Income Tax Appellate Tribunal - Delhi
Northland Development And Hotel Corpn. vs Assessing Officer on 24 February, 1995
Equivalent citations: [1995]53ITD333(DELHI)
ORDER
Manzoor Ahmed Bakhshi, Judicial Member
1. These five appeals of the assessee relating to assessment years 1983-84 to 1987-88 are disposed of by this consolidated order. The common issue relates to penalty under Section 271(1)(c). Relevant facts are that assessee is a registered firm. In 1974 it had purchased a hotel for which money had been borrowed from Citi Bank. Assessee having failed to fulfil the commitments made to the Citi Bank for repayment of the loan, a suit had been filed by the Bank in the year 1978 for the recovery of the dues. On the basis of the compromise between the assessee and Citi Bank, a Consent Decree for a sum of Rs. 42,45,477 was passed by the first Additional Civil Judge, Agra on 30-4-1982, in Suit No. 293 of 1978. As against the liability of Rs. 52,07,873.15 as shown in the books of account of the assessee. As per the said decree assessee was to make the payment of Rs. 39,60,000 by 15-11-1984 and if the payments were made by the assessee in time as referred to above, the decree for a sum of Rs. 42,45,477 would stand satisfied. In the event of assessee's failure to pay any of the instalments as stipulated in the decree by due dates up to 31-7-1982 or if the assessee defaulted twice to pay instalments from August 1982 onwards, the concession of Rs. 2,85,477 would not be available to the assessee and the entire decreed amount would become immediately due with interest at 16 per cent p.a. Though assessee paid some amounts from time to time towards the satisfaction of the decree, the entire amount agreed to be paid to the bank of Rs. 39,60,000 was not paid by 15-11-1984. A sum of Rs. 26,06,000 was in fact paid till end of November 1984 as against Rs. 39,60,000 that was required to be paid. Assessee liquidated the entire amount by November 1987. Apart from decreed amount, a sum of Rs. 3 lakhs was collected by the bank on account of interest on defaulted payments.
2. Though there was compromise between the assessee and Citi Bank, assessee did not pass any entries in the books of account reflecting the waiver of Rs. 10,22,770 in assessment year 1983-84. On the contrary, assessee provided interest in respect of the entire outstandings and also provided for penal interest @ 16% in respect of the decreed amount. Assessee had filed the returns originally for assessment years 1983-84 to 1987-88 on the basis of the books of account maintained by him in which the claim of interest was provided as mentioned above. The Assessing Officer had completed the assessments for assessment years 1983-84, 1984-85 and 1985-86 and the claim made by the assessee had been allowed. For assessment years 1986-87 and 1987-88, assessee filed a revised return on 13-5-1988. In the revised return the interest provided in respect of the sum of Rs. 52,07,873.15 was omitted and the claim limited to the interest @ 16 per cent on the unpaid instalments decreed amount. For assessment years 1984-85 and 1985-86 at the time of giving appeal effect to the appellate orders, assessee had requested the Assessing Officer to include the interest wrongly claimed by the assessee in respect of the outstanding amount of Rs. 52,07,873.15. Though the Assessing Officer had originally included the amounts as assessable for assessment years 1984-85 and 1985-86, while giving effect to the appellate orders. He added the interest as offered by the assessee. The CIT (Admn.) set aside those orders as being erroneous and prejudicial to the interest of revenue. For assessment year 1988-89, assessee had filed the returns on the basis of the revised computation of interest. For assessment year 1989-90, assessee filed the return on 31-10-1989. A sum of Rs. 16,58,101 was shown in the profit and loss account of credit side. In the financial notes annexed to the balance sheet in Schedule 'K' the Chartered Accountant in para 5 had mentioned that the firm had availed loans from Citi Bank and the bank had filed a suit for recovery as a result of which a settlement was reached during this year (i.e., financial year 1988-89) which has resulted in certain credits and the same have been treated as given in that paragraph. The Assessing Officer re-opened the assessments for assessment years 1983-84, 1984-85 and 1985-86 by issue of notice Under Section 148. Assessee filed the returns for assessment year 1983-84 in which a sum of Rs. 10,22,770 was shown as excess interest credited to the Citi Bank as on 30-4-1982 and Rs. 7,11,894 as excess interest credited to the same bank as on 31-8-1982. Thus the sum of Rs. 17,34,664.23 on account of interest was offered to tax in the return filed in response to notice Under Section 148. The Assessing Officer completed the assessment for assessment year 1983-84 at an income of Rs. 14,52,846. Out of the claim of interest of Rs. 1,06,663, Assessing Officer made a disallowance of Rs. 98,054. The disallowance of interest was on the basis that interest payable to the Citi Bank @ 16 per cent as per the decree was on the defaulted instalments whereas assessee had claimed interest on the entire amount of outstandings. Similarly for assessment years 1984-85 and 1985-86 excess interest claimed by the assessee earlier was offered to tax. The claim of interest in the returns filed in response to notice Under Section 148 was restricted to the interest on the outstanding decreed amount. The Assessing Officer allowed the claim of interest on the basis of defaulted instalments only. The matter went in appeal upto the level of the Tribunal and the latter vide order dated 16-12-1994 in ITA Nos. 7149 to 7154/Delhi/1991 for assessment years 1983-84 to 1988-89 has confirmed the disallowance.
3. The Assessing Officer having initiated penalty proceedings for concealment of income and furnishing of inaccurate particulars imposed penalty as under :
1983-84 Rs. 18,73,378 1984-85 Rs. 5,87,914 1985-86 Rs. 3,75,522 1986-87 Rs. 2,50,000 1987-88 Rs. 2,50,000
The penalty was calculated @ 200% of the difference between the returned income filed originally with the finally assessed income. The CIT (Appeals) has confirmed the levy of penalty but has reduced the quantum to 150 per cent. Assessee is in appeal before us.
4. It has been contended by the learned counsel for the assessee that assessee provided interest in the books of account as according to their understanding, the compromise would get finalised only as and when the entire amount was liquidated and the securities realised. Since the bank loan was liquidated in November 1987, assessee voluntarily disclosed the interest and cooperated with the Department in assessing the income. The learned counsel contended that for assessment years 1986-87 and 1987-88, the assessments were pending and assessee filed the revised returns before the assessments were made. As such no penalty is exigible in respect of those years. For assessment years 1983-84 to 1985-86, assessments had been completed by the Assessing Officer but assessee offered cooperation for bringing the amount to tax immediately after the decree was satisfied. There was a raid in the premises of the assessee. The file of the Citi Bank had been seized by the revenue. A copy of the decree was filed before the Assessing Officer during the course of assessment proceedings for assessment year 1986-87 and that fact has been mentioned in the assessment order. The conduct of the assessee, according to the learned counsel, clearly establishes their bona fides and penalty as such is not attracted. According to the learned counsel, a copy of the court decree was available with the Assessing Officer and he had consciously allowed the claim made by the assessee.
5. The learned DR, on the other hand, contended that assessee had consciously made wrong claims before the Assessing Officer. Since auditor had put a note in the accounts of the assessee for assessment year 1989-90, assessee had no option but to disclose the income to the revenue.
6. We have given our careful consideration to the rival contentions. In this case, assessee had filed the original returns for assessment years 1983-84 to 1987-88 claiming interest on the outstandings of Rs. 52,07,873 notwithstanding a compromise decree passed on 30th April, 1982 as a result of which the liability of the assessee had been reduced to Rs. 42,45,277 with a scope for further reduction to the extent of Rs. 2,85,477. It is a matter of record that assessee had not disclosed the fact of having reached to a settlement with Citi Bank either in the books of account or in the statement of accounts filed along with the returns. Nor was the copy of the decree provided to the Assessing Officer. During the course of assessment proceedings for assessment years 1983-84, 1984-85 and 1985-86. Though there was a search on 30th March, 1984 at the premises of the assessee, there is no evidence on record that the fact of compromise decree had cometo the knowledge of the Assessing Officer. We may hasten to add that even if the compromise decree would have been available in the records of the assessee at the time of search, the fact remains that assessee did not disclose to the Assessing Officer the terms of the compromise and the decree passed by the Court in respect of the Citi Bank loan. Assessee had claimed before the CIT(A) that a note had been appended in the return of income for assessment year 1983-84 giving the particulars of the decree but we find that such a note was given only in the return filed in pursuance to notice Under Section 148 and not along with the original return. We have also found that assessee during the course of assessment proceedings for assessment year 1986-87 did furnish a copy of the compromise decree and also revised the return and offered the excess claim, but for the interest amount on the outstanding decretal amount, to tax. Assessment for assessment year 1986-87 has been made by the Assessing Officer on the basis of the revised return. Similar is the position for assessment year 1987-88. Assessee had revised the return for that year too and given up the claim of interest in respect of the sum of Rs. 52,07,873. The claim of interest on the entire outstandings out of the decretal amount of Rs. 42,45,477 was however persisted. The return for assessment year 1989-90 was filed on 31st October, 1989. Whereas the revised return for assessment year 1986-87 was filed on 13th May, 1988, it is mentioned in the assessment order for assessment year 1986-87 that assessee had given reasons for revising the return and that a copy of the consent decree was also enclosed. The reasons given in the revised return are reproduced hereunder :
Due to certain errors and oversight interest was charged at a higher figure instead of the amount settled with the bank in the consent decree dated 30-4-1982. As per revised computation, interest at the rate of 16% p.a. calculated on product basis with quarterly rests comes to Rs. 4,43,276 thereby leaving a surplus of Rs. 3,01,724 boeing interest excess provided. The return is now revised by reducing the interest provided earlier by Rs. 3,01,724 to loss of Rs. 1,62,693. A copy of consent decree is also enclosed.
7. From the facts stated above, one fact gets established that though the assessee had made wrong claims in the original returns for assessment years 1983-84 to 1987-88, the information regarding the compromise decree was given by the assessee voluntarily without any detection by the Assessing Officer notwithstanding the search on 30th March, 1984 at the premises of the assessee. On these facts, we are called upon to decide as to whether assessee is guilty of having concealed the income or having furnished inaccurate particulars of income in the original returns. Section 139(1) makes it obligatory upon the assessee to furnish return of income giving true and full particulars of the income. Section 139(5) enables the assessee to file a revised return in case assessee discovers any omission or any wrong statement in the original return within a specified period. For assessment years 1983-84 to 1985-86, no such returns were filed and assessments were completed on the basis of original returns. For these three years, assessee had made a wrong claim as under.
8. For assessment year 1983-84 though there was a compromise between the assessee and the Citi Bank as a result of which the liability of the assessee got reduced by a sum of Rs. 10,22,770 assessee did not offer this amount to tax under Section 41 of the Act. Not only this, the assessee provided interest in respect of the entire amount of Rs. 52,07,873 and claimed it as a deduction. No satisfactory explanation has been given for this omission in the original return of income. The explanation of the assessee is that the decree was subject to certain condition and the same would be satisfied only on liquidation of the entire loan. This explanation is not convincing. We have got a copy of the decree and do not find any provision under which the waiver of Rs. 10,22,770 could get revived under any circumstances. The sum of Rs. 42,45,477 had been determined as the sum payable by the assessee. Assessee was required to make payments in a phased manner and in the event of default, the Citi Bank had the option to demand the entire decretal amount outstanding in lumpsum and interest @ 16%. There was no way the bank could demand the difference between Rs. 52,07,873 being the amount outstanding as on 30th April, 1982 as per books of account of the assessee and the amount of Rs. 42,45,477 the amount determined by the Court as the decretal amount under any circumstances.
9. We may point out that though assessee has co-operated with the Department and has volunteered the information during the course of assessment proceedings for assessment year 1986-87, yet one cannot undermine the importance of disclosing the income in the original return. The penalty has been imposed for concealment of income in the original return. For assessment years 1983-84 to 1985-86, assessments had been completed and income had escaped assessments. The disclosure of income by the assessee voluntarily does not necessarily absolve the assessee from imposition of penalty. The imposition of penalty and waiver of penalty under Section 273A are two separate proceedings. Whereas in law penalty is imposable for assessee's failure to disclose the correct income in the return of income and if subsequently assessee voluntarily discloses the income, pays the taxes and cooperates with the Department, a case might be made out for waiver of the penalty but that is a matter to be considered by the administrative authorities. In penalty proceedings the issue that weighs heavily is as to whether assessee had consciously concealed the income or furnished inaccurate particulars of income at the time of filing the original returns. Once a finding is recorded that assessee had failed to disclose the income in the original assessment consciously, assessee would be liable to penalty, notwithstanding the fact that he has later on volunteered the information and cooperated with the Department in getting the amount assessed to tax. His subsequent conduct, as already stated, would be relevant for waiver of penalty. But in so far as the assessee as per our finding had failed to disclose the true income in its original return for assessment year 1983-84, they are liable to penalty Under Section 271(1)(c). We are, therefore, satisfied that assessee is liable to penalty in respect of Rs. 10,22,770 for assessment year 1983-84. We also do not see any justification for the assessee to have claimed interest in respect of the entire amount of Rs. 52,07,873. The said interest was not payable at all in view of the compromise decree. The assessee has itself surrendered the amount of Rs. 7,11,894 being the excess interest claimed in the original return. No doubt assessee had volunteered the information during the course of assessment proceedings for assessment year 1986-87, yet as already observed that is not sufficient for absolving the assessee from liability of the penalty.
Assessee may commit a bona fide mistake in the original return and may subsequently rectify that mistake by filing a revised return or by giving information to the Assessing Officer relating to such mistake or omission. If the mistake or omission is bona fide, penalty may not be attracted. However, the burden in this regard is upon the assessee to establish that the mistake or omission in the original return was bona fide. Considering the material on record, we are unable to hold that the omission of Rs. 10,22,770 and a wrong claim of Rs. 7,11,894 in the original return was for bona fide reasons. In the absence of any satisfactory explanation or material available on record supporting the claim of the assessee, we are of the view that penalty Under Section 271(1)(c) is attracted in respect of the above two amounts. There is, however, no justification for sustaining the penalty in respect of Rs. 98,054 being the interest disallowed by the Assessing Officer on the decretal amount. Assessee had provided interest on the basis of entire outstandings out of decretal amount. The Assessing Officer, however, allowed a deduction in respect of defaulted instalments and not on the basis of entire outstandings. There is a basis for doubt if we go to the contents of the decree passed on 30th April, 1982. Para 1 of the decree provides as under :
The dependants do hereby acknowledge their liability to the plantiff in the sum of Rs. 42,45,477 being the outstanding in their loan account as on April 30, 1982. The dependants further acknowledge their liability to pay interest on the said amount at the rate of 16% p.a. with effect from the date hereof. Accordingly, a final mortgaged decree in respect of.
At page 4 of the order of the decree provided as under :
On the defendants finding to pay to the plaintiff any of the instalments over April 1982 to July 1982 or defected twice in making the payments of the monthly instalments starting August 1982 within 30 days from the due date stipulated herein together with interest thereon (i.e., on the up paid instalment) calculated at 16% p.a. from the due date till the date of payment, the entire amount of the decretion then outstanding shall become immediately due and payable to the plaintiff as the plaintiff shall be entitled to take steps in Court for the sale of the said mortgaged properties and the sale of the said properties and the mortgage decree shall then not be held in abeyance. The plaintiff shall also be entitled in that event to execute the decree personally against the defendants 1 to 5 who shall be jointly and severally liable under the decree.
The penalty in respect of Rs. 98,054 is thus not justified when benefit of doubt is given to the assessee. The penalty in respect of this sum of Rs. 98,054 is accordingly deleted.
10. The Assessing Officer has imposed the penalty at 200%. The CIT(A) has directed to calculate the penalty @ 150%. Considering the fact that assessee had given the information voluntarily during the assessment and Assessing Officer had not detected any concealment during the course of assessment proceedings for assessment year 1986-87, the penalty at the minimum imposable would be justified. We accordingly direct the Assessing Officer to calculate the penalty @ 100% only.
11. For assessment year 1984-85 also assessee had made excess claim of interest on the basis of outstandings of Rs. 52,07,873.15. Assessee had surrendered a sum of Rs. 2,60,472 at the time of filing of the return in response to notice Under Section 148. In fact this amount was offered for taxation to the Assessing Officer even prior to the notice issued Under Section 148. The Assessing Officer had made further disallowance of Rs. 4,42,114. The disallowance of Rs. 4,42,114 on account of interest on the basis of the entire decretal amount outstanding and not on the basis of the defaulted instalments has been confiimed by the Tribunal. For the reasons given in regard to assessment year 1983-84 as above, the assessee shall be liable to penalty in respect of sum of Rs. 2,60,742. However, with regard to the sum of Rs. 4,42,114 the facts are paramaterial the same as for assessment year 1983-84. For that year we have held that penalty in respect of similar claim would not be attracted. We accordingly direct the Assessing Officer to re-calculate the penalty @ 100% in respect of Rs. 2,60,742 only. The Assessing Officer has calculated the penalty on the basis of difference between the returned income and the finally assessed income. We have allowed some relief to the assessee in the quantum appeal. The Assessing Officer while re-caiculating the penalty shall take into account the finally assessed income and exclude from that the sum of Rs. 4,42,114 in respect of which we have held that penalty is not liable. The penalty shall be calculated @ 100% in accordance with law.
12. For assessment year 1985-86, assessee had originally returned loss of Rs. 2,43,410. This was assessed at Rs. 3,39,356. Assessee had claimed interest of Rs. 6,99,637 in the original return. However, later on the sum of Rs. 2,21,300 was surrendered by the assessee out of the said claim. The Assessing Officer worked out the interest on the basis of compromise decree at Rs. 1,40,135. The difference of Rs. 3,38,194 was disallowed. For the reasons as given for assessment year 1983-84, assessee, in our view, will not be liable to penalty in respect of sum of Rs. 3,38,194. As a result of quantum appeal, assessee's income would further get reduced. The Assessing Officer shall re-calculate the penalty @ 100% after excluding a sum of Rs. 3,38,194, in accordance with law.
13. For assessment years 1986-87 and 1987-88, assessments have been made by the Assessing Officer on the basis of the revised returns. Assessee had undisputedly made excess claim in the original returns. Filing of the revised return does not absolve the assessee from liability of the penalty unless the assessee, establishes that there was a bona fide mistake or omission in the original return. This view is supported by the decision of the Gauhati High Court in the case of F.C. Aggarwal v. CIT [1976] 102 ITR 408. In this case, it was held on the basis of material on record that the revised returns were merely the result of inadvertent mistakes or omissions. In that case, the Tribunal had come to the conclusion that assessee had submitted inaccurate particulars of this income while filing the original returns. This decision of the Gauhati High Court has been confirmed by the Hon'ble Supreme Court in the case of G.C. Aggarwal v. CIT [1990] 186 ITR 571.
14. Since in this case assessee has failed to explain satisfactorily as to how a wrong claim was made in the original returns by taking the outstandings of Rs. 52,07,873 as on 30th April, 1982 as against the decretal amount of Rs. 42,45,477, we are of the view that provisions of Section 271(1)(c) are attracted notwithstanding that Assessing Officer had failed to detect the concealment. The assessee was, however, not liable to penalty in respect of sum of (Rs. 2,71,689 for 1986 and in respect of Rs. 2,82,753 for assessment year 1987-88). The Assessing Officer is directed to recalculate the penalty @ 100% on the basis of finally assessed income, after excluding the aforementioned amount.
15. As already pointed out, assessee has the option to make out the case before the administrative authorities for waiver of the penalty if all the conditions are satisfied. But as far as the imposition of penalty is concerned, we have to proceed in accordance with law. The law obliges the assessee to file the true and correct returns. Bona fide and inadvertent mistakes can be rectified but conscious emissions without satisfactory justification, shall attract penalty for concealment of income or furnishing of inaccurate particulars of income. We, therefore, uphold the penalty @ 100% as above for assessment years 1986-87 and 1987-88 also. The assessee shall be free to approach the administrative authorities for waiver of penalty in accordance with law.
16. In the result, appeals of assessee are partly allowed.