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Commissioner Of Income Tax, Ranchi v. Ashim Kumar Agarwal & Anr.
Structured Summary of the Court's Opinion
Factual and Procedural Background
Two matters referred by the Income Tax Appellate Tribunal (Patna Bench, Patna) at the instance of the Revenue were heard together and decided by this common order.
Tax Case No. 13 of 1993 (P): On a raid dated 9 September 1986, cash of Rs. 16,300 was found at the assessee's residence. The Assessing Officer (AO), by order dated 24 September 1987, treated the sum as unexplained and added it to the assessee's income. The assessee appealed to the C.I.T. (Appeals) (I.T.A. No. 320.RAN/87-88), which by judgment dated 8 March 1988 accepted the assessee's explanation and deleted the addition. The Revenue appealed to the Income Tax Appellate Tribunal (ITAT), which by order dated 12 April 1991 set aside the C.I.T. (A)'s order and restored the AO's addition. The assessee filed an appeal (Tax Appeal No. 4 of 1992 (P)) against the ITAT order. Separately, the Revenue imposed a penalty of Rs. 10,000 under Section 271(1)(c) by order dated 29 July 1991; C.I.T. (A) affirmed that penalty on 23 January 1992, but the ITAT set aside the penalty by judgment dated 30 July 1992 on the ground that there was no concealment.
Tax Case No. 14 of 1993 (P): On the same raid (9 September 1986), cash of Rs. 40,532 was found at another assessee's residence. The AO, by order dated 14 September 1987, treated the sum as unexplained and added it to income. The assessee appealed to the D.C.I.T. (Appeals) (I.T.A. No. 66.D/87-88), which by judgment dated 30 March 1988 accepted the explanation and deleted the addition. The Revenue appealed to the ITAT, which by order dated 11 April 1991 set aside the appellate order and restored the AO's addition. The assessee filed an appeal (Income Tax Appeal No. 518 (PAT) of 1988) against the ITAT order. The Revenue imposed a penalty of Rs. 18,000 under Section 271(1)(c) by order dated 29 July 1991; C.I.T. (A) affirmed it on 23 January 1992, but the ITAT set aside the penalty by judgment dated 31 July 1992 on the ground that there was no concealment.
Following the ITAT orders setting aside the penalties, the Revenue made two separate references under Section 256(1) of the Income-tax Act to this Court, posing a common question for opinion.
Legal Issues Presented
- Whether, on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was justified in concluding that no penalty under Section 271(1)(c) of the Income-tax Act, 1961 is leviable?
- Whether the Revenue was justified in preferring the appeals in the circumstances of petty tax effect amounts (i.e., the maintainability of departmental appeals/references in view of the Central Board of Direct Taxes' monetary limits and instructions cited to the Court)?
Arguments of the Parties
Assessee's Arguments
- The assessee raised a preliminary objection regarding the maintainability of the Revenue's second appeals to the ITAT, relying on a Bombay High Court decision and on a Central Board of Direct Taxes (C.B.D.T.) circular (Instruction No. 1979, dated 27 March 2000) which revised monetary limits for filing departmental appeals/references. The contention was that the Revenue should not have preferred appeals where the tax effect was below the prescribed monetary limits (the amounts in these cases were claimed to be petty and covered by that instruction).
Revenue's Arguments
- Counsel for the Revenue submitted that the C.B.D.T. instruction is not mandatory and that, if the law permits, the Revenue cannot be prohibited from preferring an appeal even if the monetary limits are not met.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Commissioner Of Income-Tax v. Camoo Colour Co. (Bombay High Court) — reported as (2002) 173 CTR 255 (Bom); (2002) 254 ITR 565 (Bom); (2002) 122 TAXMAN 336 (Bom) | Illustrates application of the C.B.D.T. instruction (Instruction No. 1979) that the Revenue should not prefer departmental appeals/references where the tax effect is below prescribed monetary limits; Bombay High Court dismissed such appeals in limine where covered by the instruction. | The Court referred to the decision and the underlying C.B.D.T. instruction to support the view that the Revenue should not have preferred appeals in relation to the relatively small amounts (Rs. 16,300 and Rs. 40,532) and accepted the assessee's preliminary objection on that basis. |
| K.C. Builders v. The Assistant Commissioner of Income Tax — JT 2004 (2) SC Page 100 (Supreme Court) | Explains that the word "concealment" under Section 271 carries an element of mens rea; mere omission from return or nondisclosure does not by itself amount to concealment or furnishing inaccurate particulars unless there is evidence or circumstances showing an intention to hide income to avoid tax. | The Court applied the principle to the facts: despite the AO rejecting the explanation and the ITAT restoring the AO's addition, there was no evidence of deliberate concealment or circumstantial evidence of intent; therefore, penalty under Section 271(1)(c) was not leviable. |
Court's Reasoning and Analysis
The Court proceeded in two main strands of analysis: (A) the preliminary/maintainability issue arising from the C.B.D.T. instructions and related case law, and (B) the substantive question whether penalty under Section 271(1)(c) was leviable (i.e., whether there was "concealment").
A. Maintainability / C.B.D.T. instruction:
- The Court noted the C.B.D.T. Instruction No. 1979 (dated 27 March 2000) which revised monetary thresholds for departmental appeals and references (with specified tax-effect limits for appeals to the Tribunal, High Court and Supreme Court) and earlier instructions referred therein (Instruction No. 1903 dated 28 October 1992 and Instruction No. 1777 dated 4 November 1987).
- The Court observed the Bombay High Court decision (Commissioner Of Income-Tax v. Camoo Colour Co.) which applied the instruction to dismiss appeals in limine where covered by the instruction.
- The Revenue's submission that the instruction is not mandatory and that law permits appeals was noted, but the Court accepted the assessee's contention that, in the circumstances of these small tax-effect matters (Rs. 16,300 and Rs. 40,532), the Revenue should not have preferred appeals covered by the instruction.
B. Substantive question of "concealment" under Section 271(1)(c):
- The Court relied on the Supreme Court's observation in K.C. Builders that "concealment" inherently involves mens rea; omission from return or nondisclosure does not by itself constitute concealment unless there is evidence or circumstances indicating an intention to hide income.
- Applying that principle to the present facts: the assessee had offered explanations for the cash seized; the AO rejected the explanations; the first appellate authority accepted them; the ITAT later restored the AO's order. Even if particulars were not properly disclosed, mere omission does not amount to concealment absent evidence of deliberate intent.
- The Court observed that there was nothing on the record to suggest a deliberate attempt by the assessee to furnish inaccurate particulars, and no circumstantial evidence from which an intention to hide income could be inferred.
- On these grounds, the Court concluded that the ITAT was justified in holding that no penalty under Section 271(1)(c) was leviable.
Holding and Implications
Holding: It is decided in the affirmative that the Income Tax Appellate Tribunal was justified in concluding that no penalty under Section 271(1)(c) of the Income-tax Act is leviable; the decision is in favour of the assessee and against the Revenue.
Direct implications for the parties:
- The ITAT's conclusion that no penalty under Section 271(1)(c) is leviable stands and operates in favour of the assessee in both referenced matters (i.e., the penalties imposed of Rs. 10,000 and Rs. 18,000 were not sustained by the ITAT and are held not leviable by this Court's opinion).
- The Court also accepted that the Revenue should not have preferred departmental appeals in respect of the comparatively small amounts involved, in light of the C.B.D.T. instructions cited.
Broader implications:
The opinion does not purport to set out any new principle of law beyond applying existing instructions and authority: it applies the C.B.D.T. monetary-limit instruction to the preliminary maintainability concern and applies the Supreme Court's K.C. Builders reasoning on mens rea for "concealment" to the facts. The opinion limits its effect to these cases and does not itself state a broader precedent beyond these conclusions.
Order: The two referred questions were answered accordingly and the Court's order was pronounced (two judges: S.J. Mukhopadhaya, A.C.J., and Narendra Nath Tiwari, J.; the latter concurred).
S.J Mukhopadhaya, A.C.J:— As in both these cases, at the instance of the Revenue, the Income Tax Appellate Tribunal, Patna Bench, Patna referred common question for this Court's opinion, they have been heard together and are being decided by this common order.
Tax Case No. 13 of 1993 (P):
2. In course of a raid conducted on 9th September, 1986 at the residences of the assessee, cash amounting to Rs. 16,300/- was found and assessed to be the income of the assessee. The explanation was submitted at the time of assessment before the Assessing Officer, but it was not accepted. By order dated 24th September, 1987, the Assessing Officer held that a sum of Rs. 16,300/- was unexplained and added it to the income of the assessee. It was challenged by the assessee be fore the Commissioner of Income Tax (Appeals) [hereinafter referred to as “C. I.T (Appeals)” for short] in I.T.A No. 320.RAN/87-88. C.I.T (A) by its judgment dated 8th March, 1988 accepted the explanation submitted by the assessee and deleted the addition. The Revenue, thereafter, moved before the Income Tax Appellate Tribunal which on hearing the parties vide order dated 12th April, 1991 set aside the order passed by the C.I T (A) and restored the original order of addition of Rs. 16,300/- in income, as was ordered by the Assessing Officer. The assessee has al ready preferred an appeal, Tax Appeal No. 4 of 1992 (P) against the order passed by the Income Tax Appellate Tribunal, Patna. The Revenue, thereafter, imposed penalty of Rs. 10,000/- on the assessee under Section 271(1)(c) of the Income-tax Act, 1961 (hereinafter to be referred to as “the Act” for short) vide order dated 29th July, 1991. It was affirmed by the C.I.T (A) on 23rd of January, 1992 but the Income Tax Appellate Tribunal by its judgment dated 30th July, 1992 set aside the order of penalty on the ground that there was no concealment.
Tax Case No. 14 of 1993 (P):
3. In course of a raid conducted on 9th September, 1986 at the residences of the assessee, cash amounting to Rs. 40,532/- was found and assessed to be the income of the assessee. The explanation was submitted at the time of assessment before the Assessing Officer, but it was not accepted. By order dated 14th September, 1987, the Assessing Officer held that a sum of Rs. 40,532/- was unexplained and added it to the income of the assessee. It was challenged by the assessee before the Deputy Commissioner of Income Tax (Appeals) (hereinafter referred to as “D.C.I.T (Appeals)” for short) in I.T.A No. 66.D/87-88. D.C.I.T (A) by its judgment dated 30th March, 1988 accepted the explanation submitted by the assessee and deleted the addition. The Revenue thereafter moved before the Income Tax Appellate Tribunal which on hearing the parties vide order dated 11th April, 1991 set aside the order passed by the D.C.I.T (A) and restored the original order of addition of Rs. 40,532/- income as was ordered by the Assessing Officer. The assessee has already preferred an appeal, Income Tax Appeal No. 518 (PAT) of 1988 against the order passed by the Income-tax Appellate Tribunal, Patna.
4. The Revenue thereafter imposed penalty of Rs. 18,000/- on the assessee under Section 271 (1) (c) of the Income Tax Act, 1961 (hereinafter to be referred to as “the Act” for short) vide order dated 29th July, 1991. It was affirmed by the C.I.T (A) on 23rd of January, 1992, but the Income Tax Appellate Tribunal by its judgment dated 31st July, 1992 in I.T.A No. 237 (PAT) of 1992 set aside the order of penalty on the ground that there was no concealment.
5. In view of the aforesaid order passed by the Income Tax Appellate Tribunal, on two separate applications, both under Section 256 (1) of the Act, at the instance of the Revenue, the Income Tax Appellate Tribunal has referred the following question for this Court's opinion:
“Whether, on the facts and in the circumstances of the case, the Hon'ble Tribunal was justified in concluding that no penalty u/S. 271 (1) (c) is leviable?”
6. Learned counsel for the assessee raised preliminary objection relating to maintainability of second appeals as were preferred be fore the Income Tax Appellate Tribunal. Reliance was placed on a decision of the Bombay High Court in the case of Commissioner Of Income-Tax… v. Camoo Colour Co.…. reported in “(2002) 173 CTR 255 (Bom) : (2002) 254 ITR 565 (Bom) : (2002) 122 TAXMAN 336 (Bom)”. In the said case, the Bombay High Court noticed a policy-decision taken by the Central Board of Direct Taxes(hereinafter referred to as “the C.B.D.T”. for short) which was circulated vide Circular F. No. 279/126/98-ITJ, dated 27th March, 2000. The C.B.D.T directed the revenue not to raise questions of law where the tax effect is less than the amount prescribed in the instructions is-sued by it. The said Circular reads as under:
“INSTRUCTION NO. 1979
F. NO. 279/126/98-ITJ
Government of India
Ministry of Finance Department of Revenue
Central Board of Direct Taxes
New Delhi,
dated the 27th March, 2000.
All Chief Commissioners of Income-Tax/Directors General of Income-Tax.
Sub : Revising Monetary limits for filing Departmental Appeals/References before Income-Tax appellate Tribunal, High Courts and Supreme Court.
Measures for reducing litigation-regarding.
Reference is invited to Board's Instructions No. 1903, dt. 28th Oct., 1992, and Instruction No. 1777, dt. 4th Nov., 1987, wherein monetary limits of Rs. 25,000 for Departmental Appeals (in income-tax matters) before the Appellate Tribunal, Rs. 50,000 for filing reference to the High Court and Rs. 1,50,000 for filing appeal to the Supreme Court were laid down.
2. In supersession of the above instruction, it has now been decided by the Board that appeals will be filed only in cases where the tax effect exceeds the revised monetary limits given hereunder:
(Tax effect)
(i) Appeal before the Appellate Tribunal (in Income-tax matters) Rs. 1,00,000 (ii) Appeal under S. 260A/reference under S. 256 (2) before the High Court Rs. 2,00,000 (iii) Appeal in the Supreme Court Rs. 5,00,000
The new monetary limits would apply with reference to each case taken singly. In other words, in group cases, each case should individually satisfy the new monetary limits. The working out of monetary limits will, therefore, not taken into consideration the cumulative revenue effect as envisaged in Board's earlier instruction referred to above.
3. Adverse judgments relating to the following should be contested irrespective of revenue effect:
(i) Where Revenue audit objection in the case has been accepted by the Department.
(ii) Where Board's order, notification, instruction or circular is the subject-matter of an adverse order.
(iii) Where prosecution proceedings are contemplated against the assessee.
(iv) Where the constitutional validity of the provisions of the Act are under challenge.
4. Special Leave Petitions under Art. 136 of the Constitution are filed before the Supreme Court only in consultation with Ministry of Law. Therefore, where the Chief CIT decides to contest an adverse judgment by filing special leave petition before the Supreme Court, they should send the proposal to the Board for further processing.
5. These instructions will apply to litigation under other direct taxes also e. g. wealth-tax, gift-tax, estate duty, etc.
6. These monetary limits will not apply to writ matters.
7. This instruction will come into effect from 1st April, 2000.
(Anuradha Goyal)
Dy. Secretary to the Govt. of India”
7. Having noticed the instruction afore said, the Bombay High Court held that the Revenue should not have preferred any such appeal covered by the instruction and dismissed the appeal in limine.
8. Counsel for the Revenue submitted that the instruction is not mandatory. If the law permits to prefer appeal, Revenue cannot be prohibited to do so, but such submission can not be accepted as the circular issued by the C.B.D.T is binding on all the officers and appeal.
9. In the circumstances, we agree with the submissions made by the counsel for the assessee that the Revenue should not have preferred appeal before the Income Tax Appellate Tribunal with regard to petty amount of Rs. 16,300/- or Rs. 40,532/- which is covered by the Instruction of the C.B.D.T including Instruction No. 1903, dated 28th October, 1992 and Instruction No. 1777, dated 4th November, 1987 which have been referred to in Instruction No. 1979, dated 27th March, 2000, as quoted above.
10. The other question is whether there was a concealment on the part of the assessee for the purpose of imposing penalty under Section 271 (1) (c) of the Act. The word “concealment” as mentioned in Section 271 of the Act fell for consideration before the Supreme Court in the case of K.C Builders v. The Assistant Commissioner of Income Tax, reported in JT 2004 (2) SC Page 100 wherein the following observation was made by the Apex Court:
“The word “concealment” inherently carried with it the element of mens rea. Therefore, the mere fact that some figure or some particulars have been disclosed by itself, even if takes out the case from the purview of nondisclosure, it cannot by itself take out the case from the purview of furnishing inaccurate particulars. Mere omission from the return of an item of receipt does neither amount to concealment nor deliberate furnishing of inaccurate particulars of income unless and until there is some evidence to show or some circumstances found from which it can be gathered that the omission was attributable to an intention of desire on the part of the assessee to hide or conceal the income so as to avoid the imposition of tax thereon. In order that a penalty under Section 271 (1) (iii) may be imposed, it has to be proved that the assessee has consciously made the concealment or furnished inaccurate particulars of his income”.
11. In the present case, the assessee explained the cash amount which was found in his possession, though it was not accepted by the assessing authority, but the first appellate court accepted it. However, the Income Tax Appellate Tribunal affirm the order passed by the assessing authority. In such a situation, even if it is presumed that the particulars have not been properly disclosed by the assessee, mere omission from the return of the amount does not amount to concealment as observed by the Supreme Court.
12. There is nothing on the record to suggest that there was a deliberate attempt on the part of the assessee in furnishing of inaccurate particulars of income.
13. Even no circumstantial evidence found from which it can be gathered that the omission was attributable to an intention of desire on the part of the assessee to hide or conceal the income so as to avoid the imposition of tax thereon.
14. In the aforesaid circumstances, I hold that the Income Tax Appellate Tribunal was justified in concluding that no penalty under Section 271 (1) (c) of the Act is leviable. It is accordingly, decided in affirmative and in favour of the assessee and against the Revenue.
Narendra Nath Tiwari, J.:—
15. I agree.
16. Order accordingly.
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