1994-VIL-75-ITAT-HYD
Equivalent Citation: ITD 056, 411,
Income Tax Appellate Tribunal HYDERABAD
Date: 15.11.1994
BALARAMAKRISHNA ENGINEERING CONTRACTORS CORPORATION.
Vs
DEPUTY COMMISSIONER OF INCOME-TAX.
BENCH
Member(s) : R. P. GARG., M. RAMAKRISHNA.
JUDGMENT
Garg, AM -- These two appeals are by the assessee -- one against the quantum and the other is against the penalty under section 271(1)(c), both for the assessment year 1990-91.
2. The assessee derives income from execution of civil contract works, the major there being of execution of work in sub-contractor's capacity. The assessee filed a loss return of Rs. 28,27,249. Noticing the failure of the assessee to respond various notices of hearing the Income-tax Officer completed the assessment under section 144. He noted that the assessee followed mercantile system of accounting, projectwise accounts were not kept, books of account were not produced and that the copies of sub-contracts did not indicate profit margin. Therefore, rejected the books of account and applied the provisions of section 145 of the Income-tax Act and reduced the loss by an estimated round sum figure of Rs. 10,00,000. He also noticed the difference of Rs. 19,15,002 in the receipts declared by the assessee at Rs. 1,09,18,314 and as per T.D.S. Certificates submitted at Rs. 1,28,33,316 and added the same to the income of the assessee.
3. The Commissioner of Income-tax (Appeals), Visakhapatnam, upheld both the additions as the assessee could not explain the difference in the receipts and the rate of profit including the unaccounted receipts of Rs. 19,15,002 was 27.62% as against 33% disclosed by the assessee in the earlier year. He observed paras 10 and 11 as under :
" Suppression of contract receipts : P & L A/c. accompanying the return of income, disclosed the gross contract receipts at Rs. 1,09,18,314 whereas the T.D.A. Certificates showed that the gross receipts were Rs. 1,28,33,316. The difference of Rs. 19,15,002 has been brought to tax. Attempting reconciliation between the two conflicting figures, the learned AR has fairly conceded that gross receipts amounting to Rs. 6,90,088 were not inadvertently disclosed as these were receipts against escalation bill which were directly credited to the personal accounts of the principal contractors M/s Asian Tech. Pvt. Ltd. He further claims that receipt of Rs. 3,96,133 against the works executed by the appellant on its own, were not included in the actual receipts but were shown as closing work-in-progress. He also claims that the principal contractors had erroneously depicted the payments made to the appellant at Rs. 95,18,275 whereas the payments actually received were Rs. 86,89,494. The T.D.S. Certificates have been obtained and furnished by the appellant only. The bills statement showing the total receipts at Rs. 86,89,494 has been prepared at the appellant's end. The particulars noted therein have neither been verified nor been certified to be true by the principal contractors. Even though, as contended before me, the bill statement now furnished before me has been prepared on the basis of the receipts actually credited in the bank account of the appellant, the said statement does not have greater evidenciary value than the T.D.S. Certificates. I am, therefore, unable to accept that the figures depicted in the T.D.S. Certificates were erroneous. So far as the work-in-progress is concerned, in spite of the claim that it included actual receipts amounting to Rs. 3,96,133, exact details of the work-in-progress have not been furnished which only could have lent credence to the claim. It is worth-while to bear in mind that for the preceding year, the appellant had admitted suppression of gross receipts and for this year also, suppression is admitted. I would confirm the addition of Rs. 19,15,002. Lumpsum addition of Rs. 10 lakhs : On the ground of inadequacy of the disclosed results, a sum of Rs. 10 lakhs has been added. The learned AR has fairly conceded that the state of account-keeping remained the same as it was for the preceding year. That is, the books of account were neither complete nor correct. For the preceding year, an intangible addition was not favourably viewed because the disclosed profit was eminently reasonable.
The position for the year under consideration is analysed hereunder :
Rs.
Income before depreciation 8,31,646
Add : Supressed receipts 19,15,002
" : Adjustments under section 143(1)(a) 469
" : Principal contractor's margin of profit 11,02,000
----------------
38,49,117
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The over-all gross receipts including the principal contractor's margin of profit was Rs. 1,39,35,000 approximately. Therefore, the disclosed profit before depreciation was 27.62% of the gross receipts. The disclosed profit for the preceding year was almost 13%. Although in the cases of contractor's lesser margin of profits is considered reasonable, the appellant itself had been such higher profit in the preceding year and the proportion of sub-contractor's rates, the profit before depreciation works out to Rs. 45.96 lakhs approximately. Whereas by making the addition of Rs. 10 lakhs, the Assessing Officer has assessed the net profit at Rs. 37.47 lakhs only. I would view the addition made on assessment as reasonable. "
4. On application by the assessee under section 154, the Commissioner of Income-tax (Appeals) reduced the addition of Rs. 10,00,000 to Rs. 7,45,253 as some mistake in the computation with the last year's occurred.
5. The Income-tax Officer levied penalty under section 271(1)(c) in respect of these additions and also for no disallowance for depreciation of Rs. 4,38,040 for which the explanation was given by the assessee. The Commissioner of Income-tax (Appeals) upheld the penalty for suppression of receipts and disallowance of depreciation, by but deleted the penalty relating to the addition of Rs. 7,45,253.
6. As regard suppression of receipts, the assessee gave a reconciliation statement stating that the assessee had accounted for the following in the assessment years 1989-90 and 1991-92 a sum of Rs. 6,90,088 :
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Gross Amount Recoveries Net Cheque A. Y.
Rs. Rs. Rs.
--------------------------------------------------------------------------------------------------------------------------------------------------
Escalation 2,51,337.40 2,714.00 2,37,313.21 1989-90
Bill No. 1
Escalation 1,05,871.00 1,143.00 49,490.14 1991-92
Bill No. 2
Escalation 3,32,080.54 3,595.00 2,47,719.81 1991-92
Bill No. 3
------------------- -------------- -------------------
6,90,088.94 7,452.00 5,34,533.16
------------------- -------------- -------------------
7. It had also shown a sum of Rs. 3,23,719 in the work-in-progress and included the same in the closing stock of Rs. 5,72,160 estimated at Rs. 5,72,160.
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Voucher No. Date Gross Amount Recoveries Net Amount
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0739 31-3-1990 Rs. 2,97,000 Rs. 54,292 Rs. 2,42,708
0741 31-3-1990 Rs. 10,890 Rs. 1,991 Rs. 8,899
0742 31-3-1990 Rs. 73,015 Rs. 13,346 Rs. 59,662
0740 31-3-1990 Rs. 15,228 Rs. 2,785 Rs. 12,440
-------------------- ------------------ -------------------- Rs.3,96,133 Rs. 72,414 Rs.3,23,719 (sic.)
-------------------- ------------------ --------------------
8. In these circumstances, we agree that the same should not be included in the assessee's income, as the receipts are accounted for the earlier/subsequent year. We direct the Income-tax Officer to verify this statement and allow the deduction accordingly. The balance is of Rs. 8,28,781. For this no explanation is therefrom the assessee's side. We, therefore, upheld the addition as the same was nothing, but suppressed receipts of the assessee, not accounted for in any of the year. As the tax deduction certificate shown the payment this year, it has to be treated as the income of the assessee for the year under consideration. The gross profit addition of Rs. 7,45,253 is to be recomputed in view of the directions to exclude Rs. 6,90,088 and Rs. 3,23,719 from the income of the assessee which were taken in estimating the gross profit for this year. Assessing Officer shall consider the contention of the assessee, if any, to justify that either no addition was called for or a lower addition than the amount computed on comparison with the last year's result was called for.
9. As regard penalty for concealment, we are of the opinion that the suppression in receipts of Rs. 8,28,781 is the income which was concealed or particulars of which are concealed by the assessee. The other amount covering gross profit addition would be a matter of estimating the profit or disallowance of routine nature and would not constitute concealment on the part of the assessee. As aforesaid the sum of Rs. 8,28,781 represents concealment because of suppression of receipts detected on the basis of tax deduction certificate submitted by the assessee, but no penalty with respect thereto can be levied because the returned income as wen as the assessed income is a loss and as the assessment resulted in a loss, there was not tax payable by the assessee.
10. The first decision of this issue in the decision of the Punjab & Haryana High Court in the case of CIT v. Prithipal Singh & Co. [1990] 183 ITR 69, wherein it was held " the word ' income ' in clauses (c) and (iii) of section 271 (1) of the Income-tax Act, 1961, refers to positive income only. Evasion of tax is the sine qua non for imposition of penalty. Clause (iii) of section 271(1) deals with cases referred to in clause (c) under sub-section (1) of section 271 of the Act and it clearly provides therein that the penalty of further sum payable by a person would be in addition to any tax payable by him. Explanations 3 & 4 annexed to the said provision of law also presuppose taxable income with regard to the assessment year in question. If there is no taxable income or tax assessed for payment during a particular year, the question of evasion and consequently penalty does not arise ". This decision is distinguished by the Commissioner of Income-tax (Appeals) by stating that the matter before their Lordships of Punjab & Haryana High Court pertained to assessment year 1970-71 when those provisions were not there. However, Explanations 3 & 4 as inserted w.e.f. 1-4-1970 were considered by their Lordships even though the dispute was relating to assessment year 1970-71. Next decision is of Jaipur Bench of the Tribunal wherein Punjab & Haryana High Court decision came up for consideration. The appeal before the Jaipur Bench of the Tribunal in the case of Indo German Electricals v. ITO [1992] 41 ITD 455 was for the assessment year 1983-84, wherein it was held that when the total income of the assessee is assessed at a loss, it could not be said that the assessee has concealed the particulars of income. The next decision is in the case of H. T. Power Structures (P.) Ltd. v. Asstt. CIT [1993] 45 ITD 571, wherein Ahmedabad Bench " B " of the Tribunal held that when assessment was made on a huge loss, penalty under section 271(1)(c) would not be leviable on the basis of the Explanation 4 below section 271(1) as inserted w.e.f. 1-4-1976. It may further be stated that the Bombay Bench of the Tribunal has also held in the case of Mutual Plastics v. Twelfth ITO [1989] 35 TTJ (Bom.) that Explanation 4 (a) to section 271(1)(c) deals with cases of positive income only and does not specifically provide for levy of any penalty in case of assessed loss.
11. In respect of somewhat analogous provisions as they were appearing in section 143(1A), the matter came up for consideration before Delhi High Court in the case of Modi Cement Ltd. v. Union of India [1992] 193 ITR 91, and before the Allahabad High Court -- Lucknow Bench in the case of Indo-gulf Fertilisers & Chemicals Corpn. Ltd. v. Union of India [1992] 195 ITR 485. Similar matter was again considered by the Delhi High Court in the case of J.K. Synthetics Ltd v. Asstt. CIT [1993] 200 ITR 584, where their Lordships held :
" It is clear from the provisions of section 143(1A) of the Income-tax Act, 1961, that there has to be on increase in the income-tax payable as a result of the adjustments made under section 143(1)(a) and only in that situation the tax payable has to be further enhanced by a sum equal to 20% of such increased tax liability. Where the assessee has submitted a return disclosing a loss and if after the process of adjustments the net result is still a loss there cannot be any question of any further tax liability accruing, and as such no tax would be payable much less any additional tax on the amount by which the losses stand reduced. Even under clause (ii) of the Explanation to section 143(1A) reduction in loss which does not result in conveying the return into one of profits does not attract any tax. "
12. The provisions of section 143(1A) and the provision of section 271(1)(c) read with Explanation 4 are analogous and that is what has been stated in the explanatory note on the provisions of direct tax loss introducing the provisions 143(1A) vide Circular No. 549, dated 31st October, paragraph 5.9 of this circular reads as under CIT v. Bharat Barrel & Drum Mfg. Co. (P.) Ltd. [1990] 182 ITR 21 (Bom.) :
" An Explanation in the said sub-section 1(A) provides that the additional tax of 20% will be levied on---
(i) in a case where the amount of the aforesaid adjustments exceeds the total income, the tax that would have been chargeable had the amount of adjustment been the total income.
(ii) in any other case, the difference between the tax on the total income and the tax that would have been chargeable had such total income been reduced by the amount of adjustments. The provisions of clause (1) of the Explanation apply in the case of the loss returns only. These provisions are on the same lines as the provisions for the levy of penalty under section 271(1)(c) for concealment of income in the case of loss returns, as contained in clause (c) of Explanation 4 to section 271(1)."
The learned Departmental Representative brought to our notice, the decision in the case of Addl. CIT v. Jeevan Lal Sah [1994] 205 ITR 244 (SC), we do not find any relevance thereof in deciding the issue for this appeal. Taking into consideration the interpretation given in the two judicial pronouncements (Delhi and Allahabad) the Legislature brought an amendment in the provisions of section 143(1A) by the Finance Act, 1993, with retrospective effect from 1-4-1989 the date from which the provisions of section 143(1A) was inserted originally and the memorandum explaining provisions in the Finance Bill, 1993 in this regard as under :
" The provisions of section 143(1A) of the Income-tax Act provide for levy of twenty per cent additional income-tax where the total income, as a result of the adjustments made under the first proviso to section 143(1)(a), excess the total income declared in the return. These provisions seek to cover cases of returned income as well as returned loss. Besides its deterrent effect, the purpose of the levy of the additional income-tax is to persuade all the assessee to file their returns of income carefully to avoid mistakes. In two recent judicial pronouncements it has been held that the provisions of section 143(1A) of the Income-tax Act, as these are worded, are not applicable in loss cases. The Bill, therefore, seeks to amend section 143(1A) of the Income-tax Act, to that whereas a result of the adjustments made under the first proviso to section 143(1A) the income declared by any person in the return is increased, the Assessing Officer shall charge additional income-tax at the rate of twenty per cent on the difference between the tax on the increased total income and the tax that would have been chargeable had such total income been reduced by the amount of the adjustments. In cases where the loss declared in the return has been reduced as a result of the aforesaid adjustments have the effect of converting that loss into income, the bill seeks to provide that the Assessing Officer shall calculate a sum of (referred to as additional income-tax) equal to twenty per cent of the tax amount of the adjustments as is it had been the total income of such person. The proposed amendment will take effect from 1st April, 1989 and will, accordingly, apply in relation to the assessment year 1989-90 and subsequent years. "
13. No such amendment was thought of or brought in for the provisions of section 271(1)(c) read with Explanation 4 thereto. It may therefore be concluded that the Legislature does not want levy of penalty for concealment in case where the assessed income is a loss.
14. It may be true that income includes loss and loss is a minus income of an assessee in view of the decision in the case of CIT v. J. H. Gotla [1985] 156 ITR 323 (SC), but that depends upon the context in which the term is used. In this case the dispute was for allowing loss in the hands of an individual in whole assessment the share income of his wife and minor children were includible in his total income, under section 16(3) of the Indian Income-tax Act, 1922 and in that context the Supreme Court held that income includes loss with the remarks that " where the plain literal interpretation of a statutory provisions produces a manifestly unjust result which could never have been intended by the Legislature, the Court might modify the language used by the Legislature so as to achieve the intention of the Legislature and produce a rational result ". In another case of CIT v. Karamchand Premchand Ltd. [1960] 40 ITR 106 referred to before us at the time of the hearing the Supreme Court held that " The expressions ' income ',' profits or gains ' in the third proviso to section 5 of the business Profits Tax Act, in the context, does not include losses ".
Therefore, it is the context in which the material is to be seen and considered which is relevant and the said decision of the Supreme Court would not be much help. The learned Departmental Representative brought to our notice the decision of the Supreme Court in the case of Jeevan Lal Sah, we do not find any relevance of the said decision in deciding the issue in this appeal.
15. In view of the aforesaid discussion particularly in the light of the decisions of Punjab, Delhi & Allahbad and the three Tribunal decisions of Jaipur, Ahmedabad & Bombay, we are of the opinion that no penalty under section 271(1)(c) can be levied in a case where the assessed income of the assessee is a loss. We, accordingly, delete the penalty.
16. In the result, the quantum appeal is allowed in part and the penalty appeal is allowed
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