Calcutta High Court
Commissioner Of Income Tax vs Star Paper Mills Ltd. on 16 September, 1991
Equivalent citations: (1992)108CTR(CAL)224
JUDGMENT
AJIT K. SENGUPTA, J. :
In this reference under s. 256(2) of the IT Act, 1961 for the asst. yr. 1976-77 the following question of law has been referred to this Court :
"Whether, on the facts and circumstances of the case, the Tribunal was justified in cancelling the penalty of Rs. 1,25,000 under s. 271(1)(c) of the IT Act, 1961 ?"
2. Shortly stated the facts are that the assessee had disclosed an income of Rs. 3,40,91,566. The total income was computed by the ITO at Rs. 2,63,86,000 on 21st January, 1980. The assessee being aggrieved went in appeal before the CIT(A) and the Tribunal, and after the order of the Tribunal the total income was determined at Rs. 3,53,25,310. The ITO initiated penalty proceedings in the course of assessment under s. 271(1)(c) of the Act and issued notice to the assessee. The assessee filed various replies and, in short, the assessee indicated that it did not conceal any income or it filed any enaccurate particulars of income. The variation in the total income assessed and finally determined had arisen due to various disallowances made by the ITO. The ITO did not accept the assessees contention. He discussed each addition and disallowance in the assessment order finally sustained by the Tribunal and, therefore, he found that the assessee concealed income withing the meaning of s. 271(1)(c) of the Act as follows :
Rs.
1. Repairs to buildings 1,00,000
2. Barbad wire fencing 32,585
3. Fire hydrant expenses 19,700
4. Closing stock discrepancy in wrapper paper 25,000
5. Shortage in kokat wood account 1,00,000
6. 80J allowance 2,48,013
7. Difference in depreciation 1,11,624 6,37,225
3. Accordingly, the ITO calculated the tax on the said income and, consequently, imposed a penalty of Rs. 3,67,997.
4. The assessee came up in appeal before the CIT(A) and reiterated the arguments made before the ITO that no concealment of income had been made by it and all the additions and disallowances were made by mere disbelieving the explanation of the assessee. It was further submitted that it had not been proved that the aforesaid amounts were not spent by the assessee or that the assessee had concealed the income under the above heads. The CIT(A) by discussing all the items felt satisfied about item numbers 1, 2, 3, 6 and 7. But he, after considering the order of the Tribunal in the quantum appeal, found that the assessee concealed the following particulars :
(1) Closing stock discrepancy in wrapper paper, and 25,000 (2) Shortage in kokat wood account 1,00,000
5. The CIT(A) did not consider the quantum of penalty. He totally reduced the penalty imposed by the ITO by Rs. 1,25,000. In other words, the penalty was sustained at Rs. 2,42,997 (Rs. 3,67,997 minus Rs. 1,25,000). It is relevant to mention at this stage that the addition in respect of closing stock of wrapper paper and shortage in kokat wood account was made by the ITO at Rs. 1,24,000 and Rs. 2,10,000 respectively. These additions were deleted by the CIT(A). The Department came up in appeal before the Tribunal and the Tribunal vide its order dt. 5th November, 1985 in ITA No. 528(Cal)/83 found that there was no discrepancy with regard to the papers pledged with Hindusthan Commercial Bank Ltd. Therefore, the addition of Rs. 84,098 on this account was deleted by the CIT(A). Another addition of Rs. 40,000 in respect of the paper pledged with the Bank of Baroda was also deleted by the CIT(A).
6. The finding of the CIT(A) on this issue was modified by the Tribunal. The Tribunal after considering the facts and quantity wise details were not available, maintained a token addition of Rs. 25,000. The Tribunal maintained the addition of Rs. 1,00,000 made in respect of shortage in kokat wood account on the ground that the shortage shown by the assessee during the year under consideration was 25% whereas it was 10% in the immediately preceding year.
7. After considering the facts and circumstances of the case, the Tribunal came to the conclusion that the assessee neither concealed its income nor filed inaccurate particulars of its income. The Tribunal, therefore, deleted the penalty.
8. Before us Mr. Mitra, learned Counsel appearing for the Revenue has contended that since the Tribunal has sustained the disallowance to the extent of Rs. 4,25,000 it follow that the assessee concealed the particulars of its income or filed inaccurate particulars of its income. It is his contention that the Tribunal did not advert to the facts that when the additions are sustained without rejecting the explanation of the assessee there could not be any reasonable ground of not sustaining the penalty where no further explanation was put forward by the assessee. He has relied on a decision of the Gujarat High Court in the case of Garden Silk Weaving Factory vs. CIT reported in (1988) 172 ITR 575 (Guj). In that case the assessee-firm carried on the business of manufacture of cloth. It purchased yarn from the local market and also imported the same. It filed its returns for the asst. yr. 1968-69 and a revised return showing a profit of Rs. 3 lakhs from the sale of import licences. An addition of Ts. 5,67,523 was made to the income of the assessee by the ITO in respect of profits on goods imported and sold. The AAC reduced the addition to Rs. 5,28,547 which was upheld by the Tribunal. The AAC and the Tribunal sustained the addition of Rs. 5,28,547 after examining various statements and the evidence on record. It was after examining the evidence on record that the AAC and the Tribunal rejected the assessees contention that it had sold the import licence for of Rs. 3 lakhs. It was found that the assessee itself had imported yarn and sold it. Penalty was levied under s. 271(1)(a) of the IT Act, 1961 and this was confirmed by the Tribunal. On a reference, it was contended on behalf of the assessee had filed a revised return voluntarily showing an income of Rs. 3 lakhs in response to an advertisement by the CBDT in the newspaper dt. 5th January, 1971, wherein it was stated that if the original return filed by the assessee was false, he might file a revised return to avoid the consequences of discovery and, therefore, no penalty could be levied of the assessee.
9. In that case the Gujarat High Court held that the mere fact that the revised return had been filed voluntarily and in response to an advertisement by the CBDT was of no help to the assessee because what was disclosed in the revised return was not true. Instead of disclosing the profit earned by it by sale of yarn, it disclosed only part of its profit by falsely stating that it was earned by sale of import licences. Once it was found that the assessee had concealed the income of Rs. 5,28,547 and had furnished inaccurate particulars in respect thereof, the imposition of penalty was justified.
10. On the other hand the contention of Mr. Bajoria, learned Counsel for the assessee is that in case the addition was made not on the basis of any finding of fact of the Tribunal that the expenditure claimed by the assessee was fraudulent or unsustainable but merely on the basis of the estimate as a token which would be apparent from the finding of the Tribunal. He has also submitted that no penalty can be imposed merely by not accepting the explanation of the assessee. His contention is that none of the findings of the Tribunal have been challenged in this particular case and, accordingly, on the facts found by the Tribunal the answer to the question referred is obvious.
11. We have considered the rival contentions. In this case none of the findings of the Tribunal have been challenged by the Revenue. The Tribunal has considered the facts and circumstances of the case with regard to the addition sustained amounting to Rs. 1,25,000 with reference to which imposition of penalty was sought to be justified. It is necessary, therefore, to reproduce the findings to the Tribunal in support of the rival contentions. The findings are as follows :
"The penalty has been restricted by the CIT(A) on the additions of Rs. 25,000 and Rs. 1,00,000 made in respect of closing stock discrepancy in wrapper paper and Shortage in kokat wood account respectively. The ITO imposed a penalty of Rs. 3,67,997 on the additions and disallowances finally settled by the Tribunal on seven items mentioned above. The CIT(A) was satisfied in respect of five items and accordingly he restricted the penalty in respect of two items only. The assessee pledged papers with Hindusthan commercial Bank and Bank of Baroda. The assessee was producing huge quantity of papers. Qualitywise details by the bank, according to the assessee were maintained. Some discrepancy was found. The ITO made two separate additions in this account Rs. 84,000 and Rs. 40,000. Both these additions were deleted by the CIT(A). However, the deletion of Rs. 84,000 made by the CIT(A) has been maintained by the Tribunal, and out of the additions of Rs. 40,000 a taken addition of Rs. 25,000 was maintained by the Tribunal. Therefore, it is clear that the ITO made the additions disbelieving the explanation of the assessee. The CIT(A) accepted the explanation of the assessee in toto and the Tribunal accepted the explanation of the assessee in part. If these facts are taken into consideration, simply because some addition has been sustained, it cannot be said that the assessee concealed its income. It is the case where the assessees explanation has been accepted in part. When the explanation of the assessee is found to be true, even in part, it cannot be said that the assessee concealed its income, especially when the Tribunal confirmed the deletion of addition of Rs. 84,000 and confirmed the addition of Rs. 25,000 out of Rs. 40,000 made by the ITO. IT is only an honest belief on which the addition was maintained or deleted by the Tribunal. On these facts, no penalty could be imposed."
"The second addition has been made on account of Shortage in Kokat Wood Account. During the year, the shortage was valued at 25%. The assessee was getting wood from forest. It was being weighted at forest Site and also at the mills gate. The difference in weight was claimed by the assessee as shortage. Shortage was allowed by the ITO to some extent and for the balance shortage the ITO made an addition of Rs. 1,00,000. The CIT(A) was satisfied that there were various reasons for shortage in wood. The main factors for shortage were pilferage, driage and loss in transit. After considering the facts the addition was deleted by the CIT(A) and the Tribunal, however, maintained the addition considering the rates of shortage shown by the assessee in earlier years. The penalty on this ground was sustained by the CIT(A) only because the addition was maintained by the Tribunal. The assessee has submitted the reasons for shortage. Therefore, simply because the shortage during the year under appeal was high, it cannot be said that the assessee concealed its income. It has not been established that by showing higher shortage the assessee, in any way, took away the income which ordinarily should have been shown in the accounts. consequently, it is clear that the penalty was sustained by the CIT(A) by merely disbelieving the explanation of the assessee. Under the said circumstances, after considering the facts, arguments and the case laws cited by the parties, it is concluded that the assessee, in no was, concealed its income nor it filed inaccurate particulars thereof. Consequently, the penalty of Rs. 1,25,000 sustained by the CIT(A) is cancelled."
12. In our view, on those findings of the Tribunal, which have not been challenged, it cannot be said that the facts warranted imposition of any penalty with reference to the additions made of Rs. 1,25,00 in the assessment. The decision cited by Mr. Mitra has no application to the facts of this case. There the Gujarat High Court proceeded on a different facts altogether. The Tribunal has specifically recorded that a token addition of Rs. 25,000 in respect of closing stock discrepancy was maintained by the Tribunal. Similarly an addition of Rs. 1,00,000 was sustained in respect of kokat wood account considering the rates of shortage shown by the assessee in earlier year, and not on the findings that as a matter of fact the assessee claimed shortage which in fact did not occur. It was the finding of the Tribunal that the shortage was allowed by the ITO to some extent and the balance was sustained by the Tribunal on the basis of the estimate made having regard to the shortage of the earlier year. On these facts if the Tribunal accepted the explanation of the assessee in part and considered the explanation as reasonable and bona fide, we do not find any reason to differ with the reasonings and conclusions of the Tribunal on these facts. We, therefore, answer the question referred to us in the reference in the affirmative and in favour of the assessee.
13. There will be no order as to costs.
SHYAMAL KUMAR SEN, J. :
I agree.