The Commissioner of Income Tax and Others vs Chandrasekaran

N. Kumar, J.�The revenue has preferred this appeal against the order passed by the Tribunal upholding the order passed by the Appellate Authority by setting aside the imposition of penalty.

The assessee claims short term capital gain of Rs. 2,33,504/- and long term capital loss of Rs. 12,62,883/-. The Assessing Officer on examination of the details found that the assessee had deliberately set-off long term capital loss of Rs. 39,37,081/- to arrive at a short term capital gain of Rs. 2,33,504/-. After disallowing the same, an addition of Rs. 41,70,585/- was made. However, the depreciation of Rs. 2,98,343/- was disallowed and income of letting out property was charged under the head Income from house property". The assessee accepted those transactions and paid tax. Thereafter, the revenue initiated penalty proceedings under Section 271(1)(c) of the Income Tax Act (for short the ''Act'') on the ground that the assessee has deliberately concealed the income and furnished inaccurate particulars. The assessee contested the penalty proceedings and contended that the claim for set-off is in accordance with law and that he had not noticed the impugned amendment and therefore, it is a bona fide mistake and not a case of deliberately furnishing of inaccurate particulars and submitted that the penalty proceedings should be dropped. Similarly, in respect of compensation also, it was contended that it was a bona fide mistake. However, the Assessing Authority did not accept the explanation and held that it is a case of deliberately suppressing of income and furnishing of inaccurate particulars and therefore, levied penalty.

Aggrieved by the said order, the assessee preferred an appeal to the Commissioner of Income Tax. The Commissioner accepted the explanation offered by the assessee and held the exercise of power by the Assessing Authority to impose penalty was not in accordance with law and therefore, the penalty was set aside. In the appeal, the Tribunal upheld the said findings and dismissed the appeal preferred by the Revenue with costs. Challenging the said order, the present appeal is filed.

The substantial question of law that arise for consideration in this appeal is as under:-

"Whether the Appellate authorities were correct in holding that there was no concealment or furnishing of inaccurate particulars when the original amount declared was Rs. 25,07,933/- to which an additional of Rs. 42,08,079/- was made by relying on the judgment of the Apex Court in Ashok Pai & Dilip Shroff it is no longer good law?"

In support of the said contention, reliance was placed on the judgment of the Apex Court in the case of MAK Data P. Ltd. Vs. Commissioner of Income Tax-II, , wherein the Apex Court has held as under:-

"7. The AO, in our view, shall not be carried away by the plea of the assessee like "voluntary disclosure", "buy peace", "avoid litigation", "amicable settlement", etc. to explain away its conduct. The question is whether the assessee has offered any explanation for concealment of particulars of income or furnishing inaccurate particulars of income. Explanation to Section 271(1) raises a presumption of concealment, when a difference is noticed by the AO, between reported and assessed income. The burden is then on the assessee to show otherwise, by cogent and reliable evidence. When the initial onus placed by the explanation, has been discharged by him, the onus shifts on the Revenue to show that the amount in question constituted the income and not otherwise.

Assessee has only stated that he had surrendered the additional sum of Rs. 40,74,000/- with a view to avoid 7 litigation, but peace and to channelize the energy and resources towards productive work and to make amicable settlement with the income tax department. Statue does not recognize those types of defences under the explanation 1 to Section 271(1)(c) of the Act. It is trite law that the voluntary disclosure does not release the Appellant -assessee from the mischief of penal proceedings. The law does not provide that when an assessee makes a voluntary disclosure of his concealed income, he had to be absolved from penalty.

We are of the view that the surrender of income in this case is not voluntary in the sense that the offer of surrender was made in view of detection made by the AO in the search conducted in the sister concern of the assessee. In that situation, it cannot be said that the surrender of income was voluntary. AO during the course of assessment proceedings has noticed that certain document comprising of share application form, bank statement, memorandum of association of companies, affidavits, copies of Income Tax Returns and assessment orders and blank share transfer 8 deeds duly signed, have been impounded in the course of survey proceedings under Section 133A conducted on 16-12-2003, in the case of a sister concern of the assessee. The survey was conducted more than 10 months before the assessee filed its return of income. Had it been the intention of the assessee to make full and true disclosure of its income, it would have filed the return declaring an income inclusive of the amount which was surrendered later during the course of the assessment proceedings. Consequently, it is clear that that the assessee had no intention to declare its true income. It is the statutory duty of the assessee to record all its transactions in the books of account, to explain the source of payments made by it and to declare its true income in the return of income filed by its from year to year. The AO, in our view, has recorded a categorical finding that he was satisfied that the assessee had concealed true particulars of income and is liable for penalty proceedings under Section 271 read with Section 274 of the Income Tax Act, 1961".

There cannot be any argument with regard to the aforesaid legal preposition laid down by the Apex Court. This is not a case of voluntary disclosure or payment of tax to buy peace or to avoid litigation or by amicable settlement. The assessee categorically stated his claim was based on the law which was in force in the previous year. He was not aware of change in law. He relied on his advocate who was not up to date with the law. In those circumstances, the set-off which was legal and valid for the previous year was put forth for the relevant year. Once it was brought to his notice that there is change in law and liable to pay the tax, he has paid tax. Therefore, it is not the case of deliberately suppressing income for the purpose of evading tax.

Insofar as depreciation is concerned, he has let out his premises, he is the owner of the property, he honestly believed that he is entitled to depreciation. Therefore, he claims the said income as Income from business, whereas the revenue has treated it as "Income from house property". In that context, the claim for depreciation was also a bona fide error. When pointed out, he has paid the tax. Under these circumstances, Appellate Authority on appreciation of entire facts have concurrently held that there is no deliberate suppression of income nor it is a case of furnishing of inaccurate particulars. It is a bona fide mistake and the moment the mistake was pointed out, the assessee has paid the tax. It is well settled that imposition of penalty is not automatic and therefore they have rightly set aside the order imposing the penalty. Infact, the order imposing penalty is contrary to law, declared by this court in the case of The Commissioner of Income Tax and The Income Tax Officer Vs. M/s. Manjunatha Cotton and Ginning Factory--> , in as much as, it is clear from the order that there is no direction to initiate penalty proceedings. In the aforesaid judgment, it was held that it is imperative that the assessment order contains a direction. The use of phrases like (a) penalty proceedings are being initiated separately, and (b) penalty proceedings under section 271(1)(c) are initiated separately, do not comply with the meaning of the word "direction" as contemplated even in the amended provisions of law. The direction should be clear and without any ambiguity. A direction by a statutory authority is in the nature of an order requiring positive compliance. When it is left to the option and discretion of the Income-tax Officer whether or not take action, it cannot be described as a direction. It is settled law that in the absence of the existence of these conditions in the assessment order penalty proceedings could not be proceeded with. The proceedings which are initiated contrary to the said legal position are liable to be set aside. Therefore, the appellate Authority was justified in setting aside the order imposing penalty. Accordingly, the substantial question of law is answered in favour of the assessee and against the revenue. We do not find any merit in this appeal. Accordingly, the appeal is dismissed.