Learning from judgment in the case of Moser Baer India Ltd - the case must be prepared on facts, and should not rely merely on technical issues.

[C.A. DEV KUMAR KOTHARI]

Relevant links and references:

COMMISSIONER OF INCOME-TAX Versus MOSER BAER INDIA LTD. [2009 -TMI - 34681 - SUPREME COURT]

Virtual Soft Systems Limited v. CIT [2008 -TMI - 2873 - SUPREME COURT OF INDIA]       

CIT v. Prithipal Sing 2000 -TMI - 40305 - (SUPREME Court).

CIT v. Gold Coin Health Food P. Ltd. [2008 -TMI - 30245 - SUPREME COURT]

Elphinstone case [1960] 40 ITR 142 (SC)

CIT v. Ram Commercial Enterprises Limited 1998 -TMI - 14813 - (DELHI High Court)

Law is not sure and certain - it is extremely sorry state of affairs to say so

The law of any country must be sure and reliable. If law is not sure, how we as citizens and can plan our things. How foreigners can rely on our law if it can be changed any time. The law as stand at any point of time must be final for the relevant period. There should not be change for any earlier period to say that the law is reliable on which one can rely. Where law can be changed any time then practically there is no reliability of law. Because the law may not be what is written in statute book but it may turn out something which is in mind of a petty revenue officer. Because what an officer felt say about 40-50 years ago, may be the ultimate law because the government has now regular tendency of making law to unsettle settled things by legislating retrospectively without any limitation.

We cannot be even sure about law declared by the Supreme Court. Because a judgment declaring law of the land may be changed by a larger bench of the Supreme Court or by a subsequent amendment. This has become a regular feature. 

Technical and factual both strength are required:

One must be careful in his planning and pleadings to make out case stronger on facts and legal issues both. Mere technical way of winning a case may not be proper in view of frequent changes of law and particularly changes in law to rectify mistakes and omissions of revenue officers. Winning on one ground may be reversed, therefore, there should be pleading and winning on several grounds and contentions so that even if on one count, in future one fail , he can survive on other grounds and contentions.

Furthermore, in interest of justice, it is always desirable that the cases must be decided more on facts and merit then on technicalities.

Penalty proceedings

In any proceeding one can take defence on technical grounds, however mere reliance on technical issue or ground is not proper. To have win at last it is desirable that favorable facts must also be brought on record and  argued and decided to avoid repetition of proceedings as happened in the case of Moser Baer India  Ltd. [2009 -TMI - 34681 - SUPREME COURT]

Brief facts:

The assessee had income which was set off against brought forward losses and total income was reduced to nil. Assessee has mistakenly claimed deprecation, which was claimed to be due to clerical mistake. The A.O. imposed penalty for wrong alleged claim of depreciation.

The CIT (A) deleted penalty as there was no total income and tax payable on such income. The issue on merit as to whether the claim was made due to some reasonable cause, or bona fide mistake was not examined. The Tribunal also dismissed appeal of the revenue on the ground that in view of certain judgments, the penalty cannot be levied as there was no total income liable to  tax. Penalty being in addition to tax, penalty was rightly deleted by CIT(A), ITAT. The High Court also dismissed the appeal of revenue for the same reasons. Thus at any stage non levy penalty on factual grounds was considered.   

Subsequent amendment caused restoration of appeal :

The relevant provision Section 271.1.c was amended w.e.f. 01.04.2003. The Supreme Court earlier held that the amendment is prospective however, a larger bench of the Supreme Court reversed

That judgment and held that the amendment is retrospective being clarificatory. The Delhi High Court had decided the issue before it based on earlier judgment of the Supreme court in the case of Virtual Soft Systems Limited v. CIT Virtual Soft Systems Limited v. CIT [2008 -TMI - 2873 - SUPREME COURT OF INDIA] and  CIT v. Prithipal Sing 2000 -TMI - 40305 - (SUPREME Court). The revenue had preferred appeal, and now the Supreme Court applied law as declared in CIT v. Gold Coin Health Food P. Ltd. [2008 -TMI - 30245 - SUPREME COURT] and held that the penalty can be levied even if there is loss or tax is not payable.

From COMMISSIONER OF INCOME-TAX Versus MOSER BAER INDIA LTD. [2009 -TMI - 34681 - SUPREME COURT] :

The judgment of the Supreme Court in this case is analyzed below:

As per the Supreme court  the first question related to adjustment of unabsorbed depreciation resulting in negative income (loss) for which penalty was sought to be levied under section 271(1)(c) of the Income-tax Act, 1961 by the Department.

 In this regards the court held that, the matter stands covered by the judgment of the larger Bench of this court in the case of CIT v. Gold Coin Health Food P. Ltd. [2008 -TMI - 30245 - SUPREME COURT].

Thus, the Court held that even in case of loss penalty can be levied.

Regarding the second question which arose before the Tribunal  as to  whether in these cases penalty was also leviable for concealment under section 271(1)(c) of the Income-tax Act 1961. The court held that " we are required to remit these matters to the Tribunal particularly because the said question has not been gone into by the High Court as well as by the Tribunal in the earlier round of litigation".

Thus now the matter has again gone to the Tribunal and the Tribunal shall decide whether on the facts and circumstances, there was a case of concealment of income or not, and whether penalty was leviable or not.

The order of the CIT(A) was also on limited technical issue:

From the observation of the High Court in its judgment we find that the learned CIT(A) has also vacated the penalty for the only technical reason that there was no positive income liable to tax, so penalty cannot be levied. Learned CIT(A) also has not gone into merit of the claim of depreciation to find out whether it was bona fide claim or just due to clerical and bona fide mistake as claimed by assessee before the A.O. and whether on the facts and circumstances this penalty can be levied or not. The observation of the High court in this regard are as follows:

 "The appeal by the assessee was allowed by the Commissioner (Appeals) by on order dated January 31, 2001. The Commissioner (Appeals) held that since the tax payable on the total income as assessed was nil, there was no positive income and, therefore, the penalty could not be levied.".

In view of the above situation about orders of lower authorities, it would have been better situation if the matter was restored to the CIT(A) instead of to the ITAT. It appears that the Tribunal may on consideration of order of CIT(A) and the A.O. and stand taken by assessee may find it proper to remit the matter to the A.O. or the CIT(A). In case the assessee has, before the A.O.  relied on limited issue of 'no income- no tax- no penalty', then preferable the matter should  be decided afresh by the A.O.

The weakness in the case of the assessee:

As noted in judgment of the High Court an explanation was sought from the assessee regarding claim of depreciation and the assessee by its letter dated January 8, 1999, submitted that the claim for depreciation was a clerical mistake thus the  assessee filed a revised computation withdrawing claim for  depreciation and also withdrawing exemption under section 10A in respect to Floppy unit since it has suffered loss.

The actions of the assessee are after the A.O. has detected these claims as wrong and asked for explanation. The assessee made a mistake by calling it as a clerical mistake instead of making out the case as to what was advised to the assessee and what was basis of claim. A clerical mistake in such a big company having several type of auditors and consultants may not be acceptable as a ground to say that there was a bona fide mistake. A mistake due to complexity of law, different views prevailing amongst professionals leading to a possible view to claim can be ground as in that case there will be not furnishing of inaccurate particulars of income.

Recording of satisfaction of the A.O.

The assessee has taken another technical issue regarding satisfaction of the A.O. and claimed that the A.O. has not recorded his satisfaction. The assesse had relied on CIT v. Ram Commercial Enterprises Limited [2000] 246 ITR 568 however, this issue is also very contentious and  has not been decided by the Supreme Court. There are difference of opinions amongst High Court about basics as well as about manner of recording satisfaction. Some courts have taken a view that mere disallowance of a claim amount to satisfaction about concealment.

Now vide the Finance Act, 2008, Section 271 has been amended and a sub-section (1B) has been inserted w.e.f. 01.04.1989 to the effect that if the A.O. has made an addition or disallowance and initiated penalty proceedings, then it will be deemed that the  order of the A.O. constitute his satisfaction and it will amount to recording of such satisfaction about his view of  concealment of income.

 Thus this issue also shows that mere reliance on technical contention is not proper.

Lesson from this case:

The case should be prepared first on facts, then on law and at last on technical issues. You must not even rely on judgment of the Supreme Court, because it may be doubted in future or may be considered as not applicable due to some amendment by insertion of a full stop, a comma or a few words. For example, in case of penalty provisions of section 271.1.c, insertion of two words and a comma that is 'if any,' have changed the law. If the A.O. has a different view which find somewhere support in circular of board or recommendations of any expert committee etc. This is because after all judges of the Supreme Court are also human being, they  may also have  some preferences and  may have some prejudice also due to various factors those have been encountered by them in personal life as well as while discharging duties as judge, they have to take decisions on varied issues and some time one issue may affect other issue also, and in spite of having assistance of bar from all parties consisting of both sides- the revenue and the taxpayer they can decide something either way in peculiar circumstances of the proceedings of any  case. Furthermore, the judges are also controlled by natural factors, and once we recognize natural factors as acting or affecting a human being, the judges can also make mistake. Thus the case should be prepared taking into consideration all possible grounds for defence.