1993-VIL-172-ITAT-AHM

Equivalent Citation: ITD 049, 330, TTJ 049, 491,

Income Tax Appellate Tribunal AHMEDABAD

Date: 10.10.1993

ASSISTANT COMMISSIONER OF INCOME TAX.

Vs

ILAXI TEXTILES INDUSTRIES.

BENCH

Member(s)  : B. M. KOTHARI., ABDUL RAZACK.

JUDGMENT

Per Shri Abdul Razack, Judicial Member --- The Revenue in this appeal challenges the order of the Appellate Commissioner (A/c) cancelling the penalty of Rs. 6,97,270 levied by the Assessing Officer under section 271(1)(c) of the Act.

2. In order to decide this appeal, the surrounding and background facts have to be brought on record.

2. 1 The assessee is a partnership firm engaged in carrying on business of crimping of yarn. In addition to this, the assessee also purchases yarn and gets the cloth manufactured from outside parties and sells the same. The cloth so got manufactured is termed as 'Grey Cloth'. The assessee filed its return of income on 24-7-1984 declaring income at Rs. nil. The Assessing Officer (AO) in order to find out truth or otherwise of the declared income commenced enquiry in accordance with the relevant provisions of the Income-tax Act. The Assessing Officer scrutinised cloth manufacturing account which showed huge losses as compared to the earlier years' result and, therefore, called upon the assessee to furnish various qualitative and quantitative details such as date-wise purchase and sale of yarn, production and sale of cloth manufactured, etc. It was noticed by the Assessing Officer, in the course of enquiry that the consumption of yarn as shown by the assessee was more than double. Out of 50615 mts. of cloth manufactured during the year under appeal, 2/3rd was shirting cloth and 1/3rd sarees. As against normal consumption of yarn at 7 to 9 kgs. per 100 mts. for shirting cloth, the assessee claimed 19 kgs. per 100 mts. According to the Assessing Officer, if these figures of consumption were to be accepted, the assessee would have had to incur heavy losses keeping in view the sale price of such shirting cloth which varied from Rs. 20 to Rs. 26 per metre. The consumption of 19 Kgs. per 100 mts. of yarn was not acceptable to the Assessing Officer. He therefore, requested the assessee to produce challan-books used for sending yarn to the manufacturer and also corresponding challans sent by the manufacturers along with the cloth manufactured by them. The Assessing Officer proceeded further with the inquiry and recorded oath statement on 28-11-1986 of Shri Anilbhai, one of the partners of the assessee-firm who admitted that such challan-books and challans were-there but the same were destroyed. In the absence of this primary record, it was difficult for the Assessing Officer to ascertain and work out the actual consumption of yarn by the manufacturers. He, therefore, issued summons under section 131 to few manufacturers who also expressed their inability in producing the delivery challans as they had also destroyed the same. Thereafter, an action under section 133A of the Act under the authorisation issued by the A. D. I., Surat was also conducted at the business premises of M/s. M. Ramanlal & Co. Falsawadi, Begumpura, Surat on 3-12-1986 which firm was one of the purchasers of shirting cloth from the assessee. A statement under section 131 of Shri Arvindbhai Ramanlal Shah, one of partners was recorded on 4-12-1986 in furtherance to action under section 133A of the Act. The said person Shri Arvindbhai was well-versed with various qualities of shirting cloth as he was himself dealing with all the purchases and negotiating with all the concerned parties. The said Shri Arvindbhai categorically stated before the Assessing Officer that the cloth purchased by him from the assessee during the year under appeal could not have consumed yarn exceeding 9 Kgs. per 100 mts. Not being satisfied with this type of enquiry, the Assessing Officer proceeded further and also made enquiries from other purchasers one of whom was M/s. Calico Mills, Ahmedabad and issued summons to the said party under section 131 on 5-12-1986. Earlier to this also on 28-11-1986 one Shri Chandulal Brijlal Solanki, Master, working with M/s. Raj Textiles was examined on oath by the Assessing Officer. The said person has stated that in shirting the consumption of yarn in S.Y. 2039 would be around 6 to 7 Kgs. per 100 mts. of cloth. The said Shri Chandulal Brijlal Solanki was also cross-examined by Shri Arvindbhai, one of the partners of the assessee-firm. The last hearing which took place before the Assessing Officer was 23-12-1986 and the case was adjourned to 29-12-1986 for further enquiry and examination. The Assessing Officer mentioned that there was no compliance on that day. Thereafter, on 17-2-1987 the assessee filed a revised return disclosing unsold closing stock of yarn valued at Rs. 5,50,456. The tax of Rs. 97,684 in respect of the income declared in the revised return was also paid. According to the assessee, this revised return was filed under the so-called 'Amnesty Scheme'. The assessment was completed by the Assessing Officer on the basis of the revised return computing the income in a sum of Rs. 6,02,475 and after deduction of firm tax of Rs. 1,46,919, the total divisible income was determined at Rs. 4,55,556. The Assessing Officer also initiated proceedings under section 271(1)(c) of the Act for concealment of income. Penal proceedings under section 273(1)(b) of the Act was also initiated, but we are not concerned with the same. Before imposing any penalty on the assessee, the Assessing Officer called for an explanation from the assessee. To the show-cause notice so issued by the Assessing Officer, the assessee's representative M/s. Natvarlal Vepari & Co., C.As. contended inter alia vide their letter dated 6-4-1987 as under:

"... As regards the revised return flied, it was filed under the Amnesty Circulars which have in clear terms stated that any assessee can take benefit of the above circulars and will be granted amnesty even when matters are pending before the Appellate Authorities and that the assessee can withdraw appeal after availing of this immunity. It would mean that even in case when additions have been made and penalty proceedings initiated the assessee can take benefit of this scheme. In answer to one of the questions, it has been clarified that if the ITO had only prima facie belief about concealment, the assessee could still avail of this benefit. It is in this background that the facts of the present case may kindly be considered. It is, therefore, that on the inquiry made by you in the course of assessment, our client got an other opportunity to examine the particulars filed and, therefore, detected a mistake and, therefore, he corrected it.

As regards various inquiries made by you and mentioned in paras 6 and 7 of your order, our client was not aware of such inquiries. It was only when you mentioned about some sales which according to you was not recorded by our client as per your inquiries with Calico Mills Limited, Ahmedabad that we came out with clarification vide our letter dated 22nd January, 1987 that some of the sales shown to have been made to Calico Mills Limited, Ahmedabad did not pertain to our above client but to their sister concern Ilaxi Textiles. It was on account of similarity in the name that Calico Mills Limited had kept a common account. Photostat copies of those bills have been furnished to you and you were apparently satisfied which these aspects were brought to your notice."

3. The Assessing Officer was not satisfied because, according to him, the concealment was already detected prior to filing of the revised return by the assessee. According to the Assessing Officer, the revised return filed was not a return filed under the so-called Amnesty Scheme. The Assessing Officer was satisfied that concealment of income was detected by him which was in the shape of inflated consumption of yarn resulting in suppression of true income and, therefore, the assessee was not entitled to any immunity from the penal provisions of section 271(1)(c) of the Act. He, therefore, levied maximum penalty of Rs. 6,97,270 being 200% of the tax sought to be evaded on the concealed income. Approval of the Dy. CIT Central Range, Baroda was also obtained by the Assessing Officer as required under the relevant provisions of the Income-tax Act.

4. Being aggrieved with this imposition of penalty, first appeal was preferred before the Appellate Commissioner (A/c). In the first appeal, it was contended that the revised return was filed suo motu and voluntarily and without any detection by the Assessing Officer. It was also submitted before the A/c that the revised return was filed pursuant to various Circulars of the CBDT (Board) from time to time and which are popularly called as Amnesty Circulars or Amnesty Scheme. It is the case of the assessee before the A/c that since the revised return was filed on 17-2-1987, the penalty under section 271(1)(c) was not leviable as per instructions issued under the socalled Amnesty Scheme. The very fact that the income declared in the revised return representing the value of the unsold closing stock of the yarn was accepted by the Assessing Officer without any addition whatsoever clearly goes to establish that it is only after discussion with the Assessing Officer the revised return was filed on the specific assurance that the assessee will be immune from penalty and prosecution on the basis of instructions issued under the various Amnesty Circulars. Reliance was placed before A/c on certain questions from Circular No. 451, dated 17-2-1986 and answers provided by Shri M.C. Joshi, Chief Commissioner (Admn.), New Delhi bearing Circulars No. 423, dated 26-6-1985. The assessee also relied upon certain judgments of Courts before the A/c to establish that even on facts and merits, penalty under section 271(1)(c) was not leviable. The A/c dealt with the submissions made before him as contained in the impugned order and was of the opinion that the assessee's conduct throughout was bona fide and honest. According to the A/c, the assessee took the advantage of Amnesty Scheme and filed the revised return declaring higher income and, therefore, the charge of concealment of income is not sustainable. He, therefore, deleted the entire penalty amount of Rs. 6,97,270.

5. The Revenue was not satisfied with this decision of the A/c and the present appeal assails the said order of the A/c.

5. 1 Shri M. S. Rai, representative appearing on behalf of the Revenue supported the order of the Assessing Officer and further submitted that the assessee is not entitled to any benefit of Circular No. 451, dated 17-2-1986. The revised return filed cannot be considered as a return filed under the so-called Amnesty Scheme. According to the Departmental Representative, the revised return was filed after detection by the Assessing Officer after a long drawn enquiry and investigation. According to Circular No. 451, dated 17-2-1986 if there is a detection of concealed income on the basis of material found out during the course of enquiry, no assessee is entitled to immunity from penalty or prosecution under the provisions of the Income-tax Act, 1961. In order to support this submission, our attention was drawn to answer given by Chairman of the Board to question No. 19 of the said Circular. The assessee-firm could not have come forward and declared higher income in the revised income had there been no enquiry or detection by the Assessing Officer. Even on merits, the assessee has no case and it has failed to discharge the onus which lay on it to come out of the clutches of the penal provisions of section 271(1)(c) of the Act. The reasoning given by the A/c is wholly fallacious in law and the impugned order deserves to be vacated.

5.2 The assessee's counsel, on the other hand, submitted that the revised return filed declaring higher income was in compliance with the Amnesty Circular particularly, Circular No. 451, dated 17-2-1986, which has been published in 158 ITR 135 (Statute). He drew our attention to answer of the Chairman of the CBDT to question No. 4 wherein he has answered that immunity from penalty and prosecution will be given in income-tax or wealth-tax cases where the assessee admits the truth and pays tax properly. Thus, according to the assessee's counsel, the assessee has made a truthful disclosure and also paid the tax as per higher income declared in the revised return. Our attention was also drawn to several answers given by Shri M.C. Joshi, Chief Commissioner of Income-tax (Administration), New Delhi on 2-1-1986 in connection with batch of Circulars issued from time to time and which are published in 157 ITR 53 (Statute). Mr. J.P. Shah, assessee's counsel submitted that the answers given by the said Chief Commissioner of Income-tax, New Delhi were binding on the Assessing Officer and on the strength of those answers and assurances given, no penalty should have been levied on the assessee under section 271(1)(c). According to the assessee's counsel, the replies given by the Chief CIT, New Delhi constituted instructions as envisaged under section 119 of the Act and binding on the Assessing Officer. Arguing further, the assessee's representative submitted that the provisions of section 139(5) give liberty to any assessee/taxpayer to file a revised return if some mistake or omission is found in the original return. When the assessee noticed that there was mistake and omission in the original return as the correct value of the closing stock was not reflected, it filed a revised return showing higher value of unsold closing stock and paid taxes accordingly. Elaborating the assessee's case further Shri J.P. Shah further submitted that there has been no detection whatsoever by the Assessing Officer in respect of the income alleged to have been concealed by the assessee-firm nor the assessee-firm can be found guilty for furnishing any inaccurate particulars in respect of its income. The Assessing Officer entertained doubt about the income declared in the original return and he, therefore, embarked upon an enquiry. At such stage when the case was in the midst of enquiry by the Assessing Officer to clear his doubt about declaration of the income by the assessee-firm, the assessee suo motu and voluntarily realised the mistake and omission in the original return and, therefore, came forward and filed a revised return declaring higher income. This conduct of the assessee cannot be taken as a means to penalise it under the provisions of section 271(1)(c) of the Act. The assessee's counsel took us through the various paragraphs of the assessment order as well as penalty order and other related documents to convince us that on merits also, there was no case for the Assessing Officer to levy penalty under section 271(1)(c). The burden which lay on the assessee-firm under section 271(1)(c) has, therefore, been fully discharged even on merits and hence the assessee is not exigible to any quantum of penalty under section 271(1)(c) of the Act. It was, therefore, strenuously urged by the assessee's counsel Shri J.P. Shah that the impugned order of the A/c be upheld. While doing so, he strongly relied on the decision of the Gujarat High Court in the case of Taiyabji Lukmanji v. CIT [1981] 131 ITR 643.

5.3 The assessee's counsel on facts and merits of the case relied on the judgment of the Bombay High Court in the case of CIT v. Jogibhai Mangalbhai [1992] 193 ITR 404 and an order of Jaipur Bench of the Tribunal dated 30th April, 1992 since reported in Santdass Nihal Chand v. ITO [1992] 43 TTJ (Jp.) 503. On a query from us, the assessee's counsel fairly conceded that the assessee was aware about the enquiry being made by the Assessing Officer as one of the partners was also cross-examined one of the deponent who was summoned by the Assessing Officer under section 131 of the Act. On a further query from us as to how the answers given by Shri M. C. Joshi, Chief CIT, New Delhi can be construed as instructions under section 119 of the Act, the assessee's counsel submitted that the answers and assurances given by Shri M. C. Joshi, Chief CIT, New Delhi even if not construed as instructions under section 119 of the Act, then the same are still binding on the Assessing Officer, as the Chief CIT is a very senior responsible income-tax authority and being an agent of the Government, his answers and assurances are binding upon the lower authorities and have to be given effect by them.

6. We have heard the rival submissions and applied our mind to the facts of the case. We have also gone through the relevant answers given by the Board's Chairman, M.S. Narayanan (as he then was) in Circular No. 451, dated 17-2-1986 and also the answers given by Shri M.C. Joshi, Chief CIT (Administration), New Delhi. Before we decide the liability of the assessee to penalty under section 271(1)(c), first we wish to deal whether the answers/assurances given by the Chief Commissioner, New Delhi can be construed as instructions under section 119 of the Act. In our view, the same cannot be construed as instructions under section 119 of the Act. According to the provisions of section 119, instructions, orders or directions which are issued by the Board from time to time for proper administration of the Act to the income-tax authorities lower to the Board are binding on them for proper administration and execution of the Act. The Chief CIT, New Delhi is no doubt one of the top ranking official and functionary in the hierarchy of the income-tax department but he is lower to the Board which is supreme insofar as the administration of the provisions of the Income-tax Act is concerned. His answers, therefore, cannot be taken as instructions of the Board. We are unable to accept the argument of the assessee's counsel that the Chief CIT, New Delhi was an agent of the Board/Government and, therefore, whatsoever he said should be deemed as Board's instructions and, therefore, were binding on the Assessing Officer who is lower in rank and authority to the Chief CIT. New Delhi. As far as the answers provided by the Board's Chairman are concerned [which are published as Circular No. 451 in 158 ITR 135 (Statute)], we do not consider the same as instructions, orders or directions to the lower income-tax authorities as authorised in terms of the provisions of section 119 of the Act though the same is nomenclatured as Circular and has been circulated and published in various papers, journals, etc. However, we intend to refrain from expressing any final opinion in this regard as the controversy before us is not whether such answers of the Board's Chairman are, under section 119, instructions, directions or orders. Be that as it may, the clarification in the form of questions and answers given by the Board's Chairman have to be given effect though not on the doctrine of promissory estoppel but on the ground of credibility of the income-tax department as has been emphasised by the Hon'ble Gujarat High Court in the case of Taiyabji Lukmanji. Now the question is whether the assessee can claim or be given immunity from levy of penalties attracted under various provisions of the Income-tax Act particularly, the impugned penalty levied under section 271(1)(c) of the Act, on the basis of answers to question Nos. 4 & 19 of the Board's Chairman as contained in Circular No. 451, dated 17-2-1986. The Board's Chairman has stated in answer to question No. 4 of the said Circular that immunity will be granted from penalty and prosecution under the Income-tax and Wealth-tax Laws if the disclosure by any assessee/or taxpayer is true and the taxes are already paid. Again, while giving answer to question No. 19, the Board's Chairman had stated that if there is disclosure of concealed income by an assessee after detection by the income-tax department and not on the basis of mere prima facie belief of concealment by the Assessing Officer, then there will be no immunity from penalty or prosecution. We have, therefore, to examine whether the assessee has been truthful and whether there has been any detection of concealment of income by the Assessing Officer. In short, it has to be seen whether the revised return was filed by the assessee suo motu and voluntarily or whether it was done so after detection by the Assessing Officer.

7. The literary and dictionary meaning of the word 'detect' as given in Chambers 20th Century Dictionary (New Edition) is, "to uncover, expose, to accuse, to discover, to discern, to find out (especially something elusive or secret)". From the contents of the assessment order as well as from the contents of the penalty order, it is transparent that the Assessing Officer embarked upon the enquiry and investigation to find out the truth or otherwise of the income returned. The Assessing Officer, as stated by us above, examined several persons on oath as per powers vested in him under section 131 of the Act and one of the partners of the assessee-firm also cross-examined one of the deponent in relation to the enquiry into the consumption of the yarn by the assessee-firm. The Assessing Officer also conducted operation under section 133A through the A.D.I., Surat in this regard. The assessee-firm perhaps realised that the Assessing Officer will be able to establish low consumption of yarn through his efforts and enquiries and, therefore, thought it prudent and wise to file a revised return by declaring higher income in the shape of unsold closing stock of the yarn. Wisdom finally did prevail upon the assessee-firm and higher income of Rs. 5,50,456 was declared on 17-2-1987 and tax of Rs. 97,684, was paid. After filing of the revised return, the assessee wanted benefit and benevolence of batch of the Circulars which came to be termed as Amnesty Circulars or Amnesty Scheme and desired immunity from penalty and prosecution, particularly on the strength of answer to question No. 4 given by the Board's Chairman in Circular No. 451. According to us, but for the elaborate enquiry and diligent efforts of the Assessing Officer, the assessee would not have come forward suo motu and voluntarily to declare/offer higher income as it did on 17-2-1987 through revised return. The assessee was aware althrough, particularly, when it filed the original return of income that the consumption of yarn as claimed was more than actual. But it took a chance and failed in its attempt due to diligent and vigilant efforts of the Assessing Officer as can be discerned from the contents of the assessment and penalty orders. The assessee had no option in such circumstances but to declare higher income through revised return and then lay claim for immunity from penalty and prosecution under the relevant provisions of the Income-tax Act, 1961, taking the aid of answers given by the Board's Chairman in Circular No. 451, dated 17-2-1986 which has been discussed by us above. In our view, the revised return declaring higher income in the shape of unsold closing stock on hand was due to detection by the Assessing Officer from the facts found in the course of enquiry and investigation and it cannot be gain said that the Assessing Officer merely entertained a prima facie belief of concealment of income by the assessee-firm. We are unable to agree with the submission of the assessee's counsel that since the assessee found mistake and omission in the original return, another return revising income on the higher side was filed as laid down under section 139(5) of the Act and, therefore, penalty proceedings under section 271(1) (c) got distracted. The reasons for disagreeing with the submissions of the assessee's counsel are that under section 139(5) a revised return can be filed where the assessee discovers any omission or wrong statement in filing the return. The discovery of the omission or wrong statement may be by the assessee himself or may come to the knowledge of the assessee during the assessment proceedings even at the instance of the Assessing Officer provided the assessee was unaware of the omission or the wrong statement at the time of original return. All that section 139(5) of the Income-tax Act, 1961 postulates is that the assessee must discover the omission or wrong statement in the first return though the law does not enjoin upon the assessee to state the sources on the basis of which the discovery has been made by the assessee regarding the omission or the wrong statement. It is, by now, a settled law and does not require any elaborate discussion by us here that an assessee cannot get away and free himself from the clutches and teeth of the penal provisions of section 271(1)(c) on the ground that he had filed a revised return under section 139(5) particularly when such revised return was filed after detection by the income-tax authorities of concealed income or in relation to detection of furnishing of inaccurate particulars of such income. We are fortified to say so on the strength of the below given decisions:

(i) Badri Prasad Om Prakash v. CIT [1987] 163 ITR 440 (Raj.)

(ii) Biland Ram Hargan Dass v. CIT [1988] 171 ITR 390 (All.)

(iii) CIT v. Dr. Kumari M. Dubey [1988] 171 ITR 144 (MP.)

(iv) CIT v. Dr. Sajjan Singh Malik [1989] 178 ITR 643 (Punj. & Har.)

(v) Calicut Trading Co. v. CIT [1989] 178 ITR 430 (Ker.)

It is, therefore, for the assessee to establish and convince the penalising officer that the revised return was within the correct ambit and scope of section 139(5) of the Act. The assessee has failed to do so. The decision of the Bombay High Court in the case of Jogibhai Mangalbhai on which reliance has been placed by the assessee's counsel cannot bail out the assessee from the rigour of section 271(1)(c) of the Act because in that case, the assessee made a disclosure of its income in part IV of the return claiming the same to be not taxable. In the instant case, no such disclosure was made by the assessee in the original return either in part IV of the return or by way of a note. The decision of Jaipur Bench of the Tribunal in Santdass Nihal Chand's case also cannot come to the rescue of the assessee, because in that case there has been no detection whatsoever by the Assessing Officer pursuant to an enquiry and investigation. On the facts found in the instant case, the declaration of higher income was not suo motu and voluntarily but only after detection by the Assessing Officer through enquiry and investigation. Therefore, in our considered opinion, on the facts of the case penalty under section 271(1)(c) was imposable and rightly imposed by the Assessing Officer and cancellation of the same by the A/c was not correct. Levy of penalty is, therefore, upheld.

8. However, on the peculiar facts and circumstances of the case, we are of the view that maximum penalty of Rs. 6,97,270 is not leviable. The same is, therefore, directed to be reduced to Rs. 3,48,635. We direct accordingly. The appeal is allowed in part.

 

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