ITA No. 148 of 2010 -1- IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH ITA No. 148 of 2010 Date of Decision: 8.2.2011 Commissioner of Income Tax, Faridabad ....Appellant. Versus M/s Lakhani Footwear Ltd. ...Respondent. CORAM:- HON'BLE MR. JUSTICE ADARSH KUMAR GOEL. HON'BLE MR. JUSTICE AJAY KUMAR MITTAL. PRESENT: Ms. Urvashi Dhugga, Senior Standing Counsel for the appellant. Ms. Radhika Suri, Advocate for the respondent. AJAY KUMAR MITTAL, J. 1. This appeal has been preferred by the revenue under Section 260A of the Income Tax Act, 1961 (in short “the Act”) against the order dated 27.3.2009 passed by the Income Tax Appellate Tribunal, Delhi Bench “D”, New Delhi (hereinafter referred to as “the Tribunal”) in ITA No. 1059/Del/2008, relating to the assessment year 1993-94, claiming the following substantial questions of law:- “I. Whether, on the facts and in the circumstances of the case, the Ld. ITAT was right in law in upholding the order of the Ld. CIT(A) in deleting the penalty of Rs.4,78,640/- on the ground of non-recording of satisfaction by the Assessing Officer in the ITA No. 148 of 2010 -2- assessment order despite the amendment by the Finance Act, 2008 with effect from 01.04.1989 to clause (1B) below Explanation 7 of Section 271(1)(c) of the Income Tax Act, 1961? II. Whether, on the facts and in the circumstances of the case, the Ld. ITAT was right in law in upholding the order of the Ld. CIT(A) in deleting the penalty of Rs.4,78,640/- on the ground that the additions based on the difference of opinion and there is no misrepresentation or misstatement of facts in contravention to the judgment of Hon'ble Supreme Court in the case of Union of India and others vs. Dharmendra Textiles Processors and others (2008) 306 ITR 277 (SC) wherein it was held that penalty under section 271(1)(c) of the Income Tax Act, 1961 is a civil liability and the section has been enacted to provide for a remedy for loss of revenue. Wilful concealment is not an essential ingredient for attracting civil liability as in the case in the matter of prosecution under section 276C of the Income Tax Act, 1961? III. Whether, on the facts and in the circumstances of the case, the ITAT was right in law in upholding the order of the Ld. CIT (A) in deleting the penalty levied by the Assessing Officer u/s 271(1)(c) of the Income Tax Act, 1961 in respect of various additions in ITA No. 148 of 2010 -3- assessee's income which were confirmed by the Appellate Authorities at all level?” 2. Briefly stated, the facts necessary for adjudication as narrated in the appeal are that assessee-company filed its return of income on 30.12.1993 for the assessment year 1993-94 declaring an income of Rs.1,41,72,960/-. The assessment was completed on 15.3.1996 at a total income of Rs.1,65,54,940/-. The Assessing Officer vide order dated 29.4.2005 levied a penalty of Rs.4,78,640/- on the assessee for furnishing inaccurate particulars of the income. Feeling aggrieved, the assessee filed an appeal before the Commissioner of Income Tax (Appeals) [in short “the CIT(A)”]. The CIT (A) vide order dated 8.1.2008 deleted the said penalty. Against the deletion of penalty, the department filed an appeal before the Tribunal who vide order dated 27.3.2009 upheld the order of the CIT (A) and dismissed the appeal and this gave rise to the revenue to approach this Court by way of instant appeal. 3. We have heard learned counsel for the parties. 4. The issue that arises for consideration in this appeal is whether the Tribunal was right in deleting the penalty levied under Section 271(1)(c) of the Act. 5. Learned counsel for the revenue placed reliance upon the following observations in the judgment of Delhi High Court reported in Commissioner of Income Tax v. Gurbachan Lal [2001] 250 ITR 157:- “A conspectus of the Explanation added by the Finance Act, 1964, and the subsequent substituted Explanations ITA No. 148 of 2010 -4- makes it clear that the statute visualized assessment proceedings and penalty proceedings to be wholly distinct and independent of each other. In essence, the Explanation (after 1964) is a rule of evidence. Presumptions which are rebuttable in nature are available to be drawn. The initial burden of discharging the onus is on the assessee. The rationale behind this view is that the basic facts are within the special knowledge of the assessee. Section 106 of the Indian Evidence Act, 1872 (in short, the “Evidence Act”) gives statutory recognition to this universally accepted rule of evidence. There is no discretion conferred on the Assessing Officer as to whether he can invoke the Explanation or not. Explanation 1, which primarily concerns the case at hand, automatically comes into operation when, in respect of any facts material to the computation of the total income of any person, there is failure to offer an explanation or the explanation is offered which is found to be false by the Assessing Officer or the first appellate authority, or an explanation is offered which is not substantiated. In such a case, the amount added or disallowed in computing the total income is deemed to represent the income in respect of which the particulars have been concealed. As per the proviso to Explanation 1, the onus to establish that the explanation offered was bona fide and all facts relating to the same and material on the computation of his income have been disclosed by him will ITA No. 148 of 2010 -5- be on the person charged with concealment. Mere failure to substantiate the explanation is not enough to warrant penalty. The Revenue has to establish that the explanation offered was not substantiated. The proviso to Explanation 1 is concerned only with cases coming under clause (B) of the Explanation where the assessee offered an explanation which he was not able to substantiate. The explanation of the assessee for purposes of the avoidance of penalty must be an acceptable explanation; it should not be a fantastic or fanciful one. As indicated above, the consequence follow as a matter of law. The burden is on the assessee. If he fails to discharge that burden, the presumption that he had concealed income or furnished inaccurate particulars thereof is available to be drawn.” 6. It was submitted that in view of Explanation to Section 271 (1)(c), the burden was upon the assessee to prove that there was no concealment and once the explanation of the assessee was not accepted in quantum proceedings, the penalty ought to have been levied, but the Tribunal had erred in deleting the same. 7. Controverting the aforesaid submissions, learned counsel for the assessee submitted that there was no concealment as all the particulars of the income had been disclosed and the only issue was - whether the said income would fall under the head “income from house property” or “business income”. It was further submitted that this issue was highly debatable and in the case of sister concern of the assessee, the plea which has been raised by the assessee in the present case ITA No. 148 of 2010 -6- was accepted and the said income was held to be “business income” in that case. That decision was not challenged by the revenue thereafter. It was also argued that the disallowance on account of depreciation on electric installation, fire fighting, plant and machinery and on building as well as relating to valuation of closing stock would not result in misstatement or concealment of facts. Learned counsel has placed reliance on the findings of the Tribunal and the judgment of this Court in ITA No. 450 of 2009 (Commissioner of Income Tax, Faridabad v. M/s SSP Ltd.) decided on 20.8.2009. 8. We have given our thoughtful consideration to the respective submissions of learned counsel for the parties and do not find any merit in the submissions made by learned counsel for the revenue. 9. The principles enunciated in Gurbachan Lal's case (supra) are that the initial onus lay upon the assessee to prove that there existed no concealment or deliberate attempt on its part to furnish inaccurate particulars. The assessee was further required to establish that the explanation so offered by it stood substantiated. In the present case, it has been specifically recorded by the CIT(A) and the Tribunal that there was no deliberate concealment or misstatement of fact. The claim made by the assessee was with regard to certain deductions which involved difference of opinion and was debatable. Moreover, in the case of the sister concern of the assessee, M/s Lakhani Rubber Udyog Ltd. in ITA No. 1651/Del/98 for the assessment year 1993-94, the plea so raised in the present case was accepted and income was ITA No. 148 of 2010 -7- treated to be income from business and not income from house property. The Tribunal while rejecting the appeal of the revenue in paras 3, 6 and 8 had recorded as under:- “3. Concealment penalty has been levied on three additions. First addition is of Rs.4,50,850/- wherein the rental income was shown as business income and it has been assessed by Assessing Officer as house property income and such assessment of that income under the head 'income from house properties' has been upheld upto the level of the Tribunal. Ld. CIT(A) has deleted this penalty on the ground of non-recording of proper satisfaction as well as on merits. It has been mentioned by CIT(A) that there was only a difference of opinion as according to the assessee the said income was assessable as “business income” and according to the Department said income was assessable under the head “income from house properties”. It has also been pointed out by CIT(A) that for assessment year 1993-94, the plea of the assessee has been accepted by the Tribunal in assessee's own case in ITA No. 1651/Del/98 and it was directed to the Assessing Officer to decide the issue considering the decisions of Madras High Court in the case of CIT vs. Sanmar Holdings Ltd. 183 CTR 346 and, thus, it has been held by CIT(A) that this was a case only of difference of opinion and the assessee did not misrepresent or misstate the facts regarding the source of income. Therefore, Ld. CIT(A) has ITA No. 148 of 2010 -8- deleted the penalty on this account. XX XX XX XX 6. The second addition in respect of which penalty has been levied is depreciation on electrical installation, fire fighting, plant and machinery and depreciation on building which is a sum of Rs.1,04,643/- as mentioned in ground No.4 of the appeal filed by the revenue. Here also it has been observed by the CIT(A) that this disallowance is also made on account of difference of opinion and there is no misstatement or concealment of facts at any stage. The CIT(A) has referred to the decision of Hon'ble Punjab & Haryana High Court in the case of CIT vs. Ajaib Singh & Co. 253 ITR 630 (P&H) according to which mere disallowance of an amount does not entail concealment penalty. It is also mentioned by CIT(A) that jurisdictional High Court in the case of assessee in ITA No. 175 of 2005 vide order dated 2nd April, 2007 has approved the decision of ITAT Delhi Bench in assessee's own case and it has been found from the record of CIT(A), Faridabad that no SLP was filed against the said order of the Punjab & Haryana High Court in appeal u/s 260A of the IT Act. Ld. CIT(A) also referred to the decision of the Tribunal in ITA No. 1650/Del/98 dated 29th November, 2004 in the case of the assessee for assessment year 1994-95 and, thus, he has held that no penalty could be levied on such disallowance of depreciation. ITA No. 148 of 2010 -9- XX XX XX XX 8. Thirdly, the penalty has been levied on an addition of Rs.39,780/- which was made on account of under valuation of closing stock. Here also Ld. CIT(A) has given the finding that there has been no misstatement or concealment of facts. It is only a case where claim of assessee has been rejected and it is not a case where assessee had submitted inaccurate particulars or concealed particulars of its income. It has been pointed out by the CIT(A) that even though the addition in closing stock is made same is allowable in the next year as the additional cost of opening stock for that year. He also held that penalty cannot be justified because it is a petty disallowance. After hearing Ld. DR, we do not find any infirmity in such findings of CIT (A) and, thus, on third account also, it is not a justified case for levy of penalty. In view of above discussion, we find no infirmity in the order of the CIT(A) vide which penalty of Rs.4,78,640/- levied by the Assessing Officer has been deleted for the reasons discussed above.” 10. The said finding has not been shown to be erroneous or perverse in any manner by the learned counsel for the appellant and, therefore, the judgment relied upon by the revenue, in the present facts, does not advance its case. This Court in M/s SSP Ltd's case (supra) considering similar situation had opined as under:- “A concurrent finding has been recorded on facts that there was valid explanation that the assessee had raised ITA No. 148 of 2010 -10- debatable issue for claiming the expenditure and disallowance is no ground for levying penalty. Mere erroneous claim in absence of any concealment or giving of inaccurate particulars is no ground for levying penalty.” 11. Consequently, in view of the above, questions No.2 and 3 cannot be held to be substantial questions of law. 12. In the light of finding of fact recorded by the CIT(A) and affirmed by the Tribunal, question No.1 has been rendered academic. 13. Accordingly, no substantial question of law arises for consideration in this appeal. 14. The appeal stands dismissed. (AJAY KUMAR MITTAL) JUDGE February 8, 2011 (ADARSH KUMAR GOEL) gbs JUDGE