Income Tax Appellate Tribunal - Allahabad
Income-Tax Officer vs R.K. Bros. on 27 June, 2002
Equivalent citations: [2003]87ITD649(ALL)
ORDER
P.S. Kalsian, Accountant Member
1. The appeal is directed by the Revenue against the order of the CIT(A) dated 28-2-1995. The following grounds of appeal have been taken:
1. That the Ld. CIT(A) has erred in cancelling the penalty of Rs. 50,000 imposed under Section 271(1)(c) without appreciating the fact that the figures of total receipts were changed only on being pointed out by the department with reference to his bank account and thus he has furnished inaccurate particulars of income and thereby concealed the real income.
2. That the Ld. CIT(A) has erred in not appreciating the fact the figures of expenses were changed in such a way that total income and tax incidence are not increased.
The third and fourth grounds of appeal are in the nature of arguments and are not repeated here.
2. The facts of the case are as follows :
The assessee is an unregistered firm. The assessee is a labour contractor and has done the work of loading and unloading and also transportation of goods form one plant to another. The original return of income was filed on 18th May, 1992 for assessment year 1991-92 in which total receipts of Rs. 19,41,233 were shown and after debiting expenses, net profit of Rs. 99,960 was shown. The Assessing Officer examined bank account of the assessee and found that the total amount received by the assessee is at Rs. 23,82,732. And when this fact was brought to the notice of the assessee, the assessee revised the return of income on 11-3-1994 showing income of Rs. 1,17,560. In the revised return total payments have been shown at Rs. 24,31,183 and after deducting the cash payments, the total receipts were shown at Rs. 24,11,183. In the revised return, the assessee, though has shown enhanced receipts at Rs. 24,31,182, but simultaneously has shown the enhanced expenditure also which is mentioned by the Assessing Officer at page 1 of the assessment order. The Assessing Officer considered that the assessee is maintaining books of account and, therefore, without evidence figure of expenses cannot be accepted and, therefore, he did not accept the enhanced figure of expenses. However, the Assessing Officer adopted net profit rate of 6.5% on the gross receipts subject to depreciation. The Assessing Officer computed the net profit at Rs. 1,58,000 and after allowing depreciation of Rs. 8,911, the taxable income was determined at Rs. 1,48,820 as against income of Rs. 99,960 shown in the original return of income and income of Rs. 1,17,560 shown in the revised return filed on 12-3-1994. The Assessing Officer initiated penalty proceedings under Section 271(1)(c) during the course of assessment proceedings.
3. The Assessing Officer issued notice under Section 271(1)(c) to the assessee to show-cause why penalty should not be imposed. The assessee filed written explanation before the Assessing Officer stating that the return of the firm alongwith the details of Profit and Loss Account and Balance sheet were filed. The assessee also stated that the expenses which were carried forward on next pages were left to be accounted for and, as such, the return of income was revised as per provision of Section 139(5) before the assessment proceedings. It was claimed by the assessee that the omission to show the correct income was incidental and non-disclosure was due to not being careful and there was no wilful conduct behind it. The Assessing Officer was not satisfied with the explanation of the assessee. The Assessing Officer considered that the assessee has not produced any books of account to show that the revised return of income was filed after detecting the mistake or omission in the books of account. The Assessing Officer also came to the conclusion that the various expenses claimed in the Profit and Loss Account filed with the revised return of income are fictitious because they are not verifiable at all. The Assessing Officer, therefore, imposed penalty of Rs. 50,000 under Section 271(1)(c) of the Income-tax Act. The minimum penalty imposable upon the assessee was calculated at Rs. 27,357 and maximum penalty was imposable at Rs. 82,071.
4. In first appeal, the CIT(A) deleted the penalty. The order of the CIT(A) is reproduced below :
The appeal is directed against the order of the ITO, W-l, Mirzapur passed under Section 271(1)(c) of the IT. Act, 1961.
2. The appellant is a contractor and income was disclosed at 3.6% on gross receipts. The assessment was made on higher income and for the difference between the assessed and returned income, the Assessing Officer levied the impugned penalty against minimum of Rs. 27,357 under Section 271(1)(c).
3. It has been argued that in view of the following decisions :
(i) 171 ITR683,
(ii) 160ITR532,
(iii) 106ITR 151,
(iv) 107ITR681,
(v) 111 ITR 849,
(vi) 188 ITR 206, of Hon'ble Allahabad High Court, merely on account of estimated additions no penalty under Section 271(1)(c) can be levied. For this proposition, reliance has been placed upon my order in the case of M/s. Padma Pathak for the assessment year 1987-88 dated 29th June, 1992 in appeal No. 26/w-1/MZP/91-92.
4. In view of the above contentions, penalty levied by the Assessing Officer is hereby cancelled. It is not borne out from the orders as to why almost twice the minimum amount of penalty has been levied on the appellant.
5. In the result, the appeal is allowed.
Sd. Dr. J.K. Goyal, CIT (Appeals), Allahabad.
5. It is argued by the Ld. D.R. that the assessee has shown total receipts at Rs. 19,41,233 in the original return of income filed on 18th May, 1992. It is only after the Assessing Officer examined the bank account of the assessee that he discovered that the total receipts were Rs. 23,82,732. After the actual enhanced amount received by the assessee was discovered by the Assessing Officer, the assessee filed returns of income showing more expenses in the Profit and Loss Account for which there was no evidence because no books of account were produced before the Assessing Officer. It is not a mere case of estimate of income but the assessee has actually concealed the gross receipts in the original return of income filed on 18th May, 1992. The Ld. DR relied on the following decisions:
1. K.P. Madhusudhanan v. CIT [2001] 251 ITR 99 : 118 Taxman 324 (SC)
2. CIT v. K.P. Madhusudanan [2000] 246 ITR 218 (Ker.)
3. Addl CIT v. Lakshmi Industries & Cold Storage Co. [1980] 122 ITR 993 : 3 Taxman 384 (All.)
4. SamunderBhan Sadh v. CIT [1991] 188 ITR 638 (All.) : 55 Taxman 176
5. CIT v. Warasat Hussain [1988] 171 ITR 405 : 35 Taxman 227 (Pat.) The Ld. D.R. argued that penalty can be levied even in the case of estimate of income and in the case of the assessee concealment of income has been established because the assessee has concealed the total receipts shown in the original return of income.
6. The Ld. Counsel for the assessee, however, relied on the order of the CIT(A). It was argued by the Ld. Counsel for the assessee that the income was estimated by applying net profit rate and assessment was completed on the basis of revised return, which is illegal return and, therefore, question of penalty does not arise. The Ld. counsel for the assessee referred to the decision of the Tribunal reported in 75 ITD. According to the Ld. Counsel, the assessment proceedings and penalty proceedings are independent proceedings and even during the course of penalty proceedings illegality of assessment proceedings can be challenged. The Ld. Counsel for the assessee relied on the following decisions:
1. CIT v. Suresh Chandra Mittal [2001] 251 ITR 9 : 119 Taxman 433 (SC)
2. CIT v. V. Narasimha Prasad [2001] 250 ITR 852 (Kar.)
3. CIT v. Inden Bislers [1999] 240 ITR 943 (Mad.)
4. 246 ITR 944 (sic) The Ld. Counsel also stated that no income has been concealed as the income has been estimated by the Assessing Officer.
7. In reply the Ld. DR referred to assessment order and argued that copy of the bank account was filed by the assessee during the course of hearing and the actual receipts were detected by the Assessing Officer on examination of the assessee's Passbook. According to the Ld. D.R., the information given in the original return of income has been utilised and the revised return was non est and not illegal. According to the Ld. D.R., the fact remains that the enhanced receipts were found out by the Assessing Officer and the Assessing Officer detected actual receipts after examining the copy of bank account of the assessee and the receipt of enhanced amount was accepted by the assessee. According to the Ld. D.R., it is a fit case for levy of penalty. Therefore, the revised return of income filed by the assessee on 11th March, 1994 declaring income of Rs. 1,17,560 was non estas it was not in accordance with the provisions of law. The assessee was not entitled to revise return under Section 139(5) as the original return of income was filed on 18-5-1992 under Section 139(4) of the Act. The assessee can file revised return only if the original return of income is filed under Section 139(1). Moreover, the assessee can furnish revised return of income only if he discovers any omission or any wrong statement therein before the expiry of one year from the end of the relevant assessment year or before the completion of the assessment whichever is earlier. The assessee could not prove that he discovered any omission or any wrong statement in the original return of income filed on 18-5-1992 under Section 139(1). Return of income filed on 18-5-1992 was not under Section 139(1) or in pursuance of notice issued under Section 142(1) of the Income-tax Act. Therefore, the revised return filed by the assessee was non est. The Assessing Officer has completed the assessment under Section 143(3) of the Income-tax Act by estimating the net income at the rate of 6.5% subject to depreciation. The validity of the assessment cannot be challenged in penalty proceedings in view of the decision of the Jammu and Kashmir High Court in the following cases:
1. CIT v. Hotel Highland Park [2000] 246 ITR 130 (J.& K.),
2. CIT v. Jawahar Lal Mehra [2000] 246 ITR 603 (J. & K.),
3. S. Arumugham v. CIT [2000] 246 ITR 670 (Mad.).
Therefore, there is no merit in the arguments of the assessee's Counsel that penalty cannot be levied because assessment was completed on the basis of revised return as the revised return itself was invalid.
8. I have considered the facts of the case, rival submissions and the material on record. The assessee filed original return of income on 18-5-1992. It was a return of income under Section 139(4) of the Income-tax Act and not a return under Section 139(1) of the I.T. Act. Therefore, the revised return of income filed by the assessee on 11-3-1994 declaring income of Rs. 1,17,570. was non est as it was not in accordance with the provisions of law. The assessee was not entitled to revise return under Section 139(5) as the original return of income was filed on 18-5-1992 under Section 139(4) of the Income-tax Act. The assessee can file revised return only of the original return of income is filed under Section 139(1). Moreover, the assessee can furnish revised return of income only if he discovers any omission or any wrong statement therein before the expiry of one year or from the end of the relevant assessment year or before the completion of the assessment whichever is earlier. The assessee could not prove that he discovered any omission or any wrong statement in the original return of income filed on 18-5-1992 under Section 139(1). Return of income filed on 18-5-1992 was not in pursuance of the notice issued under Section 142(1) of the Income-tax Act and, therefore, the revised return filed by the assessee was non est. The Assessing Officer has completed the assessment under Section 143(3) of the Income-tax Act, by estimating the net income at the rate of 6.5% subject to depreciation. The validity of the assessment cannot be challenged in penalty proceedings in view of the decision of the Jammu and Kashmir High Court in the following cases :
1. Hotel Highland Park's case (supra),
2. Jawahar Lal Mehra's case (supra),
3. S. Arumugham's case (supra).
Therefore, there is no merit in the argument of the assessee's counsel that penalty cannot be levied because assessment was completed on the basis of revised return as the revised return itself was invalid.
9. The Assessing Officer has completed the assessment on the basis of original return of income filed by the assessee on 18-5-1992. He has not acted on the revised return because in the revised return of income, the assessee has shown inflated expenses under certain heads, which were not accepted by the Assessing Officer. Since the expenses debited to Profit and Loss Account in the revised return of income were not accepted by the Assessing Officer, there is no merit in the argument that the assessment was completed on the basis of revised return. Now the question arises whether the penalty under Section 271(1)(c) can be levied for concealment on the facts and in the circumstances of the present case. There is no rule that penalty for concealment under Section 271(1)(c) cannot be imposed where the income is estimated. The levy of penalty under Section 271(1)(c) depends on the facts and circumstances of each case. If the concealment of income is apparent from record, there is no reason why penalty under Section 271(1)(e) cannot be imposed for concealment of income.
10. In the case of Vidya Sugar Oswal v. CIT [1977] 108 ITR 861 (Punj. & Har.), the facts of the case were as follows :
For the assessment year 1961-62, the assessee filed a return shown a total income of Rs. 86,029. The assessee had drawn only Rs. 2,000 on account of household expenses and the amount was debited to his account at the end of the year. The Assessing Officer estimated household expenses at Rs. 6,000 and consequently he made addition of Rs. 4,000 (Rs. 6,000 -Rs. 2,000) on estimated basis. The ITO considered that the amount of Rs. 4,000 had been spent by the assessee out of his concealed income. The Assessing Officer levied penalty under Section 271(1)(c) which was confirmed in appeal. The Tribunal confirmed the penalty imposed on the assessee. The Hon'blc Punjab and Haryana High Court held as under as per Head note:
Held, that the totality of the circumstances in the present case led to the irresistible conclusion that the assessee had consciously concealed the particulars of income and had deliberately furnished inaccurate particulars in order to conceal the income. In these days of high prices, even an ordinary man cannot live on Rs. 2,000 a year. The assessee who had income of more than Rs. 86,000 and was the managing director of a leading mill in Ludhiana and whose family consisted of his wife, four sons and a daughter should have spent more than Rs. 500 per month for his household expenses. The domestic expenses as estimated by the Income-tax Officer were rather ridiculously on the low side. The Tribunal was right in holding that the assessee was liable to pay penalty.
It is clear from this decision that if concealment of income is apparent from the record, then the penalty for concealment can be imposed even on the basis of estimate of income. Similarly in the case of Samunder Bhan Sadh v. CIT [1991] 188 ITR 638 : 55 Taxman 176 (All), the facts of the case were that the assessee, an individual, carried on business in printing power-loom cloth of cheaper varieties and sarees. For the assessment year 1971-72, the concerned year, he filed the return on May 25, 1971, disclosing an income of Rs. 21,400. He arrived at the income on the basis of an estimate. Later he filed a revised return disclosing an income from business of Rs. 33,000. The Income-tax Officer, however, did not accept the estimate. He estimated the sales turnover at Rs. 12,40,000 and determined the net income at Rs. 80,600 and this was upheld by the Tribunal. Penalty was imposed under Section 271(1)(c) of the Income-tax Act, 1961 and the Tribunal confirmed it. The Tribunal did not accept the assessee's plea that he did not maintain accounts. It observed that a businessman, having turnover of Rs. 11 lakhs, would not but have maintained accounts. There was a vast disparity between the sales turnover disclosed in the first return and the one disclosed in the revised return. It, accordingly, found that the assessee had failed to discharge the burden of proving that there had been no concealment of income. On a reference, the Hon'ble High Court held that the assessee himself had returned his income on the basis of estimate. The Income-tax Officer could not have done otherwise. The Tribunal was justified in holding that the assessee had failed to discharge the burden that lay upon him by virtue of the Explanation appended to Section 271 (1)(c) of the Act. The imposition of penalty was valid. This case also affirmed that there is no bar in levying penalty on the basis of estimate of the income if the assessee has concealed particulars of income or furnished inaccurate particulars of income. In the case of the assessee, Explanation 1 to Section 271(1)(c) is applicable.
11. In the case of CIT v. Prathi Hardware Stores [1993] 203 ITR 641 (Ori.), the Hon'ble Orissa High Court considered the Explanation to Section 271(1)(c) which is applicable to the case of the assessee before the Tribunal. Explanation to Section 271(1)(c) and provisions of Section 271(1)(c) are reproduced below:
Section 271 (1). If the Assessing Officer or the Commissioner (Appeals) in the course of any proceedings under this Act, is satisfied that any person-
(c) has concealed the particulars of his income or furnished inaccurate particulars of such income.
he may direct that such person shall pay by way of penalty,
(iii) in the cases referred to in Clause(c), in addition to any tax payable by him, a sum which shall not be less than, but which shall not exceed twice, the amount of tax sought to be evaded by reason of the concealment of particulars of his income or the furnishing of inaccurate particulars of such income:
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 Assessing Officer or the Commissioner (Appeals) to be false, or (B) such person offers an explanation which he is not able to substantiate and fails to prove that such explanation is bona fide and that all the facts relating to the same and material to the computation of his total income have been disclosed by him.
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.
The Hon'ble High Court held as under in the case of Prathi Hardware Stores (supra):
A conspectus of the Explanation added by the Finance Act, 1964 and the subsequent substituted Explanation makes it clear that the statute visualised the assessment proceedings and penalty to be wholly distinct and independent of each other. In essence, the Explanation (both after 1964 and 1976) is a rule of evidence. Presumptions which are rebuttable in nature are available to be drawn. The initial burden of discharging the onus of rebuttal is on the assessee. The rationale behind this view is that the basic facts are within the special knowledge of the assessee. Section 106 of the Indian Evidence Act, 1872 gives statutory recognition to this universally accepted rule of evidence. There is no discretion conferred on the Assessing Officer as to whether he can invoke the Explanation or not. Explanation 1, which primarily concerns the case at hand, automatically comes into operation when, in respect of any facts material to the computation of total income of any person, there is failure to offer an explanation or an explanation is offered which is found to be false by the Assessing Officer or the first appellate authority, or an explanation is offered which is not substantiated. In such a case, the amount added or disallowed in computing the total income is deemed to represent the income in respect of which particulars have been concealed. As per the provision of Explanation 1, the onus to establish that the explanation offered was bona fide and all facts relating to the same and material to the computation of his income have been disclosed by him will be on the person charged with concealment. Mere failure to substantiate the explanation is not enough to warrant penalty. The Revenue has to establish that the explanation offered was not substantiated. The provision of Explanation 1 is concerned only with cases coming under Clause (B) of the Explanation, where the assessee offered an explanation which he was not able to substantiate. The explanation of the assessee for the purpose of avoidance of penalty must be an acceptable explanation; it should not be a fantastic or fanciful one. As indicated above, the consequence follows as a matter of law. The burden is on the assessee. If he fails to discharge that burden, the presumption that he had concealed the income or furnished inaccurate particulars thereof is available to be drawn.
The principal logical import of the explanation is to shift the burden of proof from the Revenue on to the assessee. The rebuttal must be on materials relevant and cogent. It is for the fact-finding body to judge the relevancy and sufficiency of the materials. If such a fact-finding body, bearing the aforesaid principals in mind, comes to the conclusion that the assessee has discharged the onus, it becomes a conclusion of fact and no question of law arises. As observed earlier, the initial burden is on the assessee. Once the initial burden is discharged, the assessee would be out of the mischief unless further evidenced is adduced. It is plain on principle that it is not the law that the moment any fantastic or unacceptable explanation is offered, the burden placed would be discharged and the presumption rebutted. As pointed out by the Apex Court in CIT v. Mussadilal Ram Bharose [1987] 165 ITR 14, the burden placed upon the assessee is not discharged by any fantastic explanation. It must be an explanation acceptable to the fact-finding body.
The position on and after April 1, 1976, is clear that where, in respect of any item of credit, the assessee has offered an explanation which the taxing officer has considered to be false or the assessee has offered an explanation but no material or evidence to substantiate it, he shall be deemed to have concealed such income within the meaning of Section 271(1)(c). A further condition was imposed with effect from September 10, 1986, with which we are not concerned. In the case at hand, the explanation of the assessee so far as the genuineness of credit of the lender was concerned was not accepted. The assessee's appeal before the Appellate Assistant Commissioner failed. It was observed that the assessee offered an explanation but no material or evidence to substantiate the same. The Tribunal came to a presumptuous conclusion that the assessee may have succeeded in the appeal had it come before the Tribunal against the addition. No basis or reason has been indicated for such conclusion. A narration of facts would go to show that the Appellate Assistant Commissioner and the Tribunal did not consider the case of the assessee keeping in view the new Explanation 1 applicable on and after April, 1976. By operation of the Explanation, the onus lay on the assessee and findings given at the time of assessment are relevant and have probative value where the assessee offered nothing beyond the explanation offered at the assessment stage. In such cases, it cannot be said that the assessee has discharged the onus even by a preponderance of probabilities. The initial burden which lay on the assessee was not discharged. There was total absence of material to rebut the presumption. The assessee's plea does not stand the test of preponderance of probabilities.
The following proposition of law had been laid down by the Hon'ble Orissa High Court in the case of Prathi Hardware Stores (supra) in the context of Explanation 1 to Section 271(1)(c) which is applicable to the assessee :
(i) The onus lay on the assessee to rebut the presumption of concealment and finding given at the time of assessment are relevant and have probative value, where the assessee offered nothing beyond the explanation offered at the assessment stage.
(ii) The assessee can rebut the presumption of concealment on the basis of relevant and cogent material. It is not the moment any fantastic or unacceptable explanation is offered the burden placed will be discharged and the presumption rebutted.
12. Now considering the proposition of law laid down by the Hon'ble Orissa High Court in the case of Prathi Hardware Stores (supra), it is clear that the assessee has concealed the income declared in the original return of income filed on 18th May, 1992. The assessee has shown receipt of the amount at Rs. 19,41,233 on which net profit of Rs. 99,960 was shown. It is only when the Assessing Officer examined the bank account of the assessee during the course of the assessment proceedings that he came to know the assessee has received the total amount of Rs. 23,82,732. The assessee filed another return disclosing total receipt at Rs. 24,31,183 on 11-3-1994. This return of income was not in accordance with the provisions of Section 139(5) and was, therefore, non est. The assessee claimed deduction of higher expenses only to decrease the taxable income. For instance in the original return, the assessee debited labour payments at Rs. 12,96,198, whereas in the second return, the assessee debited labour payments at Rs. 14,26,209. But there was no evidence how this figure of Rs. 14,26,209 has been arrived at. No books of account were produced before the Assessing Officer to prove the expenses of Rs. 14,26,209 debited to Profit and Loss Account and claimed in the second return of income. Similarly, the assessee claimed excess deduction of Rs. 1,30,639 against the truck/tractor charges, but there was no evidence. The assessee also claimed deduction of Rs. 55,005 in the second return of income under the Site Kharch as against Rs. 35,005 in the original return of income. The assessee himself has shown total receipts of Rs. 24,31,183 in the second return filed on 11-3-1994. The assessee has only shown receipt at Rs. 19,41,233 in the original return of income filed on 18-5-1992, which was very late. It is clear from the facts of the case that the assessee has not disclosed correct amount received by the assessee in the original return of income filed on 18-5-1992. The assessee under-stated the receipts in the original return of income by Rs. 4,89,959 (Rs. 24,31,182 shown in the second return - Rs. 19,41,233 shown in the second return of income filed on 18-5-1992). The Assessing Officer has estimated the assessable income at a very low figure in view of under-statement of receipts by the assessee to the tune of Rs. 4,89,959. The assessee has, therefore, concealed the assessable income and also furnished inaccurate particulars of income by understating the total amount received by the assessee as labour contractor. The assessee has not given any explanation as to why the total amount received by the assessee at Rs. 24,31,182 was not disclosed in the original return. This is a fit case for imposition of penalty under Section 271(1)(c) of the Act. The second return was filed after the Assessing Officer detected under-statement of receipts by the assessee after examining the bank account of the assessee. If the case of the assessee has not been scrutinised, the assessee would have escaped tax on his own real income. It was explained before the Assessing Officer by the assessee that on going through the revision of records it was found that expenses which were carried forward to next pages were left to be accounted for. But no evidence was produced to prove this fact. The assessee could not prove how he claimed inflated expenses in the second return of income. The assessee has failed to discharge the burden. The position of law on or after April 1, 1976 is that in respect of any facts material to the computation of total income the assessee fails to offer an explanation or the explanation offered by the assessee is found to be false by the Assessing Officer or offers an explanation, which he is not able to substantiate, then the amount added or disallowed in computing the total income of such person, shall be deemed to represent the income in respect of which particulars have been concealed within the meaning of Section 271(1)(c). The assessee has declared income of Rs. 99,960 on the total receipt of Rs. 19,41,233 in the original return filed on 18-5-1992. In the second return filed after detection by the Assessing Officer, the assessee disclosed total receipts at Rs. 24,31,183. The Assessing Officer estimated the net profit at the rate of 6.5% on total payments of Rs. 24,31,183. The assessed income on the basis of facts seems to be very low by the Assessing Officer. The assessee has clearly concealed the particulars of income by under-stating the total amount received by it in the return of income filed on 18-5-1992. The assessee has not given any explanation with evidence and, therefore, the assessee is liable to penalty. The CIT (A) has not considered the legal provisions while cancelling the penalty under Section 271(1)(c) imposed by the Assessing Officer. The order of the CIT(A) is reversed and the order of the Assessing Officer are confirmed.
13. In the result, the appeal is allowed.