Income Tax Appellate Tribunal - Chandigarh
Ripudaman Singal vs Income Tax Officer. on 26 April, 1995
Equivalent citations: (1996)55TTJ(CHD)396
ORDER
N. K. AGRAWAL, J. M. :
These are two appeals by two assessees, with identical names, relating to asst. yr. 1988-89. Since the issues involved are common and both the assessees are sister concerns, these appeals are being decided by this consolidated order, for the sake of convenience.
2. The assessees have challenged the levy of penalty under s. 271(1)(c) of the IT Act. In ITA No. 1629, the assessee-firm, consisting of three partners, filed a return declaring total income at Rs. 91,360. Assessment was completed under s. 143(3) on an income of Rs. 6,90,850. In ITA No. 1630, the assessee-firm had two partners and return was filed declaring total income at Rs. 59,730. Assessment was completed under s. 143(3) on a total income of Rs. 5,23,625. Both the firms, with identical names but different constitution, derived income from contract work, as building contractors. The Assessing Officer (AO) in both the cases did not find the book results as appropriate inasmuch as proper and regular books of account had not been maintained. The expenditure was not verifiable, in the absence of vouchers. Gross profit rate of 10% was adopted on gross receipt and the assessment made accordingly. Since there was a difference between the returned and the assessed income in both the assessments, penalty notices were issued under s. 271(1)(c). In ITA No. 1629, penalty of Rs. 3,13,825 was levied and in ITA No. 1630, penalty of Rs. 2,38,265 was imposed.
3. The learned counsel has contended that no income as such had been concealed by the assessees nor detected by the AO. The book version has been rejected simply for the reason that the assessee has not maintained proper vouchers. But this is said to be not an incidence of concealment of income. Only a higher gross profit rate was adopted so as to arrive at the income. Though the gross profit rate was upheld in appeal, but that alone would not make out a case of positive concealment against the assessees. In the absence of any deliberate and wilful act on the part of the assessees, the charge of concealment is said to be unfounded. The learned counsel has vehemently argued that simply because income returned and the income assessed showed a wide margin, that alone should not be a ground to impose the penalty on the charge of concealment of particulars of income. The assessee is said to have shown similar profits in earlier assessment years and the profits were accepted under s. 143(1). The accounts are said to be audited.
4. The learned Departmental Representative has, in reply, submitted that the assessee did not reflect correct and true profits in the return of income and profit rate of 10% was applied. That has been upheld by the Tribunal also. The learned Departmental Representative has supported the levy of penalty, in both the cases.
5. The learned counsel has further pointed out that it was only on account of suspicion that impelled the AO to proceed against the assessee for levy of penalty. Simply because certain expenses were not supported by vouchers, this would not give rise to a conclusion that the assessee had shown fictitious claims. There is nothing on record to show that the assessee had made bogus or false claims. There is no finding that the vouchers produced by the assessee were bogus or false documents. Our attention has been drawn to the three decisions of the Allahabad High Court - one in the case of CIT vs. Nadir Ali & Co. (1977) 106 ITR 151 (All), the second in the case of CIT vs. Harnam Singh & Co. (1977) 106 ITR 532 (All) and the third in the case of CIT vs. Musaddi Lal Singh (1977) 106 ITR 672 (All) - for the proposition that where the assessee maintains his accounts honestly and believing them to be sufficient, the assessee could not be held guilty of gross or wilful negligence in maintaining the books or filing the return. Enhancement of income by applying higher rate of profit would itself not prove the charge of fraud or wilful neglect against the assessee. The learned counsel has, on the strength of the ratio of the aforesaid three decisions, submitted that in the case of the assessee also there is no definite material on record to indicate that the assessee had concealed its income. In the earlier five assessment years the assessees book results had been accepted under s. 143(1). By simply applying a higher gross profit rate in this year, the Revenue was not entitled to draw a conclusion that the assessee had wilfully concealed the particulars of his income. Reliance is also placed on two decisions of the Gauhati High Court - one in the case of CIT vs. Chhaganlal Shankarlal (1975) 100 ITR 464 (Gau) and the other in the case of CIT vs. Madhab Ram Bora (1977) 110 ITR 532 (Gau), wherein it has been held that where income is taxed on percentage of turnover, after making an increase in percentage, that increase could not be treated as a basis for holding that the assessee had concealed the income. The AO had calculated profit at a higher rate but there was nothing to show that the assessee was guilty of fraud, etc., in making the return. The Gujarat High Court had also an occasion to examine a similar matter in the case of CIT vs. S. P. Bhatt (1974) 97 ITR 440 (Guj). There also, the AO had assessed the income at a higher percentage because the assessee had failed to maintain proper record. It was held that for applying s. 271(1)(c), the AO should be satisfied that the assessee had concealed the particulars of his income. Simply because the AO found it difficult to accept the figure of profit appearing from the books of account maintained by the assessee, there could not be any conclusion that the failure to return the total assessed income was on account of any fraud or wilful neglect on the part of the assessee. Similar view has been taken by the Bombay High Court in the case of CIT vs. Devandas Perumal & Co. (1983) 140 ITR 943 (Bom). That was also a case where the AO had made an estimate of profit because proper account books had not been maintained and there was no check on the expenditure and the purchase price paid. The Tribunal found that the assessee had maintained the books in such a manner as was practicable for the assessee. The Madhya Pradesh High Court has also, in the case of J. A. Trivedi Bros. vs. CIT (1986) 158 ITR 705 (MP), held that the penalty cannot be impugned where there was no finding regarding concealment. Our attention has also been drawn to the decision of the Punjab & Haryana High Court in the case of CIT vs. Metal Products of India (1984) 150 ITR 714 (P&H) for the proposition that where addition was made merely on the basis of an estimate, there can not be raised a presumption that failure to refund the direct income had arisen from any fraud or wilful neglect. In that case, addition had been made on the ground that the G. P. shown in the books of account was too low as there were defects in the method of accounting employed. It was held that it did not automatically lead to the conclusion that there was failure to return the correct income by means of fraud or gross or wilful neglect. The learned counsel has contended, on the basis of the aforesaid decision, that in the case of the assessee also, simply a higher rate of profit was adopted at 10%, as against 1.28% shown by the assessee. But that alone should not be treated to be a case of concealment of income. The learned counsel has drawn our attention to the Tribunals order dt. 16th Nov., 1994 in quantum appeal, wherein the rate of 10% adopted by the AO was upheld, after looking into the expenses which were not properly vouched. The learned counsel has submitted that the Tribunal has upheld the rate of 10%, after noticing that the wages paid to the labourers had not been supported by proper vouchers. The finding given by the Tribunal is also to the effect that the payments and the expenditure were not supported by vouchers and book results had been rejected. The learned counsel has submitted that there is no finding to the effect that the assessee had wilfully and deliberately concealed the income.
6. We have considered the rival contentions and we are of the view that in the light of the judicial pronouncements, on which reliance has been placed by the learned counsel, no case of concealment is made out. It was a case where the books of account were found to have not been properly maintained. Though the books had been maintained and the accounts audited, the AO did not find sufficient vouchers for verification of the expenses. In that view of the matter, the book results was not accepted and the profit rate of 10% on gross receipts was applied. We have already seen that in the earlier five years, assessments had been made under s. 143(1) on the same book results. In ITA No. 1629, the assessee had shown the rate of profit at 0.96% in asst. yr. 1986-87; whereas the rate has been shown at 1.28% in the year under appeal. Similarly, in ITA No. 1630, the assessee has shown profit rate at 1.64% in this year, as against 1.91% in asst. yr. 1986-87. The assessee has been showing a consistent rate of profit in these years. Though it is correct that in the year under appeal, the book results have been rejected for the first time, but that alone would not make out a case of concealment of income. We are of the view, in the light of the above judicial pronouncements, that the penalty cannot be levied. It is a case where the books of account have been maintained, though the expenses were found to be not verifiable, in the absence of vouchers. That was the reason why book results were rejected and the rate of 10% adopted. It is not a case where any income was detected from the books or from any other material on record. In these circumstances, it is only suspicion on which the concealment charge is based. Therefore, both the penalties are deleted.
7. In the result, both the appeals stand allowed.