Commissioner of Income Tax vs N.S. Ichoponani

Adarsh Kumar Goel, J.—This appeal has been preferred u/s 260A of the Income Tax Act, 1961 (hereinafter referred to as ""the Act"")

proposing the following substantial questions of law arising out of the order dated December 6, 2004 of the Income Tax Appellate Tribunal,

Chandigarh Bench, Chandigarh (hereinafter referred to as ""the Tribunal"") passed in I. T. A. No. 855/Chandi/93 in respect of assessment year

1984-85:

(i). Whether on the facts and in the circumstances of the case, hon''ble the Income Tax Appellate Tribunal was justified in deleting the penalty by

holding that nothing was brought on record by the Revenue to prove that net profit arrived at by the Assessee was a result of concealment of

income by the Assessee when it was categorically proved in the order after utilizing the documents and evidences available coupled with

corroborative evidence in the shape of various figures found in the return filed by the Assessee that the Assessee had concealed its income ?

(ii) Whether on the facts and in the circumstances of the case hon''ble the Income Tax Appellate Tribunal was justified in taking a different view of

facts that penalty was imposed only on mere disallowance of expenditure when the penalty was actually imposed on the basis of evidence collected

during the assessment proceedings on which basis the Income Tax Appellate Tribunal itself confirmed the addition made by the Assessing Officer

while deciding the quantum appeal ?

(iii) Whether on the facts and in the circumstances of the case without prejudice to the above grounds, the Income Tax Appellate Tribunal was

justified in altogether ignoring Explanation 1 to the provisions of Section 271(1)(c) while deleting the penalty ?

The Assessee is engaged in the business of manufacturing of poultry feed and for the assessment year in question income declared by the

Assessee was Rs. 15,350. After search on the premises of the Assessee and also the accountant of the Assessee on October 14, 1986, the

Assessing Officer made assessment at income of Rs. 14,64,280. The Assessing Officer also levied penalty. On appeal by the Assessee, the

addition was upheld except for reduction of the quantum to certain extent. Finally, the Tribunal sustained the addition to the extent of Rs. 6,70,781.

Appeal arising out of the order of penalty was considered separately. The Tribunal held that since the addition was a result of disallowance, the

Assessee could not be held to have concealed the particulars of income. The observations of the Tribunal are:

We, however, after perusing the paper book page 1 find that the Income Tax Appellate Tribunal while sustaining the addition of Rs. 6,70,681

basically relied upon the authenticity of the paper seized wherein net profit of Rs. 6,70,681 was arrived at by the ex-accountant of the Assessee

Sh. Sidhu for the assessment year 1983-84. However, we have noticed the fact that nothing could be brought by the Revenue that such net profit

arrived at was a result of concealment of any income by the Assessee whereas we find force in the submission of the learned authorised

representative that such net profit was a result of disallowance of excess expenditure claimed by the Assessee, which cannot attract penal

provisions u/s 271(1)(c). We, therefore, after going through the said order of the Income Tax Appellate Tribunal, find merit in the submission of the

learned authorised representative that the addition sustained by the Income Tax Appellate Tribunal was basically on account of disallowance of

expenditure and not on account of appraisal of the seized material. We are, therefore, of the opinion that the Assessing Officer was not justified in

levying the impugned penalty u/s 271(1)(c) and the Commissioner of Income Tax (Appeals) was justified in deleting such penalty. We, therefore,

do not find any infirmity in the order of the Commissioner of Income Tax (Appeals) and uphold the same.

We have heard learned Counsel for the parties.

Assumption in the impugned order of the Tribunal is that there was no concealment of particulars of income. According to the Assessee, the net

profit was arrived at as a result of disallowance of excess expenditure as held by the Tribunal.

Learned Counsel for the Revenue submits that assumption in the order of the Tribunal that addition was based on net profit arrived at by

disallowance of excess expenditure was without any material on record and the assumption was unfounded and thus, the impugned order was

perverse to that extent. Addition was upheld as the Assessee had concealed material particulars.

We have not been shown any material by learned Counsel for the Assessee which may support the assumption in the order of the Tribunal that

addition was on account of material which did not relate to concealment by the Assessee. The Tribunal has also not indicated any material in

support of its finding. On the other hand, the finding recorded by the Assessing Officer is as under:

The entire blame of manipulation of figures was placed at the door of Sh. Sidhu, accountant of the Assessee. It was further contended that at one

stage the accountant applied GP rate of 19 per cent. and the same was applied at 13 per cent. thereafter and the same was made the basis for the

additions. The Assessee wants to convey that main addition are only on account of higher gross profit rate after deducting the trading discount from

turnover. The Assessee wants to convey that applying a GP rate of 19.7 per cent. did not make the Assessee liable for penal action u/s 271(1)(c).

As regards the sales outside the books of account are concerned, the same were computed at Rs. 45,45,744 outside the books of account and

they were confirmed in appeal also. It will also be appropriate to mention here that application u/s 245C(1) was rejected by the Settlement

Commission. The appeal of the Assessee had been heard by the Income Tax Appellate Tribunal but the judgment has not been received so far.

The penalty is going to be barred by limitation by May 31, 1992 and, therefore, it is not possible for the undersigned to keep it pending. Taking

into consideration the totality of circumstances, I do not agree with the contention of the Assessee and accordingly, hold that this is a fit case for

levy of penalty and penalty at 100 per cent. of the tax sought to be evaded.

The above observations have not been dealt with by the Tribunal.

In this view of the matter, the finding recorded by the Tribunal vitiated by perversity. Thus, substantial question as to perversity of finding of the

Tribunal arises and has to be answered in favour of the Revenue. Accordingly, we allow this appeal, set aside the impugned order and remand the

matter to the Tribunal for a fresh decision in accordance with law after considering the rival submissions.

The parties may appear before the Tribunal for further proceedings on February 15, 2011. The Revenue may serve the Assessee for the said

date.