Chandra Prasad Liquor vs Commissioner of Income Tax

Dhirendra Mishra, J.—The appellant/assessee has preferred this appeal u/s 260A of the IT Act, 1961 (for short ''the Act'') against the order of the Income Tax Appellate Tribunal (for short ''the Tribunal''), Jabalpur Bench, on following substantial questions of law :

(i) Whether on the facts and in the circumstances of the case, the levy of penalty u/s 271(1)(c) of the IT Act, 1961 is legal and valid when the AO illegally assumed jurisdiction for levy of penalty without recording proper satisfaction about concealing the true and correct particulars of income ?

(ii) Whether the order of the Tribunal is perverse and vitiated in law in holding that non-production of account books was intentional when in quantum appeal the Tribunal has itself held that ....''the AO was not justified in drawing the inference that the assessee did not produce the books of account intentionally (para 5) and the estimated disallowance of expenses was reduced to Rs. 2 lakhs (para 7).'' The disallowance of expenses was not that these were not actually incurred but because of legality of disallowance and being considered excessive on estimated basis ?

Briefly stated facts of the case are that the appellant firm filed its return for the asst. yr. 1993-94 declaring income of Rs. 6,12,700 on the basis of audited account making certain adjustments. The AO issued notice u/s 142(1) as well as u/s 143(2). The assessee failed to comply with the various queries raised by the AO during the course of assessment proceedings. He was called upon to produce books of account and other documents maintained by him in respect of the business, however, the assessee did not produce it on the pretext that the accountant, who maintains books of account, is absconding. The AO not accepting the explanation held that the assessee failed to comply with the terms of notice under Sections 142(1) and 143(2) and accordingly, proceeded to make best judgment assessment u/s 144 and made a lump sum addition of Rs. 3 lakhs on the profit disclosed by the assessee.

On appeal by the assessee, the CIT(A) confirmed the order of the AO. On further appeal by the assessee, the Tribunal reduced the addition made by the AO from Rs. 3 lakhs to Rs. 2 lakhs and directed the AO to assess the assessee firm.

The AO, while framing the order of the assessment, initiated penalty proceedings u/s 271(1)(c) of the Act. The assessee did not appear in response to the notice issued in the penalty proceedings. The AO taking due note of the Tribunal''s decision levied penalty of Rs. 95,000 on the assessee for having furnished inaccurate particulars of income and having concealed the particulars of income. The penalty was imposed in respect to the addition made in the assessment proceedings by disallowing the expenses to the , extent of Rs. 3 lakhs, which were subsequently reduced by the Tribunal to Rs. 2 lakhs.

The assessee preferred an appeal against the imposition of penalty, however, the CIT(A) dismissed the appeal with an observation that the addition made by the AO has been subsequently confirmed by the Tribunal. The assessee did not give any satisfactory explanation despite several opportunities granted to him by the AO. The assessee did not file any document to justify the quantum as well as the nature of expenses in respect of which disallowance was made by the AO even in the penalty proceedings and thus, he was guilty of concealment of income. The second appeal was also dismissed by the Tribunal with an observation that there is no explanation on record by the assessee as to how the expenditures claimed were not excessive or the expenditures claimed were in relation to the business of the assessee and were of allowable in nature while computing the business income. In the absence of any explanation from the assessee, the provision of Expln. 1 to Section 271(1)(c) is applicable, which lays down that the assessee is guilty of concealment of particulars of income in such circumstances and it is a deemed concealment.

Shri Ashish Surana, learned Counsel for the appellant submitted that from perusal of assessment order, it would be evident that addition of Rs. 3 lakhs was made only on the ground that the assessee did not produce books of account. The Tribunal accepting the explanation of the appellant held that failure to produce books of account was due to reasonable cause because accountant of the assessee was descended and books of account were with him. He further submitted that mere disallowance of expenses does not mean concealment of income or furnishing inaccurate particulars. Concealment of income and furnishing inaccurate particulars carry different connotations whereas, concealment refers to deliberate act on the part of the assessee. A mere omission or negligence would not constitute deliberate act of suppressio veri or suggestio falsi. Reliance is placed in the matter of Sri T. Ashok Pai Vs. Commissioner of Income Tax, Bangalore, .

It was further argued that the AO has to arrive to the satisfaction before initiating the penalty proceedings u/s 271(1)(c) of the Act. Reliance is placed in the matter of Commissioner of Income Tax Vs. Super Metal Re-Rollers (P) Ltd., .

It was further argued that in the matter of Union of India (UOI) and Others Vs. Dharamendra Textile Processors and Others, , though it has been held that the penalty u/s 27l(1)(c) is a civil obligation, however, concealment of income or furnishing inaccurate particulars would not automatically attract penalty and it has not been held that the authority has no discretion in the matter. Before initiating the penalty proceedings u/s 271(1)(c), the condition precedent to impose penalty has to be fulfilled.

Shri S. Rajeshwar Rao, learned Counsel for the respondent, on the other hand, argued that the AO on failure of the assessee to comply with the terms of notice under Sections 142(1) and 143(2) made assessment u/s 144 and added Rs. 3 lakhs on the profit disclosed by the assessee. The CIT(A) confirmed the order of the AO, however, the Tribunal reduced the addition from Rs. 3 lakhs to Rs. 2 lakhs. Addition of Rs. 2 lakhs to the profit disclosed by the assessee has attained finality. Referring to Expln. 1 of Section 271(1)(c) it was argued that where the assessee fails to offer explanation or the explanation is found by the AO or CIT(A) to be false or where the assessee offers explanation which he is not able to substantiate and fails to prove that such explanation is bona fide, in that case, the amount added or disallowed in computing the total income of such person for the purposes of Clause (c) of Sub-section (1) be deemed to represent the income in respect of which particulars have been concealed.

He further submitted that the Hon''ble Supreme Court in the matter of Dilip N. Shroff Karta of N.D. Shroff Vs. Joint Commissioner of Income Tax, Special Range Mumbai and Another, , held that:

By reason of concealment or furnishing of inaccurate particulars alone, the assessee does not ipso facto become liable for penalty. Imposition of penalty is not automatic. Levy of penalty is not only discretionary in nature but such discretion is required to be exercised on the part of the AO keeping the relevant factors in mind. ''Concealment of income'' and ''furnishing of inaccurate particulars'' are different. Both concealment and furnishing inaccurate particulars refer to deliberate act on the part of the assessee. A mere omission or negligence would not constitute a deliberate act of suppressio veri or suggestio falsi. Although it may not be very accurate or apt but suppressio veri would amount to concealment, suggestio falsi would amount to furnishing of inaccurate particulars. Hence the submission of the Revenue that concealment or furnishing of inaccurate particulars would overlap each other cannot be accepted; the same would not mean that they do not represent different concepts. Had they not been so, Parliament would not have used the different terminologies.

In the matter of T. Ashok Pal (supra), Bench of two Judges of the Supreme Court relying upon the judgment in the matter of Dilip N. Shroff (supra) held that:

The order imposing penalty is quasi-criminal in nature and, thus, burden lies on the Department to establish that the assessee had concealed his income. Since burden of proof in penalty proceedings varies from that in the assessment proceeding, a finding in an assessment proceeding that a particular receipt is income cannot automatically be adopted, though a finding in the assessment proceeding constitutes good evidence in the penalty proceeding. In the penalty proceedings, therefore, the authorities must consider the matter afresh. It is well settled that the more is the stringent law, more strict construction thereof would be necessary. Even when the burden is required to be discharged by an assessee, it would not be as heavy as that on the prosecution.

The question of imposition of penalty u/s 271(1)(c) read with Explanations again came for consideration before the Division Bench in the matter of Dharamendra Textile Processors and Ors. (supra). Considering the conflict of opinion between the judgment of the Division Bench in the matter of Dilip N. Shroff (supra) and another judgment in the matter of The Chairman, SEBI Vs. Shriram Mutual Fund and Another, , the matter was referred to the Larger Bench with the following observations :

We are of the view that there is a conflict of opinions between the judgments of the Division Bench of this Court in the case of Dilip N. Shroff v. Jt. CIT (supra) on one hand and on the other hand we have another judgment of this Court in the case of Chairman, SEBI v. Shriram Mutual Fund and Anr. (supra). Secondly, it may be pointed out that the object behind enactment of Section 271(1)(c) read with the Explanations quoted above indicates that the said section has been enacted to provide for a remedy for loss of revenue. The penalty under the said section is a civil liability. Willful concealment is not an essential ingredient for attracting the civil liability as is the case in the matter of prosecution u/s 276C of the Act. While considering an appeal against an order made u/s 271(1)(c) what is required to be examined is the record which the officer imposing the penalty had before him and if that record can sustain the finding there had been concealment, that would be sufficient to sustain the penalty. Keeping in mind these two circumstances, we are of the view that the judgment of the Division Bench in the case Dilip N. Shroff v. Jt. CIT (supra) needs consideration. The Explanations added to Section 271(1)(c) in that entirety also indicate the element of strict liability on the assessee for concealment or for giving inaccurate particulars while filing returns. The judgment in Dilip N. Shroffs case (supra) has also not considered the provisions of Section 276C of the IT Act. Therefore, in our view, the judgment in the case of Dilip N. Shroff v. Jt. CIT (supra) needs consideration by the Larger Bench of this Court particularly when it has ramifications not only regarding provisions of the IT Act but also with regard to the provisions of Sections 3A and 11AC of the Central Excise Act and Rule 96ZQ(5) of the Central Excise Rules.

Overruling the law laid down in the case of Dilip N. Shroff (supra), it was held thus :

It is of significance to note that the conceptual and contextual difference between Section 271(1)(c) and Section 276C of the IT Act was lost sight of in Dilip Shroff case (supra).

The Explanations appended to Section 271(1)(c) of the IT Act entirely indicate the element of strict liability on the assessee for concealment or for giving inaccurate particulars while filing return. The judgment in Dilip N. Shroff case (supra) has not considered the effect and relevance of Section 276C of the IT Act. Object behind enactment of Section 271(1)(c) read with 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 u/s 276C of the IT Act.

In Union Budget of 1996-97, Section 11AC of the Act was introduced. It has made the position clear that there is no scope for any discretion. In para 136 of the Union Budget reference has been made to the provision stating that the levy of penalty is a mandatory penalty. In the Notes on Clauses also the similar indication has been given.

From perusal of order of the AO, which has been subsequently confirmed in appeal by the CIT(A) as well as Tribunal, it is observed that all the Tribunals below have recorded a concurrent finding that there is no explanation on record by the assessee as to how the expenditures claimed were not excessive or the expenditures claimed were in relation to the business of the assessee and were of allowable in nature while computing the business income. In the absence of any explanation from the assessee, the provision of Expln. 1 to Section 271(1)(c) is applicable.

Following the judgment in the matter of Dharamendra Textile Processors and Ors. (supra), we hold that penalty under the provisions of Section 271(1)(c) is a civil liability. Willful concealment is not an essential ingredient for attracting the civil liability. The Explanations appended to Section 271(1)(c) impose a strict liability on the assessee for concealment or for giving inaccurate particulars while filing return.

In view of the above, we are of the opinion that the impugned order of the Tribunal confirming the orders passed by the CIT(A) and the AO is strictly in accordance with law.

In the result, there is no substance in this appeal, the same deserves to be dismissed and it is hereby dismissed.