Indian Kanoon - Search engine for Indian Law

Accordingly, in this case, even though the assessee had surrendered the income, levy of penalty was upheld by the Hon'ble Supreme Court.

8.3 In the present case, the revised return was not filed by the assessee on its volition and before the concealment was detected by the Department, but was filed only when the Department had conducted survey and had found discrepancies in the books of account and which discrepancies, the assessee could not explain and therefore, admitted that it had debited bogus expenses in the name of certain parties. It is not a simple case where the assessee committed a bonafide mistake in not disclosing income or in claiming excess expenditure but it is case where the assessee deliberately debited expenses in the name of non-existent parties and did not record these transactions in the audited books of accounts. Therefore, since the revised return was filed only when the assessee was cornered and had no explanation or supporting documents, that the assessee decided to withdraw the claim and filed a revised return. It is also not a simple case of non-availability of vouchers, but a case where the assessee in a well-thought out manner debited expenses in the name of non- existence entities in order to suppress its correct taxable income. The appellant argued that the Assessing Officer has not shown that the bogus expenditure was assessee's income, this argument of the assessee does not have any force. By claiming bogus expenditure, the assessee has reduced its total income and therefore, though the expenses per-se are not income, the correct particulars of income were concealed by claiming these expenses. Thus, the tax was evaded. It is also seen that the Assessing Officer's case of addition to income and levy of penalty is not dependent upon only the statement made by the assessee. At the time of survey, it was detected that expense in the name of certain concerns were debited in books of account. No vouchers for expenses were found at the time of survey. Even subsequently during assessment proceedings, the assessee was given opportunity by the Assessing Officer and was asked to justify the claim of expenses in the name of these entities. However, even in subsequent statement, the Managing Director admitted that these parties were non-existent 8.4 The assessee also argued that the Assessing Officer was not correct in observing that the revised return was not a valid return u/s. 139(5). This contention of the assessee is also not correct. Section 139(5) has application to a limited category of cases i.e. cases where in the original return there was any omission or wrong statement. Section 139(5) is applicable only when a person discovers that inadvertent omission or an unintended wrong statement had crept in the return filed by him. If a person who furnished the return was aware of the falsity of the statement and the correctness of the particulars of income even at the time when he filed the original return, there was no question of that person subsequently discovering the existence of the omission or creeping in of the wrong statement in the return already filed by him [CIT v. J.K.A Subramania Chettiar, (1977) 110 ITR 602, 614-15 609 (Mad)]. A return filed so as to include concealed income cannot be treated as a revised return u/s. 139(5) because omission to file the correct income in the original return cannot be said, in such circumstances, due to any bonafide mistake or omission [Gangaprasad v. CIT 123 ITR 349 (All), Badshah Prasad v. CIT 127 ITR 601 (Patna)].

8.5 In the present case, the revised return has been filed not because there was inadvertent omission unintended wrong statement but was filed because in the original return, the assessee had claimed bogus expenditure and therefore, the revised return cannot be considered as valid return u/s.139(5) of the Act.

8.6 The appellant further argued that the expense in the name of non-genuine parties were claimed as the Directors were uneducated and illiterate and did not understand the accounts or income-tax law. This explanation of the assessee is totally un-convincing. The Directors of the company had been running fairly big business and dealing with reputed clients. The volume of the assessee is also quite high (total turnover 5.94 crores). Such turnover could not have been achieved unless the Directors had full control over the affairs of the company. Therefore, it is difficult to believe that bogus expenses were claimed in the name of non-genuine entities without their knowledge. In fact, no such explanation was given at the time of survey and when the Director was confronted, he immediately accepted that the alleged creditors were non-genuine. Also, the quantum of non-genuine expenditure is so big as compared to the retuned income that the Director would have immediately come to know regarding the fall in profit. In any case, the employees or the Accountant did not have anything to gain by claiming expenditure and ultimately it is the Directors who were the beneficiaries of the benefit obtained by concealing the income and by evading the taxes. Therefore, from the facts, it is seen that the assessee had in a well-thought out manner made an attempt to debit bogus expenditure. In fact, bogus expenditure in the name of three associate concerns was also debited and it could not have been without the knowledge of the assessee. If the Managing Directors did not know about the debiting of bogus expenses in the name of non-genuine parties, how could he at the time of survey, say that these were non-existing parties and how could he offer the income for tax. Thus, it is not a simple case of mistake in accounts but a case of falsification of accounts by debiting the bogus expenditure and thus inflating the expenditure but at the same time, not making the entries regarding the alleged creditors in the books of account.

12 We have heard both the parties and perused the records. We have also gone through various decisions relied upon by the parties before us. We find that on the basis of the documents found during the course of survey, and their comparison with the audited books of accounts, it was detected that audited books of accounts did not contain the names/accounts of 34 creditors. Statement on oath of Shri Vijay R. Nair, Managing Director of the company was recorded. He was asked to explain about the discrepancy found in the trial balance vis-a-vis audited books of account. Shri Vijay Nair admitted that all the 34 parties (except 3 related parties viz. Bachhu Garage, Autolink, & Autocare) whose names were appearing in the trial balance but not in the audited accounts, were nonexistent and non-genuine. Shri Nair explained that the entries debiting bogus expenses and crediting non- genuine parties, were directly fed on computers by way of journal entries. No vouchers were also prepared by the assessee. Another statement of Shri Nair was recorded on 24-2-2003 wherein Shri Vijay Nair further admitted that one more party viz. M/s. Perfect Sales 8r Service was also a non-genuine creditor in addition to the 34 bogus creditors identified on the date of survey. The assessee filed a revised return on 11-3-2003 wherein the bogus expenditure of Rs.l,06,45,488/- appearing in the name of these non-genuine parties was added back. The Assessing Officer, however, held that the revised return was not a valid return u/s 139(5), as there was no omission or wrong statement in the original return and it was only due to detection of non- existent creditors that the assessee filed a revised return and therefore, it cannot escape the penal provisions of section 271(1)(c) of the Act.

14 In view of the above, we find no infirmity in the initiation of penalty proceedings by the AO in this case.

15 The second argument advanced by the learned counsel of the assessee was that in view of the revised return filed by the assessee, the assessee has disclosed all the material facts relevant to assessment at the stage of assessment proceedings and therefore in view of the decision in the case of Reliance Petrochemicals no penalty is leviable because full particulars were disclosed before the AO. This argument of the assessee is also not acceptable as the Tribunal in the quantum appeal has held the revised return filed by the assessee to be not valid return. So it cannot be said that the assessee disclosed all the material facts relevant to assessment during the course of assessment proceedings. For the sake of convenience, the relevant portion of the Tribunal's order is reproduced as under:-