Income Tax Appellate Tribunal - Ahmedabad
Assistant Commissioner Of Income-Tax vs Sharp Springs & Staples Co. (P) Ltd. on 21 January, 1999
ORDER
T. J. Joice, A.M.
1. As these appeals are inter-related they are being disposed of by this common order for the sake of convenience.
ITA No. 3295/Ahd/19902. This is an appeal filed by the Department against the order of the CIT(A), dt. 10th May, 1990, wherein the CIT(A) has deleted the penalty levied under s. 271(1)(c) amounting to Rs. 66,932.
3. The assessee-company is engaged in business of manufacturing of refills and springs for ball pens. There was a search in the premises of the assessee-company at Bombay and simultaneously at Bhavnagar on 30th November, 1982, and 2nd December, 1982. Several books of accounts and documents were seized. For the assessment year under consideration the assessee-company had requested for extension of time for filing the return and the extension was granted upto 15th January, 1984. Further application in Form No. 6 for extension of time was refused by the AO. In view of this, the assessee-company filed a 'provisional return' on 24th March, 1984, declaring income at Rs. 1,60,000.
4. As the books of accounts were seized by the Department the assessee took sometime for inspection of the documents and for taking copies of the accounts. Subsequently, a return was filed on 19th March, 1986, declaring total income of Rs. 2,44,760. The Department had got the books audited under s. 142(2A) by M/s Sanghvi & Co., C.A. The AO after referring the case to the IAC, under s. 144A and after getting his instruction from him framed the assessment order under s. 143(3) on 26th September, 1986, computing the total income at Rs. 2,57,820. The AO also initiated penalty proceedings under s. 271(1)(c) of the Act. In reply to the show-cause notice, the assessee stated before the AO, that the books of accounts relevant for asst. yr. 1983-84 were seized by the Department and extracts were not allowed upto the end of 1985, that the time for filing the return of income was extended and hence provisional return of income was filed on 24th March, 1984, with an explanatory letter that the assessee could complete the work of taking extracts of seized documents only by February, 1986, and on 19th March, 1986, immediately after ascertaining the correct position, the assessee filed another return of income which satisfied all the preconditions relating to the Amnesty Scheme announced by the CBDT; that the proposed levy of penalty was against the spirit of the circular issued by the CBDT and, therefore, the penalty proceedings be dropped. The AO considered this explanation given by the assessee. According to the AO, since this was a search case, it falls out of the Amnesty Scheme and hence the explanation filed by the assessee had no merits. Thereafter the AO has observed that the assessee-company has not maintained cash book day-to-day and there were several errors on many pages and that the production register was not produced at the time of hearing. The contra copy of the sister concern was also not furnished. While proceeding to the levy of penalty the AO considered the following three additions made to the returned income :
(i) cash credit totalling to Rs. 3,153 (Rs. 250 dt. 3rd January, 1982; Rs. 200 dt. 5th January, 1982, and Rs. 2,703 dt. 9th January, 1982).
(ii) Other unexplained cash credits amounting to Rs. 10,275 (Rs. 10,000 dt. 19th April, 1982, and Rs. 275 in the name of Shri Modibhai).
(iii) Sales-tax liability shown as outstanding of Rs. 2,903.
The AO further observed that the assessee has filed appeal against the addition on account of sales-tax liability of Rs. 2,903 before CIT(A), and the CIT(A) has deleted the same. The AO therefore, came to the conclusion that the assessee concealed the particulars of income and penalty was leviable for such concealment. For the purpose of working out the quantum of penalty, the AO treated the assessed income of Rs. 2,55,500 as the concealed income presuming that the returned income was Nil. The penalty was levied at 100 per cent of the tax sought to be evaded and this amount has been mentioned as Rs. 66,932 in the body of the penalty order dt. 27th March, 1989. (However, in the foot-note to the penalty order, the tax on concealed income has been shown at Rs. 1,57,132).
5. It is pertinent to quote from the concluding paragraphs of the CIT(A)'s order in this context.
"I have carefully considered each and every assessment order with a particular reference to the returned income on 19th March, 1986, and the assessed income as per the guidelines given by the IAC and finally assessed by the ITO. It is quite strange that the books of accounts and all the other supporting material seized remained in the custody of the ITO right from 3rd November, 1982, till December, 1986, when the assessee were allowed only to extract copies for getting the necessary audit completed on 18th March, 1986, and correct returns filed on 19th March, 1986, itself. But even then, the Department had chosen to appoint its own auditors viz. M/s Sanghvi & Co. to re-audit the whole accounts and finalise the figures of correct income under the guidance of the jurisdictional IAC, who in turn had scrutinised the details and passed on instructions under s. 144A to the ITO for completing the assessments. These instructions did not contain a whisper about the concealment aspect or the levy of penalty under s. 271(1)(c). It shows obviously that the IAC was fully satisfied that the returned income filed on 19th March, 1986, were in full agreement with the re-audited figures of income by the departmentally appointed auditors and there were no differences particularly of any detection of concealment, if any, between the seized books and the returns filed on 19th March, 1986. The ITO cannot take a double stand, on one hand that the originally filed voluntary returns on 24th March, 1984, were no valid returns though on the other hand he acted on them by issuing notices under s. 143(2) and 142(1) on 18th February, 1986, to the assessee to furnish the following :
(1) books of accounts and other documents/evidences in support of your returned income; (2) bank account, if any;
(3) register of stock, raw-materials, finished goods, etc.; (4) register of salary, wages, etc.; and (5) file all vouchers, bills, etc. and all other details in support of your returned claims.
But yet, for levying penalties, he relied on those returns filed on 24th March, 1984, though according to him they were no valid returns at all. Anyway, the facts remains that they were all bona fide filed under special circumstances to take the advantages and immunities provided under the Amnesty scheme as explained in their letter dt. 3rd October, 1986, which was extensively quoted by the ITO himself in his penalty orders. It is also worthwhile making a reference to para 7 of the IAC's instructions issued on 25th September, 1986, which is reproduced hereunder for ready reference and remarked :
'Para 7 : Regarding your proposed additions for deficit/shortage, the assessee has submitted detailed explanation dt. 25th September, 1986, which appears to be justifiable. You appear to have suggested the said additions stating that the assessee has not maintained the production register during the course of business but the one which was produced was written thereafter. In this regard, it may be stated that the said production register was verified by both the auditors and they did not find any noticeable defects. The auditors report under s. 142(2A) also does not contain any adverse report in this regard. The assessee has also submitted copies of relevant letters, etc. in support of its contentions. M/s Sanghvi & Co., CA, in his audit report under s. 142(2A) have also certified that the accounts, exhibit true and fair view of the assessee's business. The balance sheet also does not reflect any doubtful cash credits which can be related to such shortage/deficit. In view of the above, I feel that your proposed addition in this regard will not be justifiable. The above contents support my view that the IAC was fully satisfied that there was no case at all for the levy of penalty under s. 271(1)(c) for concealment of any particulars of income as such. The Asstt. CIT is, therefore, not justified in levying all four of the penalties without any positive legal evidence in support of such levy in each of the cases under consideration. Hence, the penalties levied are deleted as baseless and unwarranted'."
6. In the present appeal filed by the Department, the learned Departmental Representative pointed out that the assessee did not file any ground of appeal before the CIT(A) in the quantum appeal except the ground relating to under s. 43B. Therefore, the assessee is deemed to have concealed the particulars of income in respect of all the additions made by the AO to the returned income except the disallowance under s. 43B which was deleted by the first appellate authority. On the other hand the learned counsel for the assessee has placed reliance on the findings given by the CIT(A).
7. The learned counsel has also pointed out that the additions made are of petty amounts, that too of a routine nature which do not call for levy of penalty under s. 271(1)(c). The books of accounts were got audited at the instance of the Department and no serious mistake in the books of accounts was found by the auditors. In the circumstances, the levy of penalty is unwarranted and the CIT(A) was justified in deleting the levy of penalty, it is argued by the authorised representative for the assessee.
8. We have carefully considered the rival submissions. As is made clear in the relevant extract from the order of the CIT(A) no material defect was found in the books of accounts of the assessee after they were audited under s. 142(2A). The IAC(IT) while issuing instructions under s. 144A did not agree with the proposed additions to be made by the AO. Ultimately the only additions which were considered by the AO for the levy of penalty were the three amounts mentioned at para 4 above. It is quite clear that these additions relate to certain cash credits for which no satisfactory explanation was offered before the AO. As regards the addition relating to sales-tax liability, as mentioned earlier, it was deleted by the CIT(A) in quantum appeal. The assessee-company appealed against the addition relating to sales-tax liability only. This led the AO to conclude that in respect of cash credits the assessee concealed the particulars of income calling for the levy of penalty. However, the mere fact that the assessee has not filed appeal against the cash credits addition, does not lead to the conclusion that the assessee has concealed the particulars of income. Reference in this connection may be made to the decision of apex Court in CIT vs. Musaddilal Ram Bharose (1987) 165 ITR 14 (SC). The mere fact that the cash credits have been added under the deeming provisions of s. 68, would not automatically mean that penalty can be levied under s. 271(1)(c) unless concealment is clearly established by the AO. Reference in this connection may be made to the decision in Hajee K. Assainer vs. CIT (1971) 81 ITR 423 (Ker) and CIT vs. Shree Bajrang Trading & Supply Co. (1991) 187 ITR 299 (Cal).
9. That apart, the question to be considered is whether the assessee concealed particulars of income with reference to the return of income filed. For the levy of penalty the AO has considered the return filed on 24th March, 1984, showing income of Rs. 1,60,000 as the reference point for the presumption that the assessee has concealed particulars of income or furnished inaccurate particulars of such income. As made clear, in para 2 above, the assessee termed it as provisional return of income only and the circumstances under which such return was filed were explained before the ITO. Even though there was no provision for filing provisional return, the explanatory letter makes it abundantly clear that the assessee's intention was bona fide. Since the application for extension of time for filing the return was rejected by the AO the assessee had no other way but to file a return but at the same time as the books of accounts were in the custody of the Department, the assessee could not compute the total income on the basis of the books of accounts as it took several months to complete the process of taking the extracts from the seized books of accounts. Finally the return of income was filed only on 19th March, 1986, wherein income was declared at Rs. 2,44,760. Considering the entire facts and circumstances of the case, if at all there is any default committed under s. 271(1)(c), it had to be considered with reference to the valid return filed on 19th March, 1986, as the AO himself did not consider the original return dt. 24th March, 1984, as valid for assessment purpose. The CIT(A) observed that AO cannot blow hot and cold in refusing to treat the provisional return as 'not valid' on the one hand and treat it as valid for the purpose of levying penalty. In our considered view, the assessee was prevented by sufficient cause from declaring its true income on the basis of the books of accounts on account of the refusal on the part of the AO to extend the time for filing of the return even though the application for such extension was made by the assessee for good and sufficient reason(s).
10. In the circumstances, the assessee's return dt. 19th March, 1986, is the valid return relevant for the purpose of levy of penalty. When this returned income of Rs. 2,44,760 is compared with the finally assessed figure of Rs. 2,57,820 we find that the difference is only on account of petty additions. These additions, as mentioned earlier, do not indicate any concealment of income or furnishing of inaccurate particulars of such income within the meaning of s. 271(1)(c) on the part of the assessee. In this view of the matter, we hold that penalty under s. 271(1)(c) is not at all justified in the present case.
11. In the circumstances, we uphold the reasoning given by the CIT(A) and relying on the further observation made by us in the preceding paragraph also, we confirm the order of the learned CIT(A) in this regard.
12. In the result, the appeal is dismissed.
ITA No. 570/Ahd/199113. This appeal has been directed against the order of the CIT(A) dt. 9th November, 1990, in so far it relates to asst. yr. 1983-84 in respect of the respondent-assessee. In the impugned order the CIT(A) has cancelled the levy of additional penalty under s. 271(1)(c) ordered by the AO in his proceedings dt. 17th August, 1989. According to the AO there was a mistake in the quantum of penalty levied in the original penalty order dt. 27th March, 1989, in that instead of the correct amount of penalty of Rs. 1,57,132 being 100 per cent of the tax sought to be evaded the penalty levied was mentioned as Rs. 66,932. In the circumstances after issuing notice to the assessee, the AO enhanced the penalty from Rs. 66,932 to Rs. 1,57,132. When this order under s. 154 was appealed against by the assessee, the CIT(A) considered it of academic interest only because in his earlier appellate order No. CIT-R/161/89-90 dt. 10th May, 1990, he had cancelled the original penalty order itself on merits on the case. Therefore, he was of the view that the rectification order cannot survive and was to be treated as cancelled.
14. We have dealt with the original order dt. 27th March, 1989, in which penalty of Rs. 66,932 was levied by the AO and the CIT(A)'s order thereon dt. 10th May, 1990, in ITA No. 3295/Ahd/1990 in paras 1 to 12 above. Since we have confirmed the order of the CIT(A) cancelling the levy of penalty in this case, there is no need for interference with the CIT(A)'s decision with regard to the order under s. 154.
15. In the result, the appeal also stands dismissed.