Income Tax Appellate Tribunal - Delhi
Shiv Naresh Sports (P) Ltd. vs Ito on 15 July, 2004
Equivalent citations: [2004]1SOT66(DELHI)
ORDER
N.V. Vasudevan, J.M. This appeal filed by the assessee is against the order dated 27-1-2004 of CIT (A), New Delhi relating to assessment year 2002-03. In this appeal, the assessee has challenged the order of the CIT(A) in and by which the order of the assessing officer imposing penalty under section 271 (1)(c) of the Act has been confirmed by the CIT (A).
2. The facts and circumstances under which the penalty came to be imposed by the assessing officer are as follows. The assessee is a company which is engaged in the manufacture of sports goods and garments. During the previous year, i.e., on 4-8-2002 there was a survey conducted under section 133A of the Act. In the course of survey, excess stock worth Rs. 1.50 crores were found. In the statement recorded at the time of survey, the assessee offered to declare the aforesaid sum of Rs. 1.5 crores as unexplained investment for the financial year 2001-02. The assessee also undertook to pay taxes on the sum surrendered. The tax due on the surrendered income was also paid through cheques.
3. ln the return of income filed on 22-10-2002 for assessment year 2002-03, the assessee declared an income of Rs. 5,41,814. The computation of income is placed at page No. 2 of the assessees paper book. The same reads as follows :
"Profits & Gains from Business or Profession Net Profit as per profit & Loss A/c 546126 Add : Items disallowed/dealt separately Depreciation as per Companies Act 218251 764377 Less : Depreciation as per Income Tax Act (As per annexure attached) 222563 Gross Total Income 541814 Less : Deductions under chapter VI-A Nil 541814
4. On 26-3-2003, the assessing officer issued a notice under section 143(2) of the Act along with a questionnaire. In the said notice, the assessing officer called upon the assessee to explain as to why the income surrendered in the course of survey has not been offered for taxation. Immediately on the receipt of the said notice under section 143(2), the assessee filed a revised return on 28-3-2003, in which the sum of Rs. 1.5 crores on account of excess stock surrendered at the time of survey was shown as income in addition to the income returned in the original return of income.
5. The assessee claimed that the amount surrendered at the time of survey was not offered in the original return due to an omission and, therefore, the original return is being revised. The revised return was processed under section 143(1). In the assessment proceedings, the assessing officer made an assessment with reference to the original return filed by the assessee. The revised return was not taken cognizance by the assessing officer. He made an addition of a sum of Rs. 1.5 crores on account of excess stock surrendered at the time of survey to the income declared in the original return of income. He also initiated penalty proceedings with the following observations :
"Since the assessee has failed to disclose its income which was surrendered during survey operation conducted under section 133A of Rs. 1,50,00,000 for taxation, penalty proceedings 271(1)(c) has been initiated for concealment of income."
6. The plea of the assessee in reply to the show cause notice before imposing penalty was that the assessee had voluntarily offered the income for taxation purposes and, therefore no penalty can be imposed. The assessee also pleaded that there was no conscious concealment or deliberate furnishing of inaccurate particulars of income. The assessing officer, however, did not accept the plea of the assessee. He made a reference to the statement of the Managing Director Shri Shiv Prakash Sinha recorded in the course of survey wherein he had declared income of Rs. 1.5 crores and agreed to pay tax on the same. The assessing officer held that this disclosure at the time of survey was only after discovery of excess stock. The assessee also paid taxes on the additional income declared but while filing the return, the assessee did not disclose this income in the original return. According to the assessing officer, the non-inclusion of Rs. 1.5 crores in the original return cannot be treated as bona fide mistake or on account of negligence on the part of the assessee. The assessing officer also held that the revised return was not voluntary but was filed only after a questionnaire dated 26-2-2003 was issued by the assessing officer. The assessee in its books of account, had shown this additional income of Rs. 1.5 crores surrendered at the time of survey as a general reserve in the balance sheet. This amount was also debited to the purchases account. The assessing officer held that this disclosure in the books of account did not have the effect of reflecting the surrendered sum as income in the books of account. The assessing officer also made a reference to the fact that the assessee apart from not disclosing the surrendered income in the return of income also claimed refund to taxes paid on the additional income that was surrendered at the time of survey. This fact according to the assessing officer also shows that the assessee consciously and deliberately concealed the sum of Rs. 1.5 crores from its income in the original return. For all these reasons, the assessing officer concluded that the assessee wilfully concealed the income in the original return. The assessing officer thereafter relied on the decision of the Honble Kerala High Court in the case of CIT v. A. Sreenivasa Pai (2000) 242 ITR 291 (Ker) wherein it has been held that revised return filed after books were impounded was not a voluantry return and that penalty was leviable for concealment of income. Relying on the aforesaid decision, the assessing officer held that the filing of the revised return in the case of the assessee was not a voluantry one. For all the aforesaid reasons, the assessing officer imposed a minimum penalty of 100% of tax sought to be evaded which was quantified in a sum of Rs. 53,55,000.
7. Aggrieved by the order of the assessing officer, the assessee preferred appeal before the CIT (A). The CIT(A) confirmed the order of the assessing officer. While up holding the order of the assessing officer the CIT(A) was of the view that the revised return filed by the assessee was not voluntary and that the failure of the assessee to disclose this income the original return amounted to concealment. The CIT (A) also derived support in coming to the aforesaid conclusions from the following decisions :
Krishna Kumari Chamanlal v. CIT (1996) 217 ITR 645 (Bom), Addl. CIT v. Radhey Shyam (1980) 123 ITR 125 (Luck), Mohd. Ibrahim Azimullah v. CIT (1981) 131 ITR 680 (All), CIT v. K.P. Sampath Reddy (1992) 197 ITR 232 (Karn).
7A. Aggrieved by the order of the CIT (A), the assessee is in appeal before us. We have heard the submissions of the learned counsel for the assessee as well as the learned Departmental Representative. The learned counsel for the assessee at the outset drew our attention to the statement of the assessee at the time of survey and submitted that there was a clear undertaking to offer a sum of Rs. 1.5 crores towards value of the excess stock found at the time of survey. He also drew our attention to the fact that the assessee had paid tax on the amounts surrendered. He then drew our attention to the fact that the assessee did not make any application for refund of tax under section 237 of the Income Tax Act, though a refund was claimed in the computation of income filed along with the original return of income. In the light of the fact that there was a survey during the previous year in the case of the assessee, the assessee was fully aware of the fact that there would definitely be a scrutiny of the assessment of the assessee in the assessment year 2002-03. In this regard, he drew out, attention to Instruction No. 6 dated 26-7-2002 of the CBDT whereby it has been laid down that in a case where survey has taken place, the assessment shall be completed after scrutiny under section 143(3)/144 of the Act. According to him in view of all these circumstances, there was no intention on the part of the assessee to counsel any income. In view of the above facts, there is no possibility of the assessee concealing the particulars of income. According to him, the non-inclusion of the sum surrendered at the time of survey was owning to an inadvertent error and therefore, a revised return of income was filed declaring the income surrendered at the time of survey. According to him, all the acts of omission cannot be attributed to be an act of commission. He then submitted that imposition of penalty is purely discretionary and the court imposing penalty should take into consideration all facts and circumstances of the case. He placed reliance on several judicial pronouncements in this regard.
Prof. Chittaranjan Dasgupta v. Asstt. CIT (1997) 61 ITD 1 (Cal-Trib)(TM), Inspecting Asstt. Commr. v. Smt. Raj Kumari Mahajan (1992) 40 ITD 337 (Chd-Trib), Gulamrasul M. Pathan v. Asstt. CIT (1996) 57 ITD 129 (Ahd-Trib), Jawahal Lal Goyal v. ITO(1993) 47 ITD 171 (Del) (SMC), Gian Chand Bhatia v. Ay. CIT (1997) 61 ITD 24 (All-Trib), Hindustan Steels Ltd. v. State of Orissa (1972) 83 ITR 26 (SC), ITO v. Fashionways (2002) 77 M (Asr) 59, Hari Om Kumar Umesh Chand v. ITO (2002) 124 Taxman 213 (Agra-Trib) (Mag), Inderlal M. Bharwani v. Asstt. CIT (2002) 125 Taxman 321 (Hyd-Trib) (Mag), Dr. Ravi Pual v. Asstt. CIT (2002) 74 M (Asr-Trib) 146, Suresh N Shah v. Asstt. CIT (2002) 81 ITD 385 (Mum-Trib), CIT v. V Narashima Prasad (2001) 250 ITR 852 (Karn).
8. The learned Departmental Representative on the other hand submitted that the revised return of income was filed only after issue of a notice under section 143(2) of the Act. She submitted that the assessee was fully conscious of the fact that a sum of Rs. 1.5 crores was surrendered at the time of survey and yet the same was not offered in the return of income. The fact that the tax paid on this income surrendered was sought to be claimed as refund in the computation of income filed along with the original return also shows that the failure to disclose this sum was not due to any omission or mistake. According to her, the treatment given by the assessee in the books of account was also not proper and the same did not have the effect of recognizing the income surrendered at the time of survey as income of the previous year. In view of the fact that there was no doubt with regard to the income surrendered at the lime of survey, there was no occasion for the assessee to file the revised return. She pointed out that there were enough circumstances to show that the assessee was to be held as having concealed the particulars of his income. She also submitted that the fact that the case of the assessee would be selected for compulsory scrutiny and, therefore, the assessee could not gel away, with a false return is not revant. According to her, the penalty imposed should be confirmed.
9. We have heard the rival submissions. The return of income was filed by the assessee on 22-10-2002. The survey in the case of the assessee took place on 4-3-2002 and in the course of such survey the assessee surrendered investment in excess stock to the extent of Rs. 1.5 crores. The assessee paid taxes to the extant of Rs. 53,55,000 on this income surrendered by cheques between the period 4-3-2002 to 31-3-2002. The notice under section 143(2) along with a questionnaire was issued by the assessing officer on 26-3-2003. In the questionnaire the assessing officer had specifically called upon the assessee to explain as to why the income surrendered at the time of Survey was not offered in the return of income. On receipt of this notice the assessee filed a revised return of income on 28-3-2003, offering the sum of Rs. 1.50 crores surrendered at the time of survey as income of the previous year in the revised return of income. The assessing officer did not take cognizance of the revised return of income and proceeded to make an addition of Rs. 1.5 crores to the income returned in the original return of income. According to the assessee the income was offered in the revised return voluntarily and therefore there is no question of any concealment of particulars of income by the assessee. It is further the case of the assessee that the income surrendered was shown in the balance sheet filed along with the original return and this fact will go to prove that there was no intention on the part of the assessee to conceal particulars of income. According to the assessee the omission to disclose this amount in the original return of income was bona fide and was owing to an inadvertent error or omission. The assessee was entitled to file a revised return on discovery of omission or error in the original return of income. Since the income was shown in the revised return there is no concealment of income by the assessee. As far as the bona fides of the assessee are concerned, the following circumstances are pleaded.
(A) The fact that the assessee surrendered the income in the course of survey and paid taxes due thereon;
(B) The fact that no refund was claimed by making any application under section 237 of the Act;
(C) By filing a revised return disclosing the income surrendered at the time of Surrey immediately on receipt of notice under section 143(2);
(D) Showing the income surrendered in the Balance Sheet along with the note of the auditor.
(E) The fact that the assessment of the assessee will be taken up for compulsory scrutiny in view of the CBDT circular which mandates that in cases where Survey has been carried out during the previous year, the assessment has to be taken up for compulsory scrutiny. The fact that the assessment of the assessee will be taken up for scrutiny being within the knowledge of the assessee, there could be no intention to conceal, as the omission would certainly be discovered.
The questions that arises for consideration are :
What is the effect of the filing of the revised return?
If the revised return was filed owing to an omission in the original return then will the revised return absolve the assessee from the levy of penalty?
This will depend on whether the omission to disclose the income in question in the original return is owing to a bona fide inadvertence or bona fide mistake?
10. As far as the effect of filing of the revised return is concerned, the law by now is well settled that filing of a revised return does not necessarily give immunity from penalty for concealment of income in the original return. Reference may be made to the decision of the Honble Supreme Court in the case of G.C Agarwal v. CIT (1990) 186 ITR 571 (SC) approving the principles laid down by the Honble Gauhati High Court in the case of F.C. Agarwal v. CIT (1976) 102 ITR 408 (Gau). If the law were so then that would be adopted as an easy course by an assessee who is confronted with an adverse situation in the course of assessment proceedings with a view to avoid imposition of penalty for concealment. On the other hand filing of a revised return would imply an admission of concealment in the original return. If the assessee, after filing of the original return discovers that some omission has taken place or some wrong statement has been made in the return he may file a revised return. But the mere discovery of omission of wrong statement is not enough to absolve the assessee from the levy of penalty. The further requirement is that this omission or wrong statement it in the original return must be due to bona fide inadvertence or bona fide mistake on the part of the assessee. This is a question of fact and the same has to be judged on the entire material available on record. The circumstances pleaded by the assessee to prove his bona fides have already been set out above. We shall now refer to the circumstances which were pointed out by the learned Departmental Representative to support her contention that the omission to include the income in the original return was not owing to any bona fide inadvertence or mistake.
(A) There was a discovery consequent to survey which revealed that the assessee had made investment in stock outside the books of account to the extent of Rs. 1.5 crores.
(B) On being confronted, the assessee surrendered the value of unexplained investment in stock as income of the previous year. The survey took place on 4-3-2002.
(C) The assessee also paid taxes payable on the income surrendered between the period 4-3-2002 to 31-3-2002.
(D) The return was filed on 22-10-2002 in which the sum surrendered is not offered for taxation.
(E) Apart from not offering the sum for taxation, the assessee also claims refund of taxes paid on the sum surrendered.
(F) The Balance Sheet as well as the Trading account did not disclose the value of stock surrendered as income at the lime of survey, as income of the previous year. The treatment given in the books of account to the excess stock was not proper and, therefore, this fact also goes to show the intention of the assessee to conceal particulars of income.
(G) Till receipt of notice under section 143(2), the assessee does not file a revised return of income.
(H) No explanation for not disclosing this income in the original return except stating that the same was owing to inadvertence or mistake.
(I) All the above circumstances go to show that the omission to disclose the income was not owing to bona fide inadvertence or mistake but was intentional.
(J) The revised return was not taken cognizance by the assessing officer at the time of assessment and such action of the assessing officer has remained unchallenged.
11. The circumstances pointed out by the learned Departmental Representative in our view goes to show that the failure of the assessee to disclose the income surrendered at the time of survey in the original return of income was not due to a bona fide inadvertence or bona fide omission. In the original return the assessee has worked out refund of taxes paid and while doing so, he ought to have realized that nothing was refundable in view of the surrender of income at the survey and that the income so surrendered was not shown in the original return. The fact that the assessee did not make a formal application under section 237 of the Act, in our view will not make any, difference. The assessee did not choose to file the revised return even prior to the issue of notice under section 143(2) and this again goes to show that the assessee did not choose to file a revised return till such time he was confronted by the assessing officer about the nondisclosure of the income surrendered at the time of survey. Even the accounting treatment given by the assessee in the books of account was not proper. The value of the excess stock was shown as purchases and the same was shown in the balance sheet. The value of the excess stock ought to have been shown as income in the profit and loss account besides including them in the opening stock and closing stock (excluding that which is sold and recorded in the books during the previous year after survey).
12. The fact that the assessment of the assessee would be compulsorily taken up for scrutiny and the assessee cannot hope to get away with the non disclosure of the sum surrendered, in our view will not absolve the assessee from the act of concealment. In any event, this circumstance alone cannot establish the fact that the omission to declare the income was owing to a bona fide inadvertence or mistake. As already stated, the circumstances only suggest that there was lack of bona fide on the part of the assessee in not declaring the income in the original return. The revised return was, therefore, outside the pale of section 139(5).
13. Now we shall consider the affect of Explanation 1 to section 271(1)(c). As already stated, the amount in question was added to the total income declared by the assessee. What now has to be seen is as to whether the assessee has offered an explanation, which is not found to be false, and whether the explanation is bona fide and whether the assessee has disclosed all particulars regarding his income. As already discussed, there are no bona fides on the part of the assessee. The assessee cannot be said to have disclosed all particulars especially in the light of the finding that the revised return was filed only after receipt of notice under section 143(2) from the assessing officer. The cases relied upon by the learned counsel for the assessee, are not of any assistance in the present case, The decisions are not applicable to the facts of the present case, especially in view of our finding that the filing of the revised return was not owing to discovery of omission or mistake in the original return. The question whether there was concealment of income or not is a question of fact and each case has to be decided on the facts and circumstances prevailing therein. We also wish to add that the principles laid down in the decision of the Honble Supreme Court in the case of Hindustan Steels Ltd. (supra) are riot applicable to the facts of the present case. The mistake or omission in the present case in not disclosing the income in the original income has already been held by us to be not bona fide.
14. For all the aforesaid reasons, we do not find any infirmity in the order of the CIT (A) in dismissing the appeal of the assessee confirming the penalty imposed by the assessing officer.