Aug., 2001, the appellant was never aware that either the assets are not existing or that the assets are not used by lessee. We accordingly hold that the conduct of assessee was bona fide not only at the time when it has filed the original return of income but also when it filed the return pursuant to notice under s. 148.”
17. From the aforesaid observations, it is clear while dealing with the case of Revenue, the Tribunal has assumed everything in favour of the assessee/lessor. For instance, while dealing with the submission that the conduct of the assessee was unbelievable that it did not even verify existence of the rolls, the Tribunal has gone to the extent in observing that the transaction may be false (not genuine), but as far as the assessee is concerned, it had no reason to doubt the genuineness of the transaction since the assessee was interested only in ensuring its lease, earning lease rentals and securing its interest. The assessee, the Tribunal further holds, did it by receiving proper invoices, transport receipts, post-dated cheques, entering into lease deed, obtained guarantees from directors, availing collateral security in the form of shares of listed companies, the value of which was exceeding the leased assets. This, in our opinion, would simply show that the assessee only had secured its amount. From its conduct, and the other evidence on record, the only inference that can be drawn is that the assessee took so much care to secure its deal/amount since it was aware that they were financing/leasing non-existent goods. In support of such observation, we would like to refer to some other materials on record and to find out whether the claim of the assessee that they were not knowing being cheated by the lessee, is correct.
18. From bare perusal of the reasons recorded by the Tribunal, it is clear that the Tribunal accepted the case tried to be made out by the assessee that they were absolutely innocent, acted bona fidely, and that they were not aware being cheated by Bellary Steel. The Tribunal having accepted the case of the assessee observed that there was no reason to believe that the assessee was ever a voluntary participant in the bogus lease transaction and that the assessee was duped by systematic fraud played by Bellary Steel. After recording these findings on one hand, the Tribunal on the other hand, has observed that it cannot be conclusively held that the Bellary Steel had obtained any rolls. The Tribunal has also with reference to the statement of Mr. Madhava, Managing Director of Bellary Steel observed that there is no material to state that the lease transaction between the appellant and the Bellary Steel was bogus. Thus, it is clear that the Tribunal has made inconsistent observations in respect of this entire transaction to hold that the conduct of the assessee was bona fide not only at the time when the original return of income was filed but also when return was filed pursuant to notice under s. 148 of the Act.
19. We have perused the orders of the AO and the first appellate authority and we find that the Tribunal lost sight of the relevant material on record and has simply referred to the defence/case made out by the assessee. The material on record clearly shows that the assessee was aware that they were claiming 100 per cent depreciation on non-existing assets. In this connection, we refer to the statement of R. Balathandayudam, Vice President of the assessee. He was the Managing Director of the assessee at the relevant time. He stated that he was with the assessee for about 23 years. Before taking over as Vice President he was General Manager (Finance) of the assessee. In the statement of Mr. R. Balathandayudam, recorded on 20th Oct., 1998, he stated that they make verification of assets as and when they are purchased with an intention to give it on lease. They also make physical verification of the assets when they are leased and that they verify and ensure that the leased assets are put to business use. It is clear from the statement of Mr. R. Balathandayudam, that the assessee had a mechanism/system of verification of assets leased by them to different lessee. Further, the assessee being a public limited company, a statutory audit was conducted for the relevant year as provided for under s. 44AB of the Act. The auditor clearly stated that the physical verification of all assets was reported to have been carried out by the management during that year and he was further informed that there was no material discrepancies between physical assets and the assets record. From the statement of the managing director of the assessee and the report of the auditor, in any case, it cannot be stated that they were not aware about the fraud being played by Bellary Steel or that they were not aware of non-existence of rolls. Either, their claim as reflected in the statement of managing director and the auditor’s report was correct or the claim made in these proceedings is correct. In any case, statement of the managing director and the auditor’s report cannot be stated to be incorrect or false, and that being so, the only inference that will have to be drawn is that the assessee were party to the fraud and they knowingly participated in the lease transaction in respect of non-existent rolls. It is clear that the managing director made false statement on oath and that the assessee gave false information to the auditor. The auditor in his report, seem to have stated about the physical verification of assets on the basis of the information given by the assessee. The assessee, therefore, cannot turn-around and state that they were not aware about the fraud being played on them by Bellary Steel. On the contrary, an inference will have to be drawn that they gave wrong information to the auditor, since they were aware that the rolls were not existing. That apart, the assessee did not offer any explanation as to why they did not physically verify the existence of assets/rolls of which they were supposed to be the owners. This conduct of the assessee not only creates doubt about their claim but to us it is clear that they were aware that the assets/rolls were not in existence and they fraudulently claimed 100 per cent depreciation in respect thereof.
20. Further, it appears that B.M. Steel had only two directors out of whom one director had passed away after prolonged illness. They were running only a commission agency and had not maintained any books of account. They did not have any purchase register or sale register for financial year 1996-97. They had also not produced any purchase or sale invoice for any reference. Their bank account bearing account No. CD753 was examined and it revealed that large amounts were received from the assessee and then paid/forwarded to Bellary Steel on the very same day or the next day by retaining 2 per cent commission thereon. The bank account of Bellary Steel also revealed that they received monies through B.M. Steel. The transaction between B.M. Steel and Bellary Steel was pure and simple financial transaction intended to claim 100 per cent depreciation of assets which never existed.
21. The transporter of the rolls, as claimed by the assessee, was also interrogated and it revealed that he did not supply any material or equipment other than transporting scrap of Bellary Steel from Chennai during 1996-97. The transporter, as a matter of fact, disowned the photo copies of the invoices relied upon by the assessee in support of their claim. Thus, the material that was placed on record clearly shows that the whole transaction of purchasing and leasing of rolls to Bellary Steel was sham and bogus and intended purely to claim depreciation on the assets which never existed.
22. Learned counsel for the assessee in the course of arguments took us through the order passed by the Tribunal and submitted that the assessee was not aware about the fraudulent intention of Bellary Steel and that they were cheated by Bellary Steel by involving them in the bogus transaction. The assessee emphasised that the entire transaction acted bona fidely and therefore, penalty cannot be imposed under s. 271(l)(c) of the Act that being a discretionary power vested in the authority. He invited our attention to cl. (B) of Expln. I to s. 271 to contend/to prove that their explanation is bona fide and all the facts relating to the same and materials, to the computation of their total income, was disclosed by them to the concerned authority.
23. We have perused section 271(l)(c)(iii) and Expln. 1(B) of the Act. Under this provision, if AO in the course of any proceedings under the Act is satisfied that any person has ‘concealed’ the particulars of his income or furnished “inaccurate particulars” of such income, he may direct such person to pay by way of penalty not less than but shall not exceed three times of the amount of tax sought to be evaded by reason of concealment of particulars of his income or furnishing of inaccurate particulars in respect of income. Explanation 1 states that where in respect of any facts material to the computation of total income of any person under this Act, such person fails to offer an explanation or offers an explanation which is found by the AO to be false or such person offers an explanation which he is not able to substantiate and fails to prove such explanation is bona fide and that all the facts relating to the same and material to the computation of his total income have 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 cl. (c) of this sub-section, be deemed to represent the income in respect of which particulars have been concealed.
24. In this connection, at this stage, we would like to refer to the judgment of the Supreme Court in K.P. Madhusudhanan v. CIT [2001] 251 ITR 99/118 Taxman 324. In this case, the Supreme Court was considering the questions whether on the facts and circumstances of the case, the Tribunal was right in law and fact in deleting the penalty levied under s. 271(1)(c) of the Act and whether the Tribunal was right in holding that penalty cannot be levied as the AO in the proposal under s. 271(l)(c) of the Act had not referred to Expln. 1(B) to s. 271(1)(c) of the Act. The Supreme Court after dealing with the judgments of the High Court at Mumbai (sic-Bombay) in CIT v. P.M. Shah [1993] 203 ITR 792/[1995] 79 Taxman 431 (Bom.) and CITv. Dharamchand L. Shah [1993] 204 ITR 462/70 Taxman 414 (Bom.) in concluding para observed thus:
“……………. in the absence of invoking the Explanation specifically, the burden would remain on the Revenue to bring the assessee’s case within the mischief of the main provisions of s. 271(l)(c) of the Act.’
We find it difficult to accept as correct the two judgments aforementioned. The Explanation to s. 271(l)(c) is a part of s. 271. When the ITO or the AAC issues to an assessee a notice under s. 271, he makes the assessee aware that the provisions thereof are to be used against him. These provisions include the Explanation. By reason of the Explanation, where the total income returned by the assessee is less than 80 per cent of the total income assessed under s. 143 or 144 or 147, reduced to the extent therein provided, the assessee is deemed to have concealed the particulars of his income or furnished inaccurate particulars thereof, unless he proves that the failure to return the correct income did not arise from any fraud or neglect on his part. The assessee is, therefore, by virtue of the notice under s. 271 put to notice that if he does not prove, in the circumstances stated in the Explanation, that his failure to return his correct income was not due to fraud or neglect, he shall be deemed to have concealed the particulars of his income, or furnished inaccurate particulars thereof and, consequently be liable to the penalty provided by that section. No express invocation of Explanation to s. 271 in the notice under s. 271 is in our view necessary before the provisions of the Explanation therein are applied.” (Emphasis supplied)
25. In order to understand the purport of s. 271(l)(c), it would be advantageous to look into the observations made by the Supreme Court, while considering the very same provision, in CIT v. Reliance Petroproducts (P.) Ltd. [2010] 322 ITR 158/189 Taxman 322 (SC). The relevant observations in the said report read thus:
“In order to expose the assessee to the penalty unless the case is strictly covered by the provision, the penalty provision cannot be invoked. By any stretch of imagination, making an incorrect claim in cannot tantamount to furnishing inaccurate particulars. In CIT v. Mohan Bindal [2009] 225 CTR (SC) 248 : [2009] 28 DTR (SC) 19 SCC 589, where this Court was considering the same Provision, the Court observed that the AO has to be satisfied that a person has concealed the particulars of his income or furnished in accurate particulars of such income.’ This Court referred to another decision of this Court in Union of India v. Dharamendra Textile processors as also, the decision in Union of India v. Rajasthan Spg. & Wvg. Mills [2009] 224 CTR (SC) 1 : [2009] 23 DTR (SC) 158 [2009] 13 SCC 448 and reiterated in para 13 that :
It goes without saying that for applicability of s. 271(l)(c), conditions stated therein must exist.’
Therefore, it is obvious that it must be shown that the conditions under section 271(1)(c) must exist before the penalty is imposed. There can be no dispute that everything would depend upon the return filed because that is the only document, where the assessee can furnish the particulars of his income.When such particulars are found to be inaccurate, the liability would arise.”
The Supreme Court, then, in the judgment, proceeded to observe that merely because the assessee had claimed the expenditure, which claim was not accepted or was not acceptable to the Revenue, that by itself would not attract the penalty under s. 271(l)(c) of the Act. Further, the supreme Court observed that “if we accept the contention of the revenue then in case of every return where the claim made is not accepted by the AO for any reason, the assessee will invite penalty under s. 271(1)(c) of the Act. That is clearly not intendment of the legislature”. In short, the Supreme Court holds that whether to levy penalty or not when the power of the AO is discretionary in nature, that has to be decided on the facts and circumstances of the case. In order to expose the assessee to the penalty unless the case is strictly covered by the provision, the penalty provision cannot be invoked. Further, the Supreme Court observed in the report, that by any stretch of imagination, making an incorrect claim or wrong claim in law wouldnot tantamount to furnishing inaccurate particulars. The word “particulars” used in s. 271(l)(c) would embrace the meaning of details of the claim made. It is the case of the Revenue, in the present case that the information/particulars furnished in the return of Income filed for the asst. yr. 2002-03 was inaccurate.
26. In Hindustan Steel Ltd. v. State of Orissa [1972] 83 ITR 26 (SC), the Supreme Court was dealing with similar provisions as is s. 271(l)(c) in Orrisa Sales-tax Act namely s. 25(1)(a) while dealing with this provision, the Supreme Court made the following observations, which read thus :
“Whether penalty should be imposed for failure to perform a statutory obligation is a matter of discretion of the authority to be exercised judicially and on a consideration of all the relevant circumstances. Even if a minimum penalty is prescribed, the authority competent to impose the penalty will be justified in refusing to impose penalty, when there is a technical or venial breach of the provisions of the Act or where the breach flows from a bona fide belief that the offender is not liable to act in the manner prescribed by the statute. Those in charge of the affairs of the company in failing to register the company as a dealer acted in the honest and genuine belief that the company was not a dealer. Granting that they erred, no case for imposing penalty was made out.”
27. In T. Ashok Pai v. CIT [2007] 292 ITR 11/161 Taxman 340 (SC), the Supreme Court, while examining the expression “inaccurate particulars” as occurred in s. 271(l)(c) after looking into dictionary meaning the word ‘inaccurate’ observed thus :
“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 to cl. (A) of Expln. 1 that the AO 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 have been found as of fact that he has not disclosed all the facts which were material to the computation of his income.
The explanation having regard to the decisions of this Court, must be preceded by a finding as to how and in what manner he furnished the particulars of his income. It is beyond any doubt or dispute that for the said purpose the ITO must arrive at his satisfaction in this behalf. [see CIT v. Ram Commercial Enterprises Ltd. [2001] 167 CTR (Del.) 321 : [2000] 246 ITR 568 (Del.) and Diwan Enterprises v. CIT [2001] 167 CTR (Del.) 324 : [2000] 246 ITR 571 (Del)].
The order imposing penalty is quasi-criminal in nature and, thus, the burden lies on the Department to establish that the assessee had concealed his income. Since the 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 constitutes 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.
It is now a well-settled principle of law that the more stringent the law, the more strict a 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 v. Government of Kerala [1995] Supp 2 SCC 187].” (Emphasis supplied)
Thus, the assessee, by virtue of notice under s. 271(l)(c) of the Act, was put to notice that if he does not prove, in the circumstances stated in the Explanation, that his failure to return his correct income was not due to fraud or neglect, he shall be deemed to have concealed the particulars of his income or furnished inaccurate particulars thereof and consequently, be liable to penalty provided by that section.
28. Having regard to the admitted facts, and our finding on facts, in our opinion, the assessee could not and did not prove that he filed return due to fraud committed by Bellary Steel. On the facts and circumstances of the case, it cannot be stated that the assessee was completely innocent/ignorant of the fact that the assets/rolls were not in existence at all and that they claimed 100 per cent depreciation in respect thereof without having any knowledge thereof. Similarly, it cannot be stated that the return filed was incorrect and it would not amount to furnishing inaccurate particulars or concealing of the income. Having so observed, in our opinion, the judgments relied upon by the learned counsel for the respondent are of no avail to the assessee. None of these judgments have any bearing on the facts of the present case.
29. In the result, the appeal filed by the Revenue is allowed. The substantial question of law is accordingly answered in favour of the Revenue and against the assessee with no order as to costs.
[Citation :Â 362 ITR 630]
