Gujarat High Court
Commissioner Of Income-Tax vs Somnath Oil Mills on 18 January, 1995
Equivalent citations: [1995]214ITR32(GUJ)
Author: M.B. Shah
Bench: M.B. Shah
JUDGMENT M.B. Shah, J.
1. The Income-tax Appellate Tribunal, Ahmedabad Bench "B", Ahmedabad, has referred the following questions under section 256(2) of the Income-tax Act, 1961 (hereinafter referred to as "the Act"), for our opinion :
"1. Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was right in law in holding that levy of penalty as imposed by the Appellate Assistant Commissioner under section 271(1)(c) cannot be sustained ?
2. Whether the finding of the Appellate Tribunal that levy of penalty under section 271(1)(c) of the Income-tax Act, 1961, cannot be sustained is correct in law and sustainable from the facts, evidence and material on record ?"
2. The aforesaid questions arise in the background of the facts : The assessee, Messrs. Somnath Oil Mills, Veraval, which is a registered firm, carries on the business of running an oil mill. On January 6, 1972, the sales tax authorities conducted a raid in the premises of the assessee and during the search seized a number of documents. Thereafter, in the assessment proceedings for the accounting year 1970-71, the Income-tax Officer took cognizance of the documents seized by the sales-tax authorities and found that the assessee had not recorded purchases of groundnuts to the tune of Rs. 5,97,107. The Income-tax Officer called upon the assessee to explain the unaccounted purchases recorded in the exercise book and diary seized from the assessee. The explanation of the assessee was not accepted by the Income-tax Officer. He further found some entries relating to expenses and sales of oil and oil cakes. Finally, the Income-tax Officer held that the assessee has failed to establish the source of purchase of groundnuts to the tune of Rs. 5,97,107 and, therefore, he treated the said amount as unexplained investment and brought to tax the said amount as income from undisclosed sources. Thereafter he worked out the profit on suppressed production of Rs. 60,188 by estimating the oil production and oil cakes. However, as he had made an addition in respect of income from undisclosed sources, he did not make a separate addition of Rs. 60,188 in the income.
3. Against that order, the assessee preferred an appeal before the Appellate Assistant Commissioner. The Appellate Assistant Commissioner, after receiving the report from the Income-tax Officer, arrived at the conclusion that Rs. 35,220 should be treated as the assessee's income from undisclosed sources as against Rs. 5,97,107 determined by the Income-tax Officer. In respect of the profits on unaccounted transactions of oil and oil cakes, the Appellate Assistant Commissioner came to the conclusion that the suppressed pressed profits could be worked out at Rs. 50,000. He accordingly, enhanced the business income by Rs. 50,000.
4. Against that order, the assessee preferred appeal I.T.A. No. 1077/Ahd/ 1974-75 before the Income-tax Appellate Tribunal, Ahmedabad. The Tribunal, by its judgment and order dated November 29, 1975, partly allowed the appeal. While allowing the appeal, the Tribunal rejected the contention that the addition of Rs. 35,220 as income from undisclosed sources was not justified. With regard to the addition of Rs. 50,000 in respect of the profits from the sale of oil and oil cakes, the Tribunal partly allowed the appeal. The Tribunal rejected the contention of learned counsel of the assessee by holding that there was no reason to depart from the margin of profit and as such the rate of G. P. as adopted by the Appellate Assistant Commissioner at 7.5 per cent. net was excessive. Dealing with the contention that the assessee was required to pay sales tax of Rs. 38,000 determined by the sales tax authorities on the undisclosed sales and, therefore, that liability should be allowed as deduction in computing the assessee's profits arising out of unrecorded sales of oil and oil cakes, the Tribunal negatived it. The relevant findings are as under :
"This brings us to consider the other aspects of the matter, viz., deduction of sales tax liability. It is true that the sales tax liability has to be allowed on accrual basis but for that purpose we have to consider the method adopted by the assessee. The assessee has not debited the sales tax to this trading account. Therefore, the only inference is that sales as disclosed by the assessee would be the net sales after deduction the sales tax liability. On this basis, the total turnover as estimated at Rs. 5,55,000 shall be reduced by the sales tax liability of Rs. 38,000 and the net profit of six per cent. should be applied on the balance sales, which work out to Rs. 5,17,000. The profit as determined on the above basis may be added to the income already assessed. This estimate may be substituted for the sum of Rs. 50,000 as adopted by the Appellate Assistant Commissioner....."
5. Thereafter, on the basis of the notice issued on September 18, 1974, under section 271(1)(c) of the Act, proceedings were initiated for levying penalty. At the time of hearing before the Appellate Assistant Commissioner, the assessee submitted that it actually suffered a net loss of Rs. 20,089 and that the sales tax liability pertaining to unaccounted transactions amounted to Rs. 38,000 and as such the loss would thus come, to Rs. 58,089. It was further submitted that the figure arrived at by the Appellate Assistant Commissioner amounting to Rs. 50,000 would in any case, come down, if the sales tax liability of Rs. 38,000 is considered. It was also pointed out that in view of the order passed by the Tribunal, working out the suppressed profits at Rs. 31,020, even if that figure is taken into consideration and the sales tax amount of Rs. 38,000 is deducted, the net loss would be Rs. 4,700 and, therefore, there was no question of levying any penalty. After considering the various judgments cited before him, the Appellate Assistant Commissioner, Jamnagar, arrived at the conclusion that on the facts and in the circumstances of the case, the assessee had concealed income and furnished inaccurate particulars of income in respect of the suppressed transactions which resulted in concealment of income to the extent of Rs. 31,020 and the provisions of section 271(1)(c) of the Act were attracted. He, therefore, imposed a penalty of Rs. 31,021 for the said default by his order dated July 16, 1976.
6. Against that order, the assessee preferred appeal I.T.A. No. 1071/Ahd/ 1976-77 before the Tribunal. The Tribunal arrived at the conclusions that, -
(i) there is no dispute about the fact that the assessee had not recorded all the transactions of purchases and sales in their regular books of account;
(ii) there is material on record to indicate that the transactions so kept outside the books belonged to the assessee's business, and the profits earned thereon, therefore, would be assessable in the hands of the assessee;
(iii) the explanation of the assessee that they had suffered a loss is not found acceptable and the Tribunal in its order in the quantum appeal being I.T.A. No. 1077/Ahd/1974-75 had held that an estimate of net profit of six per cent. on the net turnover after deduction of sales tax which worked out to Rs. 5,17,000 would be reasonable, and
(iv) in the aforesaid quantum appeal, the admitted liability of sales tax is to be reduced from the turnover and not from the income.
7. In spite of the aforesaid findings, however, the Tribunal arrived at the conclusion that it would be difficult to sustain the penalty proceedings for concealing particulars of income or furnishing inaccurate particulars thereof, because if the assessee's income is considered at Rs. 31,021 and the sales tax liability of Rs. 38,000 is deducted, there would be a loss. For this purpose, the Tribunal observed that it is well settled law that all facts and circumstances must lead to the undisputed and irresistible conclusion that the assessee had concealed the particulars of income in respect of which it was liable to pay tax or, to put it differently, as a result of non-disclosure of income, the assessee had tried to derive a benefit to the dis-advantage of the Revenue. However, if there are conceivably two opinions as to the fact whether the assessee had earned positive income in respect of which it was liable to pay tax or it had suffered a loss even in the business not disclosed by it, the Tribunal held, it would be difficult to sustain the penalty proceedings. The Tribunal, therefore, allowed the appeal and set aside the penalty imposed by the Appellate Assistant Commissioner.
8. In our view, the finding given by the Tribunal is apparently inconsistent with its previous order dated November 29, 1975, in the assessee's own appeal against the quantum of profit. As quoted above, in that appeal, the Tribunal specifically arrived at the conclusion that the assessee had not debited the sales tax to its trading account and, therefore, the only inference is that the sales as disclosed by the assessee would be the net sales after deducting the sales tax liability. On that basis, the Tribunal allowed deduction of the sales tax amount of Rs. 58,000 from the total turnover of Rs. 5,55,000 and directed the competent authority to work out the net profit on Rs. 5,17,000 at six per cent. Before arriving at this conclusion, the Tribunal also considered that the sales tax liability has to be allowed on accrual basis, but for that purpose the method adopted by the assessee was required to be taken into consideration. From the aforesaid judgment of the Tribunal, which is final, it is apparent that after taking into consideration the sales tax liability, the Tribunal had directed to work out the net profit at the rate of six per cent. from the undisclosed sales. Hence, the reasoning given by the Tribunal that there were conceivably two opinions with regard to the fact whether the assessee had earned positive income in respect of which it was liable to tax is on the face of it unreasonable and inconsistent with its earlier decision, which has become final. Once it was finally established before the Tribunal that the assessee had suppressed the purchases of groundnuts and it maintained some other account in the diary and exercise book and that the income from the suppressed sales was determined after long drawn arguments, as held by the Tribunal, it would be difficult to say that there was no concealment of income earned by the assessee. Further, the concealed income is determined by the Tribunal finally by taking into consideration the sales tax liability. Even though the finding given in the assessment proceedings for determining the tax on the basis of suppressed sales or purchases is not conclusive, yet it is good evidence as observed by the Supreme Court in CIT v. Anwar Ali [1970] 76 ITR 696 and Anantharam Veerasinghaiah and Co. v. CIT [1980] 123 ITR 457. The reassessment order has become final and the matter was decided by the Tribunal after considering the sales tax liability of the assessee and that the determination of the concealed net income in the final decision was based on cogent material which was produced on the record at the relevant time.
9. In the result, the questions are answered in the negative, that is, in favour of the Revenue and against the assessee.
10. Reference stands disposed of accordingly with no order as to costs.