VKJ Latest News Update

VKJ Law Offices of Vinay K. Jain Advocates & Solicitors

Failure to reconcile differences in sales figures as reported in books to that of corresponding figures reflected in TDS statement, calls for penalty: ITAT

2019-TIOL-1334-ITAT-AHM

IN THE INCOME TAX APPELLATE TRIBUNAL
BENCH ‘A’ AHMEDABAD

ITA No.1538/Ahd/2015
Assessment Year: 2010-11

TRANSWIND COMMUNICATION AND ELECTRONICS PVT LTD
92, NEW YORK TOWER-A, S G HIGHWAY
THALTEJ, AHMEDABAD – 380059
PAN NO: AABCT3026D

Vs

DEPUTY COMMISSIONER OF INCOME TAX(OSD)
CIRCLE – 8, AHMEDABAD

Amarjit Singh, AM & Madhumita Roy, JM

Date of Hearing: March 19, 2019
Date of Decision: May 17, 2019

Appellant Rep by: Shri Jignesh Kumar Parikh, AR
Respondent Rep by: 
Shri James Kurian, Sr. DR

Income Tax – Discrepancy in sales figure – Reconciliation statement.

THE assessee engaged in the business of dealing in construction, telecom & infrastructure work filed its return of income for relevant AY. During the assessment proceeding, the assessee was asked to reconcile the claim of TDS vis-à-vis income offered from tax in the return of income upon which by and under a letter dated 09.11.2012 assessee submitted the reconciliation wherefrom it appears that the income was shown less by Rs.9,04,528/- and Rs.3,48,450/-. The assessee was thus confronted with the discrepancy. Time was sought for to explain the same on behalf of the assessee and ultimately the same was offered to tax. By and under a subsequent letter dated 26.11.2012 the assessee further asked for time for three months to enable him to reconcile the difference and also consented for addition thereto. The plea of the assessee was not found acceptable by the AO. He, thus made the addition of the amount of Rs.12,52,978/- against the assessee. The assessment was completed after making certain disallowances. The AO also initiated the penalty proceeding against the assessee on the ground that the assessee had furnished inaccurate particulars of income. The penalty order also concluded with the levy of penalty for furnishing inaccurate particulars of income. In appeal, penalty imposed against the income omitted to be included was confirmed by the CIT(A). Aggrieved assessee filed appeal before Tribunal.

On appeal, Tribunal held that,

Whether for failure of the assessee to reconcile difference between the sales figures as reported in the books of accounts and the corresponding figures reflected in the respective TDS statement even during the appellate stage, penalty is rightly imposed – YES: ITAT

++ admittedly there is a difference between the sales figures as reported in the books of accounts and the corresponding figure reflected in the respective TDS statement. When the discrepancy was pointed out to the assessee, a reconciliation statement was filed, the assessee failed to explain the same in his favour whereupon further time for three months was prayed for. Ultimately, the assessee failed to submit reconciliation before the AO neither during the penalty proceeding or even before the first appellate authority. Needless to mention that the assessee failed to submit the same even before Tribunal at the time of hearing of the instant appeal. Thus the observation made by the CIT(A) is without any ambiguity while confirming the order of penalty. So far as the argument of specific charge is concerned it is evident on record that while issuing penalty proceeding the specification has expressed by the AO towards furnishing of inaccurate particulars of income by the assessee which is again reflected in the final order of penalty. Thus in that view of the matter, no infirmity was found in the order passed by the authorities below so as to warrant interference. Consequently, the appeal fails and is accordingly dismissed. In the result, assessee’s appeal is dismissed.

Assessee’s appeal dismissed

ORDER

Per: Madhumita Roy:

The instant appeal filed by the assessee is directed against the order dated 07.02.2015 passed by the Commissioner of Income Tax (Appeals)-8, Ahmedabad under section 271(1)(c) of the Income Tax Act, 1961 (hereinafter referred as to ‘the Act’) arising out of the order dated 23.05.2013 passed by the Deputy Commissioner of Income Tax (OSD), Circle – 8, Ahmedabad for the Assessment Year 2010-11 with the following grounds:

“1. Confirming the penalty under section 271(1)(c), originally levied in connection with certain addition made by the AO, which was merely based on un-recognised bonafide difference between the gross amount as reflected in Form 26AS and the corresponding amount as credited in the books of account, treating the same as satisfying the charge of the Appellant having furnished inaccurate particulars of income. Considering the facts of the case, the provisions of law as interpreted by various Courts and Tribunal Benches and the content of the paper book filed before him, he ought to have deleted the said penalty.

The assessee craves leave to add, amend, delete or alter one or more grounds of appeal.”

2. Subsequently, following additional ground was also submitted by the assessee before us.

“Additional Ground:

Since the notice issued under section 274 does not clearly specify the charge based on which, the penalty proceeding are initiated, the penalty proceedings needs to be quashed since there is no application mind by the Learned AO.”

3. The brief fact of the case is this that the assessee engaged in the business of dealing in construction, telecom & infrastructure work filed its return of income on 04.10.2010 declaring total income at Rs.48,33,544/- which was ultimately finalized inter alia with the following disallowance:

Total income as per return of incomeRs. 48,33,544/-
Add:-Additions/Disallowances
(i)As discussed in para 4Rs. 30,250/-
(ii)As discussed in para 5Rs. 31,283/-
(iii)As discussed in para 6Rs. 32,503/-
(iv)As discussed in para 7Rs.12,52,978/-
(v)As discussed in para 8Rs. 2,49,273/-
Rs. 15,96,287/-
Total Assessed IncomeRs. 64,29,831/-
SayRs. 64,29,830/-

Disallowance of interest of Rs.32,503/- and disallowance of Rs.12,52,978/- on the ground of income omitted to be included were taken into consideration by the Learned AO in initiating the penalty proceeding against the assessee on the ground that the assessee has furnished inaccurate particulars of income on both counts. The penalty order also concluded with the levy of penalty for furnishing inaccurate particulars of income. In appeal, the penalty levied by the authorities below to the tune of Rs.32,503/- on disallowance of interest expenses was deleted by the Learned CIT(A). However, Rs.11,56,842/- as the penalty imposed against the income omitted to be included was confirmed by the first appellate authority, hence the instant appeal before us.

4. At the time of hearing of the instant appeal, the Learned Counsel appearing for the assessee submitted before us that the assessee by and under a submission dated 09.11.2012, a detailed chart containing reconciliation between the sum total of the gross amount subjected to TDS by various principles and the corresponding aggregate sales created to Profit and Loss account furnished before the Learned AO followed by a further submission dated 26.11.2012 when three months time was requested to complete reconciliation and to file the same before the Learned AO. It is a fact that no appeal has been preferred against the order of quantum in order to buy peace but that cannot directly or even indirectly lead to the conclusion on the part of the revenue that there is an admission as to the existence of the corresponding charge in so far as the disallowance for which the penalty has been initiated. It was further argued by the Learned AR that initiation of the penalty proceeding has been done by the Learned AO without specifying alleged charge committed by the assessee as the statutory provisions demands. It is also obligatory on the part of the AO to specify the same in the body of penalty order which is absent in the instant case, hence the order of penalty is liable to be dismissed as argued by the Learned AO.

Neither adverse has been brought on record by the revenue during the assessment proceeding, which can substantiate the contention thus the company has furnished inaccurate particulars. He, thus prayed for quashing of the penalty proceeding. On the contrary the Learned DR relied upon the order passed by the authorities below.

5. We have heard the respective parties, perused the relevant materials available on record. It appears that during the assessment proceeding, the assessee was asked to reconcile the claim of TDS vis-à-vis income offered from tax in the return of income upon which by and under a letter dated 09.11.2012 assessee submitted the said reconciliation wherefrom it appears that the income was shown less by Rs.9,04,528/- and Rs.3,48,450/-. The assessee was thus confronted with the said discrepancy. Time was sought for to explain the same on behalf of the assessee and ultimately the same was offered to tax. By and under a subsequent letter dated 26.11.2012 the assessee further asked for time for three months to enable him to reconcile the difference and also consented for addition thereto. The plea of the assessee was not found acceptable by the Learned AO. He, thus made the addition of the said amount of Rs.12,52,978/- against the assessee with the following observation:

“7.2 The contention of the assessee that it may be granted 3 months time is not acceptable as it is nothing but delaying tactic being employed by the assessee. Furthermore the assessee accepted that it is not possible for it to reconcile the said income vis a vis TDS claim in the return of income. Thus the assessee failed to discharge the onus heavily casted on it to explain the transaction in its books of accounts. The assessee has neither offered the said amount in the current year’s income nor has offered the same in other years. Therefore it amounts to escapement of income which is not permitted. Accordingly an addition of the aforesaid amount of Rs 1252978/- is made to the income of the assessee company for want of necessary evidence and also due to the acceptance of the disallowance by the assessee. hi view of the facts mentioned above I am satisfied that the assessee has furnished inaccurate particulars of its income and hence penalty proceedings u/s. 271(l)(c) of the Act is initiated separately for furnishing inaccurate particulars on this account.”

During the penalty proceeding, the assessee submitted the following before the Learned AO:

“4. Regarding the addition made on account of alleged omitted income of Rs. 12,52,978/-.

4.1 During the course of the assessment proceedings, your Honor has asked to reconcile the claim of TDS vis-a-vis income offered for tax in the return of income. The company (lied the reconciliation for the major part of the income along with the detailed explanation. The same is reproduced herebelow for the sake of ready reference and perusal:

From written submission dated 9th November 2012:

“5.1 At the outset, it may be placed on record that the aggregate amount recovered by the company (mm various principals is divisible into various parts – the contractual work execution component (credited to the respective sales account), service tax and VAT components, which have been paid to the credit of the respective departments thus not having any revenue or tax implication for the company, recovery/reimbursement of various charges, etc. Since section 194C requires deduction of tax at source in respect of any sum paid to a contractor for carrying out any work even the payments made by them either towards taxes, reimbursement of expenses or otherwise, have been subjected to deduction of tax at source. Though these do not form part of the turnover. It is for this reason that prima fade, them is a slight mismatch between the sum total of the gross amount as mentioned in the respective TDS certificates issued by the principals and the corresponding sales credited to the Profit & Loss account. This difference is thus due to the express provisions of law and the sane is thus fully and completely reconciled

5.2 Subject to what has been mentioned above, a detailed chart containing reconciliation between the sum total of the gross amount subjected to TDS by various principals and the corresponding aggregate sales credited to Profit & Loss account is enclosed herewith

From written submission dated 26th November 2012:

We specifically draw your kind attention to our detailed written submission in this regard which has already been filed earlier. In addition to what has already been mentioned therein, it is further placed on record that when it has undertaken ongoing contract which continues for several months or for several year there is generally a provision for the contractor raising a running bill (RA bill) at various stages of completion of the work. When such RA bills are raised, the same are required to be booked as sales in the books of account. The RA Bills so raised are there after checked by a team of the respective principals before the same are passed with or without any corrections. Since verification of the RA bills at tines take longer duration, There is always a possibility of the principal deducting tax at source and paying the same to the credit of the Government on the gross amount of the HA Bill while sanctioning and disbursing a lower amount in due course of time thereafter. We am already in the process of carrying out a full and compete reconciliation of the mismatching entries so that a correct position can properly be arrived at The company however requires various information from its principals and since most of the principals are Government run companies, it may take substantial time in This regard.

In view of what has been mentioned above, we request your Honor kind to grant time of at least 3 months before complete reconciliation can be prepared and filed. Alternatively, details In connection with un-reconciled entries can directly be called for from The principals concerned, the necessary bills of which am very much made available to your Honor in our earlier submission. We may also place on record that should your Honor be of the opinion that the order has to be passed without further delay we shall have no objection against your Honor making This addition while at the same time the company reserving its rights to appeal against the same and to tile evidences in support of the reconciliation of this difference at the Appellate stage. We also understand that since this difference is in connection with the transactions carried out with Government owned companies, all the receipts in connection with the contracts so undertaken am invariably by crossed account payee bank instrument This addition will not be viewed as concealment of income or furnishing of inaccurate particulars thereof and no consequential penalty will be initiated in this regard.

4.2 Despite the detailed explanation given in this regard and specifically asking for certain time to reconcile the difference, your Honor deemed it proper to add back the same to the returned income of the Company and initiated the penalty proceedings for furnishing inaccurate particulars of income.

4.3 The Company submits that on facts and on law the penalty is not leviable in view or the following among other masons.

(a) Mere fact that such addition had not been challenged in appeal cannot thus automatically result in the satisfaction of the charge for which the penalty was initiated. Since the penalty under section 271(1)(c) is held to be a proceeding which is clearly independent of the assessment proceedings, there cannot be a case of automatic levy of penalty once the addition is made or confirmed appeal. Had it been the case, the legislature would not have provided for the levy of penalty by way of a separate order and by conducting separate hearing in this regard. The condition of running en extra mile on the part of the AC so as to establish that the addition made In the order passed in quantum in fact amounted to satisfaction of the charge for which the penalty was initiated.

(b) The company specifically draws kind attention to the fact that even after retrospective insertion of section 271(1B). it is only the Initiation of penalty proceedings without specifying the satisfaction of the AO as to the specific charge, that has been validated by creating a deeming fiction in the statute book.. This deeming fiction cannot however be extended beyond initiation and while levying the penalty, it continues to be obligatory on the part of the AC to satisfy himself about the charge and also to specify the same in the body of the penalty order. The deeming fiction created in the section for initiation cannot be applied while actually levying the penalty under section 271(l)(c) of the Act.

(c) Nothing adverse has been brought on record by the department during the assessment proceedings which can substantiate the contention that the Company has furnished inaccurate particulars of

(d) It may also be appreciated by your Honor that in so far as the contractual income is concerned, the same has predominantly been received from the corporate sector and most of the companies, being the principals, are owned or controlled by Government. It may also be appreciated that every single payment by virtue of these contracts is received by crossed account payee bank instruments and the same have been released after stringent verification of all the bills and other documents raised by the company. In view of the totality of the circumstances, there cannot be an element of furnishing of inaccurate particulars of income merely because there has been certain un reconciled difference between the sales figures as reported in the books of account and the corresponding figures reflected in the respective TDS certificates issued by the respective principals. This may in fact be on account of certain variation in the accounting treatments or error of omissions and commissions that may have been committed by the principals etc.

5.1 Reliance is also placed on the recent judgment of Hon’ble Supreme Court in the case of Price Waterhouse Coopers Pvt. Ltd. vs. CIT. In this Civil Appeal bearing No. 6924 of 2012 decided by the Hon’ble Supreme Court on September 2012 the Apex Court has held that the penalty under section 271(l)(c) of the Act is not leviable for a bona fide/inadvertent/human error. It will be appreciated by your Honor that Price Waterhouse Coopers, the litigant in the present case, is one of the international tax firms having global presence and designated as one of the big four across the world. While furnishing the return of income, even this company committed an error in not disallowing a sum ofRs.23 lacs towards provision for gratuity despite there being a clear provision in the Act in the form of section 40A(7) and despite the disallowability of this debit in the Profit & Loss account having been mentioned in the Tax Audit Report. It was the argument of the Revenue that since it is the case of a very reputed firm having great experience in taxation matters, the mistake in claiming deduction of something which is not allowable under the express provisions of the Act clearly amounts to satisfaction of the charge, thus justifying levy of penalty under section 271(1)(c) of the Act. As against this the Apex Court held that despite the assessee being a reputed company having great expertise available with it, it is possible that even it can make a silly make. The relevant para of the order of Hon’ble Supreme Court is reproduced herein below.

“Notwithstanding the fact that the assessee is undoubtedly a reputed firm and has great expertise available with it, it is possible that even the assessee could make, a “silly” mistake. 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 u/s 40A(7) indicates that the assessee made a computation error in its return of income. Apart from the assessee, even the AO who framed the original assessment order made a mistake in overlooking the contents of the Tax Audit Report. 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. All that happened in the present case is that through a bona fide and inadvertent error failed to add the provision for gratuity to its total income This can only be described as a human error which we am all prone to make. The caliber and expertise of the assessee has little or nothing to do with the inadvertent error. That the assessee should have been careful cannot be doubled, 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. Consequently given the peculiar facts of this case, the imposition of penalty on the assesses is not justified.”

5.2 In the context of what has been mentioned above it will be appreciated that the accounts of the company were audited by an independent firm of Chartered Accountants who had issued an unqualified report In the form of form 3CD. It can be appreciated by your Honor that there was clearly no mention of disallow ability of the expenditure In relation to the interest paid to the Municipal Corporation. There was also no mention or qualification about the unreconciled different between the total sales credited to the Profit & Loss account and the corresponding gross amount subjected to deduction of tax at source by various principals put together. It will also be appreciated by your Honor that even the return of income was electronically furnished with the professional expertise of the Chartered Accountant concerned arid the company or its management had absolutely no say in what to claim and what not to claim. It view of this! even if the issues subject matter of above and consequent initiation of penalty on the theme of furnishing inaccurate particulars of income are to be treated as valid, the same are clearly attributable to the silly mistake committed by the CA who was undoubtedly of the caliber much below the caliber of Price Waterhouse Coopers Pvt. Ltd. If penalty was found not leviable even in relation to Price Waterhouse Coopers Pvt. Ltd. and that too, by Hon’ble Supreme Court of India, applying the same analogy, no penalty can be levied even in relation to the company, which may please be noted.”……….

Reliance was also placed on different judgments passed by the Hon’ble Supreme Court including the case CIT-vs-Reliance Petroproducts Pvt. Ltd. and CIT-vs-K.R. Chinni Krishna Chetty reported in [2000] 246 ITR 121 (Mad) passed by the Hon’ble Madras High Court as well as the order passed by the Chennai Tribunal in the matter of Gem Granites (Karnataka) -vs-DCIT reported in [2009] 18 DTR 358. The contention of the assessee was this that merely because the additions confirmed does not ipso facto attract penalty provision. Penalty provision requires a strict adherence and onus to prove that there was a concealment of income with a view to avoid the tax is on the department, penalty is not automatic.

While dealing with the issue the Learned DCIT discussed the legal ambit of the matter in the following manner:

“3. Legal position

3.1 In this connection, it may be mentioned that the term “inaccurate particulars” has not been defined in the Act. As per law lexicon, the meaning of the word “particular” is a detail or details; the details of a claim or the separate items of an account. Similarly, in Webster’s Dictionary, the word “inaccurate” has been defined as “not accurate, not exact or correct; not according to truth; erroneous; as an inaccurate statement, copy or transcript”. Thus reading the words in conjunction, it means the details supplied in the return, which are not accurate, not exact or correct, not according to truth or erroneous.

3.2 Hon’ble Gujarat High Court, which is also the jurisdictional High Court in the case at hand, has noted in the case of A. M. Shah & Co. v. CIT [2000] 108 Taxmann 137(Guj.) = 2003-TIOL-452-HC-AHM-IT that:

“Any concealment or inaccuracy in the particulars of income in the return occurring at any stage upto and inclusive of the ultimate stage of working out of total income would attract the penalty provision of section 271(1)(c). Every figure in the return which is set opposite to the item of income is a particular income, whether the figure is one which is stated independently of anything else that appears in the return or the documents accompanying it or whether it is something derived from other figures elsewhere stated in such return or documents. False result may be produced by the falsity of one or more of the constituent items in the return.

The words ‘inaccurate particulars’ would cover falsity in the final figure as also the constituent elements or items. They simply would mean inaccurate in some specific or definite respect whether in the constituent or subordinate items of income or the end result”.

3.2.1 In the said case, Hon’ble Gujarat High Court has, in great detail, dealt with the issues pertaining to Section 271(l)(c). However, for the sake of brevity, only a part of the observation of the Court has been produced here. Vide the above judgement, the Hon’ble has clarified as regards what could fall within the purview of the term “inaccurate particulars of income”.

3.2.2 It has been clearly spelt out that falsity in any constituent element of return of income would constitute “inaccurate particulars”.

3.3 It is also pertinent to note that the observation of Hon’ble Supreme Court in the case of CIT, Ahmedabad vs. Reliance Petroproducts (P) Ltd. (322 ITR 158) = 2010-TIOL-21-SC-IT. The Hon’ble Supreme Court in the said judgement has noted as under:

“……The meaning of the word “particulars” used in section 271(l)(c) would embrace the details of the claim made. Where no information given in the return is found to be incorrect or inaccurate, the assessee cannot be held guilty of furnishing inaccurate particulars………….”

Further, the Hon’ble Court has noted:

“There can be no dispute that everything would depend upon the return filed by the assessee, because that is the only document where the assessee can furnish the particulars of his income. When such particulars are found to be inaccurate, the liability would arise.”

3.4 It is further noted that the Hon’ble Supreme Court in the case of Dharmendra Textiles Processors 306 ITR 277 (2008) (SC) = 2008-TIOL-192-SC-CX-LB has noted that the explanations appended to sec. 271(1)(c) entirely indicate the element of strict liability on the assessee for concealment or for giving inaccurate particulars while filing return. It is also held that the section has been enacted to provide for a remedy for loss of revenue and that willful concealment is not an essential ingredient for attracting civil liability as u/s. 271(1)(c) of the I. T. Act.

3.5 Furthermore, the Hon’ble Delhi Court in the case of CIT V/s. ECS Ltd. held that,

“In so far as bonafide of assessee is concerned we would do no better to quote the following discussion from the order of CIT(A) with approval.

‘…………It is settled now that, claiming excessive deductions also amount to concealment of income. Falsehood in accounts can take either of the two forms. Either an item of receipt may be suppressed fraudulently, or an item of expenditure may falsely be claimed. Both types attempt to reduce the taxable income. Both types of amount to concealment of one’s income as well as furnishing of inaccurate particulars of income. Penalty may be imposed for either or both such attempts…………’

The upshot of the aforesaid discussion would be to hold that the penalty was rightly imposed by the Assessing Officer and confirmed by the CIT(A). We accordingly decide the question of law framed in favour of the revenue and against the assessee………”

3.6 In view of the decisions discussed above, it clearly emerges that in case any where any particular filed in the return of income by the assessee is found to be inaccurate, erroneous or false and which has an impact on total income returned by the assessee, it would attract liability for penalty u/s. 271(1)(c) for furnishing inaccurate particulars of income. Moreover, after the decision of Hon’ble Supreme Court in the case of Dharamendra Textiles Processors (discussed above), penalty u/s. 271(l)(c) is a ‘civil liability’ and ‘mens era’ need not be proved for the levy of penalty. Mere, establishing of inaccuracy in particulars of income would be adequate for attracting the ‘civil liability’ of penalty u/s. 271(l)(c) of the, I. T. Act.

4. In light of the above legal position and after considering the submissions of the assessee (noted above), the issue on which penalty is being levied is discussed hereunder:

……….

…….4.2 Income omitted to be included

During the course of assessment proceedings the assessee was asked to reconcile the claim of TDS vis a vis income offered for tax in the return of income. The assessee has confronted vide order sheet entry dated 22.11.2012 with the said discrepancy and the assessee accepted the said fact that it cannot explain the said difference and the same was offered for tax. If the case of the assessee would not have been taken into scrutiny, the income would have escaped assessment. Therefore, the contention of the assessee is not acceptable and is rejected and penalty is levied on the amount of Rs. 12,52,978/-.

4.3 Further (191 TAXMAN 179) HON’BLE HIGH COURT OF DELHI in Commissioner of Income-tax* vs. Zoom Communication (P.) Ltd.(2010) = 2010-TIOL-361-HC-DEL-IT stated

“The Court cannot overlook the fact that only a small percentage of the incometax returns are picked up for scrutiny. If the assessee makes a claim which is not only incorrect in law, but is also wholly without any basis and the explanation furnished by him for making such a claim is not found to be bona fide, it would be difficult to say that he would still not be liable to penalty under section 271(1)(c). If one takes the view that a claim which is wholly untenable in law and has absolutely no foundation on which it could be made, the assessee would not be liable to imposition of penalty, even if he urns not acting bona fide while making a claim of this nature, that would give a licence to the unscrupulous assessees to make wholly untenable and unsustainable claims without there being any basis for making them, in the hope that their return would not be picked up for scrutiny and they would be assessed on the basis of self-assessment under section 143(1) and even if their case is selected for scrutiny, they can get away merely by paying the tax, which, in any case, was payable by them. The consequence would be that the persons, who make claims of this nature, actuated by a mala fide intention to evade tax otherwise payable by them, would get away without paying the tax legally payable by them, if their cases are not picked up for scrutiny. This would take away the deterrent effect, which these penalty provisions in the Act have.”

In this case also if the case of the assessee would not have been taken into scrutiny, the income would have escaped assessment. Therefore, the contention of the assessee is not acceptable.

4.4 Further, on combined reading of Hon’ble Delhi Court in the case of CIT V/s. ECS Ltd, which says:

“In so far as bonafide of assessee is concerned we would do no better to quote the following discussion from the order of CIT(A) with approval.

‘…………It is settled now that, claiming excessive deductions also amount to concealment of

income. Falsehood in accounts can take either of the two forms. Either an item of receipt may be suppressed fraudulently, or an item of expenditure may falsely be claimed. Both types attempt to reduce the taxable income. Both types of amount to concealment of one’s income as well as furnishing of inaccurate particulars of income. Penalty may be imposed for either or both such attempts…………’

Hon’ble Supreme Court in the case of CIT, Ahmedabad vs. Reliance Petroproduct (P) Ltd, which says

(322 ITR 158) = 2010-TIOL-21-SC-IT Falsehood in accounts can take either of the two forms. Either an item of receipt may be suppressed fraudulently, or an item of expenditure may falsely be claimed. Both types attempt to reduce the taxable income. Both types of amount to concealment of one’s income as well as furnishing of inaccurate particulars of income.

And

Hon’ble Gujarat High Court, which is also the jurisdictional High Court in the case at hand, in the case of A. M. Shah & Co. v. CIT [2000] which says

“Any concealment or inaccuracy in the particulars of income in the return occurring at any stage upto and inclusive of the ultimate stage of working out of total income would attract the penalty provision of section 271(l)(c). Every figure in the return which is set opposite to the item of income is a particular income, whether the figure is one which is stated independently of anything else that appears in the return or the documents accompanying it or whether it is something derived from other figures elsewhere stated in such return or documents. False result may be produced by the falsity of one or more of the constituent items in the return. The words ‘inaccurate particulars’ would cover falsity in the final figure as also the constituent elements or items. They simply would mean inaccurate in some specific or definite respect whether in the constituent or subordinate items of income or the end result”

Ultimately, the Learned DCIT observed that it is a clear case of concealment or inaccuracy in the particulars of income in the return occurring at any stage upto and inclusive of the ultimate stage of working out of total income would attract the penalty provision of section 271(1)(c) but finally it was held that the assessee has furnished inaccurate particulars of income and therefore liability of penalty arises with the following manner:

“4.6 In view of above facts and legal position discussed in the preceding paras, the assessee is held to have furnished inaccurate particulars of income and therefore the liability of penalty arises.

5. In view of the above facts I am satisfied that the assessee has furnished inaccurate particulars of its income and is liable for penalty u/s 271(1)(c) of the I. T. Act. I, therefore, levy a minimum penalty @ 100% of the amount of tax sought to be evaded on account of filing of inaccurate particulars of income, which works out to Rs. 3,85,614/-, against the maximum penalty of Rs. 11,56,842/- on the assessee.”

In appeal, the Learned CIT(A) while upholding penalty observed as follows:

“6. The submissions on second issue are considered. It is seen that appellant never reconciled the receipts either during the assessment proceedings or during the penalty proceedings. The reason given is lack of time is not acceptable since; appellant was having ample time till the completion of penalty proceedings. Appellant even failed to demand straight respect of certain major parties to reconcile the details as per form 26AS with the actual receipts recorded in the books. Only vague explanations and explanations of general nature have been given like all the receipts are by cheque-this is not acceptable since a cheque can be deposited in a undisclosed bank account which will be in the knowledge of assessee only and not in the knowledge of assessing officer or the Dept. Another explanation given is that certain deductions can be made or advances given, but for these appellant has not given any specific details. Further, this is also a fact that form 26AS was always available to the appellant on the website of the Dept and effort should have been made to reconcile the same even at the time of completing the audit, which was not done and it was not attempted during the assessment proceedings and penalty proceedings which clearly show that things are not above board otherwise the appellant must have submitted the details of reconciliation even across the years starting from beginning of the contract to the completion of the contract and explain its accounting policy with reference to recording of receipts and the IDS made by the principal or the deductors. Thus these grounds taken by the appellant fail.

7. Coming to legal submissions it is seen that facts of the cases of various appeal orders were different. In the present case facts are not related to any claim made which was disallowed. So the case law CIT vs Reliance Petro Products 322 ITR 158 = 2010-TIOL-21-SC-IT will not apply. The case in the CIT vs. Price water. 6924/2012 = 2012-TIOL-84-SC-IT also will not be applicable since the facts related to disallowance were not disclosed. In fact in the present case the facts are not related to disallowance but rather addition of undisclosed receipts. Here another point which is required to be discussed is whether the amount added represents furnishing inaccurate particulars or concealment of income. This is a fact that entire receipts was not shown by the appellant in its accounts and so it is to be held that entire income was not disclosed and so it was a case of concealment of income. However looking at the facts in another way that the relevant source of contract receipts was disclosed, however, full receipts related to these sources were not recorded in the gross receipts and this leads to influence of furnishing of inaccurate particulars. Thus in the present case there is considerable overlap between the term concealment of income for furnishing inaccurate particulars of income. In fact in the case both are applicable.

8. Coming to the case of Gujarat High Court reported as A. M. Shah & Co. vs. CIT 108 taxman 137 (Guj.) = 2003-TIOL-452-HC-AHM-IT, The counsel submitted that in the case of appeal and there is no finding regarding separation of income, I do not understand how this finding is required to be given the penalty order which runs into 15 pages and in para 4.6 it was clearly held that assessee is held to have furnished inaccurate particulars of income and thus this also clearly shows that assessing officer was fully satisfied Re: levy of penalty. In the assessment order also, the assessing officer held in para 7.2 that he was satisfied that the assessee had furnished inaccurate particulars of income and hence penalty proceedings were initiated.

9. It is also contended by the electorate assessing officer has not conducted any query to establish the concealment. This argument is not correct since assessing officer relied upon the data provided by the deductors to establish that whole receipts were not offered for taxation. Even otherwise, it has been held in various cases that assessing officer is not required to establish any concealment at the time of levy of penalty when the addition made by him in the income attains finality.

9.2 In the case of CIT vs. PREMIER BREWERIES LTD.244 ITR 598(Ker) it was held as below:

AO not to establish the concealment…No additional material furnished by the assesses to arrive at different conclusions other than those arrived at the stage of assessment proceedings. Finding of the tribunal held perverse as they were based on same material examined by it earlier. Penalty justified. Here the issue was claim of repair expenses confirmed as capital expenses.

9.3 Further in another case reported at [2007] 294 ITR 185 (All) the Hon’ble Allahabad High Court held :

The assessee has not been able to substantiate his explanation to the effect that the alleged depositors had received gifts and had independent sources of income levy of penalty held justified. It was further held that ITO need not record his satisfaction in a particular manner and it can be gathered from the assessment order.

9.4 Further, the honorable Kerla High Court in the case reported at (2003) 263 ITR 0579 (Ker) I’ll the levy of penalty as justified and the ratio of said decision was:

The lower authorities erred in holding that though the amount was agreed to be added, the AO failed to prove concealment. The onus was on the assessee to substantiate the explanation offered. AO is required to record his finding on the explanation furnished.

9.5 Further, in the case of COMMISSIONER OF INCOME TAX vs. MASTER SUNIL R. KALRO reported as (2007) 211 CTR (Kar) 314 : (2007) 292 ITR 86 (Kar) : (2007) 163 TAXMAN 675 (Kar) = 2007-TIOL-385-HC-KAR-IT it was held that AO having found on a detailed examination that the so-called gifts received by the assessee were not genuine, and all the authorities, including the Court having sustained the addition under s. 68, it cannot be said that this is a case of “no concealment” or of “no inaccurate” particulars of income and, therefore, penalty under s. 271(1)(c) is leviable. The honorable High Court held in para 7 (quoted verbatim) as below:

7……… When this order was challenged, the Commissioner has ruled that the department has not discharged its burden in the case on hand. The order of the Assessing Officer would clearly go to show that the assessing authority has chosen to discharge his burden by way of material on record. The Commissioner, in our view, is not correct in holding that the Assessing Officer is not justified in imposing penalty. When this order was challenged by the revenue, the Tribunal noticed various aspects of the matter. In fact, learned Counsel for the assessee before the Tribunal has argued that although the assessee might not have been able to prove the credit entries with sufficient evidences, at the same time again the Department has also not sufficient evidences to prove that the amounts really represent assessee’s concealed income for the year. The Tribunal notices in para 6 that the appellate authority has not cared to make any detailed discussion in the matter. It also notices that the explanation furnished by the assessee may not fully substantiate. The Tribunal also notices that the addition is sustainable on the ground of preponderance. But the Tribunal particularly would hold that the department has not to come up with much more evidence to establish to the hilt that the amount represented concealed income of the assessee for the year under consideration. Evidence to establish to the hilt is unnecessary for the purpose of levy of penalty. Levy of penalty is available under section 271(1)(c). All that the section requires is to consider the explanation and also proving by the department with regard to concealment in the case on hand. Materials are staring against the assessee. Therefore, the findings of the Tribunal that the department has not discharged its duty of concealment in the light of the detailed order of the Assessing Officer and in the light of the staring material available on record. This is not a case of ‘no concealment’ or of ‘no inaccurate’ particular income in terms of section 271(1)(c) of the Act. In these circumstances, we are of the view that the first question has to be answered in favour of the revenue in the light of the material on record and on the facts and circumstances of this case.

10. To analyse the peculiar facts of the case and application of penalty provisions on the same, it is first necessary to reproduce the provisions of section 271 (1) (c) to appreciate the law:

Failure to furnish returns, comply with notices, concealment of income, etc.

271, (1) If the [Assessing] Officer or the [Commissioner (Appeals)] or the Commissioner in the course of any proceedings under this Act, is satisfied that any person-

…..

(c) has concealed the particulars of his income or furnished inaccurate particulars of [such income, or]

…..

he may direct that such person shall pay by way of penalty,-

…..

[(iii) in the cases referred to in clause (c) [or clause (d)], [in addition to tax, if any, payable] by him, a sum which shall not be less than, but which shall not exceed [three times], the amount of tax sought to be evaded by reason of the concealment of particulars of his income [or fringe benefits] or the furnishing of inaccurate particulars of such income [or fringe benefits],

[Explanation 1.-Where in respect of any facts material to the computation of the total income of any person under this Act,-

(A) such person fails to offer an explanation or offers an explanation which is found by the [Assessing] Officer or the [Commissioner (Appeals)] 7[or the Commissioner] to be false, or

(B) such person offers an explanation which he is not able to substantiate and fails to prove that such explanation is bona fide and that all the facts relating to the same and material to the computation of his total income have been disclosed by him,

then, the amount added or disallowed in computing the total income of such person as a result thereof shall, for the purposes of clause (c) of this sub-section, be deemed to represent the income in respect of which particulars have been concealed.

It is seen that explanation 1 shifts.the onus of the Dept on the assessee and whenever this explanation is attracted, the Dept is deemed to have discharge its onus. Part A and part B of the explanation are disjunctive and both needs to be separately satisfied for the assessee to come out of explanation 1.

10.2 For the purpose of understanding the above provisions, it is necessary to consider certain judicial pronouncements:

10.2.2, THE SUPREME COURT OF INDIA in 306 ITR 277(SC),174 Taxman 0571(SC) (UNION OF INDIA Vs M/s DHARAMENDRA TEXTILE PROCESSORS) = 2008-TIOL-192-SC-CX-LB held: (Quoted Verbatim):

The Explanations appended to Section 271(l)(c) of the IT Act entirely indicate the element of strict liability on the assessee for concealment or for giving inaccurate particulars while filing return. The judgment in Dilp N. Shroof’s case has not considered the effect and relevance of Section 276C of the I.T. Act. Object behind enactment of Section 271 (l)(c) read with Explanations indicates that the said section has been enacted to provide for a remedy for loss of revenue. The penalty under that provision is a civil liability. Wilful concealment is not an essential ingredient for attracting civil liability as is the case in the matter of prosecution under Section 276Cofthe I.T. Act.

10.2.3 CIT vs K. P. Madhusudnan 251 ITR 99 (SC) = 2002-TIOL-1935-SC-IT-LB.

The verbatim quote of Supreme Court is as below:

[2001] 251 ITR 99 (SC) = 2002-TIOL-1935-SC-IT-LB.: When the Income-tax Officer or the Appellate Assistant Commissioner issues to an assessee a notice under section 271, he makes the assessee aware that the provisions thereof are to be used against him. These provisions include the Explanation…….. The assessee is, therefore, by virtue of the notice under section 271 put to notice that if he does not prove, in the circumstances stated in the Explanation, that his failure to return his correct income was not due to fraud or neglect, he shall be deemed to have concealed the particulars of his income or furnished inaccurate particulars thereof and, consequently, be liable to the penalty provided by that section. No express invocation of the Explanation to section 271 in the notice under section 271 is, in our view, necessary before the provisions of the Explanation therein are applied. The High Court at Bombay was, therefore, in error in the view that it took and the Division Bench in the impugned judgment was right.

Learned counsel for the assessee then drew out attention to the judgment of this court in Sir Shadilal Sugar and General Mills Ltd. v. CIT [1987] 168 ITR 705. He submitted that the assessee had agreed to the additions to his income referred to hereinabove to buy peace and it did not follow therefrom that the amount that was agreed to be added was concealed income. That it did not follow that the amount agreed to be added was concealed income is undoubtedly what was laid down by this court in the case of Sir Shadilal Sugar and General Mills Ltd. [987] 168 ITR 705 and that, therefore, the Revenue was required to prove the mens rea of a quasi-criminal offence. But it was because of the view taken in this and other judgments that the Explanation to section 271 was added. By reason of the addition of that Explanation, the view taken in this case can no longer be said to be applicable.

10.2.4 COMMISSIONER OF INCOME TAX vs. JAMNADAS & COMPANY

(1995) 123 CTR (Guj) 308 : (1994) 210 ITR 218 (Guj) : (1995) 78 TAXMAN 573

Penalty under s. 271(l)(c), Explanation-Concealment-Assessee’s own explanation that cash credit entries in respect of secret business were in wrong names-As per additions made, case coming within the purview of Explanation- Assessee failing to discharge the burden placed upon it, penalty under s. 271(l)(c) Explanation rightly levied

Held

The Tribunal has noted and observed that it was the assessee’s own explanation during the assessment proceedings before the ITO that the correct names as regards the parties who were the holders of the cash credits in the accounts of the assessee were not shown since it was a secret business and it was decided by the assessee that even its employees should not know the correct names of the parties under the various transactions. Moreover, the ITO has further observed, and which observation has not been interfered with in any manner by the Tribunal, to the effect that a sum of Rs. 1,22,500 (as shown in Part 3 of the return of the assessee) represented credits in secret business agreed to be in the wrong names, and hence the entries were found not proved to be genuine. On these findings it is obvious that the assessee has failed to discharge the burden placed upon it by the Explanation and consequently the presumption under the said Explanation would arise. Consequently the penalty imposed on the assessee by the JAC applying cl. (c) of sub-s. (1) of s. 271 was justified.

10.3 The explanation furnished by the appellant on facts is that the contractual income is predominantly received from the corporate sector and most of the companies, being the principles are owned or controlled by the government. There cannot be differences between sales figures as reported in the books of accounts and the corresponding figure reflected in the respective TDS statements. The difference can only be due to certain variation in the accounting treatments for errors omission and commissions that may have been committed by the principles etc. The case of the assessee dose not fall under the explanation 1(A) to Sec 271(1)(c) as an explanation for the unaccounted receipt has not been proved to be false.

Let us examine now the applicability of explanation 1(B) to section 271(1)(c) as below:

(a) The assessee has offered an explanation regarding difference in receipts as per TDS statement and as per books of accounts but assessee itself is stated that difference can be….. And thus the explanation is based on possible reasons without any analysis of facts and figures and thus the explanation is totally unsubstantiated.

(b) The appellant also failed to prove that it’s explanation was bona fide, as no attempt was made to prove the bona fides of the explanation rather appellant tried to skirt the issue by taking shelter of various case laws rather than verifying the facts.

(c) The addition made by the assessing officer has been confirmed which shows that all the facts relating to the explanation offered by appellant and material to the computation of total income were not disclosed by it. The assessee failed to prove veracity, correctness and completeness of its books of accounts even though the entries for the tedious were made by it and deduction was also claimed for the tedious certificates furnished to him by the deductors.

Thus the submission of the assessee cannot be accepted.

10.4 In view of the above, it is held that on the big clear facts of the case, and the explanation 1(B) below section 271(1)(c) is clearly applicable and hence the assessee’s case is covered u/s 271(1)(c) for levy of penalty. Hence the penalty levied by the assessing officer for the assessment year on sum of Rs. 1252978 is hereby confirmed, The appeal is partly allowed.”

It appears that admittedly there is a difference between the sales figures as reported in the books of accounts and the corresponding figure reflected in the respective TDS statement. When the said discrepancy was pointed out to the assessee, a reconciliation statement was filed, the assessee failed to explain the same in his favour whereupon further time for three months was prayed for. Ultimately, the assessee failed to submit reconciliation before the Learned AO neither during the penalty proceeding or even before the first appellate authority. Needless to mention that the assessee failed to submit the same even before us at the time of hearing of the instant appeal. Thus the observation made by the Learned CIT(A) is without any ambiguity while confirming the order of penalty. So far as the argument of specific charge is concerned it is evident on record that while issuing penalty proceeding the specification has expressed by the Learned AO towards furnishing of inaccurate particulars of income by the assessee which is again reflected in the final order of penalty at penultimate paragraph 4.6. Thus we find no force in such argument advanced by the Learned Advocate appearing for the appellant before us.

In that view of the matter, we find no infirmity in the order passed by the authorities below so as to warrant interference. Thus the same is hereby upheld. Consequently, the appeal fails and is accordingly dismissed.

6. In the result, assessee’s appeal is dismissed.

(This Order pronounced in Open Court on 17.05.2019)

Leave a Reply

Close Menu
%d bloggers like this: