Commissioner of Income Tax vs Lakhani Footwear Ltd.

Ajay Kumar Mittal, J.—This appeal has been preferred by the Revenue u/s 260A of the income tax Act, 1961 (in short "the Act"), against the order dated March 27, 2009, passed by the income tax Appellate Tribunal, Delhi Bench "D", New Delhi (hereinafter referred to as "the Tribunal"), in I.T.A. 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 learned income tax Appellate Tribunal was right in law in upholding the order of the learned Commissioner of income tax (Appeals) in deleting the penalty of Rs. 4,78,640 on the ground of non-recording of satisfaction by the Assessing Officer in the assessment order despite the amendment by the Finance Act, 2008, with effect from April 1, 1989, to clause (1B) below Explanation 7 to section 271(1)(c) of the income tax Act, 1961 ?

II. Whether, on the facts and in the circumstances of the case, the learned income tax Appellate Tribunal was right in law in upholding the order of the learned Commissioner of income tax (Appeals) 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 the hon''ble Supreme Court in the case of Union of India v. Dharamendra Textile Processors [2008] 306 ITR 277 (SQ wherein it was held that penalty u/s 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 u/s 276C of the income tax Act, 1961 ?

III. Whether, on the facts and in the circumstances of the case, the income tax Appellate Tribunal was right in law in upholding the order of the learned Commissioner of income tax (Appeals) 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 the assessee''s income which were confirmed by the appellate authorities at all level ?

Briefly stated, the facts necessary for adjudication as narrated in the appeal are that the assessee-company filed its return of income on December 30, 1993, for the assessment year 1993-94 declaring an income of Rs. 1,41,72,960. The assessment was completed on March 15, 1996, at a total income of Rs. 1,65,54,940. The Assessing Officer, vide order dated April 29, 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 Commissioner of income tax (Appeals), vide order dated January 8, 2008, deleted the said penalty. Against the deletion of penalty, the Department filed an appeal before the Tribunal who, vide order dated March 27, 2009, upheld the order of the Commissioner of income tax (Appeals) and dismissed the appeal and this gave rise to the Revenue to approach this court by way of instant appeal.

We have heard learned counsel for the parties.

The issue that arises for consideration in this appeal is whether the Tribunal was right in deleting the penalty levied u/s 271(1) (c) of the Act.

Learned counsel for the Revenue placed reliance upon the following observations in the judgment of the Delhi High Court reported in CIT v. Gurbachan Lal [2001] 250 ITR 157 (Delhi) (page 161) :

A conspectus of the Explanation added by the Finance Act, 1964, and the subsequent substituted Explanations 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 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.

It was submitted that in view of the 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.

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 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 I.T.A. No. 450 of 2009 (O&M), decided on August 20, 2009 (CIT v. SSP Ltd. [2010] 328 ITR 643 (P&H)).

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.

The principles enunciated in Gurbachan Lal''s case [2001] 250 ITR 157 (Delhi) 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 Commissioner of income tax (Appeals) 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 I.T.A. No. 1651/Del/98 for the assessment year 1993-94, the plea so raised in the present case was accepted and income was treated to be income from business and not income from house property. The Tribunal while rejecting the appeal of the Revenue in paragraphs 3, 6 and 8 had recorded as under :

Concealment penalty has been levied on three additions. The first addition is of Rs. 4,50,850 wherein the rental income was shown as business income and it has been assessed by the Assessing Officer as house property income and such assessment of that income under the head ''Income from house properties'' has been upheld up to the level of the Tribunal. Learned Commissioner of income tax (Appeals) has deleted this penalty on the ground of non-recording of proper satisfaction as well as on the merits. It has been mentioned by the Commissioner of income tax (Appeals) 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, the said income was assessable under the head ''Income from house properties''. It has also been pointed out by the Commissioner of income tax (Appeals) that for the assessment year 1993-94, the plea of the assessee has been accepted by the Tribunal in the assessee''s own case in I.T.A. No. 1651/Del/98 and it was directed to the Assessing Officer to decide the issue considering the decisions of the Madras High Court in the case of CIT v. Sanmar Holdings Ltd. (No. 1) [2005]. 272 ITR 341 (Mad); [2003] 183 CYR 346 and, thus, it has been held by the Commissioner of income tax (Appeals) 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, the learned Commissioner of income tax (Appeals) has deleted the penalty on this account . . . .

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 Commissioner of income tax (Appeals) 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 Commissioner of income tax (Appeals) has referred to the decision of the hon''ble Punjab and Haryana High Court in the case of CIT v. Ajaib Singh and Co. [2002] 253 ITR 630 (P&H) according to which mere disallowance of an amount does not entail concealment penalty. It is also mentioned by the Commissioner of income tax (Appeals) that jurisdictional High Court in the case of the assessee in I.T.A. No. 175 of 2005, vide order dated April 2, 2007, has approved the decision of the income tax Appellate Tribunal, Delhi Bench in the assessee''s own case and it has been found from the record of the Commissioner of income tax (Appeals), Faridabad, that no SLP was filed against the said order of the Punjab and Haryana High Court in appeal u/s 260A of the income tax Act. Learned Commissioner of income tax (Appeals) also referred to the decision of the Tribunal in I.T.A. No. 1650/Del/98, dated November 29, 2004, in the case of the assessee for the assessment year 1994-95 and, thus, he has held that no penalty could be levied on such disallowance of depreciation . . .

Thirdly, the penalty has been levied on an addition of Rs. 39,780 which was made on account of undervaluation of closing stock. Here also the learned Commissioner of income tax (Appeals) has given the finding that there has been no misstatement or concealment of facts. It is only a case where the claim of the assessee has been rejected and it is not a case where the assessee had submitted inaccurate particulars or concealed particulars of its income. It has been pointed out by the Commissioner of income tax (Appeals) that even though the addition in the closing stock is made the 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 the learned Departmental representative, we do not find any infirmity in such findings of the Commissioner of income tax (Appeals) and, thus, on third account also, it is not a justified case for levy of penalty. In view of the above discussion/we find no infirmity in the order of the Commissioner of income tax (Appeals), vide which penalty of Rs. 4,78,640 levied by the Assessing Officer has been deleted for the reasons discussed above.

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 SSP Ltd.''s case [2010] 328 ITR 643 (P&H) considering similar situation had opined as under (page 646) :

A concurrent finding has been recorded on facts that there was valid explanation that the assessee had raised debatable issue for claiming the expenditure and disallowance is no ground for levying penalty. Mere erroneous claim in the absence of any concealment or giving of inaccurate particulars is no ground for levying penalty.

Consequently, in view of the above, questions Nos. 2 and 3 cannot be held to be substantial questions of law.

In the light of finding of fact recorded by the Commissioner of income tax (Appeals) and affirmed by the Tribunal, question No. 1 has been rendered academic.

Accordingly, no substantial question of law arises for consideration in this appeal. The appeal stands dismissed.