Voluntary disclosure in all cases cannot absolve liability of concealment penalty. High Court confirmed penalty u/s 271(1)(c) for deferral/avoidance of tax. Willful concealment is not an essential ingredient for attracting civil liability as is the case in the matter of prosecution under section 276C – High Court
ABCAUS Case Law Citation:
ABCAUS 2122 (2017) (11) HC
Important Case Laws Cited/relied upon by the parties:
Commissioner of Income-Tax vs. Gold Coin Health Food P. Ltd (2008) 304 ITR 308
Commissioner of Income Tax vs. manilal Tarachand, (2002) 254 ITR 630
Commissioner of Income Tax vs. Gold Coin Health Food P. Ltd., (2008) 304 ITR 308
Commissioner of Income Tax vs. Reliance Petroproducts Pvt. Ltd., (2010) 322 ITR 158
Price Waterhouse Cooppers Pvt. Ltd. vs. Commissioner of Income Tax and Anr., (2012) 348 ITR 306
Union of India vs. Dharmendra Textiles Processors and Ors., (2008) 306 ITR 277
Commissioner of Income Tax vs. Zoom Communication P. Ltd., (2010) 327 ITR 510
Mak Data P. Ltd. vs. Commissioner of Income Tax-II, Judgment
Brief Facts of the Case:
The assessee, for the relevant assessment year had filed his return of income declaring loss. The assessment was reopened under section 147(a) of the Income Tax Act, 1961 (the Act). In response to the notice under section 148 of the Act, the assessee filed his revised return declaring income of approx five lacs as against the earlier returned loss of approx seven lacs. The addition was on account of minimum guarantee realisation was upheld by the AAC and the addition was accepted by the assessee. In view of above, penalty proceedings u/s 271(1)(c) were initiated by the Assessing Officer (AO). The AO held that there was increase in the income in the return file by the assessee in response to the notice. The assessee pointed out that during the year, the income from one of the party was shown as advance due to non availability of the agreement and in the revised return, in response to notice under section 148, the income was declared. It was submitted that the total receipts were eventually shown and there was in fact no concealment, but a technical error. It was urged that the assessee acted bonafide.
However the AO observed that the assessment was opened on the specific information and the assessee filed a return showing income and the assessment was subsequently completed on income after setting off the brought forward loss. Further, the addition made on account of undeclared amount was upheld in appeal which was accepted by the assessee. Therefore the AO concluded that the assessee had knowingly filed inaccurate particulars of his total income attracting section 271(1)(c).
Before the Commissioner of Income Tax (Appeals), the assessee pleaded that income was not reported due to non-availability of the agreement and the assessee had shown the balance income in his return for the following assessment year and thus there was no concealment. CIT-A cancelled the penalty on this ground. However, on further appeal by the Revenue, the Tribunal (ITAT) confirmed the penalty imposed by the AO.
The assessee moved the tribunal seeking a reference of certain questions terming them as questions of law for answer and opinion of the Hon’ble High Court.
The Substantial Questions of Law referred for determination:
1. Whether on the facts and in the circumstances of the case the Tribunal was right in law in reversing the order of the CIT(A) and confirming the levy of the penalty U/s. 271(1)(c) of the I. T. Act when factually the assessee’s income was a loss for both the assessment years i.e. assessment year 1977-78 and assessment year 1978-79.
2. Whether on the facts and in the circumstances of the case there was any evidence before the Tribunal to justify in law in confirming the levy of the penalty on I. T. U/s. 271(1)(c) of the Income-Tax Act.
Observations made by the High Court:
The Hon’ble High Court opined that the assessee could not got away by urging that the copy of the agreement was not available. The assessee, in the original file, did not disclose fully and truly all the particulars of income for the relevant year. The assessee urged that the amount was not to be realised fully, but it was inaccurate in the sense that the payer had debited the full amount to its profit.
The Hon’ble High Court opined that under the circumstances of the case, the assessee managed to thwart the tax liability as rightly held by the Tribunal which cannot be termed as perverse.
The Hon’ble High Court observed that the Tribunal rightly came to the conclusion that it was immaterial as to whether the agreement was available or otherwise. However, it is not possible that the agreement in writing was not available. Even if formal written agreement was not available, it certainly would have been on the basis of some prior negotiations. The assessee and the other party were both in same business, hence, they ought to have known the nature of transaction despite non-availability of the agreement.
The Hon’ble High Court opined that the assessee could not depend on the other party to the transaction for making entries in his book by saying that he did not know how the other contracting party had treated the transaction. The Tribunal rightly held that such a lapse cannot be treated as technical error.
Further on the issue that there was no tax effect, the Hon’ble High Court observed that the contention of there being no tax effect and hence there was no mens-rea was equally baseless. If the assessee had included the entire receipts in the year under consideration, he would have ended up paying tax for the present year because even after setting off the brought forward losses, as mentioned earlier, the loss would have been converted into positive income with the inclusion of the balance receipt. Further, by virtue of losses of the relevant assessment year and earlier years being wiped out, the assessee could not have availed of the benefit of further unabsorbed losses during the following assessment year. Thus, the Tribunal concluded that by not including the entire receipts in the relevant assessment year, the assessee was able to thwart his tax liability for two years, namely, the relevant assessment year and the one following it.
The Hon’ble High Court opined that by deferring the declaration to the subsequent year, the assessee certainly furnished inaccurate particulars of income for the year under appeal and either avoided or deferred his tax liability.
The Hon’ble High Court opined that none of the decisions relied upon by the assessee were not applicable and were not of any assistance as under;
The Hon’ble High Court observed that in the case of Dharmendra Textiles which was relied upon by the assessee the Hon’ble Supreme Court held that mens rea is not an essential element for imposing penalty for breach of civil obligations and held that the Explanation to section 271(1)(c) entirely indicates the element of strict liability on the assessee for concealment or for giving inaccurate particulars while filing the returns. The object behind the enactment of section 271(1)(c) read with the Explanations indicates that the said section has been enacted to provide for a remedy for loss of revenue. The penalty under that provision is a civil liability. Willful concealment is not an essential ingredient for attracting civil liability as is the case in the matter of prosecution under section 276C of the Income Tax Act, 1961.
Questions referred were answered in favour of the Revenue and against the assessee.