Purchase of peace cannot escape the penalty under section 217(1)(c) of the Income Tax

Senthamarai Constructions v CIT

High Court of Madras

ITA No. 178 to 180 of 2005 and TCMP Nos. 138 to 140 of 2005

Decided on: 20 June 2011

Judgment

Chitra Venkataraman, J

1. These three Tax Case Appeals are filed by the assessee as against the order of the Tribunal relating to the assessment years 1990-91, 1991-92 and 1992-93 raising the following questions of law:

“1. Whether in the facts and circumstances of the case the Tribunal was right in holding that the revised return filed by the asessee to purchase peace and avoid litigation would amount to concealment in the instant case attracting penalty under section 217(1)(c) of the Income Tax?

2.(a) Whether on the facts and in the circumstances of the case the Tribunal is right in law in holding that the revised return filed by the assessee would constitute a valid, legal and proper basis for levy of penalty under section 271(1)(c) of the Act, particularly since the assessment was based only on the said return and not on any evidence or material on record, justifying the assessment of the income, in respect of which the penalty was levied.

(b) Whether on the facts and in the circumstances of the case the Tribunal was right in its view that a mere admission by the assessee establishes concealment, Authority regarding the discharge of the burden of proof in respect of the Explanation to section 271 or any specific finding in this regard in the order of penalty?

(c) Whether on the facts and in the circumstances of the case, the Tribunal is right in confirming the levy of penalty under section 271(1)(c) of the Act?”

2. It is seen from the facts projected herein that the assessee is a registered firm consisting of three partners. In respect of the assessment year 1990-91, the assessee filed its return originally admitting a total income of Rs.1,45,830/-; for the assessment year 1991-92 Rs.1,56,189/- and for the assessment year 1992-93, the assessee did not file any return. There was a search in the premises of one R.Sonai, who happens to be the Managing Partner of the assessee company, on 27.3.1992. The search resulted in the seizure of bank deposits and jewellery. The Managing Partner R.Sonai admitted that the unexplained investments were out of the undisclosed income of the firm. Following this, a revised return was filed in respect of the first two assessment years and for the third year, the firm filed a return admitting the total income. The assessee offered the income, which was stated to be undisclosed income of the firm to be distributed among the above said three assessment years. After completing the assessment, proceedings were initiated to levy penalty under section 271(1)(c) of the Income Tax Act. The assessee stated that it offered to agree the  income only to purchase peace from the Department. As such, there was no wilful concealment at all warranting levy of penalty under section 271(1)(c) of the Income Tax Act. Taking the view that the assessee had admitted the income as undisclosed and it was made use to make undisclosed investments by the Managing Partner, the Assessing Authority levied minimum penalty of Rs.60,000/- for the assessment year 1990-91 as against the maximum penalty leviable at Rs.1,52,500/-; Rs.1,00,000/- for the assessment year 1991-92 as against the maximum penalty of Rs.2,70,000/- and for the last assessment year 1992-93 Rs.1,75,000/- as against the maximum penalty of Rs.4,74,708/-.

3. The assessee preferred appeals before the Commissioner of Income Tax (Appeals), who agreed with the view of the assessee and by following the decision of the Supreme Court in the case of Sir Sadilal Sugar and General Mills Ltd. and another v CIT reported in 168 ITR 705 (SC), held that when the assessee had offered the income voluntarily, penalty could not be levied on the assessee. Thus, in respect of all the three assessment years, the Commissioner of Income Tax (Appeals) cancelled the levy of penalty. As against this order, the Revenue went on appeal before the Income Tax Appellate Tribunal.

4. It is seen from the order of the Tribunal that by a common order, it considered the claim of the assessee that there was no wilfulness as regards the offering of an additional income at the hands of the assessee; that the same was offered only to purchase peace and hence, in the circumstances, the assessee contended that the question of levy of penalty did not arise. The Tribunal, however, rejected the claim of the assessee by following the decision of this Court reported in (2000) 244 ITR 510 (P.Govindaswamy v CIT), where under similar circumstances following the decision of the Supreme Court in the case of K.P.Madhusudhanan v CIT reported in (2001) 251 ITR 99, this Court confirmed the levy of penalty. The Tribunal held that in view of the introduction of Explanation to section 271(1)(c) of the Income Tax Act, the reliance placed by the assessee as regards the decision reported in (2001) 251 ITR 9 (CIT V. Suresh Chandra Mittal) is no longer sustainable in law.

5. The Tribunal pointed out that after the decision of the Supreme Court in the case of K.P.Madhusudhanan v CIT reported in (2001) 251 ITR 99 and with the introduction of Explanation to section 271(1)(c) of the Income Tax Act, the decision reported in 168 ITR 705 (SC) (Sir Sadilal Sugar and General Mills Ltd. and another v CIT), has no relevance to the case on hand. Thus the Tribunal allowed the appeals filed by the Revenue, thereby restored the order of penalty made by the Assessing Officer. Aggrieved by the same, the present appeals have been filed by the assessee.

6. Learned counsel appearing for the assessee pointed out that when the assessee had voluntarily offered the income of the firm, in the absence of any wilfulness in not disclosing the same, the question of levy of penalty did not arise. She pointed out that there was no concealment as such as had been viewed by the assessing authority and as confirmed by the Tribunal.

7. Per contra, learned standing counsel appearing for the Revenue brought to our attention the decisions of this Court reported in 283 ITR 254 (M.S.Mohammed Marzook (Late) and another v Income Tax Officer); 292 ITR 585 (M.Shahul Hameed Batcha v Income Tax Officer) and 283 ITR 230 (M.Sajjanraj Nahar v Commissioner of Income Tax), to which one of us was a party, wherein this Court had elaborately considered the case law on the subject and pointed out to the decision in the case of K.P.Madhusudhanan v CIT reported in (2001) 251 ITR 99, rendered after the introduction of Explanation to Section 271(1)(c) of the Income Tax Act and this Court held that when the concealment of the income was with reference to the original return and there was no explanation at all as regards the non-disclosure, the mere claim that the income was offered in the revised return, as a matter of purchasing peace, by itself, would not exonerate the assessee from the culpability. Having regard to the fact that the assessee had not disclosed any reason for the omission in the original return and that the revised return was filed only after the search, this Court held that penalty was leviable.

8. The facts herein are no different from the above said decision. As seen from the narration in the order of the Tribunal as well as that of the other authorities, the assessee filed the revised return in respect of the first two assessment years and filed the return for the first time for the last of the assessment year only after search in the Managing Partner’s residence, wherein undisclosed cash and investments were found. The conduct of the assessee, hence, assumes significance in coming forward to disclose the income of the firm, which are relatable to the investments made by the Managing Partner.

9. As rightly pointed out by the learned standing counsel appearing for the Revenue that when there is no satisfactory explanation as regards its non-disclosure of the income in the original return and that the undisclosed income came to be shown only in the revised return, rightly the Tribunal applied the law as declared by the Apex Court and by this Court.

10. In the circumstances, we do not find any justification to cancel the penalty levied by the Assessing Officer, which is admittedly a minimum penalty. Accordingly, all the appeals fail and the same are dismissed. No costs. Consequently, T.C.M.P.Nos.138 to 140 of 2005 are also dismissed.