Income Tax Appellate Tribunal - Ahmedabad
Income Tax Officer vs Virubhai H. Patel on 21 April, 1997
ORDER
B.L. Chhibber, A.M.
1. In ITA No. 5439/Ahd/1991, the only ground raised by the Revenue reads as under :
"The learned CIT(A) has erred in law and on facts in deleting penalty levied under s. 271(1)(c) of the IT Act."
2. The assessee-HUF is the proprietor of Gravity Inter-Continental which manufactures watches and clocks. The Karta of the assessee-HUF Shri Virubhai H. Patel died on 21st March, 1983. Therefore, he was the Karta of HUF when the previous year ended on 15th November, 1982 and the books of accounts for the S.Y. 2038 were prepared. The original return of income for the year under appeal was filed by his son Shri Jayantilal V. Patel as new Karta of the assessee-HUF. The original assessment was completed on 21st March, 1984. Later on, during the course of sales-tax assessment, the STO while making the assessment for S.Y. 2038 held that the goods worth Rs. 2,05,951 were not shown in the closing stock. In pursuance to this information, a survey was conducted under s. 133A of the Act on 5th February, 1988 by the ITO and statement of the present Karta of the assessee-HUF was recorded. Subsequently, action under s. 147 of the IT Act was taken and a revised return was filed voluntarily disclosing the amount of Rs. 2,11,433. According to the assessee the voluntary disclosure was made on a specific understanding that no penalty proceedings or prosecution will be initiated against the present Karta of the HUF. The reassessment was completed on 30th March, 1990 and penalty under s. 271(1)(c) was initiated. In response to show-cause notice it was submitted before the AO by the present Karta of the HUF that the stock was lying in the cupboard of Late Shri Virubhai H. Patel, the then Karta of the HUF who was handling the entire business affairs and, therefore, omitted to be included in the closing stock. It was further submitted that this stock was sold in the asst. yrs. 1984-85 and 1985-86 and the sale proceeds were recorded in those two years. It was further submitted that if the assessee wanted deliberately to conceal the closing stock it would not have declared the sale of the same goods in the asst. yrs. 1984-85 and 1985-86. The AO was not satisfied with the explanation furnished and concluded that it was undisputed fact that the stock worth Rs. 2,11,430 was not declared in the original return of income and declared only when detected by the Department. He, therefore, levied the penalty amounting to Rs. 1,35,651 under s. 271(1)(c).
3. On appeal, the CIT(A) deleted the penalty. He held that the present Karta was not conscious of the fact that certain goods were not included in the closing stock because the same were lying in the cupboard of Late Shri Virubhai H. Patel, the then Karta at that time, and the members of the staff who prepared inventory of closing stock failed to take note of such stock. He accordingly held that no penalty was leviable in view of the ratio laid down by the Hon'ble Madras High Court in the case of Radha Rukmani Ammal vs. CIT (1957) 31 ITR 704 (Mad).
4. Shri V. K. Mathur, the learned Departmental Representative strongly supported the order of the AO. He submitted that the assessee failed to disclose the value of stock worth Rs. 2,11,430 and accordingly the assessee was liable to be penalised under s. 271(1)(c). He further submitted that the penalty levied at the minimum rate was fair and reasonable and accordingly the order of the CIT(A) should be reversed.
4.1 Shri N. R. Divatia, the learned counsel for the assessee strongly supported the order of the CIT(A). He submitted that the declaration of closing stock of Rs. 2,11,430 was voluntary and under specific assurance that no penalty proceedings and prosecution would be initiated. Therefore, the Revenue was not justified in imposing the penalty under s. 271(1)(c). He submitted that during the accounting year i.e. S.Y. 2038 the father of the present Karta was bed-ridden due to bone cancer and had taken treatment in Jaslok Hospital, Bombay and ultimately died on 21st March, 1983. Therefore, he relied wholly on the employees and while taking the stock, the employees considered the stock which was in the factory and did not include the stock which was lying in the cupboard of late Shri Virubhai H. Patel. The deceased Karta kept the stock in his cupboard because the said items were small and tiny items and at the same time very valuable and, therefore, required to be kept under his personal control. Thus the stock was left out from being considered for closing stock purely through oversight and unintentional mistake because of serious illness of the then Karta. Hence there was no intention of concealment. The present Karta had no knowledge of books of accounts of the relevant period because same were prepared by the then Karta Shri Virubhai H. Patel. The present Karta came to know about this only when sales-tax assessment was completed in 1987 and survey under s. 133A was conducted on 5th February, 1988. As soon as he came to know about it, in order to buy peace of mind and avoid protracted litigation he agreed to inclusion of the same for taxation and paid the tax. He, therefore, submitted that no penalty is leviable in view of the judgment of the Madras High Court in the case of Radha Rukmani Ammal vs. CIT (supra).
5. We have considered the rival submissions and perused the facts on record. The penalty proceedings are penal in nature and hence elementary principles of criminal law will apply. It is a quasi-criminal proceeding. There must be conscious concealment. The provisions should be construed strictly. The penalty proceedings are distinct and different from assessment proceedings and the findings in the assessment proceedings are not conclusive but are relevant. The entire materials available should be considered afresh by the authorities before imposing the penalty. Even after the addition of Expln. to s. 271(1)(c), conscious concealment is necessary. The Explanation provides only rule of evidence raising a rebuttable presumption under certain circumstances. No substantive right is created or annulled thereby. The substantive law relating to penalty is preserved. From the facts of the case before us it is obvious that those stock of goods (valuable, small and tiny items to be used in the manufacture of watches) worth Rs. 2,11,430 were not included in the closing stock of the asst. yr. 1983-84 but sales of the same were recorded in asst. yrs. 1984-85 and 1985-86. This peculiar situation lends support to the contention of the assessee that concealment was not deliberate or intentional but because of some specific reasons and peculiar circumstances. At the relevant time, Shri Virubhai H. Patel, the father of the present Karta of the assessee-HUF, who was looking after the accounts, was suffering from bone cancer and was getting treatment from Jaslok Hospital, Bombay. He prepared the books of accounts for S.Y. 2038 relating to assessment year under appeal in spite of his being seriously ill. The present Karta was not conscious of the fact that certain goods were not included in the closing stock because the same were lying in the cupboard of Late Shri Virubhai H. Patel who was the Karta at that time. The members of the staff, who prepared inventory of closing stock failed to take note of such stock being valuable, small and tiny items preserved in the cupboard. He was under a bona fide belief that the books of accounts as prepared by the then Karta were correct and filed return on the basis of such books of accounts. We would, therefore, agree with the learned counsel for the assessee that the ratio of the decision of the Madras High Court in the case of Radha Rukmani Ammal vs. CIT (supra) will apply and the very fact that as soon as the assessee came to know about such omission, he agreed to surrender the same for taxation, shows his bona fides. Further the sales of these goods were declared in the asst. yrs. 1984-85 and 1985-86, the returns for which were filed before the sales tax assessment and the survey under s. 133A.
If there would have been deliberate intention of concealment or furnishing inaccurate particulars of income, the assessee would have not declared the sales of these goods in the asst. yrs. 1984-85 and 1985-86. We are, therefore, of the considered opinion that this is a case of bona fide omission on account of peculiar circumstances of the case and not of concealment. We accordingly decline to interfere and uphold the order of the CIT(A).
6. In ITA No. 5440/Ahd/1991 the only ground raised by the Revenue reads as under :
"The learned CIT(A) has erred in law and on facts in deleting penalty levied under s. 273(2)(a) of the IT Act."
The assessment year involved is 1983-84. As stated supra, the assessment was reopened under s. 147. Prior to introduction of Expln. 2 to s. 139(8) w.e.f. 1st April, 1985, reassessment was not regular assessment and no interest or penalty for advance tax or late filing should be levied as held by the Supreme Court in the case of Modi Industries Ltd. & Ors. vs. CIT (1995) 216 ITR 759 (SC). Accordingly we decline to interfere with the findings of the CIT(A) and dismiss this appeal.
7. In the result, both the appeals, are dismissed.