Income Tax Appellate Tribunal - Cochin
A. Sreenivasa Pai vs Income Tax Officer. on 15 March, 1993
Equivalent citations: (1993)47TTJ(COCH)163
ORDER
G. SANTHANAM, A. M. :
This is an appeal by the assessee against the levy of penalty under S. 271(1)(c) of the IT Act, 1961.
2. The appellant is a registered firm engaged in the purchase and sale of provision goods, mainly rice and sugar. It had filed its return of income on 29th June, 1987 declaring a taxable income of Rs. 2,77,698. The case was posted for hearing on 29th Sept., 1987 on which date the assessees Chartered Accountant was present. However, the case was adjourned to the following day. On the day of hearing the following order sheet entries were made :
"Sri Sasidharan, Chartered Accountant is present. A perusal of the ledger entries shows that purchases made in June, 1986 are not seen paid till the close of the accounting year. For example, the credit balance of Rs. 44,090 in the account of Gorantala Yadagiri & Co. (LF 526 - Ledger A II) is accounted as in respect of purchase Bill No. 5890 dt. 25th June, 1986. There is every possibility of having paid the consideration before the close of the accounting year. Similar credit balances have to be verified for which purpose, books produced are impounded under S. 131(3). Initial of the ITO dt. 30th Sept., 1987".
3. Subsequently, on 5th Oct., 1987, the ITO requested for the sanction of the learned CIT, Trivandrum, for the continued retention of the books in the following terms :
"No. 46-006-FZ-9428/QLN(A) ITO, Quilon Date : 5th Oct., 1987.
To The Commissioner of Income-tax, Aayakkar Bhavan Kowdiar, Trivandrum Sir, Sub : Income-tax assessment of M/s. A. Sreenivasa Pai, Quilon - Asst. yr. 1987-88 - Retention of books impounded - Request for The assessee firm follows Malayalam Year as its accounting period. For the year ended 16th Aug., 1986 it had declared a net income of Rs. 2,77,698. From a perusal of the Ledger Folio of the creditors for goods supplied, it is noticed that payment is not seen made in respect of purchases effected even in June, 1986. Since it is very uncommon to the supplier to keep the sale price with the assessee for such a long period, genuineness of the entries in the account of the supplier of the assessee has to be verified. The suppliers are located at Andhra Pradesh, Rajasthan, etc. Collection and verification of details from these suppliers will take some time. The following books of accounts were impounded on 30th Sept., 1987 for scrutiny of the correctness of the entries as mentioned above.
(1) Day book for the Malayalam year 1161 4 Nos.
(2) Ledger for the above period A-2 B-2 5 Nos. C-1 (3) Purchase bills files 2 Nos. The 15 days time available for retention expires on 21st Oct., 1987. Commissioners sanction for continued retention of these books of accounts till 30th June, 1988 is solicated.
Yours faithfully, Sd/ -
(N. Raghavan) Income-tax Officer, A-Ward, Quilon."
Subsequent order sheet entries are as follows :
"6th Oct., 1987.
Summons issued and letters issued to different concerns where from the assessee had purchased rice and sugar during the previous year ended on 31-12-1161 (M. E.) Initial of the ITO with date 9th Oct., 1987.
21st Oct., 1987.
Summons issued to M/s. Lokeswari & Co., Guppa Viswanathan Gupta and Srinivasa Rice and Oil Mills. Initial of the ITO with no date Revised return filed on 16th Oct., 1987 offering Rs. 3,24,650 under the head other sources is filed in the folder. Initial of the ITO with date 23rd Oct., 1987.
Details of DDs and TTs purchased by the assessee and collected from the Bank.
Dt. 16th Jan., 1988.
Enquiries would appear to have been made with the bank about the purchase of Demand Drafts by the assessee and some details about the same are found in Inspectors report dt. 14th Oct., 1987. None of these activities were made known to the assessee. In the meanwhile, the assessee filed a revised return on 16th Oct., 1987 (on which date it had also been served with a copy of the proceedings of the CIT dt. 12th Oct., 1987 sanctioning continued retention of the books of accounts by the ITO) offering an additional income of Rs. 3,24,650 under the head other sources with the remarks "offered for assessment without proper explanation."
4. Subsequently, on 19th Jan., 1988, the ITO had called for a compilation of peak credits in respect of the additional amount offered by the assessee in the revised return. By another letter dt. 28th Jan., 1988, the ITO proposed to fix the peak credit at Rs. 4,50,359 as against Rs. 3,24,650. Thereafter, the ITO passed the assessment order accepting the additional income of Rs. 3,24,650 as offered by the assessee in the revised return as against the proposed addition of Rs. 4,50,359. In other words, the ITO after verification found that the assessee has correctly computed the peak credit at Rs. 3,24,650 which he had surrendered for assessment. At the same time, he held the view that the revised return filed by the assessee admitting a higher income (which was accepted in the assessment) cannot be treated as a voluntary one as the same was filed by it only after the Department had started enquiries with regard to the credit balances and with regard to the DDs accounts. In this view of the matter, penalty proceedings under S. 271(1)(c) were initiated. The assessee objected to the levy of penalty in its letter dt. 27th Feb., 1988. The learned ITO did not accept the contentions of the assessee. He held the view that the second return filed by the assessee on 16th Oct., 1987 cannot be construed as a revised return under S. 139(5) of the IT Act as the same was filed after the Department has started making enquiries. The mere fact that the additional income offered by the assessee was accepted by the Revenue cannot absolve the assessee of the liability for penalty in the light of the decision of the Madras High Court in CIT vs. Krishna & Co. (1979) 120 ITR 144 (Mad). In this view of the matter, he levied 100% penalty on the amount of tax sought to be evaded.
5. The assessee carried the matter in appeal. The learned CIT(A) after adverting to the circumstances in which the second return was filed by the assessee, upheld the view of the ITO that the second return cannot be treated as a revised return satisfying the provisions of S. 139(5) of the Act. He rejected the contention of the assessee that the facts in the decision of the Madras High Court reported in (1979) 120 ITR 144 (Mad) (supra) were different from the facts of its case. He wondered whether the assessee would have come forward with disclosure of additional income if the Department had not initiated enquiries with the parties or with the banks with which the assessee was concerned. Therefore, the filing of the second return is not voluntary and was not inspired by bona fide motives. For these reasons, he upheld the levy of penalty. The assessee is on second appeal.
6. Sri K. Ramalinga Iyer, the learned Chartered Accountant, after adverting to the facts and circumstances of the case, emphasised that the Department has not unearthed anything as against the assessee and it was the assessee who had come forward with a voluntary disclosure of income in the course of the assessment proceedings and, therefore, penalty is not exigible in this case and he relied on the following decisions :
(i) J. P. Sharma & Sons vs. CIT (1985) 151 ITR 333 (Raj)
(ii) Triveni Concerns vs. ITO (1992) 40 ITD 213 (Pune)
(iii) M. P. Agricultural Corpn. vs. IAC (1993) 44 ITD 466
(iv) A. V. Joy, Alukkas Jewellery vs. CIT & Ors. (1990) 185 ITR 638 (Ker)
(v) Sir Shadilal Sugar & General Mills Ltd. & Anr. vs. CIT (1987) 64 (1987) 168 ITR 705 (SC)
(vi) CIT vs. Dr. Kumari M. Dubey (1988) 171 ITR 144 (MP)
7. Sri C. Abraham, the learned Senior Departmental Representative urged that the assessee could not have come forward with a disclosure of higher income as it did, but for the steps initiated by the Revenue and viewed in this context it cannot be said that the assessee had acted honestly in submitting the original return. His other submission was that the second return filed on 16th Oct., 1987 admitting higher income is a non est return because it was not in connection with the discovery of any accidental omission or commission in the original return. Even otherwise penalty was lawfully leviable in the ratio laid down in the following cases :
(i) K. P. Kandaswami Mudaliar & Sons vs. CIT (1985) 156 ITR 638 (Mad)
(ii) CIT vs. Krishna & Co. (1979) 120 ITR 144 (Mad)
(iii) Union Engineering Co. vs. CIT (1980) 122 ITR 719 (Ker)
(iv) CIT vs. Haji P. Mohammed (1981) 132 ITR 623 (Ker)
(v) F. C. Agarwal vs. CIT (1976) 102 ITR 408 (Gau)
8. Thus we heard rival submissions and perused the records furnished before us including the assessees paper book and that of the Department. The facts of the case have been narrated in paragraphs 2 to 4. Though the ITO seems to have entertained doubts about the credit balances of one Gorantala Yadagiri & Co., and wanted to verify similar other credit balances in the books, and though summons and letters were stated to have been issued to different concerns wherefrom the assessee had purchased sugar and rice during the relevant previous year, it has not been shown before us that the assessee was in the knowledge of the contents of the order sheet entries regarding the suspicions and surmises drawn therefrom by the ITO. There is nothing in the order sheet entries to show that the ITO has revealed his mind either to the assessees representative, who has appeared before him on the day of hearing, or to the assessee itself. There is no material before us to say that the summons were, in fact, served on the parties before the assessee filed the second return of income offering additional income. There is also nothing on record before us to say that the assessee was in the knowledge of the enquiries made by the IT Inspector. Sri Abraham vehemently contended that the IT Inspector has submitted his report on 14th Oct., 1987 which would mean that he would have visited the banks on or before that date making enquiries about the assessee and the assessee might have got wind of the same, as a result whereof he had rushed with the second return of income offering additional income. We are afraid that we would be entering into hypothetical situations if we were to accept the attractive argument of Sri Abraham. For one thing there is nothing on record to show that the banks visited by the IT Inspector have in turn relayed the message to the assessee about the enquiries made with them. For another, even though the Inspectors report is dt. 14th Oct., 1987, it has not been mentioned in the order sheet until after 23rd Oct., 1987. Therefore, we hold that whatever might have happened behind the back of the assessee, the assessee was unaware of the same till it filed the second return on 16th Oct., 1987 surrendering a further sum of Rs. 3,24,650. From the sequence of events and the narrations found in the order sheet entries we hold that the Revenue had not stumbled upon any clinching evidence to arraign the assessee before the assessee filed the second return. We, therefore, hold that the second return filed by the assessee has to be construed as a return admitting voluntary disclosure of higher income before the same was detected by the Revenue.
9. Even after examination of the books of accounts, though initially the ITO had proposed a higher amount of Rs. 4,50,359 by his letter dt. 28th Jan., 1988, ultimately he had abandoned the proposal and accepted the same figure of Rs. 3,24,650 as surrendered by the assessee. Thus, we hold that the disclosure made by the assessee in the second return was full and complete and in the light of the full disclosure of income in the second return voluntarily, prior to the detection by the Department, the charge of concealment cannot be laid against the assessee.
10. Sri Abraham vehemently contended that the second return cannot be construed as a revised return in the light of the decision of the Kerala High Court in Union Engineering Co. vs. CIT (supra). In that case the facts were that for the asst. yr. 1961-62, the assessee filed its return on 30th May, 1962, showing a total income of Rs. 23,947. In November, 1965, the assessee produced the books of account for the year ending 31st May, 1960, in which the ITO found manipulations to a considerable extent by short-crediting the sales. The assessee explained that the products manufactured by it from 1st June, 1959 to 12th May, 1960, were out of stocks taken on loan from two persons. The ITO issued summons to those two persons to appear before him with books of account for the relevant year. On 29th Dec., 1965, the assessee wrote to the ITO asking him not to examine the two persons and admitting the variance between the stocks declared for assessment purposes and the actual stock, and also furnished details of the stock not accounted for in the books of account. The assessment was completed by the ITO on a total income of Rs. 56,006, which was reduced, as a result of appeals, to Rs. 50,206. On these facts, the Honble High Court held that since it was only after the ITO had issued summons to the two persons mentioned by the assessee, that the assessee wrote asking the ITO to drop the examination of the two persons and admitting the discrepancy between the stock declared and the actual stock and filed the revised return, it could not be said that the revised return was a voluntary one under S. 139(5) of the Act and the Tribunal was correct in not having taken the revised return into account. The imposition of penalty was, therefore, valid. Sec. 139(5) did not cover a case, such as this, of a return practically forced on the assessee under imminence of the imposition of penalty. Admittedly, the facts of the case before us are clearly distinguishable. For one thing, the ITO did not level charges of manipulation at any time before the filing of the second return in the case of the assessee unlike in the case cited supra. For another, it was not in the knowledge of the assessee that summons were issued to the parties unlike in the other case. Lastly, in the other case it was the assessee who had requested the ITO to drop examination of the parties concerned offering to surrender additional income. Further in that case the income determined was much more than what was offered by the assessee. Such circumstances are conspicuous by their absence in the case of the assessee. Hence, the ratio laid down by the Honble High Court is not attracted to the facts of the case before us.
11. In CIT vs. Haji P. Mohammed (supra), the facts were quite different. In that case also the ITO confronted the assessee with the information about the non-inclusion of receipts in the return and it was in that context the second return was filed. Therefore, reliance cannot be placed on this decision as facts are different in this case.
12. Sri Abraham relied on the decision of the Madras High Court in the case of CIT vs. Krishna & Co. (supra). It was a case where the books of the assessee showed certain borrowings and repayments from certain bankers. The ITO upon examination found that the discharged hundies produced before him merely represented hawala transactions. Thereupon, the assessee agreed to the addition of peak credit to its income. It was in that context, the High Court observed that in a case where the assessee himself had admitted that the amount represented his own income, no further evidence would be necessary to show that it was the amount which represented his income and it represented his concealed income. Thus, the levy of penalty was justified by the High Court. Turning to the facts of the case before us, we have already held that the ITO was only entertaining certain suspicions in his mind. He had not stumbled upon any evidence to conclusively hold that the assessee had more income than what he had declared in the original return. Thus, the ratio laid down by the Madras High Court on a different set of facts cannot be applied to the case on hand.
13. In the case of F. C. Agarwal vs. CIT (supra) the issue was decided on the basis of Expln. to S. 271(1)(c) of the IT Act as it stood then for the asst. yrs. 1963-64 and 1964-65 as the total income returned by the assessee in that case was less than 80% of the total income assessed and the burden of proof that the difference between the assessed income and the returned income was not due to any fraud or wilful default was on the assessee.
14. In the case of K. P. Kandaswami Mudaliar & Sons vs. CIT (supra) it was the ITO who noticed that certain credits were not genuine in the assessment for the asst. yr. 1962-63 and thereupon the firm filed a petition under S. 271(4A) disclosing the income voluntarily and prayed that the peak credit of Rs. 6,00,000 should be spread over six years. It was in that context reassessment proceedings were initiated for the preceding years and penalty was levied. In the facts of the case, the High Court upheld the levy of penalty. Admittedly, the facts are different in the case before us.
15. Whether the second return is treated as a revised return or not, what is material is that if the disclosure was full and complete and was made voluntarily, that is, prior to detection by the Revenue, in our considered opinion, penalty is not leviable. In the case of the assessee, the disclosed income was accepted and acted upon and as a matter of fact the proposal to assess the assessee at a higher figure was abandoned. So the disclosure was full and complete. Except suspicions and some enquiries about which the assessee did not have any knowledge, we hold that the disclosure was voluntarily made and the assessee had surrendered the income to avoid litigation. In such circumstances and in the ratio laid in Sir Shadilal Sugar & General Mills Ltd. vs. CIT (supra) it is not possible for us to hold that mens rea can be attributed to the assessee. The cases relied on by the learned Chartered Accountant of the assessee would justify cancellation of penalty in the facts and circumstances of the case. We order accordingly.
16. In the result, the appeal is allowed.