Income Tax Appellate Tribunal - Delhi
Smt. Shanti Devi Gupta vs Assistant Commissioner Of Income-Tax on 13 November, 1991
Equivalent citations: [1992]40ITD234(DELHI)
ORDER
D.S. Meenakshisundaram, Vice President
1. These two appeals are filed by the same appellant and are inter-connected. Hence they are disposed of by a common order for the sake of convenience.
2. These appeals are directed against the penalties levied against the appellant for alleged concealment of income under Section 271(1)(c)of the Income-tax Act, 1961 and for filing an untrue estimate of advance tax under Section 273(a) of the Act.
3. First I shall consider the appeal against the penalty levied under Section 271(1)(c) of the Act in ITA No. 4865(Del)/1990. This penalty was levied by the Assistant Commissioner of Income-tax for alleged concealment of income by the assessee to the extent ofRs. 63,000 from her return of income for the assessment year 1974-75. According to the Assistant Commissioner, the assessee had concealed income to the extent of Rs. 32,225 on sales of Rs. 97,652 in the business carried on by her as sole proprietrix under the name and style of M/s. Neeta Prakashan and that, further, she had concealed a net profit of Rs. 30,308 on sales of Rs. 92,146 in the business carried on by her in the name of her minor daughter under the name and style of M/s. Sunita Prakashan and that she had also furnished inaccurate particulars of her income. He, therefore, levied a penalty of Rs. 63,000 which was equal to 100 per cent of the concealed income. For this, the Assistant Commissioner relied on the findings of the first appellate authority in the quantum appeal and rejected the assessee's plea that there was no concealment of income nor any furnishing of inaccurate particulars of such income by her to justify the imposition of a penalty, in response to the show-cause notice issued against such levy of penalty.
4. The Commissioner of Income-tax (Appeals) to whom the assessee appealed against the levy of penalty, did not agree with theassessee's contentions. She held that as a result of search and seizure operations conducted in the residence as well as the business premises of the assessee, incriminating documents were found to show suppression of sales in her own business and also in the business done in the name of her minor daughter. For this, she relied on the findings in the assessment order where additions had been made on these two counts which had been confirmed by the CIT (Appeals) in appeal, though he had reduced the profitrate from 50 per cent to 33 per cent. She agreed with the Assistant Commissioner that the assessee had deliberately concealed the particulars of income regarding the sales made in her own business and also in the business done in the name of her minor daughter, and that it was fully established that the assessee had sales outside the books of account and that she was also conducting business in the name of her minor daughter. She, therefore, upheld the levy of penalty under Section 271(1)(c) of the Act as fully justified and dismissed the appeal. Aggrieved by this order of the CIT (Appeals), the appellant has come up on further appeal to the Tribunal.
5. Shri R. Ganesan, learned Chartered Accountant for the appellant placed before me a copy of the order of the Appellate Tribunal, Delhi Bench "SMC", New Delhi in ITA No. 4202/Del/1989 for the assessment year 1974-75 dated 16-5-1991 and submitted that as a result of this order the addition that was made on account of the alleged suppressed sales in the assessee's own business had been substantially reduced, that further, the addition made on account of net profit on the alleged suppressed sales in the business of the assessee's minor daughter had been fully deleted and that this order had become final as the assessee had not filed any further reference application against this order of the Tribunal. He particularly relied on the findings in paragraphs 8 and 9 of this order of the Appellate Tribunal and submitted that in the light of this order the ultimate addition that had been made to the income returned by the appellant would amount to approximately Rs. 19,532 only, as the Appellate Tribunal had directed adoption of a net profit of 20 per cent only as reasonable on despatches and that further even this figure of Rs. 19,532 would be reduced substantially on working out the effect of double taxation on sales as per the Tribunal's order. He further submitted that since the entire addition made in respect of the income in the name of the assessee's minor daughter had been fully deleted by the Tribunal there could be no concealment of income, much less any furnishing of inaccurate particulars of income by the assessee within the meaning of Section 271(1)(c) of the Act in respect of the said addition. Regarding the other addition of Rs. 19,532, the learned Chartered Accountant submitted that there could be no penalty under Section 271(1)(c) of the Act having regard to the fact that the assessee had placed all the fact relating to her despatches of books to various schools throughout the country and she had also properly accounted for the sales as and when she received the amounts from the said schools in subsequent years. The learned Chartered Accountant pointed out that the appellant was publishing books for the nursery class children, that these books were not prescribed by any Government authorities nor approved by any Board of Education, and that the assessee had been accounting for the sales of these books as and when she received the sale proceeds from the various schools to whom she had supplied the books from time to time as and when they prescribed the books in their schools. He pointed out that this method of accounting for the sales on actual receipt basis was consistently followed by the appellant right from the assessment year 1961-62 when she commenced this business in her own name during the previous year 1960 and that this method had been accepted by the Department in all the earlier years and also in the later years right up to and inclusive of the assessment year 1990-91, when her book results had been accepted. In supportof this submission the learned Chartered Accountant relied on the particulars of sales and gross profit disclosed and rate percentage from the assessment year 1961-62 to the assessment year 1988-89 contained in page 3 of the compilation sheet. He, therefore, submitted that there could be no penalty as there was no fraud or gross or wilful neglect on the part of the appellant in returning her correct income for the year under appeal within the meaning of Explanation to Section 271(1)(c)of the Act as applicable for this year. He particularly relied on the findings in paragraph 8 of the order of the Appellate Tribunal to point out that it was a case of honest difference of opinion between the assessee and the Department regarding the method of accounting to be followed in respect of the books despatched to various schools and accounting for the same in the closing stock and that, therefore, there could be no element of mens rea involved in the addition ultimately sustained by the Tribunal to justify the imposition of penalty under Section 271(1)(c) of the Act. He, therefore, argued that the penalty levied under Section 271(1)(c) of the Act should be deleted.
6. Shri K. Ramesh, learned Departmental Representative relied on the findings of the departmental authorities in the penalty order as well as the findings of the Tribunal in the quantum appeal referred to above and pointed out that the levy of penalty under Section 271(1)(c) was fully justified as the assessee had not accounted for the despatches of books to various schools in her closing stock. He, therefore, argued that at least in regard to the addition of net profit made to her income from her own business in the name of M/s. Neeta Prakashan the assessee would be liable to penalty under Section 271(1)(c) of the Act. The learned Departmental Representative, however, fairly stated that no penalty would be exigible in respect of the addition that was made by the departmental authorities in respect of Sunita Prakashan which is the business carried on in the name of the assessee's minor daughter and which has now been deleted by the Tribunal in paragraph 9 of their order.
7. I have carefully considered the rival submissions of parties in the light of the materials placed before me.
8. I find that the appellant is publishing books for children studying in nursery class. She has been in this line of business from the year 1960 relevant for the assessment year 1961-62. There is no dispute that the books published by the appellant are not approved by the Government or educational Boards or educational departments and that there is no element of compulsion for schools to prescribe the books published by the assessee. The assessee's method of effecting sales is to send her books through her employees or salesmen to various schools and leave them with the Principals or agents of the schools. According to the assessee, these books delivered to these schools were recorded in the memoranda register, but since no sales had taken place they were not recorded in the sales account. The assessee took these sales into account only when she received cash from the Principals or agents of the schools when she prepared regular cash memos and entered the same in her sales account. This, according to her, is the regular method of accounting followed by her. In other words, the assessee's case is that she has been following the receipt basis or cash basis for accounting her sales and that this method is being followed by her right from the year 1960 till date.
9. From the assessment order it is seen that the assessee had declared a total income of Rs. 13,780 for the assessment year 1974-75 for which the previous year ended on 31-12-1973. The assessment order further shows that the following additions were made to the income returned by the assessee:--
(i) Addition of 50 per cent of profit on sales to own account Rs. 48,829
(ii) Profit in the name of M/s. Sunita Prakashan, business of the minor daughter of the assessee Rs. 3,255
(iii) Addition on account of profITAT 50 per cent on despatches/sales in the name of M/s. Sunita Prakashan Rs. 46,073.
10. There is no dispute before me that the two additions of Rs. 3,255 and Rs. 46,703 in the name of M/s. Sunita Prakashan, which is the business of the assessee's minor daughter, have been fully deleted by the Tribunal in paragraph 9 of their order dated 16-5-1991. Therefore, there can hardly be any dispute that the appellant is not liable for any penalty under Section 271(1)(c) of the Act in respect of these two additions.
11. This leaves us with the addition of Rs. 48,829 which was made to the appellant's income from her own business under the name and style of M/s. Neeta Prakashan. The penalty order of the Assistant Commissioner of Income-tax shows that he had taken the figure of concealed income at Rs. 32,225 as a result of the reduction allowed by the CIT (Appeals) in the assessment appeal by directing that the profit should be estimated at 33 per cent of the sales amounting to Rs. 97,652.
In paragraph 8 of the Tribunal's order this issue has been considered in detail and the Tribunal had directed the Assessing Officer to determine the income by applying a net profit rate of 20 per cent and by making other adjustments as directed by the Tribunal. For facility of reference I quote paragraph 8 of the said order of the Tribunal :
I have given my careful consideration to the rival submissions. It is an admitted fact that the assessee is debiting the expenditure on accrual basis while income is shown on receipt basis. By following this method true profits cannot be deduced. I also notice that when goods are sent on approval or consignment basis to the Principals of the Schools, the assessee is required to account for the same in its accounts as closing stock. Though the assessee maintained that that was being done on nominal value, the same remained unsubstantiated. In view of this position I hold that the revenue was justified in not accepting his method followed by the assessee. In order that there is no double taxation of this income I would direct that the income offered by the assessee in subsequent assessment years on receipt basis from the dispatches made in accounting period relevant to August 1974-75 will be excluded by the Assessing Officer from the assessable income. The receipts for despatches of earlier years in the current year as well as in the subsequent years will, however, be taken into consideration, while computing the income of the assessee. The Id. counsel for the assessee had also contended that the rate of 50% applied was without any basis particularly when the Assessing Officer himself has mentioned in the order that the assessee was showing profit of 31%. I find force in this submission on behalf of the assessee. It would meet the ends of justice if net profit of 20% is considered reasonable on such despatches, as against gross profit rate of 31 %. The order of the DC(A) is accordingly set aside and the issue is restored to the file of the Assessing Officer for fresh determination of income by applying profit rate of 20% and by making other adjustments as noted above.
12. According to the working furnished before me by the assessee's learned Chartered Accountant at the time of hearing of the appeal, 20 per cent profit on the figure of Rs. 97,658 would work out to Rs. 19,532 and that the said addition would be further reduced substantially if the adjustments directed by the Tribunal on account of double taxation were to be made. He further pointed out that the assessee would be entitled to deduction under Section 80QQ of the Act. According to the working furnished by the assessee's learned Chartered Accountant, the net addition before making adjustments for double taxation on sales as per the Tribunal's order would amount to Rs. 15,626 only. In other words, the assessee's contention is that the addition to her income would be much less than the figure of Rs. 15,626 given in the above working. The question for my consideration is whether there could be any penalty with reference to this addition sustained by the Tribunal in paragraph 8 quoted above.
13. In CIT v. Mussadilal Ram Bharose [1987] 165 ITR 14, Their Lordships of the Supreme Court held that where the total income returned by the assessee is less than 80 per cent of the total income as assessed, the Explanation to Section 271(1)(c) of the Income-tax Act, 1961 shifts the burden to the assessee to show that the difference was not owing to fraud or gross or wilful neglect on his part, that this onus was rebuttable, and that if, in an appropriate case, the Tribunal or the fact-finding body is satisfied on relevant and cogent material on record and draws an inference thereupon that the assessee was not guilty of gross or wilful neglect or fraud, then, in such a case, the assessee cannot come within the mischief of the section and suffer penalty. Their Lordships further held that the burden placed upon the assessee is not discharged by any fantastic explanation, that nor is it the law that any and every explanation by the assessee must be accepted and that it must be an acceptable explanation, acceptable to the fact-finding body.
14. On an examination of the facts of the present case in the light of the aforesaid principles Lald down by the Supreme Court, which are applicable to the facts of the present case, it is clear that the assessee had discharged her burden of proof to rebut and displace the presumption raised by the Explanation to Section 271(1)(c) of the Act. A perusal of paragraph 8 of the order of the Tribunal would show that the addition that was ultimately sustained by the Tribunal, was only to the closing stock of the assessee as the Tribunal was of the view that the goods that were sent on approval or consignment basis to the Principals of the schools should have been included in the accounts of the assessee as closing stock. The assessee's claim before the Tribunal was that such closing stock was being valued on a nominal basis, but as itremained unsubstantiated the Tribunal did not accept the said contention. No doubt, these findings of the Tribunal would certainly constitute good evidence in favour of the Revenue and against the assessee. But these findings are, however, not conclusive so far as penalty proceedings under Section 271(1)(c) of the Act are concerned. This position is also well settled by the decisions of the Supreme Court vide CIT v. Anwar Ali [1970] 76 ITR 696 and the case of Anantharam Veerasinghaiah & Co. v. CIT [1980] 123 ITR 457.
15. In Chainrup Sampatram v. CIT [1953] 24 ITR 481, the Supreme Court held that there could be no profit on mere valuation of closing stock. Their Lordships held that it is a misconception to think that any profit arises out Of valuation of the closing stock though the valuation of the unsold stock at the close of the accounting period is a necessary part of the process of determining the trading results of that period and that it can in no case be regarded as the source of such profits. It is for this reason that the Tribunal in the present case has given a direction to the Assessing Officer to make the necessary adjustments as indicated in paragraph 8 quoted above, while applying a net profit rate of 20 per cent. It/would further be necessary to note that whatever addition has been made on account of closing stock in this year, the assessee would be entitled to deduction of such amount as pan of the opening stock in the next assessment year 1975-76. Moreover, the particulars of assessments made on the assessee for the various assessment years starting from the assessment year 1961 -62 to the assessment year 1988-89 clearly establish that the assessee's method of accounting has been accepted in all the years except the year under appeal. It, therefore, follows that the addition sustained by the Tribunal in paragraph 8 of its order referred to above, is purely an estimated addition made by rejecting the assessee's method of accounting for this year. This does not involve any gross or wilful neglect on the part of the assessee much less any fraud on her part in returning her correct income for the year under appeal, within the meaning of the Explanation to Section 271(1)(c) of the Act. It is a case of one estimate against another of the profit of the assessee by the various authorities including the Tribunal, rejecting the assessee's method of accounting for this year. I, therefore, hold that the assessee has discharged the burden of proof under the Explanation to Section 271(1)(c) of the Act. Hence, it follows that no penalty is exigible for this estimated addition sustained to the profit from her own business. Accordingly, I cancel the penalty of Rs. 63,000 levied by the departmental authorities and direct that the said amount of penalty shall be refunded, if already collected from the appellant.
16. to 18. [These paras are not reproduced here as they involve minor issues].