KOLKATA, JULY 16, 2012: THE issues before the Third Member are - Whether
expert advice by the assessee's CA can be cited as bonafide reasons for
claiming false deduction and hence penalty cannot be levied in such
circumstances and Whether Third Member can sit in judgment over
dissenting member's view. And the answer goes against the assessee.
Facts of the case
The assessee is engaged in the stevedoring business and had filed the original return of income on 25.11.2003 disclosing income of Rs 26,950, and this return was processed u/s 143(1) of the Act. In the assessment so finalized, the assessee has claimed a deduction of Rs 23,25,000 in respect of expenses incurred on voluntary retirement scheme. The AO was of the view that this claim was erroneous inasmuch as the assessee was entitled to the deduction, u/s 35DDA of the Act, of only one fifth of the expenses incurred on voluntary retirement scheme. The AO further noted that in the immediately preceding year, the assessee
had claimed only one fifth of the expenses on voluntary retirement scheme, and, it could not, therefore, be said that the assessee was unaware of the provisions of Section 35DDA of the Act. It was in this backdrop that the AO reopened the assessment by issuance of notice u/s 148. In the return filed by the assessee, in response to the reassessment notice, the assessee disallowed the VRS payment of Rs 23,25,000, and, thereafter, allowed Rs 4,65,000, being one fifth of Rs 23,25,000, ending up, vis-à-vis the original return, with a disallowance of Rs 18,60,000. The AO also imposed the penalty u/s 271(1)(c) for concealment of income to the extent of Rs 18,60,000 i.e. the expenditure, on voluntary retirement scheme, which was claimed as deduction in the original income tax return even though the same was not admissible as deduction in the relevant assessment year. The AO held it be a clear case of concealment or submission of inaccurate particulars of income and accordingly, imposed a penalty u/s 271(1)(c) @100% of tax sought to be evaded, amounting to Rs 6,51,000 is imposed upon the assessee. The CIT(A) confirmed the penalty.
On further appeal by the assessee before the ITAT, there was a conflict of opinion between the AM and JM and hence the matter was referred to the third member.
Having heard the matter, the TM held that,
++ the onus is on the assessee to prove, inter alia, that the explanation given by the assessee is bonafide. In the present case, the assessee's explanation for that making this claim for deduction, in respect of entire amount paid to the employees for voluntary retirement scheme, is that this admittedly erroneous claim was made because of the expert advice received from their tax consultant, and as such it was a bonafide mistake on the part of the assessee to have claimed the deduction;
++ Viewed in this perspective, just because assessee has an explanation- whatever be its worth and credibility, it does not cease to be a case in which concealment penalty can be levied. The explanation of the assessee has to be considered on merits and one has to take the call as to whether the explanation so given by the assessee can be treated as an acceptable explanation or not;
++ A plain look at the legal opinion obtained from the tax consultant of the assessee, Vakharia & Associates, shows that all that this tax consultant has opined is that the CBDT circular dated 23rd January 2001 ceases to hold good in law in view of Bombay High Court's judgment in the case of Bhor Industries Ltd. There cannot indeed be any quarrel with this proposition, but then this expert advice does not deal with the provisions of Section 35 DDA which were introduced on the statute after the issuance of the circular in question. The law was amended with effect from 1st April 2001 and Section 35 DDA was inserted with effect from that date. The assessee himself has followed the prescription of Section 35DDA in the immediately preceding assessment years, and even this expert opinion does not hold that the provisions of Section 35 DDA, for whatever reasons, will not come into play in respect of VRS payments. There was thus no reason for assessee to deviate from the tax treatment being given to the VRS payments in the preceding assessment years. The onus is on the assessee to prove that the explanation is bonafide but there is nothing from the assessee to even indicate, leave aside proving, that there was any reason to believe that the provisions of Section 35 DDA will not apply to the VRS payments. The expert advice did not deal with this aspect at all. One can perhaps even understand ignorance about a legal provision, such as of Section 35 DDA, but once the assessee is on record not only being aware about this provision but also preparing the income tax return in the light of the said provision, there cannot be any justification about assessee ignoring the clear mandate of the same provision in the subsequent assessment years. Such an action on the part of the assessee, in my considered opinion, cannot be said to be bonafide. The explanation of the assessee is not acceptable. In any case, expert advice obtained by the assessee from Vakharia & Associates lacks credibility and just because the assessee's claim is supported by a chartered accountant's opinion, this fact per se cannot absolve the assessee from penalty u/s 271(1)(c);
++ As regards assessee's reliance on Supreme Court judgment in the case of Reliance Petroproducts Ltd., it is noticed that it was a case in which Their Lordships were only concerned with the question whether "in this case, as a matter of fact, the assessee has given inaccurate particulars". Their Lordships noted that "in this case, there is no finding that any details supplied by the assessee in its return were found to be incorrect or erroneous or false" and add that "such being the case, there would be no question of inviting the penalty u/s 271(1)(c) of the Act" and that "a mere making of the claim, which is not sustainable in law, by itself, will not amount to furnishing inaccurate particulars regarding income of the assessee";
++ On the facts of the present case, we are dealing with not only an inadmissible claim of deduction but a claim of deduction which is contrary to the plain words of the statute and on which no two opinions are possible. This situation cannot be equated with a claim of deduction u/s 14 A in respect of which, as Supreme Court had observed in the case of Reliance Petroproducts (supra), the assessee's plea was that "that the disallowance made by the Assessing Authority in the assessment order u/s 143(3) of the Act were solely on account of different views taken on the same set of facts and, therefore, they could, at the most, be termed as difference of opinion but nothing to do with the concealment of income or furnishing of inaccurate particulars of such income". In the present case, related quantum addition is not on account of different views being taken on the same set of facts but on account of plain words of the statute which admit no ambiguity. The assessee does not, therefore, derive any help from Supreme Court's judgment in the case of Reliance Petroproducts either. The same is rejected;
++ the assessee has also laid a lot of emphasis on the fact that the assessee's explanation has not been found 'false' but then this plea overlooks the fact that when an assessee's explanation is found 'false', this case falls in category (A) of Explanation 1 to Section 271(1)(c) whereas the present case is in category (B) thereof and it covers a situation when assessee offers an explanation and not able to prove its bonafides. These two situations are mutually exclusive situation and just because conditions in part (A) of Explanation 1 are not satisfied, the revenue's case in (B) also does not come to an end. The plea of the assessee does not, therefore, merit acceptance;
++ assessee then submits that there is nothing on record to suggest that the expenditure is bogus or not genuine. That is not the case of the revenue either. The impugned penalty is not in respect of a bogus claim but in respect of making a claim which is patently inadmissible. In such a situation, it is difficult to understand, much less approve, this plea of the assessee. In view of the detailed reasons set out above, the impugned penalty deserved to be confirmed;
++ As for the question about the view taken by the Accountant Member and the propriety, or lack of propriety, thereof, it is important to understand that as a Third Member, under the scheme of Section 255(4), cannot be sitting in judgment about what my esteemed colleagues have decided. The scheme of Section 255 (4) provides for a mechanism to ensure that majority view is possible even when members on a bench are equally divided in their opinion on a point, and all that a 'third member' is to do is to express his opinion on the point on which division bench members have differed so as a majority opinion is possible. A Third Member appointed u/s 255(4) does not hear appeal against the orders passed by the dissenting members and he cannot therefore decide which dissenting member is right and which one is wrong. The very action of advancing arguments in support of or against the views adopted by my dissenting colleagues, which is usually a practice in proceedings before the Third Members, proceeds on the fallacious assumption that the job of the Third Member is to approve or disapprove the views of the dissenting members. While a Third Member has to essentially concur with one of the Members on the original coram of the bench, it is not for him to approve or disapprove the views expressed by the dissenting members. The views of a third member practically end up deciding the point of difference because whatever he decides on the point of difference ends up being majority view, but, as per the scheme of Section 255(4), the views of the third member are on the same pedestal as views of the members in the original coram of the bench. It is very tempting to sit in judgment over the what our colleagues decide, and take a magnified view of one's powers as a third member, but then, irrespective of how senior or how junior these colleagues could be to the Third Member, yielding to such a temptation is not only wholly improper but also plainly contrary to the scheme of Section 255(4). It is improper because all the Members in the Tribunal are at the same level of judicial hierarchy with the same judicial powers, and it is contrary to the scheme of Section 255(4) because all that this section provides for is an additional judicial opinion so as to form majority and not an appeal against the orders passed by the Members in the original coram of the bench.
Facts of the case
The assessee is engaged in the stevedoring business and had filed the original return of income on 25.11.2003 disclosing income of Rs 26,950, and this return was processed u/s 143(1) of the Act. In the assessment so finalized, the assessee has claimed a deduction of Rs 23,25,000 in respect of expenses incurred on voluntary retirement scheme. The AO was of the view that this claim was erroneous inasmuch as the assessee was entitled to the deduction, u/s 35DDA of the Act, of only one fifth of the expenses incurred on voluntary retirement scheme. The AO further noted that in the immediately preceding year, the assessee
had claimed only one fifth of the expenses on voluntary retirement scheme, and, it could not, therefore, be said that the assessee was unaware of the provisions of Section 35DDA of the Act. It was in this backdrop that the AO reopened the assessment by issuance of notice u/s 148. In the return filed by the assessee, in response to the reassessment notice, the assessee disallowed the VRS payment of Rs 23,25,000, and, thereafter, allowed Rs 4,65,000, being one fifth of Rs 23,25,000, ending up, vis-à-vis the original return, with a disallowance of Rs 18,60,000. The AO also imposed the penalty u/s 271(1)(c) for concealment of income to the extent of Rs 18,60,000 i.e. the expenditure, on voluntary retirement scheme, which was claimed as deduction in the original income tax return even though the same was not admissible as deduction in the relevant assessment year. The AO held it be a clear case of concealment or submission of inaccurate particulars of income and accordingly, imposed a penalty u/s 271(1)(c) @100% of tax sought to be evaded, amounting to Rs 6,51,000 is imposed upon the assessee. The CIT(A) confirmed the penalty.
On further appeal by the assessee before the ITAT, there was a conflict of opinion between the AM and JM and hence the matter was referred to the third member.
Having heard the matter, the TM held that,
++ the onus is on the assessee to prove, inter alia, that the explanation given by the assessee is bonafide. In the present case, the assessee's explanation for that making this claim for deduction, in respect of entire amount paid to the employees for voluntary retirement scheme, is that this admittedly erroneous claim was made because of the expert advice received from their tax consultant, and as such it was a bonafide mistake on the part of the assessee to have claimed the deduction;
++ Viewed in this perspective, just because assessee has an explanation- whatever be its worth and credibility, it does not cease to be a case in which concealment penalty can be levied. The explanation of the assessee has to be considered on merits and one has to take the call as to whether the explanation so given by the assessee can be treated as an acceptable explanation or not;
++ A plain look at the legal opinion obtained from the tax consultant of the assessee, Vakharia & Associates, shows that all that this tax consultant has opined is that the CBDT circular dated 23rd January 2001 ceases to hold good in law in view of Bombay High Court's judgment in the case of Bhor Industries Ltd. There cannot indeed be any quarrel with this proposition, but then this expert advice does not deal with the provisions of Section 35 DDA which were introduced on the statute after the issuance of the circular in question. The law was amended with effect from 1st April 2001 and Section 35 DDA was inserted with effect from that date. The assessee himself has followed the prescription of Section 35DDA in the immediately preceding assessment years, and even this expert opinion does not hold that the provisions of Section 35 DDA, for whatever reasons, will not come into play in respect of VRS payments. There was thus no reason for assessee to deviate from the tax treatment being given to the VRS payments in the preceding assessment years. The onus is on the assessee to prove that the explanation is bonafide but there is nothing from the assessee to even indicate, leave aside proving, that there was any reason to believe that the provisions of Section 35 DDA will not apply to the VRS payments. The expert advice did not deal with this aspect at all. One can perhaps even understand ignorance about a legal provision, such as of Section 35 DDA, but once the assessee is on record not only being aware about this provision but also preparing the income tax return in the light of the said provision, there cannot be any justification about assessee ignoring the clear mandate of the same provision in the subsequent assessment years. Such an action on the part of the assessee, in my considered opinion, cannot be said to be bonafide. The explanation of the assessee is not acceptable. In any case, expert advice obtained by the assessee from Vakharia & Associates lacks credibility and just because the assessee's claim is supported by a chartered accountant's opinion, this fact per se cannot absolve the assessee from penalty u/s 271(1)(c);
++ As regards assessee's reliance on Supreme Court judgment in the case of Reliance Petroproducts Ltd., it is noticed that it was a case in which Their Lordships were only concerned with the question whether "in this case, as a matter of fact, the assessee has given inaccurate particulars". Their Lordships noted that "in this case, there is no finding that any details supplied by the assessee in its return were found to be incorrect or erroneous or false" and add that "such being the case, there would be no question of inviting the penalty u/s 271(1)(c) of the Act" and that "a mere making of the claim, which is not sustainable in law, by itself, will not amount to furnishing inaccurate particulars regarding income of the assessee";
++ On the facts of the present case, we are dealing with not only an inadmissible claim of deduction but a claim of deduction which is contrary to the plain words of the statute and on which no two opinions are possible. This situation cannot be equated with a claim of deduction u/s 14 A in respect of which, as Supreme Court had observed in the case of Reliance Petroproducts (supra), the assessee's plea was that "that the disallowance made by the Assessing Authority in the assessment order u/s 143(3) of the Act were solely on account of different views taken on the same set of facts and, therefore, they could, at the most, be termed as difference of opinion but nothing to do with the concealment of income or furnishing of inaccurate particulars of such income". In the present case, related quantum addition is not on account of different views being taken on the same set of facts but on account of plain words of the statute which admit no ambiguity. The assessee does not, therefore, derive any help from Supreme Court's judgment in the case of Reliance Petroproducts either. The same is rejected;
++ the assessee has also laid a lot of emphasis on the fact that the assessee's explanation has not been found 'false' but then this plea overlooks the fact that when an assessee's explanation is found 'false', this case falls in category (A) of Explanation 1 to Section 271(1)(c) whereas the present case is in category (B) thereof and it covers a situation when assessee offers an explanation and not able to prove its bonafides. These two situations are mutually exclusive situation and just because conditions in part (A) of Explanation 1 are not satisfied, the revenue's case in (B) also does not come to an end. The plea of the assessee does not, therefore, merit acceptance;
++ assessee then submits that there is nothing on record to suggest that the expenditure is bogus or not genuine. That is not the case of the revenue either. The impugned penalty is not in respect of a bogus claim but in respect of making a claim which is patently inadmissible. In such a situation, it is difficult to understand, much less approve, this plea of the assessee. In view of the detailed reasons set out above, the impugned penalty deserved to be confirmed;
++ As for the question about the view taken by the Accountant Member and the propriety, or lack of propriety, thereof, it is important to understand that as a Third Member, under the scheme of Section 255(4), cannot be sitting in judgment about what my esteemed colleagues have decided. The scheme of Section 255 (4) provides for a mechanism to ensure that majority view is possible even when members on a bench are equally divided in their opinion on a point, and all that a 'third member' is to do is to express his opinion on the point on which division bench members have differed so as a majority opinion is possible. A Third Member appointed u/s 255(4) does not hear appeal against the orders passed by the dissenting members and he cannot therefore decide which dissenting member is right and which one is wrong. The very action of advancing arguments in support of or against the views adopted by my dissenting colleagues, which is usually a practice in proceedings before the Third Members, proceeds on the fallacious assumption that the job of the Third Member is to approve or disapprove the views of the dissenting members. While a Third Member has to essentially concur with one of the Members on the original coram of the bench, it is not for him to approve or disapprove the views expressed by the dissenting members. The views of a third member practically end up deciding the point of difference because whatever he decides on the point of difference ends up being majority view, but, as per the scheme of Section 255(4), the views of the third member are on the same pedestal as views of the members in the original coram of the bench. It is very tempting to sit in judgment over the what our colleagues decide, and take a magnified view of one's powers as a third member, but then, irrespective of how senior or how junior these colleagues could be to the Third Member, yielding to such a temptation is not only wholly improper but also plainly contrary to the scheme of Section 255(4). It is improper because all the Members in the Tribunal are at the same level of judicial hierarchy with the same judicial powers, and it is contrary to the scheme of Section 255(4) because all that this section provides for is an additional judicial opinion so as to form majority and not an appeal against the orders passed by the Members in the original coram of the bench.
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