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income-tax Officer Vs. Siya Ram Bros. - Court Judgment

LegalCrystal Citation
CourtIncome Tax Appellate Tribunal ITAT Delhi
Decided On
Judge
Reported in(1985)13ITD883(Delhi)
Appellantincome-tax Officer
RespondentSiya Ram Bros.
Excerpt:
1. the revenue in the present appeal challenges the first appellate order dated 14-7-1983 of the learned aac for the assessment year 1975-76 on the following ground : on the facts and in the circumstances of the case, the learned aac was not justified in cancelling the penalty imposed under section 273(c) of the income-tax act, 1961.2. as the assessee's income exceeded by more than 33 1/3 per cent of the tax demanded under section 210 of the income-tax act, 1961 ('the act'), penalty proceedings under section 273(c) of the act were initiated during the course of assessment proceedings on 28-3-1978. the assessee, for the reasons known to itself, did not participate in the penalty proceedings despite the opportunity afforded. no explanation was, therefore, offered regarding the proceedings......
Judgment:
1. The revenue in the present appeal challenges the first appellate order dated 14-7-1983 of the learned AAC for the assessment year 1975-76 on the following ground : On the facts and in the circumstances of the case, the learned AAC was not justified in cancelling the penalty imposed under Section 273(c) of the Income-tax Act, 1961.

2. As the assessee's income exceeded by more than 33 1/3 per cent of the tax demanded under Section 210 of the Income-tax Act, 1961 ('the Act'), penalty proceedings under Section 273(c) of the Act were initiated during the course of assessment proceedings on 28-3-1978. The assessee, for the reasons known to itself, did not participate in the penalty proceedings despite the opportunity afforded. No explanation was, therefore, offered regarding the proceedings. The learned ITO in these circumstances considered that the assessee had committed a default and had no explanation for the same. Thus, the penalty of Rs. 20,000 was imposed vide order dated 31-3-1980, passed under Section 273(c).

3. Various arguments are made before the learned AAC on behalf of the assessee by Shri R.C. Sood, the learned authorised representative. The learned first appellate authority being convinced by the reasons mentioned, cancelled the penalty order, inter alia, with the following observation : I have considered the above arguments and I am of the opinion that the reasoning advanced by the appellant has some force. I do feel that keeping in view the huge volume of business and various branches involved, the appellant could not estimate its correct profit by 15-12-1974 and, thus, was prevented by a reasonable cause for not filing the revised correct estimate of tax payable. In these circumstances penalty order is cancelled.

4. The revenue by the instant appeal contests the correctness of the said finding. The learned departmental representative, Shri M.M.Bharati, supported the penalty order and argued that before the learned first appellate authority, on behalf of the assessee, some sort of shifting stands were tried, some of them being inconsistent and contradictory. According to Shri Bharati, the assessee's accounting period was the year ending 30-6-1974 and the revised estimate was required to be filed by 15-12-1974 and that the assessee had no ostensible reason for not complying with the statutory requirement. It was contended that the learned AAC cancelled the penalty by considering all sorts of irrelevant factors.

5. On behalf of the assessee, Shri R.C. Sood, the learned authorised representative, besides supporting the impugned order, made the following points : (a) that no penalty proceeding was initiated during the assessment proceedings ; (d) that the Voluntary Disclosure Scheme effect was not considered, and (e) that the learned AAC was justified to knocking off the penalty as even the Kanpur branch of the assessee yielding profit which was in loss in the past.

Reliance was placed in the case of Ramnagar Cane & Sugar Co. Ltd. v.C1T [1982] 134 ITR 609 decided by the Hon'ble Calcutta High Court.

6. In reply, Shri Bharati contended that the Voluntary Disclosure Scheme effect was never before the lower authorities and moreover, the g.p. rate remained the same. So the trading result was not materially affected by any such event. According to him, notice was valid and in case there was any omission the answer was clear in terms of Section 292B of the Act. In this regard mention was also made of the ratio in the case of R.A. Boga v. AAC [1977] 110 ITR 1 (FB) decided by the Punjab and Haryana High Court. He also relied on the ratio in the cases of H.H. Maharani Sharmishthabai Holkar v. Addl. CIT [1981] 129 ITR 13 decided by the Hon'ble Madhya Pradesh High Court and Jalarmagar Tea Estate (P.) Ltd. v. CIT [1982] 133 ITR 95 decided by the Hon'ble Gauhati High Court.

7. Arguments have been heard and record carefully perused. As mentioned earlier, the assessee's accounting period closed on 30-6-1974. The revised estimate was required to be filed by 15-12-1974. In this case the demand notice under Section 210 was based on the assessed income for the assessment vear 1973-74, During that year the assessed income was of Rs. 7,83,143. The returned income of that year is not readily available. During the year under consideration, the returned income was of Rs. 16,64,925 and the assessed income of Rs. 17,57,185 as is clear from the truncated copy of the assessment order dated 28-3-1978 placed in the paper book. In the given circumstances, the assessee's income had positively exceeded by more than 33 1/3 per cent of the tax mentioned under Section 210. The penalty proceedings were initiated against this background. Before the learned ITO during the penalty proceedings, nothing was brought on record by the assessee. The learned ITO, therefore, had no occasion to be satisfied that no case was made out for either initiating the penalty proceedings or for that matter imposing the penalty. The penalty of Rs. 20,000 was imposed vide order dated 31-3-1980, framed under Section 273(c).

8. The learned AAC found that the default was definitely committed by the assessee but he considered that keeping in view the volume of the assessee's business, it was prevented by a reasonable cause from filing the revised correct estimate of tax payable in time. Thus, he cancelled the penalty order.

9. Before us, to start with, it was argued on behalf of the assessee that penalty proceedings were not initiated during the assessment proceedings. A copy of the assessment order as mentioned above is available on the record which clearly shows that penalty proceedings under Section 273/274 of the Act were definitely initiated. This objection of the assessee being baseless and misconceived, deserves no attention.

10. The next objection taken on behalf of the assessee was that the penalty notice issued by the learned ITO was defective. A cyclostyled copy of the said notice is placed in the record. The notice is in the same usual and routine form. Section 273 is clearly mentioned therein.

After going through the said notice we are not able to agree with the contention of the learned authorised representative that the notice was at all defective. Moreover, it is not brought on record on the basis of some evidence that any such defect in the notice was brought to the notice of the learned ITO. It is also not shown that the assessee was at all misled by the contents of the so-called defective notice. Thus, the assessee's objection about the show-cause notice is again baseless and of no consequence. Moreover, in any case, Section 292B is clear on the point. It is also clear that the Tribunal's order in the cases of partners is of no help here.

11. Some mention during the argument before us was also made by the learned authorised representative that the profit during the year under consideration went up because of certain income disclosed by the assessee under the Voluntary Disclosure Scheme. First of all, there was no such case of the assessee before the lower authorities and at the same time the g.p. rate by and large remaining the same, this aspect did not affect the assessee's affairs materially. This point also is of no relevance. On behalf of the assessee, mention was also made that during the earlier years the assessee's Kanpur branch was reflecting losses and that during the year under consideration profit was shown by the said branch also. The trading results of the assessee were in the special knowledge of the assessee and, therefore, after having received notice under Section 210 it was obligatory on its part to revise the estimate as required under Section 212(3A) to escape repercussions of Section 273(c). On behalf of the assessee no material evidence, in our view, is brought on record to suggest that the assessee was indeed prevented by sufficient cause from complying with the statutory requirement. The learned ITO, thus, in our view, rightly did what he has done. The learned AAC had no evidence before him to come to the conclusion that the assessee was prevented by a sufficient cause from filing the correct estimate. Thus, his conclusion is naturally against the facts on file.

12. Mention on behalf of the assessee was made of the case of Ramnagar Cane & Sugar Co. Ltd. (supra). We have gone through the relevant portions of the judgment and are of the opinion that the facts being as they are in the two cases, the assessee did not get any support. The penalty in the case before us was imposed on the basis of the facts available on record.

13. On behalf of the revenue argument was made that in cases of such like defaults non-filing the revised estimate--existence of metis rea is not a pre-condition. The case laws relied upon by the learned departmental representative are clear on the point.

14. In the light of the preceding discussions, we are convinced that the penalty proceedings were correctly initiated and in fact penalty was rightly levied. The learned AAC had no justification for cancelling such correctly imposed penalty. We quash his finding and restore that of the learned ITO.1. I have perused the order of the learned Judicial Member and regret that I am not in a position to agree with him in conclusion.

2. The ITO imposed penalty under Section 273(c) and imposed a penalty of Rs. 20,000 after writing a very brief order and without giving the facts of the case. The AAC has cancelled the penalty as, according to him, the assessee could not estimate his correct income by 15-12-1974 by which date the estimate was to be filed. The department has come up in appeal before us.

3. The department has challenged the order of the AAC and it has been submitted before us that the AAC erred in cancelling the penalty. As there was no legal infirmity in the order of the ITO and on facts the penalty was imposable. The learned Counsel for the assessee, on the other hand, has drawn our attention to certain legal infirmities in the order of the ITO and has also submitted that in the present case the assessee could not estimate his correct income due to various circumstances. It was specifically contended that the accounts of the assessee were not complete and the balance sheet as well as the profit and loss account were finalised much after the close of the accounting period. It was also submitted that though the turnover had gone up to a limited extent, the profit margin was very high in this year and this could not have been anticipated. He pointed out that this happened due to the valuation of the closing stock which had not been completed by December 1974. It was contended that the accounts were audited and signed by the chartered accountant only in September 1975 as the position of the profits was not known to the assessee in December 1974.

A mention was also made of the voluntary disclosure petition filed by the assessee in 1975 as a result of which the balance sheet was again modified in June 1976. He submitted that the assessee was not aware of the larger profit and, therefore, he could not file a higher estimate for the purposes of paying advance tax.

4. In this connection, it was further contended by the learned Counsel for the assessee that on similar grounds proceedings under Section 273(c) had been initiated on the partners of the assessee-firm and similar penalties had been imposed for the default of not revising the estimate for the purpose of payment of advance tax. The AAC had cancelled those penalties and the matter had come up before the Tribunal. Our attention was drawn to the order of the Bench 'C of the Tribunal in IT Appeal Nos. 4955 to 4958 (Delhi) of 1983 in the cases of four partners of the assessee-firm where under similar circumstances and for the same reasons as in the present case, the Tribunal upheld the cancellation of penalty under Section 273(c). While doing so the Tribunal observed as under : 7. In the background of the said case laws, we have to consider the delay in finalisation of accounts of Siyaram Bros, by Shri H.C. Srivastava, company's chartered accountant, which was as late as on 12-9-1975 while the advance tax estimated by the partners was to be filed by 15-12-1974. The sales of the firm for the accounting year ending 30-6-1974 were of Rs. 1.90 crores as against sales of Rs- 1.77 crores for the accounting year ending 30-6-1973. However, the net profit for the year ending 30-6-1974 had gone up to Rs. 16.64 lakhs as against net profit of Rs. 9.29 lakhs for accounting year ending 30-6-1973. The learned Counsel for the assessee stated that the increase in net profit was due to increase in value of closing stocks and that the partners could not anticipate substantial rise in net profit in the accounting year ending 30-6-1974 and, therefore, they had reasonable cause for not filing estimate under Section 212(3A) on or before 15-12-1974. We see merit in this contention of the assessee which has been accepted by the AAC for cancelling penalties under Section 273(c). We, therefore, need not go into the other arguments advanced before us.

5. I first propose to consider the legal objection taken by the learned Counsel for the assessee that the penalty proceedings had not been validly initiated and the charge was not properly framed against the assessee. In the assessment order the mention was made of penalty notice under Section 273 but the specific nature of the default was not mentioned. Under Section 273 various types of defaults can be committed by the assessee. Our attention was drawn to the notice issued by the ITO on 28-3-1978 in respect of the above proceedings. A photostat copy of the notice is also placed on record. Besides the fact that the assessment year is not mentioned in this notice, the charge which is mentioned is as under : Without reasonable cause failed to furnish an estimate of advance tax payable by you in accordance with the provisions of Sub-section (3) of Section 18A of the Indian Income-tax Act, 1922, or of Section 212(3) of the. Income-tax Act, 1961, in respect of the assessment year. ...

From the above it would appear that the provisions of Section 212(3A) were not mentioned in this notice and it is that provision which has been applied in the present case. Before the assessing officer no reply was sent by the assessee to this notice and, therefore, it is not possible to say whether the assessee understood the charge correctly or not. The notice itself keeps the charge vague and the taxpayer is left in the dark about the actual nature of the default for which the penalty was proposed to be imposed. I, therefore, find force in the submission of the learned Counsel for the assessee that the initiation of proceedings was not in accordance with law and the charge had not been spelt out either in the assessment order or in the notice issued along with the assessment order. It is after the penalty was imposed that the assessee came forward with his explanations regarding this default.

6. The next point which I proceed to consider is about the non-completion of accounts at the relevant time. The plea of the assessee is that his accounts were very much large and he was dealing in various types of motor parts and accessories and there was an accumulation of stocks for several years. Besides this there were branches at other places. Due to certain drawback in the finalisation there was delay in the finalisation of the accounts and in the valuation of the closing stock. The balance sheet has been prepared and signed only in September 1975. We have seen the copy of the balance sheet and the date thereon. There is no material brought before us to disprove this contention of the assessee. Thus, the contention of the assessee that the accounts of the firm had not been completed by 15-12-1974, thus, making it impossible for the firm to file its revised estimate, has to be accepted. There might be some lack of efficiency in the organisation of the assessee which results in the delay in valuing the closing stock and in completing the pricing of the list of the closing stock. However, the assessee is not being penalised here for that default.

7. It is also clear that the profits have gone up in this year mainly due to increase in the margin of profit and the turnover had gone up only to some smaller extent which could not result in the inference of such a high profit. The profit in this year has gone up mainly due to the valuation of the closing stock. The profits in the branches which were not known and were ascertained only later on, have been more than in the earlier years. Reliance has been placed on the decision of the Calcutta High Court in the case of Ramnagar Cane & Sugar Co. Ltd. (supra) where also a. very large profit arose due to the valuation of the closing stock and penalty had been imposed for the default under Section 212(3A). The High Court held that on the facts it could reasonably be said that the assessee had no idea as to the actual profits at the time when it had paid advance tax on the basis of profits earned in the immediately preceding year. The penalty imposed was cancelled. The facts of the present case are similar and it supports the contention of the assessee.

8. The learned Counsel for the assessee has already relied before us on the order of the other Bench of the Tribunal where on the basis of similar submissions and similar explanations and similar circumstances the penalties imposed on the partners had been cancelled. As the facts continued to be the same here, and we are dealing with the case of the firm for the same assessment year, I see no reason to depart from the finding of the other Bench of the Tribunal. The finding of the other Bench had already been reproduced above and apart from the other reasons given above, I hold that the finding in the present case cannot be any different. In my opinion, taking a different view on the same facts in the same case for the same year is not proper for the Tribunal. I would, therefore, uphold the cancellation of penalty and dismiss the departmental appeal.

1. As we have differed regarding the conclusion in the above case, we refer the point of difference to the President, Tribunal, for getting the matter heard by one or more of the other Members of the Appellate Tribunal. The point of difference is as follows : Whether, on the facts and in the circumstances of this case, penalty under Section 273(c) of the Income-tax Act, 1961, was leviable 1. This is a case referred to me by the President under Section 255(4) of the Act for my opinion as there was a difference of opinion between the Members of the Tribunal, who heard this appeal originally. The point of difference of opinion is ; Whether, on the facts and in the circumstances of the case, penalty under Section 273(c) of the Income-tax Act, 1961, was leviable 2. The assessee is a firm of five partners carrying on business on a very extensive scale in automobile spare parts. The turnover in the year was about Rs. 1.90 crores as against Rs. 1.77 crores in the previous year. The closing stock, the assessee carried, was of Rs. 36.15 lakhs as against Rs. 32.47 lakhs in the previous year. This will indicate the magnitude of the business carried on by the assessee. For the assessment year under appeal, on the ground that there was a failure to comply with the pro-, visions of Section 210, the ITO gave a notice calling upon the assessee to show cause why a penalty should not be imposed under Section 273(c). The assessee did not offer any explanation to this notice. The ITO, therefore, levied a penalty of Rs. 20,000. There was then an appeal before the AAC, before whom it was contended that the notice issued by the ITO did not show any particular default that was supposed to have been committed by the assessee for which penalty was being imposed. Besides, it was pointed out that the income assessed for the assessment year 1973-74 was Rs. 7,83,143 and for 1974-75 it was Rs. 10,42,007 and keeping in view those incomes the income estimated by the assessee for the year under appeal 1975-76 at Rs. 8,01,415 was quite reasonable and should not have been considered as deliberately filed underestimate. The balance sheet for the assessment year under appeal was also not ready till 30-7-1975 whereas the last date to file the revised estimate expired on 15-12-1974 by when the assessee was not in a position to know the exact income. There was a tremendous increase in the rate of gross profit compared to the earlier years of which the assessee could know only when the closing stock was ascertained and the accounts were finalised which event took place long after the accounting year ended and this also prevented the assessee from, estimating the correct income by 15-12-1974, the last date to file the revised estimate. As an instance it was pointed out that in the case of Kanpur branch the profit worked out to Rs. 90,329 as against the loss of Rs. 39,369 of last year thus accounting for an increase of profit by Rs. 1,29,695. The AAC was convinced of these reasons and held that keeping in view the huge volume of business, the various branches involved, it was not possible for the assessee to correctly compute the income by 15-12-1974 and that non-filing of an estimate v/as for a reasonable cause. He cancelled the penalty. The department thereafter filed an appeal before the Tribunal contending that the AAC was not justified in cancelling the penalty. This appeal was heard by the Delhi Bench 'B'.

3. The learned Judicial Member held that as against the income of Rs. 7,83,143 determined for the year 1973-74 on the basis of which advance tax for the year under appeal was demanded, the returned income of the assessee was Rs. 16,64,925. There was a definite increase in the income by more than 33 1/3 per cent and the assessee should have revised the estimate. In any case before the ITO the assessee should have filed an explanation. By not filing the explanation, the ITO was kept in the dark. The ITO was, therefore, justified in concluding that the assessee was guilty of concealment. As regards the point that the show-cause notice issued did not clearly point out the default committed by the assessee, he held that the copy of the assessment order was available on record and since that order clearly showed that penalty proceedings under Section 273 were initiated, the assessee's objection that the default was not clearly mentioned was baseless and misconceived. He also relied upon Section 292B to say that even if there is a defect in the show-cause notice, that would not be fatal to the levy of penalty.

On the question of sudden increase in income, about which the assessee could not be aware of, the learned Judicial Member stated that the trading results were in the special knowledge of the assessee and after receiving notice under Section 210 it was obligatory on his part to revise the estimate as required under Section 212(3A) and if he had not done that, he must take the consequences. He held that the assessee could not prove that he was prevented by sufficient cause from complying with the statutory requirement of filing a revised estimate of the current income and that the AAC had no evidence before him to come to the conclusion that the assessee was prevented by sufficient cause. He, therefore, held that the AAC was not justified in cancelling the penalty. He set aside his finding and restored the levy of penalty.

4. But the learned Accountant Member was of a different opinion. He observed after narrating the facts that the Tribunal Bench 'C in the case of other four partners of the assessee-firm cancelled similar penalties levied under Section 273(c) by its order in IT Appeal Nos.

4955 to 4958 of 1983 by accepting the assessee's contention that the sudden increase in the income was neither anticipated nor in contemplation. Such being the case there could be no reason to sustain the penalty in the assessee's case on identical facts. Besides, he observed that the notice issued under Section 273 was defective in the sense that the assessing officer did not point out for which default the assessee was going to be penalised. He found that in the show-cause notice reference to Section 212(3A) was not mentioned although penalty was imposed for non-compliance with that particular section. Since the notice kept the charge vague, the taxpayer was left in the dark about the actual nature of the default to meet with and, consequently, the notice was bad. He found force in the submission of the assessee that when balance sheet was prepared and signed by the auditors only in September 1975, the assessee could not have known the sudden spurt in income by 15-12-1974 which made it impossible for the firm to revise its estimate. Merely because there is some inefficiency in the organisation of the assessee, which caused the delay in valuing the closing stock and in completing the finalisation of account, that fact could not be brushed aside as not a contributory cause for the inability of the assessee to revise the estimate. Having found that the increase in the income was only due to the increase in the margin of profit, he held that the assessee had a sufficient cause for not revising the estimate and, therefore, the assessee was not liable for penalty. He placed reliance upon a decision of the Calcutta High Court in the case of Ramnagar Cane & Sugar Co. Ltd. (supra) where due to a very large profit that arose due to the valuation of the closing s tock, the penalty levied under Section 212(3A) was cancelled by the Calcutta High Court. The Calcutta High Court held that in those circumstances, the assessee could not have any idea as to the actual profits at the time when it had paid the advance tax. Thus, while the learned Accountant Member agreed with the assessee's contention and supported the order of the AAC, the learned Judicial Member reversed that order. That is how the difference of opinion arose.

5. After hearing the parties at length and after perusing the records, I did not experience any difficulty in agreeing with the view expressed by the learned Accountant Member. The learned Accountant Member had very clearly pointed out that the notice issued by the ITO was very vague and indefinite as to the default that the assessee was supposed to have committed for which penalty was sought to be imposed. As frightly pointed out by him, reference to Section 212(3A) was not at all made in the penalty notice although the penalty was imposed for non-compliance of the provisions of Section 212(3A), i.e., for not filing an estimate of the current income. This, in my opinion, is riot a light charge to be winked at. It is imperative on the part of the ITO to let the assessee know definitely and clearly the charge which he has to explain before a penalty could be imposed by holding that the assessee was guilty of that charge or he was not able to substantiate that he was not guilty of that charge. Without specifying the charge, the ITO is not justified in holding that the assessee was guilty of that particular charge. Secondly, it is an undisputed fact that the accounts of the assessee were made up sometime in September 1975. I am not very much on the point as to when the balance sheet was signed but the point to be seen is whether the accounts were ready by 15-12-1974.

It is no doubt true that the assessee's accounting year ended on 30-6-1974 and he had about five and a half months'time by 15-12-1974 to finalise the accounts and ascertain the profit. This is a theoretical approach. The assessee is bound to carry out under the law this exercise and arrive at the income. Here the assessee says that he could not do it by 15-12-1974 for a variety of reasons. That he gave a false explanation was not the charge. Nor the charge was that the accounts were ready by 15-12-1974 by when the assessee could have known the income. The assessee's point was that the accounts were finalised only in September 1975. The value of the closing stock was ascertained only by that time and not earlier. The physical inventory of closing stock as on 30-6-1974 might have been ascertained. The voluminous work involved in ascertaining the closing stock would at once become clear if one has a look at the quantum of the inventory carried which I have mentioned at the beginning of this order. The inventory taken at the end of the year does not give the value of the closing stock unless the values are given and the closing stock valued with reference to each item. This exercise will take a long time. The assessee says that this exercise was complete only by about September 1975. There is no proof brought on record that this was a false explanation. Such being the case when the closing stock was ascertained only by September 1975, whereafter only the profits could be known, the contention of the assessee that he could not have known the profits nor the trend of the profits must be accepted. This is exactly the view arrived at by the Delhi Bench 'C in the case of other four partners. The net profits had increased by about Rs. 5 lakhs and that was only due to the increase in the valuation of the closing stock. The Tribunal accepted this contention as a fact and cancelled the penalties imposed. Thus, the highest fact finding body has already found this fact in favour of the assessee in the case of the other four partners of the assessee-firm and cancelled the penalties. No different conclusion can be arrived at on the same set of facts in the case of the assessee. That finding, in my view, is sufficient to vindicate the assessee's stand. I also agree with the learned Accountant Member's observation that on the same set of facts the Tribunal should be loathe to come to a different conclusion. These reasons weighed with me to agree with the view expressed by the learned Accountant Member in preference to the view expressed by the learned Judicial Member. The case relied upon by the learned Accountant Member in Ramnagar Cane & Sugar Co. Ltd.'s case (supra) does support the view that is being taken by me, that was taken by the learned Accountant Member and that was also taken by the Tribunal in the cases of the other four partners. Now the matter will go before the regular Bench, which heard the appeal originally for disposal according to the majority view.


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