Madras High Court
Ramalakshmi Spinners (P.) Ltd. vs Income-Tax Officer. on 16 February, 1990
Equivalent citations: [1990]33ITD327(MAD), (1990)37TTJ(MAD)315
ORDER
Per D. S. Meenakshisundaram, Judicial Member - This is an appeal against the order of the C. I. T. (Appeals) confirming the penalty of Rs. 2,38,832 levied against the appellant under sec. 271(1) (c) of the Income-tax Act, 1961.
2. The appellant is a private limited company running a spinning mill for manufacture and sale of cotton yarn. We are concerned in this appeal with the assessment year 1980-81, for which the previous year ended on 31-3-1980. For this year the appellant-company filed its return of income on 8-1-1981 admitting a total income of Rs. 99,095. In its return of income the appellant had claimed depreciation and investment allowance in respect of the following three items of machinery purchase by it during the accounting year :-
Rs.
1.
Lakshmi Reiter Can feed speed frame 3,47,167
2. Textool High Speed R. T. Cone Winding Machine 1,85,417
3. 2 Nos. High Speed Draw Frames from Lakshmi Machine Works 2,33,121 Total 7,65,705
3. The Income-tax Officer found that the said machinery were not installed during the accounting year and that the assessee was not entitled to depreciation and investment allowance in respect of the same, as claimed by it. He therefore disallowed the said claims of the assessee and determined the assessees total income at Rs. 5,39,390 under section 143(3) of the Income-tax Act and initiated penalty proceedings under sec. 271(1) (c) of the Act for alleged concealment of income by the assessee for making claims for deduction of investment allowance and depreciation amounting in all to Rs. 3,54,980. The assessment order was passed by the Income-tax Officer on 11-1-1983.
4. Subsequently, the IAC (Assessment), Range-II, Coimbatore by his order dated 29-3-1985 imposed a penalty of Rs. 2,38,832 under sec. 271(1) (c) of the Act. This penalty was levied by the I. A. C. for the reason that the assessee had deliberately with intention, made false claim of depreciation, investment allowance and erection charges totalling to Rs. 3,54,980 and that therefore penalty under sec. 271(1) (c) was clearly leviable. The I. A. C. relied on two letters written by the assessee on 21-9-1981 and 10-2-1982. He, however, rejected the assessees reply dated 2-3-1985 to the show-cause notice against levy of penalty under sec. 271(1) (c).
5. Regarding the assessees explanation that the machineries were invoiced on 29-3-1980 and accounted for in the books on 30-3-1980 in the machinery account and this was the reason for providing depreciation and investment allowance in the books, the I. A. C. pointed out that the assessee had also claimed erection charges as if the machinery were erected. From this, the I. A. C. inferred that the assessee had deliberately tried to suppress the income by claiming investment allowances and depreciation on machinery not installed. He therefore rejected this explanation of the assessee as unacceptable. The IAC further held that as regards the claim that the assessee had accepted the disallowance of investment allowance and depreciation even before the ITO had disclosed his finding, it had to be pointed out that it was not voluntary on the assessees part, but only after enquiries were made by the Income-tax Office. He further rejected the contentions in para 3 of the assessees reply to the penalty notice as irrelevant.
6. The assessee appealed against this penalty and contended that the conditions laid down under sec. 271(1) (c) read with the explanations had not been satisfied in this case and therefore the levy of penalty was not justified. It was argued that all then facts and figures and sources on income had been furnished before the assessing officer in the course of the assessment proceedings and no particulars were withheld from the department. It was submitted that the appellant had placed orders with Lakshmi Machine Works Ltd. and Textool Company Ltd. for a speed frame and Cone Winder, that the said machines were invoiced on 29-3-1980 and accounted for on 30-3-1980 and that the provision for depreciation and investment allowance had been made on the basis of accounting entries and claimed for Income-tax purposes It was further submitted by the assessees learned counsel that the view of the appellant that the plant had to be considered as installed without installation or commissioning the same, was no doubt an erroneous view, but that the appellant had taken immediate steps to correct this view and had accepted the disallowance of investment allowance and depreciation before the assessing officer. It was therefore argued that it could not be said that the appellant had consciously concealed particulars of income or facts, that the conduct of the appellant should not colour the issue, as the department should appreciate whether there was any means read on the part of the appellant to conceal any particulars. It was submitted that at best it could only be said that a wrong claim was made by the appellant on an erroneous appreciation of law and that the same could not be equated with a case where there was deliberate and wanton suppression of facts and figures. The learned counsel relied on the decision of the Madras High Court in the case of CIT v. J. K. A. Rajappa Chettair [1985] 153 ITR 215/23 Taxman 350 and submitted that if the principles laid down in this decision were kept in mind, there would be no justification for levy of penalty in the instant case, as admittedly no facts had been concealed, nor any particulars suppressed from the department. The assessee also relied on the decision of the Delhi High Court in the case of Addl. CIT v. Delhi Cloth & General Mills Co. Ltd. [1986] 157 ITR 822 and contended that the disallowance of the claim of an assessee of an expenditure would not automatically lead to the conclusion that the assessee had furnished inaccurate particulars with regard to such claim. The assessee also relied on the decisions of the Madras High Court in the case of M. Radhakrishniah v. CIT [1984] 147 ITR 133 and in CIT v. Rudrappan & Co. [1984] 147 ITR 204 and of the Supreme Court in CIT v. Anwar Ali [1970] 76 ITR 696 (SC).
7. The Commissioner of Income-tax (Appeals) at the outset pointed out that while there was a spate of decided cases on the main issue of concealment of income, evolution of case law on the question of furnishing inaccurate particulars has been very sparse. The CIT (A) held that the appellant-company made an application to the Indian Bank on 23-3-1980 only for sanction of a term loan of Rs. 5 lakhs for purchase of machinery, which was also immediately sanctioned, and that it then placed orders with Lakshmi Machine Works Ltd. and Textool Co. Ltd. for purchase of three items of machinery referred to by the IAC in the penalty order, namely two Nos. of high speed draw frames, and one number of Lakshmi Reiter Speed frame from Lakshmi Machine Works Ltd. and one number of Cone Winder from Textool Company Ltd. The Commissioner found that two numbers of Lakshmi Reiter Drawing frame were delivered on 29-3-1980 by Lakshmi Machine Works Ltd., and that they appeared to have been installed on the next day, i. e. 30-3-1980. he, however, held that admittedly this machinery was not put to use or commissioned in the year ending 31-3-1980. He next held that the Textool Cone Winder and Lakshmi Reiter Frame were admittedly not installed at all in the accounting year ending 31-3-1980, but were commissioned only in the next year. The CIT (A) pointed out that the appellant-company had, however, passed accounting entries crediting the parties account and debiting the machinery account. The Commissioner next pointed out that the return of income was filed on 8-1-1981 along with audited accounts in which depreciation and investment allowance were claimed on the three items of machinery.
8. On the above facts, the CIT (Appeals) held that the short question was whether the assessee was aware at the time when it filed the return on 8-1-1981 that a portion of the machinery was not commissioned and the other portion was not installed at all and even then it had claimed depreciation and investment allowance. The Commissioner held that the material facts available in the records clearly indicated that the assessee was fully aware and conscious of the claim of depreciation and investment allowance even without commissioning and installing the machineries and that it was aware of the fact that it had claimed excessive relief not warranted by actual facts. The Commissioner also held that even though the return was filed on 8-1-1981 the appellant admitted the mistake in claiming depreciation in respect of two items of machinery only on 21-9-1981, that too after the I. T. O. had started detailed enquiries and that even in this letter the admission was half-hearted and the assessee still wanted to take a change and get away with a wrong claim. The Commissioner next pointed out that when the I. T. O. continued his enquiries relentlessly, the appellant came forward with another letter dated 10-2-1982 to the effect that even though the first item of machinery was erected, the same was not commissioned and therefore depreciation and investment allowance had wrongly been claimed. The Commissioner held that there was not even an iota of evidence in the records to show that the surrender by the assessee had been voluntarily. He was of the view that the assessee had no other option except to disclose the actual facts in the face of overwhelming evidence gathered by the I. T. O. to prove that the two items of machinery were never installed and one item was never commissioned and that in this background the surrender could hardly be called voluntary and therefore it was futile to argue that the assessee had not gained any wrongful advantage by making a false claim for depreciation and investment allowance and that it could at best be stated that it was postponing the payment of tax to the next year. He rejected this argument as misleading, as unfortunately for the assessee there had been only losses in the subsequent assessment years and such depreciation and investment allowance could not have been allowed in the succeeding years. He distinguished the decision of the Delhi High Court in Delhi Cloth & General Miss Co. Ltd.s case (supra) and held that in the present case the assessee had knowingly claimed investment allowance and depreciation on plant and machinery not installed or commissioned in the relevant accounting year. He disagreed with the assessees counsel that in such type of cases the ITO had to prove that the amount concealed represented income of the assessee. He held that since no income had been added and only expenditure had been disallowed, the only onus of the ITO was to prove that excessive relief had been claimed deliberately and intentionally and knowing fully well that the claim was not permissible under law. The Commissioner relied on the decision of the Madras in the case of K. P. Kandasami Mudaliar & Sons v. CIT [1985] 156 ITR 638 and further pointed out that the appellant-company had claimed erection charges for erecting the machinery, while the factual position as pointed out that the appellant-company had claimed erection charges for erecting the machinery, while the factual position as pointed out by the assessing officer was that the machinery had not been installed in the relevant accounting year. From this, the Commissioner concluded that the appellant had deliberately and falsely claimed certain deductions and thereby committed an offence of deliberately furnishing inaccurate particulars of income. Accordingly, he confirmed the levy of penalty and dismissed the appeal. Aggrieved by this decision of the Commissioner (Appeals), the appellant had come up on further appeal to the Tribunal.
9. Shri K. R. Ramamani, the learned counsel for the appellant took us through the assessment order dated 11-1-1983 for the assessment year 1980-81 to explain the circumstances in which the disallowances of the assessees claim for investment allowance and depreciation came to be made. He next adverted to the two letters written by the assessee on 21-9-1981 and 10-2-1982, wherein the appellant had agreed to the disallowance of it is claim for investment allowance and depreciation in respect of these machineries and pointed out that it was not a case of any false or bogus claim put forward by the assessee, but was a case of a wrong claim made for statutory allowances of depreciation and investment allowance under an erroneous impression of law. The learned counsel pointed out that the findings of the Commissioner (A) clearly established that the appellant had placed all the materials relating to the purchase of these machineries before the departmental authorities and had not withheld any particulars that were called for by the I. T. O. from time to time in the course of the assessment proceedings and that when it realised that the claim made by it for these allowances were inadmissible in the year of account, as the machinery were not installed nor put to use, he withdrew such claim and requested the I. T. O. to disallow the same. In this connection, the learned counsel invited our attention to the fact that the claims of the assessee for depreciation and investment allowance were allowed by the I. T. O. himself in the next assessment year 1981-82 and in fact the assessee became entitled to additional depreciation of 50% in respect of these machineries, as could be seen from the assessment order and the depreciation statement for the assessment year 1981-82. The learned counsel submitted that the appellant could not have anticipated that there would be losses in the later years when it filed the return of income for the year under appeal making the claim for investment allowance and depreciation in respect of these machineries. The learned counsel argued that on the findings recorded by the CIT (A) it was clear that the penalty is sought to be sustained only on the second limb of sec. 271(1) (c) of the Act, namely the furnishing of inaccurate particulars of income by the assessee and that the facts on record clearly established that there was no such furnishing of inaccurate particulars on the part of the assessee to merit imposition of a penalty. The learned counsel argued that at best it was a case of rejection of the assessees explanation offered for a wrong claim made under a bona fide impression having regard to the fact that the loan from the bank and the purchase of the machinery from the two parties were recorded in the assessees book of account on receipt of the invoices from the suppliers and that the assessees case would be covered by the proviso to Explanation 1 to sec. 271(1) (c) of the Act.
10. The learned counsel relied on the decision of the Supreme Court in Sir Shadilal Sugar & General Mills Ltd. v. CIT [1987] 168 ITR 705 at 713 and submitted that no adverse inference could be drawn against the appellant from the mere fact that the appellant had agreed to the disallowance of these claims for investment allowance, depreciation and erection charges. The learned counsel next relied on the decision of the Madras High Court in the case of CIT v. J. K. A. Rajappa Chettiar [1985] 153 ITR 215 at 218 and 219 and submitted that we should not confine ourselves only to the return of income, but the conduct of the assessee in the course of the assessment proceedings should be taken into account in order to judge whether there was any means rea on the part of the assessee to hold that the penal provisions of sec. 271(1) (c) of the Act are attracted. Finally, the learned counsel relied on the decision of the Delhi High Court in Delhi Cloth & General Mills Co. Ltd.s case (supra) and submitted that the disallowance of a claim for expenditure would not by itself lead to the inference that the assessee had furnished inaccurate particulars in regard to an item to merit the imposition of a penalty. The learned counsel therefore submitted that in the light of the authorities and on the materials already on record, no penalty under sec. 271(1) (c) of the Act was exigible and that the same should be deleted.
11. Shri V. P. Tyagi, the learned departmental representative opposed these contentions of the learned counsel for the appellant and argued that the findings recorded by the departmental authorities in the course of the assessment proceedings and in the penalty order and the appellate order of the CIT (Appeals) clearly established not only means rea on the part of the appellant, but also gross or wilful neglect and also indicated the making of a fraudulent claim for allowances of depreciation and investment allowance and erection charges. Shri Tyagi submitted that the orders of the authorities below conclusively established that the assessees agreement to these disallowances was not voluntary, but due to circumstances where the appellant had no other way except to agree to the same. The learned departmental representative relied on the decision of the Madras High Court in K. P. Kandasami Mudaliar & Sons case (supra) to contend that according to the ratio of this decision there was a case of gross or wilful neglect on the part of the present appellant when it put forward the claims for depreciation and investment allowance in its return of income. He argued that it was not a case of true disclosure of income by the assessee, but was a case of false claims for depreciation and investment allowance which were deliberately made and therefore the penal provisions of section 271(1) (c) were clearly attracted. Shri Tyagi argued that the assessees case would not fall within the proviso to Explanation 1 to section 271(1) (c) of the Act, as contended by the assessees learned counsel. In support of these submissions, the learned departmental representative relied on the decision of the Madras High Court in the case of Cement Distributors (P.) Ltd. v. CIT [1966] 60 ITR 586 at 589. He next referred to the decision of the Allahabad High Court in the case of Rajpal Automobiles v. CIT [1979] 116 ITR 436. The learned departmental representative therefore argued that the penalty was rightly levied and that the same should be upheld.
12. Shri Ramamani in his reply submitted that the arguments of the learned departmental representative proceeded the basis of the old Explanation to sec. 271(1) (c), which has been substituted by Explanation 1 and other Explanations by the Taxation Laws (Amendment) Act of 1975 with effect from 1-4-1976 and therefore the arguments based on the old explanation would be of no assistance to the department. The learned counsel next submitted that the decisions relied on by the learned departmental representative were under the Indian Income-tax Act, 1922 or under sec. 271(1) (c) read with its Explanation before its amendment by the Taxation Laws (Amendment) Act, 1975 and therefore those decisions would not be applicable to the facts of the present case. He further argued that the decision in K. P. Kandasami Mudaliar & Sonscase (supra) was a case of cash credits which were added in various years on the basis of a settlement under sec. 271(4A) of the Act and therefore the said decisions would not apply to the facts of the present case. He next submitted that in the case of Cement Distributors (P.) Ltd. (supra) there was a claim for bogus loss which was disallowed by the departmental authorities and upheld by the High Court and therefore the said decision also would not apply to the facts of the present case. He also argued that the decision in the case of Rajpal Automobiles (supra) was a case where no explanation was offered by the assessee for the omission to mention the amount in the return or in the column meant for the same and therefore the said decision also would not apply to the facts of the present case. The learned counsel submitted that the assessees case was not one of gross or wilful neglect nor of any fraud, as contended by the revenue. He pointed out that all the facts relating to this claim were placed by the assessee before the departmental authorities in the course of the assessment proceedings under the genuine belief that the assessee would be entitled to these deduction having regard to the fact that the machineries were purchased during the year of account and accounted for in the books of account of the company for this year. He therefore submitted that it was a case of bona fide mistake due to an error of judgment on the part of the officers of the appellant-company and therefore no penalty should be levied for the same.
13. A perusal of the assessment order shows that the Income-tax Officer had disallowed a total amount of Rs. 3,54,918 made up of the following three item :
Rs.
(i) Investment allowance 1,91,426
(ii) Depreciation 1,53,148
(iii) Erection charges debited in repairs account 10,344 Total 3,54,918 It is respect of this amount of Rs. 3,54,918 that penal action has been taken for alleged concealment of incomes under sec. 271(1) (c) of the Act. The departmental authorities have relied on the letters written by the assessee on 21-9-1981 and 10-2-1982 withdrawing its claim for investment allowance and depreciation in respect of these machines to hold that there was furnishing of inaccurate particulars of income by the assessee. The entire letter dated 21-9-1981 has been quoted by the I. A. C. in his penalty order dated 29-3-1985 and therefore we do not propose to reproduce the same here. He has also quoted only a part of the second letter dated 10-2-1982, copies of which have been filed both by the assessee and the departmental representative. For facility of reference, we quote this entire letter :-
"With reference to your above letter we wish to state the following :-
The drawing machine was erected during the assessment year 1980-81. The erection charges and other expenses were paid to the erector Sri Subramaniam and other. The voucher has been prepared in our office and the same has been signed by Sri Subramaniam. It is normal practice of Mr. Subramaniam and his co-erectors. Hence the Voucher is not a forged one.
Though the drawing machines were erected in the concerned asst. year, due to circumstances beyond our control, we admit that the machine was not commissioned. Therefore, we wish to inform you that we are not pressing investment allowance and depreciation on the drawing machine. We request you to kindly complete the assessment accordingly.
We request you to kindly refrain from taking any penal action. We regret for the inconvenience caused to you. This is in continuation of our earlier letter accepting the non-erection of Simplex and Cone Winding machine, total four machines."
A perusal of these two letters would show that the appellant had purchased these four items of machinery in the year ended 31-3-1980 relevant for the assessment year 1980-81 and had accounted for the same in its books of accounts. It had also claimed depreciation and investment allowance in respect of these machineries in its return of income, but subsequently it did not press these claims as the machines in its return of income, but subsequently it did not press these claims as the machines were not erected in the year under appeal. From this and also from the fact that the assessee had claimed erection charges which were debited in the repairs account, the Income-tax Officer drew the inference that the erection of machinery in the year of account was clearly a fabricated one. It is with reference to these findings inaccurate particulars of its income in the year under appeal. In fact, the revenues case is that it is a case of false claim for allowance of depreciation, investment allowance and erection charges which would a tract the penal provisions of sec. 271(1) (c) of the Act.
14. From the papers placed before us we find that in the next assessment year 1981-82 the assessees claim for depreciation and investment allowance in respect of this very same machinery has been fully allowed by the ITO. There is note in the assessment order dated 26-10-1983, which reads as follow :
"In the earlier year the assessee had claimed investment allowance of Rs. 1,93,093 as well as depreciation in respect of certain new additions. As the new additions on verification were found installed only after closing of accounting year, the claim of the assessee was disallowed in the earlier year. The assessee now has renewed his claim for this year in this regard. The machineries were installed and used in the previous year. The claim is found to be in order and allowed."
It is further noticed from the depreciation statement for the year ended 31-3-1981 that the depreciation of Rs. 2,40,455 for that year included additional depreciation of Rs. 38,620 in respect of this new machinery. A perusal of the assessment order further shows that this entire amount of depreciation was allowed and even a portion of the investment allowance to the extent of Rs. 33,429 out of the total claim of Rs. 1,93,093 was also allowed by the ITO and the balance of unabsorbed investment allowance of Rs. 1,59,664 was allowed to be carried forward. The assessment order for the year 1985-86 dated 18-8-1987 shows that a portion of this investment allowance to the extent of Rs. 30,736 was allowed to be set off in that year leaving a sum of Rs. 1,09,068 as unabsorbed investment allowance carried forward.
15. In the light of the above facts, we find ourselves unable to agree with the revenue that there was any intention on the part of the appellant company to conceal any particulars of its income, much less to furnish any inaccurate particulars thereof with the meaning of section 271(1) (c) of the Act to merit the imposition of a penalty. It would be noticed that the assessee had taken a loan from Indian bank for the purchase of this machinery and the appellant had also received the invoices for the same within the accounting year. Therefore, the appellant had accounted for the purchase of the machinery as well as the loan taken from the bank in its balance-sheet as on 31-3-1980, a copy of which has been filed before us by the assessees learned counsel. Further, the claims for depreciation and investment allowance are statutory allowances allowed by the Income-tax Act in respect of new machinery installed and used by an assessee in his business subject to the various conditions specified in the relevant provisions of law. Apparently, two of the item of machineries were erected in the year under appeal, while the other two were erected in the next year, but all the four items of machinery were put to use only in the accounting year ended 31-3-1981 relevant for the assessment year 1981-82. We are unable to see what is the falsity of the claim put forward by the assessee in respect of this new machinery, as the assessees claim has been fully accepted and allowed in the next assessment year. This, in our view, rules out any means rea on the part of the assessee, to justify the conclusion that the appellant had deliberately put forward a false claim for these statutory allowances in the year under appeal. Even a portion of the expenses spent or erection of these machineries has been capitalised to the extent of Rs. 6,664, as could be seen from the depreciation statement for the year ended 31-3-1981, which means that the expenses claimed by the assessee were also found to be fair and reasonable, but were capitalised, as they related to capital items of new machinery.
16. As rightly contended on behalf of the appellant, the assessees case would fall within the proviso to Explanation 1 to section 271(1) (c) of the Act, which is quoted below :-
"Explanation 1 : Where in respect of any facts material to the computation of the total income of any person under this Act, -
(A) such person fails to offer an explanation or offers an explanation which is found by the Income-tax Officer or the Appellate Asstt. Commissioner or the Commissioner (Appeals) to be false, or (B) such person offers an explanation which he is not able to substantiate, then the amount added or disallowed in computing the total income of such person as a result thereof shall, for the purposes of clause (c) of this sub-section, be deemed to represent the income in respect of which particulars have been concealed :
Provided that nothing contained in this Explanation shall apply to a case referred to in clause (B) in respect of any amount added or disallowed as a result of the rejection of any explanation offered by such person, if such explanation is bona fide and all the facts relating to the same and material to the computation of his total income have been disclosed by him."
This is not a case of a failure on the part of the assessee to offer an explanation or an explanation which has been found to be false by any of the authorities. On the contrary, the assessee has offered an explanation for making the claim in the year under appeal as a bona fide mistake and it has placed at all facts with the relevant evidence before the assessing officer in the course of the assessment proceedings. Therefore, the assessees case would squarely fall within the proviso to Explanation 1 to section 271(1) (c) of the Act. We are unable to agree with the findings of the departmental authorities that there was any deliberate intention on the part of the appellant either to make a false claim or to furnish any inaccurate particulars regarding its income for the year under appeal, as it would have least anticipate that in later years it would be incurring losses. Actually the assessment order for 1981-82 shows that there was a profit of Rs. 67,308 as per the profit and loss account for the year ended 31-3-1981. It is only after making the adjustments for depreciation and a portion of the investment allowance as discussed above that the assessees total income was reduced to nil and the appellant was declared NA for that year. This shows that the assessees claim was a bona fide one, but was made in the wrong assessment year under an erroneous impression of the legal position.
17. As pointed out by their Lordships of the Madras High Court in the case of J. K. A. Rajappa Chettair (supra) we have to take into account the conduct of the assessee in the course of the assessment proceedings. At page 218 of the reports, their Lordships of the Madras High Court have held as follow :-
"Section 271(1) (c), on the contrary, enables the officer to levy penalty only if he is satisfied, in the course of any proceedings, that the assessee has concealed particulars of his income. The section does not particularly focus the penalising officers attention to the assessees return of income alone. Mark the words in the course of any proceedings. The Officer has to work on a larger canvass, as it were, of the whole gamut of the assessment proceedings, in order to be able to spell out concealment. He cannot proceed to levy penalty by concentrating on any particular return filed by the assessee or any particular aspect in any such return to the entire exclusion of any other consideration relating to the conduct of the assessee in the course of the assessment proceedings. An assessment under the I. T. Act is seldom done in a trice or based upon the assessees return alone. The return, after all, is in a tabular form prescribed under the rules. The form and its columns can hold only the bare minimum of information. Apart from the statutory duty of the officer to given a hearing to the assessee before concluding the assessment, the process of assessment itself, in actual practice, would ordinarily take more than one sitting between the officer and the assessee, for mutual discussion, especially of items which are either under controversy or require clarification or elucidation. It is during these sittings or hearings, or inquiry, as it is described by the marginal note to s. 142, that the final shape of the assessment emerges. In the very nature of things, a perusal of the return of income alone would give an inadequate or even a misleading idea of the course of assessment proceedings. For, the return is but the starting point of the proceedings, and even in the best of assessments, the return alone cannot give a true indication of the course and thrust of the proceedings. When, therefore, sec. 271(1) (c) speaks about the ITO having to be satisfied in the course of any proceedings, it means that the officers satisfaction must be obtained on an appraisal of the stand taken by the assessee in the whole course of the proceedings and not merely in his formal return of income."
18. In Sir Shadilal Sugar & General Mills Ltd.s case (supra), the Supreme Court held as follow :-
"In this case, the Tribunal had taken into consideration the fact that the assessee had admitted the additions as its income when faced with non-disclosure in assessment proceedings. The High Court accused the Tribunal of not considering the time when the assessee admitted the additions. We find that it was duly considered by the Tribunal. We find that the assessee admitted that these were the incomes of the assessee but that was not an admission that there was deliberate concealment. From agreeing to additions, it does not follow that the amount agreed to be added was concealed income. There may be a hundred and one reasons for such admission i. e. when the assessee realises the true position, it does not dispute certain disallowances but that Revenue from proving the means rea of a quasi-criminal offence."
19. The decision of the Delhi High Court in the case of Delhi Cloth & General Mills Co. Ltd. (supra) holds that penalty for concealment of income can be imposed only if there is conscious and deliberate concealment on the part of the assessee and the mere fact that a claim for expenditure stands disallowed, it does not by itself lead to the inference that the assessee had furnished inaccurate particulars in regard to that item.
20. When we examine the facts of the present case in the light of the radio of the aforesaid three decisions, we find that there could be no levy of penalty for any concealment of income, much less for furnishing of any inaccurate particulars of such income by the assessee within the meaning of sec. 271(1) (c) of the Act. The three decisions relied on by the revenue would not apply to the facts of the present case. The first one in the case of Kandasamy Mudaliar & Sons (supra) was a case of cash credits, the peak credit of which was spread over a period of number of years. In the case of Cement Distributors (supra), it was a case of claim of bogus loss. The decision of the Allahabad High Court proceeded on the basis that the assessee had failed to offer any explanation. Therefore, none of these cases would be applicable to the case of the present appellant, who had offered an explanation at every state of the proceedings, as discussed above.
21. We are therefore of the considered view that the levy of penalty under sec. 271(1) (c) of the Act in the present case was not justified and accordingly we cancel the same. The penalty amount shall be refunded to the appellant. If already collected from it.
22. In the result, the appeal is allowed.