IT : In case assessee has not claimed any deduction in respect of its liability for payment of luxury tax, no question of addition under section 43B will arise
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[2013] 35 taxmann.com 565 (Allahabad)
HIGH COURT OF ALLAHABAD
Commissioner of Income-tax, Kanpur
v.
U.P. Hotels (P.) Ltd.*
PRAKASH KRISHNA AND RAM SURAT RAM (MAURYA), JJ.
IT REFERENCE NO. 33 OF 2002
MARCH 18, 2013
Section 43B, read with section 5 of the Income-tax Act, 1961 - Business disallowance - Certain deductions to be allowed on actual payment [Luxury tax] - Assessment years 1987-88 and 1988-89 - Assessee was engaged in hotel business - Assessing Officer held that luxury tax was payable by assessee and since no actual payment of luxury tax was made that amount was liable to be added in income of assessee under section 43B - Commissioner as well as Tribunal found that assessee had not realized amount of luxury tax which was added in its gross income - Whether amount of luxury tax which was not received cannot form part of income of any person - Held, yes - Whether question of addition under section 43B will arise only when assessee has claimed deduction and Assessing Officer finds that conditions mentioned in this section has not been satisfied - Whether since in instant case, assessee had not claimed deduction in respect of its liability for payment of luxury tax, no question of addition would arise - Held, yes [Paras 7 & 8] [In favour of assessee]
FACTS
Facts
| ■ | The assessee-company was engaged in the hotel business. The Assessing Officer held that luxury tax was payable by the assessee under the law and as no actual payment of luxury tax was made as such that amount was liable to be added in the income of the assessee under section 43B. | |
| ■ | The Commissioner (Appeals) found that the total payment of luxury tax during the year exceeded total collection of the luxury tax. The amount which was not collected could not be treated as income of the assessee and, thus, no addition could not be made. | |
| ■ | The Tribunal dismissed the appeal of the revenue. |
Revenue's submission
| ■ | Section 43B provides that deduction shall be allowed only on actual payment of any sum payable by way of tax. Luxury tax is payable by the assessee under section 4 of U.P. Taxation and Land Revenue Laws Act, 1975 read with rule 3 of U.P. Luxuries (In Hotel) Tax Rules, 1975. As the assessee had not made actual payment in this head, the amount of luxury tax which was payable by the assessee was liable to be added in his gross income. |
HELD
| ■ | The Act imposes tax on income. In order to form income of a person, the person must receive or deemed to receive any sum. The amount of luxury tax which was not received cannot form part of the income of any person. [Para 7] | |
| ■ | The Act further gives relief, deduction and exemption from payment of income-tax to the person on various income. Section 43B provides a right to the assessee to claim deduction of any sum payable by the assessee by way of tax, duty, cess or fee etc. This section imposed a condition that such deduction be allowed only in case of actual payment of the liabilities mentioned therein by the assessee. Section 43B is concerned with deduction claimed by the assessee. Thus, the scope of inquiry by the Assessing Officer under section 43B is as to whether the assessee can be allowed deduction which can only be allowed to the assessee when it has liability to pay under the law and has actually paid that amount. The question of addition will arise only when the assessee has claimed deduction and the Assessing Officer finds that conditions mentioned in this section has not been satisfied. In this case the assessee has not claimed any deduction in respect of its liability for payment of luxury tax as such no question of addition will arise. [Para 8] | |
| ■ | Section 43B does not caste duty on the assessee to realize the various amounts mentioned in it. In case, where a person has not realized luxury tax from the customers then under the law he being liable to pay it and it will be realize from him under the relevant law irrespective of the fact that he has collected or not. But it does not give the Assessing Officer any jurisdiction to add it in the gross income of the assessee. Commissioner (Appeals) as well as the Tribunal have concurrently found that the assessee has not realized the amount of luxury tax, which was added in its gross income. [Para 9] | |
| ■ | In view of the aforesaid discussions, the question referred to in this reference is answered in the affirmative i.e. against the revenue and in favour of the assessee. [Para 11] |
CASE REVIEW
Chowringee Sales Bureau (P.) Ltd. v. CIT [1973] 87 ITR 542 (SC) and Sundaram Finance Ltd. v. CIT [2012] 210 Taxman 280/ 25 taxmann.com 247(SC) (para 10) distinguished.
CASES REFERRED TO
Chowringee Sales Bureau (P.) Ltd. v. CIT [1973] 87 ITR 542 (SC) (para 6) and Sundaram Finance Ltd. v. CIT [2012] 210 Taxman 280/ 25 taxmann.com 247(SC) (para 6).
R.K. Upadhyay for the Appellant. S.K. Garg and Ashish Bansal for the Respondent.
JUDGMENT
Ram Surat Ram (Maurya), J. - At the instance of the Commissioner of Income Tax, (Central) Kanpur, the Income Tax Appellate Tribunal, Allahabad Bench, Allahabad (hereinafter referred to as the Tribunal) has referred the following questions, for opinion to this Court, under Section 256 of the Income Tax Act, 1961 (hereinafter referred to as the Act):-
"Whether on the facts and circumstances of the case, the ITAT was justified in directing the A.O. to work out the disallowance u/s 43B, on account of outstanding luxury tax liability, on the basis of actual realisation of the luxury tax and not on the basis of unrealised luxury tax although the assessee was maintaining its accounts under mercantile system."
2. The facts giving-rise to this reference are that M/S U.P. Hotels Pvt. Limited, 10/252, Maqbool Alam Road, Varanasi (the respondent) is a public limited company, and engaged in the hotel business. The respondent owned (i) Hotel Clarks Shiraz, Agra, (ii) Hotel Clarks Avadh, Lucknow and (iii) Hotel Clarks Amer, Jaipur. In the present reference, the question relates to addition of the amount of "luxury tax" payable by the respondent for the Assessment Years 1987-88 and 1988-89 under U.P. Taxation and Land Revenue laws Act, 1975 as such facts in relation to luxury tax alone are noticed in the judgment.
3. The respondent filed it's income tax return for the Assessment Year 1987-88 on 26.06.1987 showing profit of Rs. 64,20,868/- This profit was adjusted against unabsorbed carried forward loss and depreciation of Rs. 1,00,32,618/- Thus total loss of Rs. 36,11,750/- was shown. The Assessing Officer, on scrutiny of balance sheet, noticed that luxury tax of Rs. 5,24,980/- was payable on the total gross income at the rate 7%. There was no luxury tax at Jaipur, while outstanding luxury tax of Agra Unit was worked out to Rs. 4,31,759/- and Lucknow Unit was worked out to Rs. 93,221/- total Rs. 5,24,980/-. The Assessing Officer required the respondent to explain as to why this amount be not added in the gross income of the respondent. The respondent stated that luxury tax was not actually collected by the respondent as such there was no receipt of this amount, so as to form it's income. The Assessing Officer, by order dated 28.03.1990, held that luxury tax was payable by the respondent under the law and as no actual payment of luxury tax was made as such this amount was liable to added in the income of the respondent under Section 43B of the Act. The respondent filed an appeal (registered as Appeal No. 32/CC-I/VNS/1990-91) from the aforesaid order. The appeal was heard by the Commissioner of Income-tax (Appeals) II, Varanasi who by order dated 20.08.1990 found that total payment of luxury tax during the year exceeded total collection of the luxury tax. The amount which was not collected cannot be treated as income of the respondent and no addition can be made in this head. On these findings the appeal was allowed in part and the addition made in this head was deleted.
4. The respondent filed its income tax return for the Assessment Year 1988-89 on 28.06.1988 showing income of Rs. 17,30,187/- This income was adjusted against unabsorbed carried forward loss and depreciation. The Assessing Officer on scrutiny of balance sheet, noticed that luxury tax of Rs. 6,85,057/- was payable on the total gross income at the rate 7%. Similarly credit balance of Rs.1,95,295/- was payable by Lucknow Unit and there was debit of luxury tax of Rs. 2,28,426/-Thus total credit balance of Rs. 6,51,926/- is payable on the account of luxury tax. The Assessing Officer required the respondent to explain as to why this amount be not added in the gross income of the respondent. The respondent stated that luxury tax was not actually collected by the respondent as such there was no receipt of this amount, so as to form his income and has not been debited in Profit and Loss of the account. The Assessing Officer by order dated 20.03.1991 held that luxury tax was part and parcel of total receipt which should have been credited along with the hotel receipt. Since responsibility to pay luxury tax was on the respondent under the law and as no actual payment was made in this head as such this amount was liable to added in the income of the respondent under Section 43B of the Act. The respondent filed an appeal (registered as Appeal No. 52/CC-I/VNS/1991-92) from the aforesaid order. The appeal was heard by the Commissioner of Income-tax (Appeals), Varanasi, who by order dated 24.08.1992, relying upon his previous year order, allowed the appeal and deleted the additions made in this head.
5. The Revenue filed an appeal (registered as ITA No. 2597/Ahd/1990) from the the order dated 20.08.1990 and another appeal (registered as ITA No. 2311/ Ahd /1992) from the the order dated 24.08.1992. The respondent also filed cross objection. Both these appeals and cross objection were consolidated and heard by the Tribunal, who by order dated 22.09.1998 dismissed the appeals of the Revenue in respect of luxury tax. Later on at the instance of the CIT Kanpur, this reference was made.
6. Heard Sri R. K. Upadhyay, Senior Standing Counsel for the Revenue and Ashish Kumar Bansal for the respondent. Sri Upadhyay submitted that Section 43B of the Act provides that deduction shall be allowed only on actual payment of any sum payable by way of tax. Luxury tax is payable by the respondent under Section 4 of U.P. Taxation and Land Revenue laws Act, 1975 read with Rule-3 of U.P. Luxuries (In Hotel) Tax Rules, 1975. As the respondent has not made actual payment in this head as such the amount of luxury tax which was payable by the respondent was liable to be added in his gross income. He relying upon the judgment of Supreme Court in Chowringee Sales Bureau (p) Ltd. v. CIT [1973] 87 ITR 542 and Sundaram Finance Ltd. v. CIT [2012] 210 Taxman 280/ 25 taxmann.com 247submitted that the amount of tax collected but not deposited by the assessee is liable to be counted in his gross income. The orders of CIT (A) allowing the appeal of the respondent and order of the Tribunal dismissing the appeal of the Revenue are illegal.
7. We have considered the arguments of the Senior Standing Counsel. The Act imposes tax on income. The word 'income' has been defined under Section 2 (24) of the Act. Scope of total income has been provided under Section 5 of the Act as subject to the provision of this Act, total income of any previous year of a person, who is resident includes all income from whatever source derived which (a) is received or is deemed to be received in such year by or on behalf of such person; or (b) accrues or arises or is deemed to accrue or arise to him in India during such year or (c) accrues or arises to him outside India during such year. Thus in order to form income of a person, the person must receive or deemed to receive any sum. The amount of luxury tax which was not received cannot form part of the income of any person.
8. The Act further gives relief, deduction and exemption from payment of income tax to the person on various income. Section 28 provides profits and gains of business or profession. Section 29 provides that income referred to in Section 28 shall be computed in accordance with the provisions contained in Sections 30 to 43D. Section 43B provides a right to the assessee to claim deduction of any sum payable by the assessee by way of tax, duty, cess or fee etc. This Section imposed a condition that such deduction be allowed only in case of actual payment of the liabilities mentioned therein by the assessee. Section 43B of the Act is concerned with deduction claimed by the assessee. Thus the scope of inquiry by the Assessing Officer under Section 43B of the Act is as to whether the assessee can be allowed deduction which can only be allowed to the assessee when it has liability to pay under the law and has actually paid that amount. The question of addition will arise only when the assessee has claimed deduction and the Assessing Officer founds that conditions mentioned in this section has not been satisfied. In this case the respondent has not claimed any deduction in respect of its liability for payment of luxury tax as such no question of addition will arise.
9. Section 43B does not caste duty on the assessee to realize the various amounts mentioned in it. In case, where a person has not realized luxury tax from the customers then under the law he being liable to pay it and it will be realize from him under the relevant law irrespective of the fact that he has collected or not. But it does not give the Assessing Officer any jurisdiction to add it in the gross income of the assessee. CIT (A) as well as the Tribunal have concurrently found that the respondent has not realized the amount of luxury tax, which was added in his gross income.
10. The case laws relied upon by the counsel for the Revenue are not applicable in this case as in those cases the assessee had actually collected the amount of sales tax and has not paid to the Department. Accordingly it was held that such receipts would form part of the income of the assessee. Relevant portion of Sundaram Finance Ltd. case (supra), is quoted below:
"It is now well settled that in determining whether a receipt is liable to be taxed, the taxing authorities cannot ignore the legal character of the transaction which is the source of the receipt. The taxing authorities are bound to determine the true legal character of the transaction. In the present case, the assessee received Rs 36,47,585 in Assessment Year 1998-1999. As per the statement made by the learned counsel for the assessee in Court on 06.09.2012 (which statement is ordered to be taken on record and marked "X"), the said sum of Rs 36,47,585 was not kept in a separate interest-bearing bank account but it formed part of the business turnover. In view of the said statement, we see no reason to interfere with the impugned judgment. Applying the substance over form test, we are satisfied that in the present case the said sum of Rs 36,47,585 constituted income. The said amount was part of the turnover. The said amount was collected from the customers. The said amount was collected towards sales tax liability. The said amount formed part of the turnover."
11. In view of the aforesaid discussions, the question referred to in this reference is answered in the affirmative i.e. against the Department and in favour of the respondent.
LATA
IT : Where returned income filed under section 153A is accepted by Assessing Officer and there is no variation in assessed income and returned income, penalty under section 271(1)(c) cannot be imposed
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[2013] 35 taxmann.com 594 (Nagpur - Trib.)
IN THE ITAT NAGPUR BENCH
Deputy Commissioner of Income-tax
v.
Purti Sakhar Karkhana*
P.K. BANSAL, ACCOUNTANT MEMBER
AND D.T. GARASIA, JUDICIAL MEMBER
AND D.T. GARASIA, JUDICIAL MEMBER
IT APPEAL NOS. 150 TO 155 (NAG.) OF 2010
[ASSESSMENT YEARS 2001-02 TO 2006-07]
[ASSESSMENT YEARS 2001-02 TO 2006-07]
DECEMBER 21, 2012
Section 271(1)(c), read with section 153A, of the Income-tax Act, 1961 - Penalty - For concealment of income [Conditions precedent] - Assessment years 2001-02 to 2006-07 - Whether search assessments made under section 153A cannot be treated as continuance of normal assessment proceedings whether abated or not and, therefore, it will not be justified to refer to returned income under section 139 for purpose of imposition of penalty under section 271(1)(c) - Held, yes - Whether further, where returned income filed under section 153A is accepted by Assessing Officer and there is no variation in assessed income and returned income, penalty under section 271(1)(c) cannot be imposed - Held, yes - Whether where provisions of section 271(1B) is not applicable in case of assessee, Assessing Officer is bound to record his satisfaction in assessment order that assessee had either concealed income or furnished inaccurate particulars of income in his return before proceeding further - Held, yes [Paras 9,13,19 & 25] [In favour of assessee]
FACTS
| ■ | There had been search in the case of the assessee along with Mehta Group under section 132. Accordingly, notices under section 153A were served to the assessee for relevant assessment years. The assessee surrendered certain amount by reducing the capital-work-in-progress under heads, 'plant and machinery', 'power plant' etc. | |
| ■ | The returned income in response to notice under section 153A was accepted by the Assessing Officer and assessment orders under section 153A were passed creating nil demand of tax. | |
| ■ | Thereafter the Assessing Officer imposed penalty under section 271(1)(c) for giving false information in the return of income. | |
| ■ | The Commissioner (Appeals) considering the fact that reduction in capital work-in-progress was offered to buy peace of mind and there was no variation in returned income and assessed income deleted the penalty. | |
| ■ | On second appeal: |
HELD
Where section 271(1B) not applicable, Assessing Officer to record satisfaction regarding concealment of income
| ■ | In the case of the assessee, there is a direction that the penalty proceeding under section 271(1)(c) is separately initiated. Now the question arises whether this direction will tantamount to be the satisfaction recorded by the Assessing Officer for the concealment of the particulars of income or furnishing of inaccurate particulars of income. This is undisputed fact that in the case of the assessee the assessments have been framed by the Assessing Officer at the same income or loss at which the assessee has filed the return in pursuance to the notice issued under section 153A. The Assessing Officer has not made any addition or disallowance while computing the total income or loss of the assessee. Therefore, section 271(1B) will not apply in the case of the assessee and the Assessing Officer is bound to record the satisfaction for the concealment of the particulars of income or furnishing of inaccurate particulars of income. In the assessment order, there is nothing which may designate that the Assessing Officer has satisfied during the course of assessment proceedings that the assessee has concealed the particulars of income or furnished the inaccurate particulars of income. This is a fact that both the charges are different charges and if the penalty has been initiated in respect of one charge, it cannot be levied for the other charge. Since section 271(1B) is not applicable in the case of the assessee, the revenue has to show that the satisfaction of the Assessing Officer to the fact that the assessee has either concealed the particulars of income or furnished inaccurate particulars of income. This is the condition precedent for initiating the penalty. Until and unless the satisfaction is arrived at in the course of any proceedings under the Act, the penalty cannot be levied. [Para 9] | |
| ■ | It is noticed that in each of the assessment years, the Assessing Officer, in the assessment order passed under section 143(3) read with section 153A, has not recorded any satisfaction but has simply mentioned that the penalty proceeding under section 271(1)(c) has been initiated separately. Nowhere the Assessing Officer noted in the assessment order his satisfaction that there was furnishing of inaccurate particulars of income by the assessee and that there is case made out for initiating proceedings under section 271(1)(c). Therefore, initiation of proceedings under section 271(1)(c), against the assessee for assessment years 2001-02 to 2006-07 is not valid in law. [Para 13] | |
| ■ | Even though the assessee has surrendered the amount of capital work-in-progress but it did not have any impact on the income of the assessee so far it relates to assessment years 2001-02 to 2005-06. The Assessing Officer observed, while framing the assessment, that penalty proceeding under section 271(1)(c) is separately initiated but it does not show how it affects the concealment of the particulars of income of the assessee or furnishing of the inaccurate particulars of the income. In fact, neither the returned income nor the assessed income is being affected by the reduction of the amount of the capital work-in-progress as surrendered by the assessee. Concealment of particulars of income or furnishing of inaccurate particulars of such income, both are the different charges. | |
| ■ | Direction for initiation of the penalty proceedings under clause (c) of sub-section (1) for constituting the satisfaction of the Assessing Officer for initiation of the penalty must be related with either of the charges i.e. the concealment of particulars of income or furnishing of inaccurate particulars of such income. The Assessing Officer, no doubt, states that the penalty proceeding under section 271(1)(c) is separately initiated but does not state or what default, whether for the concealment of particulars of income or for furnishing of inaccurate particulars of income is being initiated. [Para 16] | |
| ■ | Even the notice did not specify any specific charge for which the penalty has been initiated and ultimately the Assessing Officer levied the penalty on the assessee for giving false information in the IT return neither for concealment of particulars of income nor for furnishing inaccurate particulars of income. It is incumbent on the Assessing Officer to mention whether the penalty is levied for concealment of income or for furnishing of inaccurate particulars of income. In the absence of specific charge, the order would be bad in law. Section 271(1)(c) does not talk of levy of the penalty for giving false information in the return. The Assessing Officer levied penalty entirely for a different charge. [Para 18] | |
| ■ | Explanation 1 to section 271(1)(c) cannot be applied where charge against the assessee is in furnishing of inaccurate particulars of income since it provides deeming fiction qua concealment of the particulars of income only and cannot be extended to a case where charge on the assessee is furnishing of inaccurate particulars of income. This is not the case of the revenue that the assessee has concealed the particulars of income, therefore, no question of applicability of Explanation 1 arises. The charge in the penalty order against the assessee is for furnishing the false particulars. In the case of furnishing of the inaccurate particulars of income, since the deeming provision given under Explanation 1 is not applicable, the onus is on the revenue to prove that the assessee has filed the false particulars of income in the return filed. In the return filed in response to notice issued under section 153A, this is a fact that there is no filing of inaccurate particulars and no addition/disallowance has been made by the Assessing Officer while making assessment under section 143(3) read with section 153A. Even otherwise, the assessee has surrendered the investment made in capital work-in-progress. Source of the investment is not disputed by the revenue. It is not the case of the revenue that the assessee was not having the sufficient income to invest in the capital work-in-progress or investment shown in capital work-in-progress is made out of undisclosed income. Once source of the investment is not disputed and the assessee has sufficient source to invest in capital work-in-progress, it cannot be said that the assessee was having undisclosed income, which has been invested by the assessee and thereby the assessee has concealed the particulars of income or filed the inaccurate particulars of income. Income is different from investment. Income precedes the investment, not the investment precedes the income. It may be a case of furnishing of the inaccurate particulars of investment but not furnishing of inaccurate particulars of the income. Merely the assessee has surrendered the part of the investment in capital work-in-progress, it will not convert surrender of such investment into an income. During the assessment years 2001-02 to 2005-06, this is a fact that the assessee has not claimed any depreciation as it is only the capital work-in-progress, which was in existence and the capital work-in-progress was not transferred to the respective assets, which are entitled to depreciation. On this basis itself also, no penalty can be imposed on the assessee under section 271(1)(c). [Para 19] | |
| ■ | The assessee has disclosed loss in the return filed for the assessment years 2002-03 to 2006-07. The Assessing Officer has accepted the said loss in the assessment framed by him. The loss declared in the return has not been reduced or loss has not been converted into income due to the investment made in the capital work-in-progress surrendered by the assessee. In view of Explanation 4(a) of section 271(1)(iii), the tax sought to be evaded will be nil and both situations in clause (a) will not apply in the case of the assessee. Clause (b) of this Explanation applied to a case where Explanation 3 applies. Clause (c) is the residuary clause. In such case, it would be main difference between the tax on total income assessed and the tax on total income reduced by the amount in respect of which penalty is sought to be levied. The case of the assessee, at the most for all the assessment years can fall under clause (c) but on the basis of this clause, the tax sought to be evaded, in each of the assessment year, will be nil because the difference between the tax on total income assessed and tax on total income reduced by the amount in respect of which the Assessing Officer tried to impose the penalty is nil. Therefore, even if one agrees with the revenue that the assessee has furnished the inaccurate particulars of income to the extent he surrendered the investment in the capital work-in-progress since the tax sought to be evaded will be nil, the assessee had not to pay any amount by way of penalty as per section 271(1)(iii) read with Explanation 4. On this basis also, the penalty is liable to be deleted. [Para 22] |
Search assessment made under section 153A cannot be treated as continuance of normal assessment proceedings whether abated or not
| ■ | The existence of the words 'all other provisions of this Act shall apply to the assessment made under this section' in Expln. (i) to section 153A makes it clear that in search assessments, amongst others the provisions relating to penalty and prosecution will also be applicable. However, when normal assessment procedure covered by sub sections 139, 147, 148, 149, 151 and 153 has been completely excluded by operation of non obstante clause 'notwithstanding anything contained' the search assessments made under section 153A cannot be treated as continuance of normal assessment proceedings whether abated or not. Thus there is complete detachment of assessment proceedings under section 143 or 147 from search proceedings under section 153A. When scheme of search assessment as designed by the Legislature does not prescribe to take into account the earlier assessment proceedings whether abated or not, it will not be proper or justified to refer to returned income under section 139 for the purpose of imposition of penalty under section 271(1)(c). It follows that the concealment of income has to be seen with reference to additional income brought to tax over and above returned by the assessee in response to notice issued under section 153A. Accordingly for the purpose of imposition of penalty under section 271(1)(c) resulting as a result of search assessments made under section 153A, the original return of income filed under section 139 cannot be considered. Further in case of search initiated after 1-6-2003 a return of income is always filed on issue of notice under section 153A in respect of each assessment year falling within six assessment years immediately preceding the assessment year relevant to the previous year in which the search is conducted or requisition is made in the prescribed form and verified in the prescribed manner. Assessing Officer requires the assessee to set forth such other particulars as may be prescribed in these returns. This section also states that all the provisions of this Act, as are applicable to a return to be furnished under section 139, will apply to this return. In view of this, the Assessing Officer has to frame an assessment on the basis of the return filed under section 153A. As has been held above, the penalty under section 271(1)(c) is imposable when there is variation in assessed and returned income. If there is no variation, there will be no concealment or furnishing of inaccurate particulars of income. When there is no concealment or furnishing of inaccurate particulars of income, question of levy of penalty under section 271(1)(c) will not arise. | |
| ■ | The concept of voluntary return of income may be important in penalty proceedings initiated in course of normal assessment proceedings made under section 143(3) or 147 but not under section 153A. From above discussion it follows that where returned income filed under section 153A is accepted by the Assessing Officer, there will be no concealment of income or furnishing of inaccurate particulars of income and consequently penalty under section 271(1)(c) cannot be imposed. Section 271 does not talk of for the purpose of ascertaining the default whether of concealment of income or furnishing of inaccurate particulars of income, the return filed under section 139 or the return filed by the assessee will be considered not the return filed under section 153A. This satisfaction for concealment of particulars of income or furnishing of inaccurate particulars of income has to come from the assessment order passed in consequence of return filed under section 153A. The assessee in this case, in each of the assessment years, filed the return on 23-12-2008 showing nil income or loss. The returns filed by the assessee were duly accepted by the Assessing Officer in each of the case and assessment under section 143(3) read with section 153A were framed on the returned income. Thus, there is no variation in each of the assessment year in the returned income shown by the assessee. Prior to the filing of the returns by the assessee under section 153A, even though the proceedings under this Act had started prior to that but the Assessing Officer has not brought out any material or evidence, which may state that the assessee has furnished inaccurate particulars of income or concealed the particulars of income. In the return filed on 23-12-2008, the assessee has duly disclosed the investment in capital work-in-progress surrendered by him. Since these particulars, to which the Assessing Officer treated for the purpose of levy of penalty to be false particulars were available with the Assessing Officer in the return filed by the assessee under section 153A, in this case it cannot be said that the assessee has furnished the false particulars. | |
| ■ | Section 271(1)(c) does not authorise the Assessing Officer to compare the return filed under section 139(1) and under section 153A and compare the difference in the particulars of income in both the returns to treat such difference to be the false particulars of income. The fault has to be seen with the return filed by the assessee when an assessment under section 143(3) read with section 153A is made with reference to the return filed under section 153A and when the penalty proceeding is initiated in the order passed under section 143(3) read with section 153A, this will also relate to the satisfaction of the assessee with reference to the return filed under section 153A. Aforesaid view is also strengthened in view of the Explanation 5 given under section 271(1)(c). This Explanation is applicable in the case of the search taken place before 01-06-2007 and the assessee is found to be the owner of any money, billion, jewellery or any other valuable, article or thing. This Explanation is not applicable in the case of the assessee as it is an undisputed fact that no money, billion, jewellery or any other valuable, article or thing has been found in the case of the assessee. Had there been intention of the Legislature to look into the concealment of the particulars of the income or furnishing of inaccurate particulars of income with reference to the return filed under section 139(1), the Legislature would have provided so. On this basis also, no penalty can be imposed under section 271(1)(c) as there is no variation in the income returned in response to notice under section 153A vis-Ã -vis assessment passed under section 143(3) read with section 153A. [Para 25] |
CASE REVIEW
CIT v. S.V. Angidi Chettiar [1962] 44 ITR 739 (SC) (para 9); CIT v. Atul Mohan Bindal [2009] 183 Taxman 444 (SC) (para 13);Madhushree Gupta v. Union of India [2009] 317 ITR 107/183 Taxman 100 (para 15); Varkey Chacko v. CIT [1993] 203 ITR 885/70 Taxman 152 (SC) (para 16); CIT v. Manu Engg. Works [1980] 122 ITR 306 (Guj.) and New Sonathia Engineering Co. v. CIT [2006] 282 ITR 642/155 Taxman 513 (Guj.); Padma Ram Bharali v. CIT [1977] 110 ITR 54 (Gau.) (para 18) followed.
UOI v. Dharamendra Textiles Processors [2008] 295 ITR 244/166 Taxman 65 (SC) (para 27) and K.P. Madhusudan v. CIT [2001] 251 ITR 99/118 taxman 324 (SC) [Para 29] distinguished.
CASES REFERRED TO
Sir Sadilal Sugar & General Mills Ltd. v. CIT [1987] 168 ITR 705/33 Taxman 460A (SC) (para 4), Union of India v. Dharamendra Textile Processors [2008] 306 ITR 277/174 Taxman 571 (SC) (para 6), K.P. Madhusudhanan v. CIT [2001] 251 ITR 99/118 Taxman 324 (SC) (para 6), Ms. Madhushree Gupta v. Union of India [2009] 183 Taxman 100/317 ITR 107 (Delhi) (para 7), CIT v. N. George & Bros.[1986] 160 ITR 511/[1987] 30 Taxman 368 (Ker.) (para 7), Dilip N. Shroff v. Jt. CIT [2007] 291 ITR 519/161 Taxman 218 (SC) (para 7), Kanbay Software India (P.) Ltd. v. Dy. CIT [2009] 31 SOT 153 (Pune) (para 7), CIT v. Reliance Petroproducts (P) Ltd. [2010] 322 ITR 158/189 Taxman 322 (SC) (para 7), CIT v. S.V. Angidi Chettiar [1962] 44 ITR 739 (SC) (para 9), D.M. Manasvi v. CIT [1972] 86 ITR 557 (SC) (para 9), CIT v. Mohinder Lal [1987] 31 Taxman 450/168 ITR 101 (Punj. & (Har.) (para 9), CIT v. Ram Commercial Enterprises Ltd. [2002] 122 Taxman 620 (Delhi) (para 9), Diwan Enterprises v. CIT [2000] 246 ITR 571 (Delhi) (para 9), CIT v. Vikas Promoters (P) Ltd. [2005] 277 ITR 337/145 Taxman 300 (Delhi) (para 9), CIT v. Super Metal Re-rollers [2004] 135 Taxman 407 (Delhi)(para 9), Shri Bhagwant Finance Co. Ltd. v. CIT [2005] 147 Taxman 53 (Delhi) (para 9), CIT v. Rajan & Co. [2007] 291 ITR 340/[2005] 146 Taxman 271 (Delhi) (para 9), CIT v. Munish Iron Store [2003] 263 ITR 484/[2004] 137 Taxman 391 (Punj. & Har.) (para 9), CIT v.Dajibhai Kanjibhai [1991] 189 ITR 41/57 Taxman 16 (Bom.) (para 9), CIT v. Rampur Engg. Co. Ltd. [2009] 176 Taxman 211 (Delhi)(para 9), V.V. Projects & Investments (P) Ltd. v. Dy. CIT [2008] 300 ITR 40/171 Taxman 62 (AP) (para 9), Chennakesava Pharmaceuticals v. CIT [2013] 214 Taxman 141 (Mag.)/30 taxmann.com 385 (AP) (para 10.1), CIT v. M.K. Sharma [2008] 307 ITR 147 (Delhi) (para 11), CIT v. Atul Mohan Bindal [2009] 183 Taxman 444 (SC) (para 12), Varkey Chocko v. CIT [1993] 203 ITR 885/70 Taxman 152 (SC) (para 16), CIT v. Lakhdhir Lalji [1972] 85 ITR 77 (Guj.) (para 17), CIT v. Manu Engg. Works [1980] 122 ITR 306 (Guj.) (para 18), New Sorathia Engg. Co. v. CIT [2006] 282 ITR 642/155 Taxman 513 (Guj.) (para 18), Padma Ram Bharati v. CIT[1977] 110 ITR 54 (Gau.) (para 18), CIT v. Shaila Agarwal [2011] 16 taxmann.com 232/[2012] 204 Taxman 276 (All.) (para 24) and Dy. CIT v. Chirag Metal Rolling Mills Ltd. [2007] 162 Taxman 317 (MP) (para 36).
Milind Bhusari for the Appellant. Hitesh Shah for the Respondent.
ORDER
P.K. Bansal, Accountant Member - All these appeals filed by the Revenue since involve common issue in all the assessment years, these are being disposed of by this common order for the sake of convenience. All these appeals are against the consolidated order of CIT(A) dt. 28th May, 2010 by which the CIT(A) has deleted the penalty imposed under s. 271(1)(c) of the Act by the AO. In all these appeals, the Revenue has raised common grounds of appeal against the deletion of penalty.
2. The brief facts of the case are that there has been search in the case of the assessee along with Mehta Group under s. 132 of the Act on 23rd Aug., 2006. The assessee is a public limited company, incorporated under the Companies Act, 1956 on 20th April, 2000 for setting up an integrated plant for manufacturing of sugar, power, ethanol etc. at Village Bela, Tah. Umred, Distt. Nagpur. During the previous year relevant to assessment year under consideration, the assessee company was in the process of acquiring land, doing site development, construction of factory buildings, erecting plant and machinery and other related activities. The assessee had placed orders for supply and erection of various plant packages with various agencies including the contractors of national and international repute. Work orders were issued for execution and supply of respective items of plant and advances were paid as per terms of contract. Means of financing the project includes share money received from various individuals and bodies corporate, unsecured loans in the form of inter-corporate deposits from various companies, genuineness of which is not under dispute. The assessee-company raised secured loans from consortium of nineteen co-operative banks, Indian Renewable Energy Development Agency, New Delhi, Bank of Maharashtra and State Bank of Indore etc. The assessee-company had issued work order for executing the supply and erection of plant to various contractors/companies. These companies executed earth work and site development, civil construction etc. jobs and raised bills for these jobs. The assessee-company paid for these bills in the normal course of business and duly deducted tax at source and deposited the same. These bills were duly clubbed under the head 'Capital work-in-progress' for capitalization at a later date when the business is set up. The assessee purchased cement, steel, hardware and other machinery components etc. from various dealers/companies. The bills were duly checked and payments were made for these supplies and were debited to capital work-in-progress. Various expenses were incurred in the normal course of business during the previous years when the work of construction and erection was going on. The expenses included the interest paid by the assessee on secured loans as well as unsecured loans. There was no default of the TDS etc. The assessee has maintained the regular books of account which were duly audited. Few companies of Mehta Group supplied the capital goods and also carried out erection work for setting up the plant and machinery by the assessee. Advances were also made to Mehta Group for the execution of the work. Few companies belonging to Mehta Group made investments in the shares of the assessee-company and had also given inter-corporate deposits. Simultaneous search operation was carried out on the assessee company along with Mehta Group under s. 132 of the IT Act on 23rd Aug., 2006. Notices under s. 153A of the IT Act were received by the assessee company for the asst. yr. 2001-02 to asst. yr. 2006-07 on 23rd March. 2007. The assessee submitted the reply on 23rd April, 2007 and it was submitted that on perusal of the seized material then made available, it was fell that some of the items clubbed under capital work-in-progress were not properly accounted for. The assessee is carrying on the analysis of the capital work-in-progress and is preparing a revised statement of income considering the seized material found from the Mehta Group of companies. The reduction of the capital work-in-progress would result in reduction in claim of depreciation in future year when the business is set up and accordingly the assessee requested more time for filing the return under s. 153A and to continue assessment proceedings on the basis of the available records. It was also mentioned that assessee is facing difficulty as some of the old employees of the assessee have left the service and the information was required to be obtained from outside sources i.e. Mehta Group of companies. Whatever information was obtained from the seized material and Mehta Group of companies was being continuously analysed with its own records. A number of transactions had taken place amongst various Mehta Group of companies and, therefore, it was difficult to trace the ultimate net effect in the books of those companies. The assessee, therefore, took the initiative and revised the capital work-in-progress on lump sum basis. Thus, the assessee volunteered to rework the year-wise impact of these transactions on capital work-in-progress and accordingly intimated the AO. The assessee accordingly for the asst. yrs. 2001-02 to 2006-07 surrendered the following amount in the capital work-in-progress by reducing the amount of the capital work-in-progress amount for each of the assessment years respectively on 23rd Dec., 2008 and filed the revised return for the asst. yr. 2006-07 giving the effect of claiming the lower depreciation. In other assessment years there was no effect on the income/loss returned by the assessee in the original returns.
| Sr. No. | Asst yr. | Amount of capital work-in-progress surrendered by assessee |
| 1. | 2001-02 | 10,00.000 |
| 2. | 2002-03 | 2,73,89,041 |
| 3. | 2003-04 | 2,01,000 |
| 4. | 2004-05 | 1,87,46,067 |
| 5. | 2005-06 | 2,43,26,321 |
| 6. | 2006-07 | 3,25.00,000 |
2.1 The cumulative effect of amount surrendered by the assessee during all assessment years from 2001-02 to 2006-07 by reducing the capital work-in-progress under the various heads is as under :
| (i) Plant & machinery | Rs.9,48,85,108/- |
| (ii) Power plant | Rs.2,31,76,321/- |
| (iii) Admn. Buildings | Rs. 10,00,000/- |
| (iv) Factory Buildings | Rs. 50,00,000/- |
| TOTAL | Rs.12,40,61,429/- |
2.3 In response to notice issued under s. 153A for the asst. yrs. 2001-02 to 2005-06, the assessee stated that the return already filed by the assessee under s. 139(1) may be treated as return filed in response to notice under s. 153A of the Act. The assessment orders under s. 153A r/w s. 143(3) of the Act for all these assessment years were passed on 31st Dec., 2008 creating nil demand of tax. The details of returned income in response to notice under s. 153A as well as income assessed in each of the assessment year are given as under :
| Asst. yr. | Returned income | Assessed income | Tax |
| 2001-02 | Nil | Nil | Nil |
| 2002-03 | (-) 2,81,545 | (-) 2,81,545 | Nil |
| 2003-04 | (-) 2.65,464 | (-) 2,65,464 | Nil |
| 2004-05 | (-) 83,122 | (-) 83,122 | Nil |
| 1,02,848(under s.115JB) | 1,02,848 | Nil | |
| 2005-06 | (-) 2.13,036 | (-) 2,13,036 | Nil |
3. In the asst. yr. 2006-07, originally return was filed showing a loss of Rs. 16,86,25,367 while the return under s. 153A was filed on 23rd Dec., 2008 reducing the loss to Rs. 15,66,37,622 due to less claim of depreciation on the revised figures of capital work-in-progress as capitalized during the year. The assessment has been completed by the AO at a loss of Rs. 15.66,36,622. The assessee reduced the claim for depreciation in the asst. yr. 2006-07 due to reduction in the capitalized value of the capital work-in-progress surrendered in different assessment years. Originally the assessee had claimed depreciation at Rs. 14.5716,287, which was reduced to Rs. 13,42,12,588. There was no effect on the depreciation claimed so far it relates to the asst. yrs. 2001-02 to 2005-06 as the capital work-in-progress was not capitalized to respective asset, except the power plant during the asst. yr. 2006-07. The AO, while completing the assessment for each of the assessment years. mentioned that "penalty proceedings under s. 271(1)(c) of the IT Act, 1961 is initiated separately". (English translation). Accordingly, show-cause notice dt. 31st Dec., 2008 was issued to the assessee for each of the, assessment years to the following terms :
"Sub : Show-cause notice under s. 271(l)(c) of the IT Act. 1961- reg.
Whereas in the course of proceedings before me for the asst. yr. 2001-02, it appears that you have concealed the particulars of your income or furnished inaccurate particulars of such income.
You are requested to appear before me at 11.00 A.M. on 17th Feb., 2009 and show-cause why an order imposing a penalty on you should not be made under s. 271 of the IT Act, 1961. If you do not wish to avail yourself of this opportunity of being heard in person or through an Authorized Representative, you may show-cause in writing on or before the said date, which will be considered before any such order is made under s. 271 of the Act."
4. The assessee agitated the issue of show-cause notice. In reply to the show-cause notice, the assessee stated that notice under s. 153A was received by the assessee on 22nd March, 2007. In the reply dt. 12th April, 2007, the assessee stated that the figures of capital work-in-progress booked during the previous years relevant to asst. yrs. 2001-02 to 2007-08 were likely to go under revision on account of surrender, the assessee was contemplating, whereby the cost of capital work-in-progress would be reduced. The assessee had volunteered to analyze reduction in the cost of capital work-in-progress when the assessee got the opportunity to learn about certain information out of the material seized from premises of Mehta Group. The notice was received by the assessee only on 7th Feb., 2008. The assessee surrendered certain amount of the capital work-in-progress much before the initiation of the assessment proceedings and the surrender is not the outcome of the finding of the AO during the assessment proceedings. No material was found during the course of assessment proceedings or search on which basis the AO could have held that the assessee has concealed the particulars or furnished inaccurate particulars of income. The assessee relied on the decision of Hon'ble Supreme Court in the case of Sir Shadilal Sugar and General Mills Ltd. v. CIT [1987] 168 ITR 705/33 Taxman 460A for the-proposition that the assessee agreeing for the addition does not follow that the amount agreed to be added as income is correct (sic- concealed) income. There may be hundred and one reasons for such additions when the assessee realizes the true position, it does not dispute certain additions but that does not mean that the assessee has filed the inaccurate particulars. Reliance was also placed on certain other decisions. The AO, in each of the assessment year, levied the penalty on the assessee for furnishing false particulars amounting to Rs. 4,10,000 for asst. yr. 2001-02, Rs. 1,10,00,000 in asst. yr. 2002-03, Rs. 75,00,000 in the asst. yr. 2003-04, Rs. 68,00,000 in the asst. yr. 2004-05, Rs. 90,00,000 in the asst. yr. 2005-06 and Rs. 1,10,00.000 in the asst. yr. 2006-07.
5. The assessee went in appeal before the CIT(A). The CIT(A) deleted the penalty in each of the assessment years by passing a consolidated order dt. 28th May, 2010 by holding as under :
"19. 1 have gone through the findings of the AO in his penalty orders, the remand report of the AO as well as the detailed submissions of the appellant. The appellant company was incorporated on 10th April, 2000. During the asst. yrs. 2001-02 to 2005-06, it was in the process of acquiring land, doing site development, construction of factory buildings, erecting plant and machineries and other related activities during the assessment years under consideration. The appellant-company had placed orders for supply and erection of various plant packages with various agencies including the contractors of national and international repute and work orders were issued for execution and supply of respective items of plant and advances were paid as per terms of contract. The means of financing the project included share money received from various individuals and bodies corporate, unsecured loans in the form of Inter Corporate Deposits (ICDs) from various companies. The appellant-company raised secured loans from consortium of nineteen co-operative banks, Indian Renewable Energy Development Agency (IREDA), New Delhi, and Bank of Maharashtra and State Bank of Indore. The assessee-company had issued work order for executing the supply and erection of plant to various contractors/companies. These companies executed earthwork and site development, civil construction etc. jobs and raised bills for these jobs. The appellant-company paid for these bills in the normal course of business and duly deducted tax at source and deposited the same. These bills were duly clubbed under the head capital work-in-progress (CWIP) for capitalisation at a later date. The appellant-company incurred various expenses in the normal course of business throughout the various previous years during which work of construction and erection was going on. The expenses included the interest paid by the appellant on secured loans as well as unsecured Loans while making payment of interest on ICDs tax was deducted at source and deposited into Government treasury. All interest and expenses were clubbed and shown under the head CWIP. The advances paid by the appellant company to various contractors and sub-contractors for executing the work were also clubbed and shown under CWIP, in the balance sheet, with a proper disclosure by way of a statement in notes to accounts. Few companies belonging to Mehta Group also did the work of supply and erection. Advances were paid to the Mehta Group companies for execution of work.
20. The company was incorporated for setting up of an integrated plant for manufacturing sugar, power, ethanol etc. The commercial production of the entire projects were to start from December, 2006 onwards, but crushing of sugarcane started during asst. yr. 2006-07. However, search and seizure action was carried on the appellant-company along with Mehta Group under s. 132 of the IT Act. 1961 on 23rd Aug., 2006. The notices under s. 153A of the Act were received by the appellant-company for the asst. yr. 2001-02 to asst. yr. 2006-07 on 23rd March, 2007. The appellant has filed replies to these notices on 23rd April, 2007 and it was submitted in that letter that on perusal of the seized material then made available it was felt that some of the items clubbed under CWIP may not be fully explainable to the satisfaction of the AO. It was also mentioned that on careful analysis the CWIP appeared to be on higher side and hence the appellant was preparing a revised statement of income considering the seized material, found from Mehta Group of companies, The appellant had stated that reduction in CWIP would result in reduction in claim of depreciation in the future years. These facts were brought to the notice of the AO. prior to the commencement of the assessment proceedings. Subsequent to the search in response to notice under s. 153A of the Act, returns were filed showing reduced figures of CWIP for these years. The AO has accepted the returned loss in these cases in his assessment orders under s. 153A r/w s. 143(3) of the Act, dt. 31st Dec., 2008, but has initiated and levied penalties under s. 271(1)(c) of the Act on the amounts reduced from CWIP, which were surrendered by the appellant.
21. I have perused the orders imposing penalty under s. 271(1)(c) of IT Act, 1961 and it is evident from the same that penalty is imposed only
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