Income Tax Appellate Tribunal - Cochin
Assistant Commissioner Of Income-Tax vs Manorajyam on 20 January, 1995
Equivalent citations: [1995]54ITD116(COCH)
ORDER
G. Santhanam, Accountant Member
1. These appeals are by the revenue and relate to the assessment years 1980-81,1981-82 and 1982-83 and are directed against the orders of the CIT (Appeals) in having cancelled the penalty levied under Sections 271 (1)(c) and 271(1)(a) of the Income-tax Act.
2. The assessee is a partnership firm engaged in the business of printing and publishing 'Manorajyam', a Malayalam weekly. Besides, by agreement dated 10-8-1977, the assessee-firm had undertaken the uninterrupted publication of 'Kerala Bhooshanam', a Malayalam daily with limited circulation and readership, which the Assessing Officer noticed was struggling for its existence due to financial crisis. The assessments were completed under Section 143(3) on 23-12-1982 in all these cases. However, a survey was conducted in the business premises of the assessee on 5-12-1985 under the instructions of the Assessing Officer in the following terms :
According to the assessee, it is incurring heavy losses in the unit Kerala Bhooshanam, year after year. However, the claim for loss is not supported properly and in the assessments the claim for deduction on account of loss in Kerala Bhooshanam is limited to the salary and wages paid to the staff and workers. Perhaps it may be true that the assessee might have incurred loss in some years. It is also equally possible that the assessee might have earned some profit in the unit Kerala Bhooshanam especially in view of the fact that large quantities of newsprint quota is available to Kerala Bhooshanam. Hence, it appears to me that a detailed investigation and examination of the accounts and affairs of the unit Kerala Bhooshanam is necessary. For a proper and fair adjudication of the matter, it is necessary to examine the books of account if any maintained by Kerala Bhooshanam. It is also necessary to find out the number of copies which can be obtained from a ton of newsprint, the price per copy, etc. The inter-unit transactions also require verification. Sri K.P. Sreedharan Nair and V.K. Nandakumaran, Inspectors, are directed to conduct a survey under Section 133A at the business premises of the assessee and to collect the following information:
(i) Copies of account of Kerala Bhooshanam as appearing in the books of Manorajyam and those of Manorajyam in the books of Kerala Bhooshanam for the period 1-11-1978 to 30-10-1983;
(ii) Details of newsprint consumption of both for the above period;
(iii) Details of newsprint quota obtained by Kerala Bhooshanam during the period mentioned above;
(iv) Price per copy of Kerala Bhooshanam for the above period; (v) Weight in Kgms. of 50 copies of Kerala Bhooshanam. An authorisation under Section 133A(1)(b) is issued. Dt/-5-12-1985.
The survey party filed a report dated 10-12-1985 which read more like a pre-assessment order as seen from the copy of the report filed by the revenue. On a comparison of the agency sales in rupees and the newsprint consumption in rupees for the assessment years 1979-80 to 1983-84 and also on consideration of the verbal statement of waste percentage, the survey party reached, a prima facie, conclusion that the newsprint consumption was inflated by the assessee. It was also noticed in the survey report that the loss claimed by the assessee in the case of Kerala Bhooshanam was not fully allowed for the assessment years 1981-82 to 1983-84 and considering the quantities of newsprint loan repaid to Kerala Bhooshanam by the assessee from the account of Manorajyam, the survey party concluded that there has been excess payment of 44.276 M.T. of newsprint and thus the value of newsprint consumed for the assessment year 1982-83 and allowed in the assessment was to be reduced by the value of 44.276 M.T. of newsprint. It further noticed a difference between the balance in the books of the assessee and the balance in the books of Kerala Bhooshanam, which required to be reconciled. Newspaper copies for November 1985 were weighed during the course of survey and on the basis of the weight, the consumption was worked out. Thus, the survey report was more in the nature of a preliminary assessment order. It is on the basis of this survey report, assessments were reopened under Section 147 of the I.T. Act. Subsequent to the survey, the assessee filed returns of income admitting higher income for all these years (for which assessments were already completed) under the Amnesty Scheme prior to the issue of notice under Section 148 of the I.T. Act. Notice under Section 148 was issued on 4-3-1986 for the assessment years 1981-82 and 1982-83 and on 25-7-1986 for the assessment year 1980-81. Certain additions and disallowances were made to the income originally assessed as follows :
Assessinent year 1980-81:
Inflation in the consumption of newsprint in Kerala Bhooshanam Rs. 2,20,429 Income under other sources:
Discrepancy in the account balances : Rs. 2,46,566 Less: Inflation considered above : Rs. 2,20,429 ------------ Net assessed under other sources : Rs. 26,137 Assessment year 1981-82: Inflation in the consumption of newsprint in Kerala Bhooshanam : Rs. 2,46,085 Inflation in the purchase of newsprint in Manorajyam Unit : Rs. 1,52,524 ------------ Rs. 3,98,609 Assessment year 1982-83: Inflation in the consumption of newsprint in Kerala Bhooshanam : Rs. 4,04,118 ------------
The assessee accepted the re-assessments. Action under Section 271 (1)(c) was initiated against the assessee in the course of the re-assessment proceedings, for each of these years, which resulted in the culmination of levy of penalty as follows :
Assessinent year Penalty levied 1980-81 Rs. 1,19,168 1981-82 Rs. 2,20,454 1982-83 Rs. 1,94,946
3. The assessee appealed and contended that the returns were filed under the amnesty scheme though after the completion of the assessments. Secondly, it was contended that even in the returns that were originally filed in respect of these years, it was made very clear that the loss claimed in respect of Kerala Bhooshanam was on estimate basis only, limited to salaries and allowances in respect of the employees of that unit and the returns were based on the estimate of consumption of newsprint and other expenses. In the original assessments also the loss in Kerala Bhooshanam was determined on estimate basis. It was further contended that there was no inflation in its accounts and the assessee had accepted the assessments to correct the mistake, if any, that might have entered in estimating the loss from Kerala Bhooshanam. Thus, there was no mens rea or concealment of income on the part of the assessee. The learned CIT (Appeals) held that the notice under Section 148 was issued long after the (revised) returns were filed. The letter filed by the assessee before the Commissioner of Income-tax, Trivandrum, on 31-3-1986 forwarding the returns for the above three assessment years (after the completion of the assessments and subsequent to the date of search) made it very clear that the said returns were filed under the amnesty scheme. Further, the assessee had requested for acceptance of the returns, revision of partners' assessments and waiver of interest and penalty - all under the amnesty scheme. He further found that the Assessing Officer had not established that the assessee was guilty of conscious concealment of income. Hence he cancelled the imposition of penalty for all these assessment years. The revenue is in appeal.
4. Sri C. Abraham, the learned senior departmental representative contended that concealment was detected by the Income-tax Department in the survey conducted under Section 133A of the Act and it is only after the survey that the assessee came forward with the returns admitting income higher than those admitted in the original returns. Therefore, the immunity available under the amnesty scheme should not be extended to the assessee. He further submitted that merely because the notice under Section 148 was issued long after the revised returns were filed, it cannot be said that there has been no prior detection of concealment. Therefore, the learned CIT (Appeals) erred in deleting the penalty levied.
5. Sri A. Gopalakrishnan, the learned Chartered Accountant submitted that even in the original returns, on the basis of which the assessments were initially completed under Section 143(3), the newsprint consumption and other expenses in respect of Kerala Bhooshanam, which was run by the assessee, was made on estimate basis. Both in the original assessments as well as in the revised assessments, the loss or income from Kerala Bhooshanam was determined only on estimate basis. Therefore, it cannot be held that there was conscious concealment of income. Further, the survey party, instead of merely collecting the information as directed by the Assessing Officer, has exceeded its jurisdiction by making a report which almost read like a preliminary assessment order. It is on the basis of the inferences drawn by the survey party as contained in its report, that the Assessing Officer has reopened the assessments. However, in order to purchase peace with the department, the assessee had, before the assessments stood reopened, came forward voluntarily with returns for each of these years admitting higher income when the amnesty scheme was in force and prayed for regularising the assessments under the amnesty scheme. This effort on the part of the assessee was only to purchase peace with the department and was because of the fact that the original assessments had proceeded on certain estimate basis with regard to the income or loss of Kerala Bhooshanam. The learned CIT (Appeals) was, therefore, right in holding that the returns that were filed after the completion of the assessments and the survey conducted in its premises, were returns filed under the amnesty scheme, prior to the detection of concealment by the department. Thus, he supported the orders of the learned CIT (Appeals).
6. Having heard rival submissions, we uphold the orders of the learned CIT (Appeals) in having cancelled the imposition of penalty. The original returns as well as the assessments had proceeded on estimate basis in respect of the loss or income relating to Kerala Bhooshanam, a unit run by the assessee. This is one of the reasons for the assessee to come forward with the returns under the amnesty scheme as has been found in its letter dated 31-3-1986. No doubt, a survey was conducted by the Inspectors of the Income-tax Department under the specific directions of the Assessing Officer. The survey party, instead of rest content with the collection of information as directed by the Assessing Officer, went several steps forward and produced a report beset with inferences, conjectures, surmises and opinions. We have in para 2 above referred to the directions issued by the Assessing Officer and have also summarised the report filed by the survey party. A reading of these two together would show that the report filed by the survey party read more like a reassessment order than a report on collection of data and information. This the survey party is not entitled to do. If the survey party had merely collected the information and verified the things found in the course of the survey and relayed the information to the Assessing Officer, so as to draw such inferences as he may deem fit, in the course of the assessment proceedings, none can find fault with the report of the surveyors. In the case of the assessee, the survey party has exceeded its jurisdiction by drawing certain inferences and conclusions, which has ultimately led to the reopening of the assessments. The reopenment of the assessments is based on the survey report which is saddled with surmises, inferences and opinions. We are aware that we are not on the issue of validity of the reassessment proceedings, but in a penalty proceeding, the validity of the additions and disallowances can certainly be looked into.
7. The survey party has weighed copies relating to November 1985, calculated the number of sheets found therein and on that basis worked out the possible consumption of newsprint. It had compared the sales revenue with the cost of newsprint in the accounts without regard to the fact as to how the sales are accounted for in the accounts, whether on accrual basis or on cash basis and also without regard to the fact that in the sales revenue the element of profit will be embedded in it. The survey party also took the weight of the paper in grams and allowing margin of 8% worked out the number of copies that can be printed out of one metric ton of newsprint. On that basis, the newsprint consumption from 1980 to 1984 was calculated and compared with the consumption recorded in the books in order to find out excess consumption or "inflation in consumption" as they would call it. This is certainly an arithmetic exercise unrelated to the realities of the situation. The newsprint consumption depends upon the total number of copies to be printed, the weight of the paper and the width in its inches and also depends upon the quality of the paper. All these factors have not been taken into account. Further, no information was gathered with regard to these factors pertaining to the newsprint used in 1980, 1981 and 1982. Further, in any newspaper there will be distribution of complimentary copies, free copies given to advertisers, wastage in printing and for posters and wastage in final pack. These have not been ascertained for the years under appeal. Lastly, mere comparison of the value of newsprint consumed in terms of rupees with agency sales without regard for the method of accounting for agency sales can be only misleading. The survey report has not unearthed any bogus purchase of newsprint. Nor has it unearthed any sale of newsprint outside the books of account. Nor has it come across any instance of inflation in the rate of purchase of newsprint. Therefore, we hold that it has not been established that the assessee has deliberately concealed the consumption of newsprint. The alleged inflation in consumption of newsprint as worked out by the survey party and relied upon by the Assessing Officer cannot be upheld, so as to condemn the assessee with the act of concealment. For the assessment year 1980-81, the Assessing Officer had added a sum of Rs. 2,46,566 under the head other sources and had telescoped this addition against the sum of Rs. 2,20,429. This addition arose out of the discrepancy in the trial balance of Kerala Bhooshanam and the amount debited in the books of Manorajyam. The assessee has given an explanation as to how the difference arose and that explanation was rejected. It is not as if the assessee's explanation was without any material as will be seen from the discussion found in the assessment order itself. Therefore, in our considered opinion, penalty is not leviable in regard to the addition made on mere rejection of an explanation offered by the assessee. This apart, before the Assessing Officer proceeded to reopen the completed assessments, on the basis of the information furnished by the survey party, the assessee had come forward with returns under the amnesty scheme. As per the Circulars issued from time to time, amnesty scheme is available not only to any person hitherto not assessed, but also to persons already assessed. The benefits of the scheme are available not only in relation to completed assessments, but also in respect of pending assessments. The benefits are also available in cases where assessments were already completed, but disputed in appeal. Thus, it is an omnibus scheme intended to give an opportunity to the assessees to reform themselves. The assessee has taken the advantage of the scheme, whether it required reformation or not. There has been no prior detection of concealment by the department, except the bare suspicions and surmises. Even after the submission of the survey report no action was initiated in respect of these years to redo the assessments under Section 147 of the I.T. Act. It is only after the filing of returns under the amnesty scheme, that reassessments were made taking, of course, the aid of the survey report, which, in our opinion, cannot lead to the conclusion that there has been any detection of concealment of income. Therefore, the learned CIT (Appeals) was right in holding that the returns were filed under the amnesty scheme and the assessee was entitled to the benefits of the scheme. For all these, reasons, we uphold the orders of the learned CIT (Appeals) in cancelling the levy of penalty for each of these years.
8. I.T.A. Nos. 814, 815 & 816 (Coch.)/89 - The Assessing Officer levied penalty under Section 271(1)(a) of the Income-tax Act, 1961, in the reassessment proceedings. Pursuant to the filing of the returns under the amnesty scheme the assessments were reopened by issue of notice under Section 148 dated 25-7-1986 for the assessment year 1980-81 and dated 4-3-1986 for the assessment years 1981-82 and 1982-83. Thus, it was only a notice to regularise the returns filed under the amnesty scheme and the reassessments were completed on 31-7-1986. In the reassessment proceedings, the Assessing Officer levied penalty for the default committed by the assessee in not filing the returns within the time allowed under Section 139(1) of the I.T. Act in relation to the returns submitted by the assessee, on the basis of which the original assessments were completed. The learned CIT (Appeals) held that as the returns were filed under the amnesty scheme, penalty is not exigible. The revenue is aggrieved.
9. Having heard rival submissions, we uphold the orders of the learned CIT (Appeals). The CIT (Appeals) apparent granted relief to the assessee in terms of the amnesty scheme. This is to be upheld. Further, in this case, for default under Section 271(1)(a) in the filing of the original returns, penalty has been levied in the reassessment proceedings in disregard of the bar of limitation provided for under Section 275 of the I.T. Act. If there was default in the filing of the original returns under Section 139(1), action under Section 271(1)(a) should have been initiated in the course of the original assessment proceedings and penalty should have been levied within the time allowed under Section 275. The original assessments in these cases were completed on 23-12-1982. The time limit for levy of penalty would expire on 31 -3-1985; whereas penalty has been imposed in all these cases on 17-3-1989, which is clearly barred by limitation and as such the same is cancelled.
10. In the result, the appeals of the revenue are dismissed.