Income Tax Appellate Tribunal - Bangalore
Andhra Pradesh Yarn Combines (P.) Ltd. vs Income-Tax Officer on 31 October, 1995
Equivalent citations: [1996]57ITD346(BANG)
ORDER
S. Bandyopadhyay, Accountant Member
1. The appeal filed by the assessee is against levy of penalty of Rs. 95,000 under Section 271(1)(c), as confirmed by the CIT(A).
2. The facts of the case are that on 24-1-1978, falling within the financial year corresponding to assessment year 1978-79, one of the Directors of the assessee-company, viz., Sri Devpriya Kejriwal, tendered 135 high denomination notes of Rs. 1,000 each before the RBI, New Delhi, filing the declaration on behalf of the assessee-company. It was explained to the ITO that an amount of Rs. 1,35,000 (all in notes of denominations of Rs. 100 each) had been paid on 15-11 -1977 as advance to a cotton broker in Haryana viz., Sri Jagdish Khosla for the purchase of ginned cotton and that since the transaction could not be made, Sri Jagdish Khosla returned the money to the assessee on 20-1-1978 in high denomination notes of Rs. 1,000 each. It was furthermore stated that one Sri C.K Kejriwal, father of the abovementioned Sri Devpriya Kejriwal, had come over to Hyderabad. Cash of Rs. 60,000 had been handed over to him in the first week of November, 1977 and that another sum of Rs. 75,000 had also been sent through an employee of the assessee-company to Delhi in the second fortnight of the same month for delivering the money to Delhi for the purchase of ginned cotton. Sri C.K. Kejriwal is again stated to have given the entire sum to Sri Jagdish Khosla on 15-11-1977 in notesof Rs. 100 each. The following facts were noted by the ITO while examining the case :
(1) No entry was passed through the books of account when the cash of Rs. 60,000 and Rs. 75,000 were, reportedly given as advance.
(2) Even though the company was maintaining regular books of account from 15-9-1977 and even petty advances of Rs. 30 are reflected under the account "advances" in the ledger, no entries were made in respect of the alleged advances of cash of Rs. 60,000 and Rs. 75,000.
(3) There was no evidence to confirm that Sri C.K. Kejriwal came to Hyderabad to collect the cash of Rs. 60,000. The "Travelling allowance and conveyance charges" account maintained by the appellant-company did not indicate that any employee of the company had been sent to Delhi.
(4) The usual practice of the company was to receive and send amounts in cheques or drafts only.
(5) There was no reason as to why the company chose to give the advance to an outsider who had nothing to do with the company for the purchase of ginned cotton.
(6) On account of labour trouble, the appellant-company had nurtured an idea of rescinding the lease agreement with M/s. Andhra Pradesh Federation of Co-operative Spinning Mills Ltd., Hyderabad, since October 1977 and ultimately on 18-11-1977 had even issued a legal notice to the Andhra Pradesh Federation of Co-operative Spinning Mills Ltd., Hyderabad. Hence, the appellant's contention that in November 1977 it had sent cash for the purchase of ginned cotton from Punjab did not appear plausible.
(7) Whereas the company is reported to have given the cash in 100 rupee notes only, there was no explanation for the company's acceptance of the cash back from Sri Jagadish Khosla on 20-1-1978 in the denomination of 1000 rupee notes, 4 days after the High Denomination Notes Ordinance was issued by the President of India on 16-1-1978.
After considering the above mentioned facts, the ITO came to the conclusion that the version put forward by the company to the effect that the sum of Rs. 1,35,000 had gone out of the coffers of the company, was not supported by entries whatsoever in the books of account of the company regularly maintained by it. The ITO thus came to the conclusion that the only fact which was acceptable was that the assessee was in possession of high-denomination notes and that there was no concrete evidence about how the assessee acquired the same. On this ground, the ITO treated the amount of Rs. 1,35,000 found with the assessee in high-denomination notes to be unexplained money in the hands of the assessee-company and added back the same under Section 69A. As a result of this addition, the assessee was assessed for this year at the total income of Rs. 955.
3. In the penalty order under Section 271(1)(c) again, the ITO held that there was no explanation about the possession of the above mentioned sum of Rs. 1,35,000 and hence the said amount represented funds from undisclosed sources. Accordingly, the ITO considered this to be a fit case for levy of penalty under Section 271(1)(c). After taking the approval of the IAC, he levied penalty of Rs. 95,000.
It is the version of the assessee that on account of small tax effect, the assessee did not file any appeal against the addition made in the assessment order. However, the assessee did file an appeal before the CIT(A) against levy of penalty as above. The CIT(A) took into consideration the argument of the assessee that it had actually given an explanation regarding the possession of 135 high-denomination notes. The CIT(A) also discussed about the appeal made by the assessee against refusal on the part of the RBI to exchange high-denomination notes (which had already ceased to remain legal tenders) into ordinary currency notes, to the Government of India. The CIT(A) found out that even the Additional Secretary to the Government of India (Ministry of Finance, Department of Economic Affairs, Banking Division) in her letter F.No. 5 / 3/80-BO. I dated 2-7-1980 had stated The Reserve. Bank of India examined the claim of the appellant but were not satisfied either with the source of the notes or the ownership of the notes.
The CIT(A) furthermore referred to the discussion made by the aforesaid Additional Secretary at para 5 of her letter as extracted below:
The Government of India has carefully considered the material on record as well as the arguments advanced on behalf of the appellant. It is clear that Sri Khosla gave the notes to the appellant on 20th Jan., 1978, i.e., after the notes ceased to be legal tender. If Sri Khosla was in possession of the notes on behalf of the appellant, he could as well have declared them within time on behalf of the appellant. The money was handed over to the appellant after the 16th Jan., 1978 and therefore after the notes had ceased to be legal tender. Besides, there is no transfer entry in the records of the firm showing the transaction of Rs. 1,35,000 between the broker and the company and vice versa.
4. Finally, the CIT(A) came to the conclusion that it was clear that the assessee was in possession of the high denomination notes to the extent of Rs. 1,35,000 without a proper explanation as to how it came to possess the same. She, therefore, held that the ITO was justified in concluding that the amount represented funds from undisclosed sources in respect of which the assessee had concealed the particulars of its income during the year. The CIT(A) thus confirmed the levy of penalty in view of the Explanation (4A) to Section 271(1)(c).
5. Before us, the learned Counsel for the assessee has strongly contended that the assessee had furnished an explanation which was plausible but was not ultimately accepted by the departmental authorities. He thus argued that penalty under Section 271(1)(c) was, therefore, not leviable in the instant case. He also argued that when the high-denomination notes were found out by the department, they had become valueless and had been reduced to merely pieces of paper inasmuch as in accordance with the ordinance issued by the President, the high-denomination notes no longer remained to be accepted as legal tenders. He thus contended that in the circumstances, there is no scope for applicability of the provisions of Section 69A and that the addition of the amount of Rs. 1,35,000 itself is not proper.
As an alternative ground, the learned Counsel for the assessee also contended that even if it be found that penalty is leviable in this case, the levy of penalty should be restricted to the small amount of income ultimately assessed. In support of this contention, he relied on the judgment of the Punjab & Haryana High Court in the case of CIT v. Prithipal Singh & Co. [1990] 183 ITR 69.
6. The learned DR on the other hand strongly argued that the high-denomination notes had become valueless simply because of the fact that the assessee did not have any explanation regarding the source of the money. He strongly contended that there was a conscious attempt on the part of the assessee towards concealing its income represented by the high-denomination notes by putting forward an unbelievable story about the money having been given by the father of one of the Directors to a broker in Haryana for purchase of ginned cotton and the same being returned by the said broker in terms of high-denomination notes. He brought our notice to the fact in this connection that the assessee had already given a notice to Andhra Pradesh Federation of Co-operative Spinning Mills Ltd., about rescinding the earlier contracts for purchase of cotton, on account of labour disputes in its factory. The learned DR thus contended that there was no case for the assessee to authorise some broker again to be in search of ginned cotton. In support of his argument that penalty for concealment is leviable in the present case, the learned DR relied on the following decisions :
(i) T.P.S. Hariram Sait v. CIT[1955] 28 ITR 231 (Mad.) (ii) Radha Rukmani Ammal v. CIT[1957] 31 ITR 704 (Mad.)
(iii) R.B. Shreeram Durgaprasad & Fatechand Narsinghdas (Export Firm) v. CIT [1987] 168 ITR 619 (Bom.)
(iv) CIT v. Jeevan Lal Sah [1994] 205 ITR 244 (SC).
In his attempt to refute the alternative contention raised by the learned Counsel for the assessee about restricting the amount of penalty to the meagre amount of income finally assessed, the DR argued that the following decisions would show that the amount of penalty can never go below the minimum amount prescribed under the Act.
(i) CIT v. Khubchand Meghraj [1973] 91 ITR 498 (MP)
(ii) CIT v. A.K. Das [1970] 77 ITR 31 (Cal.)
(iii) Jodha Mai Kuthiala (R.B) & Sons v. CIT[1974] 93 ITR 318 (Punj. & Har.)
(iv) CIT v. Prem Raj Daulatram [1981] 130 ITR 459 (Raj.) (App.).
7. We find that in the instant case not only the penalty has been levied but also the addition has been made in respect of finding of high-denomination notes of the face value of Rs. 1,35,000 by resorting to the provisions of Section 69A. This particular section comes into operation only when some valuable article be found to be under the ownership of the assessee. The article concerned is required to be valuable at the time when it is found. In the instant case, the assessee tendered the high-denomination notes to the RBI on 24-1 -1978 only. In terms of the ordinance issued by the Government of India, those notes had already ceased to become legal tenders and on the top of it, it was also not possible to get those notes exchanged through RBI inasmuch as the time period for doing so had already elapsed on 20-1-1978. This is borne out by the discussions made by the Additional Secretary to Government of India (Ministry of Finance, Department of Economic Affairs, Banking Division) in her communication dated 2-7-1980 addressed to the assessee, a mention of which has been made by the CIT(A) in her order. It is thus clear that when the high-denomination notes were first of all found out to be in possession with the assessee, they had been reduced merely to scraps of paper and had no value in the market at all. That is why, the assessee was not ultimately able to get anything out of those high-denomination notes. It is not the departmental case that as per the assessee's own version, the assessee had given a sum of Rs. 1,35,000 to the broker in Haryana sometime in November 1977, the source of which was unexplained inasmuch as the transaction was outside the books of the assessee. Had the addition been made in that way, the departmental case might have some legs to stand. However, the addition has been made in the instant case in respect of the high-denomination notes which were tendered by the assessee to the RBI on 24-1-1978. It cannot be said that the assessee was the owner of any valuable article at that time. It is also not the version of the assessee that it was the owner of those high-denomination notes even prior to 16-1 -1978 when those notes were actually valuable. Nor has the department found out any evidence on its part about the assessee being the owner of such amount of money on 16-1-1978. On the basis of the facts of the present case, we are clearly of the opinion that the addition of Rs. 1,35,000 as unexplained money found with the assessee by applying the provisions of Section 69A itself is unsupportable. The question of levying penalty for concealment on the said amount, therefore, cannot arise. Taking into consideration all these facts, therefore, we reverse the decisions of the lower authorities and cancel the penalty.
8. In the result, the appeal filed by the assessee succeeds.