THE HON’BLE SRI JUSTICE L.NARASIMHA REDDY
and THE HON’BLE SRI JUSTICE CHALLA KODANDA RAM
I.T.T.A. No. 66 of 2002
% 05.08.2014
Between:
# The Commissioner of Income Tax.
Versus $ M/s.Shakthi Industries.
...
APPELLANT ...RESPONDENT < Gist:
> Head Note:
! COUNSEL FOR THE APPELLANT :- Sri J.V.Prasad ^COUNSEL FOR RESPONDENT :-Sri B.Ravindra ? Cases Referred:
1. 123 ITR 457 THE HON’BLE SRI JUSTICE L.NARASIMHA REDDY AND THE HON’BLE SRI JUSTICE CHALLA KODANDA RAM I.T.T.A. No. 66 of 2002
JUDGMENT: (per the Hon’ble Sri Justice L.Narasimha Reddy)
This appeal is preferred by the Revenue assailing the order, dated 16.10.2001, passed by the Income Tax Appellate Tribunal, Visakhapatnam Bench (for short ‘the Tribunal’) in I.T.A.No.2008/H/96.
The respondent is a manufacturer of nut powder and other products. Returns were submitted by it for the assessment year 1994-95. Not satisfied with the accuracy of the facts and figures furnished in the returns, the Department undertook a survey on 21.12.1993 under Section 133A of the Income Tax Act (for short ‘the Act’) vis-à-vis the respondent. In the course of survey, it was noticed that there was a deficit of tax to the extent of Rs.12,94,666/- and shortage of cash of Rs.1,69,860/-. The respondent accepted those figures and filed revised returns and offered to pay tax. Certain adjustments were also sought on the basis of the sales that have taken place during the relevant period. Ultimately, a revised order of assessment was passed by adding a sum of Rs.6,68,850/- as income in addition to what was assessed earlier.
The Assessing Officer initiated proceedings under Section 271 (1) (c) of the Act against the respondent in relation to the two items that are said to have been discovered during the course of survey. The respondent was required to show cause as to why penalty be not levied. In the explanation submitted by it, the respondent stated that it did not have any intention to conceal any source of income and that it accepted the two items pointed out in the course of survey, only with a view to purchase peace. Another contention advanced was that the nature of business itself is such that it is not certain or consistent and a substantial part of it was dealt with by the G.P.A., and instead of making an effort to convince the Assessing Officer, it has chosen to accept the facts and figures suggested after the survey. Not satisfied with the explanation, the Assessing Officer passed an order imposing penalty of Rs.4,23,001/-.
The respondent filed an appeal before the Commissioner of Appeals. The Commissioner allowed the appeal through order, dated 20.08.1996, by taking the view that there was no intention on the part of the respondent to conceal the income. The Revenue filed further appeal before the Tribunal under Section 254 of the Act. The appeal was rejected through the order, which is the subject matter of this appeal.
Sri J.V.Prasad, learned Standing Counsel for the appellant, submits that the very basis for adding the amount representing the value of the deficit tax as well as shortage of cash was the survey undertaken by the Department and but for the survey, those two substantial amounts would not have become part of the assessment. He contends that the intention on the part of the respondent to conceal the income is evident from the fact that it did not include those items in the returns, till the survey is conducted. He submits that the Commissioner as well as the Tribunal proceeded on hyper-technicalities and ignored certain important factors. He submits that this is a typical case, which attracts Section 271 (1) (c) of the Act.
Sri B.Ravindra, learned counsel for the respondent, on the other hand, submits that the respondent has a valid explanation to offer for the discrepancy in the stock and the cash; and in spite of that, the facts and figures mentioned by the Department were accepted only with a view to buy peace. He contends that the discrepancy, be it in the stock, or in the cash, was only on the basis of projections of certain figures and it was not a case where the stock or cash was found or traced in its physical form. He contends that though it is not necessary that the concealment must be in the form of actual stock or cash, the fact that it is the result of projection would have its own impact in the context of levying penalty. Learned counsel further submits that the Commissioner as well as the Tribunal have taken relevant precedents into account and have arrived at the correct conclusion.
In the course of processing the returns submitted by the respondent, the Assessing Authority entertained a doubt about the accuracy of the figures. On verification of the records, a view was expressed to the effect that there was a deficit of stock to the extent of Rs.12,94,666/- and a shortage of cash to the extent of Rs.1,69,860/-. The respondent did not make any protest and readily filed a revised return showing those figures and offering to pay tax thereon. He sought to correct the figures once again by pointing out that the sales of the stock during the corresponding period was not taken into account. Ultimately, a sum of Rs.6,68,850/- was treated as additional income under gross profit and it was subjected to tax. The respondent did not make any grievance about that exercise and paid the corresponding tax.
In addition to adding substantial amount as income in the order of assessment, the Assessing Officer initiated proceedings under Section 271 (1) (c) of the Act, proposing to levy penalty. The explanation offered by the respondent was that though it had valid explanation for the discrepancies, it has accepted the figures only with a view to buy peace. The Assessing Officer took the view that it is almost an acceptance of the concealment and the failure to give any explanation was obviously on account of the fact that there is nothing to explain. Accordingly, the order imposing penalty of Rs.4,23,001/- was passed.
The exercise to be undertaken by an Assessing Officer in the proceedings under Section 271 (1) (c) of the Act is somewhat typical. For all practical purposes, he has to follow a method different from the one, which he adopts while passing the order of assessment. The very fact that a return submitted by the assessee is required to be processed by an Assessing Officer discloses that the facts and figures mentioned in the return are subject to scrutiny and verification. Many a time, the understanding of an assessee about a particular issue may not be correct and the finding of the Assessing Authority on such assessment may result in either adding some additional items of income or disallowing certain deductions.
The mere fact that the return filed by an assessee was found to be not acceptable and certain additions of income had to be made or deductions had to be disallowed, may some times give an impression that the assessee was not truthful. That, however, cannot be a ground to brand him as one who has concealed his income from the Department.
Before the Act came to be amended in the year 1964, the word ‘deliberate’ existed in Section 271 (c) of the Act. The deletion of that word certainly had changed the complexion of the provision. All the same, it is not to the effect that every discovery of inaccuracy in the facts and figures furnished by an assessee can be treated as concealment per se and thereby, attracting penalty under Section 271 (c) of the Act. Much would depend upon the facts and circumstances of the concerned case. It is only when the Assessing Officer is able to establish that there was an intention on the part of the assessee to conceal an item of income, though not deliberate, that the occasion to levy penalty would arise. The law in this behalf was aptly stated by the Hon’ble Supreme Court in ANANTHARAM VEERASINGHAIAH & CO. Vs. COMMISSIONER OF INCOME TAX,
[1]
A.P., . After reviewing the precedents on the subject, the
Supreme Court observed as under:
“A number of circumstances of vital significance may point to the conclusion that the cash deficit or cash credit cannot reasonably be related to the amount covered by the intangible addition but must be regarded as pointing to the receipt of undisclosed income earned during the assessment year under consideration. It is open to the revenue to rely on all the circumstances pointing to that conclusion. What these several circumstances can be is difficult to enumerate and indeed, from the nature of the enquiry, it is almost impossible to do so. In the end, they must be such as can lead to the firm conclusion that the assessee has concealed the particulars of his income or has deliberately furnished inaccurate particulars. It is needless to reiterate that in a penalty proceeding the burden remains on the revenue of proving the existence of material leading to that conclusion.”
The discussion that was undertaken by the Assessing Authority in the instant case proceeded on the line that once the respondent did not dispute the facts and figures noticed in the survey, it can be inferred that there was a concealment of the corresponding income. It is difficult to accept such a broad proposition. It has already been mentioned that, in his explanation, the respondent stated that though he had explanation for the facts alleged against him, he did not choose to press the same into service, lest there be any friction with the Department. That, however, was treated almost as a total surrender by the respondent.
In the context of arriving at a conclusion as to whether there was any real concealment on the part of an assessee, the Assessing Officer has to keep in mind, several facts, such as the nature of activity undertaken by the assessee, the previous conduct of the assessee, the circumstances under which the discovery of the undisclosed income came to be made and the like.
The readiness on the part of the assessee to accept the facts and figures noticed in the survey, with the objective of avoiding further complication in the matter or to purchase peace, cannot be treated as unconditional acceptance of the allegation or accusation against him much less does it basis for levy of penalty. If every variation that is noticed in the course of assessment is to be treated as concealment, the very computation of the income tax and the exercise to be undertaken thereunder, undergoes substantial change, which the Parliament may not have intended. At any rate, the Commissioner was convinced on the facts that there was no act on the part of the respondent. It is only when the conclusions at the level of the Commissioner who happens to be the last authority on the facts are shown to be perverse or without any basis, that an occasion would arise for the Tribunal or for that mater, this Court to interfere with the same.
The appeal is accordingly dismissed. There shall be no order as to costs.
The miscellaneous petitions, if any, filed in this appeal shall also stand disposed of.
L.NARASIMHA REDDY,J Dt:05.08.2014 Note: L.R. copy to be marked. kdl
[1] 123 ITR 457
RAM,J CHALLA KODANDA