| SooperKanoon Citation | sooperkanoon.com/71016 |
| Court | Income Tax Appellate Tribunal ITAT Pune |
| Decided On | Apr-19-2000 |
| Judge | B Chhibber, K Singhal |
| Reported in | (2001)77ITD385(Pune.) |
| Appellant | Kirtane and Pandit |
| Respondent | Assistant Commissioner of |
2. The brief facts giving rise to this appeal are these: The assessee is a partnership firm carrying on the profession of auditing and taxation since 1956. As per the partnership deed dated 16-7-1973, the firm comprised of three partners viz. Shri N.T. Kirtane, Shri B.R.Pandit and Shri S.B. Pandit. There was a change in constitution of the firm w.e.f. 1-9-1980. Shri N.T. Kirtane retired from the partnership on 31-8-1980 and a new partnership deed was executed on 4-9-1980, comprising of two partners, Shri B.R. Pandit and Shri S.B. Pandit having 60% and 40% share of profit and loss respectively. These two partners decided to form another partnership firm for carrying on the profession of Consultancy in finance and management. The deed of partnership was executed on 10-4-1980. Their shares of profit and loss in the firm were...S.B. Pandit - 75% and B.R. Pandit-25% (This firm started its profession under the name and style of Kirtane & Pandit Associates). Both these firms carried on business from the same premises.
2.1 The assessee firm filed its return of income for A.Y. 1982-83 on 30-7-1982 disclosing the income of Rs. 69,710. The other firm M/s.
Kirtane Pandit & Associates also filed its return of income for A.Y.1982-83 on 30-7-1982 disclosing the income of Rs. 28,940. The assessee firm was assessed on the total income of Rs. 72,000 vide order dated 17-12-1984. The Assessing Officer, T Ward where the return of new firm was filed was of the view that the income of the new firm was includible in the hands of assessee, since both the firms were constituted by the same partners and carrying on the same profession and further the expenses were borne by the assessee firm. However, the income was determined at Rs. 30,510. The action of the Assessing Officer was upheld by the first appellate authority but the income was reduced to Rs. 29,710. The ITO, T Ward sent this information to the Assessing Officer having jurisdiction over the assessee firm. As a consequence thereof the assessment of the assessee was reopened by issue of notice under Section 147 on 17-1-1986. In response to that notice, the assessee filed its return on 27-1-1986 offering the additional income of Rs. 29,117 being the income of the new firm. The same was accepted vide order dated 29-9-1988. The penalty proceedings under Section 271(1)(c) were initiated on account of furnishing of - particulars of income.
3. In response to the show-cause notice, it was explained by the assessee that there was no concealment of income on account of furnishing inaccurate particulars of income. According to the assessee, mere addition to the taxable income was not sufficient for levy of penalty for concealment. The reliance was placed on the decision of the Madhya Pradesh High Court inHarak Chand Phoolchand Jain v. CIT [1984] 146 ITR 25 : [1983] 15 Taxman 131, CIT v. G.D. Naidu [1987] 165 ITR 63 (Mad.) and CIT v. Calcutta Credit Corporation [1987] 166 ITR 29 : [1986] 28 Taxman 530 (Cal). The Assessing Officer rejected the explanation of the assessee and held that the assessee had concealed income by furnishing inaccurate particulars of income on the following grounds : (1) that the new firm was formed to defraud the revenue. It was substantiated by the fact that the return was filed in a different ward, (2) all the activities of both the firms were carried on from the same premises, (3) all the expenses of the new firm were incurred by the assessee firm, (4) that assessee had accepted that income of the new firm was its own income by filing the revised return under Section 148, (5) there was deemed concealment on account of difference between returned income and assessed income.
Explanation to Section 271(1)(c) was attracted to the facts of the case since returned income was less than 80% of the assessed income.
Reliance was placed on the decisions of High Courts in Addl. CIT v. Hari Sah [1980] 124 ITR 769 (All.), CIT v. Gates Foam & Rubber Co.
[1973] 91 ITR 467 (Ker.). In view of the application of the above explanation onus was on the assessee to rebut presumptions arising out of Explanation of Section 271(1)(c). Since according to Assessing Officer the onus was not discharged by the assessee, penalty of Rs. 17,712 was imposed.
4. On appeal it was contended on behalf of the assessee that the assessee firm was engaged in audit and taxation while the new firm was engaged in finance and management consultancy which was quite different activity. Therefore, there was no mala fide intention of the assessee.
Further the new firm has been accepted as genuine firm and assessed as such for A.Y. 1983-84 and subsequent years. The appeal before the Tribunal was not filed for A.Y. 1982-83 keeping in view the insignificant tax involvement. However, the CIT(A) confirmed the penalty. According to him, the registration was granted to the new firm on different facts and therefore, no reliance could be placed by the assessee on this aspect. Further all the expenses of the new firm were incurred by the assessee firm and the assessee itself included the income of the new firm in the return filed under Section 148.
Hence he rejected the contention of the assessee that such income was shown to avoid litigations. Filing of the return with different ward, according to the CIT(A) showed the mala fide intention of the assessee.
Thus, he confirmed the finding of the Assessing Officer that formation of the new firm was to avoid the tax. Aggrieved by the same, the assessee is in appeal before the Tribunal.
5. The Ld. counsel for the assessee has assailed the order of CIT(A) by raising various submissions viz. - (1) The penalty levied is illegal since proceedings were initiated on account of furnishing of inaccurate particulars of income but the penalty has been levied for different charge i.e. concealment of particulars of income. Reliance was placed on the decision of Gujarat High Court as CIT v. Lakhdhir Lalji [1972] 85 ITR 77, (2) There was no mala fide intention in forming new partnership firm as two different firms can be formed-having same constitution and same nature of business. Reliance was placed on the decision of Supreme Court as Dy. CST v. K. Kelukutty [1985] 155 ITR 158. Further reliance was placed on the decision of Supreme Court reported as Cement Marketing Co. of India Ltd. v. Asstt. CST [1980] 124 ITR 15 : 4 Taxman 44. for the preposition that where the assessee does not include particular item in the taxable income under bona fide belief that he is not liable so to include it, it would not be right to condemn the return as false return, (3) The expenses incurred by the assessee firm were reimbursed by the new firm, (4) The decision of AAC was not challenged before the Tribunal because of insignificant amount of tax involved. Therefore, no adverse inference can be drawn on this account, (5) The amount was offered in the revised return under Section 148 with a view to avoid litigation and insignificant amount of tax, (6) The new firm was ultimately found to be genuine firm and registration was accordingly granted for A.Y. 1983-84 onwards and (7) The Assessing Officer was not justified in applying the Explanation under Section 271 (1)(c) as existed prior to 1 -4-1975. In fact, the Explanation applicable to the year under consideration has not been invoked by the Assessing Officer and accordingly the onus was on the revenue to prove the concealment by bringing on record the positive evidence. Reliance was placed on the decisions of Bombay High Court in CIT v. P.M. Shah [1993] 203 ITR 792 and CIT v. Dharamchand L. Shah [1993] 204 ITR 462 : 70 Taxman 414. The Ld. D.R. has repeated the reasonings given by the CIT(A) and the Assessing Officer.
6. Rival submissions of the parties and the materials placed before us, have been considered carefully. In view of the Bombay High Court judgments in the case of P.M. Shah(supra) and in the case of Dharamchand L. Shah (supra), the penalty has to be justified under the main provisions of Section 271(1)(c), if the Explanation to the main provisions has not been invoked. In such cases burden to prove the charge of concealment lies on the revenue and the penalty cannot be levied merely on the ground that the addition in quantum proceedings has been sustained. In the present case it appears from the order of penalty that Assessing Officer had invoked the provisions of old Explanation applicable upto 31-3-1975 inasmuch as he has shifted the onus on the assessee on the ground that the returned income was less than 80% of the assessed income. None of the Explanations effective from 1-4-1976 has been invoked by the Assessing Officer. In our opinion, the Assessing Officer had proceeded on wrong footing by applying the non-existent Explanation and consequently had wrongly shifted the onus to the assessee. In the absence of any Explanation on the statute relevant for the year under consideration being invoked by the Assessing Officer, it is held that justification of penalty has to be seen with reference to the main provisions of Section 271(1)(c) in view of the aforesaid two judgments of the Bombay High Court. Thus it is further held that onus was on the department to prove the charge of concealment.
7. Now let's examine whether the penalty was justified on the facts of the case under the main provisions of Section 271(1)(c). The assessee was carrying on the profession of audit and taxation under the deed of partnership dated 16-7-1973 comprising of three partners viz. Shri N.T.Kirtane, Shri B.R. Pandit and Shri S.B. Pandit. During the existence of this partnership, a new partnership was formed between two parties viz.
Shri S.B. Pandit and Shri B.R. Pandit having share of profit of 75% and 25% respectively. It is pertinent to note that change in the constitution of the existent partnership was after the formation of a new partnership i.e. after a period of four months. So it could not be said that the constitution of both the firms were same at that time, even the share of profit was different from the original firm. In law, there is no prohibition to form different firm with the same constitution as held by the Hon'ble Supreme Court in the case of K.Kelukutty (supra). Therefore, no adverse inference can be drawn against the assessee on this account.
8. Further in our view both the lower authorities were not justified in coming to the conclusion that there was intention to defraud the revenue merely on the ground that return of the new firm was filed in different ward and expenses were incurred by the assessee firm. It has been explained by the Ld. counsel for the assessee that the new firm being the new assessee was bound to file its return in T ward having jurisdiction over the new assessees. This position has not been disputed by the Ld. D.R. Therefore, the Assessing Officer was not justified in drawing adverse inference on this account. No material has been brought on record by the revenue that the firm was engaged in the same nature of work. The factual position that old firm was doing audit and taxation work, while the new firm is engaged itself in finance and management consultancy has also not been disputed before us. Regarding the expenses, it has been stated that common expenses incurred by the assessee firm were reimbursed by the new firm. The tax effect was also insignificant. Therefore, it cannot be held that new firm was formed with mala fide intention to defraud the revenue. Further such finding cannot be sustained in view of the fact that registration has been granted for A.Y. 1983-84 and onwards on the basis of the same partnership deed. The CIT(A) has tried to distinguish this aspect by holding that facts were different for A.Y. 1983-84 onwards but he has not indicated as to what were the different facts. He has merely quoted some observations of order of AAC. We have gone through the said order of AAC. It was contended before him that facts to that year were different inasmuch as separate accounts were maintained and expenses were incurred separately. It is on the basis of such contention the case was restored by AAC to the Assessing Officer for fresh adjudication. Thereafter the registration was allowed by the Assessing Officer but the fact remained that registration was allowed in respect of the same partnership. In our opinion, if a particular partnership has been accepted as valid for subsequent years, it cannot be said that there was no valid partnership for the year under consideration. Merely the order of AAC for the year under consideration was not challenged on account of insignificant tax involvement, no adverse inference can be drawn. As far as offering of income of the new firm in the revised return is concerned, no adverse inference can be drawn in view of Supreme Court decision in Sir Shadilal Sugar & General Mills Ltd. v.CIT [1987] 168 ITR 705 : 33 Taxman 460A.9. In view of the above discussion, we are of the view that revenue has not been able to prove the charge of concealment by furnishing of inaccurate particulars of income. Mere addition in the assessment proceedings is not sufficient to justify the levy of penalty as held by the Supreme Court in the case of CIT v. Anwar Ali[1970] 76 ITR 696 and followed by Bombay High Court in the case of Dharamchand L. Shah (supra). The fact that the partnership of the new firm has been found to be valid one for A.Yrs. 1983-84 and onwards is a factor which goes in favour of the assessee. Considering the entire facts discussed by us, it is held that revenue has not been able to discharge its onus to prove the charge specified under main provisions of Section 27 l(1)(c).
Accordingly, the order of CIT(A) is quashed; and the penalty sustained by him is hereby deleted.