The Commissioner of Income Tax vs Shri. M. Thiruvengadam

Chitra Venkataraman, J.—The Revenue is on appeal as against the order of the Income Tax Appellate Tribunal, Madras ''A'' Bench dated

04.09.2009 in ITA. No. 29/Mds/2009 relating to the assessment year 2004-05 raising the following question of law:-

Whether on the facts and in the circumstances of the case, the Tribunal is right in deciding that the expenses claimed could not be properly

explained would not amount to concealment of income and penalty ?

Inspite of service of notice by this Court on 22.04.2010 to the assessee/respondent, there is no representation for the assessee and the assessee

chose to remain exparte.

After hearing the learned counsel for the Revenue and on going through the records, we have decided to take up the Tax Case Appeal filed by

the Revenue.

The assessee is an individual, who derived income by acting as a Mediator between granite quarry owners and purchasers of granite. The

assessee filed return of income for the assessment year 2004-05, offering total income of Rs. 32,67,730/-. When the case was taken up for

scrutiny and the notice was issued, it was found that the assessee had debited Rs. 32,67,730/- towards service charges. The expenditure was

incurred through vouchers, the maintenance of which, raised doubts about their genuineness. Thus, a survey u/s 133A of the Income Tax Act,

1961 (hereinafter called as the ""Act"") was conducted and statement was recorded through assessee.

A reading of the same shows that the assessee was in the habit of maintaining two sets of vouchers. When a specific question was put to

assessee, he stated that on some of the cash vouchers, which were for more than Rs. 20,000/- each, new vouchers were prepared in newly

printed voucher forms. Thus, there were 43 vouchers for a total value of Rs. 21,01,500/- with a cash value of each of the vouchers at Rs.

20,000/-. The assessee admitted that he had maintained two sets of vouchers. Thus, based on the materials collected, proceedings were initiated

for levy of penalty u/s 271(1)(c) of the Act.

After hearing the assessee, it was pointed out that original vouchers were replaced by newly printed voucher forms. The names mentioned in the

newly printed voucher forms were different from the first set. The assessee had no records regarding as to who assisted him during inspection at

quarry every time. The 43 newly created vouchers were for a total value of Rs. 21,01,500/-. Although during the survey, the assessee had

admitted that an amount of Rs. 19,00,000/- was actually debited to Profit and Loss Account under the head service charges, after survey, by his

letter dated 07.11.2006, the assessee offered the entire amount of Rs. 32,67,730/- as his additional income and paid the tax of Rs. 14,24,512/-

on 15.11.2006. In the circumstances, the Assessing Officer came to the conclusion that there were manipulations in the supporting vouchers and

there were no records to show that it amounted to service charges. Hence, the claims were not genuine and not bona fide one. Thus, the penalty

was levied u/s 271(1)(c) of the Act at 100% of the tax sought to be evaded. The assessee preferred appeal as against this order.

The Commissioner of Income Tax found that subsequent on the survey conducted u/s 133A of the Act, sworn statement was recorded from the

assessee, thereafterwards, he filed a letter on 16th October 2006, wherein, he came forward with a disclosure of additional income of Rs.

32,67,730/- claiming towards service charges and commission payments for different assessment years viz., 2003-04, 2004-05 and 2005-06. The

Commissioner of Income Tax further found that the assessee had furnished details of how this income was deployed in various assets viz.,

promissory notes, investments made in land, gifts made to relatives and unsecured loans disbursed to friends etc. The assessee himself produced

specific details on this aspect. Based on the above admitted fact, the Commissioner of Income Tax found that the amounts claimed towards service

charges was invested in different assets and was also given as unsecured loans and that the assessee was conscious of the false claim and that there

was fabrication of the evidence by the assessee, which resulted in suppression of facts.

The Commissioner of Income Tax further pointed out that the assessee had admitted that he had not maintained any records as to who were the

persons who were assisting him during inspection of quarries every time. It is further pointed out that there were two sets of vouchers, one set of

vouchers to debit Rs. 32,67,730/- and another set of vouchers for taking signatures from persons for payments to them on the basis of cubic

meters. In view of the sets of vouchers in newly printed forms by replacing the old cash vouchers, the Commissioner of Income Tax, ultimately held

that the assessee had consciously made a false claim. Even though the assessee made an attempt by making the debits towards ''Service Charges'',

he had withdrawn monies from his business and had made investments in various assets and none of these investments were included in the

disclosure of Rs. 73,11,487/- in the Account Statement filed along with the returns, thus, it clearly showed that there had been a conscious attempt

to make a bogus claim, thus, the levy of penalty was confirmed.

Aggrieved by that, the assessee filed further appeal before the Income Tax Appellate Tribunal, which, cancelled the penalty u/s 271(1)(c) of the

Act, holding that failure to furnish or explain expenditure per se would not lead to an inference to concealment. Referring to the decision in the case

of Union of India (UOI) and Others Vs. Dharamendra Textile Processors and Others, as well as the decision in the case of Sir Shadi Lal Sugar

and General Mills Ltd. and Another Vs. Commissioner of Income Tax, Delhi, the Income Tax Appellate Tribunal held that a mere concealment or

furnishing of inaccurate particulars by itself would not justify the levy of penalty.

Thus, referring to the decisions of this Court in the case of The Commissioner of Income Tax Vs. Cafco Syndicate Shipping Co., , the Income

Tax Appellate Tribunal further pointed out that when the assessee had offered the amount for assessment, on the mere ground that the expenditure

were not supported by proper vouchers, one cannot draw the inference that the assessee had concealed income. Thus, referring to the decision of

the Supreme Court in the case of Hindustan Steel Ltd. Vs. State of Orissa, , the Income Tax Appellate Tribunal held that penalty cannot be levied

unless the party obliged either acted deliberately in defiance of law or was guilty of conduct contumacious or dishonest, or acted in conscious

disregard of its obligation"" and the Tribunal held that penalty in the case was not warranted. Aggrieved by the same, the present Tax Case Appeal

is filed by the Revenue.

Learned Standing counsel appearing for the Revenue submitted that considering the detailed order passed by the Commissioner of Income Tax

and the statement recorded from the assessee, it is evident that the assessee had consciously created bogus records for claiming deduction on

expenditure, thereby, reducing his tax liability. It is worthwhile to note that the assessee had created bogus records to invest the said amount

covered in the bogus expenditure on various names, which fact, cannot be lost sight in this case.

In the circumstances, the view of the Income Tax Appellate Tribunal ignoring the law declared by this Court and Apex Court in the decision in

the case of Union of India (UOI) and Others Vs. Dharamendra Textile Processors and Others, cannot be sustained.

We agree with the contentions of the learned Standing counsel for the Revenue. As already narrated in the preceding paragraphs, it is evident

that 43 vouchers created by the assessee were for a sum of Rs. 21,01,500/-, whereas, the amount debited in the profit and loss account was to

the extent of Rs. 32,67,730/-, therefore, the entire claim made towards service charges had been proved to be false or bogus because those

details were not even furnished in the new vouchers. It is no doubt true that confronted by above facts the assessee offered the said amount for

assessment and paid tax thereon. This however does not absolve the assessee on the aspect of concealment attracting the penalty provisions. The

assessee admitted that the amount, which was claimed to be the expenditure towards ''service charges'' were diverted for investment in various

properties and gifting and advancing monies etc. They were reflected in the accounts of the assessee for the assessment years 2003-04 and 2004-

05.

Considering the above said admitted facts that the amounts claimed towards service charges were utilised in assessee''s business and had been

diverted for investment in various properties and the same were in fact consciously claimed as expenditure as payment towards service charges,

the attempt to fabricate the evidence to make an illegal gain, by suppression of profits is clearly made out attracting penalty provisions. The Apex

Court pointed out that the penalty u/s 271(1)(c) as a civil liability for which wilful concealment is not an essential ingredient as is the case in the

matter of the proceedings u/s 276-C of the Income Tax Act.

Considering the above said law declared by the Apex Court and the facts herein, we have no hesitation in setting aside the order of the Income

Tax Appellate Tribunal and we hold that the Income Tax Appellate Tribunal ought to have considered the law declared by the Apex Court in the

proper perspective to sustain the penalty. The Tax Case Appeal stands allowed on the above terms. No costs.