The Judgment of the Court was delivered by

Chitra Venkataraman, J.:— The assessee is on appeal as against the common order of the Income-tax Appellate Tribunal, Madras “D” Bench dated May 25, 2009, in I.T.A Nos. 802 and 803.Mds/2008 relating to the assessment years 2002-03 and 2003-04 raising the following questions of law:

T.C (A.) No. 26 of 2010

“1. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal is right in law in confirming the levy of penalty of Rs. 4,99,800 under section 271(1)(c) of the Act for the assessment year 2002-03?

2. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal is right in law in imposing the penalty under section 271(1)(c) even though there is no finding in the penalty order that there exists concealment of income?

3. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal is right in law in holding that the Assessing Officer can levy penalty in a case where the assessee himself has offered additional income on estimated basis in order to purchase peace with the Department?

4. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal is right in law in confirming the action of the Assessing Officer in levying penalty even though the Commissioner of Income-tax under section 263 had directed the Assessing Officer not to initiate penalty proceedings?”

T.C (A.) No. 27 of 2010

“1. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal is right in law in confirming the levy of penalty of Rs. 6,28,001 under section 271(1)(c) of the Act?

2. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal is right in law in imposing the penalty under section 271(1)(c) even though there is no finding in the penalty order that there exists concealment of income?”

2. The assessee is a private limited company. The assessment order made originally for the assessment year 2002-03 was subjected to revisional proceedings under section 263 of the Income-tax Act, 1961 (hereinafter referred to as “the Act”). A reading of the order of the Commissioner of Income-tax dated December 8, 2004, passed under section 263 of the Act reveals that on account of unreliability of the accounts as regards the gross profit as well as on bill discounting charges, the proposal to revise the assessment was made. The assessee is a dealer in iron and steel. The assessee submitted that considering the recession in the iron and steel market and the resultant crisis thereon, they could not pay attention on accounting; in the circumstances, to buy peace with the Department, the assessee offered an estimated addition of rupees four lakhs towards deficiencies in gross profit and rupees ten lakhs towards discounting charges.

3. The Commissioner of Income-tax held that in the peculiar circumstances of the case, the assessee's offer be accepted and the Assessing Officer was accordingly directed to assess the additional estimate of income of rupees four lakhs towards gross profit and rupees ten lakhs towards non-business related discounting charges. He further viewed that in view of the submissions of the assessee and the facts of the case, the Assessing Officer's decision in not initiating penalty proceedings did not need any interference, in the circumstances, the assessment was set aside for the limited purpose of fresh consideration for further examination and decision as per the provisions of the Act.

4. Consequent on the revisional order, the Assessing Officer passed a fresh assessment order for the year 2002-03. During the course of assessment proceedings, the Assessing Officer viewed that the assessee had concealed income within the meaning of section 271(1)(c) of the Act, hence, proposed penalty for both the years.

5. As far as the assessment year 2003-04 is concerned, it is an assessment passed under section 143(3) of the Act. It is seen from the order of the assessment for the year 2003-04 that the addition in this year arose on account of disallowance of the assessee's claim on depreciation and the claim of deduction on question of payment of penalty and fine under the Customs Act apart from additions on disallowing the claim towards LC discounting charges rejected.

6. It is seen from the order of assessment that as regards the claim on depreciation, in the course of survey under section 133A of the Act, a sworn statement was recorded from the assessee's company director. The assessee stated that the machineries were sent for repair to SIPCOT Commercial Complex, Gummidipoondi. However, no supporting documents were produced in respect of the machineries alleged to have been sent for servicing. In the course of the assessment proceedings, the assessee further stated that they received the machineries after repair from their stock yard in April, 2003. Thus, as on March 31, 2003, there was no machinery received after service for the purpose of using it in the business; consequently, the claim on depreciation was disallowed.

7. As far as fine and penalty payment under the Customs Act was concerned, the said levy were made under the. Customs Act on account of price variation. Rejecting the plea of the assessee to take a lenient view, the Assessing Officer made an addition of Rs. 8,00,000 under this head.

8. As far as LC discounting is concerned, the Assessing Officer found that there was no physical movement of goods and sale invoices were prepared only to help the group companies, when they required money and thereafter, bogus bills prepared were discounted, in the circumstances, a sum of rupees five lakhs was disallowed. Based on the above said materials, in the penalty orders passed, the Assessing Officer levied minimum penalty under section 271(1)(c) of the Act.

9. Aggrieved by this, the assessee went on appeal before the Commissioner of Income-tax (Appeals) in respect of both the assessment years.

10. The Commissioner of Income-tax (Appeals) accepted the plea of the assessee that there was no concealment within the meaning of section 271(1)(c) of the Act. Thus, he cancelled the penalty levied for both years. Aggrieved by this, the Revenue went on appeal for these years before the Income-tax Appellate Tribunal.

11. In considering the claim of the Revenue and the assessee, the Income-tax Appellate Tribunal pointed out to the decisions of this court in the case of CIT v. B.A Balasubramaniam and Bros, reported in [1985] 152 ITR 529 (Mad), the decision of the apex court in the abovesaid case reported in [1999] 236 ITR 977 (SC); [1999] 157 CTR (SC) 556 as well as the decision of the apex court in the case of Union of India v. Dharamendra Textile Processors reported in [2008] 306 ITR 277 (SC) and held that being a civil liability, wilful concealment is not an essential ingredient for attracting penalty under section 271(1)(c). In the circumstances, keeping in view the entire facts and circumstances of the case, penalty levied by the Assessing Officer was confirmed and the order of the Commissioner of Income-tax (Appeals) was set aside. Aggrieved by this, the present tax case appeals by the assessee.

12. Learned counsel for the assessee submitted that when in the section 263 proceedings, particularly for the year 2002-03, the Commissioner of Income-tax had specifically pointed out that there was no case for levy of penalty and the Assessing Officer was directed only to assess the additional estimated income offered, the Department could not initiate again, penal proceedings under section 271(1)(c) of the Act. He further pointed out that the additions were offered only to purchase peace with the Department, consequently, there is no case of concealment in this case.

13. As far as the assessment year 2003-04 is concerned, learned counsel submitted that disallowance, per se, would not lead to an inference of concealment, consequently, on the facts of the case, the Income-tax Appellate Tribunal committed a serious error in holding that the circumstances warrant levy of penalty in this case.

14. Learned counsel for the assessee relied on an unreported decision of this court in T.C.A No. 341 of 2010, dated February 5, 2013 since reported in Income Tax v. P. Rojes, [2013] 356 ITR 703 (Mad)) as well as to the decisions of this court, to which one of us was a party (Mrs. Chitra Venkataraman, J.), viz., in T.C.A No. 273 of 2012—dated September 12, 2012, since reported in (CIT v. Shriram Properties and Constructions (Chennai) Ltd., [2013] 356 ITR 700 (Mad)) and T.C.A No. 1985 of 2006, dated October 1, 2012 (CIT v. Balaji Distilleries Ltd. since reported in [2013] 1 ITR-OL 339 (Mad)) and contended that in the absence of any concealment, per se, any addition made, per se, will not lead to levy of penalty.

15. The claim of the assessee was countered by the learned standing counsel for the Revenue by placing reliance on the decision in the case of Union of India v. Rajasthan Spg. and Wvg. Mills, [2009] 180 Taxman 609 (SC); [2010] 1 GSTR 66 (SC), the decision of the apex court in the case of Union of India v. Dharamendra Textile Processors reported in [2008] 306 ITR 277 (SC) as well as the decision of the Delhi High Court in the case of Commissioner Of Income Tax v. Zoom Communication Pvt Ltd S reported in [2010] 327 ITR 510 (Delhi) and submitted that even going by the decisions of this court relied on by the learned counsel for the assessee, penalty is leviable in this case. He submitted that the claim of the assessee that the additions made were not on account of concealment is totally incorrect. As far as the assessment year 2002-03 is concerned, the claim of the assessee for bill discounting itself was found to be false since bogus invoices were made only to accommodate the group companies. As far as the addition on account of gross profit is concerned, the books of account were not properly maintained. Thus, the defects in the accounts warranted addition under the head of gross profit. Thus, unreliability of the accounts and false claims are clearly instances of concealment, which warranted levy of penalty.

16. As far as the assessment year 2003-04 is concerned, learned standing counsel for the Revenue submitted that when the machinery itself was not available, the assessee made a false claim for depreciation. So too, the question of payment of customs duty cannot be allowed as deductions under the provision of the Act. As far as the bill discounting was concerned, the same was also a false claim, as there were no physical movement of goods and the bogus bills claimed as in the earlier year were for giving financial accommodation to its group companies. In the circumstances, no interference is called for in the order of the Income-tax Appellate Tribunal.

17. Heard the learned counsel on either side and perused the documents available on record.

18. We agree with the contentions of the learned standing counsel appearing for the Revenue. It is no doubt true that in the order passed under section 263 of the Act dated December 8, 2004, the Commissioner of Income-tax pointed out to the offer made by the assessee for addition and ultimately held that in view of the submissions of the assessee and the facts of the case, the decision of the Assessing Officer in not initiating penalty proceedings did not need interference. Having said so, while remanding the matter for fresh consideration for the Assessing Officer for further examination and decision, the Assessing Officer was directed to consider the claim of the assessee as per the provisions of the Act. Thus, contrary to the assertion of the assessee, all that the Commissioner of Income-tax did in the revisional order was that while accepting the plea of the assessee for restricting the addition, he merely pointed out that a non-initiation of penalty proceedings did not warrant any interference. This, however, does not mean that the hands of the Assessing Officer is tied on invoking the provisions under the Act, which, otherwise, would be applicable to the facts of the case. Thus, in the given fact situation, if the provisions of the Act on penalty are attracted, the Assessing Officer has to go by the dictates of the law rather than by the order of the Commissioner of Income-tax. In fact, we may even say that the Commissioner did not comment anything at all on this. In the circumstances, we reject the plea of the assessee that based on the order under section 263 of the Act, there could not be any penalty.

19. As far as the levy of penalty is concerned, as rightly pointed out by the learned standing counsel for the Income-tax Department, the claim for bill discounting for both assessment years was found to be totally untrue, as there was no physical movement of goods. The bills were found to be bogus ones. Apart from that, the addition was made towards gross profit for the assessment year 2002-03 only on account of non-reliability of the books of account.

20. As far as the assessment year 2003-04 is concerned, the claim for depreciation was also found as a bogus claim. As far as the claim on depreciation on machinery is concerned, admittedly, the machinery was not at all put to use during the said year. As far as the claim for deduction towards fine and penalty is concerned, evidently, the assessee cannot legally sustain this claim in terms of section 37 of the Act. Thus, in the garb of the bona fide claim, the assessee cannot escape levy of penalty.

21. In the circumstances, we have no hesitation in rejecting the plea of the assessee that additions were not substantial additions and, hence, there could be no penalty. The reliance made by the learned counsel for the assessee on the unreported decisions of this court in T.C (A.) No. 341 of 2010 (Income Tax v. P. Rojes since reported in [2013] 356 ITR 703 (Mad)) does not, in any manner, support the case of the assessee.

22. As far as T.C (A.) No. 341 of 2010 is concerned, it follows the decision of this court in T.C (A.) No. 273 of 2012, dated September 12, 2012 (CIT v. Shriram Properties and Constructions (Chennai) Ltd., [2013] 356 ITR 700 (Mad)) and other decisions of this court as well as the apex court. The issue in the said unreported decision of this court in T.C (A.) No. 341 of 2010 related to cash deposit. On the allegation that cash deposit of Rs. 47,36,000 was made out of sales and also recovery from the sundry debtors, penalty was imposed by the Assessing Officer. On appeal by the assessee, the appellate authority pointed out that the reasons for increase in the profit percentage from 5 per cent, to 8 per cent, was not clear. Taking into consideration the merits of the case on a factual finding given by the Income-tax Appellate Tribunal, this court found that it was not a fit case for levy of penalty. Further, on these facts, this court applied the decision of the apex court in the case of Commissioner Of Income Tax, Ahmedabad v. Reliance Petroproducts Private Limited reported in [2010] 322 ITR 158 (SC) as well as the decision of this court in Tax Case (Appeal) No. 273 of 2012, dated September 12, 2012 (CIT v. Shriram Properties and Constructions (Chennai) Ltd., [2013] 356 ITR 700 (Mad)) to delete the levy of penalty, thereby, confirming the order of Income-tax Appellate Tribunal.

23. As far as the other two unreported decisions are concerned, confirming the deletion of penalty, they were based on the facts found, particularly with reference to a claim made, but not allowed under the provisions of the Act.

24. In the circumstances, we find that the unreported decisions of this court relied on by the learned counsel for the assessee stand on factual findings and are distinguishable. The plea made by the learned counsel for the assessee, hence, stands rejected on the facts of the case on hand.

25. On the other hand, the reliance placed by the Revenue on the decisions of the apex court reported in Union of India v. Rajasthan Spg. and Wvg. Mills, [2009] 180 Taxman 609 (SC); [2010] 1 GSTR 66 (SC) and in the case of Commissioner Of Income Tax v. Zoom Communication Pvt Ltd S reported in [2010] 327 ITR 510 (Delhi) merits acceptance. In the decision reported in Commissioner Of Income Tax v. Zoom Communication Pvt Ltd S reported in [2010] 327 ITR 510 (Delhi), the Delhi High Court viewed that so long as the assessee had not concealed any material fact or the factual information given by him has not been found to be incorrect, even if the claim made by him is unsustainable in law, he will not be liable to imposition of penalty under section 271(1)(c) of the Income-tax Act, 1961, provided that he either substantiates that the explanation offered by him or the explanation, even if not substantiated, is found to be bona fide. If the explanation is neither substantiated nor shown to be bona fide, Explanation 1 to section 271(1)(c) of the Act would come into play and the assessee will be liable for the prescribed penalty.

26. We are in entire agreement with the view expressed by the Delhi High Court in the decision reported in Commissioner Of Income Tax v. Zoom Communication Pvt Ltd S, [2010] 327 ITR 510 (Delhi). The Delhi High Court observed that it is true that mere submitting a claim which is incorrect in law would not amount to giving inaccurate particulars of the income of the assessee but it cannot be disputed that the claim made by the assessee needs to be bona fide. If the claim besides being incorrect in law is mala fide, Explanation 1 to section 271(1)(c) would come into play and work to the disadvantage of the assessee. The decision of the apex court in the case of Union of India v. Dharamendra Textile Processors, [2008] 306 ITR 277 (SC) which is referred to by the Income-tax Appellate Tribunal and the subsequent decision in the Union of India v. Rajasthan Spg. and Wvg. Mills reported in [2009] 180 Taxman 609 (SC); [2010] 1 GSTR 66 (SC) clearly point out that the penalty is leviable for deliberate deception of the claim. Thus, the levy of penalty would depend on the existence or otherwise of the conditions calling for levy of penalty. The object behind the enactment of section 271(1)(c), read with the Explanations, indicates that the section has been enacted to provide for a remedy for loss of revenue, by reason of concealment of particulars of income. Thus, being a civil liability and that the explanation offered by the assessee not being a bona fide one, particularly on the facts of the case, we have no hesitation in confirming the order of the Income-tax Appellate Tribunal.

27. In the circumstances, we have no hesitation in dismissing the tax case appeals filed by the assessee. Accordingly, the tax case appeals stand dismissed. No costs.