IN THE HIGH COURT OF KARNATAKA AT BANGALORE Dated this the 17 th day of June 2014 PRESENT THE HON BLE MR. JUSTICE N KUMAR AND THE HON BLE MR. JUSTICE B. MANOHAR ITA No. 578 of 2008 BETWEEN: 1. The Commissioner of Income Tax C.R. Building Queens Road Bangalore 2. The Assistant Commissioner of Income Tax Circle 8(1) C.R. Building Queens Road Bangalore Appellants (By Sri K.V. Aravind, Advocate) AND: M/s. Trishul Developers No.9, Asha
2 Ali Asker Road Off. Cunningham Road Bangalore 560 052 Respondent (*By Sri A. Shankar and M. Lava, Advocates) This ITA filed U/s. 260A of I.T. Act, 1961 arising out of order dated 25-01-2008 passed in ITA No.648/BNG/2007 for the Assessment year 2004-05, praying to (i) formulate the substantial questions of law stated therein; (ii) allow the appeal and set aside the order passed by the ITAT Bangalore in ITA No.648/BNG/2007, dated 25-01-2008 confirm the orders of the Appellate Commissioner and confirm the order passed by the Deputy Commissioner of Income Tax, Circle- 8(1), Bangalore. This ITA coming on for hearing this day, N. KUMAR J., delivered the following: J U D G M E N T The Revenue has preferred this appeal challenging the order passed by both the appellate authorities who have set aside the penalty proceedings initiated under Section 271(1)(c) of the Income Tax Act, 1961. 2. The assessee firm is engaged in the business of purchase of sale of land. The assessee filed its return for the (*Corrected vide Chamber Order dated 7/7/2014)
3 assessment year 2004-05 on 31.10.2004. On 30.08.2005 a survey was conducted in the premises of the assessee and they found there were cash credits of Rs.3.35 crores in the books of account. According to the assessee, it represented advance from various parties for sale of property being developed by the assessee. However, he was not in a position to give any further details such as the address and PAN numbers of these persons from whom the cash was received. The assessee also contended that the said amounts are refunded to the concerned parties. However on 31.01.2006 the assessee filed revised return offering the said amount of Rs.3.35 crores for tax. The Assessing Authority proceeded to pass orders making the assessment. He also directed initiation of penalty proceedings. It is in pursuance of the said order, notice in the prescribed form is issued to the assessee. The assessee in its reply reiterated the stand taken by it on the assessment proceedings. The Assessing Authority did not accept the explanation offered and he levied penalty.
4 3. The assessee preferred an appeal against the order of the Appellate Commissioner, who set aside the appeal on technical grounds. 4. The Department preferred an appeal to the Tribunal, which came to be dismissed. It is against the said order, the present appeal is filed. 5. The substantial question of law that arise for consideration in this appeal is: Whether the Appellate Authorities were correct in deleting the penalty levied under Section 271(1)(c) of the Act, for concealing the income in the return filed on 31.10.2004, when undisclosed income was detected in the survey conducted on 30.08.2005 and the revised return was filed on 31.01.2006 and assessment order passed on a sum of Rs.4,49,14,550-00. 6. Heard the learned Counsel for the parties.
5 7. From the aforesaid undisputed facts it is clear that assessee had filed its return on 31.10.2004. On 30.08.2005 a survey was conducted and it was found that the undisclosed income though entered in the books of accounts was not substantiated. Therefore the assessee filed a revised return on 31.01.2006 within the time prescribed under Section 139(4) of the Act, offering the said income for tax. Accordingly, the Assessing Authority proceeded to pass order assessing that income also for tax. 8. It is in this background the question is, whether initiation of penalty proceedings and imposition of penalty by the Assessing Authority is valid and legal. 9. This Court had an occasion to consider the scope of Section 271(1)(c) of the Act, in the case of COMMISSIONER OF INCOME-TAX AND ANOTHER Vs. MANJUNATHA COTTON AND GINNING FACTORY reported
6 in (2013) 359 ITR 565 (KARN) 565. In the aforesaid case, dealing with the levy of penalty it is held as under: The levy of penalty is not a matter of course. It has to be found that the assessee concealed any income. Where there is no concealment, or no material for concealment, no penalty can be imposed. But where the assessee has concealed income, any subsequent act of voluntary disclosure would not affect the imposition of penalty. The mere addition to the taxable income would not automatically lead to an order of penalty. Further, the levy of penalty is not an automatic concomitant of the assessment. Therefore, safeguards have been provided for in the Act itself to see that penalties are levied only in appropriate cases. The Apex Court in the case of CIT v. SURESHCHANDRA MITTAL reported in (2001) 251 ITR 9 (SC), held that higher income offered after search would not lead to levy of penalty automatically. The Apex Court in the case of DILIP N SHROFF v. Joint CIT reported in (2007) 291 ITR 519 (SC), at Page 547 at para 62 has observed that finding in assessment proceedings cannot automatically be adopted in penalty
7 proceedings and the authorities have to consider the matter afresh from different angle. This Court in the case of VASANTH K HANDIGUND reported in (2010) 327 ITR 233 (Karn), has held that when addition has been accepted to buy peace and avoid litigation and the explanation was found reasonable by the appellate authorities the cancellation of penalty was justified. This Court in the case of BHADRA ADVANCING PVT LIMITED v. Asst. CIT reported in (2008) 219 CTR 447 (Karn), held that merely because the assessee has filed a revised return and withdraw some claim of depreciation penalty is not leviable. The additions in assessment proceedings will not automatically lead to inference of levying penalty. This Court in the case of CIT vs. M.M. GUJAMGADI reported in (2007) 290 ITR 168 (Karn), has held that every addition to income by the Income Tax Officer will not automatically attract levy of penalty. Similar view has also been taken by this Court in the case of BALAJI VEGETABLE PRODUCTS PRIVATE LIMITED v. CIT reported in (2007) 290 ITR 172 (Karn). The facts of the addition has to be looked into and the conduct of the assessee may also be taken into
8 consideration. Merely because addition has been accepted and taxes paid along with interest should mitigate the attitude of the Assessing Officer in not levying penalty rather than levy of. The Punjab and Haryana High Court in the case of CIT v. SURAJ BHAN reported in (2007) 294 ITR 481 (P&H), has held that when an assessee files revised return showing higher income penalty cannot be imposed merely on account of the higher income. There is no deeming fiction for survey similar to explanation 5 or 5A which are in respect of search action only. There is no deeming fiction for higher income declared during survey and the assessing authorities cannot levy penalty automatically in case of survey cases where higher income is declared after survey. The Punjab and Haryana High Court in the case of HUKUMCHAND HARI PRAKASH reported in (2002) 172 CTR 271 (P&H), has held that additional income offered after survey cannot lead to imposition of penalty. In cases where the assessee have accepted the view of the department and have either filed revised return or letters accepting the addition and offered the additional income to tax and have not filed
9 appeal or revision, the Assessing Officers are duty bound in law to take these factors and also the facts leading to addition and use the discretion vested in them in the main provision of the Section 10. It is not in dispute that the direction given in the order of assessment is full of mistakes in so far as, initiation of penalty proceedings is concerned. A statutory notice issued in pursuance of the said order is blank. Under these circumstances, having regard to the facts of this case, the order passed by the Appellate Authorities setting aside the order of imposition of penalty cannot be found fault with as the case is squarely covered by the judgment of this Court in the aforesaid MANJUNATHA COTTON AND GINNING FACTORY s case. Accordingly we answer the substantial question of law raised in favour of the assessee and against the Revenue, in the light of the judgment in the aforesaid
10 MANJUNATHA COTTON AND GINNING FACTORY s case. Appeal dismissed. No costs. Sd/- JUDGE Sd/- JUDGE ksp/-