Madras H.C : the company had constructed the hotel with the share capital funds said to have been floated by the directors

High Court Of Madras

CIT vs. M. Pachamuthu

Section 254, 271(1)(c)

Asst. Year 2000-01

K. Raviraja Pandian & Mrs. Chitra Venkataraman, JJ.

Tax Case (Appeal) No. 1172 of 2007

28th August, 2007

Counsel Appeared :

T. Ravikumar, for the Appellant

JUDGMENT

K. RAVIRAJA PANDIAN, J. :

The appeals are filed against the order of the Tribunal, Madras ‘D’ Bench made in ITA Nos. 123 and 124/Mds/2004, dt. 28th July, 2006. The relevant assessment year is 2000-01.

2. The assessees were the directors of M/s Hotel AMS (P) Ltd., Kondalapatti, Salem. During the course of survey conducted on 16th Nov., 1999 under s. 133A of the IT Act, it was noticed that the company had constructed the hotel with the share capital funds said to have been floated by the directors. On enquiry with the assessees, the assessees offered a sum of Rs. 12,00,000 as income, out of which Rs. 2,00,000 each in the names of the assessees and remaining in the names of other members in HUF. The assessees also admitted that there was no source for share capital and their share in the construction amounting to Rs. 2,00,000 each can be taken as unexplained investment. The assessees filed return of income on 21st Sept., 2001 admitting the income of Rs. 2,80,000 each. However, when notice under s. 148 was issued on 16th Oct., 2001, return was filed admitting additional income of Rs. 2,00,000 each as their unexplained income. In the s. 143(3) proceedings made on 26th March, 2003, the unexplained investment of Rs. 2,00,000 was treated as additional income and penalty proceedings were initiated for concealment of income and furnishing of inaccurate particulars. Thus orders were passed on 26th Sept., 2003, one against M. Pachamuthu and other against Balavenkatesan, the brother of the former, imposing penalty of Rs. 37,400 each under s. 271(1)(c) of the Act. The assessees being aggrieved by the same, preferred appeals before the CIT(A), who allowed the same and the Department preferred appeals before the Tribunal which have also been dismissed not on merits but with reference to the tax effect involved in the case. The correctness of the same is now canvassed before this Court.

3. Learned counsel appearing for the Revenue contended that the Tribunal has not considered the issue involved in these cases on merit, however, non-suited the Revenue on the ground that the tax effect involved in the appeals before the Tribunal was only Rs. 37,400 which is not more than Rs. 1 lakh as provided in the circular issued by the CBDT in F.No. 279/126/98-ITJ, dt. 27th March, 2000. Hence, the appeals were not maintainable.

4. Heard the learned counsel for the Revenue and perused the materials on record.

5. It is not argued by the counsel for the Revenue that the circular issued is not binding on the Revenue. However, he relied on the decision in CIT vs. Abhishek Industries Ltd. (2006) 205 CTR (P&H) 304 : (2006) 286 ITR 1 (P&H). The issue involved in these appeals has been considered by us in the order made in CIT vs. Associated Electrical Agencies [Tax Case (Appeal) No. 222 of 2004, dt. 16th Aug., 2007] [reported at (2008) 214 CTR (Mad) 518—Ed.] and held against the Revenue in the sense that if the tax effect is less than as provided in the CBDT Circular in F.No. 279/126/98ITJ and if the case has not come within the exceptions made in the circular, the appeals filed by the Revenue in the light of the circular cannot be legally maintainable. The relevant portion of the order reads as follows :

“10. We are of the considered view that none of the exceptions stated in the circular is applicable to the facts of the present case. The circular was stated to be issued by invoking the statutory power under s. 119 of the IT Act. The appeal is filed under s. 260A of the IT Act. It is well settled principle of law that each and every provision of a statute has to be given the same importance. One provision cannot be alleviated to a higher pedestal than the other provision, of course, unless or otherwise specifically stated either in the scheme, the Act or in the provision itself that a particular provision is subjected to or qualified by any other provision or the provision can be given effect to notwithstanding anything contained in any other provisions by assigning overriding effect. Hence, the contention that notwithstanding the circular, which was issued under s. 119 of the IT Act, the appeal could be filed by the Revenue under s. 260A has to be rejected for the reason that if the contention is accepted, one of the sections would become virtually otiose and that cannot be the intention of the law makers. Hence, the above judgments cannot be taken in aid for non-suiting the respondent/assessee from taking shelter under the Government order.”

6. On merit also the CIT(A) after considering the statement submitted before him has found that the statement showed the business of the assessee, capital contribution shown in the returns of income before the survey, amount of authorised capital, paid up capital, loan from SUCB, Kondalampatty branch, amount received from shareholders, estimated expenditure for furniture and fittings, status of maintenance of books of accounts, date of purchase of land, rate thereof, etc. It was not on record that concealment was discovered as a result of enquiry or investigation of material found during the course of survey conducted by the Department nor it was a case of compatibility of the disclosure made with items of expenditure, sales, purchases, investments or any other thing disclosed by the assessees on discovery of any evidence. Mere addition agreed to by the assessee during the course of survey would not empower the AO to levy the penalty. On the face of the above factual finding recorded by the CIT(A) and having regard to the tax effect involved in these cases for the reasons stated above, the appeals are liable to be dismissed. Accordingly, the tax case appeals are dismissed. Consequently, the Misc. Petn. No. 2 is closed.

[Citation : 295 ITR 502]

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