1996-VIL-10-ITAT-

Equivalent Citation: ITD 061, 001, TTJ 058, 039,

Income Tax Appellate Tribunal CALCUTTA

Date: 12.12.1996

PROF. CHITTARANJAN DASGUPTA.

Vs

ASSISTANT COMMISSIONER OF INCOME-TAX

BENCH

Member(s)  : P. J. GORADIA., R. V. EASWAR., R. ACHARYA.

JUDGMENT

Per Sri R. Acharya, AM --- These appeals are instituted by the assessee against the order of the CIT (Appeals) for the assessment years 1979-80 to 1985-86 on the common grounds that the CIT (Appeals) erred in confirming the imposition of penalty under section 271(1)(c) of the Income-tax Act, 1961 without going through the facts of the case when the assessee did not have any mens rea to conceal the income and, therefore, the imposition of penalty is bad in law. Since common issues and common grounds are involved in these appeals, they are decided and disposed of together for the sake of convenience

2. In this case although the original assessment was completed, the Assessing Officer subsequently found that the assessee received Rs. 5,664, Rs. 6,008, Rs. 8,981, Rs. 11,062, Rs. 3,640, Rs. 21,840 and Rs. 15,950 for the assessment years 1979-80 to 1985-86 respectively, as royalty from Calcutta Book House (in short 'CBH') during the previous years relevant to these assessment years. The Assessing Officer, therefore, reopened the assessments under section 147 as the assessee did not disclose truly and fully all material facts necessary for his assessments and the assessments were completed under section 143(3)/147 after the returns of income in response to notices under section 148 were filed and the penalty proceedings under section 271(1)(c) were duly initiated. A show-cause notice under section 271(1)(c) / 274 was served on the assessee and the assessee submitted a written explanation wherein it is stated that the assessee received royalty money from two companies - (i) Book Syndicate Pvt. Ltd. and (ii) Calcutta Book House, owned by the same person. It is further mentioned that the assessee was under the impression that the certificate regarding royalty received from Book Syndicate Pvt. Ltd. also included royalty from CBH. Before the Assessing Officer the mistake was admitted as due to oversight. The Assessing Officer rejected the explanation of the assessee as not reasonable since, according to him, the receipt of royalty involved is not only for this year but also for various years, i.e., from assessment years 1979-80 to 1985-86. According to him it is not reasonable that the assessee continuously failed to notice this additional receipt in so many years. The Assessing Officer, therefore, came to the conclusion that the assessee has deliberately suppressed the receipts of royalty by concealing the particulars of his income and has also furnished inaccurate particulars of his income. He, therefore, imposed the penalty of Rs. 3,460, Rs. 4,768, Rs. 5,977, Rs. 7,300, Rs. 2,374, Rs. 14,722 and Rs. 9,868 for the assessment years 1979-80 to 1985-86 respectively under section 271(1)(c) of the Act.

3. Before the CIT (Appeals) it was submitted that the assessee received royalty money from two companies, viz., (i) Book Syndicate Pvt. Ltd. and (ii) Calcutta Book House owned by the same person and the royalty received from the first concern was more than that of the second concern. It was also stated that one certificate was issued annually by the Book Syndicate Pvt. Ltd. showing the royalty received by the assessee and by mistake the royalty received from CBH was not included in the return prepared by the assessee for all these years. it was further explained that the assessee was busy with his college work and writing works and through oversight he did not disclose the royalty received from CBH. The CIT (Appeals) considered the submissions of the assessee and came to the conclusion that the explanation that the assessee made a mistake by oversight is not acceptable because a person with sound mind cannot repeat the mistake year after year and it is, therefore, not probable to believe that the assessee continuously failed to declare this additional money in so many years. According to the CIT (Appeals), this only establishes that the assessee deliberately and intentionally suppressed the receipt of royalty by concealing the particulars of his income and has deliberately furnished the inaccurate particulars of income. He, therefore, confirmed the imposition of penalties for all these years. Being aggrieved by the order of the CIT (Appeals) the assessee has preferred these appeals to the Tribunal.

4. The learned counsel for the assessee has filed a paper book containing certificate from CBH, copies of computation, copies of assessment orders, copies of self-assessment tax challan after deduction of tax and the grounds of appeal chronologically along with a written submission which is reproduced as under :

"That the appellant is a renowned Professor in Calcutta. He has written many books on Mathematics and Life Science which are prescribed as text books in most of the schools in West Bengal. He is an honest taxpayer and has paid taxes to the tune of Rs. 2,80,000 from the assessment years 1979-80 to 1985-86.He used to receive royalty money from two publishing companies, viz., (a) Book Syndicate Pvt. Ltd. and (b) Calcutta Book House. These two units were owned by the same person. Royalty from the first concern was several times more than that paid by the second concern. The publishers used to make on account payment. The appellant had the impression from the beginning that the single certificate covered the total royalty as it came from the same person. The appellant filed the return as per the certificate. It never struck to his mind till the defect was detected. Whenever the mistake was pointed out, he paid all the taxes along with the penal interest. He always co-operated with the department regarding payment of taxes. He had no reason to suppress the income as the royalties from the Calcutta Book House were small compared to the royalties earned from Book Syndicate Pvt. Ltd. It was a genuine misunderstanding of the fact that the whole royalty was included in one certificate. There was no mala fide intention or mens rea present in this case. The appellant never included the royalty of Calcutta Book House as it never came to his mind that there might be another certificate. It is not correct to say that the appellant deliberately and intentionally suppressed the receipts by concealing the particulars of his income and has deliberately furnished inaccurate particulars of income. The appellant paid so much of taxes voluntarily that there was no reason for him to suppress the small income and pay a meagre tax on it."

5. The learned departmental representative on the other hand contended that the concealment of particulars of income due to oversight and ignorance is no excuse. He further argued that since the assessee has not disclosed the amount of royalty received, he has deliberately concealed the particulars of income in each year and the penalty under section 271(1)(c) has rightly been imposed by the Assessing Officer and confirmed by the CIT (Appeals). In order to support his contentions he relied on the following decisions :

(a) Murarka Paints & Varnish Works Ltd. v. ITO [1978] 114 ITR 480 (Cal.), wherein it was held that there was some material at the time of the issue of the notice to think that there was not full disclosure about the loan transaction of the name-lender with the petitioner-company, the subsequent disclosure petition merely corroborated that position and the challenge to the notice cannot be sustained.

(b) Amin Chand Payarelal v. IAC [1992] 194 ITR 511 at p. 513 (Cal.), upon scrutiny it was detected by the High Court that the petitioner furnished incorrect particulars and the totality of the circumstances clearly pointed out that it was a case of gross and wilful neglect on the part of the petitioner who failed to prove that it was not a case of gross and wilful neglect in furnishing the original return.

(c) Yamuna Restaurant v. CIT [1993] 201 ITR 99 (Guj.), wherein it was held that the evidence clearly established that the assessee had tampered with the books of account and this was done only with a view to suppressing the sales. This was a clear case of concealment of income and the imposition of penalty was justified.

(a) Narandas Paramanand Das v. ITO [1975] 98 ITR 453 (Cal.), wherein it was held that penalty proceeding is quite different proceeding and levy of interest will not prohibit the levy of penalty.

6. We have carefully considered the rival contentions, the relevant facts and material placed on the record and we have also gone through the High Court decisions on which reliance is placed by the department. It is observed and noticed from the assessment order for the assessment year 1979-80 that the assessee himself has confessed that royalty income received from CBH was not disclosed in the return from the assessment year 1979-80 onwards due to mistake. It was also admitted before the Assessing Officer that the royalty from CBH were received through cheques by making full disclosure of his own bank account. The same mistake is also admitted as due to oversight before the Assessing Officer in a written reply to the show-cause notice issued by the Assessing Officer. Before the CIT (Appeals) also the assessee explained that he was busy with his college work and writing books and, therefore, through oversight he did not disclose the royalty received from CBH. The certificates from CBH showing the year-wise payment of royalty also proved beyond doubt the concealment of the income on the part of the assessee. The bank account and the certificates from CBH are these two corroborative evidence which help the cause of the revenue and support the contention of the learned departmental representative that the imposition of penalty by the Assessing Officer and confirmation of the same by the CIT (Appeals) has been done rightly. Since the same mistake has been committed repeatedly year after year, the mistake cannot be said to be bona fide and without mala fide intention. It is also noticed that the return is filed after the concealment of income was detected and after the assessments were reopened and a notice under section 148 was issued. Therefore, the contention of the assessee that as soon as the mistake was detected, he immediately filed the returns and paid the taxes accordingly, is not correct. We also find that the allegation of the department that the assessee has deliberately and intentionally suppressed the receipt of royalty by concealing the particulars of income and has deliberately furnished inaccurate particulars of income has not been controverted by adducing evidence in his favour. In this view of the matter as wen as considering all the facts and circumstances of the case, we decline to interfere with the orders of the authorities below. The orders of the CIT (Appeals) are, therefore, upheld.

7. In the result, the appeals of the assessee are dismissed.

Per R. V. Easwar, J.M.

8. I have carefully read the order proposed by my learned brother. With respect, I am unable to share his view that the assessee must be held guilty of concealment of his income. In my opinion, the assessee should get the benefit of doubt.

9. The facts have been narrated in sufficient detail by my learned brother. I am in broad agreement with them. It is only in the conclusion that flows therefrom that I am of the view that the assessee should be relieved of the penalty.

10. Now I do believe that the income-tax law recognises a distinction between a mere mistake or omission to include an item of income in the return on the one hand and concealment on the other. In my opinion, it would depend on the facts of a particular case as to which side of the line it falls.

11. The assessee in this case is a professor. He also wrote books and his income from this activity was quite substantial. This fact is indicated by the assessment order for the assessment year 1985-86 which shows the salary income to be Rs. 18,502 only whereas the royalty income is Rs. 1,99,941. It is, therefore, a reasonable assumption that the assessee devoted most of his time to writing books. Now the royalty was received from two sources: Book Syndicate Pvt. Ltd. and Calcutta Book House. Both were connected institutions being controlled by the same person. Book Syndicate was in the habit of issuing a certificate annually showing the royalty payments made during the year. Calcutta Book House had not been issuing such certificate. Both the concerns paid royalty by cheque. The assessee's case is that since he was busy with college work and in writing books, he was under the bona fide, though mistaken, belief that the amount mentioned in the certificate issued by Book Syndicate covered both the concerns and that the royalty figure mentioned therein included the royalty paid by Calcutta Book House as well. The assessee did not maintain books of account and the returns were being prepared by him without any professional assistance. Under these circumstances he says that he omitted to include the royalty received from Calcutta Book House (CBH for short). The mistake was perpetuated in the returns for all the years under appeal in a mechanical manner. Once the omission was pointed out, and notices were issued under section 148, the assessee included the royalty without demur and filed returns accordingly.

12. On these facts, I am of the view that the benefit of doubt should go in favour of the assessee. I find from the penalty orders that the facts have not been disputed. The only thing the ITO and the CIT (Appeals) say is that the claim that the non-inclusion of the royalty from CBH is only a mistake or oversight cannot be accepted since a number of years are involved and "it is not reasonable that the assessee continuously failed to notice this additional receipt in so many years". Now if it is true that the assessee prepared the returns himself without any professional assistance and if it is also true that he returned the royalty income on the basis of the certificate issued by Book Syndicate on the assumption that it included the royalty from CBH also, both being connected firms, it is also reasonable to expect that the assessee would not have bothered to check his bank statements in detail which alone could have revealed to him that the royalty from CBH has been left out of the returns. And if this is the manner in which the assessee had been preparing and submitting his returns, it seems acceptable that it was only an oversight or mistake or omission not amounting to concealment. The conduct of the assessee has to be taken into account. It may be that he has not taken the care that is due or even necessary to prepare his returns. He had not checked in detail his bank statements. But that in my opinion does not amount to concealment which involves a series of steps taken in a calculated manner with the necessary animus to gain some pecuniary advantage or to deprive the other person of some valuable right. Such an intention is absent. In my opinion, by not examining the bank statements the assessee might have been merely careless. I have already indicated that the assessee could have, under the circumstances, honestly believed that the certificate from Book Syndicate exhausted the figure of royalty. A professional tax adviser would have most certainly had the certificate compared with the bank statement but I have already observed that the assessee did not take professional assistance. Once the return filed for one year on the basis of the certificate was accepted, obviously the assessee had followed the same basis for the succeeding years and that explains why part of the royalty income was omitted from the returns for a number of years. The explanation is not improbable; indeed it does seem plausible to me.

13. I had earlier indicated that the income-tax law does recognise the distinction between cases of omission and concealment. In the former, there is no animus whereas in the latter, there is an element of deliberateness or an intention. This distinction has been brought out by the Madras High Court in V.L. Dutt v. CIT [1976] 103 ITR 634 at page 645, and in the case of CIT v. J.K.A. Subramania Chettiar [1977] 110 ITR 602 at page 608. Two facts support my view that the case is one of omission only and the assessee should be given the benefit of doubt. One is that the royalty received from CBH is much less than that received from Book Syndicate (see page I of the paper book). The second is the readiness with which he included the royalty amount from CBH in the returns filed in response to notices under section 148 and paid the tax thereon. It is no doubt legally correct to say that the income was not included in the original returns and that the inclusion thereof in the returns filed in response to notices under section 148 does not relieve the assessee of the duty to answer to the charge of concealment. But it is equally correct to say that the conduct of the assessee up to the assessment is a very relevant circumstance in judging his guilt and if the facts establish that what had taken place is only an innocent omission, "penalty cannot be imposed merely because it is lawful to do so", to borrow, with great respect, the words coined by his Lordship Justice Shah in Hindus tan Steel Ltd. v. State of Orissa [1972] 83 ITR 26 (SC). In this case, there was undoubtedly an omission to include the correct royalty income in the returns but in my opinion it was not an omission amounting to concealment.

14. I wish to add that I find it a little difficult to imagine that a professor - an academician - engaged predominantly in writing books would have committed an intentional default. This impression of mine does not however constitute one of the grounds for cancelling the penalty, for one should not be guided by mere impressions but I must confess that I was aware of the fact throughout the time taken by me in writing my dissent, at least sub-consciously.

15. I would, as stated earlier. give the benefit of doubt to the assessee and cancel the penalty for all the assessment years.

THIRD MEMBER ORDER UNDER SECTION 255(4) OF I.T. ACT, 1961

1. The following question is referred to me as Third Member :

"Whether, on the facts and in the circumstances of the case, the assessee is liable to penalty for concealment of income under section 271(1)(c) of the Act ?"

2. The relevant facts leading to the present controversy are elaborately stated in both the orders passed by the Members and, therefore, for the sake of brevity they are not repeated here. Even at the time of hearing, it was the common submission that the facts are correctly stated.

3. The ld. counsel for the assessee, opening his arguments, submitted that he was fully relying upon the order passed by the Ld. Judicial Member. However, he would like to add following. The explanation was neither attracted nor invoked and, therefore, the penalty was sought to be imposed on the basis of main provisions regarding concealment. Therefore, the burden was squarely on revenue to prove to the hilt the concealment. Pressing into service in the case of Badshah Prasad v. CIT [1981] 127 ITR 601 (Pat.), the Ld. counsel read the portion of the judgment on pages 607 & 608 where similar controversy arose. In that case Their Lordships of the Patna High Court had observed that the only material, if at all that could be called material, is a mere presumption that the assessee must be aware of the total volume of work done by him and of the payments that he was entitled to receive on that account and further Their Lordships observed, presumption of fact cannot be equated to a finding of fact and more so when against the concrete assertion by the assessee that the payment certificates received by him were basis for returning his total income, the Department had not been able to find any fact to contradict such assertion. These observations, according to him, are very vital in the present controversy. He also relied upon in the case of Hindustan Steel Ltd., in the case of CIT v. Nathulal Agarwala & Sons [1985] 153 ITR 292 /22 Taxman 199 (Pat.) (FB) and in the case of CIT v. P.A. Patel [1981] 127 ITR 390 (Pat.).

4. The Ld. Departmental Representative preferred to rely fully upon the order passed by the Ld. Accountant Member.

5. On consideration of the material, I agree with the view expressed by the Ld. Judicial Member. The reasons are as follows :

The controversy between the two Ld. Members is reduced to very narrow point as according to the Ld. Accountant Member, the default was deliberate and intentional, whereas according to the Ld. Judicial Member, the default was mere omission. The difference is on fact, on appraisal of evidence. The point arises for consideration is whether there was deliberate concealment where concealment penalty can be and should be imposed or there was mere omission not attracting penalty. To find out an answer to this problem, we shall have to meet certain principles governing the provisions regarding the concealment. It is well-settled by now that provisions dealing with penalty must be strictly construed. In case of doubt, the provisions should be construed in a manner favourable to the taxpayer [see in the case of CIT v. Vegetable Products Ltd. [1973]88 ITR 192 (SC) and in the case of C.A. Abraham v. ITO [1961] 41 ITR 425 (SC)]. Keeping this settled legal principle in mind, before the penalty can be imposed on the facts of the case, there must be concurrence of both the Members on the point of concealment. The Ld. Judicial Member has taken a dissenting view and has given plausible reasons and this aspect itself has taken away the necessary ingredient from facts attracting rigour of the concealment provision. Secondly, as stated earlier, when two reasonable views are possible, a view favourable to the assessee has to be taken especially when we are dealing with the penalty provisions. Therefore, on this account also, no penalty can be imposed. Thirdly, imposition of penalty is purely discretionary, as could be seen from the language of the provision of section 271(1)(c) where the word used is 'may' and not 'shall'. Therefore, penalty will not be imposed merely because it is lawful to do so. The power to impose penalty has to be exercised judicially with due regard to all the facts and circumstances of each case and cannot be exercised mechanically. Even our jurisdictional High Court in the case of CIT v. Bengal Iron Galvanising Works [1987] 165 ITR 249/32 Taxman 19 (Cal.) had held that it is not mandatory under section 271 that a penalty must be imposed in every case and if the conditions laid down in the said section are established, even then the authority concerned 'may direct' the imposition of penalty.

5. I One more aspect which is conspicuous is as under: The tax authorities have treated the default as deliberate and intentional and the Ld. Accountant Member also at the end of para-6 states that the assessee has deliberately and intentionally suppressed the receipt, etc., and the allegation has not been controverted by adducing evidence in assessee's favour. The onus is sought to be shifted upon the assessee. Actually in the concealment proceedings, the onus to prove the concealment is on the revenue. From the certificates issued by Calcutta Book House, it is found that they were issued only on 3-4-1988, that is to say, much after the assessments were completed and reopening proceedings were started. As against this, earlier there was only one certificate issued by Book Syndicate. The revenue could have proved the concealment to the hilt by bringing on record a fact that earlier to these assessment years the assessee was showing the income from both the concerns even though controlled by same person and only one certificate was issued. The revenue could have even brought on record the material to prove that the assessee was in the habit of preparing the bank summary where the receipts from these two concerns were shown separately and could not escape attention of person with reasonable care. But this has not been done. In my opinion, it does happen that when one-deals with one person, he may be having several concerns for tax and other purposes but the dealings will be with only that person and when that person is requested to issue the certificate of royalty for the income-tax purpose and if that person issues only one certificate without any further clarification, then mistake is likely to creep in without any intention. The matter will now go to the Division Bench to pass the appropriate order in accordance with majority decision.

 

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