COMMISSIONER OF INCOME-TAX VS SHIVNARAYAN JAMNALAL & CO, 2000 PTD-MADHYA-PRADESH-HIGH-COURT-INDIA 572 (1996)

Income-tax---

----Penalty---Concealment of income ---Assessee producing before Authorities books of account---Assessing Authority employing flat rate for estimating income ---Not recording finding of fraud or gross or wilful neglect on part of assessee---Penalty not leviable ---Indian Income Tax Act, 1961, S.271(1)(c).

The assessee who had nine liquor shops located in several places maintained a single cash book and ledger. The Assessing Officer held that it was not possible to acquire daily account from all the shops regularly at a particular place and that, the sales of all these shops were recorded at a stretch. He, therefore, estimated the sales and net profit. He initiated penalty proceedings under section 27 (l)(c) of the Income Tax Act, 1961, for concealment and imposed penalty. The Tribunal cancelled the penalty. On a reference:

Held, that the assessee had placed before the authorities whatever books of account it had maintained whether they were properly maintained or not and it had not withheld or concealed any material or made any deliberate attempt to defraud the authorities. Therefore, the Tribunal was justified in bolding that the penalty was not leviable.

Abhay Sapre for the Commissioner.

Nemo for the Assessee.

JUDGMENT

A. K. MATHUR, C. J.---This is an income-tax reference under section 256(1) of the Income Tax Act, 1961 , at the instance of the Revenue and the following questions of law have been referred by the Tribunal for answer by this Court:

"(i) Whether, on the facts and in the circumstances of the case, the Tribunal was right in law to hold that penalty under section 271(1)(c) of the Income Tax Act, 1961, read with Explanation I was not leviable?

(ii) Whether, on the facts and in the circumstances of the case, the Tribunal was right in law to hold that it was not a case where the Explanation offered by the assessee could not be substantiated by it?"

The brief facts giving rise to this reference are these: The assessee filed a return of income on July 30, 1979, declaring a total income of Rs.3,080. It was a case of country liquor business. During the year in question, the assessee was licensed by the State excise authorities to carry on the business of trade in country liquor from several shops located at Satna and other-areas on a licence fee of Rs.14,25,000. The assessee disclosed sales of Rs.21,82,346 and a profit of Rs.3,080. Alongwith the return, a consolidated balance-sheet containing purchases and sales of different varieties of liquor transacted from different shops, was filed. Alongwith that, it also filed a profit and loss account indicating a gross profit of Rs.14,76,602. On the expenditure side, major expenses of Rs.14,25,000 were shown towards licence fee, Rs.25,800 towards salary, Rs.7,860 towards house rent, shop rent and other petty miscellaneous expenses. All these expenses totalled to Rs.14,73,523. Thus, a net profit of Rs.3,079.55 or Rs.3,080 was worked out. It was the claim of the assessee that the purchases, sales and profits were on the basis of the books of account regularly maintained by it which was again a fact that there were in all nine shops located at different places and the books of account were not maintained separately for each of them and instead, a single cash book and ledger were maintained for all the shops. The Assessing Officer recorded a finding that all the shops remained open till 9.00 p.m. and it was not possible to acquire daily account from all the shops regularly at a particular place and in any case, no evidence, in support of such proposition was produced. It was also found that sales of all these shops were recorded at a stretch.

During the assessment proceedings, the matter was referred to the Inspecting Assistant Commissioner under section 144B and the following two submissions, among others, were made by the assessee:

(i) Since the shops were situated at distant interior places, it had to spend a sizeable sum on account of transportation and travelling expenses.

(ii) Sale memos. and stock registers were also available and produced. From the account copies, it was not ascertainable whether any expenses were shown for travelling, since neither in the profit and loss account, nor in the trading account, such expenses were appearing. Sales were shown to be low. In other cases, for the same period, sales were more than twice the licence fee. The assessee did not furnish details of sealing charges, transportation charges and many other incidental expenses.

The Assessing Officer, after taking into consideration and in obedience to the direction given by the Inspecting Assistant Commissioner estimated the sales at Rs.85,50,000 i.e., two times of the lease money and net profit was determined at Rs.85,500, i.e., 3 percent. of the sales. By virtue of the sales was allowed as cost of liquor and other as expenses. The deference between the assessee's income and the returned income was, therefore, extremely large.

On appeal, the Commissioner of Income-tax (Appeals) dismissed the appeals with the observation that the appellant had not opted to furnish the information in regard to the books maintained, method of accounting followed and method of stock valuation. It was also observed that the assessee had not produced the books of account and entries of sales of the scattered branches had been incorporated in the cash book of the head office which it was not possible to do on the same day. The books of account which were produced were not found to be reliable. Hence, the assessee's income was assessed at Rs.85,500.

Thereafter, the Assessing Officer levied penalty under sec?tion 271(1)(c), read with Explanation 1(A) and (B) with proviso, amounting to Rs.35,900, on the assessee. Notice was given to the assessee and in its Explanation, the assessee placed reliance on a number of cases and submitted that there was no deliberate concealment on his part. However, the Assessing Officer levied the penalty. Therefore, an appeal was preferred before the Commissioner of Income-tax (Appeals). The Commissioner of Income-tax (Appeals) after considering the matter, set aside the penalty and held that it was a simple case of rejection of book results and estimation of income by applying flat rates. It was also held that the Assessing Officer did not record the finding of fraud or gross or wilful neglect on the part of the assessee. On appeal by the Revenue before the Tribunal, the Tribunal affirmed the finding of the Commissioner of Income-tax (Appeals) and has made a reference of the aforesaid two questions of law for answer by this Court.

We have gone through the orders of the Tribunal and the Commissioner of Income-tax (Appeals). We are satisfied that both the authorities have correctly approached the matter and found that there was no fraudulent attempt on the part of the assessee. The assessee had placed before the authorities whatever books of account it had. maintained--whether they were properly maintained or not but it has not withheld or concealed any material or made any deliberate attempt to defraud the authorities. The assessing authority has employed the flat rate for assessing the income of the assessee and on that basis, he has been taxed.

Therefore, we are of the opinion that the view taken by the Tribunal in setting aside the penalty appears to be justified and we answer both these questions against the Revenue and in favour of the assessee.

M.B.A./3224/FC ??????????????????????????????????????????????????????????????????????????????? Reference answered