Income Tax Appellate Tribunal - Bangalore
Assistant Commissioner Of Income-Tax vs Srinivasa Enterprises on 12 February, 1997
Equivalent citations: [1997]63ITD85(BANG)
ORDER
Bandyopadhyay, AM
1. The departmental appeal in this case is against the order of the CIT(A) cancelling the penalty of Rs. 2,29,392 levied under section 271(1)(c) of the Act.
2. The assessee is a firm engaged in the wholesale business of Indian made foreign liquors, and beer. In the assessment order, the Assessing Officer states that the assessee maintained day-to-day stock register in the course of its business. The assessee, originally submitted its return of income for assessment year 1990-91 on 30-11-1990 declaring total income at Rs. 3,30,970. After filing of the original return, a survey under section 133A was conducted by the Department in the business premises of the assessee on 28-12-1990. During the survey, it was noticed by the Departmental officers that there were certain discrepancies between the stock as returned by the assessee towards closing stock as on 31-3-1990 (the last date of the accounting year for assessment year 1990-91) and the inventory as per the stock register maintained by the assessee as on the same date. The assessee was asked to produce its books of account including the stock register before the Assessing Officer. The books were thereafter impounded under section 131(3) and details were collected. The quantity-wise details of differences between the stock position as per the day-to-day stock register as mentioned above and the closing stock inventory as enclosed along with the return as on 31-3-1990 was worked out. The amount of difference in terms of value in the two stock positions as mentioned above was Rs. 8,85,598. The stock as per the regular stock register maintained by the assessee in the form of excise registers required to be kept up in accordance with the Excise Rules was found to be more than what had been returned as closing stock by the abovementioned amount of Rs. 8,85,598. The partner of the assessee-firm Giriyappa agreed to include the above amount towards the closing stock and filed a revised return in which the aforesaid amount of Rs. 8,85,000 was added back to the original income returned. The addition was made in the following manner :
"Income form business as per original return of income filed on 30-11-1990 Rs. 3,32,170 Add : Difference in valuation of closing stock as on 31-3-1990 as there was a mistake in the quantity of stock taken in the statement of closing stock filed along with the original return - now offered voluntarily as income from business Rs. 8,85,000
---------------
Revised total income Rs. 12,17,170"
---------------
In the assessment made thereafter, the abovementioned total income declared at Rs. 12,17,170 (including the suppressed stock as per revised return) was more or less accepted. Certain other amount was also added back towards contingent expenditure not allowed, which does not form the subject matter of the present appeal before us. So far as the addition of the amount of Rs. 8,85,000 on account of suppressed stock is concerned, the assessee accepted the assessment and did not file any appeal against the same.
3. During the course of the assessment proceeding itself, however, penalty proceeding under section 271(1)(c) had been initiated. The assessee represented before the Assessing Officer at the stage of the penalty proceeding that the difference in valuation of the stock occurred due to mistakes committed by a member of the clerical staff of the assessee-firm who had been appointed during the year and who subsequently left the employment due to some misunderstanding with the management. It was furthermore stated by the assessee that the managing partner Giriyappa was not an educated person and was not keeping well during the relevant period and because of this reason he was required to depend upon the staff members for carrying on the business and also maintenance of stock etc. It was contended that there was no intention whatsoever behind the mistakes committed and that the revised return of income admitting the difference in the value of stock of Rs. 8,85,000 had been filed voluntarily and the taxes due had also been paid under section 140A. It was thus urged by the assessee that penalty under section 271(1)(c) should not be levied.
The Assessing Officer discussed that the assessee was required to maintain his stock register in accordance with the strict Excise Rules and that the day-to-day stock register was actually being maintained by the assessee in such a manner that the position of each item of liquor at any particular day was available. The Assessing Officer thus discussed that therefore it could not be said that this was a case where the correct stock particulars as on 31-3-1990 were not available. On the other hand, the Assessing Officer pointed out that what was required for the assessee to show the correct position of closing stock at the stage of filing the return of income was just to copy the closing stock entry as on 31-3-1990 from the stock register being maintained by it. The Assessing Officer also pointed out that out of 71 items of liquor in which the assessee was dealing, in the inventory of closing stock filed along with the return, the assessee had given figures in respect of 40 items only. The Assessing Officer thus came to the conclusion that this clearly showed that the assessee had deliberately furnished false stock particulars in respect of 40 items (brands of liquor). The Assessing Officer thus held the assessee to be liable to levy of penalty for having wilfully suppressed the stock position as on 31-3-1990 to the extent of Rs. 8,85,000 and having filed inaccurate particulars in respect thereof. The Assessing Officer also stated that the assessee had admitted the difference in stock and filed the revised return only after the suppression/concealment of stock had been detected. The Assessing Officer relied on the decision of the Allahabad High Court in the case of CIT v. Swarup Cold Storage & General Mills [1982] 136 ITR 435 and stated that in accordance with the said decision, even if the furnishing of inaccurate particulars was not deliberate but was the result of gross or wilful neglect, penalty under section 271(1)(c) would still be attracted. In the circumstances, the Assessing Officer levied minimum penalty of Rs. 2,29,392 under section 271(1)(c).
4. The matter was taken up in appeal before the CIT(A) by the assessee. The extenuating circumstances about discrepancy in stock having arisen on account of mistakes committed by the assessee's clerk and also of a mishappening in the family of the Managing Partner during the same month, were pressed before the CIT(A). The CIT(A) noted that no discrepancy had been noticed during the survey or otherwise between the books of the assessee and the physical stock position. He emphasised that the physical stocks did actually tally with the books and that it is only that the assessee's books did not tally with the Excise Register. The CIT(A) thus came to the conclusion that the implication of this is that the assessee's books kept for income-tax purposes were regular and accorded with the physical reality and that these books alone would reflect the correct position of profits. The CIT(A), thereafter, remarked that the fact that there was discrepancy between the assessee's books (which tallied with the stock) on the one hand and the Excise Registers on the other, would only indicate that the assessee was not showing the correct picture to Excise Authorities, some thing that could have landed the assessee in serious trouble with the Excise Authorities. The CIT(A) also remarked that perhaps it was to avoid such problems with the Excise Authorities which could be very severe that the assessee agreed to have itself assessed on the amount of discrepancy. The CIT(A) also noted that the assessee filed the revised return even before a notice had been received by it from the Department. He relied on various decisions of different courts to come to the conclusion that in the circumstances, penalty under section 271(1)(c) was not leviable on the assessee. As such, he cancelled the penalty.
5. Before we proceed to deal with the matter, we must take notice of two very serious factual mistakes committed by the CIT(A) in his order. Firstly, the CIT(A) has remarked that there was no discrepancy between the physical stock and the assessee's stock register. However, the answer to question No. 3 put to Shri T. Giriyappa, Managing Partner of the assessee, on 7-1-1991 in connection with the survey under section 133A conducted on 28-12-1990 would clearly show that the assertion of the CIT(A) in this regard is not at all correct. The said question and answer are being extracted below :
"Question 3. There are certain stock difference as per your stock register and as per the stock on physical verification as on 28-12-1990. The main difference arises on Hayward's whisky, Gateway whisky, Khoday XXX Rum and White Lable Zin. In all these cases the shortfall in stock is 53 bottles, 48 bottles, 443 bottles and 48 bottles respectively (Bottle of 180 ML). What is your explanation to this ?
Answer The difference has occurred due to mismanagement by the staff as I was personally not concentrating on the business during December due to the death of my daughter-in-law. However, if there is a real difference I agree for any addition on account of this."
It would be evident from above that even at the time of conducting the survey under section 133A, discrepancies between the physical stock and the stock as recorded in the register were noticed.
The more important mistake committed by the CIT(A) is in assuming that the assessee was maintaining a regular stock book in day-to-day manner for income-tax purpose, the entries in which actually tallied with the physical stock position and also that in addition to the same, the assessee was also maintaining separate stock records in the registers required to be maintained under the Excise Rules. The CIT(A) was under the wrong presumption that discrepancies actually existed between the regular stock book maintained for income-tax purpose and the records kept under the Excise Rules. The entire reasonings given by the CIT(A) for cancelling the penalty are based on this wrong assumption. Actually however, this is not all the case. The assessee was maintaining only one set of day-to-day stock register in the proforma required under the Excise Rules. There was no existence of any other stock register meant for income-tax purpose. Actually, there was discrepancy to the extent of Rs. 8,85,000 (approximately) between the stock position as recorded in this register as on 31-3-1990 and as shown by the assessee in its return of income. The position in this regard would be clear from the memorandum of additional submissions filed by the learned counsel for the assessee before us. At para 2 of the said Memorandum, the learned counsel for the assessee has submitted as below :
"A scrutiny of the assessment order (Document A) and deposition of the Assessing Officer (Document B) shows that actually there was only one stock register which incidentally is also for State excise purpose and the reference to a second stock register by the CIT(A) seems to be an error what he meant was only an inventory prepared for filing of I.T. Return."
6. In his oral submissions before us and also in the memorandum of additional submissions, the learned counsel for the assessee has taken up a plea which was not adopted before the lower authorities. He has relied on the decision of the Supreme Court in the case of Hukumchand Mills Ltd. v. CIT [1967] 63 ITR 232 in support of his contention that the ITAT can allow a new question of law to be raised before it for the first time. It has been argued by him that inasmuch as there is a prohibition contained in sub-section (4) of section 133A against removing or causing to be removed the account books during the course of a survey under section 133A and inasmuch as in the instant case, such books were removed and later on impounded by the departmental authorities, the so-called survey is actually required to be treated as a search and seizure operation under section 132 of the Income-tax Act, 1961. It is contended by him that a sworn statement was given by Shri Giriyappa, Managing Partner of the assessee-firm, on 7-1-1990 within a period of about 10 days from the survey and that the said statement should be considered as a deposition taken under section 132(4) of the Income-tax Act. In the said statement, Shri Giriyappa admitted the difference in stock to the extent of Rs. 8,85,598, agreed for addition of this amount and later on submitted a revised return voluntarily and paid the taxes thereon. It is thus contended that the second return should not be considered as a return filed under section 139(5) but a return referred to in Explanation 5 to section 271(1)(c), which deals with a deposition given under section 132(4) during the course of the search and seizure proceeding. It is thus contended by the learned counsel for the assessee that Explanation 5 to section 271(1)(c) would clearly apply to the present case inasmuch as the assessee not only admitted the amount of discrepancy in the stock in his sworn deposition and included the same in a revised return filed by it, but also fully paid the taxes thereon and co-operated with the Department. It is thus contended that the assessee should get the exemption from penalty for concealment under section 271(1)(c) in accordance with Explanation 5 to the abovementioned section inasmuch all the conditions relating thereto have been fulfilled in the instant case. It is furthermore contended that the full stock position had been entered completely in the day-to-day stock register being maintained by the assessee and from that angle also, the assessee should get the benefit of Explanation 5 to section 271(1)(c).
7. It is not possible to accept the contentions of the learned counsel for the assessee. This was certainly a case of survey operation under section 133A merely and not a case of search and seizure operation under section 132 of the Act. Of course, there is a bar on removal of books of account etc., during the course of a survey. However, in the instant case, the assessment order clearly states that after the survey was over, the assessee was asked to produce the books of account including the stock register and later on they were legally impounded under the provisions of section 131(3). Merely on this account, therefore, it cannot be said that the entire operation partook of the character of search and seizure operation under section 132.
Furthermore, even if it be assumed that the operation conducted by the Department was of the nature of a search and seizure operation, Explanation 5 to section 271(1)(c) should be of no help to the assessee in this matter. This particular Explanation contains the deeming provision of considering the income by way of finding of unexplained cash, bullion, jewellery and other valuable articles during the course of a search and seizure proceeding as concealed income even though such items may later on be shown as part of the income of the assessee in the returns filed. Before introduction of this Explanation, an assessee could have got away with concealment penalty on income of this type simply by showing the value of the unexplained assets found during the search, as his income in the return filed by him subsequent to the search. Explanation 5 puts certain bars thereon and in that way the Explanation was introduced to safeguard the interests of the Department and not those of the assessee. The question of considering imposition of penalty for concealment of income vis-a-vis the original return would still be open even if the assessee declares the value of the unexplained assets found during the search in a revised return filed by him later on and all the conditions as laid down in Explanation 5 to section 271(1)(c) be fulfilled. In the instant case, no valuable asset was found during the survey operation and even if some discrepancy in the physical stock might have been found out, no addition was made in the assessment on that account. The entire matter considered in the present proceeding before us relates to the discrepancy in stock position as existing between the stock book maintained by the assessee and in the inventory of stock enclosed by the assessee along with the return of income. Even in such a case also, had the revised return been filed by the assessee originally, the question of discrepancy would not have arisen and the revised return (which would have become the original return in that case) would have revealed the position of the stock as per the books and the question of levying penalty for concealment would not have arisen at all. Explanation 5 to section 271(1)(c) cannot save an assessee from concealing his income in the original return filed. Similarly, the said Explanation cannot come to the rescue of the assessee in the present case when the question is whether any concealment has been committed by the assessee vis-a-vis the original return.
8. The only question to be considered by us now is therefore, whether any concealment of income was committed by the assessee with respect to the original return of income filed and whether filing of a revised return including the amount of discrepancy therein, even though the revised return be filed voluntarily, absolves the assessee of the guilt of concealment with regard to the original return. In the instant case, there is no doubt about the fact that in the original return filed by the assessee, the stock position was shown at a much lower figure, although the actual stock as per the books existing even at the relevant time was higher by about Rs. 8,85,000. The learned DR has relied on the decision of the Karnataka High Court in the case of CIT v. K.P. Sampath Reddy [1992] 197 ITR 232 and of the Supreme Court in the case of G.C. Agarwal v. CIT [1986] 186 ITR 571 in support of the contention that even concealment with respect to the original return would also make the assessee liable to imposition of penalty under section 271(1)(c).
In this connection, let us first of all go through the different citations relied upon by the learned CIT(A). The case of Khoday Eswarsa & Sons [1972] 83 ITR 369 as decided by the Supreme Court, related to assessment year 1955-56. In that case, Supreme Court found that the ITAT had held that there was no deliberate attempt on the part of that assessee at concealment. Furthermore, the ITAT had also held in that case that the Department had not established that the assessee had not manufactured tincture and had sold only alcohol. It is required to be noted that up to assessment year 1963-64, for levy of penalty under section 18(1)(c) the Income-tax Act, or section 271(1)(c) of the new Act, it was necessary that the assessee bad "deliberately" concealed the particulars of its income. The Supreme Court merely held in this particular case that the element of deliberate commission of guilt of concealment was absent in that particular case.
In the case of D. Halappa Sons v. CIT [1974] 95 ITR 542, as decided by the Mysore High Court, it was held by the High Court that the case of concealment of part of income of the assessee relating to jaggery business had no foundation since the assessee had succeeded on this issue on merits. The High Court also noted that there was no finding by the lower authorities that income returned was less than 80 per cent of the income assessed and hence, the Explanation to section 271(1)(c) would apply.
The case of CIT v. Bengal Iron Galvanising Works [1987] 165 ITR 249 as decided by the Calcutta High Court also pertained to assessment year 1963-64. The High Court merely held that "deliberate" intention on the part of the assessee to conceal income had not been established.
One decision of Bombay High Court in the case of Laxman v. CIT [1988] 174 ITR 465 and of Rajasthan High Court in the case of Smt. Ramjanki Devi [] 188 ITR 63 have also been relied upon by the learned CIT(A). Both these decisions pertain to the question of waiver of penalty for concealment by applying the provisions of section 273A. In neither of these decisions, the High Courts considered whether penalty under section 271(1)(c) was legally leviable or not.
Lastly, reliance was also placed by the learned CIT(A) on the decision of the Supreme Court in the case of Sir Shadilal Sugar & General Mills v. CIT [1987] 168 ITR 705. In that case, certain extra income was admitted by the assessee and there was nothing else on record to prove the guilt of concealment on the part of that assessee.
9. In the instant case, on the other hand, the assessee was regularly maintaining a stock book and it was incumbent on the part of the assessee to show the position of stock as on 31-3-1990 in accordance with the recordings of that book. On the other hand, the assessee depicted a picture of the closing stock, which was clearly less than the actual figure by around Rs. 8.85 lakhs. The penalty order also discusses vividly that as many as 40 items of different brands of liquor dealt with by the assessee were omitted in the said inventory of stock prepared by the assessee and enclosed along with the return. There cannot, therefore, be any doubt about the fact that the assessee furnished inaccurate position of its closing stock as on 31-3-1990.
In the case of K.P. Sampath Reddy (supra) the facts were similar to those of the present case. A survey under section 133A was conducted in that case also and the books detected therein were found to record several erroneous entries which led to estimation of total income for different years at Rs. 6 lakhs. The assessee agreed to being assessed on the extra income. With regard to the question of levy of penalty for concealment, the High Court held that the assessment order was not based on any concession by the assessee and that concealment of income in the return was a glaring fact.
10. So far as the instant case is concerned, the concealment of income by the assessee is a glaring fact, more so when the assessee was maintaining a regular stock-book from which the computation of actual stock position was not at all difficult. In this case, the assessee did not simply agree to addition of certain amounts by way of cash-credit or otherwise but the managing partner of the assessee admitted that the closing stock had been shown at a much lower figure and that the correct position of closing stock should be as per the stock register maintained.
11. Now comes the question as to whether this concealment with regard to the original return of income can be considered to have been taken care of by the assessee by admitting the extra income in the revised return filed by it even before issue of a notice by the Department. In the case of G.C. Agarwal (supra), Supreme Court held that as a proposition of law, it might be correct that where a revised return as contemplated under section 139(5) is submitted, a penalty proceeding under section 271(1)(c) might not be attracted. But for that purpose, the revised return itself must be within the correct ambit and scope of section 139(5). The omission or wrong statement in the original return must be due to bona fide inadvertence or mistake on the part of the assessee.
The ultimate question therefore, boils down to the fact that whether the omission to show the correct stock position in the original return was due to a bona fide inadvertence or mistake on the part of the assessee. Actually, the assessee prepared a wrong and false inventory of closing stock by omitting a large number of items as compared to the stock book. Hence, it would be very difficult to say that this was due to a bona fide mistake or inadvertence. On the other hand, there was a conscious and voluntary attempt on the part of the assessee to show incorrect position of closing stock much less than the actual figure.
The assessee has, of course, tried to argue that submission of this wrong inventory was due to the mistake on behalf of its clerical staff. No evidence has, however, been brought on record to show that was actually the matter. Unless the managing partner directs or connives at, no employee would prepare a stock statement by omitting as many as 40 items and showing a position of stock much less than the existing one. Mistakes could have been there in respect of one or two items but omission of such a grave nature cannot be considered to have arisen merely on account of inadvertence. Again, no evidence by way of statements of the said employees, etc., have been brought on record to prove the point of the assessee that it was simply due to the inadvertence on the part of the employees that the omission actually occurred.
12. Taking into consideration all these facts, therefore, we would ultimately come to the conclusion that this is a case where the assessee certainly committed the default of concealing its income/furnishing inaccurate particulars of its income to the extent of approximately Rs. 8,85,000. We are also of the opinion that even on account of concealment of income with regard to the original return in this particular case, the assessee is liable to be visited with penalty for concealment. The revised return was not exactly filed voluntarily. It was prompted by discovery of the grave omission during the course of the survey. Hence, the revised return cannot be considered to absolve the assessee of committing concealment in the original return. Hence, we reverse the decision of the CIT(A) and restore the penalty as levied originally.
13. In the result, the departmental appeal is allowed.