Whether when revised return includes an expenditure disallowable u/s 37(1) it would automatically follow that inaccurate particulars were furnished even in originally filed return - YES: HC

THE issue before the Bench is - Whether when revised return includes an expenditure disallowable u/s 37(1) it would automatically follow that inaccurate particulars were furnished even in originally filed return. YES is the verdict.

Facts of the case

The assessee is a sugar manufacturing company. After the assessee had filed its return, the assessment u/s 143(3) was completed showing a total income of Rs. 5,91,48,819/- and tax was charged u/s 115JB. Subsequently, the assessee filed a revised return showing a total income of Rs. 9,63,48,819/- under Normal Provisions of the Act. However Book-Profit was shown at Rs. 65,49,20,882/- u/s 115JB. On scrutiny of the said return, it was observed that assessee had disclosed additional amount of Rs. 3,40,00,000/-. The assessment was, thus, reopened u/s 147 and notice u/s 148 was issued and served on the assessee. In response, the assessee replied to consider the revised return as return filed u/s 148. It appeared that the assessee had made payments of Rs. 3,40,00,000/- to U.P. Distillers Association during previous year. Accordingly, a search u/s 132 was conducted in the office of the UPDA. From the seized record the payment of Rs. 3,40,00,000/- was found, made by the assessee. It was submitted by the AR that to avoid protracted litigation and to put a quitous to the whole issue the assessee had offered this amount as disallowable item u/s 37(1), through the revised return. Since the amount was offered as income by the assessee this amount was added back in computation of Income, in addition to the assessments made u/s 143(3). Since the assessee offered the additional income due to the search operation u/s 132 in the premises of UPDA, penalty proceedings u/s 271(1)(c) was also initiated separately.

On appeal, the CIT(A) reversed the order of the AO by holding that the Department has not brought any independent evidence on records to prove that the alleged payments reflected in the seized papers were actually made by the assessee and all along the assessee has maintained that the additional income has been offered for the purpose of buying peace with the Department and to negate the course of a protracted litigation with the Department. On further appeal, the Tribunal upheld the order of the CIT(A) observing that since the assessee has itself offered the additional income and the department has not brought anything positive on record to substantiate the conclusion that the assessee has mens rea of concealment of its true income or furnishing inaccurate particulars thereof, the action of the AO in holding the assessee liable for penalty u/s 271(1)(c) was not correct.

Having heard the parties, the High Court held that,

++ from the bunch of documents, it appears that a summons u/s 131 was issued to the assessee requiring the latter to appear both for the purpose of giving evidence and producing documents required and indicated therein. From the letter addressed by the assessee to the Joint Director of Income Tax, it appears that the assessee was informed that the summons have been issued with regard to the payments appearing to have been made by the assessee to U.P. Distilleries Association. The assessee rather than appearing on the appointed day to give evidence and to produce documents as required by the summons, wrote to the Joint Director of Income Tax, that it was offering the amount, representing the alleged payments made by it to UPDA during the A.Ys 2003-04, 2004-05 & 2005-06, as its income and also paid tax on it, to avoid protracted litigation and to put a quitous to the whole issue. In the light of our voluntarily surrendering the aforesaid sum as its income in the respective years to which they pertain, the assessee requested that no penalty/prosecution shall be imposed against them. The assessee thereafter filed a revised return, wherein, the computation of total income made in this return is inclusive of a sum of Rs.340.00 Lacs being the alleged payments made by to U.P. Distilleries' Association (UPDA), which are not allowable by virtue of Explanation to Section 37(1). The additional liability pursuant to this amounts to Rs.25.35 lacs which has been adjusted against the amount refundable from the Department. Although, the assessee does not agree to have made any such payments to UPDA, it has agreed to include the amount in its return and pay tax thereof. This is being done by the assessee just to buy peace and put an end to the protracted litigation. Subsequently, a notice u/s 147 was issued requiring the assessee to file a return for the A.Y 2004-2005. The assessee through his advocate replied stating that the revised return may be treated as a return filed u/s 148. Thereafter, the assessment was made u/s 143(3) r/w/s 147. It may be true that the assessee did not expressly own up payment of a sum of Rs.3.40 crores to U.P. Distilleries Association. It may also be true that the revenue did not adduce any proof to show that any such payment was made by the assessee to U.P. Distilleries.The omission on the part of the assessee to answer the question as regards the payment to U.P. Distilleries would attract the presumption laid down in illustration (h) to Section 114 of the Evidence Act which provides that, if a man refuses to answer a question which he is not compelled to answer by law, the answer, if given, would be unfavourable to him;

++ when the case of the assessee is that the return already filed by him for A.Y u/s 139 includes an expenditure disallowable u/s 37(1), it would automatically follow that inaccurate particulars had been furnished in the return originally filed, assessment whereof was completed in previous year. The provisions of 271(1) suggests that if the assessee furnishes inaccurate particulars coupled with absence of satisfactory explanation, that would per se make the assessee liable to pay penalty. Concealment of income in that case shall be presumed provided assessment leads to addition or disallowance of any amount in computing his total income. In the present case, the assessee on his own showing had furnished inaccurate particulars. The assessee admitted that the return originally filed by him included expenditure disallowable u/s 37(1) which occasioned the revised return filed by him by which a sum of Rs.3.40 crores was added by the assessee himself to his total income originally returned. The submission advanced by Assessee's counsel that the AO did not call for any explanation from the assessee is not factually correct because it would appear from the assessment order that a notice u/s 271(1)(c) was issued to which the assessee duly replied and offered an explanation that there was no deliberate concealment which was not acceptable to the AO. It is, therefore not correct to say that the exercise calling for an explanation from the assessee was not undertaken. Section 271(1)(c) originally qualified an act of concealment of income or furnishing of inaccurate particulars with the expression 'deliberately' which was omitted by the Finance Act, 1964 w.e.f. 1.4.1964 as a result concealment of income or inaccurate particulars need not originally have been furnished deliberately. The use of the expression 'deliberately' was a pointer to show that mens rea was a necessary element. With the omission of the expression 'deliberately', mens rea is no longer a prerequisite for imposition of penalty. It is now a case of strict liability;

++ there can be no quarrel with the proposition that the Tribunal is the final fact finding authority. The Tribunal was correct in observing that no independent evidence was adduced by the Revenue to prove that the alleged payments reflected in the seized papers were actually made by the assessee. But on that premise, the inference could not have been drawn that there was no concealment of income arising out of furnishing of inaccurate particulars as demonstrated by this court. It is true that in Revenue matters there is no scope for equity but in the present case, the charge of concealment of income arising out of furnishing inaccurate particulars has duly been proved. The last submission advanced by Assessee's counsel that in the absence of any appeal against the order for the A.Y 2003-04, the present appeal cannot be maintained has also not impressed this court. The judgement cited by him in the case of CIT Vs. M/s. PFH Mall and Retail Management Pvt. Ltd. is distinguishable. In that case, the Supreme Court had refused to entertain the appeal applying rule of consistency because the view of the High Court sought to be assailed was also taken in connection with an earlier assessment year which was not challenged. A view taken by the High Court stands on a different footing than the view taken by the Tribunal. The Tribunal is a statutory body. A judgement rendered by the Tribunal cannot attract the principles of res judicata whereas a judgement rendered by the High Court would certainly attract the principles of res judicata. For the aforesaid reasons, the question is answered in the negative.