COMMISSIONER OF INCOME-TAX VS J.V. APPADURAI CHETTIAR CO.
1998 P T D 2213
[221 I T R 849]
[Madras High Court (India)]
Before Thanikkachalam and Balasubramanian, JJ
COMMISSIONER OF INCOME-TAX
versus
J.V. APPADURAI CHETTIAR CO.
Tax Case No.1176 (Reference No.379 of 1980), decided on 10/01/1996.
Income-tax-----
----Penalty---Concealment of income---Cash credit ---Assessee filing confirmatory letter from lender---Lender subsequently denying lout-- Revised return filed before assessment including amount of loan---No concealment of income---Penalty could not be imposed---Income Tax Act, 1961,.8.271(l)(c).
The assessee-firm filed its return for the assessment year-1971-72 disclosing a business income of Rs.64,234. In the course of examination of the accounts, the Income-tax Officer found that there was a credit for Rs.10.000 in the name of one G. The assessee filed a confirmatory letter from G in support of the loan of Rs.10,000 taken from him. In the course of the enquiries made by the Income-tax Inspector, G denied having advanced any loan to the assessee. Thereafter, on February 18,1974, the assessee filed a revised return stating that in the absence of documentary evidence to prove the loan taken from G, the amount of Rs.10,000 was offered as income for assessment. The Income-tax Officer levied penalty under section 271(1)(c) of the Income Tax Act, 1961, but the Tribunal cancelled it. On a reference:
Held, that the revised return was filed before completion of the assessment. The assessee did not agree that the cash credit belonged to it. Since it was unable to prove that the cash credit belonged to one G, the, assessee had no other option but to offer the said amount for tax. There was no material on record to establish that the assessee while filing the original return had deliberately filed a false return, containing inaccurate particulars of its income. The Tribunal was justified in cancelling the order of penalty.
CIT v. Krishna & Co. (1979) 120 ITR 144 (Mad.) distinguished.
CIT v. Balakrishna Textiles (1992) 193 ITR 361 (Mad.); CIT v. Mahim (K.) (1984) 149 ITR 737 (Ker.); CIT v. Ramdas Pharmacy (1970) 77 ITR 276 (Mad.) and CIT v. Subramania Chettiar (J.K.A.) (1977) 110 ITR 602 (Mad.) ref.
S.V. Subramnian for the Commissioner.
K. S. Sivaraman for the Assessee.
JUDGMENT
THANIKKACHALAM, J.---In compliance with the directions of this Court in T.C.P No.224 of 1979, the Tribunal referred the following question for the opinion of this Court under section 256(2) of the Income Tax Act, 1961 (hereinafter referred to as "the Act"):
"Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was justified in holding that the assessee had not furnished inaccurate particulars of the income in the original return filed on March 17, 1972, and accordingly in deleting the penalty of Rs.10,000 imposed under section 271(1)(c) of the Act?"
The assessee is registered-firm doing business in jaggery at Vellore. On March 17,1972, for the assessment year 1971-72, the assessee filed a return, disclosing the business income of Rs.64,234. In the course of examination of the accounts, the Income-tax Officer found that there was a credit for Rs.10,000 in the name of one Sri Gopal Mudaliar. The assessee filed a confirmatory letter from Gopal Mudaliar in support of the loan of Rs.10,000 taken from him. In the course of the enquiries made by the Income-tax Inspector, Gopal Mudaliar denied having advanced any loan to the assessee. Thereafter, on February 18, 1974, the assessee filed a revised return stating that in the absence of documentary evidence to prove the loan taken from Gopal Mudaliar, the amount of Rs.10,000 is offered as income for assessment.
The Income-tax Officer initiated penalty proceedings under section 271(1)(c) of the Act. According to the Income-tax Officer, the assessee filed a revised return after the Department started enquiry and found that the credit was not a genuine one. Since the assessee furnished inaccurate particulars of its income in the original return filed on March 17, 1972, penalty was levied under section 271(1)(c) to the extend of Rs.10,000. On appeal, the Appellate Assistant Commissioner confirmed the penalty levied by the Income-tax Officer. Aggrieved, the assessee filed a second appeal before the Tribunal. The Tribunal allowed the assessee's appeal and cancelled the penalty of Rs.10,000 imposed under section 271(l)(c) of the Act. According to the Tribunal, the assessee filed the return on the bona fide belief that he can establish the genuineness of the loan in view of the cash entry in the book and confirmatory letter from the creditor. It was also pointed out that before the revised return was filed the assessee became aware of the Inspector's report. Therefore, according to the Tribunal, the assessee cannot be charged guilty of concealment or furnishing of inaccurate particulars of its income.
Learned senior standing counsel for the Department submitted that the penalty levied under section 271(1)(c) of the Act cannot be cancelled on the sole ground that the assessee filed a revised statement before completing the assessment by the Income-tax Officer. According to learned senior standing counsel the assessee failed to establish his bona fides in thinking the genuineness of the cash credit found in the account books while the original return was filed. It was further submitted that after the investigation made by the Inspector of Income-tax Department, the assessee came forward with a revised return. Therefore, on the date of filing the revised return, the assessee would have had the knowledge of the view taken by the Department on the cash credit found in the name of Gopal Mudaliar. Ultimately, learned senior standing counsel submitted that the Tribunal was not correct in cancelling the penalty levied under section 271(1)(c) of the Act. We have also heard learned counsel for the assessee, who supported the order passed by the Tribunal.
According to the facts arising in this case, for the assessment year 1971-72, the assessee filed the original return on March 17, 1972. In the original return, the cash credit found in the account books in the name of Gopal Mudaliar of Rs.10,000 was not disclosed. The assessee filed a revised return on February 18, 1974, offering the abovesaid amount to tax. Now, the point for consideration is: whether penalty is exigible under section 271(1)(c) of the Act in the case of the assessee. According to the Department, the assessee would not have had bona fide belief that the cash credit is genuine when the original return was filed. It is the case of the Department that only after the investigation was made by the Inspector of Income-tax Department the assessee came forward to file a revised return disclosing the cash credit found in the name of Gopal Mudaliar. Further, according to the Department, the fact that the said Gopal Mudaliar later on denied having advanced any amount to the assessee would not in any way absolve the assessee from levy of penalty under section 271(1)(c) of the Act. Therefore, the assessee deliberately concealed the particulars or furnished inaccurate particulars in the return, warranting penalty under section 271(1)(c) of the Act.
Learned senior standing counsel placed reliance on a decision of this Court in CIT v. J.K:A. Subramania Chettiar (1977) 110 ITR 602 in order to support his contention that merely filing a revised return before completing the assessment would not absolve the assessee from levy of penalty under section 271(1)(c) of the Act. According to the facts arising in the abovesaid decision, for the assessment year 1963-64, the assessee filed a return of income on March 16, 1964, disclosing a total income of Rs.27,566, which inc',iding a business income of Rs.21,665. Subsequently, on February 7; 1968, the assessee filed a second return of income for the same year, disclosing a total income of Rs.75,044, which included a business income of Rs.69,143. The assessee also filed a petition under section 271(4-A). The assessment was ultimately completed on December 31, 1968, on a total income of Rs.3,15,201 which included a sum of Rs.3,09,645 as income from business. The Income-tax Officer, thereafter, initiated penalty proceedings under section 271(1)(c) and referred the matter to the Inspecting Assistant Commissioner, who levied a penalty. The Tribunal cancelled the penalty in the view that as the assessee had filed a revised return before the officer started investigation into the bogus nature of the hundi transactions in the course of the earlier assessment year, there was no concealment of income, and for this purpose, reliance was placed upon a decision report in CIT v. Ramdas Pharmacy (1970) 77 ITR 276 (Mad.). On a reference this Court held that the assessee had intentionally and deliberately concealed the particulars of his income in this first return as well as in the second return, he cannot escape the liability under section 271(1)(c) of the Act. This Court further held that section 139(5) applies only to a limited category of cases where, in the original return there was any omission or any wrong statement and not to cases of concealment or false statements. If a case does not fall under section 139(5), the fact that the revised return was filed before any investigation was started by the Income-tax Department will be of no consequence. Thus, according to the facts arising in the abovesaid decision in both the original as well as in the revised return, the disputed income was not shown by the assessee. Therefore, this Court came to the conclusion that there is concealment of income and penalty is exigible under section 271(1)(c) of the Act. Further, in that case the assessee failed to establish that the non-disclosure of the cash credit was due to any omission or any wrong statement as contemplated under section 139(5) of Act.
But, according to the facts arising in the present case, the cash credit was not disclosed in the original return, but it was disclosed in the revised return. What remains to be considered in this case is whether the assessee has established that the non-disclosure of cash credit is due to any omission or any wrong statement as contemplated under section 139(5) of the Act.
Reliance was also placed on a decision of this Court in CIT v. Balakrishna Textiles (1992) 193 ITR 361. According to the facts arising in this decision, the assessee, who carried on a business including export of art silk fabrics, handloom cloth, handicrafts, etc., filed returns for the assessment years 1962-63 to 1964-65 disclosing in some cases loss and in some other marginal incomes based on accounts maintained by them. Some time in January, 1965, there was a raid on the business premises of most of the assessees by the Economic Offences Wing. Thereafter, in May, 1965, the assessee came forward with certain disclosures under section 68 of the Finance Act, 1965. Later, there assessees purported to file revised returns. In the revised returns also, the assessees had not disclosed the correct particulars of income and had suppressed profits. Subsequent to the revised returns the assessee offered further amounts for assessment. The Income-tax Officer also found that the assessees had suppressed the sale of import licences and the profits derived from them. Therefore, the Income-tax Officer imposed penalty, but it was cancelled by the Tribunal on the grounds that the assessee had filed revised returns, the incomes had been estimated and that the charge of concealment was not specific.
On a reference, this Court held that the original returns as well as the revised returns did not disclose the correct particulars of income of the assessee and that the profits on the sale of the import licences had also been suppressed and, in the course of the assessment proceedings, the assessees had agreed for inclusion and assessment of very large amounts, which were accordingly assessed and apportioned in the hands of the respective groups of assessees for the relevant assessment years. Neither in the original returns nor in the revised returns had the assessees accepted the fact that they had sold import licences. The orders of assessments passed by the Income-tax Officer had not been challenged by any of the assessees. In respect of the assessment year 1964-65, the Tribunal completely overlooked the fact that the explanation to section 271(1)(c) of the Income Tax Act, 1961, which came into effect from April 1, 1964, would be applicable and, in the absence of proof by the assessee that the failure to return the correct income did not arise from any fraud or any gross or wilful neglect on their part, they must be deemed to have concealed the particulars of income or furnished inaccurate particulars of income for purpose of section 271(l)(c). The presumption raised by the application of the Explanation had remained wholly unrebutted and, in such an event, there was no justification whatever for the deletion of the penalty by the Tribunal for the assessment year 1964-65. The Tribunal was not justified in cancelling the penalty in respect of the assessment years 1962-63 to 1964-65. The abovesaid conclusion was arrived at by this Court on the facts that the assessee had not disclosed in the original returns as well as in the revised returns the profits earned out of the sale of the import entitlement. Further, the assessees had not displaced the initial burden placed upon them under the Explanation to section 271(1)(c) of the Act. Under these circumstances, this Court held that penalty is exigible in the case of the assessee. But, on the other hand, the facts arising in the present case are entirely different. The cash credit, which was not disclosed in the original returns was offered for tax in the revised return. The Explanation to section 271(1)(c) applicable with effect from April 1, 1964, is not applicable to the facts of the present case. Therefore, this decision rendered by this Court would not help the Department to support its case.
Reliance was also placed upon the decision in CIT v. K. Mahim (1984) 149 ITR 373 (Ker.). According to the facts arising in that case, the assessment of the assessee for the relevant assessment year was reopened by the Income-tax Officer and detailed enquiries were pursued in respect of the same. The assessee, however, filed a revised return voluntarily and the assessment was completed by the Income-tax Officer on that basis. Thereafter, the Income-tax Officer issued notice to the assessee under. section 271(1)(c) of the Act for concealment of income and referred the matter to the inspecting Assistant Commissioner. The assessee contended before the Inspecting Assistant Commissioner that inasmuch as he had filed the revised return voluntarily and that the assessment had been completed on the basis of such revised return, the levy of penalty would be invalid as no concealment could be established with reference to the revised return. The Inspecting Assistant Commissioner rejected the contention of the assessee and imposed penalty on him,. On appeal, the Tribunal cancelled the penalty on the ground that so long as the assessment proceedings were pending and investigations were being conducted by the Department, the assessee could rectify a return by filing a revised return under section 139(5), before the Department became aware of the particular activity in respect of which the income was concealed. On a reference, the Kerala High Court held that the filing of a revised return voluntarily by the assessee when he knew that the Department was conducting investigations against him would not exonerate the assessee from the liability to penalty under section 271(1)(c) of the Act. Penalty under section 271(1)(c) is geared to the amount of the income in respect of which the particular have been concealed or inaccurate particulars have been furnished. The correct income of the assessee, after the assessments have become final, cannot be a matter of conjecture. But, according to the facts arising in the present case, the revised return was filed before completing the assessment. There is no reopening of the assessment in the present case. The question, whether the assessee would have had bona fide belief in not disclosing the income, due to omission or by furnishing a wrong statement, was not the subject-matter in issue. Hence, the abovesaid decision would also render no assistance to the Department in supporting the case put forward by it in the present reference.
Our attention was also drawn to a decision of this Court in CIT' v. Krishna & Co. (1979) 120 ITR 144. According to the facts arising in that case, the case 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. The assessee, thereupon, 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, this Court 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. The assessee in that case having readily agreed to the inclusion of the amount as his income, the levy of penalty was justified. Therefore, it remains to be seen that the assessee accepted that the amount represented his own income and agreed to the inclusion of the amount as his income. But, in the present case on hand, the assessee never agreed that the cash credit belongs to him. According to the assessee herein, since it was unable to prove that the cash credit belongs to one Gopal Mudaliar, the assessee had no other option but to offer the said amount for tax. Further, the hawala transaction is entirely different and distinct from the practice of entering a cash credit in the account books in the name of a third party. Therefore, the abovesaid decision is also distinguishable on facts.
According to the facts arising in the present case, in the original return, the cash credit of Rs.10,000 was not disclosed. The cash credit is standing in the name of one Gopal Mudaliar. The assessee possessed a confirmatory letter from the said creditor. Therefore, the assessee was under the bona fide impression that there is proof for establishing that this sum of Rs.10,000 was advanced by the creditor. The assessee came to know that the said Gopal Mudaliar denied having advanced such amount to the assessee only after the investigation was completed by the Inspector of Income-tax Department. Therefore, on the date when the original return was filed, we cannot say that the assessee had any mala fide intention on his part in not disclosing the cash credit in the original return. It is no doubt true that merely on the ground of filing a revised return, the assessee is not entitled to claim that no penalty is exigible under section 27(1)(c) of the Act. As per the provision of section 139(5) of the Act, the assessee is entitled to file a revised statement before completion of the assessment by the Assessing Officer. If the non disclosure of the cash credit is due to any omission or due to any wrong statement, definitely the assessee claim that there is no concealment of particulars in filing the original return. In the present case, the assessee was depending upon the confirmatory letter given by the creditor, who ultimately denied the advancement of loan to the assessee in the investigation conducted by the Inspector of Income-tax Department. Therefore, there is no material on record to establish that the assessee while filing the original return, has wantonly and deliberately filed a false return, containing inaccurate particulars of its income. If this is established, the revised return filed under section 139(5) of the Act would be acceptable, and there cannot be any concealment of particulars in the original return filed. In that view of the matter, we hold that there is no infirmity in the order passed by the Tribunal in cancelling the penalty levied under section 271(1)(c) of the Act. Accordingly, we answer the question referred to us in the affirmative and against the Department. No costs.
M.B.A./1333/FCOrder accordingly.