Income Tax Appellate Tribunal - Delhi
Basti Sugar Mills Co. Ltd. vs Income-Tax Officer on 23 April, 1987
Equivalent citations: [1987]22ITD246(DELHI)
ORDER
K.C. Srivastava, Accountant Member
1. This appeal by the assessee-company is against the order of the Commissioner of Income-tax (Appeals) upholding penalty under Section 27l(l)(c) of the Income-tax Act for the assessment year 1974-75. The brief facts are : That the assessee had filed a return showing an income of Rs. 13.38 lacs without adjustment of brought forward losses of earlier years. The assessment was made on an income of Rs. 61.25 lacs. After the appeal before the Tribunal the income for this year was assessed at Rs. 16.70 lacs but this was subject to the brought forward losses. If the brought forward losses were to be adjusted, it would result in a net loss of Rs. 11.66 lacs to be carried forward.
2. The Income-tax Officer initiated proceedings under Section 271(l)(c) and the present penalty order has been passed imposing penalty of Rs. 1,06,670, which, according to the Income-tax Officer, was the tax sought to be evaded on the concealed income of Rs. 1,84,711. The particulars of the income held to be concealed income by the Income-tax Officer are as under :-
Rs.
(i) Disallowance on account of expenses 44,436 relating to furnace oil : (ii) Disallowance on the previous year's 10,897 expenses amounting to : (iii) Fixed deposit and interest for 27,790 which the assessee has not been able to provide any evidence : (iv) Closing stock : 13,260 (v) Bad debts : 88,328 1,84,711
Before the Income-tax Officer the assessee had contended that on the facts of this case no part of the income should be treated as concealed income and secondly it was submitted that no penalty was leviable because after adjustment of carry forward losses the assessed income will be in the negative figure. On both the issues the Income-tax Officer did not accept the contention of the assessee and he held that the additions made as indicated above represented concealed income of the assessee within the meaning of Section 27l(l)(c) and penalty could be levied under Explanation 4 to Section 271(l)(c)(iii). For this he relied on the decision of the Kerala High Court in the case of GIT v. India Sea Foods [1976] 105 ITR 708.
3. On appeal the C.I.T. (Appeals) has held that the additions made represented concealed income of the assessee and he further held that penalty could be imposed for concealment even if the ultimate income assessed was a figure of loss. The CIT. (Appeals) has further held that loss in a particular year is a result of adjustments and it ultimately affected the tax payable by the assessee in a future year.
4. Before us it has been submitted that the finding of the Income-tax Officer and the C.I.T. (Appeals) regarding the nature of additions which had been held to be concealed income was not factually and legally correct. It was contended that the additions made out of various expenses were by rejecting the plea of the assessee and that did not mean that there had been any concealment of income by the assessee. In order to consider the various items which had been held to be concealed income, we would proceed to consider the various items which have been enumerated above.
5. The first item represents disallowance out of expenses on furnace oil consumption. The Income-tax Officer had found that in Basti Unit the consumption of furnace oil was very high considering the figures of the earlier years and also considering the amount of sugarcane crushed. It was pointed out by him that whereas in the earlier year the consumption was 365 litres, this year it was shown at 86,560 litres. Out of this 86,305 litres had been entered in the last day of the accounting year. The assessee had explained that due to frequent power failures the consumption had gone up. As this explanation given by the assessee was not found satisfactory, the Income-tax Officer made an addition of Rs. 29,605 which was reduced to Rs. 20,000 by the C.I.T. (Appeals). Before the Tribunal it was explained that in the immediately preceding year the consumption of furnace oil was nominal as the boilers had been modified for furnace oil towards the end of the last year. However, for this no evidence was placed before the Tribunal. The Tribunal, therefore, held that the expenditure claimed was highly excessive and there was no satisfactory explanation for the consumption of furnace oil on one day. The addition of Rs. 20,000 was, therefore, upheld.
6. Similarly in the Walterganj Unit there was a consumption of 1,500 litres of oil prior to the starting of the crushing season. It was also pointed out that the issue of oil between 18-2-1974 to 30-3-1974 exceeded the quantity of oil available. In spite of fall in crushing, the consumption had gone up from 72,500 litres to 90,970 litres. The Income-tax Officer had made an addition of Rs. 24,436 which was upheld by the C.I.T. (Appeals). Before the Tribunal it was submitted that the Accountant of the assessee-company had mixed up high speed oil with crude oil. If both the articles were considered, the consumption could not exceed the available stock. The Tribunal, however, did not accept this explanation as the company was maintaining detailed accounts where there was no possibility of mixing up of high speed diesel oil with crude oil. The Tribunal further held that the claim was highly excessive and upheld the addition.
7. The above two additions have been held to be part of income in respect of which particulars had been concealed and thus they represented concealed income of the assessee. It was submitted that a proper explanation was given before the lower authorities and there could be no presumption of concealment only on the ground that the consumption was held to be excessive. It was pointed out that in Walterganj Unit there was mistake in the maintenance of stock account by the General Manager, who had not properly classified high speed diesel and furnace oil. In such cases there could be no presumption of concealment. There was no set formula fixing a percentage of consumption with reference to the crushing of sugarcane. The Departmental Representative, on the other hand, submitted that the assessee had made entry showing heavy consumption on the last day of the year which was not acceptable. There was also an undue increase for which there was no explanation. It was submitted that where the explanation is given but it is not substantiated the explanation should not be accepted especially when there was no explanation for the last day's entry in Basti Account. Regarding the Walterganj Unit it was submitted that there was a consumption shown when the furnace was not working and it has been held by the Tribunal that there was no explanation for the heavy consumption in this branch. He submitted that this was not a case of clerical error but of claiming heavy expenses by showing an excessive consumption.
8. Having considered the facts of the case, we are of the view that under Explanation 1 to Section 271(l)(c)(iii) where in respect of any facts the assessee offers an explanation which he is not able to substantiate, the amount added or disallowed would be deemed to represent the income in respect of which particulars had been concealed. The only exception is where the explanation is bona fide and all the facts are placed before the authorities. We are of the view that in this case the assessee had not been able to substantiate the heavy consumption or the entry made on the last day of the year and had also not brought forward to show that there had been any mixing up of high speed diesel with furnace oil. The assessee could not get the benefit of the proviso relating to the bona fide explanation. On the facts as found by the Tribunal it has to be held that the above additions represented the income in respect of which the particulars have been concealed,
9. The next item was an addition of Rs. 10,897 which had been claimed by the assessee in this year stating that this represented expenses of the previous years though claimed in this year. These expenses were found to relate to the earlier years but the assessee had claimed it in this year on the ground that these expenses could not be claimed in the earlier years. According to the Income-tax Officer these expenses should have been claimed in the earlier years and not in this year. Before the Tribunal details were filed. The Tribunal found the explanation of the assessee in respect of Rs. 15,699 represented payment to the North Eastern Railways, Lucknow to be bona fide and allowed the claim of the assessee on the ground that the assessee came to know about this liability in this accounting year. However, in respect of the balance the Tribunal was not so satisfied. From the* order of the Tribunal it appears that there was no suggestion that these expenses had not been incurred in the earlier years and the only objection was to their allowance in this year, as according to the Tribunal this should have been claimed for allowance in the earlier years. The plea of the assessee was that the assessee had various branches and sometimes some expenses remained to be claimed and claimed in a later year without there being any mala fide about such a claim. After considering the facts, we are of the view that the addition of Rs. 10,897 should not be taken as its income the particulars in respect of which it had been concealed. This would, therefore, not be taken into consideration for the purpose of imposing penalty.
10. The next addition to be considered was Rs. 27,790 which represented cash credits in various accounts. In fact there were larger credits but the other part had already been accepted. In respect of certain credits confirmations could not be filed and later on such confirmations were not supported by any affidavits. When the matter came before the Tribunal it was found that in respect of cash credit of Rs. 10,000 in the account of Smt. Shashi Prabha Sahgal and Rs. 7,000 in the account of Shri K.L. Bhatia, there were no confirmation letters or affidavits. Thus, there was no evidence in support of the genuineness of these credits and in the absence of any material the Tribunal held that the amount of Rs. 17,000 and interest thereon had to be added as the assessee's income. In respect of others the matter was restored to the file of the Income-tax Officer. It appears that after the matter had been set aside, the major portion of the credits were accepted except an item of Rs. 9,600. In respect of these items of Rs. 9,600 affidavit had been filed. The question is whether any part of the addition made could be considered as concealed income for the purpose of Section 27l(l)(c). We are of the view that in respect of Rs. 17,000 the assessee did not file even confirmation letters and the later on the statements or affidavits were also not filed. Thus, there was no explanation or evidence regarding these credits. This item will, therefore, come under Explanation 1 which the assessee had not been able to substantiate and there was no explanation bona fide or otherwise in respect of these. In these circumstances Rs. 17,000 and interest thereon has to be treated as income in respect of which particulars had been concealed.
11. This brings us to the addition of Rs. 13,260 which represented closing stock of lime-stones. It appears that though the Income-tax Officer had not proposed any addition on that account, it was pointed out by the Inspecting Assistant Commissioner in proceedings under Section 144B that no closing stock of lime-stone is taken and the same should be taken into consideration and addition should be made. The assessee's counsel agreed for such an addition provided the addition made for the closing stock was taken as the opening stock in the next year. This was agreed to. After considering the facts, we are of the view that this addition should not be considered as representing concealed income of the assessee. The assessee was not showing the lime-stone in the closing stock or the opening stock in the earlier years and the same practice was followed in this year. While agreeing to the addition of the closing stock, he requested for taking the same as the opening stock of the next year. Thus, in fact, no intention to evade tax was involved. We are, therefore, of the view that the addition of Rs. 13,260 could not be considered as a part of the concealed income of the assessee.
12. The last addition is in respect of an addition of Rs. 88,328 representing bad debts. It had been pointed out earlier that out of this Rs. 58,126 had been surrendered by the assessee himself in the revised return as the earlier figure was an inadvertent mistake. It had been claimed by the assessee that the above amount of Rs. 58,126 was merely a provision made and had wrongly been classified under the claim of bad debts, and this was a bona fide mistake and there was no intention to conceal. About the balance of Rs. 30.302 the assessee submitted that he would produce evidence but no such evidence was produced either before the Income-tax Officer or before the Inspecting Assistant Commissioner and even before the C.I.T. (Appeals) the position remained the same. No further evidence was produced before the Tribunal also. The Tribunal observed that the list which had been filed before the C.I.T. (Appeals) had been filed before them but this did not help them regarding the nature of the bad debts, It is in view of this that the addition was upheld by the Tribunal. Considering the facts of the case, we are of the view that the explanation of the assessee regarding the bona fides of the claim to the extent of Rs. 58,126 should be accepted, as the claim had been made by mistake. However, in respect of the balance at no stage the assessee has given any evidence whatsoever to show that they were bad debts, and this finding has been given at all the stages including the Tribunal. Thus this is a claim in respect of which the assessee has not been able to substantiate his explanation and there is no material on the basis of which it could be held that the explanation was bona fide. It was for the assessee to give the history of the bad debts and then to claim why it was being claimed as bad debt. We would, therefore, hold that Rs. 30,302 represents income in respect of which particulars have been concealed, within the meaning of Explanation 1 to Section 2'71(l)(c). Thus, on the facts of the case, we hold that under the Explanation 1 to Section 271(l)(c) the following addition represented concealed income : The disallowance out of the expenses on furnace oil Rs. 44,436, deposits and interest Rs. 17,000 (plus interest), bad debts Rs. 30,302 totalling to Rs. 81,738.
13. Having considered the individual items in detail, we proceed to consider the basic objection raised by the assessee at earlier stages as well as before us. It had been contended before the Income-tax Officer that after adjustment of carry forward of losses there was no positive income in this year, and some losses would still be available for being carried forward. According to the submission of the assessee, the assessee-company had not to pay any tax in this year in view of there being an ultimate loss determined as a result of carry forward of loss. The argument of the assessee is that as there is no income there could be no question of concealment. It was submitted that where the effect of an addition was to reduce the loss or the carry forward losses it could not be said that the assessee had concealed 'income'. According to the assessee, for the purpose of levying penalty under Section 271(l)(c), there must be some taxable income. Referring to Explanation 4(a) to Section 271(l)(c), it was submitted that total income assessed should be a positive figure and not a negative figure. It was contended that the use of the words 'total income' and 'income' makes it amply clear that total income could not include an amount of loss. Reliance was placed on certain case laws including the decision of the Madras High Court in the case of Addl. C1T v. Murugan Timber Depot [1978] 113 ITR 99 at page 103, The Departmental Representative, on the other hand, has submitted that Explanation 4 to Section 271(l)(c) was added precisely to cover such cases where the act of concealment takes place but the assessee instead of trying to reduce the income tries to increase losses or carry forward of losses. It was pointed out by the Departmental Representative that the income of this year after all the allowances came to Rs. 16.7 lacs and it is only as a result of carry forward of losses that no tax was payable by the assessee. He relied on certain observations of the Kerala High Court in the case of India Sea Foods (supra). In that case when the Tribunal had held that income should normally mean only positive income. The High Court observed that on the facts of that case this issue did not arise as the ultimate income was determined at Rs. 18,460 and thus there was no negative income. The High Court had held that the Tribunal should not consider the position where the total income is a figure of loss. The Departmental Representative submitted that when the concealed income was found to be more than Rs. 2 lacs as against the total income of Rs. 18,000 the High Court has held that penalty under Section 271(l)(c) could be imposed. He submitted that there was no reason why the same ratio should not apply where instead of the positive income there was a loss as a result of carry forward of losses. For the purpose of imposition of penalty he placed reliance on the decision of the Allahabad High Court in the case of CIT v. Swarup Cold Storage & General Mills [1982] 136 ITR 435 and also on the decision of the Kerala High Court in the case of CIT v. Rowther Bros. [1979] 119 ITR 353. In the case before the Kerala High Court there was a finding of concealment but the Tribunal had cancelled the penalty on the ground that even after the addition of concealed income, the total income was below the assessable limit. According to the High Court, the fact whether the total income was assessable to actual tax was immaterial and the Tribunal erred in canceling the penalty. It was submitted that in view of this decision and the Explanation 4 to Section 271(l)(c) some decisions of the Tribunal including the order of the Chandigarh Bench in the case of ITO v. Sudha Pharmaceutical (P.) Ltd. [1983] 17 TTJ 518 should not be followed and it should be held to have been wrongly decided.
14. We have carefully considered the rival submissions. We do not find any force in the submission of the assessee that even if there is a finding of concealment regarding certain additions, penalty cannot be imposed unless the total income assessed is a positive figure or in other words, there is no loss determined after all the adjustments under law. It is true that our attention has been drawn to the order of the Chandigarh Bench but in view of the decision of the Kerala High Court in the case of Rowther Bros. (supra) and the Explanation 4 to Section 271(l)(c), we hold that penalty can be levied under Section 271(l)(c) even in a case where no tax is payable by the assessee as a result of the adjustment of certain carry forward of losses if there is a finding regarding concealment of income. The Kerala High Court has clearly held that it is not necessary that the assessee should have a total income on which any tax was payable. Even in respect of a case where total income was below taxable limit penalty was leviable. The position of a loss return is also the same insofar as the question of evasion of tax is concerned. It was in view of this doubt that Explanation 4 was added in Section 271(1)(c). We do not see how the case of loss could not be covered under Explanation 4(a). In the present case the amount of income in respect of which particulars have been concealed is a positive figure though the total income determined is a figure of loss as a result of carry forward of earlier years' losses. In such a situation, the law presumes that the concealed income be treated as the total income and the tax would work out on that and it would be that tax which would be sought to be evaded for the purpose of quantification of penalty under Section 271(l)(c). It does not appear to us to be reasonable to make a distinction between the case of Rowther Bros. (supra) as considered by the Kerala High Court and the case before us particularly in view of the specific Explanation now added in the statute. We, therefore, hold that penalty under Section 27l(1)(c) should be imposed in this case on the basis of concealed income as found by us. The Income-tax Officer is directed to work out the quantum of penalty on the above basis.
15. In the result, the appeal is allowed in part.