Income Tax Appellate Tribunal - Chandigarh
Steel Trading Co. vs Income-Tax Officer on 31 December, 1993
Equivalent citations: [1994]49ITD496(CHD)
ORDER
Vimal Gandhi, Judicial Member
1. This appeal by the assessee for the assessment year 1987-88 is directed against the order of DCIT(A) upholding the penalty of Rs.5,870 levied under Section 271(l)(c) of the Income-tax Act.
2. The aforesaid penalty was levied and upheld by the D CIT (Appeals) in the following circumstances. The assessee-firm had sent on consignment weighing machines on a truck to M/s. Bengal Iron Stores, Delhi, on 8-10-1986. The said truck with machine was seized and impounded by the Enforcement Office of Excise and Tax Department, Chandigarh, was subsequently released on payment of fine of Rs.12,500. The books of account of the assessee did not reflect any entry relating to the payment of the above fine. The assessee filed the return showing income of Rs. 41,280 for the relevant period and the same was accepted under Section 143(1) vide order dated 20 November, 1987. Later on, the Assessing Officer got information of payment of penalty of Rs. 12,500. Having found that the aforesaid payment is not shown in the books of account, the Assessing Officer initiated reassessment proceedings by issuing notice under Section 148 of the Income-tax Act on 9-12-1988.
3. In response to the aforesaid notice, the assessee filed a return declaring income of Rs.53777, which included the amount paid as fine. The return was accompanied by a covering letter in which it was explained that amount of Rs.12,500 was being surrendered to buy peace otherwise it was claimed not be income of the assessee, the amount having been contributed by the partners in proportion to shares of profit and not by the partnership firm.
4. The Assessing Officer took up the reassessment proceedings and examined the contention raised by the assessee. In his view, the claim of the assessee that penalty amount was contributed by partners out of their own resources and not by the partnership was a 'story' set up by the assessee as an 'after-thought'. He rejected the claim and treated the disputed sum as having been invested by the assessee from undisclosed sources. The Assessing Officer also initiated penalty proceedings under Section 271(l)(c) of the I.T. Act and called upon the assessee to show cause why the penalty should not be imposed for concealing income of Rs. 12,500 in the original return.
5. The Assessing Officer levied penalty of Rs.5,870 under Section 271 (l)(c) of the I.T. Act vide order dated 30 September, 1990. He once again considered the claim of the assessee in the letter enclosed with the return wherein it was submitted that fine was contributed by the partners out of their own sources and not by the partnership and, therefore, was not accounted for in the books of accounts of the partnership firm. The above claim was once again rejected and held to be a 'story' set up by the assessee as an 'after-thought'. The assessee was held to have concealed particulars of income to the tune of Rs.12,500. The levy of penalty was challenged in appeal before the DCIT (Appeals) who agreed and confirmed the levy and dismissed the appeal of the assessee. The issue has been brought up in appeal before the Appellate Tribunal.
6.1 have heard the parties. I have also examined the material available on record. The learned counsel for the assessee, Shri Ravinder Krishan reasserted the submissions advanced before the lower authorities and drew my attention to the claim made in writing in the letter dated 1 September, 1989 submitted with the return. He further drew my attention to copy of letter dated 14 March, 1990 filed during the course of the re-assessment proceedings. He particularly drew my attention to the portion of letter wherein the assessee had enclosed the explanation with proof relating to payment of Rs. 12,500. made by partners of the firm. Shri Ravinder Krishan further argued that the revenue in the present case brought no material on record to show that assessee-firm made investment of Rs.12,500 out of undisclosed sources and that said amount represented concealed income of assessee-firm. The penalty levied was accordingly claimed to be without material and totally unjustified. Shri Gagan Sood, the learned Departmental Representative, on the other hand, supported the impugned order of DCIT (Appeals). He argued that the assessee had surrendered the disputed amount in the return submitted in response to notice under Section 148 and as such nothing further was required to be proved by the revenue to establish the case of concealment. Shri Sood accordingly submitted that the levy of penalty on facts of the case was fully justified.
7. I have examined the aforesaid rival submissions of the parties. The short question which in my view requires consideration is whether there is material on record to justify that the assessee-firm made investment of Rs. 12,500 from undisclosed sources and the said amount represented concealed income of the partnerships. There is no dispute that the amount in question was paid in the name and on account of the assessee-firm. It can be presumed that amount was invested by the partnership but above presumption was required to be considered along with other material available on record. In the present case it was claimed by the assessee that the amount in dispute was contributed not by the partnership but by partners in proportion to their shares of profit and as fine was not a permissible deduction under the Act in the hands of the firm. The amount was not debited in the books of the firm. This claim had been rejected as a 'story' and as an 'after-thought'. But I see neither legally nor factually justification for rejecting this claim. A firm under the law has no existence separate from the partners and a partner as agent is fully authorised to make payment for and on behalf of the partnership. There is no legal bar against such a payment. Even property of partnership can be purchased in the name of the partners. As such there would be no justification to reject the claim of investment of partners in account of firm without examination. In this case, neither in the assessment order nor in the penalty order, the Assessing Officer has shown any material to justify the conclusion that the claim made is an 'after-thought'. The claim prima facie appears to be a good claim and there is no indication that it is an 'after-thought'.
8. It is true that the assessee in the return filed in response to the notice under Section 148 of the Act surrendered the disputed amount but aforesaid surrender was accompanied with an explanation in which categorical stand taken was that amount is being surrendered to buy peace. The amount was contributed by the partners and not by the firm and the same be not treated as concealed income for the purposes of levy of penalty. This surrender made was conditional and it is a settled proposition that when a conditional offer (surrender) is made by the one party, the offer can be accepted with conditions by the opposite party (here the revenue) and not de hors the condition. The opposite party is always entitled to reject the offer and in case of assessment proceedings, the Assessing Officer is at liberty to collect the material to justify the addition under the law. In all fairness, it has to be held in the present case that the Assessing Officer adopted the second course and instead of accepting the surrender, issued notice under Section 143(2) calling upon the assessee to prove the case pleaded in the revised return. He passed an order rejecting the claim on merit. As already observed, he held the claim to be an 'after-thought'. But the aforesaid conclusion is without any basis or material and is unjustified. In response to notice under Section 143(2) of the Act, the assessee in its letter dated 14 March, 1990 replied to the questionnaire issued on 26 February, 1990 and the relevant portion of reply is as under :
Please find enclosed separately the explanation of sales-tax penalty imposed along with the proof of funds taken for paying of penalty of Rs. 12,500.
The Assessing Officer did not controvert the above claim. In fact, he failed to consider the aforesaid explanation and without placing any material to the contrary rejected the same as an after-thought'. The aforesaid conclusion as already noted is not based on any material and in the light of stand taken by the assessee and evidence led by it cannot be accepted as correct. Thus on material it has to be held that no case for levying penalty has been established by the revenue in the present case. On the contrary, there is material to show that the assessee acted bonajidely and placed all facts and material relating to computation of his total income and the present case is not covered by explanation or by main Section 271(l)(c} of the Income-tax Act. No penalty under the above provision in this case was exigible. For these reasons, levy of penalty is held to be bad in law and is hereby cancelled.
In the result, the assessee's appeal is allowed.