Income Tax Appellate Tribunal - Chandigarh
Nathu Ram And Co. vs Income-Tax Officer on 28 March, 1994
Equivalent citations: [1994]50ITD360(CHD)
ORDER
J. Kathuria, Accountant Member
1. This appeal by the assessee pertains to assessment year 1983-84 and challenges the confirmation of penalty levied under Section 271(1)(c) by the Assessing Officer at Rs. 1,22,017.
2. Brief facts in this regard are as follows: The assessee is a forest lessee. For assessment year 198384 the assessee firm's accounting year ended on 31-3-1983. The assessee claimed that on the night of 19/20-11-1982, there was an accidental fire at the assessee's premises in which 2508 fir scants were destroyed. The assessee lodged FIR with the police on 24-11-1982. The return of income was filed on 12-8-1983. The enquiries made by the Assessing Officer revealed that the assessee had claimed a sum of Rs. 2,50,800 from the United India Insurance Co. Ltd. As compensation. It was also found that the assessee actually received a sum of Rs. 1,87,178 from the aforesaid Insurance Company on 12-5-1983. Contention of the Revenue was that the insurance amount had been received much before the filing of the return and since the assessee failed to disclose income of Rs. 1,87,178 penalty proceedings were initiated under Section 271 (1)(c) of the Act. The Assessing Officer levied penalty of Rs. 1,22,017 which was confirmed by the learned Commissioner of Income-tax (Appeals).
3. Shri L.R. Vasudeva, the learned Counsel for the assessee submitted that the first assessment was made by the Assessing Officer on 29-11-1984. It was pointed out that the learned CIT (A) set aside the first assessment and asked the Assessing Officer to make a fresh assessment. The fresh assessment was made by the Assessing Officer on 9-3-1988 in which an addition of Rs. 1,87,178 was made and penalty proceedings under Section 271(1)(c) were initiated. It was submitted that the said addition was sustained by the first appellate authority and the Tribunal without going into the merits of the addition and on a technical ground held that the addition had to be made in the hands of the assessee-firm for assessment year 1983-84. Drawing our attention to the Tribunal's order dated 28-12-1993, in R.A. No. 51/Chandi/1993, it was pointed out that the technical issue on the basis of which the assessee's appeal had been disposed of by the Tribunal was at present the subject-matter of reference before the Hon'ble High Court of Himachal Pradesh at Shimla. It was emphasised that the Tribunal in its order in I.T.A. No. 532/Chandi/1990 had not disposed of the assessee's appeal on merits. It was also submitted that the assessment proceedings and penalty proceedings were independent of each other and that the penalty matter may be decided on merits independent of what happened in the quantum appeal of the assessee where the issue had not been decided on merits but on a technical ground.
4. The learned Counsel for the assessee submitted that the assessee-firm had suo motu disclosed income of Rs. 1,87,178 for assessment year 1984-85 because the insurance claim was settled in the year relevant to assessment year 1984-85. It, was, therefore, submitted that since the assessee was admittedly maintaining the books of account on mercantile system of accounting the loss incurred by way of destruction of 2508 scants had occurred in the year relevant to assessment year 1983-84 and had been claimed in that year by not showing the value of 2508 scants in the closing stock as on 31-3-1983. It was also submitted that the income, if any, was to be shown as and when the assessee's insurance claim was settled. According to the learned Counsel for the assessee, the income was to be disclosed under Section 41(1) of the Act. It was vehemently argued that there was neither any warrant nor any justification nor any obligation for disclosing the factum of having received the insurance amount of Rs. 1,87,178 so far as return for assessment year 1983-84 was concerned. It was submitted that the assessee's bona fides stood established by the disclosure of income of Rs. 1,87,178 for assessment year 1984-85. It was pointed out that though the Revenue authorities had not referred to Explanation 1 to Section 271(1)(c) of the Act, in fact that was the Explanation which was applicable to the facts of the instant case. The learned Counsel for the assessee pointed out that Explanation 1 postulated that where no explanation for the failure was offered by the assessee or where the explanation offered by the assessee was found to be false or where the assessee was not able to substantiate the explanation offered by him, the law could presume that the amount added or disallowed in computing the total income of the assessee be deemed to represent the income in respect of which the particulars have been concealed. It was, however, pointed out that there was a proviso to the said Explanation according to which nothing contained in Explanation 1 was to apply to a case in respect of any amount added or disallowed as a result of the rejection of any explanation offered by such person, if such explanation was bona fide and all the facts relating to the same and material to the computation of its total income had been disclosed by it. In this regard, it was pointed out that the factum of receipt of insurance claim of Rs. 1,87,178 had been duly disclosed by the assessee in its return for assessment year 1984-85. It was also pointed out that all the facts pertaining to the claim filed by the assessee with the Insurance Company etc. had been disclosed by the assessee and nothing had been concealed. It was submitted that the assessee was under a bona fide belief that the income of Rs. 1,87,178 was assessable in the year relevant to assessment year 1984-85 and that no such income was to be shown for assessment year 1983-84. It was therefore, submitted that the assessee had offered an explanation which was bona fide and had disclosed all the facts relating to the same and material to the computation of its total income. It was pleaded that the fact that the explanation offered was not substantiated had to be established by the Revenue which had not been established in this case.
5. The learned Counsel for the assessee drew our attention to Circular No. 469, dated 23-9-1986 reported in 162 ITR (Statutes) 36, in which the amendments brought out by the Taxation Laws (Amendment and Miscellaneous Provisions) Act, 1986, w.e.f. 10-9-1986 have been explained. In the said amendment the Board explained that the onus after the amendment has been cast on the person who committed the default. It was pointed out that the Board had clearly mentioned that the amended provisions will apply in respect of defaults or offences committed "hereafter". The thrust of the submission, therefore, was that the assessee's case was covered by the proviso to Explanation 1 to Section 271 (1)(c) which was omitted by the subsequent amendment in 1986 and that it was the earlier provision which governed the assessee's case. It was, therefore, submitted that on the facts and in the circumstances of the case, the burden was on the Revenue to prove that the assessee had failed to substantiate its explanation which burden had not been discharged by the Revenue. It was submitted that whatever burden lay on the assessee by way of making a bonafide explanation and by placing all the facts before the Assessing Officer had been discharged but it was the Revenue who failed to discharge its onus.
6. The learned Counsel for the assessee submitted that it was almost settled law that the income by way of insurance claim had to be disclosed/ assessed under Section 41(1) only when the insurance claim was settled which in the instant case fell in the next assessment year. Relying on the Calcutta High Court decision in the case of Investors Corpn. v. CIT [1993] 201 ITR 378 it was submitted that on identical facts, the insurance claim received in the subsequent year was held to be assessable in the subsequent year. The facts in this case were these: The assessee derived income from cloth business. On January 26, 1968, the premises of Gauhati branch were burnt during a riot on which account the assessee suffered a loss. The firm was dissolved on April 3, 1968. During the assessment year 1968-69, the assessee claimed Rs. 48,346 on account of damage caused to the stock-in-trade by fire. This loss was allowed by the Assessing Officer. On May 20, 1968, the assessee was awarded a sum of Rs. 75,550 by the insurance company as moneys payable under Fire Insurance Policy in respect of the loss suffered by the assessee on January 26, 1968. The assessee claimed before the Assessing Officer that a sum of Rs. 20,135 only was taxable under Section 41(1) of the Act during assessment year 1969-70. This sum was arrived at after deducting some credits of Rs. 56,042 from the insurance receipts. The Assessing Officer rejected this claim and taxed the entire sum of Rs. 76,229 under Section 41(1) which was upheld by the Tribunal. The High Court observed that what were destroyed by fire was the assessee's stock-in-trade and that it was liable to be taxed when the said amount had been recovered. The High Court accordingly held that the whole amount of Rs. 75,550 received from the insurance company was taxable in the assessment year 1969-70. On the anology of the above decision, the learned Counsel for the assessee vehemently argued that the amount of Rs. 1,87,178 received from the insurance company was correctly assessable in assessment year 1984-85 and hence the assessee did not commit any concealment of income by not disclosing this amount as the income for assessment year 1983-84.
7. Reliance was also placed on the Punjab and Haryana High Court decision in Laxmi Ginning & Oil Mills v. CIT [1971] 82 ITR 958 for the proposition that the loss or profit was assessable in the year during which final decision of the litigationvwas made.
8. Reliance was also placed on the Allahabad High Court judgment in Bhagwat Prasad & Co. v. CIT [1975] 99 ITR 111 for the proposition that the fiction under Section 41 of the Act, that any bona fide accruing to an assessee by remission or cessation of its trading liability is deemed to be the profits and gains of its business comes into play only if, while computing its income for some assessment year, an allowance or deduction in respect of the trading liability is made and subsequently the assessee acquires in respect of that trading liability some benefit whether in cash or some other manner which accrues to the assessee because of its ceasing to exist. Reliance was also placed on the Delhi High Court decision in Mrs. Ethyl Saxena (deed.) v. CIT [1984] 146 ITR 518 for the proposition that the compensation received was assessable under Section 41 (1) in the year in which the settlement took place. The learned Counsel for the assessee also relied on the Punjab and Haryana High Court decision in CIT v. Balabux Birla & Co. [1986] 157 ITR 759 for the proposition that the very fact that the assessee follows the mercantile system of accounting could not exclude the applicability of Section 41(1). Reliance was also placed on the Punjab and Haryana High Court decision in the case of Vishwakanna Industries v. CIT [1982) 135 ITR 652 (FB) for the proposition that penalty proceedings and assessment proceedings were independent proceedings and these must be kept sharply distinct and independent from each other. Relying on the Punjab and Haryana High Court decision in the case of CIT v. Metal Products of India [1984] 150 ITR 714, it was submitted that merely because the addition had been made on estimate did not lead to the conclusion that there was failure to return the correct income and that the onus to prove that there was fraud or gross or willful neglect "was on the assessee yet the quantum of proof to discharge it was that as required in a civil case i.e., by preponderance of probabilities. It was submitted that the assessee in the instant case had proved by preponderance of probabilities that there was no concealment of income.
9. Reliance was also placed in the Calcutta High Court decision in ITO v. Burmah Shell Oil Storage & Distributing Co. of India Ltd. [1987] 163 ITR 496 for the proposition that where the assessee disclosed all papers and documents and claimed deductions which were disallowed, there could be no concealment of income and even the above precedent for initiation of penalty proceedings was non-existent. It was, therefore, submitted that in the instant case also even the initiation of penalty proceedings under Section 271 (1)(c) was bad in law because on the basis of material available on record, the Assessing Officer could not satisfy himself that the assessee had concealed the particulars of its income.
10. The learned Counsel for the assessee also submitted that the facts in the case of McDowell & Co. Ltd. v. CTO [1985] 154 ITR 148 (SC) were entirely different and that the Assessing Officer was wrong in deriving inspiration from the said decision. It was submitted that there was absolutely no subterfuge of colourable device employed by the assessee for not disclosing income of Rs. 1,87, 178 for assessment year 1983-84. On the other hand, it was contended that the said amount was not the income of the assessee for that year because the insurance claim was settled in the following year and hence that income was correctly disclosed for assessment year 1984-85. The learned Counsel for the assessee pointed out that the Assessing Officer had placed reliance on the Madras High Court decision in Devi Films (P.) Ltd. v. CIT [1970] 75 ITR 301 which was in fact favourable to the assessee and not" to the Revenue. The learned Counsel for the assessee vehemently argued that there was no justification for initiating penalty proceedings or for levying penalty under Section 271(1)(c) of the Act.
11. The learned D.R. submitted that the addition of Rs. 1,87,178 had been upheld in this case and even if the confirmation of addition was on a technical ground, there was no getting away from the fact that the addition had been confirmed for assessment year 1983-84. It was also submitted that when the case of the assessee for assessment year 1983-84 was taken up for scrutiny, it was found that the assessee disclosed the income of Rs. 1,87,178 in its return for assessment year 1984-85 just a couple of days before the assessment for assessment year 1983-84 was completed. Reliance was placed on the Punjab and Haryana High Court judgment in Shiv Narain Khanna v. CIT [1977] 107 ITR 542 for the proposition that there is no basis for the assumption that some additional material should always be available for the levy of penalty in addition to the material on which the assessment was based. Reliance was also placed on the Punjab and Haryana High Court's decision in the case of New Bijli Foundry v. CIT [1982] 135 ITR 593 for the proposition that findings recorded in assessment proceedings were relevant in penalty proceedings. The learned D.R. supported the orders of the Revenue authorities.
12. We have carefully considered the rival submissions as also the facts on record. There is no quarrel with the proposition formulated by the learned D.R. that the findings recorded in assessment proceedings were relevant in penalty proceedings. The addition of Rs. 1,87,178 has been confirmed in the hands of the assessee-firm for assessment year 1983-84 not on merits but on a technical ground against which a reference has been granted under Section 256(1) of the Act. The learned D.R. has further submitted that it is not necessary that additional material should always be available for levy of penalty in addition to the material on which the assessment was based. The Hon'ble jurisdictional High Court of Punjab and Haryana in the case of Shiv Narain Khanna (supra) has, however, further held that the very same material can form the basis for the assessment and penalty, "depending on the facts and circumstances of the case". We have, therefore, to see whether the material available on record at the time of assessment proceedings was sufficient to impose penalty under Section 271 (1)(c) of the Act. We are, however, clear in our mind about one thing, namely, that penalty is not automatic and simply because an addition has been upheld does not ipso facto mean that the penalty must also be levied. That, in our opinion, will depend on the facts and circumstances of each case.
13. So far as the facts and circumstances of the present case are concerned, the facts have been narrated in the earlier part of the order and may be skipped to avoid repetition. There is, however, no getting away from the fact that the assessee-firm itself showed the income of Rs. 1,87,178 for assessment year 1984-85. It is also an undisputed fact that the insurance claim of the assessee with regard to the fire that took place at the assessee's premises resulting in the destruction of 2508 scants was settled in May 1983 relevant to assessment year 1984-85. Under these circumstances, there was no obligation on the part of the assessee to disclose the factum of having received the insurance claim prior to the filing of the return for assessment year 1984-85. The learned Counsel for the assessee has referred to a plethora of case law for the proposition that the income under Section 41(1) is assessable when the claim is settled or the litigation is over or the amount is finally recovered. In the instant case, the claim was settled in May 1983 and hence on merits, the income of Rs. 1,87,178 was assessable in assessment year 1984-85. We were informed that on the basis of the income disclosed for assessment year 1984-85, the income of Rs. 1,87,178 had in fact been assessed for assessment year 1984-85.
14. We are in agreement with the learned Counsel for the assessee that as per the proviso to Explanation 1 to Section 271(1)(c), the assessee had placed all the cards on the Assessing Officer's table and had furnished a bona fide explanation and had disclosed all the facts and material for the computation of its income and that nothing has been concealed. In our considered opinion, whatever onus lay on the assessee has been fully and satisfactorily discharged by the assessee whereas the Revenue has not been able to discharge its onus regarding non-substantiation of the explanation submitted by the assessee. The assessee's reference to the subsequent amendment made in Explanation 1 to Section 271(1)(c) resulting in the addition of certain words and in the deletion of the proviso have to be understood in the light of the Board's circular dated 23-9-1986. It has been clearly mentioned in the said circular that the amended provisions were to apply in respect of the offences or defaults committed "hereafter". For assessment year 1983 84, we have to examine the position of the assessee's case as per the existing provisions of Explanation 1 to Section 271(1)(c) which included the proviso. Viewed from that angle, the assessee has discharged its onus and there is absolutely no device or subterfuge to defraud or deprive the Revenue and the assessee was justified in not disclosing the income of Rs. 1,87,178 for assessment year 1983-84.
15. Taking a total view of the matter, we hold that no penalty was leviable in this case. The penalty of Rs. 1,22,017 is hereby deleted.
16. In the result, the appeal is allowed.