Karnataka H.C : Whether, the Tribunal was right in holding that the Explanation under s. 271(1)(c) of the IT Act could be invoked at any stage even if no show-cause notice had been issued under the said Explanation and the assessee had no opportunity of meeting the Department’s case under the said Explanation ?

High Court Of Karnataka

Prasanna Enterprises vs. CIT

Section 271(1)(c), Expln.

Asst. Year 1990-91

V.K. Singhal & T.N. Vallinayagam, JJ.

ITRC No. 27 of 1996

6th December, 1999

Counsel Appeared

P.S. Manjunath, for the Applicant : M.V. Seshachala, for the Respondent

ORDER

BY THE COURT :

The Tribunal has referred the following two questions of law arising out of its order dt. 16th Aug., 1994, pertaining to the asst. yr. 1990-91.

“1. Whether, the Tribunal was right in holding that the Explanation under s. 271(1)(c) of the IT Act could be invoked at any stage even if no show-cause notice had been issued under the said Explanation and the assessee had no opportunity of meeting the Department’s case under the said Explanation ?

2. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in upholding the levy of penalty on ground that the assessee’s explanation as to the expenditure on repairs and maintenance claimed by it was not bona fide and that all the facts relating to the same and material to the computation of its income had not been disclosed by it, without appreciation of the material evidence produced by the assessee ?”

2. The assessee is a firm. Assessee filed its return of income for the year 1990-91 on 27th Aug., 1990 declaring total income of Rs. 48,361. The assessment was, however completed on 31st March, 1991 under s. 143(3) at the figure of total income of Rs. 8,46,361 making the following additions : It is required to be mentioned that the business of the assessee is to run a cinema theatre named Prasanna Theatre. In the first appeal before the CIT(A), the first addition as above was reduced to Rs. 6 lakhs whereas the second addition as above was again reduced to Rs. 85,000. The penalty proceedings under s. 271(1)(c) were initiated by the AO for concealment of income and furnishing of inaccurate particulars in respect of the above-mentioned amount of Rs. 6,85,000. Ultimately, penalty of Rs. 3,47,110 was levied by the AO at the minimum level. The appeal filed by the assessee before the CIT(A) was dismissed on the facts of the case. The assessee came up in further appeal before the Tribunal. A legal issue was raised by the assessee before the ITAT that imposition of penalty under s. 271(1)(c), by resorting to the provisions of Expln. 1 to the said section without giving notice, was illegal. It was argued that as a result of the above action on the part of the AO, the assessee had no opportunity to meet the case of the Department, Reliance was placed on the decision in the case of CIT vs. P.M. Shah (1993) 203 ITR 792 (Bom) : TC 40R.800.

The Tribunal on the basis of the facts of the case, came to the conclusion that there was concealment of income and upheld the imposition of penalty but directed that the computation of the penalty amount be restricted to the disallowance of Rs. 2,75,720 as sustained by the Tribunal in the quantum appeal. So far as the disallowance with regard to vehicle maintenance expenditure, the Tribunal held that although the disallowance in that regard had been sustained at Rs. 75,000, the said disallowance was mainly on the ground of absence of supporting vouchers/receipts relating to the expenses and hence, the provisions of s. 271(1)(c) could not be said to be applicable to such disallowance. By filing a miscellaneous petition, assessee tried for amendment of the order of the Tribunal. It was the contention of the assessee in the said petition that the Tribunal’s order with regard to the penalty matter, various evidence submitted by the assessee in its paper book supplying detailed information about repair expenses etc., were not taken into consideration. During the course of the hearing of the miscellaneous petition, it transpired that on account of the fact that in the earlier order of the Tribunal in the quantum appeal, such evidence submitted by the assessee had not been mentioned and that is why in the later order relating to the penalty (under present consideration) also, the said evidence were not mentioned. As per the prayer of the learned counsel for the assessee, the Tribunal ordered that a copy of the miscellaneous petition itself be annexed to the order of the Tribunal and that the said annex should also form a part of the order of the Tribunal.

5. Submission of the learned counsel for the assessee is that in the notice which has been issued there was no mention of the Explanation. It is not pointed out as to whether cl. (a) is applicable or cl. (b). Thus, the assessee was not in a position to submit the reply. Reliance is placed on the judgment given in the case of CIT vs. P.M. Shah (supra) where it was considered that it is essential that the assessee must be informed that the penalty proceedings are commenced under the Expln. to s. 271(1)(c).

6. We have considered over the matter. In the copy of the show-cause notice issued, it is mentioned as to why the order imposing penalty should not be made under s. 271 of the IT Act, 1961. It is not the case of the assessee that any other Explanation was applicable or that he was not able to understand the notice. After service of the notice, the reply was filed and prayer was made that the matter may be kept pending till the decision by the Tribunal, which was not accepted. Explanation 1 to s. 271(1)(c) has contemplated the amount added or disallowance made by a deemed fiction to represent the income in respect of which particulars have been concealed. The legislature has casted the burden on the assessee. In the appeal preferred before the CIT(A) no such ground was taken, as such it cannot be considered that any prejudice has been caused to the assessee. Even wrong mention of thesection in a notice does not vitiate the proceedings. If in the notice issued Expln. 1 is not mentioned and the entire s. 271 is mentioned assessee could have submitted to the assessing authority that he is not able to understand as to what charge is framed against him. Nothing of the sort was done. As such we do not consider any prejudice was caused or it was necessary for the ITO to mention the Explanation in the notice issued. The Tribunal was right in holding that the Explanation under s. 271(1)(c) of the IT Act, could be invoked at any stage even if no show-cause notice had been issued under the said Explanation and the assessee had no opportunity of meeting the Department’s case under the said Explanation. The first question is, therefore, answered in favour of the Revenue and against the assessee.

7. In respect of the second question, it is the contention of the assessee that the Tribunal without examining the material produced before the authorities below, has passed the order on merit. In penalty proceedings, the assessee is entitled to show that he has not committed the offence and for that purpose even fresh evidence could be submitted. The evidence which was already submitted before the assessing authority and was not considered by the Tribunal was sought to be challenged by way of miscellaneous application. The Tribunal should have considered the same. In these circumstances, we feel that the matter requires re-examination by the Tribunal of the material which was already on record before the assessing authority and then to pass the order regarding levy of penalty under s. 271(1)(c). Without considering the material, the Tribunal was not justified in upholding the levy of penalty on ground that the assessee’s explanation as to the expenditure on repairs and maintenance claimed by it was not bona fide and that all the facts relating to the same and material to the computation of its income had not been disclosed by it, without appreciation of the material evidence produced by the assessee. Accordingly the second question is answered in favour of the assessee and against the Revenue.

[Citation : 244 ITR 188]

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