ITA No.586 of 2007 1 IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH ITA No.586 of 2007 Date of decision: 7.2.2008 Commissioner of Income tax, ......Appellant Faridabad Versus M/s SSP (P) Ltd. ......Respondent CORAM:- HON'BLE MR.JUSTICE SATISH KUMAR MITTAL HON'BLE MR.JUSTICE RAKESH KUMAR GARG * * * Present: Mr. Yogesh Putney, Advocate for the appellant-revenue. * * * Rakesh Kumar Garg, J . 1. The present appeal has been filed by the revenue against the order dated 5.4.2007 passed by the Income Tax Appellate Tribunal, Delhi Bench 'H' New Delhi in ITA No.175/D/2006 in the case of respondent- assessee for the assessment year 1993-94 raising the following substantial questions of law:-. “(a) Whether on the facts and in the circumstances of the case, the Hon'ble ITAT erred in deciding that proving contumacious intent is an essential ingredient in levy of penalty in contravention of the provisions of a Civil Statute like Income Tax Act in spite of there being so many judgements that breach of a Civil obligation attracts levy of penalty whether the contravention was made by the defaulter with any guilty intention or not? (b) Whether on the facts and in the circumstances of the case, the Hon'ble ITAT is in contravention of many judicial pronouncements including Thirupathy Kumar Khemka vs. Commissioner of Income Tax 210 CTR ITA No.586 of 2007 2 287 (Mad)? (c) Whether on the facts and in the circumstances of the case, the Hon'ble ITAT erred in deleting the penalty levied u/s 271(1)(c) of the Income Tax Act, 1961 whereas it had confirmed all the additions/disallowances?” 2. Brief facts giving rise to this appeal are as under:- The respondent-assessee filed a return declaring income of Rs.45,62,890/- on 4.1.1994 which was processed under Section 143(1)(a) of the Income Tax Act (for short the 'Act') on an income of Rs.53,17,880/- vide order dated 14.2.1994. This order was rectified under Section 154 of the Act on an income of Rs.45,76,027/- vide order dated 4.3.1994 and the same was again rectified on 18.3.1994 to an income of Rs.45,63,320/-, and finally the assessment was made vide order dated 26.3.1996 by the Additional Commissioner of Income tax, Special Range, Faridabad under Section 143 (3) of the Income Tax Act, 1961. While making the assessment, the Assessing Officer observed that the assessee has not shown purchases of Rs.5,71,360/- in the closing stocks and thereby concealed income to that extent. He further observed that the assessee has filed inaccurate particulars of income by making a wrong claim of commission paid by M/s Rohan Engineers & Consultant (P) Ltd. for Rs.94,991/-. He also observed that the assessee has made false statement with regard to the payment of Rs.52,500/- to M/s Proplus Management, Registrar of Companies and Sh. K.K. Paul claiming this expenditure to be revenue in nature whereas the same was capital expenditure. Thus, the Assessing Officer vide the assessment order dated 26.3.1996 made the assessment and also ordered for initiation of proceedings under Section 271(1)(c) of the Act. Against the above orders, the assessee filed an appeal before the Commissioner of Income Tax ITA No.586 of 2007 3 (Appeals), Faridabad who partly allowed the appeal vide his order dated 16.2.1998 against which both revenue and the assessee preferred appeals before the Tribunal which was decided by the Tribunal vide its order dated 5.8.2004 in ITA No.2865/D/98. 3. The Assessing Officer initiated penal proceedings under Section 271 (1)(c) and in those penalty proceedings, the assessee was granted an opportunity to explain as to why penalty orders should not be passed on the points of additions which were finally upheld by the Tribunal. The assessee vide his letter dated 18.4.2005 submitted that they had neither concealed nor submitted any inaccurate particulars and it was requested that the penalty proceedings may be dropped. However, the Assistant Commissioner of Income Tax, Range-I, Faridabad vide his order dated 28.4.2005 passed the penalty order against the respondent- assessee. The relevant part of the order is reproduced as under:- “In view of the above position, it is held that the assessee concealed income of Rs.5,71,360/- by not showing purchases of the same amount in the closing stock. Further, the assessee filed inaccurate particulars by making a wrong claim of payment of commission of Rs.94,991/- to M/s Rohan Engineers & Consultants (P) Ltd..Similarly the asseessee company made payments of Rs.52,500/- to M/s Proplus Management, Registrar of Companies and Sh. K.K. Paul and claimed the same as revenue expenditure when in fact, they were of capital nature. This total income concealed/inaccurate particulars filed was of the order of Rs.7,18,851/- and I am satisfied that for concealment/wrong claim, the assessee is liable to penalty on the sum of Rs.7,18,851/-. A penalty of Rs.4,15,000/- is as such ITA No.586 of 2007 4 imposed which is worked out as under:- Tax payable on income of Rs.54,03,021/- After appeal effect to the order of the Hon'ble ITAT Rs. 31,06,736/- Less:- Tax on above income as reduced by Rs.7,18,851/- i.e. on Rs.46,84,170/- Rs.26,93,398/- Tax sought to be evaded Rs. 4,13,338/- Minimum penalty @ 100% Rs. 4,13,338/- Minimum penalty @ 300% Rs. 12,40,014/- Penalty imposed Rs. 4,15,000/- Issued Demand notice and challan. The above penalty order has been passed after taking necessary approval from the Addl. Commissioner of Income Tax, Range-I, Faridabad communicated vide his letter No.380 dated 28.04.2005.” 4. Feeling aggrieved against the order dated 28.4.2005, the assessee filed an appeal before the Commissioner of Income Tax (Appeals), Faridabad who vide his order dated 26.10.2005 dismissed the appeal filed by the assessee and confirmed the order of the Assessing Officer with the further directions to the Assessing Officer to include Rs.2,85,585 for further enhancement of the penalty. 5. The assessee filed an appeal before the Tribunal against the order of the Commissioner of Income Tax (Appeals) whereby he has upheld the order of imposing the penalty under Section 271(1)(c ) of the Act passed by the Assessing Officer. The Tribunal vide its order dated 5.4.2007 accepted the appeal filed by the assessee and set aside the order ITA No.586 of 2007 5 of the CIT(A) and deleted the penalty of Rs.4,15,000/-. The operative part of the judgement of the Tribunal is reproduced as under:- “ We have heard the rival submissions and perused the orders of the lower authorities and the materials available on record. We find that the AO observed that the assessee has not shown purchases of Rs.5,71,360/- in the closing stock and thereby concealed income to that extent. He further observed that the assessee has filed inaccurate particulars of income by making a wrong claim of commission paid to M/s Roshan Engg. & Consultants (P) Ltd. Rs.94,991/-. He further observed that similarly the assessee has made false statement with regard to the payment of Rs.52,500/- to M/s. Proplus Management Service, Registrar of Companies and Sh. K.K. Paul claiming this expenditure to be revenue in nature whereas the same was capital expenditure. The AO held that the assessee has furnished inaccurate particulars of income amounting to Rs.7,18,851/- and levied penalty of Rs.4,15,000/-. We find that the return was filed by the assessee on 4.1.1994 whereas the decision of the Hon'ble Supreme Court in the case of Brooke Bond India Ltd. vs. CIT 225 ITR 798 (SC) was rendered on 27.2.1997 holding fees payable to Registrar of Companies for increase in share capital as capital expenditure. Thus on the date of filing of the return the assessee did not have the benefit of the order of the Hon'ble Supreme Court. Therefore, penalty cannot be levied on the sum of Rs.7,500/- paid to Registrar of Companies. Further with ITA No.586 of 2007 6 regard to Rs.5,71,360/- not shown the assessee in the closing stock we find that the assessee admitted the mistake and the Tribunal while deciding the issue has held that this amount has to be included in the closing stock of the year under appeal and simultaneously has to be considered in the opening stock in subsequent year. Thus we find that the net result to the addition of the income of the assessee is zero as addition is made in one year whereas deduction is allowed in the subsequent year. Further the AO as well as the CIT(A) has not allowed the deduction for payment of Rs.25,000/- to M/s. Proplus Management and Rs.20,000/- to Sh. K.K. Paul on the ground that evidence for rendering of services could not be filed. In these facts we are of the view that though the AO was of the view that no services were rendered by the two persons M/s Proplus Management and Sh. K.K. Paul, but it cannot be said that the assessee filed inaccurate particulars of income or concealed its income. The Hon'ble Supreme Court in the case of Cement Marketing Company of India Ltd. v. ACIT and others 124 ITR 15 (SC) has held that unless the filing of an inaccurate return is accompanied by a guilty mind, penalty cannot be imposed. If the view canvassed on behalf of the revenue were accepted, the result would be that if the assesses raised a bona fide contention that a particular item is not taxable, he would have to show it as forming part and pay tax upon it on the point of being held liable for penalty in case contention is ultimately ITA No.586 of 2007 7 found by the Court to be not acceptable. This surely could never have been intended by the legislature. Hence, for the reasons given above, we are of the view that the penalty levied cannot be sustained in law. Hence, we set aside the order of the CIT(A) and delete the penalty of Rs.4,15,000/-. The grounds of appeal of the assesses are allowed.” 6. Mr. Yogesh Putney, counsel for the appellant, has argued that the assessee had filed inaccurate particulars as the additions have been made on the returned income as declared by the assessee and therefore, the breach of this statutory obligation attracts levy of penalty irrespective of the fact whether the contravention was made by the assessee with any guilty intention or not. 7. After considering the arguments raised by the counsel for the appellant and perusing the record, we find no force in the contention raised by the counsel for the appellant. A perusal of the impugned order would show that the Tribunal has given a finding of fact to the effect that return was filed by the assessee on 4th January, 1994 whereas the Apex Court in the case of Brooke Bond India (Ltd.) vs. CIT 225 ITR 798 (SC) rendered the decision on 27.2.1997 holding fees payable to Registrar of Companies for increase in share capital as capital expenditure. Thus, the penalty cannot be levied on the amount paid to the Registrar of Companies. It has also been found by the revenue that with regard to sum of Rs.5,71,360/- which was not shown by the assessee in the closing stock, the Tribunal while deciding the quantum appeal, has held that this amount has to be included in the closing stock of the year under appeal and simultaneously has to be considered in the opening stock in subsequent year and the net result to the addition of the income of the assessee is zero on this ITA No.586 of 2007 8 account. Similarly, the Tribunal has given a finding with regard to the claim of deduction for payment of Rs.25,000/- to M/s Proplus Management and Rs.20,000/- to Sh. K.K. Paul. It cannot be said that the assessee filed inaccurate particulars of income or concealed its income. The Hon'ble Supreme Court in the case of Cement Marketing Company of India Ltd. v. ACIT and others 124 ITR 15 (SC) has held that unless the filing of an inaccurate return is accompanied by a guilty mind, penalty cannot be imposed. It has been further held that return cannot be “false” unless there is an element of deliberateness in it. Where the assessee does not include a particular item in the taxable turnover under bona fide belief that he is not liable so as to include the same, it would not be right to treat the return as a false return inviting imposition of penalty. Thus, we are of the view that the order of the Tribunal does not suffer from any illegality and no substantial question of law arises in the appeal and the same is dismissed in limine. (RAKESH KUMAR GARG) JUDGE February 7, 2008 (SATISH KUMAR MITTAL) ps JUDGE