IN THE HIGH COURT OF JHARKHAND AT RANCHI Tax Appeal No. 7 of 2005

Transcription

1 IN THE HIGH COURT OF JHARKHAND AT RANCHI Tax Appeal No. 7 of 2005 Commissioner of Income Tax, Jamshedpur Versus Appellant M/s. Hitech Chemical (P) Ltd., Jamshedpur Respondent CORAM : HON'BLE THE CHIEF JUSTICE : HON'BLE MR. JUSTICE SHREE CHANDRASHEKHAR For the Appellant : M/s. Deepak Roshan & Rupa Kumari, Advocate For the Respondent : M/s. B. Poddar, Sr. Advocate Darshana Poddar, Piyush Poddar, Amrita Sinha & M. Choudhary, Advocate C.A.V. on Pronounced on Challenging order dated in I.T.(SS) A No. 17/Pat/2002 passed by the Income Tax Appellate Tribunal, Circuit Bench, Ranchi whereby the CIT (Appeals) rejected the Revenue s appeal, the Revenue has approached this Court by filing the present Tax Appeal No. 7 of The assessee is a Private Limited Company engaged in manufacture of chemicals used mainly by steel plants. A search and seizure operation under Section 132(1) of the Income Tax Act (in short, the Act ) was conducted on simultaneously in the office premises of the assessee Company and at the residence of the Managing Director of the Company and others. During the search, certain cash and FDRs were recovered and seized. A notice under Section 158BC of the Act was issued by the Assessing Officer on requiring the assessee to file the return for the block period to within a period of 16 days. The assessee filed the return on disclosing undisclosed

2 2 income of Rs. 1,17,00,000/ only. Subsequently, the assessee filed a notarised affidavit on disclosing additional undisclosed income of Rs. 58,20,815/. A notice under Section 143(b) of the Act was issued on and the proceeding was conducted on different dates before the Assessing Officer. 3. Before the Assessing Officer, the assessee contended that the delay in filing the return under Section 158BC was attributable to the Department as the assessee was not provided with extract of the seized documents for which it was entitled under Section 132 (9) of the Act. It was contended that the return was filed in a haste with a view to avoid penal interest and therefore, in the absence of relevant documents the total concealment could not be disclosed by the assessee. It was further contended that since the assessee itself disclosed an additional concealed income of Rs. 58,20,815/, before it was otherwise detected by the Department, there was no mala fide intention on the part of the assessee to defraud the Revenue. Lastly, it was contended that since there was no willful concealment on the part of the assessee nor any inaccurate particular has been furnished and since, the penalty proceeding under Section 158BFA of the Act and the penal proceeding under Section 271(1)(c) of the Act are separate and exclusive proceedings, no penalty could have been imposed on the assessee on the additional disclosure made by the assessee on The Assessing Officer assessed the undisclosed income of the assessee at Rs. 1,83,76,129/ and after deducting the undisclosed income of Rs. 1,17,00,000/ disclosed by the assessee, worked out the net concealed income at Rs. 66,76,129/ vide assessment order dated A notice under Section 158BFA of the Act was issued to the assessee for compliance by and accordingly, the assessee filed its reply to notice under Section 158BFA. The Assessing Officer did

3 3 not accept the assessee s contention and explanation and accordingly, the Assessing Officer imposed penalty under Section 158BFA of the Act amounting to Rs. 40,05,677/. 4. The assessee preferred Appeal before the CIT (Appeals) reiterating its stand taken before the Assessing Officer. The CIT (Appeals) held that there was no justification for imposing penalty. The assessee had filed its first affidavit before copies of the seized documents were supplied and even the second affidavit dated was filed before notice under Section 143(2) of the Act was issued. It was further held that under block assessment procedure, the assessee gets an exclusive opportunity, after the search, to disclose its undisclosed income and since in the present case, the assessee had declared the entire undisclosed income and paid penal tax on it, there was no concealment on the part of the assessee and therefore, penalty could not have been imposed by the Assessing Officer. The CIT (Appeals) interfered with the penalty order dated holding that when there was no concealment, imposition of penalty amounts to penal action for an offence which was not committed by the assessee. 5. The Revenue approached the Income Tax Appellate Tribunal, Circuit Bench, Ranchi. Before the Tribunal, the Revenue contended that once the proceeding under Section 158BC of the Act is initiated, it is not open to the assessee to take a stand that the disclosure was made prior to detection by the Department. Referring to the facts of the case, it was contended on behalf of the Revenue that the amount of concealment disclosed by way of affidavit dated contained only the deposits made in two bank accounts and those transactions were made by the assessee itself and therefore, the assessee was in the knowledge of those transactions and thus, it cannot be contended by the assessee that in the absence of the alleged non supply of documents, the assessee could not make the correct disclosure. Relying on second proviso

4 4 to Section 158BC of the Act, it was contended on behalf of the Revenue that, since the assessee had already furnished return under Section 158BC of the Act, it was not entitled to file a revised return and therefore, the income disclosed by the assessee was treated as concealed income in terms of Section 158BFA of the Act. 6. On behalf of assessee, it was submitted that inspite of repeated requests made by the assessee for supply of documents and release of Computer Hard Disc on , , , , and , the same were not supplied to the assessee and on the insistence of the Department, the assessee filed a disclosure petition on , disclosing an income of Rs lacs and a detailed disclosure petition was filed on In these circumstances, without waiting for photo copies of the documents, the block return was filed on Again, the assessee moved a petition on for allowing xerox copies of such materials and thereafter, the assessee voluntarily disclosed an additional undisclosed income of Rs. 58,20,815/ through affidavit dated The disclosure was made prior to any notice of date of hearing as, the first notice under Section 143(2) of the Act was issued on It was further submitted on behalf of the assessee that there was no mala fide intention on the part of the assessee to defraud the Revenue. The assessee had offered for adjustment of the tax out of seized assets and the income which was finally assessed do not include any addition on the income returned and disclosed through affidavit filed by the assessee and therefore, the Assessing Officer was not justified in imposing penalty. 7. The learned Tribunal held that there is no material on record to show that the assessee was provided photo copies of the entire seized materials before filing of the return for the block period. It was further held that neither any addition was made in

5 5 the income disclosed by the assessee nor did the assessee disclose the additional income after the issuance of notice under Section 143(2) of the Act or any other notice or query made in this behalf and therefore, penalty could not have been imposed. As regards the plea taken on behalf of the Revenue that an assessee is not entitled to file a revised return, the learned Tribunal held that the provision contained in second proviso to Section 158BC of the Act is for the purpose of assessment. It further held that after the assessee offers a convincing reason or any reasonable cause is demonstrated for non inclusion of such income in the return for the block period, the penal interest in such a case is not attracted. The learned Tribunal finally held that the additional income disclosed by the assessee through affidavit was not a concealed income within the meaning of Section 158BFA of the Act. 8. In the aforesaid background, it is contended on behalf of the Revenue that, in view of second proviso to Section 158BC of the Act since the assessee is not entitled to file a revised return, the undisclosed income detected after, filing of return for block assessment whether detected by the Department on its own or pursuant to the subsequent disclosure made by the assessee in the garb of the revised return, would be treated as a concealed income on which penalty would be imposed and since this aspect of the matter has not been considered by the CIT (Appeals) or by the learned Tribunal, the appeal preferred by the Revenue deserves to be allowed. Mr. Deepak Roshan, the learned counsel appearing for the Revenue has contended that though the Assessing Officer has rightly considered this aspect of the matter, the learned Tribunal has erroneously ignored the effect of second proviso to Section 158BC of the Act on the ground that since the additional undisclosed income of Rs.58,20,815/ was disclosed by the assessee on that is, prior to notice under Section 143(2) or any other notice issued by the Assessing Officer therefore, the said

6 6 income was not liable to penalty. The learned counsel for the appellant Revenue has further contended that the specific finding recorded by the Assessing Officer that, since the return filed by the assessee on was itself belated, the plea taken by the assessee for not disclosing the concealed income fully on the ground of non supply of photocopy of the seized documents was not believable, has been interfered by the appellate forum on an erroneous presumption that there is no material on record to show that the assessee was provided photocopies of the entire seized material before filing of the return for the block period. 9. Per contra, Mr. B. Poddar, the learned Senior counsel appearing for the respondent assessee submitted that in view of the fact that the copies of the documents and Hard Disc were not provided to the assessee, the revised return filed by the assessee disclosing on its own an additional undisclosed income of Rs.58,20,815/ cannot be subjected to penalty. The learned Senior counsel submitted that this is not a case in which the assessee has filed additional return reducing its income rather, it is a case where the assessee has filed the return disclosing additional undisclosed income on its own and therefore, no penalty could have been imposed by the Assessing Officer. The learned Senior counsel for the respondent assessee has relied on following judgments: (i) (2013) 356 ITR 700 (Mad), (ii) (2013) 356 ITR 703 (Mad), (iii) (2010) 322 ITR 158 (SC), (iv) (1981) 127 ITR 601 (Pat), (v) (2001) 251 ITR 9 (SC), (vi) (2000) 241 ITR 124 (Madhya Pradesh), (vii) (1972) 83 ITR 26 (SC), (vii) (1987) 168 ITR 705 (SC) and (viii) (1987) 165 ITR 249 (Calcutta). 10. Before referring to the above contention raised on

7 7 behalf of the respondent assessee it would be useful to notice the provisions under Chapter XIV B of the Income Tax Act, The Chapter XIV B is confined to Special Procedure of Assessment of Search Cases. Section 158B(b) defines the term, Undisclosed Income. The manner and method of computation of undisclosed income of the block period is given under Section 158BB. provides that undisclosed income of the block period shall be the aggregate of the total income, i.e., undisclosed income as well as disclosed income, of the previous years as reduced by aggregate of total income or increased by aggregate of losses, i.e., disclosed income, of such previous years. Section 158BC(c) of the Act provides determination of the tax payable after determination of the undisclosed income for the block period. It further provides that the order of assessment so passed by the Assessment Officer should specify the manner in which the undisclosed income for the block period has been computed by him. Section 158BC further provides that the income of the block period would be determined in the manner laid down under Section 158BB and the provisions of Section 142, Section 143(2), Section 143(3), Section 144 and Section 145 of the Act. Section 158BE prescribes the time limit for completion of block assessment and, Section 158BF and Section 158BFA relate to levy of interest and penalty. Thus, it is clear that Chapter XIV B is a self contained code which provides for special procedures which has to be adopted for assessment in search cases. 11. The relevant extract of Explanation to Section 158BA, second proviso to Section 158BC, Section 158BF & First proviso to Section 158BFA(2) of the Income Tax Act,1961 below: Explanation to Section 158BA For the removal of doubts, it is hereby declared that (a) the assessment made under this Chapter shall be in addition to the regular assessment in respect of each previous year included in the block period; It are extracted

8 8 (b) the total undisclosed income relating to the block period shall not include the income assessed in any regular assessment as income of such block period; (c) the income assessed in this Chapter shall not be included in the regular assessment of any previous year included in the block period. Second proviso to Section 158BC Provided further that a person who has furnished a return under this clause shall not be entitled to file a revised return. Section 158BF Certain interests and penalties not to be levied or imposed No interest under the provisions of section 234A, 234B or 234C or penalty under the provisions of clause (c) of sub section (1) of section 271 or section 271A or section 271B shall be levied or imposed upon the assessee in respect of the undisclosed income determined in the block assessment. First proviso to Section 158 BFA(2) Provided that no order imposing penalty shall be made in respect of a person if (i) such person has furnished a return under clause (a) of section 158BC; (ii) the tax payable on the basis of such return has been paid or, if the assets seized consist of money, the assessee offers the money so seized to be adjusted against the tax payable; (iii) evidence of tax paid is furnished along with the return; and (iv) an appeal is not filed against the assessment of that part of income which is shown in the return. 12. Adverting to the contention raised by the learned Senior counsel for the respondent assessee that, since the assessee has disclosed additional undisclosed income on its own and the income so disclosed by the assessee is on the higher side which reflects bona fide intention of the assessee, no penalty could have been imposed by the Assessing Officer, we are of the opinion that since the provision contained in second proviso to Section 158BC of the Act is mandatory, the undisclosed income even if disclosed by the assessee, after the filing of the return u/s 158BC by filing a revised

9 9 return, would be liable to be treated as concealed income and hence, incur penalty. The provision under Section 158BC and Section 158BFA were inserted by the Income Tax (Amendment) Act, As noticed earlier, Section 158BFA prescribes that interest and penalty would be levied in certain cases. It appears that the very purpose of inserting the second proviso to Section 158BC prohibiting the assessee from filing the revised return is to prevent the assessee from filing a revised return, from time to time, depending on the development that takes place during the course of assessment proceeding. The intention appears to be preventing the assessee from getting away with the penalty imposable under Section 158BFA. The second proviso to Section 158BC uses the expression shall not be entitled to which further reflects the legislative intention that it is mandatory in nature and it admits no exception. 13. The legal position thus appears to be that, the assessee cannot file even a revised lower return on account of some mistake committed by him and thus, the second proviso to Section 158BC is intended at prohibiting the assessee from filing a revised higher return with a view to get away with imposition of penalty on the undisclosed income. The plea taken by the assessee that penalty could not have been imposed on the additional undisclosed income disclosed by the assessee itself, is fallacious. The assessee seems to suggest that had such disclosure not been made by the assessee, the Assessing Officer could not have detected it. Merely because the disclosure of additional undisclosed income was made by the assessee prior to any notice from the Assessing Officer would not lead to a presumption that the Assessing Officer could not have detected the concealed income. The provision under Section 158BB clearly says that, undisclosed income would be computed on the basis of evidence found, as a result of search or requisition of books of accounts or other documents and such other materials

10 10 or information as are available with the Assessing Officer and relatable to such evidence. 14. The additional affidavit filed by the assessee would be a material and information available to the Assessing Officer and therefore, the affidavit filed by the assessee can form the basis of information based on which the undisclosed income of the assessee would be calculated. Since the affidavit dated was filed after the filing of the return on , the Assessing Officer has rightly treated the undisclosed income disclosed by the assessee through affidavit dated , as concealed income. In this view of the matter, the contention raised on behalf of the respondent assessee that, since a revised return on higher side was filed on its own, no penalty can be imposed on the additional amount disclosed in the revised return, merits no acceptance. In view of the specific provision contained in Section 158BF which provides that no penalty under provisions of Section 271(1)(c) or Section 271A or Section 271B shall be levied or imposed upon the assessee in respect of the undisclosed income determined in the block assessment and the case of the respondent assessee not falling under Section 158BF, the cases relied upon by the learned Senior counsel for the respondent assessee are not relevant. 15. The learned Senior counsel has submitted that penalty is imposed only in a case of evasion of tax or where it is found that the intention of the assessee was malafide. It is further submitted that penalty will not ordinarily be imposed unless the party obliged, either acted deliberately in defiance of law or was guilty of conduct contumacious or dishonest or acted in conscious disregard of its obligation and since in the present case these ingredients are absent, Assessing Officer could not have imposed penalty on the additional income disclosed by the assessee on We have held that second proviso to Section 158BC is mandatory and the provision under Section 158BFA is also

11 11 mandatory subject to the conditions mentioned therein, and therefore, the intention of the assessee is immaterial. Chairman, SEBI Vs. Shriram Mutual Fund and Anr., reported in (2006) 5 SCC 361, while holding that Section 15 A to Section 15 HB of the SEBI Act, 1992 are mandatory provisions which provide imposition of penalty in cases of default, the Hon'ble Supreme Court has held as under: 35. In our considered opinion, penalty is attracted as soon as the contravention of the statutory obligation as contemplated by the Act and the Regulations is established and hence the intention of the parties committing such violation becomes wholly irrelevant. A breach of civil obligation which attracts penalty in the nature of fine under the provisions of the Act and the Regulations would immediately attract the levy of penalty irrespective of the fact whether contravention must be made by the defaulter with guilty intention or not. We also further held that unless the language of the statute indicates the need to establish the presence of mens rea, it is wholly unnecessary to ascertain whether such a violation was intentional or not. On a careful perusal of Section 15 D(b) and Section 15 E of the Act, there is nothing which requires that mens rea must be proved before penalty can be imposed under these provisions. Hence once the contravention is established then the penalty is to follow. 17. In Union of India and Ors. Vs. Dharamendra Textile Processors and Ors., reported in (2008) 13 SCC 369, the issue which was referred before the Hon'ble Supreme Court was, whether Section 11 AC of the Central Excise Act, 1944 imposing mandatory penalty on persons who evaded payment of tax should be read to contain mens rea as an essential ingredient. In Approving the decision in Chairman, SEBI Vs. Shriram Mutual Fund (supra), the Hon'ble Supreme Court has held that willful concealment is not an essential ingredient for attracting civil liability. In view of the mandatory provision contained in second proviso to Section 158BC, the plea of bona fide intention taken by the assessee is of no consequence. 18. The learned Senior counsel for the respondent assessee

12 12 further contended that though second proviso to Section 158BC provides that the assessee is not entitled to file a revised return, there is no provision in the Act which provides for imposition of penalty on filing of additional/revised return. This contention is also not tenable in view of the specific provision contained in Section 158BFA. As noticed herein above Chapter XIV B is a self contained code. The exclusions, if any, have been specifically mentioned therein. Section 158BFA also admits exceptions and those instances are contained in the said provision itself. Except the exceptions provided therein, the provision in Section 158BFA is mandatory. 19. The learned Senior counsel appearing for the respondent assessee has lastly submitted that since two Authorities have concurrently found that required documents were not furnished by the assessee and thus, the assessee could not submit the return fully disclosing the undisclosed income, no substantial question of law arises in the present appeal and therefore, the Tax Appeal preferred by the Revenue is liable to be dismissed. 20. It is admitted case that a search operation under Section 132 was carried on A notice under Section 158BC was issued on and due date of filing of block return was fixed on The assessee was permitted by letter dated to take photo copies of the document. A petition was filed by the assessee on for release of Computer Hard Disc and by letter dated the assessee was permitted to take copies of the Computer Hard Disc. The block return showing undisclosed income of Rs lacs was filed on Thereafter, the assessee made a petition on for taking xerox copies of seized material. The Assessing Officer has found that the additional disclosure made by the assessee on was with regard to deposits made in two bank accounts, the transactions in which were made by the assessee itself and no

13 13 direction was issued to the bank authorities by the Department with respect to the said two bank accounts. This aspect of the matter has not been properly dealt with both by the CIT (Appeals) and the learned Tribunal. There is no explanation by the assessee for moving an application for furnishing documents, 5 months after filing return on It appears that the application was moved as an excuse for avoiding penalty u/s 158BFA. We further find that the legal effect of the embargo placed by the second proviso to Section 158BC has not been considered by the Tribunal. The finding of the learned Tribunal that the second proviso to Section 158BC is for the purpose of assessment and therefore, penalty in such cases would not be attracted is erroneous. The substantial question of law, whether in view of second proviso to Section 158BC of the Act, the income disclosed by the assessee in the form of revised return would be liable for penalty or not, is answered in favour of the Revenue. 21. In view of the aforesaid discussion, we hold that an assessee is not entitled to file revised return, once the return under Section 158BC is filed. The provisions under Section 158BFA is also mandatory and therefore, irrespective of the intention of the assessee, the undisclosed income disclosed by the assessee after filing the return under Section 158BC, would attract penalty. The plea of non supply of documents is not available to the assessee for filing a revised return though, such a plea may be available to the assessee for challenging the final order on the ground of violation of the principles of natural justice. 22. In the light of our observation, that the second proviso to Section 158BC(ii) is mandatory and that the assessee is not entitled to file a revised return, the matter has to be remitted back to the CIT (Appeals) for consideration of the matter afresh. 23. In the result, we find merit in this appeal and accordingly, order dated passed by the CIT (Appeals) and order

14 14 dated passed by the Income Tax Appellate Tribunal, Circuit Bench, Ranchi are set aside. This Tax Appeal is allowed and the matter is remitted back to the CIT (Appeals) for deciding the matter afresh. (R. Banumathi, C.J.) (Shree Chandrashekhar, J.) Jharkhand High Court at Ranchi Dated, 14th day of February, 2014 Rakesh/AFR/Cp 2