Commissioner Of Income Tax vs Shri Rajiv Bhatara

ITA No.428 of 2009 1

IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH

ITA No. 428 of 2009(O&M) Date of decision: 16.8.2013

Commissioner of Income Tax, Jalandhar I, Jalandhar -----Appellant

Vs.

Shri Rajiv Bhatara M/s Bhatara Industrial Corporation, Outside Industrial Area, Jalandhar.

----Respondent

CORAM:- HON'BLE MR. JUSTICE AJAY KUMAR MITTAL HON'BLE MR. JUSTICE JASPAL SINGH

Present:- Mr. Vivek Sethi, Advocate for the appellant-revenue.

Mr. Ravish Sood, Advocate for the respondent-assessee.

Ajay Kumar Mittal,J.

1. This order shall dispose of ITA Nos.427 and 428 of 2009,

as according to the learned counsel for the parties, the facts and the

law point involved in both the appeals are identical. However, the

facts are being taken from ITA No.428 of 2009.

2. ITA No.428 of 2009 has been preferred by the revenue

under Section 260A of the Income Tax Act,1961 (in short, "the Act")

against the order dated 27.2.2009, Annexure A.7 passed by the

Income Tax Appellate Tribunal, Amritsar Bench, Amritsar (in short,

"the Tribunal") in ITA No.324 (ASR)/2007, for the assessment year

1996-97. Both the appeals were admitted on 3.5.2010 to consider the

following substantial questions of law:-

I) Whether on the facts and in the circumstances of the Singh Gurbax case, the findings of the Tribunal that the assessee was 2013.09.11 15:55 I attest to the accuracy and integrity of this document High Court Chandigarh ITA No.428 of 2009 2

not guilty of furnishing inaccurate particulars of income were made without properly appreciating the facts available on record?

II)Whether on the facts and in the circumstances of the case and in view of the provisions contained in Section 271(1)(c) of the Income Tax Act, 1961 and Explanations thereto, the Tribunal was right in law in confirming the deletion of penalty by the CIT(A) without considering judgment of Supreme Court in the case of Union of India and others v. Dharmendra Textile Processors and others, (2008) 306 ITR 277 (SC)?"

3. Briefly, the facts necessary for adjudication of the

controversy involved, as narrated in the appeal may be noticed. The

assessee filed its income tax return on 30.9.1996 declaring income of

`2,83,340/- and agriculture income at ` 18,800/-. It was processed

under Section 143(1)(a) of the Act. The assessee was earning rental

income, interest from different firms and banks as well as agriculture

income. Its case was selected for scrutiny and notices under sections

142(1) and 143(2) of the Act were issued to the assessee. During the

assessment proceedings, it was noticed that the assessee had received

compensation against acquisition of land at Village Kamaspur, Tehsil

and District Sonepat at ` 30,96,724/-. The assessee annexed a note to

the return claiming exemption from capital gain tax. The Assessing

Officer asked the assessee to substantiate his claim for exemption.

The assessee filed written submissions dated 18.9.1998 including a

copy of gazette notification regarding acquisition of land. According

to the assessee, the land was purchased between 7.6.1993 to 6.7.1993 Singh Gurbax 2013.09.11 15:55 I attest to the accuracy and integrity of this document High Court Chandigarh ITA No.428 of 2009 3

through 13 different purchase deeds but the same were called for by

the Land Acquisition Collector, Haryana and were never returned.

The land belonging to different persons was about 40 kanals and the

value of investment of each person including the assessee was at `

9,02,419/-. However, no copy of purchase deed was ever produced

before the Assessing Officer. The Assessing officer collected the

photo copy of the notification registered with the Halqa Patwari. The

assessee pleaded before the Assessing Officer that the impugned

property was situated beyond 8 kms from the municipal limits of

Sonepat and claimed exemption form capital gain tax. The assessee

produced a letter dated 19.6.1996 from SDE, Maintenance Sub

Division PWD (B&R) Sonepat in this regard. The Assessing Officer

also independently inquired from the Land Acquisition Collector,

Haryana, Faridabad as well as the Divisional and Town Planner,

Haryana regarding the distance of the land of the assessee from the

municipal limits of Sonepat. After collecting information regarding

the distance from various authorities, the Assessing officer came to

the conclusion that the impugned property was situated within 8 kms

of municipal limits of Sonepat. Thereafter, the Assessing Officer on

the basis of this conclusion asked the assessee vide letter dated

13.10.1998 to show cause as to why the amount of capital gain be not

treated as short term capital gain liable to capital gain tax under the

Act. The assessee submitted its reply dated 26.11.1998 stating that

exemption was sought on the basis of certificate obtained from PWD

authorities Sonepat and as such the property could not be treated as

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capital asset for the purpose of determination of capital gain.

Consequently, the Assessing Officer rejected the claim of the assessee

and brought the impugned capital gain under the capital gain tax.

Assessment was completed under section 143(3) of the Act at the

total income of `56,31,400/- vide order dated 31.12.1998, Annexure

A.1 against returned income of ` 2,83,330/-. The Assessing Officer

also initiated penalty proceedings under Section 271(1) (c) of the Act

for furnishing inaccurate particulars of income. Notice under Section

274 read with Section 271(1) (c) of the Act was issued on 18.1.1999.

Aggrieved by the order, the assessee filed an appeal before the

Commissioner of Income Tax (Appeals) [CIT(A)]. Vide order dated

28.9.1999, Annexure A.2, the CIT(A) dismissed the appeal. Not

satisfied with the order, the assessee filed appeal before the Tribunal.

Vide order dated 28.12.2000, Annexure A.3, the Tribunal allowed the

appeal, set aside the order of CIT(A) and restored the matter for fresh

adjudication by the CIT(A). The CIT(A) after considering the matter

vide order dated 21.6.2001, Annexure A.4 held that capital gain with

reference to transfer of land in question was chargeable to tax

confirming the action of the AO in making the addition of

`30,96,724/-. The assessee did not prefer any appeal before the

Tribunal against the order passed by the CIT(A). Thereafter, the

Assessing Officer proceeded to complete the penalty proceedings

already initiated under Section 271(1) (c) of the Act for furnishing

inaccurate particulars of its income by issuing show cause notice on

17.2.2006. After considering the explanation furnished by the

Singh Gurbax 2013.09.11 15:55 I attest to the accuracy and integrity of this document High Court Chandigarh ITA No.428 of 2009 5

assessee, penalty of ` 17,82,750/- was imposed under Section 271(1)

(c) of the Act vide order dated 24.3.2006. Aggrieved by the order, the

assessee went in appeal before the CIT(A) who vide order dated

29.3.2007 deleted penalty of ` 17,82,750/-. Not satisfied with the

order, the revenue filed appeal before the Tribunal. Vide order dated

27.2.2009, Annexure A.7, impugned herein, the Tribunal dismissed

the appeal. Hence the present appeal by the revenue.

4. Learned counsel for the appellant-revenue submitted that

an addition of ` 17,11,065/- was sustained in the income of the

assessee on account of capital gains arising from acquisition of

agricultural land which was within 8 kms. from municipal limits of

sonepat. It was urged that the Assessing Officer had rightly levied

penalty under Section 271(1) (c) of the Act as the assessee had

furnished inaccurate particulars in as much as certificate furnished by

the assessee that the land was beyond 8 kms. from the limits of the

Municipal Committee, Sonepat, was not correct. Relying upon the

judgment of the Apex Court in Dharamendra Textile Processors's

case (supra), it was submitted that the CIT(A) as well as the Tribunal

were in error in deleting the penalty.

5. Opposing the prayer made by learned counsel for the

revenue, learned counsel for the assessee, besides supporting the

order passed by the CIT(A) and the Tribunal, submitted that the

assessee had appended photo copy of the cheque received from the

Land Acquisition Collector dated 22.11.1995 and certificate dated

19.6.1996 obtained from Sub Divisional Engineer, PWD wherein it

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was shown that the distance of the Village in which the land of the

assessee was situated was 8.2 kms. from the municipal limits of

Sonepat. Relying upon judgments reported in CIT v. Sidhartha

Enterprises, (2010) 322 ITR 80 (P&H), CIT v. Reliance

Petroproducts (P) Limited, (2010) 322 ITR 158 (SC), CIT v.

B.B.Singhal, ITA No.725 of 2010 dated 5.1.2011 (P&H), CIT v. Raj

Overseas, (2011) 336 ITR 261 (P&H), CIT v. M/s Dabwali

Transport Co., ITA No.872 of 2010 dated 15.3.2011 (P&H), CIT v.

Deep Tools (P) Limited, (2005) 274 603 (P&H) and Price

Waterhouse Coopers Pvt. Limited v. CIT, (2012) 348 ITR 306 (SC),

it was argued that there was no intention of furnishing inaccurate

particulars on the part of the assessee and the Tribunal as well as the

CIT(A) had rightly deleted the penalty. The reliance was placed upon

following observations recorded by the Apex Court in Price

Waterhouse Coopers Pvt. Limited's case (supra):-

"17. Having heard learned counsel for the parties, we are of the view that the facts of the case are rather peculiar and somewhat unique. The assessee is undoubtedly a reputed firm and has great expertise available with it. Notwithstanding this, it is possible that even the assessee could make a "silly" mistake and indeed this has been acknowledged both by the Tribunal as well as by the High Court.

18. The fact that the Tax Audit Report was filed along with the return and that it unequivocally stated that the provision for payment was not allowable under Section 40A(7) of the Act indicates that the assessee made a computation error in its return of income. Apart from the Singh Gurbax fact that the assessee did not notice the error, it was not 2013.09.11 15:55 I attest to the accuracy and integrity of this document High Court Chandigarh ITA No.428 of 2009 7

even noticed even by the Assessing Officer who framed the assessment order. In that sense, even the Assessing Officer seems to have made a mistake in overlooking the contents of the Tax Audit Report.

19. The contents of the Tax Audit Report suggest that there is no question of the assessee concealing its income. There is also no question of the assessee furnishing any inaccurate particulars. It appears to us that all that has happened in the present case is that through a bona fide and inadvertent error, the assessee while submitting its return, failed to add the provision for gratuity to its total income. This can only be described as a human error which we are all prone to make. The calibre and expertise of the assessee has little or nothing to do with the inadvertent error. That the assessee should have been careful cannot be doubted, but the absence of due care, in a case such as the present, does not mean that the assessee is guilty of either furnishing inaccurate particulars or attempting to conceal its income.

20. We are of the opinion, given the peculiar facts of this case, that the imposition of penalty on the assessee is not justified. We are satisfied that the assessee had committed an inadvertent and bona fide error and had not intended to or attempted to either conceal its income or furnish inaccurate particulars."

6. After hearing learned counsel for the parties, we do not

find any merit in these appeals.

7. The Tribunal while upholding deletion of penalty by the

CIT(A) noticed that the assessee had furnished a certificate dated

19.6.1996 from Sub Divisional Engineer Maintenance Sub Division,

B&R wherein it was specified that distance from Sonepat Municipal

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Committee to Village Kamaspur, Tehsil and District Sonepat was 8.2

kms. It was also noticed that there were various certificates wherein

different distances had been mentioned. After considering the matter,

the Tribunal came to the conclusion that there was no intention on the

part of the assessee to furnish inaccurate particulars. It was recorded

as under:-

"......There is no evidence to prove that there was deliberate concealment of income by the assessee because the certificate relied upon by the assessee is not acted upon and that itself cannot lead to levy of penalty and it cannot be said that the assessee has committed an offence under section 271(1) (c) of the Act. The department has not proved that the certificate furnished by the assessee was found to be false and thus it is not possible to infer that the assessee has furnished inaccurate particulars of income. The proceedings under section 271(1) (c) of the Act being in the nature of penal proceedings, the onus is on the revenue to prove that the assessee was guilty of offence of deliberate non disclosure and procurement of the multiple certificates from the various authorities, there was no evidence brought on record to show that the certificates produced by assessee were bogus. Admittedly, certificate produced by the assessee is from Govt. Agency, who has also given a certificate that he is a competent authority to issue certificate. This being the position, the department has not brought on record anything to show that the authority who has given a certificate is not competent to issue the certificate. The A.O. procured certificates from different authorities and he has never questioned the authority who has issued a certificate with SDE, Maintenance, Sub

Singh Gurbax Division, PWD (B&R), Sonepat, where he stated that the 2013.09.11 15:55 I attest to the accuracy and integrity of this document High Court Chandigarh ITA No.428 of 2009 9

distance of the property from the municipal limit is beyond 8 kms. was not examined. The AO never questioned the authority who has given the certificate. It was held in the case of CIT v. Khoday Easwarsa and Sons 83 ITR 369 (SC) that penalty proceedings being penal in character, the Revenue itself has to establish that the receipt of the amount in dispute constitutes income of the assessee. Apart from the falsity of the explanation given by the assessee, the department must have before it before levying penalty cogent material or evidence from which it could be inferred that the assessee has consciously concealed the particulars of his income or had deliberately furnished inaccurate particulars in respect of the same and that the disputed amount is a revenue receipt. No doubt, in the original assessment proceedings for computing the tax the evidence with the AO may be a good item of evidence but not in the penalty proceedings. Further, it is to be noted that very mere fact the explanation of the assessee was found to be false in the assessment, but for levy of penalty there should be material to establish that the assessee had consciously concealed the particulars of income or had deliberately furnished inaccurate particulars of income. In the present case, penalty has been levied on the basis of rejection of the explanation/certificate given by the assessee regarding distance of the property from the Municipal limits of Sonepat. On the facts set out above, we find that the inference drawn by the AO that the assessee has consciously concealed the particulars is not based on the falsity of the explanation given by the assessee. We are saying this because the AO though collected the multiple certificates which are showing different distance of the property form the municipal

Singh Gurbax limit of Sonepat, there was a confusion regarding correct 2013.09.11 15:55 I attest to the accuracy and integrity of this document High Court Chandigarh ITA No.428 of 2009 10

distance of the property from the municipal limit of Sonepat. Because of this the Tribunal directed the learned CIT(A) to once again determine the correct distance of the property from the municipal limits of Sonepat and thereafter assessment was completed. There was no positive and definite material with the AO to show that the certificate was bogus. The SDE, Maintenance Sub Division, PWD (B&R) is a Government authority and this was procured by the assessee for the purpose of assessment which was not acted upon and there was no finding regarding the fact that the authority is not competent person to issue the certificate and there was no finding that the assessee has followed the devices to reduce the tax burden by procuring certificate from the wrong authority. Further, there was no fresh material apart from the material procured in the course of assessment proceedings. Penalty proceedings and assessment proceedings are two independent proceedings and the penalty order cannot be solely based on the reasons given in the original order of assessment. The authorities are expected to consider the fresh material at the time of penalty proceedings. The AO cannot proceed penalty proceedings merely on the basis of findings given in the assessment proceedings. The assessee's inability to explain the discrepancies cannot be the reason for levy of penalty. The material already gathered or inference already drawn by the AO did not find any further support from further enquiries in the penalty proceedings. On the other hand, the assessee was able to produce certificate from the authority who has issued a certificate that the distance of the impugned property is more than 8 KM from the municipal limit of Sonepat and the District Town Planner is a competent

Singh Gurbax authority to issue a certificate. The AO has never alleged 2013.09.11 15:55 I attest to the accuracy and integrity of this document High Court Chandigarh ITA No.428 of 2009 11

in the assessment order of penalty order that the Govt. authority who has issued a certificate to the assessee is not a competent authority to issue the certificate or the certificate is bogus or it was obtained through unfair means. Being so, in our opinion, penalty cannot be levied. The AO treated the penalty proceedings as mere continuance of the assessment proceedings and did not bother to make its penalty proceedings as self contained one, as such penalty order is not sustainable. Mere cross reference to the compliance to levy penalty and the AO is duty bound to consider the entire material at the item or levying the penalty afresh, independently of the assessment proceedings to levy penalty. This has not been done by the AO. As such, penalty cannot be sustained. The evidence on record has not spelt out a case of penalty ambiguously and as such penalty cannot be levied. Hence, we confirm the deletion of penalty."

8. Further, this Court in Sidhartha Enterprises's case (supra)

held as under:-

"The judgment of the Hon'ble Supreme Court in Dharmendra Textile (supra) cannot be read as laying down that in every case where particulars of income are inaccurate, penalty must follow. What has been laid down is that qualitative difference between criminal liability under section 276C and penalty under section 271(1) (c) had to be kept in mind and approach adopted to the trial of a criminal case need not be adopted while considering the levy of penalty. Even so, concept of penalty has not undergone change by virtue of the said judgment. Penalty is imposed only when there is some element of deliberate default and not a mere mistake. This being the position, the finding having been recorded on facts that the

Singh Gurbax furnishing of inaccurate particulars was simply a mistake 2013.09.11 15:55 I attest to the accuracy and integrity of this document High Court Chandigarh ITA No.428 of 2009 12

and not a deliberate attempt to evade tax, the view taken by the Tribunal cannot be held to be perverse."

9. Still further, the Hon'ble Apex Court in Commissioner of

Income Tax v. Reliance Petro Products (P) Ltd. (2010) 322 ITR 158 had

held that mere making of a claim which was ultimately found to be

unsustainable may not by itself amount to furnishing of inaccurate

particulars regarding the income. It was recorded as under:-

"We have already seen the meaning of the word "particulars" in the earlier part of this judgment. Reading the words in conjunction, they must mean the details supplied in the return, which are not accurate, not exact or correct, not according to truth or erroneous. We must hasten to add here that in this case, there is no finding that any details supplied by the assessee in its return were found to be incorrect or erroneous or false. Such not being the case, there would be no question of inviting the penalty under section 271(1)(c) of the Act. A mere making of the claim, which is not sustainable in law, by itself, will not amount to furnishing inaccurate particulars regarding the income of the assessee. Such claim made in the return cannot amount to the inaccurate particulars."

10. In view of the above, the substantial questions of law are

answered against the revenue and in favour of the assessee. Consequently,

both the appeals are dismissed.

(Ajay Kumar Mittal) Judge

August 16, 2013 (Jaspal Singh) 'gs' Judge

Singh Gurbax 2013.09.11 15:55 I attest to the accuracy and integrity of this document High Court Chandigarh