The judgment of the court was delivered by
K. S. Jhaveri, J.- By way of this petition under article 226 of the Constitution of India, the petitioner has challenged the order passed under section 264 of the Income-tax Act, 1961, on February 25, 2008 at annexure-H to the petition by the Commissioner of Income-tax, Surat, whereby the revision preferred by the petitioner was dismissed.
2. The facts of the case are that the assessee filed return of income for the assessment year 1996-97 on August 12, 1996, disclosing total income at Rs. 42,020. In the profit and loss account filed along with the return of income, the petitioner had shown labour charges to be paid at Rs. 15,19,030. The Assessing Officer made regular assessment under section 143(3) of the Act on March 31, 1997 determining total income at Rs. 10,86,800. While making assessment, the Assessing Officer accepted payment of Rs. 4,79,243 made to five workers who appeared before him and disallowed Rs. 10,39,787. Being aggrieved by the order of the Assessing Officer, the petitioner preferred appeal before the Commissioner of Income-tax (Appeals) who reduced the disallowance to Rs. 7,27,851 vide his order dated March 22, 2002. Against the order of the Commissioner (Appeals), the petitioner carried the matter further before the Income-tax Appellate Tribunal. The Tribunal vide its order dated December 21, 2004 remanded the matter to the Assessing Officer. The Assessing Officer again added Rs. 10,39,787 to the total income and ordered to issue penalty proceedings under section 271(1)(b) and 271(1)(c) of the Act. Thereafter, the Assessing Officer imposed penalty of Rs. 6,96,630 by order dated August 30, 2006. However, since the petitioner could not file appeal, the petitioner preferred revision application under section 264 of the Act to the respondent wherein he has clearly mentioned that the penalty is not imposable in view of the decision of the apex court in the case of T. Ashok Pai v. CIT reported in [2007] 292 ITR 11 (SC) and requested to set aside the order of the Assessing Officer imposing penalty. However, to his utter surprise, the revision application was rejected by the respondent vide order dated February 25, 2008 by upholding the penalty order of the Assessing Officer by observing in paragraph No. 5 of the said order thus :
"From the above, it may be appreciated that the assessee was allowed repeated opportunities to produce the parties to whom the payments were made or any other evidences in this regard. However, there was no compliance on the part of the assessee and the Assessing Officer was constrained to pass ex-parte order under section 144 of the Income-tax Act as the assessee did not comply with the notices issued by him from time to time. During the course of penalty proceedings also the repeated opportunities allowed to the assessee were not complied with and which establishes that the assessee has concealed his income by furnishing inaccurate particulars of his income."
3. Learned counsel for the petitioner Mr. Shah has contended that if we look at the original order, it shows that there is neither concealment nor furnishing inaccurate particulars of income and therefore the penalty order is bad in law. He has relied on the decision of this court in the case of Navnitlal K. Zaveri v. CIT reported in [1980] 125 ITR 385 (Guj), particularly at page 388, relevant portion which is reproduced below :
"It must be pointed out that time and again the Supreme Court and High Courts have pointed out that if the variation between the returned income and the assessed income arises by virtue of additions to the income made either because of disallowance or because of deemed income added or because of the estimate of the income made by the Income-tax Officer, then penalty is not leviable."
3.1 He has further relied on the decision of the Delhi High Court in the case of Devsons P. Ltd. v. CIT reported in [2010] 329 ITR 483 (Delhi) where in paragraph No. 27, it is observed as under (page 500) :
"Another contention of the learned counsel for the Revenue is that this issue whether the sundry creditors are genuine or not could not have been re-examined by a co-ordinate Bench of the Tribunal in penalty proceedings to arrive at a contrary conclusion by relying upon the assessment order of 1998-99 passed under section 143(3) of the Act after scrutiny and in particular on the following observations made therein :
'The assessee has shown in the balance-sheet under schedule III as details of sundry creditors’ hire charges of Rs. 58,55,005 but during the course of hearing it was intimated by them that it was only the payments to be made to the contractors who were plying the trucks on behalf of the company and the company had hired them for Jaipur Municipality for removing the garbage. The list of these creditors to whom the amount is payable have been filed and affidavit to the effect for the person concerned have been filed stating thereby the amounts receivable by them from M/s. Devsons Pvt. Ltd.
The total amount of Rs. 58,55,005 consists of sundry creditors of Rs. 49,93,063 and other creditors for hire charges of Rs. 8,61,942. Thus, there has been a scrutiny of the amount outstanding towards these eight persons in the subsequent years and at least in one of the assessment orders there is a finding that the amounts were actually due to them and that some of them have filed affidavits also to the effect that the amounts are due to them. At our instance, the learned counsel for the assessee pointed out to the ledger accounts of sundry creditors placed at pages 70-109 of paper book No. 1. The account of Morari Lal to whom an amount of Rs. 4,71,658 is outstanding as on March 31, 1995 is at pages 71A to 73A. The account shows that several payments were made during the year under appeal to this contractor and there has been no disallowance of the amounts so paid. This indicates that the Assessing Officer has no objection to allowing the actual amounts paid to these persons, which could have been only on his being satisfied that such a person actually existed, that he has done work for the assessee-company during the year and the payment was otherwise genuine and bona fide incurred for the purpose of the business. It is not, therefore, understood as to how the balance outstanding to such persons at the end of the year can be considered to be non-genuine. The ledger account also shows that the assessee has deducted tax on the hire charges paid to Morari Lal. The ledger accounts of all the other seven creditors have also been placed in the paper book and these also exhibit the same position.' "
3.2 Further reliance has been placed by the learned counsel for the petitioner on the decision of the apex court in the case of Tripal Singh v. CIT reported in [2014] 365 ITR 511 (SC) wherein it is held as follows (headnote) :
"Held, that the assessees, who were not very educated persons, unfortunately could not be properly represented before the Assessing Officer and, therefore, the assessment was made for the assessment years 1998-99. The assessment for the assessment year 1998-99 was over and the assessment order had become final. In these circumstances, the court would not interfere with the assessment order. However, no penalty proceedings were to be initiated and no interest was to be recovered from the assessee if the tax was paid within 60 days."
3.3 Reliance has also been placed on the decision of this court in the case of CIT v. Sonal Construction Co. reported in [2015] 55 taxmann.com 425 (Guj) wherein at paragraph Nos. 6 and 7, it is observed as under :
"6. We are taking this view in light of the factual scenario as it emerges and more particularly, paragraph 5 of the reasons given by the Tribunal which we propose to reproduce hereunder :
'5. We have heard rival submission and perused material available on record. As the facts emerge, it is clear that the assessee furnished relevant details i.e. names, addresses, confirmations etc. and offered the Assessing Officer to call some of them for examination. It appears that these details were not inquired into further, however, the asses see offered about amount for addition purpose. We find merit in the argument of learned counsel that assessment proceedings and penalty proceedings are separate and distinct and merely because additions has been made, the same will not lead to automatic levy of penalty. The assessee reiterated its stand in penalty proceedings, the Assessing Officer should have inquired matter independently in penalty proceedings and given a finding about correctness or otherwise of the assessee's explanation. The Assessing Officer has imposed penalty solely on the basis of agreed addition by the assessee, in the given facts and circumstances, explanation furnished by the assessee remains uncontroverted, and therefore, it cannot be held that explanation given by the assessee have been found to be incorrect or false. In view of the above facts, ratio of the hon'ble Supreme Court in the case of K. P. Madhusudanan v. CIT [2001] 251 ITR 99 (SC) is not applicable as the explanation offered by the assessee remains uncontroverted on record and addition offered was clearly worded to avoid litigation, and offer cannot be held to be without bona fides. Penalty imposition solely on the basis of such addition, overlooking the details and explanation filed by the assessee cannot be sustained. In view thereof, we delete the penalty.'
7. We are even supported in our view by the latest decision of the apex court reported in Asst. CIT v. Gebilal Kanhaialal, HUF [2012] 348 ITR 561 (SC) and in the case of Northland Development and Hotel Corporation v. CIT reported in [2012] 349 ITR 363 (SC). The twin decisions will permit us to hold in favour of the assessee and against the Revenue."
3.4 Reliance has been placed on the decision of this court in the case of CIT v. Jyoti Ltd. reported in [2013] 34 taxmann.com 65 (Guj) in which it is held as under :
"Where the Assessing Officer in order of penalty did not come to a clear finding regarding penalty being imposed on concealment of income or on furnishing inaccurate particulars of income, the Tribunal was justified in setting aside the impugned penalty order."
3.5 Further reliance is placed on the decision of the apex court in the case of CIT v. Reliance Petroproducts P. Ltd. reported in [2010] 322 ITR 158 (SC) where it is observed as under (headnote) :
"A glance at the provisions of section 271(1)(c) of the Income-tax Act, 1961, suggests that in order to be covered by it, there has to be concealment of the particulars of the income of the assessee. Secondly, the assessee must have furnished inaccurate particulars of his income. The meaning of the word 'particulars' used in section 271(1)(c) would embrace the details of the claim made. Where no information given in the return is found to be incorrect or inaccurate, the assessee cannot be held guilty of furnishing inaccurate particulars. In order to expose the assessee to penalty, unless the case is strictly covered by the provision, the penalty provision cannot be invoked. By no stretch of imagination can making an incorrect claim tantamount to furnishing inaccurate particulars. There can be no dispute that everything would depend upon the return filed by the assessee, because that is the only document where the assessee can furnish the particulars of his income. When such particulars are found to be inaccurate, the liability would arise. To attract penalty, the details supplied in the return must not be accurate, not exact or correct, not according to the truth or erroneous.
Where there is no finding that any details supplied by the assessee in its return are found to be incorrect or erroneous or false there is no question of inviting the penalty under section 271(1)(c). A mere making of a claim, which is not sustainable in law, by itself, will not amount to furnishing inaccurate particulars regarding the income of the assessee. Such a claim made in the return cannot amount to furnishing inaccurate particulars."
4. Learned counsel for the Revenue Mr. Mehta has contended decision taken by the authorities are just and proper. Since the assessee has accepted the original order of the Assessing Officer as he has not challenged the same, penalty has been rightly imposed by the Assessing Officer.
5. We have heard learned counsel for the parties. Taking into account the decision of this court in the case of Navnitlal K. Zaveri (supra) and other decisions of the apex court, it is clear that the penalty under section 271(1)(c) is not sine qua non when there is no concealment of income or furnishing inaccurate particulars of income. Merely because there is difference between the income returned and income assessed as a result of disallowance made by the Assessing Officer, it cannot be said that the assessee has furnished inaccurate particulars of income. In the present case, outstanding expenses were not believed by the Assessing Officer but outstanding debt was believed. The authority ought to have either believed both or disbelieved both outstanding expenses and outstanding debt. There is no finding to the effect that the details furnished by the assessee are incorrect or false. In that view of the matter, relying on the decision of the apex court in the case of CIT v. Reliance Petroproducts Pvt. Ltd. (supra), no penalty can be leviable. Hence the order dated February 25, 2008 passed by the Commissioner of Income-tax, Surat, under section 264 of the Act is quashed and set aside and the penalty under section 271(1)(c) of the Act imposed by the Assessing Officer vide order dated August 30, 2006 is also quashed and set aside.
6. In the result, the petition is allowed accordingly.