Income Tax Appellate Tribunal - Vizag
Assistant Commissioner Of Income-Tax vs Goutham Public School on 16 September, 2002
Equivalent citations: [2004]38ITD31(VISAKHA)
ORDER
P. Majhi, Accountant Member
1. This appeal is filed by the Revenue against the order of the CIT(A)/Vijayawada dated 28-1-1997 deleting the penalty imposed under Section 271(1)(c). The assessee Firm derives income from running a school called Goulham Public School. It had filed its return of income for the assessment year 1995-96" on 31-8-1995 declaring total income of Rs. 21,140. On 25-10-1995 the department conducted a survey under Section 133(A). During the course of survey it was found that the assessee had collected fee of Rs. 15,48,800 during the academic year 1994-95 relevant for assessment year 1995-96. Besides, an amount of Rs. 40,000 was due to be collected. But in the Return of income it had declared receipt of fees of Rs. 11,10,692. Thus, unaccounted receipts amounted to Rs. 4,38,108. On 31-10-1995 the assessee had filed a revised return admitting additional income of Rs. 4,59,250. In the assessment orders under Section 143(3) dated 15-2-1996 the income declared in the revised return was accepted. Simultaneously the Assessing Officer also initiated penalty proceeding under Section 271(1)(c).
After considering the submissions made by the assessee during the penalty proceedings the Assessing Officer imposed penalty of Rs. 1,85,244 under Section 271(1)(c).
2. In response to the show-cause notice issued by the Assessing Officer the assessee had submitted that the differential amount as worked out above was omitted to be included in the total collections due to the over sight on the part of the Accountant. It was also argued that the omission occurred due to lack of adequate knowledge in accounting principles. It was further argued that the intention was to capitalise the admission fee and spend the same in capital expenditure and therefore, the same was not included. It was further pointed out that since the mistake was not wilful and was only due to lack of adequate knowledge and since the assessee had already offered the amount for taxation no penalty under Section 271(1)(c) should be imposed. The Assessing Officer did not accept the contention. He has observed in the penalty order that the assessee collects three types of fees i.e. monthly fees, term fees, and admission fees. It had duly accounted for the monthly and term fees, but it excluded the admission fees. In the statement on oath the managing partner had initially staled that they collect only monthly fees and terms fees, but when he was confronted with fees structure statement found during the survey he admitted that they collect admission fees also. Thus initially they tried to conceal the fact that they collect admission fees, but subsequently admitted its collection only after the fees structure statement was confronted. In the statement on oath he has admitted that the admission fees collected is neither recorded in any register nor any receipt is issued for such collection. It was also admitted that the additional amount collected on account of admission fees is mostly utilised on personal expenses. In view of these facts the Assessing Officer arrived at the conclusion that the assessee had concealed the particulars of income with mala fide intention to evade taxes. The Assessing Officer also did not believe the assessee's contention that the omission was due to mistake of the Accountant and lack of knowledge of accounting principles since the assessee was an old assessee and was assisted by qualified ITP/Auditors and the contention was dismissed as baseless.
3. On appeal the CIT(A) deleted the penalty considering the fact that the assessee firm had declared the additional income immediately after the survey operation and in the statement of Oath recorded on 25-10-1995, it had agreed to cooperate with the Department and accordingly had requested to take lenient view and not to initiate penalty proceedings. He held that since the addition has been made by the Assessing Officer acting upon the request of the appellant, there was no case of concealment and hence no justification for imposition of penalty under Section 271(1)(c). While giving his finding he also relied on the judgment of the Hon'ble Bombay High Court in the case of CIT v. Kiran & Co. [1996] 217 ITR 326.
4. During the course of hearing it was submitted by the learned DR that the assessee indulged in suppression of receipt in a well calculated manner with a mala fide intention to evade taxes. It was submitted that the declaration of additional income was not at all voluntary but was as a result of the survey operation during which the concealment was established. It was also argued that since the assessee had accounted for two kinds of fees, there was no justification for excluding the 3rd kind of fees. It was further argued that the excuse taken by the assessee about ignorance of law and the mistake on the part of the Accountant cannot be accepted. On the other hand it was submitted by the learned AR of the assessee that initiation of penalty under Section 271(1)(c) itself was illegal inasmuch as the Assessing Officer has failed to record his satisfaction about initiation of penalty. In support of such argument he relied on the judgment of the Hon'ble Delhi High Court in the case of CIT v. Ram Commercial Enterprises Ltd. [2000] 246 ITR 568. As regards merits, it was argued by him that the differences worked out by the department was on estimate only inasmuch as same was based on the fees structure. It was further pointed out that since the payment received on account of admission fee was one time payment, the assessee had bona fide belief that it was in the nature of capital receipt and hence not taxable. It was further submitted that since the assessee had filed declaration on the additional income and had requested not to initiate penalty proceedings, the assessee deserves a lenient view. Accordingly it was argued that the order of the CIT(A) deleting penalty should be upheld.
5. We have carefully considered the submissions made by the rival parties and facts of the case. We find that the assessee never challenged the legality of initiation of penalty proceedings under Section 27l(1)(c) before the lower authorities. But since it is of legal nature it is taken up for consideration. However, we find that the contention of the assessee cannot be accepted. No doubt the satisfaction of the Assessing Officer should precede the issue of notice and the satisfaction is to be recorded in course of assessment proceedings. But there is no statutory requirement that the satisfaction should be recorded in writing. The question whether the Assessing Officer had arrived at such satisfaction or not would have to be decided on facts and circumstances of each case. The formation of satisfaction of the Assessing Officer in course of assessment proceedings is sufficient to form the basis for initiation of penalty proceedings. In the instant case, the narration of facts in the assessment order like unearthing the concealment and inaccurate furnishing of particulars of income during survey operations, admission of earning such income by the assessee, it's disclosure by filing revised return and finally initiation of penalty proceedings under Section 271(1)(c) clearly shows that the Assessing Officer had in fact formed his satisfaction that the assessee had committed an offence which attracts the penalty proceedings under Section 271(1)(c). Therefore, the action of the Assessing Officer of initiating penalty proceedings cannot be faulted and dismissed as illegal. The case law relied upon by the assessee Rani Commercial Enterprises Ltd. s case (supra) is distinguishable on facts inasmuch as in that case the Assessing Officer in his assessment order had merely observed/directed penalty proceedings under Section 271(1)(c) to be initiated separately against the assessee. Where as in the present case the Assessing Officer has in fact formed the satisfaction and initiated penalty proceedings in course of assessment proceedings.
6. As regards the merits, we find that the assessee had concealed the particulars of income in a well calculated and systematic manner as pointed out above. The assessee collects three types of fees, but it accounts only for two types of fees not accounting the third kind of fees demonstrates it's mala fide intention of concealment of income. It is also found that in the statement on oath the managing partner had initially tried to deny the receipt of admission fees, but when confronted with necessary documents he admitted about the receipt and admitted to declare the same as additional income. Such declaration in the Revised Return cannot be called voluntary. If there was no survey operation the assessee would have escaped with the concealed income. We also find no strength in the argument of the learned AR that the assessee had bona fide belief that it was in the nature of capital receipt and hence not taxable. Even if the assessee had such belief about the nature of receipt the same should have been accounted for in the Accounts. But the assessee neither accounts for the same nor issues receipts in support of such receipt. Not accounting for the same shows it's mala fide intention.
7. The learned CIT(A) has treated the declaration of additional income as if it was a result of settlement, but we find no such settlement between the Department and the assessee. On the other hand the concealed income was worked out on the basis of materials found during survey operation to which the assessee had also no dispute. It had no alternative but to declare the same as income. We also find no merits in the contention of the AR that the additional income worked out was only on estimate basis as correct amount of concealed income was arrived at from fee structure statements. We are also of the view that the Assessing Officer has rightly rejected the assessee's claim that the assessee omission was on account of the mistake committed by the Accountant and ignorance of accounting principles. We find that the assessee is blowing both hot and cold, at the same time. On the one hand it argues that the omission was committed due to mistake of Accountant and ignorance of accounting principles, but on the other hand it says that the omission was due to bona fide belief that it was not to be accounted for since it was a capital receipt.
8. While deleting the penalty the honourable CIT(A) has relied on the judgment of honourable Delhi High Court in the case of Ram Commercial Enterprises Ltd. (supra). But we find it is distinguishable on facts and not applicable to the case of assessee. In the raid case stock discrepancy was found during search operation. The assessee made a conditional offer of settlement in a letter to the Assessing Officer staling that due to strike and other difficulties the stock register could not be properly maintained and hence no penalty was leviable. In the same conditional letter of settlement the assessee had also stipulated that even if penalty is leviable the same should be waived by CIT under Section 273A. However, the Assessing Officer levied the penalty. The IT'AT deleted the penalty on the ground that the only material before I.T. authorities for imposition of penalty was the conditional letter of settlement and the Revenue has not discharged its onus to prove that the assessee had concealed its income. The honourable High Court rejected the reference application filed by the Revenue and held that the finding arrived by the ITAT was only a finding of fact. However, in the present case the Revenue has conclusively established that the assessee had concealed its income. The disclosure of additional income in this case cannot also be treated as voluntary.
9. Similarly the orders of ITAT Indore Bench in the case of Asstt. CIT v. Oriental [1995] 52 ITD 631 and Nagpur Bench in the case of M.P. Agricultural Corporation v. IAC [1993] 46 TTJ 399 relied on by the learned AR of the assessee are also distinguishable on facts. In the case of Oriental the assess had offer income in assessment years 1982-83 and 1983-84. The Assessing Officer assessed them in these years on proportionate basis as he believed that such income is to be considered in assessment year 1985-86. He also imposed penalty under Section 271(1)(c) in assessment years 1982-83 and 1983-84 on the incomes assessed on protective basis. The ITAT held that penalty could not be levied on protective assessment as there could not be any protective penalty. In the case of M.P. Agricultural Corporation the ITAT Nagpur Bench deleted the penalty holding that penalty could not be imposed on the basis of finding of CIT(A) and when no definite concealment was found out. On the other hand in the case of present assessee there is no levy of protective penalty but penalty has been levied on the definite concealment found out by the Assessing Officer during the survey operation.
10. In view of these facts we are of the considered opinion that the CIT(A) was not justified to delete the penalty. It is a fit case in which penalty under Section 271(1)(c) is to be levied. Accordingly we set aside the order of CIT(A) and upheld the order of Assessing Officer.
11. In the result the appeal is allowed.