Madras High Court
Commissioner Of Income Tax vs J.V. Appadurai Chettiar Co. on 10 January, 1996
Equivalent citations: [1996]221ITR849(MAD)
JUDGMENT Thanikkachalam, J.
1. In compliance with the directions of this Court in T. C. P. No. 224 of 1979, the Tribunal referred the following question for the opinion of this Court under s. 256(2) of the IT Act, 1961 (hereinafter referred to as "the Act") :
"Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the assessee had not furnished inaccurate particulars of the income in the original return filed on 17th March, 1972, and accordingly in deleting the penalty of Rs. 10,000 imposed under s. 271(1)(c) of the Act ?"
2. The assessee is a registered firm doing business in jaggery at Vellore. On 17th March, 1972, for the asst. yr. 1971-72, the assessee filed a return, disclosing the business income of Rs. 64,234. In the course of examination of the accounts, the ITO found that there was a credit for Rs. 10,000 in the name of one Sri Gopal Mudaliar. The assessee filed a confirmatory letter from Gopal Mudaliar in support of the loan of Rs. 10,000 taken from him. In the course of the enquiries made by the IT Inspector, Gopal Mudaliar denied having advanced any loan to the assessee. Thereafter, on 18th Feb., 1974, the assessee filed a revised return stating that in the absence of documentary evidence to prove the loan taken from Gopal Mudaliar, the amount of Rs. 10,000 is offered as income for assessment.
The ITO initiated penalty proceedings under s. 271(1)(c) of the Act. According to the ITO, the assessee filed a revised return after the Department started enquiry and found that the credit was not a genuine one. Since the assessee furnished inaccurate particulars of its income in the original return filed on 17th March, 1972, penalty was levied under s. 271(1)(c) to the extent of Rs. 10,000. On appeal, the AAC confirmed the penalty levied by the ITO. Aggrieved, the assessee filed a second appeal before the Tribunal. The Tribunal allowed the assessee's appeal and cancelled the penalty of Rs. 10,000 imposed under s. 271(1)(c) of the Act. According to the Tribunal, the assessee filed the return on the bona fide belief that he can establish the genuineness of the loan in view of the cash entry in the book and confirmatory letter from the creditor. It was also pointed out that before the revised return was filed the assessee became aware of the Inspector's report. Therefore, according to the Tribunal, the assessee cannot be charged guilty of concealment or furnishing of inaccurate particulars of its income.
3. Learned senior standing counsel for the Department submitted that the penalty levied under s. 271(1)(c) of the Act cannot be cancelled on the sole ground that the assessee filed a revised statement before completing the assessment by the ITO. According to learned senior standing counsel the assessee failed to establish his bona fides in thinking the genuineness of the cash credit found in the account books while the original return was filed. It was further submitted that after the investigation made by the Inspector of IT Department, the assessee came forward with a revised return. Therefore, on the date of filing the revised return, the assessee would have had the knowledge of the view taken by the Department on the cash credit found in the name of Gopal Mudaliar. Ultimately, learned senior standing counsel submitted that the Tribunal was not correct in cancelling the penalty levied under s. 271(1)(c) of the Act. We have also heard learned counsel for the assessee, who supported the order passed by the Tribunal.
4. According to the facts arising in this case, for the asst. yr. 1971-72, the assessee filed the original return on 17th March, 1972. In the original return, the cash credit found in the account books in the name of Gopal Mudaliar of Rs. 10,000 was not disclosed. The assessee filed a revised return on 18th Feb., 1974, offering the abovesaid amount to tax. Now, the point for consideration is : whether penalty is exigible under s. 271(1)(c) of the Act in the case of the assessee. According to the Department, the assessee would not have had bona fide belief that the cash credit is genuine when the original return was filed. It is the case of the Department that only after the investigation was made by the Inspector of IT Department the assessee came forward to file a revised return disclosing the cash credit found in the name of Gopal Mudaliar. Further, according to the Department, the fact that the said Gopal Mudaliar later on denied having advanced any amount to the assessee would not in any way absolve the assessee from levy of penalty under s. 271(1)(c) of the Act. Therefore, the assessee deliberately concealed the particulars or furnished inaccurate particulars in the return, warranting penalty under s. 271(1)(c) of the Act.
5. Learned senior standing counsel placed reliance on a decision of this Court in CIT vs. J. K. A. Subramania Chettiar (1977) 110 ITR 602 (Mad) in order to support his contention that merely filing a revised return before completing the assessment would not absolve the assessee from levy of penalty under s. 271(1)(c) of the Act. According to the facts arising in the abovesaid decision, for the asst. yr. 1963-64, the assessee filed a return of income on 16th March, 1964, disclosing a total income of Rs. 27,566, which included a business income of Rs. 21,665. Subsequently, on 7th Feb., 1968, the assessee filed a second return of income for the same year, disclosing a total income of Rs. 75,044, which included a business income of Rs. 69,143. The assessee also filed a petition under s. 271(4A). The assessment was ultimately completed on 31st Dec., 1968, on a total income of Rs. 3,15,201 which included a sum of Rs. 3,09,645 as income from business. The ITO, thereafter, initiated penalty proceedings under s. 271(1)(c) and referred the matter to the IAC, who levied a penalty. The Tribunal cancelled the penalty in the view that as the assessee had filed a revised return before the officer started investigation into the bogus nature of the hundi transactions in the course of the earlier assessment year, there was no concealment of income, and for this purpose, reliance was placed upon a decision reported in CIT vs. Ramdas Pharmacy On a reference, this Court held that the assessee had intentionally and deliberately concealed the particulars of his income in the first return as well as in the second return, he cannot escape the liability under s. 271(1)(c) of the Act. This Court further held that s. 139(5) applies only to a limited category of cases where, in the original return there was any omission or any wrong statement and not to cases of concealment or false statements. If a case does not fall under s. 139(5), the fact that the revised return was filed before any investigation was started by the IT Department will be of no consequence. Thus, according to the facts arising in the abovesaid decision in both the original as well as in the revised return, the disputed income was not shown by the assessee. Therefore, this Court came to the conclusion that there is concealment of income and penalty is exigible under s. 271(1)(c) of the Act. Further, in that case the assessee failed to establish that the non-disclosure of the cash credit was due to any omission or any wrong statement as contemplated under s. 139(5) of the Act.
But, according to the facts arising in the present case, the cash credit was not disclosed in the original return, but it was disclosed in the revised return. What remains to be considered in this case is whether the assessee has established that the non-disclosure of cash credit is due to any omission or any wrong statement as contemplated under s. 139(5) of the Act.
6. Reliance was also placed on a decision of this Court in CIT vs. Balakrishna Textiles (1992) 193 ITR 361 (Mad) According to the facts arising in this decision, the assessee, who carried on a business including export of art silk fabrics, handloom cloth, handicrafts, etc., filed returns for the asst. yrs. 1962-63 to 1964-65 disclosing in some cases loss and in some others marginal incomes based on accounts maintained by them. Some time in January, 1965, there was a raid on the business premises of most of the assessees by the Economic Offences Wing. Thereafter, in May, 1965, the assessee came forward with certain disclosures under s. 68 of the Finance Act, 1965. Later, the assessee purported to file revised returns. In the revised returns also, the assesses had not disclosed the correct particulars of income and had suppressed profits. Subsequent to the revised returns, the assessees offered further amounts for assessment. The ITO also found that the assessees had suppressed the sale of import licences and the profits derived from them. Therefore, the ITO imposed penalty, but it was cancelled by the Tribunal on the grounds that the assessees had filed revised returns, the incomes had been estimated and that the charge of concealment was not specific.
On a reference this Court held that the original returns as well as the revised returns did not disclose the correct particulars of income of the assessees and that the profits on the sale of the import licences had also been suppressed and, in the course of the assessment proceedings, the assessees had agreed for inclusion and assessment of very large amounts, which were accordingly assessed and apportioned in the hands of the respective groups of assessees for the relevant assessment years. Neither in the original returns nor in the revised returns had the assessees accepted the fact that they had sold import licences. The orders of assessments passed by the ITO had not been challenged by any of the assessees. In respect of the asst. yr. 1964-65, the Tribunal completely overlooked the fact the Expln. to s. 271(1)(c) of the IT Act, 1961, which came into effect from 1st April, 1964, would be applicable and, in the absence of proof by the assessees that the failure to return the correct income did not arise from any fraud or any gross or wilful neglect on their part, they must be deemed to have concealed the particulars of income or furnished inaccurate particulars of income for the purpose of s. 271(1)(c). The presumption raised by the application of the Explanation had remained wholly unrebutted and, in such an event, there was no justification whatever for the deletion of the penalty by the Tribunal for the asst. yr. 1964-65. The Tribunal was not justified in cancelling the penalty in respect of the asst. yrs. 1962-63 to 1964-65. The abovesaid conclusion was arrived at by this Court on the facts that the assessee has not disclosed in the original returns as well as in the revised returns the profit earned out of the sale of the import entitlement. Further, the assessees had not displaced the initial burden placed upon them under the Expln. to s. 271(1)(c) of the Act. Under these circumstances, this Court held that penalty is exigible in the case of the assessee. But, on the other hand, the facts arising in the present case are entirely different. The cash credit, which was not disclosed in the original return was offered for tax in the revised return. The Expln. to s. 271(1)(c) applicable w. e. f. 1st April, 1964, is not applicable to the facts of the present case. Therefore, this decision rendered by this Court would not help the Department to support its case.
7. Reliance was also placed upon the decision in CIT vs. K. Mahim According to the facts arising in that case, the assessment of the assessee for the relevant assessment year was reopened by the ITO and detailed enquiries were pursued in respect of the same. The assessee, however, filed a revised return voluntarily and the assessment was completed by the ITO on that basis. Thereafter, the ITO issued notice to the assessee under s. 271(1)(c) of the Act for concealment of income and referred the matter to the IAC. The assessee contended before the IAC that inasmuch as he had filed the revised return voluntarily and that the assessment had been completed on the basis of such revised return, the levy of penalty would be invalid as no concealment could be established with reference to the revised return. The IAC rejected the contention of the assessee and imposed penalty on him. On appeal, the Tribunal cancelled the penalty on the ground that so long as the assessment proceedings were pending and investigations were being conducted by the Department, the assessee could rectify a return by filing a revised return under s. 139(5), before the Department became aware of the particular activity in respect of which the income was concealed. On a reference, the Kerala High Court held that the filing of a revised return voluntarily by the assessee when he knew that the Department was conducting investigations against him would not exonerate the assessee from the liability to penalty under s. 271(1)(c) of the Act. Penalty under s. 271(1)(c) is geared to the amount of the income in respect of which the particulars have been concealed or inaccurate particulars have been furnished. The correct income of the assessee, after the assessments have become final, cannot be a matter of conjecture. But, according to the facts arising in the present case, the revised return was filed before completing the assessment. There is no reopening of the assessment in the present case. The question, whether the assessee would have had bona fide belief in not disclosing the income, due to omission or by furnishing a wrong statement, was not the subject-matter in issue. Hence, the abovesaid decision would also render no assistance to the Department in supporting the case put forward by it in the present reference.
8. Our attention was also drawn to a decision of this Court in CIT vs. Krishna & Co. According to the facts arising in that case, the case of the assessee showed certain borrowings and repayments from certain bankers. The assessee produced the discharged hundis before the ITO who, however, held that the bankers had merely lent their names in what was known as bogus hawala transactions. The assessee, thereupon, agreed to the addition of the peak credit to his income. In the penalty proceedings, the assessee's submission that no penalty was exigible was rejected by the IAC, but accepted by the Tribunal. On a reference, this Court held that in a case where the assessee himself has 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. The assessee in that case having readily agreed to the inclusion of the amount as his income, the levy of penalty was justified. Therefore, it remains to be seen that the assessee accepted that the amount represented his own income and agreed to the inclusion of the amount as his income. But, in the present case on hand, the assessee never agreed that the cash credit belonged to him. According to the assessee herein, since it was unable to prove that the cash credit belongs to one Gopal Mudaliar, the assessee had no other option but to offer the said amount for tax. Further, the hawala transaction is entirely different and distinct from the practice of entering a cash credit in the account books in the name of a third party. Therefore, the abovesaid decision is also distinguishable on facts.
9. According to the facts arising in the present case, in the original return, the cash credit of Rs. 10,000 was not disclosed. The cash credit is standing in the name of one Gopal Mudaliar. The assessee possessed a confirmatory letter from the said creditor. Therefore, the assessee was under the bona fide impression that there is proof for establishing that this sum of Rs. 10,000 was advanced by the creditor. The assessee came to know that the said Gopal Mudaliar denied having advanced such amount to the assessee only after the investigation was completed by the Inspector of IT Department. Therefore, on the date when the original return was filed, we cannot say that the assessee had any mala fide intention on his part in not disclosing the cash credit in the original return. It is no doubt true that merely on the ground of filing a revised return, the assessee is not entitled to claim that no penalty is exigible under s. 271(1)(c) of the Act. As per the provision of s. 139(5) of the Act, the assessee is entitled to file a revised statement before completion of the assessment by the AO. If the non-disclosure of the cash credit is due to any omission or due to any wrong statement, definitely the assessee can claim that there is no concealment of particulars in filing the original return. In the present case, the assessee was depending upon the confirmatory letter given by the creditor, who ultimately denied the advancement of loan to the assessee in the investigation conducted by the Inspector of IT Department. Therefore, there is no material on record to establish that the assessee while filing the original return, has wantonly and deliberately filed a false return, containing inaccurate particulars of its income. If this is established, the revised return filed under s. 139(5) of the Act would be acceptable, and there cannot be any concealment of particulars in the original return filed. In that view of the matter, we hold that there is no infirmity in the order passed by the Tribunal in cancelling the penalty levied under s. 271(1)(c) of the Act. Accordingly, we answer the question referred to us in the affirmative and against the Department. No costs.