Admission of substantial question of law by HC saves assessee from clutches of concealment penalty

Section 271(1)(c), read with section 68, of the Income-tax Act, 1961 - Penalty - For concealment of income [Disallowance of claim, effect of] - Assessment year 2006-07 - Advance received by assessee from a company was added to income of assessee under section 68 - Based on said addition, penalty under

section 271(1)(c) was imposed on assessee - Whether since question of law was admitted by High Court in quantum proceedings against which concealment penalty had been levied, impugned order of penalty was to be deleted - Held, yes [Paras 6 & 8] [In favour of assessee]

IN THE ITAT MUMBAI BENCH 'A'

Advaita Estate Development (P.) Ltd.

v.

Income-tax Officer

I.P. BANSAL, JUDICIAL MEMBER
AND Sanjay Arora, ACCOUNTANT MEMBER

IT Appeal No. 7589 (Mum.) of 2011
[ASSESSMENT YEAR 2006-07]

AUGUST  27, 2013 

CASES REFERRED TO

Nayan Builders & Developers (P.) Ltd. v. ITO [IT Appeal No. 2379/Mum/2009, dated 18-3-2011] (para 4), CIT v. Liquid Investment and Trading Co. [IT Appeal No. 240 of 2009, dated 5-10-2010] (para. 4), Yugal Kishore Jajoo v. Dy. CIT [IT Appeal No. 272/Ind./2011, dated 12 2-2013] (para 4), Rupam Mercantile Ltd. v. Dy. CIT [2004] 91 ITD 237 (Ahd.) (TM) (para 4) and Smt. Ramilaben Ratilal Shah v. Asstt. CIT  [1998] 60 TTJ 171 (Ahd.) (para 4).

Jignesh R. Shah  for the Appellant. Mrs. Jothilakshmi Nayak  for the Respondent.

ORDER

I. P. Bansal, Judicial Member - This is an appeal filed by the assessee. It is directed against the order passed by the learned Commissioner of Income-tax (Appeals)-19, Mumbai, dated August 8, 2011 for the assessment year 2006-07.

2. Grounds of appeal read as under :

"1.			On the facts and in the circumstances of the case and in law the learned Commissioner of Income-tax (Appeals)-19, Mumbai, has erred in confirming the penalty of Rs. 91,89,181 under section 271(1)(c) of the Income-tax Act, 1961 ('the Act').
2.			On the facts and in the circumstances of the case, the learned Commissioner of Income-tax (Appeals) has erred in confirming the imposition of penalty amounting to Rs. 91,89,181 on the addition made by the Income-tax Officer during the assessment proceedings under section 143(3) of the Act for the advance received by the appellant from M/s. Kuber Developers amounting to Rs. 2,73,00,000 under section 68 of the Act.
3.			On the facts and in the circumstances of the case the learned Commissioner of Income-tax (Appeals) has not applied his mind and given due consideration to the following evidence and submissions made by the appellant during the course of the assessment proceedings before him and the Income-tax Officer.
(a)				During the course of the assessment proceedings before the Income-tax Officer.
(i)		the appellant has submitted loan confirmation, permanent account number of the lender, appellant-bank statement of the specific period indicating receipt and payment of advance being routed through the banking channel.
(ii)		stamped receipt given by the lender confirming that he has received back the advance amount.
(iii)		the Income-tax Officer has independently procured bank statements of the lender from the lender's bank. The details of the advance received and repaid back given by the appellant, matched with the bank statement of the lender.
(b)		During the assessment proceedings before the learned Commissioner of Income-tax (Appeals) the appellant submitted:
(i)		details stated in paragraph (a) above ; and
(ii)		financials and the income-tax return of the lender, wherein advance given to the appellant is disclosed.
4.			On the facts and in the circumstances of the case the learned Commissioner of Income-tax (Appeals) has erred in concluding that the appellant has failed to prove the genuineness/creditworthiness and capacity of the lender.
5.			As on the first principles, imposition of penalty under section 271(1)(c) is not simply a consequence of an addition being made to the income of the appellant. Penalty under section 271(1)(c) irrespective of whether it is a civil liability or criminal liability can only be imposed when the scheme of the Act permits or requires so. It is not an automatic consequence of an addition being made to the income. An addition made during the course of assessment proceedings, by itself cannot be enough to initiate, leave aside conclude penalty proceedings.
6.			Your appellant craves leave, to add or delete all or any of the above grounds which are independent to each other."

3. At the outset it was submitted by the learned authorised representative that the impugned penalty has been levied on an addition of Rs. 2.73 crores, which was added under section 68 of the Income-tax Act, 1961 (the Act). It was further submitted that the addition has been upheld by the Tribunal and the assessee has preferred an appeal before the hon'ble High Court against the quantum order of the Tribunal. It was further submitted that the following questions of law have been admitted by the hon'ble High Court, vide their order dated March 12, 2013in the Income-tax Appeal No. 2582 of 2011. Copy of the order is placed at pages 1 and 2 of the paper book.

"2. Admit on the following substantial questions of law :

(a)		Whether on the facts and in the circumstances of case and in law, is the order of the Tribunal perverse inasmuch as it ignored the basic documents like statement of confirmation of account, bank statement showing receipt of money from and payment of money to M/s. Kuber Developers Corporation and confirmation from the said party of having given and receipt of the advance which were produced before the Commissioner of Income tax (Appeals) and the Tribunal while confirming the addition of Rs. 2.73 crores under section 68 of the Act in the hands of the appellant ?
(b)		Whether, on the facts and in the circumstances of the case and in law, was the Tribunal justified in not admitting the additional evidence of loan creditor Mr. Mahendra Mansingh Arora in the form of return of income, balance-sheet and the profit and loss account for the assessment year 2006-07 filed before the Income-tax Department on the ground that the same were not filed before respondent No. 2 earlier without appreciating that the appellant cannot be penalised for the default of loan creditor ?"

4. It was further submitted that a consistent view is being taken by the Tribunal that in a case where the question of law is admitted by the hon'ble High Court in quantum proceedings against which concealment penalty has been levied then penalty is to be deleted simply on the ground that issue regarding addition was debatable. For this purpose the learned authorised representative relied on the following decisions :

1.		Nayan Builders & Developers (P.) Ltd. v. ITO [IT Appeal No. 2379/Mum/2009, dated 18-3-2011];
2.		CIT v. Liquid Investment and Trading Co. [IT Appeal No. 240 of 2009, dated 5-10-2010] ;
3.		Yugal Kishore Jajoo v. Dy. CIT [IT Appeal No. 272/Ind./2011, dated 12 2-2013];
4.		Rupam Mercontile Ltd. v. Dy. CIT [2004] 91 ITD 237 (Ahd.) (TM) ; and
5.		Smt. Ramilaben Ratilal Shah  v. Asstt. CIT  [1998] 60 TTJ 171 (Ahd).

Therefore, the learned authorised representative pleaded that impugned penalty should be deleted.

5. On the other hand, the learned Departmental representative submitted that as the quantum addition has been upheld by the Tribunal, the order passed by the learned Commissioner of Income-tax (Appeals) should be sustained vide  which impugned penalty has been confirmed.

6. We have heard both parties and their contentions have carefully been considered. The fact that aforementioned questions of law have been admitted against the additions sustained by the Tribunal of which impugned penalty has been levied is not disputed by the Revenue. A coordinate Bench in the aforementioned case of Nayan Builders amp; Developers (P.) Ltd. (supra) relying upon the decision of the Ahmedabad Third Member in the case of Rupam Mercantile Ltd. (supra) and Smt. Ramilaben Railal Shas  (supra) under similar circumstances, has deleted the penalty with the following observations :

"2. Shorn of unnecessary details it is an admitted position from both sides that the penalty has been finally upheld qua  the addition of Rs. 1,04,76,050 towards income from Spectrum Corporate Services Ltd. assessed in this year, disallowance of brokerage of Rs. 10,79,221 and disallowance of legal fees of Rs. 2,00,000. It is seen that the Tribunal has upheld these additions in quantum proceedings for which the penalty has been held to be imposable. The learned authorised representative has placed on record the judgment of the hon'ble jurisdictional High Court in Income-tax Appeal No. 2368 of 2009 admitting, inter alia,  the following two questions :

'Whether, on the facts and in the circumstances of the case and in law, the Tribunal was right in holding that the deposit Rs. 1,04,76,050 received from Spectrum is exigible to tax in the assessment year 1997-98 ?

Whether, on the facts and in the circumstances of the case and in law, the Tribunal was correct in confirming the disallowance of brokerage Rs. 10,79,221 and legal fees Rs. 2,00,000 ?'

3. It is, therefore, abundantly clear that the additions in respect of which penalty was confirmed have been accepted by the hon'ble Bombay High Court leading to substantial question of law. When the High Court admits substantial question of law on an addition, it becomes apparent that the addition is certainly debatable. In such circumstances penalty cannot be levied under section 271(1)(c) as has been held in several cases including Rupam Mercantile Ltd. v. Deputy CIT [2004] 91 ITD 237 (Ahd) (TM) and Smt. Ramilaben Ratilal Shah v. Asstt. CIT [1998] 60 TTJ (Ahd) 171. The admission of substantial question of law by the hon'ble High Court lends credence to the bona fides of the assessee in claiming deduction. Once it turns out that the claim of the assessee could have been considered for deduction as per a person properly instructed in law and is not completely debarred at all, the mere penalty. Since the additions, in respect of which penalty has been upheld in the present proceedings, have been held by the hon'ble High Court to be involving a substantial question of law, in our considered opinion, the penalty is not exigible under this section. We, therefore, order for the deletion of penalty."

7. The hon'ble Delhi High Court in the aforementioned case of Liquid Investment and Trading Co. (supra) has also dismissed the Departmental appeal in similar circumstances with the following observations :

"Both the Commissioner of Income-tax (Appeals) as well as the Income-tax Appellate Tribunal have set aside the penalty imposed by the Assessing Officer under section 271(1)(c) of the Income-tax Act, 1961 on the ground that the issue of deduction under section 14A of the Act was a debatable issue. We may also note that against the quantum assessment whereunder deduction under section 14A of the Act was prescribed to the assessee, the assessee has preferred an appeal in this court under section 260A of the Act which has also been admitted and substantial question of law framed. This itself shows that the issue is debatable. For these reasons, we are of the opinion that no question of law arises in the present case. This appeal is accordingly dismissed."

8. In this view of the situation, after hearing both parties, we set aside the order passed by the learned Commissioner of Income tax (Appeals) and delete the impugned penalty.

9. In the result, the appeal filed by the assessee is allowed in the manner aforesaid.

 Refer: [2013] 40 taxmann.com 142 (Mumbai - Trib.)