Income Tax Appellate Tribunal - Ahmedabad
Income-Tax Officer vs Ghanshyam A. Pandit on 25 February, 1987
Equivalent citations: [1987]22ITD140(AHD)
ORDER
R.M. Mehta, Accountant Member
1. The revenue in this appeal is agitated with the cancellation of the penalty imposed by the ITO under the provisions of Section 271(1)(c) of the IT Act. At the time of the hearing of the appeal before us, an initial objection was raised on the part of the learned Advocate General representing the assessee to the effect that the grounds of appeal urged by the revenue nowhere brought out their grievance and it was not clear as to what was being challenged in the appeal. He in fact drew our attention specifically to ground No. 3 wherein it had been urged that "this is a case of suppression of professional receipts". According to the learned counsel what was being now canvassed on behalf of the revenue was that it was a case of "inflation of expenditure". It was urged that when the revenue itself was not sure what the assessee was guilty of then could it inflict a penalty for concealment.
2. The learned departmental representative in reply urged that although ground No. 3 was not too happily worded the language of ground No. 1 was wide enough to cover all the issues. This was as under :--
The learned CIT(A) erred in law and facts in cancelling the penalty levied under Section 271(1)(c) of the IT Act, thereby granting reduction of Rs. 14,400.
3. According to us ground No. 3 is in fact a jumbled array of words without any meaning whatsoever. We do wish that the revenue takes a little more care in spelling out the exact nature of its claim rather than asking the Tribunal to do it for them. We are however inclined to accept that ground No. 1 is wide enough to cover all the issues leading to the imposition of the penalty and its deletion by the CIT(A).
4. We now come to the facts of the case). The assessee in this case is an Advocate of the Gujarat High Court. He filed his return on 21-8-1974 showing the following income :
Rs.
(1) Salary as M.L.A. 5,175.00
(2) Property income 475.00
(3) Professional income 18,600.00
24,250.00
Less : L.I.P. 834.00
Total Income 23,416.00
The first assessment in this case was framed by the ITO on 24-12-1976 at a figure of Rs. 1,06,341 the major difference being on account of professional income which was taken at a figure of Rs. 96,000 by the ITO. The other difference was on account of the property income with which we are not concerned in the present appeal. This assessment was set aside by the AAC vide his order dated 28-2-1978 whereby the ITO was directed to re-examine the aspect pertaining to assessee's professional income with special reference to the payments made to the assessee by the Ex-Ruler of Bhavnagar Dr. Virbhadrasinhji. The ITO refrained the assessment pursuant to the order of the AAO on 20-9-1980 and adopted the professional income (net) at a figure of Rs. 51,000. The matter once again came up before the CIT(A) and before whom two aspects were challenged. The first pertained to an addition of Rs. 5,000 in respect of the amount received from one Shri J.M. Mehta as a loan. The OIT(A) deleted the aforesaid addition which the ITO had treated as the assessee's professional income. The second issue before the CIT(A) pertained to the receipts of Rs. 38,000 from the Ex-Ruler. It was contended before the CIT(A) that out of this a sum of Rs. 13,000 was by way of reimbursement of expenditure. This argument was accepted by the CIT(A) and he gave a further relief of Rs. 13,000 out of the receipts of Rs. 38,000. It is a fact that the order of the CIT(A) was accepted by both the parties and there were no further appeals to the Tribunal by either side.
5. Before we proceed further, we would like to state that the main cause for the addition to the assessee's income on account of professional receipts was a diary which was found and seized during the course of the raid on 19-10-74 at the residential premises of the assessee. This diary contained details of various receipts which the ITO ultimately linked to the assessee's professional income. The ITO in order to justify the addition made detailed enquiries which involved not only the summoning of the Ex-Ruler, but some of his associates and employees as well. Their statements were recorded as also that of the assessee. The ITO also afforded an opportunity of cross examination to the assessee in respect of the Ex-Ruler and one Shri M.C. Shah who was the Managing Director of a Company named Yeast Alco Enzymes Ltd. and from whose books the amounts had been paid to the assessee to the debit of the personal account of the Ex-Ruler. The nature of the enquiries, the conclusions reached by the ITO and the reasons weighing with the ITO in making the addition are recorded in detail in the two assessment orders and we do not propose to reproduce them here.
6. The Income-tax Officer being of the opinion that the assessee concealed the particulars of his income issued a show cause notice under Section 271(1)(c) of the Act. The initial reply of the assessee was that he had not concealed any particulars of income and that an appeal had been preferred against the order of the ITO. His second and final reply dated 7-2-83 was on the following lines :--
The Commissioner (Appeals)-I, has by his order dated 30-9-81 deleted the addition of Rs. 5,000 and has allowed a relief of Rs. 13,000 and has also from the expenditure of Rs. 26,500 claimed against the Maharaja's matters. Since the balance addition, which remains is only disallowance of expenditure claimed the provisions of Section 271(1)(c) are not attracted at all and cause of action does not survive. The proposed action may therefore be dropped.
The Income-tax Officer rejected the explanation of the assessee and proceeded to levy a penalty of Rs. 14,400. The reasons which weighed with the ITO in doing so are summarised as follows :--
(1) The assessee did not disclose his correct professional income.
(2) That the correct income from the aforesaid source came to light only as a result of the search carried out by the department, as well as due to the seizure of relevant papers and documents.
(3) That the assessee had tried to claim certain expenditure against the professional receipts and for which he was not able to produce any evidence in spite of opportunities being given.
(4) That even after a reduction of Rs. 18,000 by the CIT(A) the professional income (net) stood at a figure of Rs. 33,000 as against the returned figure of Rs. 18,600.
7. The assessee took up the matter before the CIT(A) and in the course of the hearing a case was sought to be made out that it was a case of disallowance of expenditure and not any concealment of income. In support of his contentions the assessee relied on various facts and figures to which we shall refer later on. The CIT(A) thereafter deleted the penalty on the basis of the following observations :--
I agree with the contentions of the learned representative of the appellant. Para-6 of the CIT (Appeals)'s order bearing No. CEA. I/V-34/80-81 dtd. 30-9-1981 in the case of the appellant for the assessment year 1974-75 relied upon by the learned representative of the appellant is reproduced below :--
'I have considered the claim of the appellant. I accept in principle the arguments of the appellant that when a seized diary is taken into account, the whole of it should be taken into account, by the ITO and not only the receipts side. The expenditure side should also be considered. The ITO himself has accepted that Rs. 13,000 were reimbursement of expenditure incurred by the appellant on behalf of the Maharaja. This amount cannot, therefore, be considered as part of the receipts of income. The said amount has been allowed as reimbursement of expenditure, further expenditure claimed by the assessee need not be considered. In the result, the appellant gets a relief of Rs. 13,000 on this account.'
10. It will be seen from the above that the CIT (Appeals) in his order quoted above has accepted the principle of the appellant that when the seized diary is taken into account the whole of it should have been taken into account by the Income-tax Officer and not only the receipts side. As stated by him the expenditure side should have also been considered by him. The Income-tax Officer himself has accepted that Rs. 13,000 were reimbursement of expenditure by Maharaja. This indicates that it is a reimbursement of the expenditure incurred by the appellant on behalf of the Maharaja. While deleting Rs. 13,0000 the CIT (Appeals) as stated by him he did not consider the other items of expenditure claimed by the assessee. It appears that for the purpose of settling the matters regarding ex-maharaja's land, the appellant was required to make frequent tours between Bombay and Bhavnagar. This naturally involved air-travel, taxi-travel, hotel charges and conference charges. The appellant also has paid Rs. 3,000 to his junior Y.V. Shah working with him at Tribunal level. He has paid Rs. 1,000 to local Advocate at Bhavnagar and Rs. 500 as clerical charges. The Income-tax Officer did not believe in this expenditure. He has not given deduction regarding this expenditure from professional receipts of the appellant, for want of proof probably the appellant might not have given adequate evidence before the Income-tax Officer and the Income-tax Officer was justified in not giving deduction in respect of the same expenditure while computing the total income of the assessee. That does not mean that in any probability the appellant must not have incurred this expenditure and that for not producing reliable and adequate bills as proof of the expenditure, the appellant has concealed the income. I am of the opinion that the non-believing of expenditure claimed by the assessee will itself not be sufficient to attract the provisions of Section 271(1)(c) of the Act. The penalty of Rs. 14,400 levied by the Income-tax Officer under Section 271(1)(c) of the Act is, therefore, cancelled and the appeal is allowed.
8. It is this action of the CIT(A) which is presently the subject matter of the appeal before us. The learned Departmental Representative in the course of his arguments took us through the relevant portions of the orders of the ITO as well as the CIT(A) in respect of the quantum as well as the penalty orders. He also referred in extenso to the paper book filed by him and running into 33 pages. The arguments of the learned Departmental Representative proceeded on the following lines :--
(1) That the assessee was following the cash system of accounting.
(2) That he did not maintain any books of accounts.
(3) That he did not file the break up of his professional income along with his return of income.
(4) That he sought to claim some items of expenditure without there being any supporting evidence in the form of bills and details.
(5) That the assessee had received substantial amounts from the Ex-Ruler of Bhavnagar for professional work and which he failed to disclose as his income. That the fee was fixed at Rs. 25,000 P.A. and there was to be no reimbursement of any expenditure.
(6) That there was a conflict between the assesses's version to the effect that he had received amounts for expenditure incurred, whereas the Ex-Ruler had denied any such payments.
(7) That the assessee had merely inflated the expenditure in order to justify the returned figure in respect of professional income. That in the return, he had already claimed a sum of Rs. 3,600 as Junior's salary and the further claim of Rs. 4,500 was clearly bogus. That the expenditure of Rs. 22,050 on account of hotel bills was also bogus and unsupported.
(8) That total expenditure sought to be claimed by the assessee was very high as compared to the receipts and this itself proved that some of the items were bogus.
(9) That the assessee came within the "Explanation" to Section 271(1)(c) as the returned income was less than 80% of the assessed income. That the onus was squarely on the assessee to prove that he was not guilty of the charge of "concealment".
9. The learned Departmental Representative referred to various authorities in the course of his arguments. We do not propose to discuss them in detail but only reproduce the citations. These are :
Addl. CIT v. Mangalsen Mohanlal [1982] 136 ITR 905 (AII.), CIT v. Bankim Chandra Dutt [1979] 118 ITR 456 (Cal.), A.K. Bashu Sahib v. CIT [1977] 108 ITR 736 (Mad.), CIT v. S.P. Bhatt [1974] 97 ITR 440 (Guj.), Bombay Hardware Syndicate v. CIT [1973] 92 ITR 160 (Mad.), Seshasayee Bros. Ltd. v. CIT [1961] 42 ITR 568 (Mad.), CIT v. Ballarpur Industries Ltd. [1979] 119 ITR 817 (Bom.), CIT v. Indian Copper Corpn. Ltd. [1986] 28 Taxman 163 (Pat.), CIT v. Anantharam Veerasingaiah & Co. [1975] 99 ITR 544 (AP), Loknath Chowdhury v. CIT [1985] 155 ITR 291 (Cal.), Addl. CIT v. Chandravilas Hotel [1986] 29 Taxman 492 (Guj.), Rahmat Development & Engg. Corpn. v. CIT [1981] 130 ITR 602 (Cal.), Bachhraj Amolakchand v. CIT [1956] 29 ITR 1009 (Nag.), Gnanambika Mills Ltd. v. CIT [1965] 58 ITR 795 (Mad.), Lachminarayan Madan Lal v. CIT [1972] 86 ITR 439 (SC), CIT v. Novelty Bar & Restaurant [1985] 154 ITR 338 (Pat.), CIT v. Durga Prasad More [1971] 82 ITR 540 (SC), Chowkchand Balabux v. CIT [1961] 41 ITR 465 (Assam), Mriganka Mohan Sur v. CIT [1979] 120 ITR 529 (Cal.), CIT v. Gates Foam & Rubber Co. [1973] 91 ITR 467 (Ker.), Kantilal Manilal v. CIT [1981] 130 ITR 411 (Guj.) and CIT v. C.P. Antony [1986] 27 Taxman 50 (Ker.) (FB).
10. We have kept these authorities in mind while disposing off this appeal.
11. The learned Advocate General representing the assessee opened his arguments by first of all taking us through the facts of the case. We do not repeat them here as these have already been detailed by us in para-4 of our order. The learned Advocate General thereafter made the following submissions :--
(1) That as against an order computing the income at a figure of Rs. 1,06,341 the final assessed figure was Rs. 39,840 (after appeal effects).
(2) That the department had accepted the order of the CIT(A) whereby a relief of Rs. 13,000 had been allowed on account of expenditure.
(3) That it was only a case of "unproved" expenditure. As against a claim of Rs. 26,000 and odd the CIT(A) had accepted a figure of Rs. 13,000.
(4) That the ITO while framing the re-assessment (pursuant to the order of the AAC) had not followed the directions given by AAC inasmuch as none of the statements were recorded on oath.
(5) That the "Explanation" to Section 271(1)(c) would not apply in case expenditure not allowed, amounting to Rs. 13,500 was excluded.
(6) That the question of evidence at this stage was not relevant but the matter had to be considered by taking into account the totality of the evidence on record.
(7) That there must be a finding by the ITO that there was conscious and deliberate concealment, (decisions of the Supreme Court in the cases of CIT v. Anwar Ali [1970] 76 ITR 696 and CIT v. Khoday Eswarsa & Sons [1972] 83 ITR 369 referred to).
(8) That the fee of Rs. 25,000 was for the whole case and not per annum and that expenses had also to be met out of the aforesaid amount.
(9) That even the Ex-Ruler in his letter to the ITO had accepted that he had not reimbursed hotel bills to the assessee. That this showed that the assessee had in fact laid a claim to be reimbursed the aforesaid expenditure.
(10) That even the payment of Rs. 4,500 to the Junior was noted in the Diary on the payment side.
(11) That the legal propositions cited by the learned Departmental Representative were well accepted and laid down principles of law and about which there could be no dispute.
The learned Advocate General referred to his paper book consisting of 61 pages during the course of the hearing.
12. The learned Departmental Representative in his reply stated :
(1) That the CIT(A) had not given any relief on account of expenditure but had reduced the gross receipts from the Ex-Ruler by treating a sum of Rs. 13,000 as reimbursement of expenditure.
(2) The Diary as a whole had been considered viz., the receipt side as well as the payment side.
(3) That the parties concerned had deposed on oath wherever possible and that opportunity for cross-examination had been given in all cases to the assessee.
(We at this stage pointed out to both the parties that it was a little late in the day to raise these objections. We also indicated to both sides that the statements etc. (as they were) of the parties could be used by both sides to the best of their advantage. This proposition was accepted by both the parties).
(4) That Explanation to Section 271(1)(c) does not provide for the exclusion of expenditure which itself is bogus.
(5) That mens rea is not required to be proved in the present case. In this connection reference was made to CIT v. Nathulal Agarwala & Sons [1985] 153 ITR 292 (Pat.) (FB), Vishwakarma Industries v. CIT [1982J 135 ITR 652 (Punj. & Har.) (FB), CIT v. Patram Dans Raja Ram Bori [1981] 132 ITR 671 (Punj. & Har.) (FB) and S.P. Bhatt's case (supra).
(6) That the assessee in his letter dated 18-10-84 addressed to the CIT(A) had mentioned that Rs. 13,000 received from the Ex-Ruler was on account of reimbursement of expenditure. It was this aspect that the CT.T(A) had accepted and not a deduction of Rs. 13,000 as expenditure out of the "bogus" claim of Rs. 26,500. That the revenue had accepted the reimbursement only and accordingly no further appeal was considered necessary to the Tribunal.
13. We would at this stage like to state that a copy of the relevant pages of the seized diary written in Gujarati had been filed before us by the Departmental Representative. At a later stage the free English Translation was also provided to us as well as the respondent assessee. We have subsequently been informed that the assessee also accepts the translation as effected by the department.
14. We have examined the rival contentions and have also perused the paper books filed by the rival parties. The appeal was heard at length and in the course of the hearing we were acquainted with minute details as well as the facts by both the sides. We record hereunder the relevant facts and our reasoning thereon and which we have kept in mind in coming to a decision as to whether penalty under Section 271(1)(c) is exigible or not.
15. The assessee in a statement enclosed with the return of income reflected his professional income as under (page 20 of the paper book) :--
Rs.
Gross receipts 31,800 Less : Rs. Juniors' salaries 3,600 Clerk's expenses 2,400 Conveyance 2,700 Books & pencils 750 Rent 900 Travelling expenses 1,350 Sundries 1,500 13,200 18,600
Later on the figure of gross receipts was sought to be explained as under (page 46) :--
Rs.
(1) Cash fees as noted in Diary (Refer annexure-B) 12,600
(2) Fees deposited in Bank (Refer annexure-A -
Summary of Bank credits) 7,650
(3) Surplus of receipts over expenditure on account
of the Maharaja of Bhavnagar 11,550
31,800
The figure of Rs. 11,550 was calculated as follows :
Rs.
Amount received 38,000
Less : Expenses Rs.
Hotel bills 22,050
Junior fees 4,500 26,550
11,450
16. The observations of the ITO in this respect are as follows :--
The assessee has worked out surplus of receipts over expenditure at Rs. 11,550 on account of Maharaja of Bhavnagar. It requires to be mentioned here that the assessee did not furnish any details of gross professional receipts of Rs. 31,800 at the time of filing the return of income. Therefore, the assessee was asked to give break up of this gross receipts during the course of proceedings. During the course of assessment statement on oath the assessee has stated that he had shown Rs. 5,000 as fees received from ex-ruler of Bhavnagar which are included in the gross receipts. Thereafter the assessee furnished details shown the amount of Rs. 11,550 having been received as net receipts from ex-ruler of Bhavnagar. It may be seen from this working of Rs. 11,550 and from the statement of the assessee that this has been apparently done to make up the details of Rs. 31,000 and to cover the omission to show professional receipts received from ex-ruler of Bhavnagar. Even now when the assessee shows net receipt of Rs. 11,550 it is not correct. As according to the assessee, if the expenditure is Rs. 26,550 the net receipt is worked out to Rs. 11,450 and not Rs. 11,550.
17. It is apparent that the amount of Rs. 31,800 has been styled as "Gross receipts" in the statement accompanying the return and from which the assessee has claimed various items of expenditure. The explanation given in the course of assessment proceedings was that the item of Rs. 31,800 included an item of Rs. 11,550 being the "surplus of receipts over expenditure on account of Maharaja Bhavnagar". According to us this explanation lacks credibility since something which was originally described as "gross" could not subsequently become partly "gross" and partly "net".
18. We further observe that the assessee's original version was that out of the fees of Rs, 25,000 received from the Ex-Ruler he had shown only Rs. 5,000 in the year under assessment and "these fees were paid towards consideration for a spread up period." The observations of the ITO in this connection are (page 44) :--
The basis of showing the professional income in the return of income was enquired into from the assessee. In answer to question No. 26 the assessee has stated that it is receipt basis ; i.e. Cash. The assessee has admitted receipt of Rs. 25,000. The assessee has shown only Rs. 5,000 as receipts in the year of account. Therefore, the balance of Rs. 20,000 has not been shown in the return of income according to the assessee. The assessee, however, clarified that the fees were spread over, besides as and when expenses occurred were to be paid out of that money.
According to us, this explanation is at variance with the explanation regarding the net receipts from Maharaja's account quantified at Rs. 11,550 and discussed in the preceding paras. It in effect demolishes the same.
19. The assessee has claimed an amount of Rs. 22,050 on account of "hotel bills" and for purposes of evidence he has placed on record three sheets from the letter pad of the Taj Mahal Hotel. First of all the assessee never reflected this expenditure in the original return. Secondly, he has not been able to prove the nature or the purpose of incurring the expenditure. Thirdly, he has not able to prove the expenditure by proper bills. Even the Ex-Ruler in his statement has mentioned that he has not reimbursed the amount of such bills to the assessee. The ITO while dealing with this issue observes (page 48) :--
The Ex-Ruler in his statement has stated that he has not reimbursed this amount of the Hotel Bills. The assessee was asked to clarify during the coarse of previous hearing under Section 144B as to how these Hotel Bills could be claimed as deduction from his professional receipts. He gave slipshod explanation namely that an amount of Rs. 22,050 relates to expenditure on travelling Hotel Bill and sundry expenses. This claim of expenses are not proved. The assessee has not given any details of so called expenses except what he pointed that the Three Taj Mahal Hotel letter pad. It may be seen from that the assessee gave entirely false statement in the reply claiming deduction of fees as expenses. In the return of income the assessee has claimed expenditure on travelling, conveyance etc. and also the payment of fees to juniors. He has claimed the amount of Rs. 13,200 as expenditure. No other evidence has been produced to prove the extra expenses. The assessee therefore tries to mislead the department by claiming expenses of Rs. 22,050 on account of Hotel Bills. This he has done only to make up net figure of Rs. 11,550 to fit in the total receipts of Rs. 31,800 as shown in the return of income.
20. The assessee has further claimed a payment of Rs. 4,500 to a Junior Counsel and which he was not able to prove in spite of a specific opportunity being given. The finding of the ITO is as under :--
As regards the fees of Rs. 4,500 paid to the Junior Counsel is concerned, the assessee was specifically asked to furnish the confirmatory letter from the Junior Counsel to whom such payments were made. The assessee has not filed any such confirmation from the Juniors. The assessee's plea that expenses of Rs. 4,500 are mentioned in the diary dated 27-3-74 cannot be accepted as proof of payment inasmuch as the assessee did not furnish independent evidence in the shape of letter of confirmation from Junior counsel to whom the fees were alleged to have been paid.
21. The assessee has not been able to bring any reasonable explanation on record to disturb the findings of fact recorded by the ITO. For the sake of argument, if we further accept the version of the assessee that as Rs. 25,000 was the fee for the final conclusion of the Ex-Ruler's case (A-12 in statement recorded by ITO placed on page 19 of dept.'s paper book) then could an expenditure of Rs. 22,050+4,500=Rs. 26,550 over a period of one year itself be reasonable and that too against a receipt of Rs. 25,000 only.
22. The learned CIT(A) while deleting the penalty has relied heavily on the decision given by the CIT(A) while disposing off the quantum appeal. The observations of the CIT(A) in para-6 of the order have been relied upon (reproduced by us in para-7).
23. We would first of all observe that there is no acceptance by the ITO that a sum of Rs. 13,000 was by way of reimbursement of expenditure. We at least do not find even a whisper to this effect in the assessment order. Even presuming that expenditure to the tune of Rs. 13,000 has been reimbursed by the Ex-Ruler it has not been brought on record by the assessee as to the nature of the expenditure reimbursed. It is also a, fact that the Ex-ruler in his deposition and written reply clearly stated that he has not reimbursed the 'hotel bills' pertaining to the Taj Mahal Hotel. We accordingly hold that the assessee's explanation to the effect that the reimbursement of Rs. 13,000 was against the expenditure of Rs. 26,550 was not correct (page 61). We further hold that it is not a case of "unproved expenditure" but a case of "bogus expenditure".
24. Another issue which we would like to refer to is the fact that the order of the CIT(A) in the quantum appeal was not challenged by either side. We do not know the considerations that might have weighed with the department in accepting the order but we can only say that the assessee had much more at stake specially when a charge of "concealment" had been laid at his doorstep.
25. We further hold that the "Explanation" to Section 271(1)(c) squarely applies in this case. The expenditure claimed was not bonafide but bogus. The effect of the Explanation was that where the total income returned by any person was less than 80% of the total income assessed, the onus was on such person to prove that the failure to file the correct income did not arise from any fraud or any gross or wilful neglect on his part and unless he did so, he should be deemed to have concealed the particulars of his income or furnished inaccurate particulars for the purpose of Section 271(1)(c).
26. If an assessee comes within the mischief of the Explanation then a presumption is raised against the assessee that he is guilty of wilful neglect or fraud or gross or wilful neglect as a result of which income has been concealed. However, this presumption is rebuttable, but this must once again be on relevant and cogent material.
27. In the present case, the assessee has not been able to bring any appreciable material on record to rebut the charge of concealment. His explanations at various levels abound with contradictions. The revenue on the other hand has been able to conclusively prove its case and justify the charge of concealment. We would in fact go to the extent of saying that if the diary, etc., had not been seized the assessee would have succeeded in keeping away from the eyes of the revenue the professional income pertaining to the Ex-Ruler.
28. We accordingly reverse the order of the CIT(A) and confirm the levy of penalty (quantum not challenged). The revenue's appeal is allowed.