Income Tax Appellate Tribunal - Kolkata
Viraj Technocom Ltd. vs Income-Tax Officer on 28 November, 1991
Equivalent citations: [1992]40ITD365(KOL)
ORDER
D.S. Meenakshisundaram, Vice President
1. Since these two appeals are filed by the same appellant and involve common contentions, they were heard together and are disposed of by a common order for the sake of convenience.
2. These appeals are directed against the penalties levied against the appellant under Section 271(1)(c) of the Income-tax Act, 1961 for alleged concealment of income. The facts of the case are the following.
3. The appellant is a company which was incorporated on 22-2-1983, for the purpose of carrying on business inter alia as manufacturers, dealers, importers, exporters, commission agents of all types of wires, G.I. Wires, M.S. wires, Iron & Steel converters, High Tensile prestressed and concrete strended wires, H.B. wires etc., and to carry on business of financiers of industrial, commercial, other enterprises and general financiers, film financiers etc. We are concerned with the assessment years 1984-85 and 1985-86 for which the previous years ended on 31-3-1984 and 31-3-1985 respectively.
4. For the first year 1984-85, the assessee filed its return of income on 13-9-1984 declaring a loss of Rs. 58,254. Subsequently, it filed a revised return on 26-3-1987 according to which the loss declared amounted to Rs. 58,054. Later on 12-2-1988, the assessee filed another revised return declaring a total income of Rs. 3,51,446. This return was accepted by the Income-tax Officer and the assessment was completed on 15-2-1988 under Section 143(3) of the Act determining the assessee's total income at Rs. 3,51,450 in round figures.
5. For the next assessment year 1985-86, the assessee filed its return of income on 31-7-1985 declaring a loss of Rs. 1,16,442. Subsequently, it filed a revised return on 16-2-1988 in which it admitted a total income of Rs. 3,78,658. This return as accepted by the Income-tax Officer and the assessment was completed on the same day under Section 143(3) of the Act determining the assessee's total income at Rs. 3,78,660 in round figures.
6. While completing the assessments, the Income-tax Officer initiated penal action for alleged concealment of income under Section 271(1)(c) of the Act as well as Section 273 of the Act in both the years. After considering the assessee's objections to the show-cause notices issued under Section 271 (1)(c) of the Act, the Income-tax Officer imposed penalties of Rs. 2,36,486 for 1984-85 and of Rs. 2,85,920 for the assessment year 1985-86 by his orders dated 26-3-1990. The Income-tax Officer rejected the assessee's explanation and held that all the circumstances leading to the assessments conclusively established that the assessee-company consciously and deliberately attempted to evade tax on its income assessed for these two years and, therefore, a penalty for concealment under Section 271(1)(c) was attracted in this case in each of these years. Considering the circumstances and merits of the case, he purported to levy the minimum penalty, equal to the tax sought to be evaded on the concealed income in each of these years. These penalties were upheld by the CIT( Appeals) who rejected the assessee's pleas that it had voluntarily disclosed the amounts for purpose of assessment and, therefore, there could be no concealment much less of furnishing inaccurate particulars of income to justify the imposition of a penalty. Aggrieved by these orders, the appellant has come up on further appeal to the Tribunal.
7. We have heard Shri P.J. Bhide, the learned Chartered Accountant for the appellant and Sri D.S. Roy, the learned Departmental Representative and carefully considered their submissions in the light of the materials placed before us.
8. It was first urged by Shri Bhide on behalf of the appellant that since the Income-tax Officer had accepted the income returned by the assessee in the revised returns filed by it, there could be no penalty as no amount has been added by the Income-tax Officer to the income returned by the assessee. For this, he relied on the assessment orders passed by the Income-tax Officer accepting the returns. This argument was countered by the learned Departmental Representative Sri D.S. Roy by pointing out that in its reply to the penalty notices, the assessee had itself accepted the fact that it was offering an additional amount by way of income in the revised return in addition to what it had declared in its original returns for these two years and that, therefore, there was nothing further to be either stated or done by the Income-tax Officer for levying any penalty. In other words the learned Departmental Representative argued that the filing of the revised returns by the assessee resulted in an automatic admission on the part of the appellant that it had concealed the particulars of its income and, therefore, it was liable to penalty under Section 271(1)(c) of the Act. We are unable to accept any of these arguments put forward by the learned counsel on both sides, for the simple reason that they seek to over simplify the issues involved in these appeals. It can hardly be disputed that the findings in the assessment orders would certainly be good evidence on which the department is entitled to rely in support of levy of penalty, though the said findings are not conclusive for purposes of levy of penalty. It is always open to the assessee to show in the course of the penalty proceedings that the amount added to its income, did not represent any concealed income and that no penalty is leviable. In Sir Shadilal Sugar & General Mills Ltd. v CIT [1987] 168 ITR 705 at page 713, Their Lordships of the Supreme Court held as follows :-
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 true position, it does not dispute certain disallowances but that does not absolve the revenue from proving the mens rea of a quasi-criminal offence.
9. It was next urged by Shri Bhide, the learned Chartered Accountant for the appellant, that the assessee's case would fall within the proviso to Explanation 1 to Section 271(1)(c) of the Act and that, therefore, no penalty is exigible. In support of this argument, the learned Chartered Accountant again relied on the fact that the assessee had complied with all the requisitions issued by the Income-tax Officer from time to time in the course of the assessment proceedings and placed full and complete particulars regarding the various items as required by the Income-fax Officer and that, therefore, the additional amounts offered by the assessee in its revised returns could not be deemed to represent income in respect of which particulars had been concealed. The learned Chartered Accountant further relied on the letter dated 8th February, 1988 filed by the assessee along with its revised returns for these two years and submitted that these two letters clearly explained the circumstances in which the assessee was compelled by force of circumstances to agree to these additions by offering them in the revised returns and that there was neither any enquiry by the Income-tax Officer nor any finding in the assessment orders that the assessee had concealed the particulars of its income to hold that the Explanation 1 to Section 271(1)(c) is applicable. On the contrary, these two letters dated 8th February, 1988 clearly established the assessee's bona fides and that, therefore, the penalties should be cancelled. The learned Departmental Representative, Shri Roy, submitted that the covering letters dated 8th February, 1988 enclosing the revised returns would not justify the conclusions sought to be drawn by the assessee's learned Chartered Accountant as the assessee itself had admitted the additional amounts as its income by filing revised returns. He submitted that it is not open to the assessee to urge that it did not represent its concealed income. He argued that there was no onus on the Department to prove anything further in justification of the penalty levied by the Income-tax Officer and that, therefore, the penalties should be upheld.
10. We quote below Explanation 1 together with its proviso to Section 271(1)(c) of the Income-tax Act, 1961 as it stood during the two assessment years 1984-85 and 1985-86 :-
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 Assistant 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.
11. When we examine the facts of the present case in the light of these two provisions of law, we find that it is not a case where the assessee failed to offer an explanation or where the explanation offered by the assessee was found by the assessing authorities or other authorities to be false. Therefore, Clause (A) of Explanation 1 does not apply to the facts of the present case. The assessee's letters dated 8th February, 1988 show that the assessee was unable to substantiate the explanation offered by it as contemplated by Clause (B) of Explanation 1. The circumstances in which the assessee came forward with the revised returns for these two years would be clear as explained by the assessee in paragraphs 1 and 2 of this letter dated 8th February, 1988 which we quote below :-
The petitioner Co. is an industrial Co. dealing in manufacturing & Sale of S.S. Utensils. With great difficulties it raised capital of Rs. 24.50 lacs equity in the accounting year 3l-3-1984 and a further sum of Rs. 24.50 lacs by way of right issue in the accounting year ending 31-3-1985. The Department has been investigating the genuineness of share holding for the past 3 years resulting in avoidable anxiety and loss of business and prestige to the company. Due to losses incurred by the company in the business and non production of any commodity in the 1st year and 2nd year the shares of the company were quoted at abnormally low rates. The public who invested in our company in 1983 got panicky and to step this bar strand we had to persuade some of our promoters, allied companies and friends to mobilise and purchase these shares to avoid a crash. These facts presumably is seen by Department in an unfavourable light and the company is put to great hardship. The company has already incurred heavy losses and even for running the business it is approaching the financial institution not being able to raise further capital in the market. The financial institutions always ask for a clear sit from the I.T. Department or at least production of latest I.T. Asst. Order.
To get over this impasse and to purchase peace we are offering an addition of Rs. 3,56,000 and Rs. 48,500.00 in share loss as we are not able to provide the documents for share loss in the manner you have asked for.
The above passage would show that these two years are the first and second years of the business of the company, that on account of the enquiries made by the Assessing Officer regarding the genuineness of the share holdings subscribed by the public, the value of the shares of the company crashed and the assessee was faced with great financial difficulty in raising borrowed capital for the purpose of carrying on its business activities as contemplated in the Memorandum and Articles of Association. It was in these circumstances the assessee had come forward with an offer of additional amounts in its revised returns as set out below in the two letters :-
Computation for 1984-85 :
Business loss as per return (-) Rs. 58,054.00
Addition as discussed above Rs. 3,56,000.00
Share loss as discussed Rs. 48,500.00
Other expenditure Rs. 5,000.00
Rs. 3,51,446.00
Computation for 1985-86:
Business loss as per return (-) Rs. 1,16,442.00
Addition as discussed above Rs. 3,49,500.00
Share loss as discussed Rs. 1,40,600.00
Other expenditure Rs. 5,000.00
Rs. 3,78,658.00
The assessee had made it very clear in these letters that it was making this offer on the clear understanding that their assessments upto assessment year 1988-89 would be completed without levy of any penalty or penal interest under Section 271 or 273 or any other provisions of the Income-tax Act. They also made it very clear that they would be filing their revised returns accordingly after hearing from the Assessing Officer. They also stated that their offering the additional amounts did not in any way mean to suggest that any part of the subscribers to the shareholding of the company was not genuine and that they were offering the amounts for taxation with a view to buy peace and avoid litigation and multiplicity of proceedings. It was further understood that no proceedings would be taken against any of the shareholders of the company and that no other proceedings against the company would be initiated in regard to the share capital. Finally, the assessee had requested the Assessing Officer to allow facility of payment of additional taxes as there was no liquidity of funds in the company in order to enable the company to run its industry smoothly and as it was employing several labourers. After filing these letters on 8-2-1988, the assessee filed revised returns for the assessment year 1984-85 on 12-2-1988 and for 1985-86 on 16-2-1988. Thereafter, the Assessing Officer completed the assessments for the these two years on 15-2-1988 and 16-2-1988 accepting the revised returns filed by the assessee in both the years. We further find from the chart filed by the assessee's learned counsel at page 1 of his paper book that the interest amounts levied under Sections 217 and 139(8) of the Act in these two assessment years were waived in full by the Departmental authorities and that further penalties levied under Section 273 of the Act for the non-filing of statement of advance tax for these two years were cancelled by the CIT (Appeals)-VI, Calcutta by his common order dated 19-10-1990, as could be seen from the copy of the order at pages -16 & 17 of the assessee's paper book.
12. The learned Departmental Representative, however, urged that these facts. should be left out of consideration as we are concerned only with the levy of penalty under Section 271(1)(c) of the Act. We are unable to agree with this submission of the revenue. As pointed out by the Supreme Court in the case of CIT v. Mussadilal Ram Bharose [1987] 165 ITR 14, the Tribunal has to bear in mind the relevant principles of law and has also to judge the facts on record. We may point out that none of the facts mentioned above, viz., the letters dated 8th February, 1988 written by the assessee to the. Assessing Officer, the filing of revised returns on 12-2-1988 and 16-2-1988 and the acceptance of those revised returns on 16-2-1988 are disputed by the Revenue. On the contrary, a perusal of the assessment orders for these two years supports the assessee's case as more probable and true. In the assessment order for 1984-85, the Assessing Officer states as follows :-
Another revised return of income was filed on 12-2-1988 admitting enhanced income voluntarily. The income voluntarily offered represents a part of share capital with request that no penalty prosecution or penalty proceedings of any nature could be initiated.
[Emphasis supplied] The assessment order for the next assessment year 1985-86 shows the following position :-
A revised return of income was filed on 16-2-1988 admitting enhanced income of Rs. 3,78,660 voluntarily.
[Emphasis supplied] The learned Departmental Representative, however, sought to distinguish the decision of the Supreme Court by pointing out that it dealt with a case under the old Explanation to Section 271(1)(c) of the Act before the present Explanations were inserted by the Taxation Laws (Amendment) Act, 1975 with effect from 1-4-1976. This contention of the revenue is also untenable as the principles to be applied are the same and are in no way different from what has been laid down by the Supreme Court in the aforesaid decision. In fact, Their Lordships of the Supreme Court have held in this decision that the burden placed upon the assessee is not discharged by any fantastic explanation, that it is not the law that any and every explanation by the assessee must be accepted and that it must be an explanation acceptable to the fact-finding body. In our view, the aforesaid principles laid down by the Supreme Court are applicable with equal force while construing the provisions of Explanation 1 and its proviso which we have quoted above.
13. In the light of the above discussion, it would be seen that the case of the appellant squarely falls within the scope of the proviso to Explanation 1, quoted above. It would be further noticed that the assessee's explanation is bonafide and that all the facts relating to the shareholders and their subscription to the shares of the company were fully disclosed by the assessee and that no material was withheld from the Department by the assessee. As the Assessing Officer was not willing to accept the explanation offered by the assessee, the assessee came forward with the revised returns in both the years agreeing to various additions and disallowances as set out in the computation. Therefore, there is no question of any concealment of income much less furnishing of any inaccurate particulars within the meaning of Section 271(1)(c) of the Act read along with Explanation 1.
14. Apart from the above, in a recent decision in CIT v. Stellar Investment Ltd. [1991] 192 ITR 287 the Delhi High Court has held that even if it be assumed that the subscribers to the increased share capital were not genuine, under no circumstances could be amount of share capital be regarded as undisclosed income of the company. At page 288 of the reports, Their Lordships of the Delhi High Court have held as follows :-
It is evident that even if it be assumed that the subscribers to the increased share capital were not genuine, nevertheless, under no circumstances, can the amount of share capital be regarded as undisclosed income of the assessee. It may be that there are some bogus shareholders in whose names shares had been issued and the money may have been provided by some other persons. If the assessment of the persons who are alleged to have really advanced the money is sought to be reopened, that would have made some sense but we fail to understand as to how this amount of increased share capital can be assessed in the hands of the company itself.
In our view, the ratio of this decision of the Delhi High Court fully supports the case of the appellant against the assessment of the amount subscribed to the share capital of the company. It is no doubt true that it is not now open at this stage to the appellant to object to the assessment of this amount as it had itself offered the same as its income by filing revised returns. At the same time, it cannot be disputed that it is always open to the asset see to point out that the amount so offered cannot be treated as its concealed income even though it might have offered it for assessment in the circumstances explained by it in its letter dated 8-2-1988.
15. Having regard to the cumulative effect of the entirety of the facts and circumstances discussed above in the light of the decisions quoted above, we are of the considered view that the amounts offered by the assessee in its revised returns for these two years could not be held to be income in respect of which particulars had been concealed within the meaning of Explanation 1 to Section 271(1)(c) of the Act. We, therefore, accept the contentions of the learned Chartered Accountant for the appellant and cancel the penalties levied in both the years which shall be refunded, if already paid.
16. In the result, the appeals are allowed.