Strictures by a Judicial Forum — Need for Restraint

These are the observations of the Supreme Court in the case of Pandit Ishwari Prasad Misra v. Mohammad Isa, (1963) BLJR 226; AIR 1963 SC 1728, 1737(1).

The Patna High Court in CIT v. Shri Krishna Gyanoday Sugar Ltd., (1967) 65 ITR 449 referring to the ruling of the Apex Court, held that the use of strong language and the passing of strictures against the officers concerned of the Incometax Department were, to say the least, unwarranted and uncalled for and that it was not safe and advisable to make the remarks as made by the Tribunal in that case.

In my opinion, the conclusion of the Patna High Court is applicable while commenting on the conduct of the assessee as well. In the matter relating to penalty, the Delhi Bench of the ITAT in ACIT v. Khanna & Annadhanam, (2011) 13 Taxmann.com 94 (Delhi-Trib.) while conforming penalty u/s.271(1)(c) held:

“The assessee can harbour any number of doubts, however, the law postulates that the assessee should file a return which is correct, complete and truthful. The law of Income-tax prescribes allowability of various kinds of incomes and expenses and in respect of professional income mandate is clear. The need of proper verification clearly indicates that law wants the assessee to be very vigilant while making a claim and not to make a claim which is not in accordance with law. If the receipt is prima facie revenue in nature, there is no gainsaying that the assessee harboured doubt in respect of earning fruits of the tree though not from the same branch of the tree.”

Doubts can always result into a mistake and that therefore this needs to be tolerated with humility and calmness, rather than by severe criticism of the person who held any such doubt or commits mistake.

 In this case the assessee, a firm of chartered accountants, was a partner of Deloitte Haskins & Sells (DHS) and had nominated partners in DHS and was a member of Deloitte Touche Tohmatu International (DTTI), a non-resident professional firm. The assessee rendered services to clients of DHS in India in the name of DHS. DTTI was keen that all the firms constituting DHS should merge into one firm. The merger would have resulted in losing national identity of the constituent firms. As this was not acceptable to the assessee, it was decided that DTII would ask the assessee to withdraw from the membership of DHS/DTII. The assessee received a compensation of Rs.1.15 crores on its withdrawal, which was treated as capital receipt by the assessee and was credited to partners’ accounts. This was disclosed in the computation and the balance sheet by way of a note.

The Tribunal held that if the assessee had continued as the member of DTII, the earning would have been professional receipt and the alternate receipt also takes the same analogy and has no trapping of having any doubt about its being a purely professional receipt or revenue receipt. The Bench went further on to pass the following strictures in this case against the assessee:

“The assessee is a firm of chartered accountants and it is not understandable that for such an issue about a clearly professional receipt, which is very basic in character, the assessee had any doubt about its nature. If it is so, we are unable to understand how the assessee can discharge its role as a professional consultant, auditing number of clients, giving them valuable advices on the accounting and taxation aspects. It is unimaginable that a professional firm like the assessee, will tend to have any doubt on such a simple proposition of professional receipt. There is no whisper in the agreement between DTTI and the assessee which creates any doubt at all. In our view, the issue never called for any doubt or ambiguity, the same has been created by the assessee and not by the law. The assessee has ventured into an adventure which was fraught with obvious risks which it has preferred to take. The assessee has pleaded that payment of advance tax does not amount to admission and the assessee is free to change its stand. In our view, advance tax payment may not be conclusive, but it is an indication to the mindset of the assessee. While construing strict civil liability, it becomes imperative to correlate the assessee’s various activities and explanations.”

In this case the assessee also held with it three legal opinions to defend its case, but their content did not yield any help, nor find discussion in the order for the reason that these were not presented to the assessing authorities either during the assessment or penalty proceedings.

The criticism against the assessee firm in this case is: “How the assessee can discharge its role as a professional consultant, auditing number of clients, giving them valuable advices on the accounting and taxation aspects can view a professional receipt as a capital receipt. It is unimaginable that a professional firm like the assessee will tend to have any doubt on such a simple proposition of professional receipts.”

Even though the assessee may be well versed on the subject, it gathered opinion of three independent experts out of which two headed the CBDT forum. The Bench countered the professional firm doubting its competencies even in areas that have nothing to do with the subject of taxation. With due respect, the thing that is of utmost concern here is whether it is appropriate for the Tribunal to demean a firm of professional chartered accountants of repute. It must be appreciated that the profession of law and accountancy are noble professions and it is only in keeping with this notion that the Benches are formed of judicial and accountant members who hold expertise in their respective discipline. In keeping with the observations of the Supreme Court, it is submitted with respect that perhaps it is desirable that the Honourable members of the Tribunal exercise restraint and avoid excessive criticism. This will only postulate and protect the rule of law as well as the dignity of the great forum of the Income Tax Appellate Tribunal.