| SooperKanoon Citation | sooperkanoon.com/75416 |
| Court | Income Tax Appellate Tribunal ITAT Delhi |
| Decided On | Jan-25-2007 |
| Judge | R Easwar, Vice, K Bansal |
| Appellant | Asstt. Cit |
| Respondent | Shiv Nadar |
2. The appeal arises this way. The assessee is an individual deriving income by way of salary as director of a company and income from other sources. In the return filed for the assessment year 1991-92, he declared income of Rs. 54,78,610. The assessment was completed on an income of Rs. 2,67,99,554. Several additions and disallowances were made in the assessment framed under Section 143(3) of the Income Tax Act before arriving at the total income and included therein was an addition of Rs. 24,27,402 under the head "Income from other sources" with the following narration : Benefits and perquisites enjoyed as director of the Seven Pvt. Ltd. company in which the assessee is a director as well as person having substantial interest as beneficial owner".
The aforesaid addition was contested by the assessee in appeal before the Commissioner (Appeals) who confirmed the addition by order dated 21-12-1995. No further appeal seems to have been filed by the assessee before the Tribunal.
3. Subsequently, penalty proceedings were initiated for concealment of income under Section 271(1)(c) read with Section 274 of the Act on the ground that the assessee had concealed income to the extent of Rs. 24,27,402. The case of the assessing officer was like this. The assessee was a shareholder in a number of closely held companies who jointly owned premises at No. 44, New Friends Colony, New Delhi. The premises was purchased by eight companies from B.K. Nehru (HUF). The assessee had a substantial interest in these companies as defined in Section 2(32) of the Act. The premises was given on lease to HCL - HP Limited of which the assessee was an employee. The employer-company gave the premises to the assessee for his residence. The assessee also has a substantial interest in the employer-company. The eight companies which jointly owned the premises spent a sum of Rs. 19,51,571 for construction and re-designing of the premises and also spent Rs. 4,75,831 as lease rent for air-conditioning. These companies were, however, not under any obligation to make any improvement to the property because there was no demarcation or partition of the premises defining the shares of each of the eight companies. The premises was a single bungalow bearing the assessee's name-plate. The amount spent by the companies on the reconstruction and redesigning of the house and on lease rent for air-conditioning is a perquisite under Section 2(24)(fv) read with Section 2(32) of the Act in the hands of the assessee provided by the companies which jointly owned the same, in which the assessee was not only a director but also held a substantial interest as beneficial owner. The value of the perquisite was to be taken at Rs. 23,77,397 as determined by the Commissioner (Appeals) and since the assessee did not disclose the same in the return of income, he was liable for penalty for concealment of income. In this view of the matter, the Assessing Officer levied a penalty of Rs. 19,88,845 @ 120% of the amount of tax sought to be evaded.
4. On appeal against the levy of penalty, the Commissioner (Appeals) cancelled the same. In doing so, he recorded the following findings : (a) The assessing officer has reached the requisite satisfaction that the assessee furnished inaccurate particulars of his income (para 7.9 of his order); (b) The assessee was clearly made aware of the charge against him t hat he was guilty of furnishing inaccurate particulars; of income and the assessee's plea that he was not aware of the charges against him cannot be accepted; (c) The question whether the perquisite was rightly assessed in the assessee's hand under Section 2(24)(iv) read with Section 2(32) of the Act need not be gone into since the Commissioner (Appeals) has upheld the addition in assessment proceedings (para 8.10 of his order); (d) However, it was the duty of the employer under Section 192 of the Act to work out the correct value of the perquisites to be added to the salary income of the assessee. The default was not that of the assessee but of the employer; (e) The mere fact that the amount was assessed in the hands of the assessee is not enough for the purpose of levy of penalty and it is further required to be shown that there was conscious or deliberate concealment or furnishing of inaccurate particulars of income on the part of the assessee, as held by the Supreme Court in the case of K.C. Builders 265ITR 562 and in the present case it cannot be said so; and (f) The addition was made only on the basis of the information gathered from the documents filed by the assessee. Thus, the assessee did not hide anything from the department nor did he file any inaccurate particulars consciously. The requisite mens rea or guilty mind was absent.
Having recorded the above findings, the Commissioner (Appeals) proceeded to cancel the penalty by observing as under : In the present case, I find that the additions were made on the basis of information gathered from the documents/submissions filed by the appellant during the course of assessment proceedings only.
Thus, thecircumstances clearly show that nothing (sic) hidden from the departmentand therefore, the appellant cannot be held guilty of filing inaccurate particulars of income consciously, which has now been assessed in the hands of the appellant as "income from other sources". This fact approves that there was no mens rea or guilty mind on the part of the appellant and mere absence of an explanation, which is not acceptable to the department, cannot be treated as a wilful default of filing of inaccurate particulars on the part of the appellant.
Keeping in view the facts narrated above, in my opinion, the appellant was nable to rebut the presumption raised by the statute by cogent, reliable and relevant material. Therefore the assessing officer's action in imposing penalty under Section 271(1)(c) was not justified. Accordingly, the penalty levied under Section 271(1)(c) amounting to Rs. 19,88,845 is deleted.
5. It is against the aforesaid order of the Commissioner (Appeals) that the department has come in further appeal before the Tribunal. The learned CIT DR, Mr. R.L. Meena besides strongly relying on the penalty order, submitted that the order passed by the Commissioner (Appeals) cancelling the penalty is contradictory. He pointed out that the assessee had made certain arrangements with the companies which jointly owned the premises in New Friends Colony and his employer-company with the view to hoodwinking the department and understanding the perquisites enjoyed by him and that this he could do because of the substantial interest and the consequent influence which he wielded over his employer-company as well as the private limited companies which jointly owned the premises. He further submitted that this aspect was overlooked by the Commissioner (Appeals) while cancelling the penalty and made a strong plea for restoring the same.
6. The learned counsel for the assessee, on the other hand, brought to our notice a few facts. The premises in question were taken on lease by the assessee's employer company from seven private limited companies (not eight as mentioned by the assessing officer) which together held 16.75% of the shares in the employer-company. The property was leased by these companies to HCL - HPL which is the employer company in the year 1989 for a period of five years at a rent of Rs. 9,000 per month.
He drew our attention to the fact that the assessee had declared the perquisite value on account of the premises being provided to him by his employer-company at Rs. 18,000 in the return of income in accordance with the formula prescribed by Rule 3(a)(iii) read with Explanation 2 thereto of the Income-tax Rules, 1962. He pointed out that the addition of Rs. 24,27,402 was made not under the head "Salary" but under the head "Income from other sources". He further submitted that though the assessee had not filed any further appeal to the Tribunal against the order of the Commissioner (Appeals) in quantum proceedings in which the addition of perquisites was confirmed, that does not lead to the conclusion that the assessee concealed his income or furnished inaccurate particulars thereof and in the course of penalty proceedings the entire: matter can be re-appraised since penalty proceedings and assessment proceedings are distinct and separate, the findings given in the assessment proceedings not being conclusive for the purpose of levying penalty. He thus argued that the Commissioner (Appeals) has rightly cancelled the penalty.
7. In the course of the arguments, the learned counsel for the assessee submitted that the assessing officer has not recorded the requisite satisfaction in the assessment order to the effect that the assessee had furnished in accurate particulars of his income and, therefore, the penalty order is bad in law. In making this submission, he sought to rely on Rule27 of the Tribunal Rules which permitted the respondent in an appeal to defend the order appealed against on a ground decided against him in the ?impugned order. According to him, the Commissioner (Appeals) was wrong in holding that the assessing officer had recorded the requisite satisfaction in the assessment order. He submitted that the discussion in pages 12 to 16 of the assessment order, on which reliance has been placed by the Commissioner (Appeals) to conclude that the assessing officer has recorded the requisite satisfaction, actually is only about the unsustainability of the assessee's claim that no perquisite or benefit under Section 2(24)(iv) arose out of the expenditure incurring by the private limited companies in improving the property and from the discussion it is not possible to discern that any satisfaction was reached by the assessing officer that the assessee furnished inaccurate particulars of income or concealed his income by way of perquisites. We were taken through these pages in the assessment order to drive home the point.
8. In reply, the learned CIT DR, in particular reference to Rule 27 of the I.T. Rules, drew our attention to the very same pages to which our p attention have been drawn by the learned counsel for the assessee and which were relied upon by the Commissioner (Appeals) and contended that the Commissioner (Appeals) was right in inferring that the assessing officer did record the requisite satisfaction that the assessee concealed his income by way of perquisites or furnished inaccurate particulars thereof. He submitted that the satisfaction reached by the assessing officer was clearly discernible from these pages. He referred to the judgment of the Allahabad High Court in Sunil Kumar Malhotra v.CIT in this regard.
9. We have carefully considered the rival contentions. As seen from pages 56 and 57 of the paper book, the assessee declared Rs. 24,600 as perquisite in the return filed by him. Out of this amount, Rs. 18,000 represented the perquisite arising on account of company leased accommodation which is the premises at No. 44, New Friends Colony. Page 56 is the certificate issued by the employer company in which it was also said that the rent paid was Rs. 9,000 per month and 1096 of the salary was, therefore, shown as perquisite on account of the accommodation. Page 57 is the certificate of TDS issued by the company to the assessee under Section 203 of the Act. The computation of the perquisite on account of company leased accommodation is governed by Rule 3(a)(iii)(A) read with Explanation 2 thereto of the I.T. Rules. It says that the perquisite on account of rent free residential accommodation (unfurnished) shall ordinarily be a sum equal to 1096 of the salary due to the assessee for the period during which the accommodation was occupied by him. There is nothing in the assessment order to show that the value computed by the assessee on account of the perquisite is not in accordance with the aforesaid rule. What the assessing officer has done is to invoke the provisions of Section 2(24)(iv) of the Act and accordingly has treated the amounts spent by the private limited companies who were the joint owners of the property, in redesigning and in paying lease rent for air-conditioning, as the assessee's income. This provision is as under : Section 2(24)( iv): the value of any benefit or perquisite, whether convertible into money or not, obtained from a company cither by a director or by a person who has a substantial interest in the company, or by a relative of the director or such person, and any sum paid by any such company in respect of any obligation which, but for such payment, would have been payable by the director or other person aforesaid.
In response to the proposal of the assessing officer, the assessee submitted that he was not occupying the property in the capacity of a director of the private limited companies but was occupying the same as an employee of the lessee company and, therefore, he cannot be said to have enjoyed any benefit or perquisite from the private limited companies. The assessing officer, however, rejected the assessee's contention. He observed that once the property was given in lease to HCL - HPL, those companies were no longer under any obligation not make any improvement to the property, that the property was an independent house with a large garden and well planned courtyard, that enquiries showed that the assessee's nameplate was affixed in granite in the house which indicated that the assessee was in control of the premises, that the expenditure incurred by the private limited companies was for the convenience of the assessee who was a director in all those companies and was also having a substantial interest in them, that it was the assessee who was enjoying the benefits arising out of the redesigning of the house and the air: conditioning thereof and thus there can be no argument that the expenditure had increased the value of the property which resulted in a benefit or perquisite to the assessee under Section 2(24)(iv) of the Act. No doubt the view taken by the assessing officer has been upheld by the Commissioner (Appeals) and no further appeal was filed by the assessee to the Tribunal but from this fact alone it is not possible to hold that the assessee concealed his income by way of perquisite or furnished inaccurate particulars thereof. It is now well-settled that the findings given in the assessment proceedings, though constitute good evidence for the pur-pose of penalty proceedings, they cannot constitute decisive or clinching evidence for the purpose of levying penalty for concealment of income. Reference in this connection may be made to the leading judgments of the Supreme Court on the point in CIT v. Khoday Eswarsa & Sons and in Anantharam Veerasinghaiah & Co. v. CIT . Therefore, the mere fact that the assessee did not file any further appeal to the Tribunal against the assessment proceedings cannot be decisive of the question that the assessee concealed his income or furnished inaccurate particulars thereof. Much of the discussion in pages 12 to 16 of the assessment order is about how the entire transaction of the lease of the property to the assessee's employer and the incurring of the expenditure on the improvement of the property by the private limited companies which owned the property would result in a benefit or perquisite to the assessee in terms of Section 2(24)(iv). As already noted, the assessing officer has not rejected the assessee's plea that whatever perquisite he has received on account of the company leased accommodation has already been shown in the return in accordance with the relevant income-tax rule. The salary income of Rs. 2,04,600 declared in the return includes the perquisite value of Rs. 18,000 arising on account of the company leased accommodation. It is on the very same facts disclosed by the assessee that the assessing officer has taken the view, in addition to bringing to tax the perquisite in accordance with Rule 3 as offered by the p assessee, that the very same transaction also attracts the provision of Section 2(24)(iv) of the Act. It is not understood as to how these provisions can apply to the case since it is not possible to perceive the transaction as giving rise to a benefit or perquisite obtained by the assessee as a director or a person having a substantial interest in the seven private limited companies which owned the property. They have spent the monies on the improvement of the property and any consequent increase in the value of the property is to their account and they, as owners, alone will be entitled F to enjoy the benefits arising out of the increase in the value of the property.
The assessee is merely residing in the property as an employee of the lessee-company. Though this aspect of the matter has been decided against the assessee by the Commissioner (Appeals) in the quantum proceedings, in the penalty proceedings it is open to the assessee to contend that even an assessment of the alleged perquisite under Section 2(24)(iv) is of doubtful validity. It is well-settled that in the penalty proceedings, there has to be rehash or reappraisal of the entire materials on record including the question whether the amount was rightly assessed in the hands of the assessee. Such a principle is only a natural corollary of the fundamental principle that the penalty proceedings are separate and independent of assessment proceedings and any findings given in the assessment proceedings are not conclusive in the penalty proceedings. If any authority is needed on this specific question, reference may be made to the judgment of the Bombay High Court in Jai Narain Babu Lal v. CIT where an argument was raised before the High Court in penalty proceedings, on behalf of the assessee that the amount assessed as income fell outside the relevant assessment year and, therefore, the assessment itself is bad notwithstanding that the assessment of the income had become final and, therefore, no penalty could be imposed, it was held by the Bombay High Court, accepting the contention, as below : Court confirmed what had been held in Gokuldas Harivallabhdas case . The proceedings under Section 28(1 )(c) are penalin character. It could not be said that a finding given in the assessmentproceedings for determining or computing the tax was conclusive. It was,however, good evidence. Before penalty could be imposed, the entirety ofthe circumstances must reasonably point to the conclusion that thedisputed amount represented income and that the assessee had consciously concealed the particulars of his income or had deliberately furnishedinaccurate particulars.
A similar view has been taken specifically on the above question by the Kerala High Court in CIT v. T. Govindankutty Menon .In this case, additions of Rs. 85,500 were sustained by the Tribunal in the assessment proceedings. However, the penalty levied for this addition under Section 271 (1)(c) was cancelled by the Tribunal on making reappraisal of the evidence adduced by the assessee in the assessment proceedings. Affirming the decision of the Tribunal, the Kerala High Court held that "we are of the view that it was open to the Commissioner of Income-tax (Appeals) as also the Appellate Tribunal to advert to the materials or evidence available during the assessment proceedings afresh and make an independent or closer or more intelligent analysis. That was so done in this case to come to the conclusion that the assessee has discharged the onus cast on him under the Explanation to Section 271 (1 )(c) of the Income Tax Act." In the light of the above stated legal position, the assessment of the amount itself being in doubt, no penalty can be imposed on the assessee for concealing his income or furnishing inaccurate particulars thereof.
In any case, the issue raised by the assessing officer is highly debatable and involves the question of interpretation of Section 2(24)(iv) in the light of the facts of the case. It is not in dispute that all the facts relating to the ownership of the property, the lease, the assessee's interest in the private limited companies which owned the property, the expenditure incurred by them in the improvement of the property etc. were furnished by the assessee without demur and it is only from those facts that the assessing officer took a view that in addition to the value of the perquisite under Rule 3 as declared by the assessee, the assessee was also assessable under Section 2(24)(i'v). It is also well-settled when all the facts are furnished by the assessee and a legal contention to the effect that the view taken by the assessing officer is not tenable on those facts, merely because the assessee's objection is not upheld and the assessing officer proceeds with the view taken by him, it does not follow that the assessee concealed the income assessed on the basis of the assessing officer's view or furnished inaccurate particulars thereof Reference may be made in this connection to Income Tax Officer v. Burrnah Shell Oil Storage & Distributing Co. India Ltd. and CIT v.G.D. Naidu (1987) 165 ITR 632 (Mad.). It may also be noted that in Addl. CIT v. Delhi Cloth & General Mills Co. Ltd. (1986) 157 ITR 8223, the Hon'ble Delhi High Court has taken the view that merely because the assessee's claim that the expenditure is revenue in nature is not accepted in the assessment proceedings it does not follow that the assessee concealed his income or furnished inaccurate particulars in relation to the said expenditure. This principle is also applicable to the present case where the Commissioner (Appeals) has also found (para 8.14 of his order) that all the facts and the relevant documents were disclosed by the assessee to the assessing officer and nothing important or relevant was withheld from him. We also agree with this finding of the Commissioner (Appeals) and applying the principle laid down in the afore cited cases hold that even on this ground the penalty was rightly cancelled by the Commissioner (Appeals).
Turning now to the question of satisfaction being recorded by the assessing officer, we permit the assessee to invoke Rule 27 of the Tribunal Rules to defend the ultimate decision of the Commissioner (Appeals) on the ground of satisfaction not being recorded by the assessing officer, a ground which was rejected by the Commissioner (Appeals). There is no observation in pages 12 to 16 of the assessment order to suggest that the assessing officer had reached the requisite satisfaction. All that the assessing officer has stated in these pages is that the amount spent by the private limited companies to improve the property must be treated as a benefit or perquisite obtained by the assessee in his capacity as a director or a person having substantial interest in those companies within the meaning of Section 2(32) of the Act. However, there is no recording of the requisite satisfaction to the effect that the assessee concealed his income to the extent of the perquisite of Rs. 24,57,402 or furnished inaccurate particulars thereof in relation thereto. Mere mention in the end of the assessment order that penalty proceedings under Section 271(1)(c) have been initiated separately does not meet the requirement of the opening words of Section 271(1) as held by the Hon'ble Delhi High Court in CIT v. Ram Commercial Enterprises Ltd. and Diwan Enterprises.
CIT . In these cases, it has also been held that the omission to accord the requisite satisfaction in the assessment order is a jurisdictional defect which cannot be cured. The Commissioner (Appeals) was, therefore, wrong in holding, in paragraph 7.9 of his order, that the assessing officer had recorded the requisite satisfaction in the assessment order.
10. For the aforesaid reasons, we agree with the ultimate conclusion of the Commissioner (Appeals) that the penalty was not justified. We confirm his decision and dismiss the appeal filed by the department.