Penalty of ₹66.21 lakh was imposed on him for alleged concealment of income

The Income Tax Department on Tuesday withdrew three tax case appeals preferred by it in 2014 against orders passed in favour of actor Rajinikanth by an Income Tax Appellate Tribunal (ITAT), which set aside a penalty of ₹66.21 lakh imposed on him for allegedly concealing full particulars of income and providing inaccurate information.

Justices Vineet Kothari and R. Suresh Kumar accepted a request made by M. Swaminathan, senior standing counsel for I-T Department, to withdraw the appeals in view of a decision taken by Central Board of Director Taxes (CBDT) to avoid litigation by dropping legal proceedings in claims where the recoverable amount was less than ₹1 crore.

In its pleadings before the court, the I-T Department stated that the “leading film actor” had disclosed ₹ 61.12 lakh, ₹1.75 crore and ₹33.93 lakh as his income for the years 2002-03, 2003-04 and 2004-05 respectively. This was apart from ₹1.41 lakh and ₹ 1.09 lakh of his agricultural income disclosed in his returns for the financial years 2002-03 and 2004-05.

However, on studying the records, the department noticed that the actor had claimed a huge amount of professional expenditure in spite of disclosing “insignificant professional income.” Hence, a survey operation was carried out at his office premises, situated within his Poes Garden residence in Chennai, on February 7, 2005.

During the survey, it was found that not even one-tenth of the residential property ws devoted for professional purposes. Therefore, the actor was asked to substantiate the expenses claimed under various heads incurred towards his “negligible professional income admitted in the returns.”

After the survey operations, the assessee filed revised returns for all the three assessment years in question and claimed that he had earned more than what was disclosed in the original returns.

“The Assessing Officer recorded statements from the assessee and his employee and came to the conclusion that only 50% of expenditure incurred was for his professional activities and the other 50% of the expenses were incurred for his personal use.

Ample time given

“The Assessing Officer also observed that the assessee was given ample opportunity to substantiate his claim of expenses, but he did not avail the same and did not produce the necessary particulars. Only because of the survey could the department establish the correct income and hence the Assessing Officer invoked the penalty proceedigns and levied penaly of ₹ 6.20 lakh, ₹5.56 lakh and ₹54.45 lakh for the three assessment years under Section 27(1)(c) of the Income Tax Act,” the pleadings read. Aggrieved by the penalty, the actor preferred an appeal before the Commissioner of Income Tax (Appeals), who dismissed it on November 29, 2011 after holding that the assessee might not have offered excess income for tax but for the survey.

Nevertheless, when the actor went on further appeal to the ITAT, he won on July 26, 2013.

The ITAT held that penalty could not have been imposed merely on the basis of statements recorded from the actor and his employee without backing it up with material evidence or an investigation. The tribunal also ruled that estimation of expenditure by the actor in his original returns would not amount to concealment or furnishing of inaccurate particulars.

Assailing the ITAT’s order before the court, the I-T department claimed that the tribunal’s order was erroneous in law, as it had failed to appreciate that the assessee had filed revised returns only after the survey proceedings and so they could not be treated as revised returns filed voluntarily.