Commissioner of Income Tax vs Manjunatha Cotton and Ginning Factory

Judicial Analysis Court Copy Headnote Facts Arguments Court observation

2012 Supreme(Kar) 1184

IN THE HIGH COURT OF KARNATAKA AT BANGALORE
N. Kumar and Aravind Kumar, JJ.
Commissioner of Income Tax —Appellant
Vs.
Manjunatha Cotton and Ginning Factory —Respondent
AND
Commissioner of Income-Tax and Assistant Commissioner of Income-Tax —Appellant
Vs.
Veerabhadrappa Sangappa & Co. —Respondent
Income Tax Appeal Nos. 2564 of 2005 and 5020 of 2009
Decided on : 13-12-2012

Advocates:
Advocate Appeared:
Y.V. Raviraj, for the Appellant
A. Shankar, Chaitanya K.K., K.P. Kumar, Sangram S. Kulkarni, for the Respondent

Headnote:INCOME TAX ACT, 1961 - Sections 271 & 260-A: [N. Kumar & Aravind Kumar, JJ] Scope of levy of Penalty under Section 271 - Held, (a) Penalty under Section 271 (1)(c) is a civil liability; (b) Mens rea is not an essential element for imposing penalty for breach of civil obligations or liabilities; (c) Willful concealment is not an essential ingredient for attracting civil liability; (d) Existence of conditions stipulated in Section 271(1)(c) is a sine qua non for initiation of penalty proceedings under Section 271(1)(c); (e) The existence of such conditions should be discernible from the Assessment Order or order of the Appellate Authority or Revisional Authority; (f) Even if there is no specific finding regarding the existence of the conditions mentioned in Section 271(1)(c), at least the facts set out in Explanation 1(A) & (B) it should be discernible from the said order which would by a legal fiction constitute concealment because of deeming provision; (g) Even if these conditions do not exist in the assessment order passed, at least, a direction to initiate proceedings under Section 271(1)(c) is a sine qua non for the Assessment Officer to initiate the proceedings because of the deeming provision contained in Section 1(B); (h) The said deeming provisions are not applicable to the orders passed by the Commissioner of Appeals and the Commissioner; (i) The imposition of penalty is not automatic; (j) Imposition of penalty even if the tax liability is admitted is not automatic; (k) Even if the assessee has not challenged the order of assessment levying tax and interest and has paid tax and interest that by itself would not be sufficient for the authorities either to initiate penalty proceedings or impose penalty, unless it is discernible from the assessment order that, it is on account of such unearthing or enquiry concluded by authorities it has resulted in payment of such tax or such tax liability came to be admitted and if not it would have escaped from tax liability came to be admitted and if not it would have escaped from tax net and as opined by the assessing officer in the assessment order; (l) Only when no explanation is offered or the explanation offered is found to be false or when the assessee fails to prove that the explanation offered is not bona fide, an order imposing penalty could be passed; (m) If the explanation offered, even though not substantiated by the assessee, but is found to be bona fide and all facts relating to the same and material to the computation of his total income have been disclosed by him, no penalty could be imposed; (n) The direction referred to in Explanation 1B to Section 271 of the Act should be clear and without any ambiguity; (o) If the Assessing Officer has not recorded any satisfaction or has not issued any direction to initiate penalty proceedings, in appeal, if the appellate authority records satisfaction, then the penalty proceedings have to be initiated by the appellate authority and not the Assessing Authority; (p) Notice under Section 274 of the Act should specifically state the grounds mentioned in Section 271(1)(c), i.e., whether it is for concealment of income or for furnishing of incorrect particulars of income; (q) Sending printed form where all the ground mentioned in Section 271 are mentioned would not satisfy requirement of law; (r) The assessee should know the grounds which he has to meet specifically. Otherwise, principles of natural justice is offended. On the basis of such proceedings, no penalty could be imposed to the assessee, (s) Taking up of penalty proceedings on one limb and finding the assessee guilty of another limb is bad in law; (t) The penalty proceedings are distinct from the assessment proceedings. The proceedings for imposition of penalty though emanate from proceedings of assessment, it is independent and separate aspect of the proceedings; (u) The findings recorded in the assessment proceedings in so far as "concealment of income" and "furnishing of incorrect particulars" would not operate as res judicata in the penalty proceedings. It is open to the assessee to contest the said proceedings on merits. However, the validity of the assessment or reassessment in pursuance of which penalty is levied, cannot be the subject matter of penalty proceedings. The assessment or reassessment cannot be declared as invalid in the penalty proceedings.

JUDGMENT

N. Kumar, J.”A batch of appeals where different facets of Section 271 of the Income Tax Act, 1961 are involved, were placed before us. Therefore, we heard all the learned counsel appearing in the batch of cases, considered all the arguments addressed and interpreted Section 271 in its different facets and have laid down the law.

FACTUAL MATRIX

FACTS IN ITA Nos. 2564 & 2565/2005

The facts of this case are as under:-

The assessee-firm in ITA No. 2564/2005 is in the business of purchasing kapas and converting it into cotton in the ginning factory owned by it and trades in cotton and cotton seeds. The assessee had filed the return of income for the assessment year 2000-01 declaring total income of Rs. 2,29,520/-. A survey under Section 133A of the Income Tax Act (for short hereinafter referred to as "the Act") was conducted in the business premises of the assessee on 23.11.2000. During the course of survey, a notebook was found in the business premises of the assessee, wherein certain transactions carried were noted. These transactions pertains to four cases showing names and amounts. The total of the transactions amounted to Rs. 7,98,200/-. The partner of the assessee-firm explaining those entries stated that the transactions noted in the book relate to the book creditors for which there are no liability. The assessee was called upon to file confirmation letters of credit balance of certain creditors. The same was not filed by the assessee. The department obtained a letter from the creditor who stated that it had no transaction with the assessee during the financial year relevant to the assessment year 2000-01 and informed the department that no balance is receivable from the assessee. Therefore, the explanation offered by the assessee was not accepted, the said income was brought to tax. The assessee admitted the said sum of Rs. 7,98,200/- as income by filing the revised return of income on 08.12.2000 for the assessment year 2000-2001, declaring the total income of Rs. 10,40,100/-.

2. Likewise in I.T.A. 2565/2005, the assessee had filed the return of income for the assessment year 2000-2001 declaring total income of Rs. 1,49,250/-. The assessee during the course of survey declared Rs. 17,03,731/- as income representing cessation of liabilities towards creditors. In the course of the assessment proceedings, the assessee was asked to file confirmation letter in respect of the creditor M/s. Sri. Gururaghavendra Cotton Ginning Factory, Bellary against whom Rs. 1,00,000/- credit balance was outstanding. The assessee was requested to get the confirmation letter, to which the assessee expressed its inability. The department directly wrote a letter to the said creditor. The creditor in his reply dated 14.02.2003 stated that there is no balance receivable from the assessee. When the assessee was confronted with the said letter, he asserted that the said amount was outstanding at the end of the accounting period ended on 31.03.2000 in the books and the creditor may have stated on the date of enquiry. His explanation was not accepted and an addition of Rs. 1,00,000/- was made. Thereafter the assessee filed a revised return of income on 8-12-2000 declaring the total income of Rs. 18,52,980/-.

3. In view of the assessees having admitted to declare the amounts above referred to as income representing cessation of liabilities towards creditors, these amounts were added as income of the assessee and tax demand was raised thereto vide assessment orders dated 26.02.2003. Assessee did not pursue the said orders and accepted the quantum proceedings. It is on the basis of the said revised return, the additions were made.

4. Therefore, notice under Section 274 read with Section 271(1)(c) of the Act was issued to the assessee to explain why penalty should not be levied for having concealed particulars of income/showing inaccurate particulars of income. The assessee contended that the said amounts were paid to the agriculturists towards purchase of Ka

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2012 Supreme(Kar) 1184

Cases Referred (1)