CIT v. Usha International Ltd.

Case Laws Analysis
Distinguished on Surya Prakash Bagla v. DCIT 2017 TaxPub(DT) 5605 (Kol-Trib)
Distinguished CIT v. Sas Pharmaceuticals 2011 TaxPub(DT) 0999 (Del-HC)
Followed CIT v. Kelvinator of India Ltd. 2010 TaxPub(DT) 1335 (SC)
Followed CIT v. Kalvinator of India Ltd. 2002 TaxPub(DT) 1348 (Del-HC)

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The Tax PublishersITA 1696/2006 2013 TaxPub(DT) 0244 (Del-HC) : (2013) 050 (I) ITCL 0172 : (2012) 254 CTR 0509 : (2013) 212 TAXMAN 0519 : (2012) 079 DTR 0339 INCOME TAX ACT, 1961 --Penalty under section 271(1)(c)--Concealment Disallowance of deduction accepted by assessee in quantum proceedings--Assessee filed original return and two revised return. In the original return deduction under section 35CCa for some donation to a trust was claimed which was withdrawn in first revised return filed on 5-12-1983. Assessing officer held that the withdrawal of deduction was due to survey action taken on 6-10-1983 from which it came to know by department that there was a racket of making false claim under section 35CCA. After assessment order penalty was levied on the ground that there was a bogus deduction and as such it was a concealment of income. Penalty under section 271(1)(c) was deleted by both the lower appellate authorities. Held: Assessee's case was a clear case of concealment of income as revised return was filed only after survey action was taken and search and seizure operation was carried out against the person to whom donation was allegedly given by the assessee to donee trust thus penalty under section 271(1)(c) imposed by the assessing officer was justified. Tribunal was not right in upholding the cancellation of the penalty. It cannot be denied that there were searches and investigations which resulted in the income tax authorities unearthing a concerted design to enable the reduction of the taxable income of income tax assessees by making use of the provisions of section 35(2A), section 35(1)(ii) and section 35CCA. The modus operandi adopted as outlined in the penalty order passed by the assessing officer, need not be repeated here. Suffice to note that the assessee made a donation of Rs. 10,00,000 to Morarjibai Desai Grammonati Trust, Ahemdabad by cheque and subsequently got the cheque encashed through a bogus account opened in the bank for the said purpose. The key persons involved have also been found to be common in all such cases. These persons are V. Mehra and P. Prakash. It has also been found that though the donation was made by a cheque which was crossed account payee only, the special crossing was later changed to a simple crossing, i.e., & Co. The change was made under the signatures of R. Manager (Accounts) of the assessee company and K. P. Senior Advisor to the assessee company. The proceeds of the cheque were collected by the S Bank. Delhi on 9-7-1992 and credited to the account opened in the name of one C. L. S on 7-7-1982. C. L. S was described as the Secretary of the donee trust and his signature was attested by P. P. in the account opening form. P. P. was a school teacher in New Delhi. His wife P Verma was the proprietor of M/s. Pushpam investment company which had opened an account in the same bank on 12-6-1982. The investigation revealed that the account of Pushpam Investment Company had been opened at the instance of Prem Prakash c/o. M/s. Usha International Ltd. The income-tax authorities made inquiries with the donee trust which revealed that no person in the name of C. L. S was connected with the trust. This established that the bank account had been opened in a fictitious name merely for the purpose of misappropriating the amount of Rs. 10,00,000 allegedly donated by the assessee to the trust. Further evidence is supplied by the fact that the entire amount of Rs. 10,00,000 was withdrawn by issue of four self or bearer cheques signed by the C. L. , P. P. Verma, Subhash Chandra, etc. between 10-7-1982 and 17-7-1982. Finally the account was closed on 13-8-1982. The above facts show that the purpose for which the account was opened in the bank was only to take away the amount of Rs. 10,00,000, purportedly given as a donation to the donee trust in order to claim the relief under section 35CCA which would reduce the taxable income of the assessee. The amount never left the coffers of the assessee; it also did not reach the donee trust. It was brought back to the assessee. However, a receipt had been filed by the assessee company purporting to be issued by the donee trust. Obviously the genuineness of the receipt, in the background of the facts and circumstances, was open to serious doubts. [Para 13] The contention of the counsel that the assessee was also a victim of a fraud played by several persons acting in concert cannot be accepted because the special crossing in the cheque was converted or altered into an ordinary crossing by the assessee's Account Manager and Senior Advisor who had also affixed their signatures. There is no denial by the assessee company that they were not acting on its behalf. No proceedings, civil or criminal have been taken against them. No proceedings have also been taken against V. Mehra even though it is the case of the assessee that he was falsely representing that he was connected to the trust. Moreover, P. Prakash who is referred to as a director of the assessee company was also involved in opening the bank account in the name of P. Investment Company with S Bank Delhi on 12-6-1982. It is significant that this account belonged to Smt. P. Verma wife of P. P. Verma, who attested the signature of C. L. S in whose name an account was opened on 7-7-1982 in the same bank. P. Prakash, while assisting Smt. P. Verma in opening the bank account had described himself as P. Prakash c/o. M/s. Usha International Ltd., which is the assessee. [Para 14] It is also significant to note that the cash book did not contain the name of the donee, though an entry had been made regarding the donation. Even in the donation account appearing in the assessee's ledger the name of the donee had not been entered when the survey was conducted on 6-10-1983 in the assessee's premises. However, the voucher No.408 prepared in support of the donation contained the name of the trust. The survey authorities impounded the cash book. [Para 15] The further contention of the learned counsel for the assessee that the revised return withdrawing the claim for deduction under section 35CCA was filed on 5-12-1983 voluntarily and without any prompting or provocation from the income tax department is not acceptable. The survey of the assessee's premises under section 133A took place on 6-10-1983, two months prior to the date of filing the revised return. The survey itself was a result or as a follow up action to the searches and other inquiries conducted earlier. The cash book of the assessee was impounded during the survey for reasons stated in the preceding paragraph. The proceeds of the donation cheque had already been taken out of the bank account opened in the name of C. L. Swamy between 10-7-1982 and 17-7-1982. The account itself had been closed on 13-8-1982. In the light of these facts, the contention that the revised return was filed voluntarily is untenable. It was provoked by the evidence collected by the revenue and the survey conducted in the assessee's premises on 6-10-1983. In other words the revised return was filed by the assessee only when it was cornered and the income tax authorities had collected material on the basis of which it could be said that the claim for deduction was false or bogus. The filing of the revised return is thus an act of despair and the assessee can gain nothing from it. [Para 16] Both the Commissioner (Appeals) and the Tribunal, with respect, have not examined the facts of the present case in the manner expected of them. The Tribunal has merely based its conclusion on certain previous orders without any discussion of the facts of the present case. The question of concealment of income and whether the revised return was filed voluntarily or not is a question of fact to be examined and decided upon the facts and circumstances of the each case and, therefore, it was not permissible to the Tribunal to merely rely on earlier orders where this issue was considered and penalties were cancelled. It may be that in those cases also similar claims for deduction were involved; nevertheless, the question of concealment and the relevance of filing a revised return withdrawing the claim for deduction are all fact dependent, and merely because in one case it was held that there was no concealment, it does not follow, as a matter of law, that in all such cases penalty cannot be imposed. At best, those earlier cases could only have a persuasive value. We are of the view that the Tribunal has committed an error in upholding the order of the Commissioner (Appeals) cancelling the penalties, without assigning any valid reason and without examining the facts. [Para 21] Penalty under section 271(1)(c) was rightly imposed; the substantial question of law is answered in the negative, in favour of the revenue and against the assessee. The penalty order passed by the assessing officer on 22-3-1993 is restored and the appeal filed by the revenue is allowed. [Para 22] SUBSCRIBE FOR FULL CONTENT

The Tax PublishersITA 1696/2006
2013 TaxPub(DT) 0244 (Del-HC) : (2013) 050 (I) ITCL 0172 : (2012) 254 CTR 0509 : (2013) 212 TAXMAN 0519 : (2012) 079 DTR 0339

INCOME TAX ACT, 1961

--Penalty under section 271(1)(c)--Concealment Disallowance of deduction accepted by assessee in quantum proceedings--Assessee filed original return and two revised return. In the original return deduction under section 35CCa for some donation to a trust was claimed which was withdrawn in first revised return filed on 5-12-1983. Assessing officer held that the withdrawal of deduction was due to survey action taken on 6-10-1983 from which it came to know by department that there was a racket of making false claim under section 35CCA. After assessment order penalty was levied on the ground that there was a bogus deduction and as such it was a concealment of income. Penalty under section 271(1)(c) was deleted by both the lower appellate authorities. Held: Assessee's case was a clear case of concealment of income as revised return was filed only after survey action was taken and search and seizure operation was carried out against the person to whom donation was allegedly given by the assessee to donee trust thus penalty under section 271(1)(c) imposed by the assessing officer was justified.

Tribunal was not right in upholding the cancellation of the penalty. It cannot be denied that there were searches and investigations which resulted in the income tax authorities unearthing a concerted design to enable the reduction of the taxable income of income tax assessees by making use of the provisions of section 35(2A), section 35(1)(ii) and section 35CCA. The modus operandi adopted as outlined in the penalty order passed by the assessing officer, need not be repeated here. Suffice to note that the assessee made a donation of Rs. 10,00,000 to Morarjibai Desai Grammonati Trust, Ahemdabad by cheque and subsequently got the cheque encashed through a bogus account opened in the bank for the said purpose. The key persons involved have also been found to be common in all such cases. These persons are V. Mehra and P. Prakash. It has also been found that though the donation was made by a cheque which was crossed account payee only, the special crossing was later changed to a simple crossing, i.e., & Co. The change was made under the signatures of R. Manager (Accounts) of the assessee company and K. P. Senior Advisor to the assessee company. The proceeds of the cheque were collected by the S Bank. Delhi on 9-7-1992 and credited to the account opened in the name of one C. L. S on 7-7-1982. C. L. S was described as the Secretary of the donee trust and his signature was attested by P. P. in the account opening form. P. P. was a school teacher in New Delhi. His wife P Verma was the proprietor of M/s. Pushpam investment company which had opened an account in the same bank on 12-6-1982. The investigation revealed that the account of Pushpam Investment Company had been opened at the instance of Prem Prakash c/o. M/s. Usha International Ltd. The income-tax authorities made inquiries with the donee trust which revealed that no person in the name of C. L. S was connected with the trust. This established that the bank account had been opened in a fictitious name merely for the purpose of misappropriating the amount of Rs. 10,00,000 allegedly donated by the assessee to the trust. Further evidence is supplied by the fact that the entire amount of Rs. 10,00,000 was withdrawn by issue of four self or bearer cheques signed by the C. L. , P. P. Verma, Subhash Chandra, etc. between 10-7-1982 and 17-7-1982. Finally the account was closed on 13-8-1982. The above facts show that the purpose for which the account was opened in the bank was only to take away the amount of Rs. 10,00,000, purportedly given as a donation to the donee trust in order to claim the relief under section 35CCA which would reduce the taxable income of the assessee. The amount never left the coffers of the assessee; it also did not reach the donee trust. It was brought back to the assessee. However, a receipt had been filed by the assessee company purporting to be issued by the donee trust. Obviously the genuineness of the receipt, in the background of the facts and circumstances, was open to serious doubts. [Para 13] The contention of the counsel that the assessee was also a victim of a fraud played by several persons acting in concert cannot be accepted because the special crossing in the cheque was converted or altered into an ordinary crossing by the assessee's Account Manager and Senior Advisor who had also affixed their signatures. There is no denial by the assessee company that they were not acting on its behalf. No proceedings, civil or criminal have been taken against them. No proceedings have also been taken against V. Mehra even though it is the case of the assessee that he was falsely representing that he was connected to the trust. Moreover, P. Prakash who is referred to as a director of the assessee company was also involved in opening the bank account in the name of P. Investment Company with S Bank Delhi on 12-6-1982. It is significant that this account belonged to Smt. P. Verma wife of P. P. Verma, who attested the signature of C. L. S in whose name an account was opened on 7-7-1982 in the same bank. P. Prakash, while assisting Smt. P. Verma in opening the bank account had described himself as P. Prakash c/o. M/s. Usha International Ltd., which is the assessee. [Para 14] It is also significant to note that the cash book did not contain the name of the donee, though an entry had been made regarding the donation. Even in the donation account appearing in the assessee's ledger the name of the donee had not been entered when the survey was conducted on 6-10-1983 in the assessee's premises. However, the voucher No.408 prepared in support of the donation contained the name of the trust. The survey authorities impounded the cash book. [Para 15] The further contention of the learned counsel for the assessee that the revised return withdrawing the claim for deduction under section 35CCA was filed on 5-12-1983 voluntarily and without any prompting or provocation from the income tax department is not acceptable. The survey of the assessee's premises under section 133A took place on 6-10-1983, two months prior to the date of filing the revised return. The survey itself was a result or as a follow up action to the searches and other inquiries conducted earlier. The cash book of the assessee was impounded during the survey for reasons stated in the preceding paragraph. The proceeds of the donation cheque had already been taken out of the bank account opened in the name of C. L. Swamy between 10-7-1982 and 17-7-1982. The account itself had been closed on 13-8-1982. In the light of these facts, the contention that the revised return was filed voluntarily is untenable. It was provoked by the evidence collected by the revenue and the survey conducted in the assessee's premises on 6-10-1983. In other words the revised return was filed by the assessee only when it was cornered and the income tax authorities had collected material on the basis of which it could be said that the claim for deduction was false or bogus. The filing of the revised return is thus an act of despair and the assessee can gain nothing from it. [Para 16] Both the Commissioner (Appeals) and the Tribunal, with respect, have not examined the facts of the present case in the manner expected of them. The Tribunal has merely based its conclusion on certain previous orders without any discussion of the facts of the present case. The question of concealment of income and whether the revised return was filed voluntarily or not is a question of fact to be examined and decided upon the facts and circumstances of the each case and, therefore, it was not permissible to the Tribunal to merely rely on earlier orders where this issue was considered and penalties were cancelled. It may be that in those cases also similar claims for deduction were involved; nevertheless, the question of concealment and the relevance of filing a revised return withdrawing the claim for deduction are all fact dependent, and merely because in one case it was held that there was no concealment, it does not follow, as a matter of law, that in all such cases penalty cannot be imposed. At best, those earlier cases could only have a persuasive value. We are of the view that the Tribunal has committed an error in upholding the order of the Commissioner (Appeals) cancelling the penalties, without assigning any valid reason and without examining the facts. [Para 21] Penalty under section 271(1)(c) was rightly imposed; the substantial question of law is answered in the negative, in favour of the revenue and against the assessee. The penalty order passed by the assessing officer on 22-3-1993 is restored and the appeal filed by the revenue is allowed. [Para 22]