1. This is an appeal filed by the Department for assessment year 2001-02 against the order dated 01.3.2005 passed by Ld. CIT (A), Meerut whereby the Ld. CIT (A) deleted the penalty of Rs. 2,60,364/- imposed on the assessee under Section 271(1 )(c) of the Income Tax Act.
2. The facts are that the Assessing Officer noted that the assessee had filed a return declaring total income of Rs. 1,76,880/-, on which a refund of Rs. 90,915/- was claimed. This return was processed and total refund of Rs. 93,415/- was issued, which included interest on the refund also. In the return, it was found that the assessee had claimed housing loan interest of Rs. 2,62,000/-. However, as per Form No. 16, this interest was only Rs. 5, 715/-. The Assessing Officer found it strange that the assessee had not made this claim before his employer.
He further noted that the assessee had enclosed the certificate, which showed total housing loan interest of Rs. 1,50,000/-. For the rest of Rs. 1,12,000/-, no evidence had been filed with the return. In this view of the matter, a notice under Section 154 of the Income Tax Act, 1961 had been issued, in which it was pointed out that the interest claimed by the assessee was far in excess of what was shown in the Form No. 16, and as such it was proposed that the claim of Rs. 2,62,000/- was a mistake and why the same should not be rectified, by disallowing the same. Though there was no compliance from the assessee, the proceedings under Section 154 were dropped and proceedings under Section 147 had been initiated. But since that notice had been issued even when there was still time to issue notice under Section 143(2), those proceedings were also dropped. Subsequently, enquiries were made under Section 133(6) of the Income Tax Act, relating to the assessee's claim of housing loan interest. The assessee stated that he had not taken any loan from Smt. Brij Rani Gupta or Shri M.C. Gupta & Sons, or from anybody else; and that the wrong claims were filed by his counsel, Shri Pankaj Garg. He assured that he would return the refunded amount soon. As the assessee had himself admitted that the claim of housing loan interest of Rs. 2,62,000/- was wrong, necessary reasons were recorded and notice under Section 148 was issued. In response thereto the assessee filed a revised return, declaring an income of Rs. 4,21,194/- and claiming deduction of housing loan interest of Rs. 5,715/- only, which was claimed before the DDO. Thereafter, assessment proceedings were commenced by issue of notice under Section 143(2) of the Income Tax Act, 1961. In the assessment proceedings, the assessee had reiterated that he had not taken any loan from anybody; and that claim had been surrendered; and thus the income was assessed at Rs. 4,21,194/-. As the claims made in the original return were found bogus, penalty proceedings under Section 271(1)(c) of the Act were initiated.
In response to the show cause notice the assessee had filed a reply, stating, inter-alia as follows: That the assessee filed return on 27.5.01 and the refund was granted on 28.6.01 by the Assessing Officer, who had no jurisdiction over the case. The assessee presumed that the refund was granted due to retirement benefits not taxable.
The notice under Section 154 was issued to withdraw the rebate on account of interest but the proceedings were dropped on 26.7.01 and notice under Section 148 was issued. However, the proceedings under Section 148 were also dropped.
That the assessee made surrender before the CIT and the assurance of the CIT not to impose penalty under Section 271(1) (c) was published in the Dainik Jagran, Meerut dated 08.3.2003.
3. Vide order dated 18.12.2003, the Assessing Officer imposed the penalty in question on the assessee, observing, inter-alia, that the assessee had not surrendered the refund when the notice under Section 154 was issued; that the amount was not surrendered when the first notice under Section 148 was issued, rather the assessee challenged the validity of the notice; that under Section 133(6) of the Act, the assess was specifically asked to prove the claim under Section 24(2)(b); that the Ld. CIT (A) also made enquiry under Section 133(6), from the assessee's employer bank; that no compliance having been made to the notice under Section 133(6), summons under Section 131 was issued to the assessee to produce the documents and details called for vide notice under Section 133(6); that the assessee had not made full and true disclosure of his income and that the particulars furnished in the return of income were inaccurate; and that the assessee had surrendered the amount only when he had no way out.
4. By virtue of the impugned order, the Ld. CIT (A) cancelled the levy of the penalty in question. Aggrieved thereby, the Department has filed this appeal.
5. The ld. DR, challenging the order of the Ld. CIT (A) has submitted that the claim of the assessee regarding refund of Rs. 90,915/- was not correct, as available from the From No. 16A issued by the assessee's employer to him. The ld. DR contended that no explanation or written reply was furnished by the assessee before the Assessing Officer in this regard; it was, therefore, clear that the income of the assessee to the extent of the bogus claim of deduction of interest had escaped assessment. The ld. DR states that it was due to this that the proceedings under Section 154 were dropped and a notice under Section 148 was issued to the assessee. The assessee not having filed any revised return, time being available, notice under Section 142(1) and 143(2) was issued. The assessee had filed a return of income in response to these notices but simultaneously challenged the validity of the notice under Section 148 of the Act. No information was furnished in response to the notice under Section 133(6). It was only in response to summons under Section 131 of the Act, that the assessee submitted that he had not taken any loan from anybody and promised to return the refund of Rs. 93,145/-. The ld. DR contended that from these facts it is evident that the assessee willfully claimed bogus refund by filing inaccurate particulars of claim of interest paid. It has been vehemently argued that in such conditions, the provisions of Section 271(1 )(c) of the Act are squarely attracted and that so, the Ld. CIT (A) has erred in canceling the penalty levied.
6. On the other hand, the Ld. Counsel for the assessee has argued that in this case, the assessee had engaged Shri Pankaj Garg to file income tax return on the basis of Form No. 16 and had asked him to compute relief under Section 89(1)(i) of the Income Tax Act and to claim retirement benefits as per law, which was allowed by the ITO vide his order dated 30.1.2007. The Ld. Counsel for the assessee contended that the assessee had signed a blank return form under the bona-fide belief that Shri Pankaj Garg would file the return as an expert. The Ld.
Counsel for the assessee contended that the said Advocate filed the assessee's income tax return on 27.6.2001, showing total income of Rs. 1,76,880/-. The Ld. Counsel for the assessee contended that, however, the correct jurisdiction lay with the ITO, Ward-I, Meerut and that in connivance with ITO, Ward-I, Meerut a sum of Rs. 93,415/- was issued on 28.6.2001, i.e., on the very next day, which, according to the counsel, goes to prove the said connivance. The counsel has contended that the ITO issued notice under Section 154 of the Act and withdrew it on 23.7.2001; that notice under Section 148 was issued on 26.7.2001; that the same was filed on 31.12.2002, for technical reasons; that neither of these notices was served on the assessee and the assessee did not have any knowledge of these proceedings; that it was only from the newspapers that the assessee came to know that the aforesaid advocate was involved in cases of fraud and cheating the Income Tax Department by making false claims; that the assessee revised his return and deposited the entire refund amount without any delay, even though he was entitled to relief under Section 89(1 )(i); that the assessee approached the police to lodge an FIR against Shri Pankaj Garg, Advocate for cheating the assessee, but the police informed the assessee that an FIR against some advocates stood already lodged; that the Ld. CIT (A) also referred the matter to the CBI, which is making enquiry; that this matter was also published in various newspapers; that in these facts, the imposition of penalty in question was wrong and it was rightly cancelled by the Ld. CIT (A). The Ld. Counsel for the assessee has placed reliance on certain case laws also.
7. The whole case of the assessee revolves around a single fact and that is, that it was the assessee's counsel Shri Pankaj Garg, Advocate, who made the false claim and thus, according to the assessee, no penalty under Section 271(1 )(c) was leviable on the assessee and that it has been rightly cancelled by the Ld. CIT (A). In this regard, the Ld. CIT (A) has made the following observations while canceling the penalty: The facts of the case and the submissions of the ld. A.R. have been considered. The undisputed facts are that the assessee had made a claim of Rs. 2,62,000/- towards housing loan interest. It is also a fact that this claim could have been made before the DDO also, whereas before him, the claim was only for Rs. 5,715/-. This is also an undisputed fact that the return had been processed and a refund of Rs. 93,415/- had been issued, which had been accepted and en-cashed by the assessee. There is considerable force in the submissions of the ld. A.R. that the assessee had taken voluntary retirement, as per the Voluntary Retirement Scheme of the Employer's organization; and on account of various deductions and exemptions and by claiming relief under Section 89(i) of the Income Tax Act, 1961, the assessee otherwise would have been entitled too a refund of Rs. 85,000/- to Rs. 90,000/- approximately. On receipt of refund, it is thus reasonable to accept the assessee's submissions that the receipt of refund did not alarm him, as he thought that it was on account of various deductions and relief under Section 89(i) of the Income Tax Act, 1961. Had no refund been due to him, the receipt of refund would have alarmed him, and even after that if he had not withdrawn the claim, his complicity would have been established.
Whereas, it is true that the assessee had been issued a notice under Section 154 of the Income Tax Act, 1961, but since the Assessing Officer did not proceed further, there was no occasion for the assessee to have withdrawn the claim. The assessee stated the truth on receipt of a letter cum notice from the Commissioner of Income Tax, under Section 133(6) of the Income Tax Act, 1961. There is also substance in the submission when he said that it was basically the counsel, who had master-minded the claim of refund by attaching forged documents, as it has happened in number of cases and the cases against that advocate are being investigated by the CBI. There is also force in the submissions that the gullible assessees generally having faith in their counsels put signatures on the forms and believe that the counsel would not do any thing, which would harm their interest, and in such matters, the benefit of doubt should go to the assessee.
In view of the above, there being a reasonable cause and the fault being attributable to the counsel, there was no case for levy of penalty under Section 271(1) (c) of the Income Tax Act, 1961, and hence the same is cancelled.
8. It is seen that while making the above observations, the Ld. CIT (A) has not taken into consideration the following observations made by the Assessing Officer in the penalty order: (a) The assessee did not surrender when the notice under Section 154 was issued.
(b) The assessee did not surrender when the first notice under Section 148 was issued and rather the assessee challenged the validity of the notice.
(c) The assessee vide letter dated 21.10.2003 of the CIT, Meerut under Section 133(6) was specifically asked to prove the claim under Section 24(2)(b). The ld. Ld. Ld. CIT, Meerut under Section 133(6) made enquiry from the employer OBC, Modinagar, Distt. Ghaziabad.
(d) No compliance was made to the notice under Section 133(6) by the date and therefore, Ld. CIT, Meerut issued summons under Section 131 dated 13.2.2003 for 20.2.2003 asking to produce the documents and details called for vide Notice under Section 133(6) dated 21.1.2003.
9. Further, the Ld. CIT (A) has gone by general observations like "...gullible assessees generally having faith in their counsels put signatures on the forms and believe that the counsel would not do any thing, which would harm their interest, and in such matters, the benefit of doubt should go to the assessee." In this regard, the Ld.
CIT (A) has failed to take into account the fact that the assessee had retired from a nationalized bank. He cannot be said to be gullible. No material has been brought on record to show that the assessee was gullible. Further, it has also not been shown by the Ld. CIT (A) that in this case, the assessee had appended his signatures on a blank return form merely on the faith that his counsel would not harm his interest. Therefore, in the absence of any such case being made out, the Ld. CIT (A) has been unable to show as to how the case of the present assessee would attract any benefit of doubt.
10. Further, merely making bald allegations against a counsel does not lend credence to the story of the assessee. It is totally unpalatable that having been cheated by the advocate, as tried to be made out, the assessee would sit satisfied when, as per his own version, the police authorities refused to register the FIR against the advocate, telling the assessee off by merely stating that FIR against other advocates in similar cases already stood lodged. Obviously, the aggrieved assessee would not have been satisfied with this. He would have got lodged a written complaint or a daily dairy report with the police authorities.
However, it is not so. No copy of complaint has been filed before us.
The assessee has also contended that the Ld. CIT (A) referred the matter to the CBI which is making enquiry. In this regard, the Assessing Officer was present in court before us at the time of hearing. He has informed that a CBI enquiry is pending against the aforesaid advocate, though no formal FIR has been lodged.
11. The Ld. Counsel for the assessee has further contended that this matter has also been published in various newspapers. It has been pointed out that a number of newspaper clippings in this regard have been filed by the assessee, at pages 13-17 of the assessee's paper book-I.12. This, however, does not help the assessee a great deal. The fact remains that a return filed under a particular name is assumed to have the contents thereof as known to and declared by the signatory/assessee. An assessee cannot take shelter of the argument that what he did was in blind faith of his advocate/counsel.
13. Even on merits, the assessee has not been able to make out a case of complete immunity from penalty. His conduct shows that he held back the refund taken by him for two long years. No explanation was offered on the query raised in this regard. No revised return was filed in response to the notice issued under Section 148. No explanation was given when notices under Sections 142(1)(a) and 143(2) were issued. In response to the subsequent notices under Sections 142(1) & 143(2), the validity of the notice under Section 148 was challenged. No explanation was filed even in response to notice under Section 133(6). It was only before the Ld. CIT that the assessee relented. From these facts, the mala-fide intention of the assessee is amply clear. The factum of the assessee having taken voluntary retirement and of deductions being available to him under Section 89(1)(i) of the Act, do not set off the above facts and they do not absolve the assessee of the liability to penalty.
14. Otherwise too, even if the stand taken by the assessee is accepted, his best is case that he was cheated by his advocate. Now, this, as discussed hereinabove, does not give a licence to the assessee to go scot-free. Even if it is taken that the assessee signed the blank return form in good faith, the responsibility of an ordinary prudent man cannot be shirked.
15. However, the assessee's worst case, on the other hand, is that of complicity or connivance with his advocate. Now, in both the situations, the liability of the assessee to penalty under Section 271(1)(c) stays. It is only that the involvement of the advocate having not been ruled out by either of the taxing authorities, in our considered opinion, it is penalty at the minimum rate which ought to have been levied on the assessee rather than on that on the maximum rate. We order accordingly.
16. The Ld. Counsel for the assessee has relied on a number of decisions. However, it has not been spelt out as to how any of these decisions is applicable to the present case. It is only with regard to the decision in the case of "ITO v. Shri Ganga Ram", passed on 3.8.2006, in ITA No. 4242/Del/04 for assessment year 2001-02, that it has been stated that in circumstances where the assessee has been defrauded by his counsel, the assessee must not be made to suffer the levy of penalty under Section 271(1)(c). This proposition, we see, cannot be denied.
17. Apropos the other case laws, besides the fact that their applicability to the facts of the present case has not been shown, liability under Section 271 (1 )(c) is a question of fact, to be considered in the light of the circumstances attending each case.
18. The Ld. Counsel for the assessee has also submitted that the fact that the assessee voluntarily returned the amount to the Department goes to prove his bona-fides. This argument fails to impress us.
Undeniably, it was only when the assessee was cornered and he did not have any way out, that the assessee returned the amount.
19. In view of the above, we hold that the order of Ld. CIT (A), deleting the penalty levied on the assessee under Section 271(1)(c) of the Act is not sustainable in the eye of law. Therefore, the order of Ld. CIT (A) is set aside and that of the Assessing Officer is revived, subject to the condition that the penalty under Section 271(1)(c) will be levied on the assessee at the minimum chargeable rate, in consequence of the observations made by us hereinabove.
20. In the result, the appeal of the Department is partly allowed as indicated.