The Income Tax department recently withdrew all proceedings against actor Rajinikanth for alleged concealment of income because the penalty to be recovered was less than ₹1 crore. Records show that they had chosen to levy a minimum penalty of ₹66.21 lakh, while the maximum penalty would have been ₹1.98 crore.
Section 271(1)(c) of the IT Act provides for the imposition of a maximum penalty of 300% of the amount of tax an assessee is alleged to have attempted to evade by furnishing inaccurate particulars in his/her returns, and a minimum penalty of 100% of the tax amount he/she allegedly attempted to evade. In the actor’s case, the I-T officials imposed the minimum penalty.
The Income Tax Appellate Tribunal (ITAT) orders, accessed by The Hindu , show that it had ruled that the charge of concealment and the consequent imposition of penalty were unwarranted since it was difficult to draw a line between personal and professional expenditure of an actor who “has to maintain his personality” even when he is not acting in films.
According to I-T sleuths, Mr. Rajinikanth had not acted in any film between the assessment years 2002-03 and 2004-05 and, therefore, had not disclosed any revenue from his acting profession. He had supposedly not received any remuneration during those three assessment years, either for projects that had already been completed or for future projects.
Yet, he had claimed to have incurred professional expenses of ₹40.20 lakh, ₹39.51 lakh and ₹36.33 lakh respectively during those three years. Not convinced by his claim, the sleuths conducted a survey of his office, situated in his Poes Garden residence in Chennai, and suspected that he could have declared his personal expenses as professional expenses.
They found that the entire expenditure on the residential-cum-office premises, including electricity, air conditioning maintenance charges, repairs, security charges, telephone and travel expenses, had been debited in the Profit & Loss account. They did not find any vouchers for the supposed professional expenses.
Subsequently, Mr. Rajinikanth filed revised I-T returns, reducing his claim of professional expenses by 50% of what he had claimed in the original returns. Nevertheless, the I-T department initiated penalty proceedings against him on the ground that the revision was made only after the survey proceedings, and not voluntarily, and therefore, it would amount to concealment.
After conclusion of the penalty proceedings in July 2010, the officers had the option of imposing the maximum penalty at the rate of 300% of the amount of tax the assessee allegedly attempted to evade. However, they chose to impose the minimum penalty at the rate of 100% of the evaded tax amount.
Though the actor took the matter on statutory appeal, the Commissioner of Income Tax (Appeals) dismissed his plea in 2011 and confirmed the penalty imposed by the Assessing Officers.
On further appeal, the ITAT reversed the order of penalty in 2013 and said: “It is an admitted fact that the assessee is a film actor and he has to incur some expenditure to maintain his personality...”
The 2013 order passed by ITAT Accountant Member Abraham P. George and Judicial Member V. Durga Rao also read: “It is not a fit case to impose penalty under Section 271(1)(c) of the Income Tax Act of 1961. We therefore delete the penalty.”
Though the I-T department had preferred an appeal in the Madras High Court in 2014 challenging the ITAT’s order, it withdrew the case last week citing a general policy decision taken by the Central Board of Direct Taxes last year to withdraw all cases in which the recovery was less than ₹1 crore in order to avoid long pending litigation.