Vildirect: IncomeTax-caselaws-1994-VIL-70-ITAT-BLR

1994-VIL-70-ITAT-BLR

Equivalent Citation: ITD 050, 306, TTJ 051, 125,

Income Tax Appellate Tribunal BANGALORE

Date: 30.03.1994

BANGALORE STEEL DISTRIBUTORS.

INCOME-TAX OFFICER.

BENCH

Member(s) : A. V. BALASUBRAMANYAM., S. BANDYOPADHYAY.

JUDGMENT

Per Bandyopadhyay, AM --- All these three appeals filed by the assessee relate to levy of penalty under section 271(1)(c) of the Income-tax Act, 1961 for the three successive years. Hence, for the sake of convenience, these appeals have been consolidated and a common order is being passed.

2. The assessee filed its returns of income for the assessment years 1985-86, 1986-87 and 1987-88 showing respective figures of income of Rs. 52,790, Rs. 61,353 and Rs. 66,975 on 20-4-1988, 20-4-1988 and 27-4-1988 respectively. On 18-11-1988 the Department conducted a survey under section 133A in the premises of the assessee-firm. Thereafter, the assessee filed revised returns showing revised figures of income of Rs. 1,85,834, Rs. 1,24,160 and Rs. 1,88,580 for the three years on 5-12-1988, 5-12-1988 and 28-12-1988 respectively. Assessments were completed exactly on the basis of the figures of income as shown in the revised returns without making any further addition thereto. However, penalty proceedings under section 271(1)(c) were initiated during the course of the assessments on account of huge differences in the figures of income as per the assessments and as shown in the original returns of income. In the assessment orders passed by him, the Assessing Officer took note of certain cash credits and other expenses which had been claimed as allowable in the original returns but ultimately, surrendered as income in the revised returns, although however, he did not go to detail out such cash credits or expenses in the penalty orders. Such details had not even been discussed in the respective assessment orders. The Assessing Officer thereafter stated that for the purpose of levy of penalty the basis is the amount of tax sought to be evaded which is required to be worked out on the basis of tax on the returned income and the tax on assessed income. By considering the originally filed returns to contain the figures of returned income only, he calculated the basis and accordingly levied penalties for each of the three years.

3. In the appeals filed before her, the CIT(A) also virtually repeated the points as taken up by the Assessing Officer in the penalty orders and confirmed the levy of penalties inasmuch as the penalties had been imposed at the minimum levels only.

4. Before us, both the sides have referred to the various aspects of the case and have also tried to rely on a number of judgments of different courts and of Tribunal. We will not relate them separately but while coming to our conclusion, we will refer to such arguments of both the sides at the appropriate places.

5. Shri Pradeep, learned counsel for the assessee has, first of all, tried to point out the basic facts relating to this case. The said facts were earlier noted by us and also discussed in our appellate order dated 3-2-1994 in ITA Nos. 2156 to 2158 (Bang.)/1991 in connection with levy of penalties under section 271B. The facts of the case, as discussed in that order and which also require a brief mention here are that M/s. Singhvi & Associates were originally the auditors of the assessee-firm. Though in each of the three years under consideration, the turnover of the business of the assessee much exceeded the permissible limit of Rs. 40 lakhs, yet however, the said auditors, who were also the tax consultants of the assessee-firm, did not get any steps to audit the accounts of the firm in accordance with the requirements of section 44AB and to prepare the audit certificates thereafter. At the time of filing the original returns of income, the assessee simply furnished the unaudited accounts which contained some mistakes relating to computation of income. Later on, however, when the requirement of getting the accounts audited under section 44AB became known to the assessee during the course of the survey conducted by the Department, the assessee, first of all, tried to get the work done by M/s Singhvi & Associates. The said auditors, however, refused to carry on the work or did not take much interest therein. As a result, the assessee appointed another auditor viz., Shri Hyder Ali Jeevanbhai, Chartered Accountant to do the work of audit in accordance with the provisions of section 44AB and to prepare the audit report as required under the Income-tax Act. The said audit reports were prepared and the computation of total income of the assessee was revised for each of the years on the basis of the said audit reports. Thereafter, the revised returns along with audit reports were filed on 5-12-1988, 5-12-1988 and 28-12-1988 respectively. The learned counsel for the assessee has drawn our attention to the detailed discussions made by the Assessing Officer in this regard in the assessment orders passed by him. The said discussions detail out the circumstances in which the revised returns were filed. He also pointed out that in fact, the survey conducted by the Department was not able to discover any new thing or gross irregularities and discrepancies in the accounts of the assessee. He stated that, on the other hand, on the basis of the audit conducted by the new auditor of the assessee-firm, the figures of income were revised by readjusting the different accounts. It has been contended that this was done by the assessee suo motu, and without any pressure from the Department.

6. Shri Pradeep, counsel for the assessee, firstly assails the imposition of penalties on the ground that neither in the assessment orders nor in the penalty orders, the Assessing Officer took care to detail out the amounts alleged to have been concealed. He argued that, on the other hand, the Assessing Officer took into consideration the entire difference between the figures as per the original and the revised returns to represent the concealed income and proceeded to levy penalty accordingly. Shri Pradeep has placed reliance on the decision of the Rajasthan High Court in the case of Hukamchand Shankarlal v. CWT [1987] 163 ITR 1 on this issue. The said judgment as referred to by Shri Pradeep has come out with the proposition that proceedings for imposition of penalty under the Wealth-tax Act, 1957 are quasi-judicial in nature, and hence, the authority imposing a penalty must pass a speaking order. Although this particular judgment related to penalties levied under the Wealth-tax Act, the issue involved being pari materia, the judgment would apply with equal force to the present case also. In the instant case, we also find that the Assessing Officer did not take care to spell out the actual items of income which can be considered as having been concealed by the assessee. Even references to certain cash credits and items of expenses, later on surrendered for tax purpose in the revised returns, were also not detailed out. We are also therefore compelled to come to the conclusion that the penalty orders passed by the Assessing Officer are not at all speaking orders in the proper sense. Furthermore, the Assessing Officer had not also stated any thing in the respective assessment orders about the points of concealment on the basis of which he could have been satisfied that it was necessary to initiate penalty proceedings for concealment in these cases.

7. We find that the thrust of the departmental contention in this regard is that penalty is imposable on account of the differences between the figures of income as assessed and as shown in the original returns. It appears that the Department does not seem to have taken care of the revised returns filed by the assessee at all, while imposing penalties. On the other hand, had these revised returns been considered as the actual returns of income, there would not have been any difference between the figures of returned income and those of assessed income and penalty would not have been exigible at all. It, therefore, seems necessary for us to examine whether for the purpose of levy of penalty under section 271(1)(c), it is the figures as per the revised returns which have got to be considered as representing the returned income of the assessee.

8. In this connection, a number of decisions have been relied upon by both the sides. We are making mention of the same and are also making short discussions on the issues decided in those cases only which we consider to be relevant to the present issue.

8.1 In the case of CIT v. Shree Bajrang Trading & Supply Co. [1991] 187 ITR 299, as decided by the Calcutta High Court, the very old maxim relating to imposition of penalty for concealment was repeated. This maxim is that apart from disbelieving the explanation furnished by the assessee, it will be necessary for the Department to prove the concealment of income by the assessee separately from the discussions made in the assessment order.

8.2 In the case of CIT v. J.K.A. Rajappa Chettiar [1985] 153 ITR 215, as decided by the Madras High Court and it was decided that the pertinent enquiry under section 271(1)(c) was not whether the return was true or false, but whether the assessee, in the course of any assessment proceedings, had concealed particulars of his income. The High Court held that since in that particular case, the ITO had not initiated any enquiry for assessment on the basis of the original returns and the assessment proceedings were only on the basis of the revised returns and in the said assessment proceedings the attempt of both the assessee and the Department was to estimate the assessee's profit from sale of the licences, the Tribunal was right in its view that there was no concealment by the assessee justifying the levy of penalty. The facts of that case seem to have much resemblance to those of the present case. In the present case also, the Assessing Officer seems to have placed full reliance on the revised returns filed by the assessee and has accepted the same totally. There is a strong case for the assessee to argue that penalty for concealment is not leviable in the present case.

9. Shri Pradeep has also relied on the decision of the Calcutta High Court in the case of CIT v. Bengal Iron Galvanising Works [1987] 165 ITR 249. In that case, it was held that it is not mandatory under section 271 of the Act that a penalty must be imposed in every case. The High Court furthermore came to the conclusion that the Tribunal was entitled to look into the entire facts and circumstances in order to determine whether penalty should be imposed on the assessee or not. On the basis of the facts of the case, the High Court finally came to the view that the cancellation of penalty, as done by the Tribunal was justified.

9.1 Rajasthan High Court held in the case of Prahlad Maliram v. CIT [1987] 166 ITR 149 that in that particular case there was no evidence of concealment or failure to disclose material facts. On the basis of such facts, the High Court held that not only the penalty levied under section 271(1)(c) but even the re-assessment proceeding initiated under section 147 was also invalid.

10. Shri Pradeep, furthermore tried to rely on the classic decision of the Supreme Court in the case of Hindustan Steel Ltd. v. State of Orissa [1972] 83 ITR 26. We do not feel that in the present context, that particular decision is of much use. The Supreme Court merely stated that whether penalty should be imposed for failure to perform a statutory obligation is a matter of discretion of the authority to be exercised judicially and on a consideration of all the relevant circumstances.

10.1 Lastly, Shri Pradeep has also relied upon the other decision of the Supreme Court in the case of Sir Shadilal Sugar & General Mills Ltd. v. CIT [1987] 168 ITR 705. In that particular case, the assessee had only accepted certain amounts as taxable but had not accepted that any income had been concealed or inaccurate particulars had been furnished deliberately. The Supreme Court held that from the assessee agreeing to additions to his income, it does not follow that the amount agreed to be added was concealed income inasmuch as there may be a hundred and one reasons for such admissions, i.e., when the assessee realises the true position, it does not dispute certain disallowances but that does not absolve the Revenue from proving the mens rea of quasi-criminal offence.

11. The learned DR, on the other hand, has strongly argued that in all the departmental orders, due reference was made to the survey conducted by the Department and, hence, the revised returns must be considered to have been filed as a consequence to the survey. He further stated that many expenses had been inflated in the original return and that they were corrected in the revised returns. He thus argued that concealment in the original returns of income was very obvious. The learned DR relied on the decision of the Supreme Court in the case of G. C. Agarwal v. CIT [1990] 186 ITR 571 in which the earlier decision of the Gauhati High Court in the case of F.C. Agarwal v. CIT [1976] 102 ITR 408 was affirmed. Our attention was drawn to the following finding of the Gauhati High Court at page 410 of the reported judgment, which was later on confirmed by the Supreme Court:

"As a proposition of law it may be correct that where a revised return as contemplated under section 139(5) is submitted before the assessment is made after the assessee had discovered some omission or some wrong statement in the original return, a penalty proceeding for concealment of the particulars of income or furnishing inaccurate particulars of such income as contemplated under section 271(1)(c) of the Act may not be attracted. But, for that purpose, the revised return itself must be within the correct ambit and scope of section 139(5). In the present case, no doubt, the discovery of the omission or wrong statement was made by the assessee. That by itself is not sufficient to bring the revised return within the ambit of section 139(5). The further requirement is that this omission or wrong statement in the original return must be due to bona fide inadvertence or mistake on the part of the assessee. The assessee in this case could not give any particular basis for the original returns. The contention of the assessee that he had no proper accounts notwithstanding the admitted fact that he had incomes in lakhs of rupees was rightly rejected by the Tribunal. In the circumstances, the omissions or wrong statements in the original returns, as admitted by the assessee, could not be stated to be, by any standard of evaluation of evidence or material on record, inadvertent or bona fide omission or mistake. That being so, the revised returns were not really within the correct ambit and scope of section 139(5) of the Act so as to allow immunity to the assessee from the mischief of section 271(1)(c) of the Act."

The learned DR furthermore relied upon the decision of the Karnataka High Court in the case of CIT v. K. P. Sampath Reddy [1992] 197 ITR 232 in which case there was a survey of the business of the assessee accompanied with impounding of books which recorded several erroneous entries and from which ultimately, on a consideration of several factors, the total income was estimated at Rs. 6 lakhs. Penalty for concealment was confirmed ultimately by the Karnataka High Court, in that case.

12. In the instant case, the facts, as discussed above, clearly show that the figures of income disclosed in the original returns were based on the unaudited accounts. Although the assessee was liable to get its accounts audited in accordance with the provisions of section 44AB, it was not possible for the assessee to do so initially on account of certain factors which have been discussed by us above. Later on, however, the assessee appointed another auditor and with his help, was able to get its accounts duly audited as per the requirement of the statute. The revised returns were filed showing new figures of income after only the said audit was completed. Although in between, the Department conducted a survey under section 133A, there is nothing on record to show that the survey actually discovered any thing incriminating on the part of the assessee. No possession of unexplained assets or duplicate sets of books of account was detected during the survey, There is no discussion anywhere in the assessment orders that the Department was able to get some fresh information about the business of the assessee or detect the discrepancies in the accounts already filed by the assessee, during the course of the survey. The assessee only could know about its liability under section 44AB from the departmental authorities during the process of the survey and thereafter took steps to get the defect corrected. The audit of the accounts was duly taken up by the fresh auditor appointed by the assessee and during the course of the said audit only, the assessee could know about the deficiency already occurred in the original returns filed by it. In order to cover the same, the assessee came up with the revised returns in which it showed much higher figures of income on the basis of the audited accounts only. The Department does not seem to have played any part either before or even after the survey in pointing out any discrepancy or detecting any concealment of income on the part of the assessee. On the other hand, the act of filing the revised returns must be considered to be voluntary on the part of the assessee consequent upon completion of the audit. Hence, we are of the view that the revised returns as filed by the assessee must be considered to be valid returns and the figures of income shown therein have got to be given due credit for, while examining the case for imposition of penalty under section 271(1)(c). In fact, the Department is found to have accepted the figures of income as shown in the revised returns in toto. Hence, we feel that the question of concealment of income, if any at all, has got to be considered with reference to the figures disclosed in the revised returns only and not in the original returns. In this matter, we are of the opinion that the criterion, about the validity of the revised return, as laid down by the Gauhati High Court in the case of F. C. Agarwal and as subsequently confirmed by the Supreme Court, seems to have been fulfilled. The present case is certainly not one like the other decided by the Gauhati High Court and the facts of the present case are totally different from those of that particular case. On the other hand, the facts of the present case seem to be in line with those of J.K.A. Rajappa Chettiar's case as decided by the Madras High Court. Since there is no concealment on the part of the assessee, if the revised returns of income be taken into consideration, we are finally of the view that these are not fit cases for imposition of penalty under section 271(1)(c). The penalties actually levied by the Assessing Officer and subsequently confirmed by the CIT(A) are, therefore, being cancelled by reversing the orders of both the lower authorities.

13. In the result, the appeals filed by the assessee are allowed.

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