Income Tax Appellate Tribunal - Hyderabad
Lenses Centre vs Income-Tax Officer on 29 June, 1993
Equivalent citations: [1993]47ITD122(HYD)
ORDER
T.V. Rajagopala Rao, Judicial Member
1. These are two appeals for concealment relating to assessment years 1974-75 and 1975-76. Assessee is one and the same and the point involved is also the same and hence they are taken up together and disposed of, by a common order.
2. First, let us take up the facts relating to assessment year 1974-75. Original assessment for assessment year 1974-75 for which the previous year ended by 30-6-1973 was completed on 21-3-1977 and under it, the total income of the assessee was determined at Rs. 40,420. There was a search proceeding conducted in the premises of the assessee-firm on 22-12-1977. Certain material to show that the assessee concealed its income by showing inflated balances in the accounts of trade creditors, was found. The total difference in the trade creditors' balances is Rs. 1,26,418, of which a sum of Rs. 40,000 pertained to the assessment year 1976-77 leaving a balance of Rs. 86,418. Out of Rs. 86,418, a sum of Rs. 11,000 is relatable to assessment year 1974-75 and the balance of Rs. 75,700 relates to assessment year 1975-76. A notice was issued under Section 148 to the assessee and in pursuance thereof, assessee filed a return on 5-2-1985, offering an income of Rs. 40,420, the same figure with which it was originally assessed. During the course of re-assessment proceedings, it was contended that during assessment years 1968-69 to 1975-76, total intangible additions to the extent of Rs. 89,135 were made and since the aggregate of these intangible additions exceeded the difference in the trade creditors' balances, there is nothing to make further addition in assessment year 1974-75. This contention of the assessee was negatived and the ITO held that the case of the assessee was not that the intangible additions were relatable to incorrect deduction of trade creditors' balances. He clearly found that the difference between the balances in the trade creditors' accounts as on 30-6-1973 as per the list furnished by the assessee and on the basis of information gathered from trade creditors amounted to Rs. 11,000. Therefore, telescoping of intangible additions into this Rs. 11,000 was rejected and the total income of the assessee was determined at Rs. 51,429, before the firm's tax is deducted. Under the reassessment order dated 22-2-1985 for assessment year 1974-75, inter alia, penalty proceedings under Section 271(1)(c) were initiated.
3. So also, for assessment year 1975-76, original assessment was completed on 25-3-1978 and it was also modified in the light of the AAC's order dated 27-6-1978. The total income was determined at Rs. 58,220. As already stated, in pursuance of search proceedings, which took place under Section 132 on the premises of the assessee-firm, on 22-12-1977 which revealed the concealment of income by inflating the balances in the accounts of trade creditors, notice under Section 148 was issued to the assessee reopening the assessment. On 23-12-1982, assessee filed a return offering the same income which was determined under the original assessment. During the course of reassessment proceedings, it was argued that in the original assessment, G.P. addition of Rs. 12,000 due to deficiency in gross profit was made and this may be considered for set off against the difference in the balances due from the trade creditors and against the remaining balance, intangible additions made in the earlier assessment years from 1968-69 to 1974-75 may be telescoped, in which case there would not be any addition to be made. The ITO rejected the contention of the assessee. He mentioned in the reassessment order that the assessee did not dispute the inflation found in the accounts of the trade creditors. It was not the contention of the assessee that the difference in the accounts of the trade creditors was false. Further, the intangible addition made in the earlier years was for altogether different purpose and not for the type of concealment and further those intangible additions also become final and therefore they cannot be considered while making reassessment. The ITO invoked the provisions of Section 68 and held that if any sum is found credited in the books of account maintained by the assessee, for any previous year and the assessee offers no explanation about the nature and source thereof, the sum so credited may be charged to income-tax as income of the assessee for that previous year. The difference between the credit balance and the figures reconciled with the creditors worked out to an amount of Rs. 86,700 as on 30-6-1974. Deducting the sum of Rs. 11,000 already considered for assessment year 1974-75, the balance of Rs. 75,700 relatable to the assessment year 1975-76 has to be added under Section 68 of the Income-tax Act. Thus, he determined the total income of the assessee at Rs. 1,33,920 and completed the re-assessment on 22-2-1985. Inter alia, the ITO started penalty proceedings under Section 271(1)(c) for concealment of income and for furnishing false particulars of income.
4. Notices under Section 271(1)(c) were issued for assessment years 1974-75 and 1975-76. Assessee filed explanations dated 25-3-1987 and 3-8-1987, copies of which are furnished at pages 28-29 and 30 to 32 of the first paper-book filed on behalf of the assessee. In its reply dated 25-3-1987, assessee contended that against the additions made in the reassessment proceedings, appeals were preferred before the CIT (Appeals) -II, Hyderabad. It was also contended that the difference in the accounts of the trade creditors, after a sum of Rs. 40,000 was considered for assessment year 1976-77, remained at Rs. 86,418. Assessee contends that intangible additions made in the assessment years 1968-69 to 1975-76 cover an amount of Rs. 89,135. If one is telescoped into the other, there would not be any case for further addition to be made either in assessment year 1974-75 or 1975-76 and this fact was brought to the notice of the ITO in the note submitted with the revised statement of total income for the assessment years 1974-75 and 1975-76. In the second reply dated 3-8-1987, assessee contended that they were able to receive only a partial relief in the hands of the CIT (Appeals)-II, Hyderabad and therefore, they preferred an appeal before the ITAT on 7-7-1977. It is further contended that survey operations under Section 133A were conducted on 16-8-1976 in the business premises of the assessee and account books, vouchers, etc., available in the business premises were impounded and they were in the custody of the department. The subsequent books have been lost in the two fire accidents that took place on account of electric short-circuit in the business premises. The Accountant who had written the account books at that time left the services long time back. Shri Mohd. Akbar, Managing Partner, who has signed the returns of income was then unwell. For the assessment year 1976-77, ITO made an addition of Rs. 1,26,418 on the ground that the balances shown in the accounts of the trade creditors as on 30-6-1975 were more than the actual amounts due to the creditors. Assessee went in appeal before the CIT (Appeals), who was pleased to set aside the assessment order vide his order dated 23-2-1980, for assessment year 1976-77. It was further submitted that the assessee did not close the accounts and the ledger account of each trade creditor, since the old accountant left the services and the new accountant who came thereafter did not continue for long time and the thread of maintenance of accounts could not be maintained. As a result, there was no grip over the accounts and thereby some difference arose in the accounts of trade creditors. These differences could not be verified with the accounts of the creditors for want of time. There was no intention to avoid or evade any tax payment by inflating the accounts of the trade creditors. In fact, the balances that were shown in the trade creditors' accounts were not within the knowledge of the partners, since the list of trade creditors and the balances in their accounts handed over to the Assessing Officer by the then Accountant. Consequent upon setting aside of the assessment for 1976-77 by the CIT (Appeals), proceedings under Section 148 were initiated for assessment year 1976-77 also and the ITO made an addition of Rs. 40,000 for that year towards difference in the accounts of the trade creditors. He wanted to consider the difference of Rs. 86,418 for assessment years 1974-75 and 1975-76. He wanted to consider a sum of Rs. 11,000 for assessment year 1974-75 and Rs. 75,700 for assessment year 1975-76. Already, while making assessments for 1968-69 to 1975-76, intangible additions to the extent of Rs. 89,135 were made and if those intangible additions were telescoped into the intended additions representing difference in the accounts of the trade creditors, there would not be any scope to make any further additions in the reassessment for assessment years 1974-75 and 1975-76. The learned CIT (Appeals) in the appeal filed against the reassessment for the assessment year 1975-76, gave a relief of Rs. 12,000 and confirmed the balance of Rs. 63,700. In the survey operations conducted under Section 133A in the year 1976, no unexplained cash was found and there was also no suppression of sales and except the mistake committed in the preparation of Balance Sheet, by the Accountant, there was neither concealment nor furnishing of inaccurate particulars of such income. Hence, the assessee is not liable to penalty under Section 271(1)(c).
5. It may here itself be mentioned that against the additions sustained by the first appellate authority, for assessment years 1974-75 and 1975-76, assessee went in appeal before the ITAT, vide ITA Nos. 1600/Hyd./89and 1497/Hyd. /87. Both of them were disposed of, by a common order by the Hyderabad Bench 'A' of the Tribunal by its order dated 31-8-1990, whereby the Tribunal dismissed the appeals filed by the assessee and confirmed the additions. The ITAT while disposing of the two quantum appeals for assessment years 1974-75 and 1975-76, made the following observations in the penultimate para (para-6) of its order :
6. Having regard to the rival submissions, we are of the view that the additions in both the years are justified. It is not disputed that the assessee has inflated the balance in the creditors' accounts. The assessee has also quite fairly conceded before the revenue authorities that the balances in the creditors' accounts are inflated and in fact the additions were justified. On this ground therefore, we see no reason to interfere with the order of the first appellate authority. Regarding set off of the intangible additions against the additions now made, we are of the view that there is no connection or relation whatsoever between the two additions. The appellant has also not been able to adduce any evidence to show that the intangible additions made in the years adverted to were in fact reintroduced in the books of accounts in the form of inflation in the accounts of creditors. Since intangible additions in the earlier years were made on totally different grounds, there is no reason for us to accept the plea of the assessee. Considering all the facts and circumstances of the case, we are, therefore, of the view that the assessee is not entitled to the set off as prayed for.
6. The ITO, in his penalty orders dated 30-3-1987 passed for assessment year 1974-75, recorded that the assessee concealed its particulars of income and furnished inaccurate particulars, for which he is liable for penalty under Section 271(1)(c). After rejecting the replies filed by the assessee, holding that they are not convincing, he levied a minimum penalty of Rs. 8,000. So also for assessment year 1975-76 in his penalty order dated 21-9-1987, after noting that the minimum and maximum penalties leviable worked out to Rs. 57,006 and Rs. 1,14,012 respectively, ITO levied a penalty of Rs. 1,00,000. Against the levied penalties, assessee went in appeal for assessment years 1974-75 and 1975-76.
7. The AAC, B-Range, Hyderabad, while disposing of the appeal for assessment year 1974-75, by his order dated 14-3-1988, having held that the extent of inflation in the accounts of the trade creditors is accepted by the assessee also and having found that the plea of the assessee that the inflation is covered by the intangible additions made in earlier years is not acceptable, since the said additions were made in earlier years on different grounds, he held that the inflation in the accounts of the trade creditors made by the assessee is a clear-cut case of furnishing inaccurate particulars, which amount to concealment and therefore, he confirmed the penalty imposed by the ITO.
8. The learned CIT (Appeals)-II, Hyderabad, by her impugned order dated 23-2-1988 reduced the penalty from Rs. 1,00,000 to Rs. 63,700 for the assessment year 1975-76 and thus granted partial relief to the assessee.
9. Having been aggrieved by the sustained penalties for the assessment years 1974-75 and 1975-76, assessee came up in further appeals before this Tribunal and thus, these matters stand for the consideration of this Tribunal.
10. Shri K.V.S. Bhaskar Rao, learned Advocate for the assessee contended that the assessee is a firm engaged in the business of purchasing and selling optical lenses. It is a firm of four partners. No doubt, there were mistakes in the accounts committed by the part-time accountant. The particulars of the trade creditors and their accounts furnished was not to the knowledge of the partners. They were furnished only by the Accountant. The particulars thus furnished to the ITO represent only unreconciled credit balances, on the basis of which addition was made under Section 68 of the IT Act, since there was discrepancy found in the balances standing to the credit of each trade creditor when compared to the balances found from each of the creditors, by the ITO either at the time of action under Section 132 or at the time of making the assessment. It is the case of the assessee that while filing the return of income, it had submitted that the difference in the accounts of trade creditors is due to the mistakes committed by the Accountant and the intangible additions made in its case for earlier years should be telescoped against the difference in the accounts of the trade creditors. The ITO did not accept this explanation. Simple because the explanation is not found acceptable, penalty cannot be levied unless and until it is found out specifically that the addition sustained represented the concealed income of the assessee. Assessee cited the following decisions in support of this contention :-
(1) Addl. CIT v. Burugupalli China Krishnamurthy [1980] 121 ITR 326 : [1979] 2 Taxman 563 CAP) (2) Dr.(Mrs.) Afzal Jabbar v. ITO [1991] 41 TTJ (Hyd.) 248 (3) ITO v. Sairam Agencies [1991] 41 TTJ (Hyd.) 208 (4) B.T.X. Chemicals (P.) Ltd. v. Suraj Bhan [1989] 177 ITR 425 (Guj.) (5) Anantharam Veerasinghaiah &Co. v. CIT [1980] 123 ITR 457 : 3 Taxman 56 (SC) (6) CIT v. Khoday Eswarsa & Sons [1972] 83 ITR 369 (SC).
It is further contended by Shri Bhaskar Rao that for want of satisfactory explanation, explaining the cash credits, no penalty can be levied automatically. In support of this proposition, he relied upon the following case laws :-
(1) Hajee K. Assainar v. CIT [1971] 81 ITR 423 (Ker.) (2) CIT v. Shree Bqjrang Trading & Supply Co. [1991] 187 ITR 299 (Cal.).
It is also contended that no statements were recorded from the creditors or from any of the partners of the assessee-firm. The Department had not found out any omission of purchase or sale from the books of account maintained by the assessee either in the raid or in search proceedings. In these circumstances of the case, there is no material to justify penalty under Section 271(1)(c) and in support of this proposition, he relied upon the decision reported in CIT v. Sardar lqbal Singh [1991] 190 ITR51 (Cal.).
11. As against these arguments, learned Departmental Representative argued and very much relied upon para 6 of the Tribunal's order in quantum appeals, which is already extracted hereinabove and which is found at page 35 of the paper-book filed by the assessee. So also, the attention of this Tribunal is pointedly invited to page 2899 of Chaturvedi and Pithisaria's Income-tax Law (Vol. 5). The learned Departmental Representative also cited and relied upon the following decisions :-
(a) CIT v. Nathulal Agarwala & Sons [1985] 153 ITR 292 : 22 Taxman 199 (Pat.)(FB)
(b) Vishwakarma Industries v. CIT [1982] 135 ITR 652 (Punj. and Har.) (FB)
(c) CIT v. Rohiak District Transport Co-operative Society Ltd.
(d) CIT v. Mussadilal Ram Bharose [1987] 165 ITR 14 : 30 Taxman 546H (SC)
(e) CIT v. Brindavan Hotel [1991] 192 ITR 12 (AP).
He argued that according to the assessee, mistakes were committed by the Accountant, but the name of the Accountant was ever made known in any of the explanations filed by the assessee so far. His affidavit is also not filed in support of the contention that the mistakes were committed by him. In fact, it was never proved by the assessee that mistakes were committed by the Accountant only. In the circumstances, the main explanation that the mistakes in accounts were all committed by the Accountant cannot be accepted. Further, he argued that it is inconceivable that the particulars of the accounts would be furnished by the Accountant without the knowledge of any of the partners, which according to him, is an impossibility and even this version was not originally canvassed by the assessee and it was only a later development.
12. After hearing both sides, this Tribunal is of the view that there is no ground to set aside the penalties sustained by the first appellate authorities. Firstly, the assessee carries on business, during the course of which it had maintained regular accounts. Assessee had trade creditors and the particulars of the credits are reflected in the accounts. For assessment years 1974-75 and 1975-76 with which we are concerned in these two appeals, original assessments were already made and the particulars of these assessments were already given in the preceding paras of this order. At the time of original assessments, assessee never came forward with the plea that any of the balances found in any of the trade creditors' accounts may be either mistaken or not verified. Assessee had taken a posture that all its accounts are true and believable and on that representation, it had submitted its IT Return. Even the interest on the balances in the creditors' accounts were allowed as deductions in the hands of the assessee, on the ground that the outstanding balances in the accounts of each of the creditors is true and correct. Subsequently, survey operations were conducted on 16-8-1976, during the course of which all the account books, vouchers, etc., were impounded and it is stated that all of them are still in the custody of the Department. On 22-12-1977, a search was also conducted. Even in the original assessment framed for assessment year 1976-77 on 9-6-1979, it was found that a sum of Rs. 1,26,418 was the excess credit balance shown in the trade creditors' accounts and it was found that the assessee was in the habit of showing larger balances in the accounts of the trade creditors, than what were actually due to them. This addition was made on the basis of information gathered by the Department from the various trade creditors. Against the original assessment for assessment year 1976-77, assessee went in appeal before the CIT (Appeals). The learned CIT (Appeals) had accepted the contention of the assessee that a part of the difference of Rs. 1,26,418 related to earlier years. Assessee also filed a letter dated 8-2-1982, wherein it was pointed out that the difference between the balances as per the assessee's ledgers and the real balances as per the account copies received from the trade creditors related to assessment years earlier to 1976-77 also. This is found stated at page 20 of paper-book, which is part of fresh assessment order dated 25-3-1982 passed for assessment year 1976-77. Therefore, it is clear that the assessee himself admitted that the Department obtained account copies of the creditors and verified those account copies with the ledger accounts of each of the creditors in the accounts of the assessee and in that process, discrepancies are found out. Those discrepancies were never disputed. In the reassessment order passed for assessment year 1974-75, the ITO clearly found that the difference between the balances in the accounts of the trade creditors as on 30-6-1973 as per the list filed by the assessee and on the basis of information gathered from the trade creditors, amounted to Rs. 11,000. Further, in the same assessment order, ITO stated that the total difference in the trade creditors' balances is Rs. 1,26,418, out of which a sum of Rs. 40,000 relates to assessment year 1976-77, leaving a balance of Rs. 86,418. He observes, 'It is not disputed out of this Rs. 86,418 a sum of Rs. 11,000 is relatable to the assessment year 1974-75 and the balance of Rs. 75,700 is relatable to the assessment year 1975-76'. Even in the re-assessment order dated 22-2-1985 for assessment year 1975-76, the ITO stated specifically as follows (at page 26 of the paper-book No. 1 filed by the assessee) :-
. . . It is not disputed again that such difference in credit balances as between the figures furnished by the assessee and the figures reconciled with the creditors, worked to an amount of Rs. 86,700 as at 30-6-1974. Deducting the difference of Rs. 11,000 already considered for the assessment year 1974-75 the balance of Rs. 75,700 is relatable to this year and this has to be added under Section 68 of the Act.
Even in the impugned order passed by the AAC dated 14-3-1988 for assessment year 1974-75, he categorically found that the extent of inflation is accepted by the assessee also.
13. The only ground very much pressed on behalf of the assessee was that the inflation in the balances in the accounts of the trade creditors should be telescoped against the intangible additions made in the earlier years, viz., assessment years 1968-69 to 1975-76, which was not accepted either by the ITO or by the first appellate authority or the Tribunal. The Tribunal's order in quantum appeals was already extracted above and this Tribunal fully agrees with the said finding of the learned Tribunal that the intangible additions made in assessment years 1968-69 to 1975-76, have nothing to do with the inflation found in the accounts of the trade creditors and the said intangible additions were made on altogether different grounds and therefore, telescoping cannot be permitted. Thus, though the assessee knew that Rs. 11,000 was to be added to the returned income for assessment year 1974-75 and Rs. 75,700 was to be added to the returned income for assessment year 1975-76, still it did not show any of these figures as part of the returned income for these years and they were added under Section 68 of the Income-tax Act. The question is whether the amounts added under Section 68 of the Income-tax Act can be considered to be concealed income automatically, or whether the concealment has to be independently found out apart from the additions made under Section 68.
14. At page 5959 of Sampath Iyengar's Law of Income-tax (8th Edition) revised by Justice S. Ranganathan, the learned author on the basis of the Madras High Court's decision in R. Srinivasan and Co. v. CIT [1974] 97ITR 431 and KedarNath Sanwal Dass v. CIT [1978] 111 ITR 440 (Punj. and Har.) discussed the law relating to penalty as follows :-
... It cannot be contended that in all cases there should be fresh material in the penalty proceedings and that the Tribunal cannot act on the material produced at the assessment stage. There cannot be any tenable reason as to why the authorities cannot analyse the same evidence and material produced earlier in the course of the assessment proceedings and base their findings thereon. It may be that the findings given by the authorities on certain materials at the assessment stage may not be conclusive but still the material constitutes good and relevant evidence.
At page 5986 of Sampath Iyengar's Law of Income-tax (8th Edition), under the authority of the following decisions, viz., CIT v. Imperial Automobiles [1983] 141 ITR 60 : [1982] 11 Taxman 198 (Mad.), Basanta Mal Tilak Ram v. CIT [1987] 163 ITR 476 : 30 Taxman 447 (Punj. and Har.); CIT v. M.N. Chatterjee [1988] 170 ITR 87 : [1987] 35 Taxman 219 (Pat.), the learned author stated the present law relating to levy of penalty under Section 271(1)(c), especially after the introduction of Explanation I, which came into force after 1-4-1976 as follows :-
The position after the insertion of Explanation 1, with effect from 1-4-1976, is different in the sense that the Explanation 1 may well be considered as being more than a rule of evidence, as a rule of substantive of law relating to penalty for concealment. The Explanationis to the effect that where in respect of any fact material for purposes of the assessment an assessee offers an explanation which is found by the Assessing Officer or the Deputy Commissioner (Appeals) to be false, or where the assessee is unable to substantiate his explanation, then the amount added back to his assessment shall be deemed to represent his concealed income. It would be seen that this Explanation 1 considerably reduces, if not altogether removes, the Department's onus to prove concealment in assessments based on unexplained cash credits, explained investments and the like. Closer examination of Explanation 1 in juxtaposition to the language of, say Section 68, may possibly reveal vestige of burden left for the department to discharge even in such cases. In other words, the explanation of the assessee has yet to be found by the Assessing Officer to be false. However, by and large, it can now be said that the doctrine of Anwar Ali's case, supra, has been eroded, and, after Explanation 1, penalty under Section 271(1)(c) in such cases tends to become almost automatic.
15. In the facts of the present case, explanation offered was that the impugned addition has to be telescoped into the intangible additions made for the assessment years 1968-69 to 1975-76. This cannot be done in view of the fact that the intangible additions were made in earlier years on altogether different grounds and the same was never made after taking into consideration the inflated trade creditors' balances in the books of account of the assessee. Thus, the explanation is found to be false as well as untenable. Further, what is the consequence of the admission made by the assessee with regard to the addition? It is stated again by the learned author in Sampath Iyengar's Law of Income-tax (8th Edition) at page 5967 that 'it is for the assessee to explain as to why the unequivocal admission was made by him that the disputed amount was his income'. No doubt, it is open for him to show that the admission was untrue or that it was made in such circumstances that it could not be acted upon, but this must be done in such a manner as to rebut the weight and effect of the admission. In this connection, the learned author cited the decision of the Madhya Pradesh High Court in Addl. CIT v. Bhartiya Bhandar [1980] 122 ITR 622. That was also a case of penalty for concealment of income. At the time of its return, the amounts were shown to be cash credits in the assessee's books. However, notice of re-assessment was issued to the assessee under Section 148. In pursuance to the said notice, revised return was filed in which the assessee included the amount of cash credits. The question was whether inclusion in the return, amounts of cash credits amounts to admission and evidence of concealment. The Madhya Pradesh High Court held the following (as per head-note on p. 633 of 122 ITR) :-
Held that the inclusion of the cash credits in the return filed, in answer to the notice under Section 148, as its income without any qualification, amounted to an admission by the assessee that those cash credits constituted its income and that admission constituted evidence of concealment.
16. In this case also, assessee did not dispute the addition of either Rs. 11,000 for assessment year 1974-75 or Rs. 75,700 for assessment year 1975-76. This admission amounts to saying that the outstanding balances in the accounts of its trade creditors were not correct, but they were inflated figures. Assessee was not able to disprove the concealment and therefore, the decision of the Madhya Pradesh High Court clearly applies to the facts of this case and this Tribunal holds that the admission made by the assessee was not successfully explained away by the assessee in any manner. If the assessee did not succeed in explaining away the admission, then the concealment of its income in assessment years 1974-75 and 1975-76 should be taken to have been admitted by the assessee, for which the assessee is liable to penalty under Section 271(1)(c).
17. The authorities cited by the assessee are neither here nor there and they are clearly distinguishable. Therefore, each of them may not be taken up and distinguished, since it only amounts to burdening the record further. Since this Tribunal upholds the levy of penalty under Section 271(1)(c), it is not duty bound to consider the authorities cited by the learned departmental representative during his arguments.
18. In the result, this Tribunal fails to see any valid ground to interfere with the orders of the lower authorities. In the result, these appeals fail and they are dismissed.