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TMI Blog2008 (8) TMI 439X X X X Extracts X X X X X X X X Extracts X X X X ..... ngle issue requiring our adjudication, we reproduce below these grounds of appeal for the sake of record: Ground No. 1: That on the facts and in the circumstances of the appellant's case, the learned Commissioner of Income-tax (Appeals) [CIT(A)] erred in upholding the levy of penalty under s. 271(1)(c) of the IT Act 1961 (the "Act"). The CIT(A) ought to have held that no penalty was leviable on the facts and in law. Ground No. 2: That on the facts and in the circumstances of the appellant's case, the CIT(A) erred in holding that the appellant concealed the particulars of his income and evaded assessment of his correct income. Ground No. 3: The CIT(A) erred in not accepting the appellant's contention to the effect that the appellant had bona fide belief that the additional income declared by him in his return was not liable to Indian taxation. Ground No. 4: The CIT(A) erred and acted on the basis of conjecture, suspicion and surmises and contrary to the record in alleging that it was only as a result of the issuance of a notice under s. 148 by the AO that the appellant was cornered to disclose his true and correct state of affairs. Ground No. 5: The CIT(A) erred in alleging tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be free from doubt. It was in this backdrop that the TP-Swiss revised its computation of taxable income in the hands of the appellant taxpayer, and paid additional taxes. The taxes were paid on 30th Aug., 2006, and the revised statement showing computation of tax liabilities of the employee was filed by TP-Swiss on 4th Sept., 2006. 4. All the requisite information regarding the income, which was not brought to the notice of the Indian-tax authorities on the basis of earlier understanding about taxability in India, was thus duly furnished to the Indian-tax authorities on 4th Sept., 2006. The income, on the basis of this declaration submitted by TP-Swiss to the Indian IT authorities, was recomputed at Rs. 1,23,34,573, as against an income of Rs. 35,47,950 disclosed in the original return. On 17th Nov., 2006, a notice under s. 148 of the Act, reopening the assessment proceedings so as the income escaping assessment could be brought to tax, was issued. A revised IT return was, accordingly, filed on 26th June, 2007 disclosing a revised income of Rs. 1,23,34,573. The assessment was completed on the basis of this revised IT return and without making any adjustments thereto. 5. The matt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ings of the CIT(A): 7. Aggrieved by the stand so taken by the AO, the taxpayer carried the matter in appeal before the CIT(A), but in vain. It was pointed out by the taxpayer that the admitted sequence of event would show that the disclosure was made by the assessee's employer on his own, and it was only on account of the disclosure so made, and on account of the payment of taxes pursuant to the disclosure, that the reassessment proceedings against the assessee were initiated. Even before the initiation of reassessment proceedings, the IT authorities were duly supplied all the information about income not offered to tax earlier and the payment of taxes thereon was duly made. The taxpayer further pointed out that the major portion of so called concealed income consisted of a part of income received abroad, bonus received abroad, pension contribution, spouse pension and schooling expenses. The other major items, according to the taxpayer, were on account of tax borne by the company and value of rent free accommodation, which had consequential impact as quantification of these figures depended on salary income figures. It was then pointed out that pension contribution was not taxable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t only of concealing his income but also evading assessment of his current income". For these reasons, as also the reasons stated by the AO, he upheld the imposition of concealment penalty. The action of the AO was thus confirmed, and in fact fortified, by the CIT(A). The taxpayer is not satisfied with the conclusion arrived at by the CIT(A) and is in further appeal before us. Summary of arguments of the parties: 8. Shri Irani, learned counsel, for the assessee submits that the issue in appeal is squarely covered by the decision of a Co-ordinate Bench of this Tribunal in the case of Lino Alberto Marquis vs. Dy. CIT (ITA No. 497/Pn/2008, order dt. 30th April, 2008) wherein, on materially identical facts, the concealment penalty was deleted. Shri Irani's next argument was that the TP-Swiss has offered the entire salary and bonus paid abroad, as also children education assistance, pension contribution, and spouse pension paid abroad, to tax, this step was taken only with a view to avoid protracted dispute and avoid litigation. It was contended that none of these amounts were, according to plain interpretation of legal provisions, were taxable in India. Our attention was invited to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as later accepted as income in the course of reassessment proceedings, was not shown in the original return of income. This act of non-disclosure, by itself, was enough to establish the mala fides of the taxpayer and constituted legal basis for imposing the concealment penalty. It was submitted that, in any event, the bona fides of taxpayer's conduct were not at all relevant, since the requirement of mens rea being proved before imposition of penalty was no longer necessary. As for the contention of the taxpayer that a major part of income so offered to tax did not constitute income taxable in India on merits, and has been offered to tax only to avoid protracted dispute, learned Departmental Representative submitted that once taxpayer has himself accepted taxability of the same and paid taxes thereon, this stand of the assessee on non-taxability of income is devoid of any basis. Learned Departmental Representative submitted that the judgment of Hon'ble Supreme Court in the case of Dilip Shroff, which was heavily relied upon by the taxpayer, did not constitute good law as Hon'ble Supreme Court has subsequently, in the case of Union of India vs. Dharamendra Textile Processors (2007) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income and for furnishing inaccurate particulars, is concerned. Sec. 271(1)(c), inter alia, provides if the AO, in the course of any proceedings under this Act, is satisfied that any person has concealed the particulars of his income or furnished inaccurate particulars of such income, he may direct that such person shall pay by way of penalty, in addition to any tax payable by him, a sum which shall not be less than but which shall not exceed three times the amount of tax sought to be evaded by reason of the concealment of particulars of his income or the furnishing of inaccurate particulars of such income. Expln. 1 to s. 271(1)(c) further provides that where in respect of any facts material to the computation of the total income of any person under this Act, such person fails to offer an explanation or offers an explanation which is found by the AO to be false, or where such person offers an explanation which he is not able to substantiate and fails to prove that such explanation is bona fide and that all the facts relating to the same and material to the computation of his total income have been disclosed by him, then, the amount added or disallowed in computing the total income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... perhaps hardly can be that any and every explanation by the assessee must be accepted. In my view, the explanation of the assessee for the purpose of avoidance of penalty must be an acceptable explanation. He may not prove what he asserts to the hilt positively but as a matter of fact materials must be brought on the record to show that what he says is reasonably valid." 15. The above views were approved by the Hon'ble Supreme Court in the case of CIT vs. Mussadilal Ram Bharose (1987) 60 CTR (SC) 34 : (1987) 165 ITR 14 (SC). Referring to the judgment of Hon'ble Patna High Court, their Lordships observed: "The Patna High Court emphasised that as to the nature of the explanation to be rendered by the assessee, it was plain on principle that it was not the law that the moment any fantastic or unacceptable explanation was given, the burden placed upon him would be discharged and the presumption rebutted. We agree. We further agree that it is not the law that any and every explanation by the assessee must be accepted. It must be acceptable explanation, acceptable to a fact finding body." 15.1 In the light of the above judicial precedents, it is plain on principle that it is not the l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Indian taxes. Recently, in the course of reviewing its tax position, the company has been advised that the above position of non-taxability of the compensation paid for the services/role referred to above is not completely free from doubt and may attract litigation. The company without prejudice and without going into legality of the position, in good faith and based on its good corporate philosophy wishes to voluntarily come forward on its own and on behalf of its expatriate employees and offer the abovementioned compensation for these services/role to tax in India." 18. At this stage, and for the present purposes, we are not really concerned about correctness and acceptability of the above submission on merits. Suffice to note that the assessee's employer has gone on record to say that the employer was of the view that these incomes were not taxable in India. The existence of technical advice to the effect that income in question was not taxable in India is thus not in doubt. The assessee's plea that he acted upon this advice in good faith, therefore, cannot simply be brushed aside. 19. In view of the above discussions, the explanation of the assessee, in our humble under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... interests in not disclosing the same in the IT return. It is also to be borne in mind that many of these expatriate employees come here on short-term assignments and locating them, years after they have left, and taking their signatures on the revised IT returns, is at times quite a time consuming job. The delay in filing of revised IT returns, under these circumstances, is of no material significance, particularly as all the material facts were specifically brought to the notice of the IT authorities and the delay was due to procedural issues. 23. As regards learned CIT(A)'s observations that he could not understand as to how the taxpayer changed his belief overnight about taxability of the income concerned, we can only say that the source of assessee's belief was all along the inputs from his employer. It was on account of a tax position review conducted by the employer and realizing possibilities of litigation with regard to taxability of certain items, the employer took the stand that these incomes should be offered to tax in India. The assessee adopted the same stand as taken by the employer. As far as shifting of assessee's stand is concerned, that stands reasonably explain ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... imposed. In these circumstances, it is not really necessary to go into the question whether or not there was any mens rea in the conduct of the assessee. That aspect of the matter, in this case, is somewhat academic. However, suffice to say that as held by the Hon'ble Supreme Court, in the case of Dilip N. Shroff, "before a penalty can be imposed, the entirety of the circumstances must reasonably 'point to the conclusion that the disputed amount represented income and that the assessee consciously concealed the particulars of his income or had furnished inaccurate particulars thereof'. While in Dharmendra Textiles, doubts have been expressed on correctness of this judgment, the expression of doubts, by itself, does not dilute binding nature of Dilip N. Shroff judgment. It is still good law and binding on all of us under Art. 141 of the Constitution of India. 26. As held by a three Judge Bench in the landmark case of Hindustan Steel Ltd., "penalty will not be imposed merely because it is lawful to do so" and "whether penalty should be imposed for failure to perform a statutory obligation is a matter of discretion of the authority to be exercised judicially and on a consideration o ..... 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