1 IN THE HIGH COURT OF BOMBAY AT GOA INCOME TAX APPEAL NO. 1 OF 2010. 1. The Commissioner of Income Tax, Having office at Aayakar Bhavan, Patto Plaza, Panaji, Goa .. Appellant. Versus 1. M/s. Zuari Industries Ltd Jai Kissan, Bhavan, Zuarinagar, Goa. .. Respondent. Ms. Asha Dessai, Advocate for the Appellant. Mr. Jehangir Mistry, Senior Advocate with Mr. S. D. Padiyar with Mr. P. Arolkar, Advocates for the respondent. CORAM :- A. S. OKA & F. M. REIS, JJ. DATE :- 17 th June, 2010. P.C. We have heard the learned Counsel appearing for the appellant and the learned Senior Advocate appearing for the respondent. 2. The challenge in this appeal under section 260A of the Income Tax Act, 1961 (hereinafter referred to as the said Act of 1961) is to the judgment and order dated 9th October, 2009 passed by the Income Tax Appellate Tribunal 2 at Panaji in an appeal preferred by the respondent. The appeal arises out of penalty proceedings under section 271(1) (c) of the said Act of 1961. The respondent Company on 29th November, 2001 filed a return of loss along with Annual Report, Audit report in form Nos. 3CD and 3CEA and other enclosures. The case was selected for scrutiny and accordingly notices were issued. The respondent Assessee Company was operating a cement division, which belonged to Texmaco Ltd., which was located in Andhra Pradesh. The ownership of the division was taken over by the Assessee Company. Subsequently, the Assessee Company entered into a joint venture agreement with the Cements Francais SA, France for carrying on cement business. Thereafter, a scheme of arrangement was submitted as a result of the transfer of cement division to M/s. Zuari Cement Limited. In the said Company 50 % shares are held by the respondent Company and balance 50 % shares are held by the Said French Company. So to say, Cement Division of the respondent Company was sold to M/s. Zuari Cement Ltd. with effect from 1st April, 2000. The High Court of Judicature at Bombay passed an order dated 12th January, 2001 approving the scheme of arrangement of transfer of the cement devision between the Assessee Company and M/s. 3 Zuari Cement Ltd. In the scheme of arrangement, the respondent Company had set out assets of the Cement Division totalling to Rs.588.7723 Crores. In the return of income tax, the contention of the respondent Assessee Company was that the cement undertaking was transferred to Zuari Cement Ltd for lumpsum consideration of Rs.75.98 Crores paid by way of allotment of 7,59,80,000/- fully paid shares having face value of Rs.10/- each. It was contended that the net worth of the cement undertaking transferred to Zuari Cement Ltd computed in terms of section 50(B) of the said Act, 1961 works out to a negative figure. It was contended in return that the computation of net worth in terms of Section 50(B)(2) of the said Act, 1961 is for the purpose of determining the cost on the computation of slump sale and such cost cannot be negative. Therefore, it was contended that in absence of cost which is an essential element for computing the capital gains, the computation of capital gains is not possible and hence, the consideration received by the respondent is tantamount to capital receipt, which is not chargeable to tax. The Assistant Commissioner of Income Tax passed assessment order overruling the contentions raised by the respondent. The order of payment of interest was passed in the assessment order and 4 proceedings under Section 271(1)(c) were ordered to be initiated for furnishing inaccurate particulars and concealing the income chargeable to tax. It must be stated here that on the basis of the said order, penalty proceedings were initiated. 3. At this stage, it must be noted that against the order of assessment, the respondent preferred an appeal before the CIT (A). As the respondent did not succeed, an appeal was preferred before the Appellate Tribunal, which was decided on 1st June, 2006. It was noted by the Appellate Tribunal that the respondent Company has not seriously pressed its contention with regard to the negative net worth. The Tribunal came to the conclusion that the net worth has to be a figure other than a negative figure. The Appellate Tribunal accepted the contention raised by the respondent in alternative that the net worth will have to be taken as nil. 4. Various contentions were raised by the respondent in the penalty proceedings. One of the contentions was that the proceedings were barred by limitation. The other contention raised by the respondent was that there is absolutely no concealing and there were no 5 inaccurate particulars furnished by the respondent. The Assistant Commissioner of Income Tax accepted the allegation of concealment and ordered payment of penalty. An appeal was preferred by the respondent. The Commissioner dismissed the appeal. Thereafter, the appeal was preferred by the respondent before the Income Tax Appellate Tribunal. By the impugned order, the Tribunal allowed the appeal by setting aside the order of penalty. The order was set aside on merits as well as on the grounds of bar of limitation. 5. The learned Counsel appearing for the appellant has taken us through the impugned order. The learned Counsel pointed out that the quantum appeal preferred by the respondent was disposed of on 31st January, 2005 and the Appellate Tribunal disposed of further appeal on 1st June, 2006. The learned Counsel, therefore, submitted that in view of Section 275(1)(a) of the said Act, 1961, the penalty proceedings were very much within the prescribed period of limitation. The learned Counsel pointed out that the penalty order was passed on 28th September, 2006. The learned Counsel, therefore, submits that the finding on the issue of bar of limitation is completely illegal. The learned Counsel 6 further submitted that the case is covered by both the parts of clause (C) of Section 271(1) in as much as in this case incorrect particulars were submitted and there is also a concealment. The learned Counsel for the appellant invited our attention to the findings recorded by the Commissioner in appeal and findings recorded by the Assessment Officer in order of penalty. She pointed out that there is a categorical finding that the respondent Assessee has concealed income chargeable to tax consciously and intentionally by contending that there was negative worth knowing fully well that the net worth cannot be in negative figures. She submitted that incorrect particulars were submitted by the respondent Assessee in the income tax return. She submitted that the burden was on the respondent to prove the bonafides of the explanation. Lastly, she submitted that the appeal preferred in the proceeding arising out of quantum appeal has been admitted by the High Court of Judicature of Bombay and this appeal will have to be heard along with the said appeal. 6. The learned Senior Counsel appearing for the respondent invited our attention to the findings of the fact recorded by the Appellate Tribunal. He submitted that in view of findings of fact, no interference is called for in this 7 appeal in which no substantial question of law arises. He placed reliance on the decision of the Apex Court in the case of Commissioner of Income Tax Vs. Reliance Petroproducts Pvt. Ltd.;(2010) 322 ITR 158 (SC). 7. We have carefully given consideration to the submissions. In the return of income tax filed, the specific contention raised by the respondent is that net worth of the Cement undertaking transferred to Zuari Cement Limited both in accordance with the explanation 1 and 2 of Section 50(B) of the said Act, 1961 works out to be a negative figure. It must be noted here that the return was filed along with the audit report in form No.3CD and 3CEA. While passing the order of assessment in paragraph 1.9.3, the Assessment Officer observed that the respondent Company has referred to the sale consideration as capital receipt and did not offer the same for taxation. It must be noted here that the respondent Company had paid an advance tax of Rs.75.98 Crores. In the assessment order, it was observed that the respondent Company refrained from offering tax by claiming that the sale consideration received is a capital receipt and claimed refund of Rs.15.23 Crores. What is held is that claim of negative net worth made by the respondent has no legal 8 basis. In the assessment order, it was held that the negative worth needs to be added in sale consideration received and such aggregate of negative net worth and sale consideration is the capital gain chargeable to income tax. 8. Subsection (1) of 271 of the said Act of 1961 reads thus : “S.271(1) If the Assessing Officer or the Commissioner (Appeals) or the Commissioner in the course of any proceedings under this Act, is satisfied that any person - (a) ... (b) has failed to comply with a notice under sub-section(2) of section 115WD or under sub- section (2) of section 115WE or under sub-section (1) of section 142 or sub-section (2) of section 143 or fails to comply with a direction issued under sub-section (2A) of section 142, or (c) has concealed the particulars of his income or furnished inaccurate particulars of such income, or (d) has concealed the particulars of the fringe benefits or furnished inaccurate particulars of such fringe benefits, he may direct that such person shall pay by way of penalty - (i) 9 (ii) in the cases referred to in clause (b), in addition to tax, if any, payable by him, a sum of ten thousand rupees for each such failure; (iii) in the cases referred to in clause (c) or clause (d), in addition to tax, if any, payable by him, a sum which shall not be less than, but which shall not exceed three times, the amount of tax sought to be evaded by reason of the concealment of particulars of his income or fringe benefits or the furnishing of inaccurate particulars of such income or fringe benefits. Explanation 1- Where in respect of any facts material to the computation of the total income of any person under this Act,- (A) such person fails to offer an explanation or offers an explanation which is found by the Assessing Officer or the Commissioner (Appeals) or the Commissioner to be false, or (B) such person offers an explanation which he is not able to substantiate and fails to prove that such explanation is bona fide and that all the facts relating to the same and material to the computation of his total income have been disclosed by him, then, the amount added or disallowed in computing the total income of such person as a result thereof shall, for the purposes of clause (c) of this sub-section, be deemed to represent the income in respect of which particulars have been concealed. ” 10 Clause (c) is applicable when Assessee has concealed the particulars of his income or furnished inaccurate particulars of such income. Explanation 1 provides that if person failed to offer explanation or offers an explanation which is found to be false, then the amount disallowed or added in computing the total income shall for the purposes of clause (c) be deemed to represent the income in respect of which particulars have been concealed. Explanation (1)(B) provides that if such person offers explanation which he is not able to substantiate and fails to prove that explanation is bona-fide and that all the facts relating to same and material to the computation of his total income have been disclosed by him, the amount added or disallowed shall be deemed to be concealed income. In the present case, we find that the sale consideration was in the form of 7,59,80,000 fully paid up shares of having price of Rs.10/-, which was disclosed in the return. The respondent Assessee added consideration received, depreciable assets (written down value as per the said Act of 1961) and other assets as per the book value and showed the aggregate value of assets at Rs.3,23,60,01,000/-. The liabilities of the undertaking or the cement division was 4,74,06,00,000/-. That is how it was claimed that the net worth was (-) 11 Rs.150,45,99,000/-. The said contention was not accepted in the order of assessment and it was observed that the negative net worth needs to be added to the sale consideration to arrive at the total capital gain. 9. By a detailed order, the Appellate Tribunal observed that the burden was on the revenue to prove that Assessee has not furnished true and correct particulars and made a claim with an intention to conceal its income. The Tribunal recorded the finding of the fact that the Assessee had furnished complete factual details with regard to its claim and a legal ground was raised that capital gains tax was not attracted. It was observed that it was for the Assessment Officer to interpret the said provision of the said Act of 1961 and either to accept or reject the legal ground. What has been held by the Appellate Tribunal reads thus : “Even if an interpretation, in favour the assessee, is permissible under the Act, the assessee should not be forced to forgo the option for the fear of non-acceptance of the claim; In other words, if assessee files a return based upon an interpretation which favours the view-point of the Revenue, it may foreclose the option of the assessee forever, which may not be the intention 12 of the legislature. An assessee is duty bound to place all the facts on record and can genuinely make a claim during the course of assessment proceedings so long as the claim is bonafide; mere non-acceptance of the claim by the Revenue cannot lead to the conclusion that the assessee intended to furnish inaccurate particulars or concealed the income and it cannot also be inferred that the claim made by the assessee is false. In the quantum appeal the ITAT partly accepted the claim of the assessee by holding that in the case of negative net worth it has to be taken as NIL, instead of adding it to the sale consideration, which proves that the view taken by the A.O. is not correct and there is some force in the argument of the assessee. Under these circumstances, we are of the view that the tax authorities have not made out a case for levy of penalty under section 271(1)(c).” Thus, the finding of fact has been recorded that all the facts were placed before the Assessment Officer by the respondent and there was no omission to place on record any facts or figures. It is held that mere non-acceptance of the legal contention raised by the respondent cannot lead to the conclusion that Assessee intended to furnish inaccurate particulars or that he intended to conceal the income. What has been found by the Assessment Officer is that the legal 13 contention raised by the respondent was not tenable. Thus, on the basis of the material placed before the Appellate Tribunal, there is finding of the fact recorded that there is no concealment of the particulars of the income and this was not a case where inaccurate particulars were furnished. 10. At this stage, a reference will have to be made to the decision in the case of Reliance Petroproduct Pvt. Ltd (supra). This was the case where penalty proceedings were initiated under Section 271(1)(c). The Apex Court held that it must be shown that the conditions under Section 271(1)(c) exist before the penalty is imposed. The Apex Court held that there can be no dispute that everything would depend upon the return filed because that is the only document where assessee can furnish particulars of his income. The Apex Court held that a mere making of the claim, which is not sustainable in law by itself will not amount to furnishing inaccurate particulars regarding the income of the Assessee. The Apex Court found that the Assessee had furnished all the details of his expenditure as well as income in its return, which details, in itself were not found to be inaccurate. The same is the present case where all the details were furnished by the Assessee along with return. There is no finding that 14 all the details were not furnished along with the return or that factual information furnished by the respondent was inaccurate. 11. A contention was raised that appeal against the decision of quantum is pending in this Court. The finding of fact recorded by the Appellate Tribunal will still hold even if the respondent Assessee fails in the said appeal. We are satisfied that the finding of fact is based on consideration and appreciation of factual details on record. Hence, as far as clause (c) of Section 271 (1) is concerned, in view of finding of fact, no substantial question of law arises. As we are confirming the said finding that clause (c) is not attracted, it is not necessary to go into the other questions relating to bar of limitation. Hence, we find that no substantial question of law arises in this appeal. There is no merit in the appeal and the same is accordingly dismissed with no order as to costs. A. S. OKA, J F. M. REIS, J. SMA