1989-VIL-82-ITAT-

Equivalent Citation: TTJ 035, 467,

Income Tax Appellate Tribunal BOMBAY

Date: 28.07.1989

MUTUAL PLASTICS.

Vs

TWELFTH INCOME TAX OFFICER.

BENCH

Member(s)  : U. T. SHAH., B. M. KOTHARI.

JUDGMENT

The assessee has filed this appeal against the order passed by the CIT(A) confirming the penalty of Rs. 60,000 under s. 271(1)(c) upon the assessee for asst. yr. 1979-80.

2. The facts of the case are briefly as under:

The assessee did not disclose the correct value of the closing stock in so far as value of 8,000 kgs. of raw material costing Rs. 1,10,000 had been omitted from the closing stock while costing the trading and P&L A/c resulting in an enhancement of the loss declared by the assessee to that extent. The CIT(A) held that the provisions of s. 271(1)(c) as they stood at the relevant time did not require the existence of any mala fides or mens rea for coming to a finding of concealment or furnishing of inaccurate particulars of income. The CIT(A) further observed that the aforesaid omission in the return was admitted by the assessee and, therefore, the assessee must be held to have furnished inaccurate particulars of its income to the ITO and, accordingly, the penalty imposed by the assessing authority under s. 271(1)(c) was sustained by the CIT(A).

3. The learned counsel for the assessee pointed out that the assessee at the earlier opportunity during the course of assessment proceedings for the year under consideration had submitted explanation vide letter dt. 15th Feb., 1982 as under:

"This is in continuation to the submissions made before your goodself in connection with the assessment of the firm for the asst. yr. 1979-80. At the outset we would like to point out an omission in the closing stock value of 8 tons of raw material valued approximately Rs. 1,10,000 which was omitted to be taken into account while compiling the P&L A/c. The said stock has been taken in the stock book as the purchase invoice was received during the year under consideration. However, due to clerical error while compiling the closing stock inventory, the said stock was omitted to be taken into account. The above is an inadvertent clerical error and the correct quantity of opening stock has been carried forward and taken on the stock book for the subsequent year as opening stock for asst. yr. 1980-81. In view of the huge losses incurred by the firm for the asst. yr. 1979-80 and also for the asst. yr. 1980-81, the omission in the asst. yr. 1979-80 is inadvertent and is not motivated for any other consideration as the stock is correctly taken as the opening stock for asst. yr. 1980-81. The loss may kindly be reduced to the extent of the omission to account for the above stock."

It was contended by the learned counsel for the assessee that the aforesaid mistake was an inadvertent clerical error and there was no guilty intention on the part of the assessee in understanding the value of the closing stock to the extent of Rs. 1,10,000. It was further submitted that the assessee had submitted a return of income showing loss of Rs. 20,36,538 for the year under appeal and even after the addition of the aforesaid amount of the closing stock and other disallowances, the loss or the year under appeal has been assessed at Rs. 16,80,157. He further contended that even in the subsequent year, namely, asst. yr. 1980-81, the assessee had suffered a heavy loss of Rs. 16,22,240 which has been assessed at nil figure vide assessment order under s. 144 dt. 31st March, 1983. It was submitted that there were no prospects of any profits in the near future and the assessee-firm was continuously running into heavy losses. Therefore, there could not be any guilty intention or motive in enhancing the figure of losses by the assessee. Since the guilty intention or any mala fides motive is apparently absent in the case of the assessee, it was contended that the penalty imposed upon the assessee deserves to be quashed. The learned counsel for the assessee also invited our attention towards the decision of the Tribunal Amritsar Bench in the case of Victry PHM Transport Co. Ltd. vs. ITO (1986) 17 ITD 857 (Asr) in which it was held that unless there is a positive income in the case of the assessee, no penalty under Explanation to s. 271(1)(c) of the IT Act, 1961 is imposable. The learned counsel, therefore, submitted that the penalty imposed upon the assessee may kindly be cancelled.

4. The learned Departmental Representative contended that the word 'deliberately' appearing in s. 271(1)(c) has been deleted. He compared the language of s. 271(1)(c) with the language used in s. 276-C and submitted that mental element or guilty intention is required only for initiating prosecution proceedings under s. 276-C and the element of mens rea is not required to be proved for imposition of penalty under s. 271(1)(c). He relied upon the judgment of Hon'ble Kerala High Court in the case of CIT vs. Gujarat Travancore Agency 1975 CTR (Ker) 1 (FB) : (1976) 103 ITR 149 (Ker) (FB) and stated that this judgment has been approved by the Hon'ble Supreme Court in Gujarat Travancore Agency vs. CIT, Kerala (1989) 77 CTR (SC) 174 : (1989) 177 ITR 455 (SC). He also relief upon the judgment of Hon'ble Punjab & Haryana High court in the case of Vishwakarma Industries Ltd. vs. CIT (1982) 29 CTR (P&H) 243 (FB) : (1982) 135 ITR 652 (P&H) which has also been approved by the Supreme Court in Chuhar Mal vs. CIT (1988) 70 CTR (SC) 88 : (1989) 172 ITR 250 (SC). The learned Departmental Representative further submitted that negligence amounts to concealment and the penalty imposed upon the assessee is sustainable on account of the fact that the aforesaid mistake proves gross negligence on the part of the assessee. He relied upon the judgment of Hon'ble Gujarat High Court in the case of CIT vs. Drapco Electric Corporation 1978 CTR (Guj) 181 : (1980) 122 ITR 341 (Guj) in which it was held that any action taken by a person being aware of possible harm to others in total or reckless disregard of the consequences can be treated as not honest. It was held that concealment for the purposes of s. 271(1)(c) must be (sic) the judgment of Hon'ble Allahabad High Court in the case of Biland Ram Hargandas vs. CIT (1987) 66 CTR (All) 218 : (1988) 171 ITR 390 (All) where the scope of cl. (B) of Expln. 1 to s. 271(1)(c) was considered. The learned Departmental Representative vehemently supported the order passed by the CIT(A) and contended that the penalty imposed upon the assessee deserves to be sustained.

5. We have carefully considered the rival submissions made by the learned representatives of the parties and have also gone through the orders passed by the authorities below. We have also carefully gone through the various judgments citied by the learned Departmental Representative and find that the facts of those cases are different and apparently distinguishable as compared to the facts of the present case. We are of the considered opinion that the assessee deserves to succeed on the facts of this case. The word 'conceal' means to hide or to keep secret. It necessarily involves knowledge on the part of the assessee of the real income when giving the particulars of income. The very word conceal implies the existence of a guilty intention. In the present case, the assessee had suffered a huge loss of more than Rs. 20 lakhs during the year under appeal and even after the addition of the aforesaid value of closing stock and other disallowances, the assessment was completed at a loss of Rs. 16,80,157. In the subsequent year also the assessee had suffered heavy loss or Rs. 16,22,240 and the assessment was made under s. 144 at nil income. The assessee's contention that there were no prospects of any profits in near future was also not controverted by the learned Departmental Representative. In view of these facts, it is impossible to imagine that the assessee would have gained by understating the closing stock to the extent of s. 1,10,000. The aforesaid mistake has not resulted in any loss to the Revenue either in the year under consideration or in the subsequent year. The aforesaid mistake was claimed to be an inadvertent clerical mistake. The said mistake was not detected even during the course of audit. Hence, the assessee could remain under a bona fide belief that the loss declared by the assessee which was supported by audited accounts represents true and correct amount of loss. Soon after the mistake was discovered, the assessee has very fairly admitted the aforesaid mistake vide its letter dt. 15th Feb., 1982 at the earliest possible opportunity. The Expln. 4(a) to s. 271(1)(c) deals only with cases of positive income only and does not specifically provide for levy of any penalty in case of assessed loss. The word 'income' used in Explanation to s. 271(1)(c) cannot be held to include 'loss'. In view of the fact that the assessee had suffered heavy losses not only in the year under appeal but also in the subsequent year, we are satisfied that the assessee had no guilty intention in understating the value of closing stock. The mistake had occurred on account of inadvertent clerical mistake which did not provide any gain to the assessee nor caused any loss to the Revenue. We, therefore, cancel the penalty imposed upon the assessee and set aside the order passed by the CIT(A).

6. In the result, the assessee's appeal is allowed.

 

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