The penalty under s.271(1)(c) of the Income Tax Act 1961 could not be imposed on the assessee since it was under a bona fide belief that income on sale of debentures was taxable as capital gains. Further, such gains had been treated as capital gains in earlier years. No further investigation was called for and no remand was necessary.
High Court of Delhi
CIT vs Vachampigons and Agro Product
IT Appeal No. 1105/2005
T.S. Thakur and B.N. Chaturvedi, JJ
21 November 2005
R.D.Jolly, Advocate, Vishnu Sharma, Advocate for the Petitioner None for the Respondent
1. The Commissioner of Income Tax (Appeal) deleted the penalty levied upon the assessee holding that since income from the sale of debentures for the previous assessment year had been treated as capital gains and taxed accordingly, the assessee had a bonafide belief that the same treatment may be given to the income for the year under consideration. For the assessment year under consideration the Assessing Officer had taken the view that income arising from the sale of debentures could be brought to tax as business income. The assessee had shown the income arising from the sale of debentures as capital gains relying upon the assessment for the previous year in which similar income had been so treated. The Commissioner was therefore of the view that change in the opinion by the Assessing Officer as regard the income being capital gains or business income could not make out a case for levy of a penalty upon the assessee. The Commissioner has relying upon the decision of the Supreme Court in Hindustan Steel Ltd. vs. State of Orissa (1972) 83 ITR 26 (SC) deleted the penalty in the following words :-
"This change of opinion is by itself not enough to justify the penalty. In Hindustan Steel Ltd. vs. State of Orissa (1972) 83 ITR 26 (SC) it was held that an order imposing penalty for failure to carry out a statutory obligation is the result of quasi-criminal proceeding. Penalty will not be ordinarily imposed unless the party acted deliberately in definace of law or was guilty of dishonest conduct or acted in conscious disregard of its obligation. A penalty should not be imposed for a mere technical or venial breach of law. In Additional CIT vs. Kalyan Mal Mills Tent Factory 116 ITR 881 (MP) it was held that where the law authorises the authority to impose the penalty, the penalty could not be imposed without examining as to whether there was a deliberate defiance of law or a conscious disregard of the obligations. The penalty should not be imposed because it was lawful to do so or because there was any technical or venial breach of law. The AO has not brought on record any fact or evidence to show such contumacious conduct of the appellant. The appellant could have honestly believed that the income was taxable as capital gains." (emphasis supplied)
2. The Tribunal has affirmed the above line of reasoning and concluded that since the gains arising under identical circumstances had been treated as capital gains by the Assessing Officer, the assessee was under a bonafide belief that for the assessment year under consideration a similar treatment would be given to the said income. The Tribunal has in this connection observed as under :-
"We have duly considered the rival contentions and the material on record. We have perused the assessment order for assessment year 1995-96. We find that gains arising under identical circumstances have been treated as capital gains by the Assessing Officer. Therefore, the assessee was under a bonafide belief that this year also the same treatment should be given. But the Assessing Officer thought otherwise and changed his stand. We fail to understand where the assessee went wrong. We are not commenting on whether the gains should be treated as capital gains or as business income. But we are on the issue as to how the assessee can be faulted because of the change of opinion on the part of the Assessing Officer, particularly when the assessee had made full disclosure of all the facts. The decisions relied upon by the learned counsel are applicable to the facts of the case and accordingly, we uphold the order of the CIT (Appeals) canceling the penalty."
3. On the findings recorded the CIT(A) and the Tribunal it is evident rhat the assessee was under a bona fide belief that income arising out of the sale of debentures was taxable as capotal gains and not as business income. That finding of fact does not, in our view, give rise to a substantial question of law to warrant our intervention.
4. Mr. Jolly however strenuously argued that since the assessee had not offered any explanation to the notice calling upon him to show cause against the proposed penalty he must be presumed to have accepted that the income was concealed. In support of that submission he relied upon explanation to Section 271 (1c) added w.e.f. 1st April, 1976 and the decision of the Supreme Court in K.P. Madhusudhanan in 251 ITR 99. He submitted that although the assessee could have made up the deficiency and offered an explanation before the appellate authority namely the Commissioner of Income Tax, once such an explanation was offered it was incumbent upon the appellate authority to remand the matter back to the assessing authority for an appropriate order on the said explanation. Inasmuch as the Commissioner had not remanded the matter back to the Assessing Officer it committed a mistake which ought to have been corrected by the Tribunal.
5. There is no doubt that no explanation was offered by the assessee before the Assessing Officer. The order passed by the Assessing Officer imposing a penalty specifically records that the assessee has not come forward to offer any explanation. The result was an order levying penalty upon the assessee. To that extent no fault could be found with the order of assessment but that did not prevent the assessee from challenging the order and offering an explanation before the Commissioner in appeal who exercised the very same powers as were exercisable by the Assessing Officer. The question however is whether upon such an explanation being offered before the Commissioner it was incumbent upon him to remand the matter back to the Assessing Officer for a fresh order. Our answer to that question is in the negative. It is true that if certain evidence or material is not available to the original authority and is for the first time pressed into service at the appellate stage, the appellate court or authority may consider it appropriate to remand the matter back to the original court or authority to have the benefit of his opinion on any such additional material. That however is not an inviolable rule. It all depends upon the facts and circumstances of each case. A remand in the present case was not in our view absolutely essential, having regard to the nature of the assessee's explanation which did not involve any further investigation. That is because the facts relevant to the explanation were admitted. It is common ground that for the previous assessment year the very same income arising from sale of the debentures had been treated as capital gains and taxed accordingly. The only question was whether the change in the opinion of the Assessing Officer regarding the nature of the income being business income or capital gain would constitute a sufficient cause to avoid the penalty. The Commissioner considered that aspect and for good reasons came to the conclusion that it was not a fit case in which penalty could be imposed. That finding has been rightly affirmed by the Tribunal. In the circumstances therefore explanation to Section 271 (1C) of the Income Tax Act or the decision of the Supreme Court relied upon by Mr. Jolly do not lend much assistance to him. The question whether the explanation was good enough to justify deletion of the penalty having been considered and concurrently answered in favour of the assessee by the two authorities below, there is no room for interference in appeal by us especially when no substantial question of law arises for consideration. This appeal accordingly fails and is hereby dismissed.