Income Tax Appellate Tribunal - Jaipur
Beerbal Khan Chandan Khan And Party vs Assistant Commissioner Of Income-Tax on 19 December, 1994
Equivalent citations: [1995]52ITD476(JP)
ORDER
M.A.A. Khan, Judicial Member
1. This is an appeal from CIT (A)'s order dated 18-10-1993 confirming a penalty of Rs. 1,23,062 levied under Section 271(1)(c) of the IT Act, 1961 ('the Act').
2.Briefly stated the relevant facts are that during the accounting period relevant to A.Y. 1985-86 the assessee dealt in country liquor on retail basis. It used to get the licensed quantity of liquor periodically from the Govt. Distillery at Sri Ganganagar. The required number of bottles were, however, to be supplied by the assessee. It could make such supply of bottles from purchases made from the distillery @ Rs. 2 per empty bottle and/or from the market or persons selling empty bottles to it @ Re. 1 per bottle. The assessee used to charge Re. 1 per bottle from the customers of liquor bottles.
3.In the course of assessment proceedings the Assessing Officer (A.O.) noted from the details filed of the empty bottles that in the month of March 1985 the assessee had shown purchase of 35,032 of empty bottles @ Rs. 2 per bottle from the distillery and of 3,59,198 bottles @ Re. 1 per bottle from the market/other persons. Utilisation of 1,75,165 bottles only was shown in that month. But, at the same time the balance of 2,19,065 bottles was not reflected in the closing stock. On scrutiny of the empty bottles purchase a/c for the period from April 1984 to February 1985, the A.O. noticed that the assessee had shown supply to the distillery of more number of empty bottles than shown in the books. On looking at the gross profit declared by the assessee the A.O. noted that gross profit rate was declared at 3.6% on total sales of Rs. 6,52,53,557 which, in his opinion, was low and should have been at 4% leading to enhancement of the gross profit by Rs. 12,501. The A.O., therefore, referred the matter under Section 144A of the I.T. Act, 1961 ('the Act') for instructions from his IAC.
4. Before the IAC the assessee explained that extra bottles, whenever required by the assessee, were supplied to it @ Rs. 2 per empty bottle by the distillery. But this plea stood demolished by Sri Vishal Singh Shekhawat, the Manager of the distillery, who had stated in his statement recorded by the A.O. that no sale of empty bottles otherwise than in cash was ever made to the assessee and that the sales so made to the assessee, at no time, exceeded 20% of the total requirement. The IAC was, however, of the opinion that some of the country liquor vendors at the retail shops might have sold liquor to the consumers in glasses. He, therefore instructed the A.O. to verify that fact. But, the IAC further instructed the A.O. that the addition on account of discrepancy in the empty bottles account for the whole year was to be made at Rs. 2,50,000 only inclusive of the specific addition of Rs. 2,19,065 on account of the bottles purchased in the month of March 1985 and not shown in the closing stock. He approved of the trading addition of Rs. 12,501 also.
5. On receipt of the instructions under Section 144A from the IAC, the A.O. deputed his Inspector to verify the fact regarding sale of loose liquor in glasses at the retail shops. The Inspector reported affirmatively. The A.O. therefore, made the following additions, viz.:
1. Addition for claiming excess empty bottles purchased in March 1985 Rs. 2,19,065
2. Addition made for purchase of empty bottles from 1-4-1984 to Feb. 1985 Rs. 30,935
3. Addition in trading a/c for low g.p. rate Rs. 12,501
4. Disallowance out of diesel expenses a/c Rs. 15,000
5. Disallowance out of telephone expenses Rs. 3,000
6. In appeal the learned CIT(A) confirmed addition of Rs. 2,19,065. He deleted the addition of Rs. 30,935 but at the same time he directed the A.O. to make necessary enquiries in respect of empty stock of bottles for the period after April 1984 to Feb. 1985 and to take action as per provisions of law in case there was any discrepancy in the overall position. Further, he reduced the trading addition of Rs. 12,501 to Rs. 8,000 but confirmed the disallowances out of diesel and telephone expenses. The second appeal preferred by the assessee against such order of the learned CIT (A) was dismissed on the ground of limitation without deciding the merits of the disputed additions.
7. It was in the above background that in the course of the assessment proceedings the A.O. initiated penalty proceedings for assessee's default under Section 271 (1)(c) of the Act. On being asked, the assessee explained, that primarily the addition made on account of discrepancy in the empty bottle account was a trading addition only, a part of which was knocked off by the learned CIT (A). It was claimed that such an addition should not be made the basis of levy of penalty under Section 271(1)(c). It was further contended that the assessee itself had disclosed the relevant facts regarding the position of purchases and utilisation of the empty bottles and nothing was detected by the A.O. to be regarded as concealed income of the assessee. At any rate the assessee had neither concealed any income nor furnished inaccurate particulars of such income. The A.O. did not accept such explanation and levied penalty of Rs. 1,23,062 under section271(1)(c) on the basis of computation made in the following manner :
1. Tax on assessed income of Rs. 7,43,740 including addition of Rs. 2,19,065 after appeal effect and in the status of URF Rs. 4,37,972
2. Tax on returned income and disallowances etc. at Rs. 5,24,670 in the status of URF Rs. 3,14,910
3. Tax sought to be evaded Rs. 1,23,062
4. Minimum penalty @ 100% of tax sought to be evaded Rs. 1,23,062
5. Maximum penalty @ 200% of 3 above Rs. 2,46,124 The A.O. accordingly levied minimum penalty of Rs. 1,23,062.
8. In appeal the learned CIT(A) examined the levy of penalty in sufficient detail. He came to the conclusion that the assessee had furnished inaccurate particulars of its income in regard to the amount of Rs. 2,19,065 being the cost of 2,19,065 bottles. Therefore, relying upon certain High Court decisions the learned CIT (A) confirmed the penalty in to.
9. Mr. S.K. Jain, the learned counsel for the assessee has vehemently urged that the learned CIT (A) has not appreciated the facts of assessee's case in right perspective. It was contended that looking to the nature of assessee's business and the vast area of its extension and operation, the purchase of empty bottles in the month of March 1985 should not have been considered in isolation. Inviting our attention to the written submissions filed before the CIT(A), (pages 1 to 10), the chart at page 11 showing the overall position of purchase and utilisation of empty bottles during the entire accounting period, the copies of statement of supply of such bottles from the distillery and purchased from outside (pp. 20 & 21) annexed to Balance Sheet and the copy of the affidavit of Sri Surja Ram, one of the partners of the assessee-firm, Mr. Jain contended that the empty bottles purchase account was debited by an amount of Rs. 17,56,192 which tallied with the number of bottles required to be delivered and were actually delivered to the distillery for obtaining the supply of the country liquor from the distillery. Mr. Jain explained that the assessee-firm did not supply liquor to the buyers in loose, but the salesmen, at their own level, provided glasses to the consumers and in consideration of such services they often received the empty bottles in gratis from the consumers of the liquor which became the property of the salesmen themselves and from whom the assessee purchased them by settling their individual accounts in the last month of the accounting period. Mr. Jain thus explained that in fact neither the purchases of empty bottles were inflated nor any income was concealed by the assessee. In any case, urged Mr. Jain, there might be some discrepancy or mistake in the manner or method of keeping and maintaining the account of the purchases and utilisation of the empty bottles in view of the vast area of operation of the business of the assessee at 53 retail shops, but the expenditure claimed fully tallied with the number of bottles received from the distillery and, therefore, there was no case at all for levy of penalty under Section 271(1)(c) of the Act. In the end Mr. Jain submitted that at the most it was a case of an addition of doubtful character and the benefit of doubt should go to the assessee, not with standing the fact that on quantum side the addition was sustained.
10. The learned Departmental Representative, on the other hand sup ported the order under appeal. He vehemently urged that he assessee had been changing its stand from stage to stage of the proceedings but its pleas, so taken from time to time, were found quite baseless and rejected as such and, therefore, it should be given no benefit of such false pleas. The learned Departmental Representative further submitted that it was not a case of trading addition made on estimate basis but that a specific addition of Rs. 2,19,065 was made on account of non-disclosure of the empty bottles stated to have been purchased in March 1985, in the closing stock and that clearly represented concealed income of the assessee.
11. In rejoinder Mr. Jain submitted that change of plea was not barred in cases resulting in penalties and prosecution of persons (vide CIT v. Mahalakshmi Textile Mills Ltd. [1967] 66 ITR 710 (SC), CTT v. Nepani Bir Co. Trust [1991] 190 ITR 402 (All.). The learned counsel further submitted that the overall position of purchase of empty bottles vis-a-vis their utilisation was to be taken into account in order to find out any concealment and for that the position of purchases stated to have been made in March 1985 is not to be read in isolation. It was reiterated that in assessment appeal the learned CIT(A) himself considered the issue fit for further enquiry in order to take an overall position of the purchase of bottles and their utilisation in the entire period under account. Mr. Jain stressed that in view of such findings of the learned CIT(A) himself in quantum appeal, this was not at all a fit case for levy of any penalty under Section 271(1)(c) of the Act.
12. We have given our thoughtful consideration to the arguments advanced before us by the learned counsel for the parties. We have closely and critically examined the various statements, charts and other material brought on our record. We have come to the conclusion that not with standing the fact the addition of Rs. 2,19,065, made on account of non disclosure of the balance of empty bottles in the closing stock, has been sustained in quantum side, the said addition should not be made the basis of levy of penalty under Section 271(1)(c) of the Act in the facts and circumstances of this case. 3. It needs no stress that penalty proceedings under the Act are distinctly dependent of and separate from the assessment proceedings. Whereas n addition of account of honest or bona fide non-disclosure of an income an successfully be made in assessment proceedings, such addition cannot be made the basis for levy of penalty on the assessee. Similarly additions made on estimated basis do not always make a firm basis for levy f penalty. Penalty proceedings are, therefore, required to be viewed at differently from assessment proceedings. It is that different character of such proceedings that gives to an assessee a fresh right to explain and prove what he may not have done in the assessment proceedings. Unintentional acts of omission or commission may add to his tax liability in assessment proceedings but such acts are not intended to create or cast penal liability. Presence of guilty intention on the part of the assessee is not essential for making addition to the total income returned by him. But in penalty proceedings such state of mind of the assessee is a relevant factor for consideration. Even in cases of absolute liability, wherein presumption of guilty mind on the part of the doer of the act replaces the presumption of innocence on his part, his right to prove his innocence, bona fides or good faith in the commission of the act, sought to be punished as a default or offence, is not taken away. Mens rea may or may not be an ingredient of a default or offence, but it always has a relevance in those actions which are intended to be visited with penal consequences, irrespective of the fact whose burden it is to prove its presence or absence in such actions. Penalty proceedings under the Act are quasi-criminal in character and the same degree or standard of proof which is required to decide civil disputes between the parties is required to decide such proceedings. Preponderance of probabilities should, therefore, dictate the decisions in such matters. Penalty is not to be imposed merely because it is lawful to" do so. Nor it is to be imposed for honest and bona fide acts of omissions or. commissions. It is to be imposed for wilful and deliberate or grossly negligent or fraudulent acts resulting in commission of defaults punishable under the Act.
14. Now coming to the merits of assessee's appeal the admitted position is that in all the assessee-firm was issued 22,13,398- 4-3 bottles of country liquor by the distillery. Out of these bottles 4,57,206-4-3 bottles were supplied to the assessee by the distillery @ Rs. 2 per empty bottle. The remaining empty bottles numbering 17,56,192 were admittedly supplied periodically by the assessee from its other sources the expenditure on which @ Re. 1 per bottle was reflected in the trading account. Now so far as the expenditure incurred by the assessee on purchase of total number of bottles being 22,13,398-4-3 is concerned there is no dispute between the parties. The same was duly reflected in the trading account. The crux of the dispute is that (i) in the last month of the accounting period, i.e., March 1985 whereas purchase of 3,59,198 bottles was shown, 1,75,165 bottles only were utilised for obtaining supply of liquor from the distillery but no balance of 2,19,065 bottles was shown in the closing stock, and (ii) in earlier month from April 1984 to February 1985 supply of more bottles to the distillery was made than shown in the books. The difference between the A.O. and the assessee is that whereas the former wants to consider the position of purchase and utilisation of the empty bottles made in the month of March 1985 separately from and independent of earlier months, the later wants him not to read the position in March 1985 in isolation but to take an overall view of the total purchases and total utilisation of the empty bottles made in the entire accounting period. In order to resolve this controversy we should first look at the admitted position of purchase and utilisation of the empty bottles as reflected in the chart at page 11 of the Paper Book :
--------------------------------------------------------------------------------
Month Total bottles Bottles sup- Bottles supplied
issued by plied by GSM by assessee-firm
Ganganagar 20% of Col. to GSM after
Sugar Mills (2) @ Rs. 2 purchasing from
to the assessee customers at the
rate of Re. 1
--------------------------------------------------------------------------------
April 84 1,87,597.22 52,060-2-2 1,25,300
May ,, 1,97,866.22 39,575-2-0 78,669-0-0
June " 1,94,795-0-0 38,965-0-0 1,09,350-0-0
July,, 1,71,734-0-1 34,349-0-1 1,41,482-0-0
Aug. " 1,60,578-0-0 32,115-0-0 1,38,150-0-0
Sept. ,, 2,04, 676-0-0 40,938-0-0 1,60,154-0-0
Oct. " 1,73,260-0-0 34,663-0-0 1,35,500-0-0
Nov. ,, 2,15,915-0-0 43,184-0-0 1,43,151-0-0
Dec. ,, 1,81,814-0-0 36,362-0-0 1,19,671-0-0
Jan. 85 1,78,7700-0 35,718-0-0 1,26,885-0-0
Feb. ,, 1,71,228-0-0 34,245-0-0 1,15,682-0-0
Mar. " 1,75,165-0-0 35,032-0-0 3,59,198-0-0
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22,13,398-4-3 4,57,206-43 17,56,192
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15. On a study of the above chart it may be said that at times during the period between April 1984 and February 1985 supply of empty bottles to the distillery exceeded the availability of such bottles with the assessee and at times the supply fell short. But if the purchases reflected in the last month of March 1985 is taken into consideration then the account stands squared up and there remains no balance of empty bottles for being shown in the closing stock. The question is whether this position indicates incorrectness of the expenditure incurred on purchase of empty bottles or incorrectness of the method of the account maintained in respect thereof. Once the account of purchase and utilisation of empty bottles stands squared up at the end of the year the assessee would not be accused of inflated purchases or claiming such expenditure which it did not actually incur. That would mean that the assessee did not conceal its income or furnish inaccurate particulars of its income.
16. Adopting or keeping a wrong method of accounting which does not result in concealment of income would not amount to "furnishing inaccu rate particulars of income". For the purposes of levy of penalty under Section 271(1)(c) on the basis of furnishing inaccurate particulars of income, such particulars must lead to 'concealment' of income. If the inaccurate particulars do not result in concealment of income the furnishing thereof cannot be successfully punished under Section 27l(1)(c) of the Act. The effect of furnishing inaccurate particulars of income shall, therefore, have a relevant significance in those cases of penalties wherein penalty is sought to be levied under Section 271 (1)(c) of the Act on the basis of "concealed income" of the assessee.
17. In order to appreciate the respective arguments of the learned counsel for the parties in this case the very nature of assessee's business shall have to be kept in mind. Admittedly assessee's business was being carried on at 53 retail shops at different places in the State. At the retail shops the salesmen of the assessee used to sell liquor in retail to the consumers/ purchasers. It was, therefore, not unusual in the nature of assessee's business that liquor in bottles was sold to the purchasers and also loose liquor in glasses was also to be served to the consumers of the liquor at the shop itself. It may be possible that whenever the liquor was sold in loose and supplied to the consumers in glasses the empty bottle was to be retained by the salesmen or left by the consumer at the table or with the salesmen. The bottle so left was not to become the property of the assessee as it had charged its price from the consumer. This was the property of the consumer who might have taken it away with him or left at the shop or with the salesmen there. In any case, there was the possibility of the empty bottles becoming the property of the salesmen who might sold it to the assessee @ Re. 1 per bottle. This probability fits in the facts and circumstances of the case when the delivery of the liquor bottles from the distillery was to be taken directly to the retail shops. The salesmen at the retail shops thus could have enabled the assessee to supply more empty bottles to the distillery at the needy occasions than those reflected in the books. The assessee thus could have made the deficiency in the empty bottles purchase a/c good at the close of the accounting period. Here in order to cast a liability on the assessee for inflated purchases it was to be seen whether the salesmen helping the assessee by providing the empty bottles received or purchased by them from the consumers of loose liquor in glasses were reimbursed by the assessee or not. Unfortunately no enquiry in that respect appears to have been directed in the assessment proceedings. It was perhaps for that reason that the learned CIT(A), though deleted the addition of Rs. 30,935 made on account of purchases and utilisation of bottles during the period from April 1984 to Feb. 1985, directed the A.O. to conduct an enquiry in that respect.
18. At this stage it may be observed that the learned CIT(A), by directing further enquiry into the position of purchases and utilisation of empty bottles during the period between April 1984 and Feb. 1985, and then to take into consideration overall position, in a sense approved of assessee's contention that the position in March 1985 should not be considered in isolation. When that is the view of the first appellate authority himself in the assessment proceedings there can be no escape from the position that when the overall position of the purchases and utilisation of the empty bottles in the entire accounting period is considered, no inaccuracy in the expenditure incurred on the purchase of the bottles vis-a-vis their utilisation is observed. It follows, therefore, that inaccurate furnishing of the particulars of its income by the assessee did not result in any "concealed income" to it and, therefore, it cannot be visited with penalty under Section 271(1)(c) of the Act.
19. Here again one more aspect of the case becomes relevant. The expenditure incurred on the purchase of empty bottles and the sale proceeds of the bottles filled with liquor which also included the cost price of the bottles utilised, were duly reflected in the trading account. Such reflection or any variation therein would influence the trading result. Therefore, if any addition is sought to be made to the trading account that may take the character of trading addition. A specific trading addition, not based on pure estimate, can certainly make the basis for levy of penalty for concealed income but, in view of the discussion made hereinabove, such addition does not attract penalty under Section 271(1)(c) in the facts and circumstances of this case.
20. We agree with the learned Departmental Representative that the assessee changed its pleas at different stages of the proceedings. At one time the assessee claimed to have purchased the extra bottles in various months from the distillery itself. That plea proved false. Then it claimed to have purchased the bottles from outside. That plea was also not substantiated. Then it pleaded that the salesmen, receiving the empty bottles from the consumers of loose liquor at the retail shops in gratis, supplied the same to the assessee-firm. This plea has been found probable in the nature of the business of the assessee. The conduct of the assessee has no doubt been not straight forward but the right of an assessee to take alternate pleas in his defence cannot be minimised. Penalty is not to be levied on the assessee for falsity or inconsistency in its plea but for the default of concealing its income which default does not stand proved in this case. Looking to the probable nature of its last plea, it cannot be punished for taking false pleas earlier. In the totality of the circumstances of the case we are of the considered opinion that this is not a fit case for levy of penalty under Section 271(1)(c). We accordingly cancel the penalty of Rs. 1,23,062 levied upon the assessee in this case.
21. In the result, the penalty of Rs. 1,23,062 levied on the assessee for default under Section 271(1)(c) is hereby cancelled and the appeal of the assessee allowed.