2017 (11) TMI 1426 - HC - Income Tax

Penalty under section 271(1)(c) - non disclosure of income - addition made on account of minimum guarantee realisation - as per assessee the assessee s income was a loss for both the assessment years - Tribunal upheld the penalty as concluding that non-availability of the agreement does not mean that the nature of the transaction cannot be disclosed - Held that - For the simple reason that the assessee could not have got away by urging that the copy of the agreement with M/s. Prakash Pictures was not available. The assessee should have been candid and honest in disclosing that the agreement with M/s. Prakash Pictures resulted in the assessee obtaining the sum of ₹ 13,70,000/-. The assessee would have received this sum in respect of the distribution right of the picture Charas in Bombay Territory. The assessee, in the original file, did not disclose fully and truly all the particulars of income for the relevant year. The assessee maintains that the amount was not to be realised fully, but it was inaccurate in the sense that the distributor M/s.Prakash Pictures was also assessed to tax. M/s. Prakash Pictures produced the record and which referred that the assessee before us was paid the same price of ₹ 13,70,000/-. M/s. Prakash Pictures debited this amount as the cost of acquisition of the picture. It is in these circumstances that we find that the assessee managed to thwart the tax liability as rightly held by the Tribunal. This finding of fact rendered by the Tribunal cannot be termed as perverse. The Tribunal rightly came to the conclusion that it was immaterial as to whether the agreement was available or otherwise. However, it is not possible that the agreement in writing was not available. Even if formal written agreement was not available, it certainly would have been on the basis of some prior negotiations. The assessee and M/s. Prakash Pictures are both in film making and distributing business. Hence, they ought to have known the nature of transaction despite non-availability of the agreement. Secondly, the assessee cannot depend on the other party to the transaction for making entries in his book. If the assessee had included the entire receipts in the year under consideration, he would have ended up paying tax for the present year because even after setting off the brought forward losses, as mentioned earlier, the loss would have been converted into positive income with the inclusion of the balance receipt. Further, by virtue of losses of the assessment year 1977-78 and earlier years being wiped out, the assessee could not have availed of the benefit of further unabsorbed losses during the assessment year 1978-79. Thus, the Tribunal concluded that by not including the entire receipts in the assessment year 1977-78, the assessee was able to thwart his tax liability for two years, namely, assessment year 1977-78 and 1978-79. Thus, by deferring the declaration to the subsequent year, the assessee certainly furnished inaccurate particulars of income for the year under appeal and either avoided or deferred his tax liability. - Decided against assessee.

Summary

Issues Involved:
1. Legality of the penalty under Section 271(1)(c) of the Income Tax Act.
2. Justification for the imposition of the penalty based on evidence.

Issue-wise Detailed Analysis:

1. Legality of the Penalty under Section 271(1)(c) of the Income Tax Act:

The primary issue was whether the Tribunal was correct in reversing the order of the Commissioner of Income Tax (Appeals) and confirming the penalty under Section 271(1)(c) of the Income Tax Act. The assessee sold a movie to M/s. Prakash Pictures for ?13,70,000 but disclosed only ?3,90,917 in the assessment year 1977-78. The assessment was reopened under Section 147(a) due to the discrepancy, and a penalty of ?6,46,588 was imposed for furnishing inaccurate particulars of income.

The Tribunal found that the assessee had shown the balance income in the subsequent year, which led to inaccurate particulars of income for the year under appeal. The Tribunal concluded that the non-availability of the agreement did not justify the non-disclosure of the entire income, and the assessee's actions resulted in either avoiding or deferring tax liability.

The High Court upheld the Tribunal's decision, stating that the assessee should have disclosed the full amount received from M/s. Prakash Pictures. The court noted that the assessee's argument of not having the agreement was not credible, and even without a formal agreement, the nature of the transaction should have been known. The court emphasized that the assessee's actions were not just a technical error but a deliberate attempt to avoid tax liability.

2. Justification for the Imposition of the Penalty Based on Evidence:

The second issue was whether there was sufficient evidence to justify the penalty under Section 271(1)(c). The assessee argued that there was no concealment as the amount was shown as income in the subsequent year's return. However, the Tribunal found that the assessee's actions led to inaccurate particulars of income for the year under appeal, and the penalty was justified.

The High Court agreed with the Tribunal, stating that the assessee's explanation of treating the amount as an advance was not credible. The court noted that the assessee's actions resulted in a positive income for the year under appeal, and the attempt to defer the tax liability was evident. The court also emphasized that the penalty under Section 271(1)(c) is a civil liability and does not require mens rea (intent to deceive).

The High Court referred to the Supreme Court's decision in Union of India vs. Dharmendra Textiles Processors, which held that the penalty under Section 271(1)(c) is a civil liability and does not require willful concealment. The court also cited the Supreme Court's decision in Mak Data P. Ltd. vs. Commissioner of Income Tax-II, which emphasized that voluntary disclosure does not absolve the assessee from penalty liability.

Conclusion:

The High Court concluded that the Tribunal was correct in imposing the penalty under Section 271(1)(c) and that the assessee's actions were not justified. The court answered the questions in favor of the Revenue and against the assessee, upholding the penalty for furnishing inaccurate particulars of income.