COMMISSIONER OF INCOME-TAX VS C.J. RATHNASWAM
1997 P T D 2354
[223 ITR 5]
[Madras High Court (India)]
Before K. A. Thanikkachalam and Balasubramanian, JJ
COMMISSIONER OF INCOME-TAX
Versus
C. J. RATHNASWAMY
Tax Case No. 1264 and Reference No.764 of 1982, decided on /01/.
th
February, 1996 Income-tax---
----Penalty---Concealment of income---Cash credits ---Assessee agreeing to inclusion of cash credits as income---No admission that cash credits represented undisclosed income---No evidence to prove concealment of income---Penalty could not be imposed---Indian Income Tax Act, 1961, S.271(1)(c).
For the assessment year 1973-74, the assessee filed a return admitting a loss of Rs. 41,689. In the course of assessment proceedings, the Income-tax Officer found that the assessee did not file the copy of the capital account. He, therefore, called for the same and on scrutiny, found two credits one on January 20, 1973, for Rs.10,000 and the other on March 31, 1973, for Rs.5,000. Since there was no explanation by the assessee and he readily agreed for assessment of the same, the Income-tax Officer initiated penalty proceedings. During those proceedings, the assessee explained that entries for a sum of Rs.15,000 in the capital account were made by mistake by the accountant who was new to the job, and that the assessee had made gifts of Rs.10,000 and Rs.5,000 each to his brother and wife and the accountant by mistake had recorded the same as cash credits. The assessee further pointed out that the tax effect was only Rs. 33'7 and that there was no mens rea warranting penalty. The Income-tax Officer rejected the explanation and levied penalty. The Tribunal cancelled the penalty. On a reference:
Held, that, according to the facts arising in the present case, the assessee agreed for an addition of the undisclosed income, but did not agree for addition on the basis that the undisclosed income was his concealed income. It was also admitted that the Department had not brought any other materials to show that the assessee had concealed the income or furnished inaccurate particulars so as to warrant penalty. The Tribunal was justified in cancelling the penalty.
Sir Shadilal Sugar and General Mills Ltd. v. CIT (1987) 168 ITR 705 (SC) applied.
CIT v. Anwar Ali (1970) 76 ITR 696 (SC); CIT v. Krishna & Co. (1979) 1201TR 144 (Mad.); Durga Timber Works v. CIT (1971) 79 ITR 63 (Delhi) and Western Automobiles (India) v. CIT (1978) 112 ITR 1048 (Bom.) ref.
C. V. Rajan for the Commissioner.
Nemo for the Assessee.
JUDGMENT
K. A. THANIKKACHALAM, J.---Pursuant to the direction of this court on October 27, 1981, in T.C.P. No. 143 of 1981, the Tribunal referred the following two questions for the opinion of this Court:
"(1) Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was correct in holding and had valid materials to hold that no penalty under section 271(1)(c) could be levied in the assessee's case on the ground that there was no material to show that the assessee had offered the credits of Rs. 15,000 for assessment as his undisclosed income?
(2) Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was justified in not considering and pronouncing upon the grounds Nos.4 and 5 raised in the grounds of appeal filed by the Department?"
The assessee filed his return for the assessment year 1973-74 admitting loss of Rs.41,689. The Income-tax Officer noticed that there were two cash credits totalling Rs.15,000 during the financial year ended on March 31, 1973. The Income-tax Officer enquired regarding the source, but the assessee agreed to the addition of the above sum as income from undisclosed sources. The Income-tax Officer also initiated penalty proceedings under section 271(1)(c) of the Act in respect of the above addition. The assessee replied to the penalty notice that he had readily agreed to the addition of Rs.15,000 and hence the penalty should not be levied. On appeal, before the Appellate Assistant Commissioner, the assessee submitted that the entries of the sum of Rs.15,000 in the capital account were made by mistake by the accountant, who was new to the job, that the assessee had made gifts of Rs.10,000 and Rs.5,000 each to his brother and wife and the accountant by mistake had recorded the same as cash credits instead of gifts. The assessee further argued that the tax effect was only Rs.337 and that there was no mens rea, that he had not admitted that it was his concealed income, but only agreed to the addition of Rs.15,000 in the assessment. The Appellate Assistant Commissioner agreed with the assessee that the Income?tax officer has not established that it is the concealed income of the assessee and held that no penalty is leviable relying on the decision of the Supreme Court in the case of CIT v. Anwar Ali (1970) 76 ITR 696.
Aggrieved, the Department preferred a second appeal before the Tribunal. The Tribunal was of the view that on the basis of the agreed addition alone penalty under section 271(1)(c) cannot be levied. The Tribunal relied upon the decision in the case of Anwar Ali (1970) 76 ITR 696 (SC). The Tribunal further pointed out that apart from the fact that the assessee agreed for the assessment of undisclosed income, the Department has not brought on record any material to point out that there is any concealment on the part of the assessee. Thus, the Tribunal agreed with the Appellate Assistant Commissioner in cancelling the penalty levied under section 271(1)(c) of the Act.
Before us, learned standing counsel appearing for the Department submitted that the fact that the assessee had agreed for the assessment of undisclosed income itself would be sufficient for the levy of penalty under section 271(1)(c) of the Act. In order to support this contention, reliance was placed upon a decision of this court rendered in the case of CIT v. Krishna & Co. (1979) 120 ITR 144. In the above decision, this court applied the principle laid down by the Bombay High Court in the case of Western Automobiles (India) v. CIT (1978) 122 ITR 1048 and held that in a case where the assessee himself has admitted that the amount represented his own income, no further evidence would be necessary to show that it was the amount which, represented his income and it represented his concealed income. Inasmuch as the assessee readily agreed to the inclusion the amount as his income, the levy on penalty was justified.
We have heard learned standing counsel for the Department and perused the records carefully. For the assessment year 1973-74, the assessee filed a return admitting a loss of Rs.41,689. In the course of the assessment proceedings, the Income-tax Officer found that the assessee did not file the copy of the capital account. He, therefore, called for the same and on scrutiny, found two credits one on January 20, 1973, for Rs. 10,000 and the other on March 31, 1973, for Rs. 5,000. The source for the credit was put to the assessee by the Income-tax Officer and since there was no explanation by the assessee and he readily agreed for assessment of the same as income from undisclosed sources. The Income-tax Officer initiated penalty proceedings under section 271(1)(c) of the Act. The assessee filed his reply of March 3, 1976. The Income-tax Officer also gave a fresh opportunity to the assessee. But the assessee reiterated the same explanation as those contained in the letter filed on March 3, 1976. According to the assessee, entries for a sum of Rs. 15,000 in the capital account were made by mistake by the accountant who was new to the job, that the assessee had made gifts of Rs. 10,000 and Rs. 5,000 each to his brother and wife and the accountant by mistake had recorded the same as cash credits. The assessee further pointed out that the tax effect was only Rs. 337 and that there was no mens rea warranting penalty. He further stated that he had not admitted that it was concealed income, but only agreed to the addition Rs. 15,000 in the assessment. Apart from the acceptance of the assessee in making the addition under the head 'undisclosed income", there was no acceptance for bringing the undisclosed income as his concealed income.
Learned standing counsel for the Department submitted that the fact that the assessee agreed for the addition in the assessment would also be sufficient for levying of penalty under section 271(1)(c) of the Act. Admittedly the Department has not brought on record any other material to show that there was concealment on the part of the assessee and the disclosed addition made in the assessment proceedings is undisclosed income.
In CIT v. Krishna & Co. (1979) 120 ITR (Mad), the books of the assessee showed certain borrowings and repayments from certain bankers. The assessee produced the discharged hundis before the Income-tax Officer, who, however, held that the bankers had merely lent their names in what was known as bogus hawala transactions. Thereupon, the assessee agreed to the addition of the peak credit to his income. In the penalty proceedings, the assessee's submission that no penalty was exigible was rejected by the Inspecting Assistant Commissioner but accepted by the Tribunal. On a reference to the High Court it was held as under (headnote):
"that in a case where the assessee himself has admitted that the amount represented his own income, no further evidence would be necessary show that it was the amount which represented his income and it represented his concealed income. The assessee in the instant case having readily agreed to the inclusion of the amount as his income, the levy of penalty was justified. "
In that decision, this court applied the decision of the Bombay High Court in the case of Western Automobiles (India) v. CIT )1978) 112 ITR 1048. In that case also, the assessee agreed to the addition of a sum of Rs.90,000. The legality of the penalty proceedings taken in respect of the concealment of the said sum came up for consideration by the Bombay High Court. The decision in CIT v. Anwar Ali (1970) 76 ITR 696 (SC) was cited and at page 1053, the Bombay High Court observed as follows (at page 146 of 120 ITR):
"It was held that the decision of the Supreme Court in Anwar Ali's case (1970) 76 ITR 696, was not applicable to case where the addition was not by a mere rejection of the explanation of the assessee but on, account of an admission of the assessee that the amounts may be added as its income as was the case before the Delhi High Court in Durga Timber Works' case (1971) 79 ITR 63."
Again, at page 1056, the principle applicable was set out as follows:
"In our view, whether a revised return is filed or an admission is made before the Income-tax Officer in the course of original assessment proceedings would seem to made little difference. The basis in both the cases is the same, viz., that the assessee agreed to accept the amounts as his income from business for the year in question. Once this true position is established, it would appear that it would be sufficient for the Department to seek to discharge the onus in the penalty proceedings by relying upon this admission. "
As against these two decisions, there is a decision by the Supreme Court in the case of Sir Shadilal Sugar and General Mills Ltd. v. CIT (1987) 168 ITR 705. According to the facts arising in the said case, in the assessment proceedings for the assessment year 1958-59, Indian Income-tax Act, 1922, of the appellant company which derived income from manufacture and sale of sugar and confectionery three items of debit were added to its income: (1) Rs.48,500 for cane cost; (2) Rs.67,500 for shortage in cane; and (3) Rs.21,700 for salary of out station staff. These additions were not challenged by the appellant in appeal, the reason given by- the appellant being that, though the additions were unwarranted, it wanted to maintain good relations with the Revenue. The Inspecting Assistant? Commissioner imposed a penalty of Rs.70,000 under section 271(1)(c) of the Income-tax Act,. 1961 'prior to its amendment in 1964), finding that the debits were based on false claims. In relation to Rs. 21,700 the statement of one K who was not a contractor employed by the appellant in the relevant year but was employed in a later year was relied upon. On appeal, the Appellate Tribunal held (i) that not much turned upon the fact that the appellant had agreed to the additions of the amounts in assessment; (ii) that? K' s statement had no bearing as he was not the contractor in the relevant year of account, (iii) that one A, who was a contractor in the year in question, had stated that he was responsible for the shortages, and , that the appellant had maintained ,staff at the centre where he was the contractor;, and (iv) that had further given the details and description of the staff so maintained; and as such the appellant could well have argued against the addition of the sums of Rs.67,500 and Rs. 21,700 and, therefore, en e mere fact that the amounts were agreed to be added did not ipso facto indicate any intention on `its part to conceal any portion of its income. In relation, however, to the sum of. Rs.48,500, the Tribunal held that the penalty was warranted but reduced the penalty to Rs. 5,000.
On these facts, the Supreme Court held that (headnote):
"From the assessee agreeing to additions to his income, it does not follow that the amount agreed to be added was concealed income. There may be a hundred and one reasons for such admission, i.e., when the assessee realises the true position, it does not dispute certain disallowances but that does not absolve the Revenue from proving the mens rea of a quasi-criminal offence."
According to the facts arising in the present case, the assessee agreed for an addition of the undisclosed income, but does not agree for addition on the basis that the undisclosed income is his concealed income. It was also admitted that the Department has not brought any other materials to show that the assessee had concealed the income or furnished inaccurate particulars so as to warrant penalty under section 271(1)(c) of the Act. Considering the facts arising in this case in the light of the judgment of the Supreme Court (cited supra), we hold that there is no infirmity in the order passed by the Tribunal in coming to the conclusion that no penalty is exigible under section 271(1)(c) of the Act. Accordingly, we answer question No. 1 referred to us in the affirmative and against the Department. In view of the answer given by us in so far as question No. l is concerned, there is no necessity to consider question No. 2. There will be no order as to costs.
M.B.A./1464/FC???????????????????????????????????????????????????????????????????????????????? Order accordingly.