Income Tax Appellate Tribunal - Cochin
Income Tax Officer vs Smt. Leela Mammen on 1 May, 1998
ORDER
M.M. Cherian, A.M.
1. This appeal is directed against the order of the CIT (A) in regard to the levy of penalty under s. 271(1) (c) of the IT Act on the assessee, Smt. Leela Mammen who is doing business as a hardware merchant at Kottarakkara. Smt. Leela Mammen was assessed to tax for the asst. yr. 1990-91 on a total income of Rs. 3,29,170 including Rs. 2,98,800 as income under the head 'other sources'. A penalty of Rs. 1,60,000 was levied on the assessee under s. 271(1) (c) of the IT Act on the ground that there was concealment of income of Rs. 2,98,800. In the assessee's appeal, the CIT (A) cancelled the penalty order. Aggrieved with the decision of the CIT (A) the Department has filed this appeal before the Tribunal.
2. For the asst. yr. 1990-91 the assessee had filed the return on 13th Feb., 1991, declaring a total income of Rs. 30,370. While scrutinising the books of accounts the AO found that the assessee had been making remittances to suppliers of steel on various dates by cash and also by demand draft. The AO obtained from them the copy of the assessee's accounts in their books. On making verification with the assessee's books the AO noticed that payments on various dates as appearing in the books of accounts of Saroj Sales Corporation did not appear in the assessee's books on those dates but on subsequent dates only. Further verification showed that the assessee had been making payments on several days when sufficient cash balance was not available in her business account. In the assessee's books of accounts the payments were noted on subsequent dates when adequate cash balance were available. The assessee was given a copy of the account furnished by the Saroj Sales Corpn. showing the actual dates of receipt of money from the assessee. The assessee's explanation was that she had with her cash of Rs. 85,000 belonging to her children and that whenever there was cash shortage, she used to make use of the above sum and later as and when sufficient cash balances were available in the business, the amount would be withdrawn. It was admitted that the claim regarding the availability of the cash of Rs. 85,000 could not be proved with any evidence. The AO did not accept the assessee's explanation. The AO found that on the basis of payments on various dates without adequate cash balance, there was peak amount of Rs. 2,98,808 to be explained by the assessee. The AO issued summons under s. 131 of the IT Act to the assessee with a view to record her statement in regard to the discrepancy in the dates of payment and the source of the cash outside the books of accounts. The assessee did not appear before the AO but she gave a letter on 2nd Jan., 1992 stating that the cash payments were made out of her own funds for which the source was not readily available and further that she was agreeable for a lump sum addition of Rs. 2,98,808. That sum was added in the assessment as income from other sources. The AO initiated penalty proceedings under s. 271(1) (c) and called for the assessee's explanation as to why penalty was not leviable for concealment of income. In response to the show cause notice the assessee submitted that the lump sum addition had been agreed upon only to buy peace with the Department and that there was also a promise not to levy penalty on her. Rejecting the assessee's explanation the AO proceeded to levy a penalty of Rs. 1,60,000 under s. 271(1) (c) by the order dt. 30th Sept., 1992. This was cancelled by the CIT (A) for the following reason as appearing in para 5 of the appellate order :
"From the facts of the case it is clear that the appellant has agreed for the addition of Rs. 2,98,800 by her letter dt. 2nd Jan., 1992. It is a fact that the Department has started investigation proceedings into various bank drafts and cash payments. But they have not come to a formal conclusion with regard to the concealment. One cannot say that the Department has come to a final conclusion that there was concealment. The Department has not quantified the concealment. It is absolutely clear that the appellant has come before the Department to buy peace with a presupposition that no penalty or prosecution proceedings would be initiated."
3. Revenue is in appeal before the Tribunal with the plea that the CIT (A) erred in cancelling the penalty holding that the Department had not come to a formal conclusion with regard to concealment of income by the assessee, Shaji P. Jacob, Departmental Representative, submitted before us that the CIT (A) was not correct in stating that the Department had not come to any finding regarding concealment of income or quantification of the concealed income in this case. Drawing our attention to the assessment order dt. 30th March, 1992, the Departmental Representative submitted that in the assessment order the AO had shown clearly how the assessee had made payments on various dates even though there was not enough cash in the business account.
Shaji pointed out that payments had been made with cash available with her, but kept outside the accounts. It was submitted that that explanation was rejected by the AO as no person would keep money of the children outside the account, if the same was not unaccounted cash and money from a genuine source. Shaji stated that it was only after the AO had pointed out that peak remittance of Rs. 2,98,808 in respect of which the source was to be explained that the assessee came forward with the offer of the same amount as income for assessment purpose. The learned Departmental Representative wanted to emphasise the fact that there was in fact quantification of the unexplained payment by the AO and that was why the exact peak amount was offered by the assessee as her income for assessment purpose. Shaji pointed out that the CIT (A) was not correct in stating that the concealed income was not quantified by the AO. It was further stated that the AO issued summons under s. 131 with an attempt to pin down the assessee with her sworn statement regarding the source of the peak amount but the assessee was trying to avoid appearance. It was after seeking adjournments many times that the assessee filed the letter on 2nd Jan., 1992, offering the sum of Rs. 2,98,800 for assessment. According to the learned Departmental Representative when the assessee herself had admitted the amount as her income, there was nothing further for the AO to prove regarding concealment as the amount was admittedly kept outside her books of accounts. The Departmental Representative relied on the decision of the Kerala High Court in Union Engineering Co. Ltd. vs. CIT (1980) 122 ITR 719 (Ker) to contend that even filing a revised return after admitting the irregularity would not give exoneration from levy of penalty.
The Departmental Representative also referred to the decision of the jurisdictional High Court in the case of CIT vs. Haji P. Mohammed (1981) 132 ITR 623 (Ker). In that case the assessee filed a revised return after the AO confronted him with information about non- inclusion of certain receipts in the return filed earlier and the Court held that filing the revised return would not absolve the assessee from the penalty under s. 271(1) (c). The learned Departmental Representative made a strong plea for reversing the order of the CIT (A) and for upholding the penalty.
4. Per contra, the assessee's representative, Ivan Joseph, C. A. supported the order of the CIT (A) and submitted that though there was some investigation going on in this case before the AO came to any conclusion, the assessee volunteered to offer the additional income of Rs. 2,98,800 for assessment purpose only to purchase peace with the Department. It was stated that the assessee did not want to enter into long litigation with the Department and only with a view to get peace of mind, without trouble, she offered the amount for assessment with the understanding that there would be no penalty or prosecution by the Department. Ivan Joseph submitted that in accordance with the agreement between the assessee's representative and the AO on 31st Dec., 1991, the assessee later gave the letter on 2nd Jan., 1992, admitting the amount for assessment. The learned representative submitted that the assessee could have furnished evidence to prove the source of the funds to explain the remittances but as there was an agreement regarding penalty, no appeal was filed against the addition and the assessee felt that there was no need to prove the source of the funds. He relied on the decision of the Supreme Court in the case of Sir Shadilal Sugar Mills & Ors. vs. CIT (1987) 168 ITR 705 (SC) to submit that from the assessee agreeing for the addition it did not follow that the amount added was the concealed income. The learned representative also referred to the decision of the Kerala High Court in CIT vs. M. George Bros. (1986) 160 ITR 511 (Ker) to point out that in this case also before the assessment was completed, the assessee had made a full disclosure of the income and it was only on the basis of the particulars furnished by the assessee that the assessment was made. It was contended that there was no conscious concealment on the part of the assessee to attract the penal provisions under s. 271(1) (c). The learned representative submitted that the cases relied on by the Department in (1980) 122 ITR 719 (Ker) (supra) and (1981) 132 ITR 623 (Ker) (supra) were distinguishable on facts and having no application in the present case.
5. We have given due consideration to the rival submissions and the facts of the case as brought out in the assessment order and the penalty order. The AO came to know that the assessee was making payments to suppliers of steel by cash and by demand draft. There were discrepancies in regard to the dates of payments as appearing in the books of the suppliers and the bank records regarding the purchase of demand drafts and in the books of the assessee. The discrepancies were noticed as under :
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Payment Date Cash balance Date of
as on the accounting
date of
payment
Rs. Rs.
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70,000 3-4-1989 23,172 20-4-1989 34,000 26-10-1989 20,794 1-11-1989 50,000 11-11-1989 20,953 10-11-1989 33,136 30-10-1989 15,802 1-11-1989 29,174 23-11-1989 16,243 28-11-1989 84,614 11-12-1989 24,503 13-2-1990 85,000 23-12-1989 52,926 4-1-1990
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It can be seen that as per the books of the suppliers there was receipt of Rs. 70,000 on 3rd April, 1989. But the payment was entered in the assessee's books of account on 20th April, 1989, only, i.e., after more than two weeks. The AO noticed that on all those dates when the payments had been made, there was not sufficient cash in the business account to explain the source of the funds. It was with a view to camouflage the remittance without adequate cash that the assessee adopted the method of making entries in her books of accounts on convenient dates as and when the cash position improved. There was no other reason as to why the entries were made in the assessee's books not on the same dates but on later dates. As a matter of fact the assessee never disputed the fact that the remittances had been made on earlier dates when the cash position could not have explained the remittance.
6. The assessee gave the letter on 2nd Jan., 1992, offering the sum of Rs. 2,98,800 for assessment purposes as under :
"At the time of scrutiny of the case you have found out that certain payments made to parties do not tally with the date of payment said to have received by the parties. As explained in my detailed letter dt. 13th Dec., 1991, these payments had to be made to maintain good relation with principal customers. On these occasions there would be no cash balance and payments were effected from money at my hand. However the source of receipt of this money may not be readily available at my hand. Above all in order to purchase peace with the Department I agree that to the lump sum addition of Rs. 2,98,800. But addition is agreed on your assurance to the following."
The assessee thus admitted that on those dates there was no cash balance and the payments were effected from the cash available with her, source of receipt of which was not readily available. The assessee's claim accepted by the CIT (A) was that it was an offer to purchase peace with the Department. The first appellate authority further held that one cannot say that the Department has come to a final conclusion that there was concealment. The Department has not quantified the concealment. Before considering the question whether the Department has quantified the amount, it is necessary to see how the assessee arrived at the sum of Rs. 2,98,800 to be offered as income to purchase peace with the Department. The assessee's letter dt. 2nd Jan., 1992, does not show the computation but it contains some clue. In that letter the assessee admits "at the time of scrutiny of the case you have found out that certain payments made to parties do not tally with the date of payment said to have received by the parties." In the assessment order dt. 30th March, 1992, the names of the parties are :
(1) Trichy Steel Rolling Mills, Tiruchinappally;
(2) S. K. Alloy Steel Ltd., Coimbatore; and (3) Saroj Sales Corporation, Ernakulam.
Apart from making cash payments to them, the assessee was also making payments through demand drafts. The AO obtained from the Federal Bank, Kottarakara Branch the details of the demand drafts purchased by the assessee. Copies of accounts of the parties were also called for. On verification, the AO noticed that the cash payments and the purchase of demand drafts were not appearing in the assessee's books on the same dates, as in the bank records. From the assessment order it can be seen that the assessee's representative had asked for a copy of the accounts furnished by the supplier Saroj Sales Corporation, Ernakulam, which showed various cash/demand drafts payments by the assessee, when there was not sufficient cash as per the assessee's accounts. The copy of the account was furnished to the assessee. The letter dt. 2nd Jan., 1992, shows that there were discussions between the assessee's representative and the AO on different dates - 17th Dec., and 31st Dec., 1991. It appears that in the discussion it was pointed out to the assessee that the peak amount showing the remittance without adequate cash balance came to Rs. 2,98,800 for which she had to explain the source. Annexure to the assessment order shows how the AO arrived at the peak amount of Rs. 2,98,800. It was in explaining the source of the peak amount that the assessee stated that the payment was effected with the cash available with her. From the facts brought on record, we do not agree with the CIT (A) that the AO had not made quantification of the unexplained income.
7. Regarding the claim that the order of income by the assessee was only to 'purchase peace with the Department' suffice it to say that if the assessee had not made the offer the AO would have proceeded to make the addition as he had already found that there was a total payment of Rs. 2,98,800 outside the books of accounts. As a matter of fact the AO had called for the assessee's explanation regarding the source of the funds and the assessee had given the explanation that it was the cash belonging to the children and kept in trust by the assessee. The claim was that the assessee was keeping with her Rs. 85,000 which her children had received as gifts on different occasions like birthdays. When the assessee gave that explanation the AO issued summons under s. 131 to record her statements; but the assessee sought adjournment and avoided appearance and later on 2nd Jan., 1992, offered for assessment the same amount representing the peak payment as worked out by the AO. The circumstances clearly show that it was when the assessee realised that the AO had gathered sufficient evidence against her (through enquiries with Federal Bank and the trade parties) that the assessee made the offer of the income for assessment.
8. Apart from the assessee's claim that there was an understanding that no penalty would be levied under s. 271(1) (c) no material was brought in by the learned representative of the assessee to substantiate such a claim. Hence no credence can be given to the plea that no penalty would be levied and that the assessee had agreed for the addition. The learned representative of the assessee has relied on the decision of the Supreme Court in Sir Shadilal Sugar Mills (supra) to contend that the amount offered for assessment did not necessarily represent the concealed income of the assessee to attract penalty under s. 271(1) (c). In that case, three items of debits were added as the income of the assessee : (i) Rs. 48,500 for cash cost, (ii) Rs. 67,500 for shortage in cane and Rs. (iii) Rs. 21,700 for salary of out-station staff. The additions were not challenged by the assessee in appeal, the reason given was that, though the additions were unwarranted, the assessee wanted to maintain good relation with the Revenue. On the above facts, the Supreme Court held as under :
"From the assessee agreeing to addition to his income, it does not follow that the amount agreed to be added was concealed income. There may be a hundred and one reasons for such admission 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."
It may be noted that in the above case the Supreme Court was considering the provisions of s. 271(1) (c) of the IT Act in respect of the asst. yr. 1958-59, i.e. before the amendment in 1964. Under the law applicable for the asst. yr. 1958-59, penalty could be levied only if the assessee has concealed the particulars of his income or deliberately furnished inaccurate particulars of such income. The finding of the apex Court was that the assessee had only accepted certain amounts as taxable and that it had not been accepted by the assessee that it had deliberately furnished inaccurate particulars or concealed any income. In that case certain claims of the assessee were disallowed and on that basis additions were made in the assessment. The finding of the Court was that it could not be said that the assessee had deliberately furnished inaccurate particulars of income. In the present case, the addition was not by way of disallowance of any claims of the assessee. There was evidence to show that the assessee had remitted amounts on days when there was not adequate cash in the business account. The assessee has not denied such payments nor the fact that the payments were recorded in the books of account only on later days when the cash balances were adequate to cover the payments. There was an attempt by the assessee to explain that the remittances had been made with the cash of Rs. 85,000 belonging to the children and received by them as gifts on their birthdays. Of course, there was no evidence to support such a claim. It was the peak amount representing the payments outside the books of account that was assessed as the income from other sources. On facts, it can be seen that the case decided by the Supreme Court is distinguishable. In this context, we may also refer to the decision in CIT vs. Lunidaram Tulsidas Punjabi (1993) 204 ITR 674 (Bom) wherein the Bombay High Court held as under :
"Under the law, as it stood prior to the incorporation of the Expln. to s. 271(1) (c) of the IT Act, 1961, the onus was on the Revenue to prove that the assessee had furnished inaccurate particulars or had concealed income. Difficulties were found in proving the positive element required for concealment under the law, which had to be established by the Revenue. It is with a view to obviate such difficulties that the Explanation was added w.e.f. 1st April, 1964. The effect of the Explanation is that where the income returned by any person is less than eighty per cent of the total income assessed, the onus is on such person to prove that the failure to file the correct income did not arise from any fraud or gross or wilful neglect on his part and unless he does so, he shall be deemed to have concealed the particulars of his income or furnished incorrect particulars for the purpose of s. 271(1) (c). The presumption raised by the Explanation can be rebutted only by cogent, reliable and relevant materials."
In the other case relied on by the learned representative of the assessee (1986) 160 ITR 511 (Ker) (supra) the Kerala High Court held that where the assessee for one reason or the other agrees or surrenders certain amounts for assessment, the imposition of penalty solely on the basis of the assessee's surrender will not be well- founded. Depending upon the facts and circumstances of each case the Court has to decide whether penalty is justified. In the case before us, we find that the AO had gathered ample materials to prove that the assessee had made payments to the suppliers of steel, with funds outside the books of accounts. The AO had also quantified the total sum as Rs. 2,98,800 and called for the assessee's explanation regarding the source. Though the assessee stated that she was having with her Rs. 85,000 as gifts received by the children and accounted from the earlier years, when the AO wanted to examine the assessee on oath and issued for that purpose summons under s. 131 of the IT Act, the assessee did not appear, but instead furnished a letter agreeing for the addition of Rs. 2,98,800 as her income. Of course, in that letter it was stated that the offer was to purchase peace with the Department. The circumstances show clearly that the AO had established the availability of the undisclosed income with the assessee. It was then that the assessee came forward with the offer for assessing the amount as her income. But then, the assessee had no alternative. She would have been otherwise put on oath and her sworn statement would have been recorded. She preferred the easiest path of agreeing for the assessment.
9. The learned Departmental Representative has referred to the decision of the Kerala High Court in Union Engg. Co. (supra) to plead for restoration of the penalty levied in this case. In the case decided by the High Court after the ITO had issued summons to certain persons for examination, the assessee wrote to the ITO to drop the examination and admitting the discrepancy between the stock declared and the actual stock, filed a revised return of income. The Court held that the revised return was not a voluntary return and that the Tribunal was correct in not having taken the revised return into account. The imposition of penalty under s. 271(1) (c) was held to be valid. In the other case, CIT vs. Haji P. Mohammed (supra) relied on by the learned Departmental Representative, the Kerala High Court upheld the levy of penalty under s. 271(1) (c) on the view that the omission on the part of the assessee to maintain accounts could not be regarded in law as a ground for exonerating the liability of the assessee from culpability under s. 271(1) (c) where the question to be considered was whether the assessee had concealed the particulars of his income or furnished inaccurate particulars of such income. In that case, the Court observed :
"The conclusion was inescapable in law that in consciously omitting to disclose in the original return the amounts received by the assessee from the Executive Engineer, there was concealment of income by the assessee as well as the furnishing by him of inaccurate particulars of his income. The fact that the assessee purported to file a revised return after his coming to know that the ITO had already information in possession regarding receipt by the assessee of the sum of Rs. 1,17,633 which had not been shown in the original return, would not absolve the assessee from the culpability under s. 271(1) (c)."
10. In the case of CIT vs. K. Mahim (1984) 149 ITR 737 (Ker) also the Kerala High Court has held that after the investigations were conducted by the Department, filing of a revised return offering certain additional income would not exonerate the assessee from the liability to penalty under s. 271(1) (c).
11. If filing a revised return offering the additional income would not absolve the assessee from the liability to penalty, the position is no different where the assessee offers certain amount for assessment through a letter. In the circumstances of this case, we find that the offer of income by the assessee having been made, after the AO had conducted the enquiries and even quantified the peak undisclosed income, the levy of penalty under s. 271(1) (c) was in order. The CIT (A) was not justified in law in cancelling the penalty. We accordingly reverse the order of the CIT (A) and restore the penalty levied on the assessee.
12. In the result, the appeal filed by the Revenue is allowed.