V.G. Paneerdas and Co. P. Ltd. vs Commissioner of Wealth Tax

P.P.S. Janarthana Raja, J.—The Income Tax Appellate Tribunal referred the following questions of law for the opinion of this Court at the

instance of the assessee:

Whether, on the facts and in the circumstances of the case, the Tribunal is justified in sustaining the action of the first appellate authority in

approving the levy of penalty u/s 18(1)(a) of the Act ?

Whether, on the facts and in the circumstances of the case, the Tribunal is justified in sustaining the action of the first appellate authority in

approving the levy of penalty u/s 18(1)(c) of the Act ?

Whether, on the facts and in the circumstances of the case, the Tribunal is justified in confirming the action of the lower authorities in invoking

Explanation 4 to Section 18(1)(c) of the Act?

The facts relating to the above questions of law are as under:

The assessee is a company in which the public are not substantially interested. It was in possession of assets specified in Section 40(3) of the

Finance Act, 1983, thereby rendering it liable to wealth-tax. A notice u/s 17 was issued on April 17, 1981. Since there was no compliance with

the above notice, a notice u/s 16(4) was issued on August 31, 1990. The assessee filed a nil return of wealth on September 11, 1990. After due

consideration of the assessee''s submissions, assessments were completed on November 28, 1991, bringing to tax, the value of 15.81 acres of

vacant land held by the assessee at Injambakkam. On appeal, the Commissioner of Income Tax (Appeals) by order dated November 27, 1997,

upheld the assessment of the land for wealth-tax purposes. Penalty proceedings u/s 18(1)(a) as well as Section 18(1)(c) were initiated

simultaneously.

The assessee submitted that the penalty proceedings should be kept pending till the disposal of the appeal by the Commissioner of Wealth-tax

(Appeals). The assessee was given opportunity to explain the default in filing the wealth-tax returns. The assessee, in its reply dated ""nil"" which was

received by the Assessing Officer, on January 19, 1993, submitted that in view of the construction of a building and the intended business use of

the land, he was under the bona fide impression that the value of such lands would be exempt from the levy of wealth-tax. The assessee submitted,

that ""but when we came to know that our wealth was taxable, we immediately filed the returns"" and further it was stated that it was under the bona

fide, though erroneous impression which caused the delay and which may therefore be held to be a reasonable cause for the default.

The Assessing Officer rejected the explanation and levied the penalty u/s 18(1)(a) of the Act. Aggrieved by this order, the assessee filed an

appeal to the Commissioner of Wealth-tax (Appeals). The Commissioner of Wealth-tax (Appeals) confirmed the order of the Assessing Officer,

levied penalty and dismissed the appeal filed by the assessee. Aggrieved by the same, the assessee filed an appeal to the Income Tax Appellate

Tribunal and the Tribunal held that there was no reasonable cause for the delay in filing the returns and refused to interfere. In respect of levy of

penalty u/s 18(1)(c) of the Act, the plea of the assessee was that, the assessee had a bona fide impression that the value of the property was

exempt from levy of wealth-tax. The said plea was not accepted by the Assessing Officer. The Commissioner of Income Tax (Appeals), held that

in terms of Explanation 4 to Section 18(1)(c), the assessee was deemed to have furnished inaccurate particulars. On appeal, the Tribunal rejected

the contention of the assessee and confirmed the levy of penalty u/s 18(1)(c) of the Act.

Learned counsel appearing for the assessee submitted that in view of the construction of a building and the intended business use of the land the

assessee was under the bona fide impression that the value of such land would be exempt from the levy of wealth-tax. It is further submitted that

since the assessee came to know that wealth-tax was leviable, returns were filed on the same day for all the assessment years. More so, it was

further submitted that the assessee was under the bona fide, though erroneous, impression which caused the delay in filing the returns and also

further submitted that the appellant was under erroneous impression about non-assessability of the land. Hence levy of penalty under Sections

18(1)(a) and 18(1)(c) is not attracted. Learned counsel appearing for the Revenue submitted that all the authorities below had given a finding that

there is no reasonable cause for not filing the returns in time and also the assessee had consciously concealed the wealth.

We have heard the arguments of both counsel. The appellant-assessee did not file the returns of net wealth for the assessment years under

consideration. The Assessing Officer issued notice u/s 17 of the Wealth-tax Act and as there was no compliance, the Assessing Officer proceeded

to issue notices u/s 16(4) of the Wealth-tax Act. Thereafter, the assessee filed ""nil"" returns of wealth. Assessments were completed bringing to tax

the value of property held by the assessee at Injambakkam. The assessee-company claimed that it was under a bona fide impression that the value

of the land is exempt from levy of wealth-tax and it was submitted that as soon as the assessee came to know it was leviable, returns were filed.

Even after receiving the notice u/s 17 for the assessment year under consideration, the appellant did not bother to file the returns or even for

applying for extension of time. So, in view of the above conclusion, we are of the view that the assessee had no reasonable cause for the delay in

filing the returns for these assessment years. Hence the penalty levied u/s 18(1)(a), in the facts and circumstances of the case, is rightly levied and

justified.

As regards the levy of penalty u/s 18(1)(c), the plea of the assessee was that the assessee was under the bona fide impression that the value of

the property was exempt from levy of wealth-tax. The only explanation of the assessee was that he was under the bona fide impression that the

assets were not taxable for these years. What has to be decided therefore is the bona fides of this erroneous impression. Going beyond the well

known principle that the ignorance of law is no excuse, it has to be pointed out that the assessee could not point out any material fact showing that

it was prevented from getting to know the relevant provisions of the Finance Act, 1983. There is nothing to show that the assessee had been

prevented in any way from either estimating the value of the land or in the preparation of return of wealth. It is also important to note that the

provisions of the Finance Act, 1983, bringing closely held companies, into the ambit of the Wealth-tax Act was a well published and a much

discussed affair. Further it is also noted that the assessee was assisted in tax matters by well qualified professionals. In view of the clear and

unambiguous nature of the provisions of Section 40(3) of the Finance Act of 1983, it can be said that a patently wrong reading of the section

cannot be camouflaged in terms of a bona fide mistake. It is therefore clear that the assessee had a taxable asset. In terms of Explanation 4 to

Section 18(1)(c) the assessee was deemed to have furnished inaccurate particulars. Furthermore, the assessee was not able to substantiate its

contention that its belief in the non-assessability of non-agricultural land was a bona fide mistake. The findings recorded by the Tribunal are

therefore based on the material and evidence on record and do not suffer from any legal infirmity.

In view of the foregoing conclusions, we answer the questions referred to above in favour of the Revenue, against the assessee. Accordingly, the

above tax cases are dismissed. No costs.