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Commissioner of Income-tax, Tamil Nadu-ii, Madras Vs. Sri Venkateswara Textiles - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtChennai High Court
Decided On
Case NumberTax Case No. 169 of 1978 (Reference No. 122 of 1978)
Judge
Reported in(1984)42CTR(Mad)37; [1985]153ITR687(Mad)
ActsIncome Tax Act, 1961 - Sections 148, 271(1) and 271(4A)
AppellantCommissioner of Income-tax, Tamil Nadu-ii, Madras
RespondentSri Venkateswara Textiles
Appellant AdvocateJ. Jayaraman, Adv.
Respondent AdvocateK. Srinivasan, Adv.
Excerpt:
direct taxation - sections 148, 271 (1) and 271 (4a) of income tax act, 1961 - assessee filed return of income of rs. 58574 - income-tax officer after investigation determined total income of assessee at rs. 402279 - penalty levied under section 271 of alleged concealment of income - penalty cancelled by tribunal on ground that assessee disclosed voluntarily full particulars and concealment cannot be sustained - appeal - admission of assessee that it has cooked up its books to camouflage its transactions and failure to disclose facts - levy of penalty justified. - - 58,574. not being satisfied with the correctness of the return, certain investigations were started by the department. satisfied that the case was a fit one for the levy of penalty of rs. 271(4a) of the act, to the..........export activities and further that the firm's inability to show the income assessed, in the return filed, wasnot due to gross or wilful negligence or fraud, as the firm could never foresee such a huge assessment. after referring to the filing of the petition under s. 271(4a) of the act and the pendency of ther appeal against the order of assessment, the assessee prayed that the penalty proceeding should be dropped. the iac did not accept the explanation offered by the assessee, but found that it had admitted having cooked up its books to camouflage its trasnsactions and that the assessee had not disclosed the particulars relating to the sale of the licences, viz., the persons to whom the licences were sold, the rates, the manner in which and the persons form whom the foreign.....
Judgment:

Ratnam, J.

1. The assessee is a firm carrying on business in the manufacture and sale of handloom cloth in India and abroad. For the assessment year 1964-65 (for the previous year ending April 12, 1964), it filed a return on Juanuary 16, 1965, disclosng an income of Rs. 58,574. Not being satisfied with the correctness of the return, certain investigations were started by the Department. On March 9, 1966, the assessee filed a petition before the Commissioner of Income-tax under s. 271(4A) of the I.T. Act, 1961 (hereinafter referred to as 'the Act'), admitting that the entries in its account books did not show the real state of affairs, but reiterating that the income during the period relevant for the assessment year 1964-65 was Rs. 58,600. By his order dated March 28, 1969, the ITO found that the assessee had trafficked in the liences granted to it for importing art-silk yarn at a premium but had made entries in its books of account as art-silk yarn was imported and in the manufature of silk cloth and the silk cloth so manufactured was also sold and estimating the income derived by the assessee by the sale of the licences after allowing a discount of 50 per cent., determined the total income at Rs. 4,02,279. Action for the envy of penalty under s. 271(1)(c) of the Act was also intiated for the alleged concealment of income and the matter was referred to the IAC, as the minimum penalty imposable xceedeed Rs. 1,000. Aggrieved by the asessment, the assessee preferred an appeal contending that the import licences obtained by it had been sold at rates 15 per cent. to 20 per cent. lesser than the Bombay market rates, that the estimate of the ITO of the income got by the sale of the licences was execessive and that the allowance of 50 per cent. discount on the value of the licence was meagre. However, by its letter addresed on December 28, 1970 to the AAC, the assessee agreed to the disposal of the appeal after allowing 25 per cent. of the export invoice value towards the loss in the cost of goods exported and 25 per cent. of the export invoice towards repatriation loss in repatriation of the export bills and further undertook not to prefer an appeal to the Tribunal. Acting on this, the AAC, by his order dated February 24, 1971, gave the assessee further relief to the tune of Rs. 2,46,178, as a result of which the total income of the assessee was reduced to Rs. 1,56,102.

2. In relation to the penalty proceedings initiated, the IAC isued a notice to the assessee calling upon it to show cause why penalty should not be levied for the alleged concealment of income. In its reply dated February 20, 1971, the assessee stated that the assessment had been made rejecting the proof filed in respect of export loss, expenses on repatri ation and commission paid to the local agent if the foreign firm for arranging export activities and further that the firm's inability to show the income assessed, in the return filed, wasnot due to gross or wilful negligence or fraud, as the firm could never foresee such a huge assessment. After referring to the filing of the petition under s. 271(4A) of the Act and the pendency of ther appeal against the order of assessment, the assessee prayed that the penalty proceeding should be dropped. The IAC did not accept the explanation offered by the assessee, but found that it had admitted having cooked up its books to camouflage its trasnsactions and that the assessee had not disclosed the particulars relating to the sale of the licences, viz., the persons to whom the licences were sold, the rates, the manner in which and the persons form whom the foreign exchange was purchased, etc., and, therefore, the assessee had deliberately furnished inaccurate particulars of income and further that the assessee had also not discharged the burden cast on it by virtue of the Explanation to s. 271(1)(c) of the Act. Satisfied that the case was a fit one for the levy of penalty of Rs. 20,000. Aggrieved by this, the assessee preferred an appeal to the Tribunal. The Tribunal noticed that the assessee had admitted in its petition dated March 9, 1966, under s. 271(4A) of the Act, to the Commissioner that its books of account were not reliable and that it han made incorrect entries and had also sold the import licences outright. Despite this, the Tribunal was of the view that the subsequent conduct of the assessee in having furnished certain particulars called for by the Department, has to be taken into account and that the assessee had also disclosed voluntarily the full particulars in its petition dated March 9, 1966, before the Commissioner and, therefore, the principle in CIT v. Ramdas Pharmacy : [1970]77ITR276(Mad) would apply. Ultimately, the Tribunal concluded that the charges of concealment of income by the assessee cannot be sustained and, in that view, the appeal was allowed and the levy of penalty was cancelled.

3. Aggrieved by this, the Revenue has obtained a reference for the opinion of this court on the following question of law :

'Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in cancelling the penalty of Rs. 20,000 levied by the Inspecting Assistant Commissioner under section 271(1)(c) of the Income-tax Act, 1961 ?'

4. The learned counsel for the Revenue contended that the Tribunal misdirected itself in law into thinking that the assessee had filled a revised return and, on such misdirection, had erroneously applied the decision in CIT v. Ramdas Pharmacy : [1970]77ITR276(Mad) , though the order of the Tribunal also disclosed that it was aware of the fact that the assessee had not filed a revised return and this, according to the the learned counsel, would vitiate the conclusion of Tribunal. The learned counsel further submitted that the requirements of s. 271(1)(c) of the Act have been satisfied in this case, as it was admitted even by the assessee that the accounts relied on by it in support of the return filed, did not reflect the correct position and, therefore, even according to the assessee, the original return filed did not contain true and correct particulars of income. The principle laid down in CIT v. Ramdas Pharmacy : [1970]77ITR276(Mad) would be inapplicable to this case, according to the learned counsel, who would rely on the decisions in CIT v. Subramania Chettiar : [1977]110ITR602(Mad) and Addl. CIT v. Perumalswamy, Komarapalayam (Tax Cases Nos. 979 and 980 of 1977, dated November 4, 1981 : [1984]150ITR600(Mad) as governing this case. On the other hand, the learned counsel for the assessee contended that the assessee had, even prior to the completion of the assessment proceedings, filed a petition before the Commissioner of Income-tax under s. 271(4A) of the Act making a true and full disclosure and that subsequently also the assessee had fully co-operated with the Department in making available all the particulars required and had also substantially succeeded in the appeal against the order of assessment before the AAC and these would establish that there was no contumacious conduct on the part of the assessee justifying the levy of the penalty and, therefore, the cancellation of the levy of penalty by the Tribunal was quite in order.

5. We may now notice the contents of the petition filed by the assessee under s. 271(4A) of the Act. Therein, the assessee had clearly and categorically admitted that import entitlements were received by it under the incentive scheme for handloom export and bogus entries rereading the export and import transactions had been entered in the accounts and that the account books did not reflect the real state of affairs. The assessee further maintained that still its income was more or less the same as that returned earlier, viz., Rs. 58,600. Thus, the assessee, while admitting that the account entries did not reflect the correct position, but that such entries came to be made to make it appear as if there were export and import transactions, when in fact the licences had actually been sold, however, maintained that the income returned by it earlier, viz. Rs. 58,600, would nevertheless be the same. It is not as if the entries in the books of account were genuine at the time of filing of the return on January 16, 1965, but subsequently and suddenly were discovered to be bogus on March 9, 1966, when the petition under s. 271(4A) of the Act was filed. The entries in the accounts were bogus right through, except that the assessee admitted them to be so only later. Thus, the contents of the petition filed by the assessee under s. 271(4A) of the Act clearly established that the assessee, even at the time of furnishing the return based upon the entries in the books of account, was fully aware that the entries were not real, but a made up one and the particulars of income furnished in the return on the basis of those entries were not true, and, therefore, the return was not a true return in that sense. Besides, even in the course of the petition filed by the assessee under s. 271(4A) of the Act, the assessee had reiterated that the return of income filed earlier by it disclosing Rs. 58,600 would hold good even on the admission that the account entries do not reflect the real state of affairs. There was no attempt on the part of the assessee to initially give the correct figures, though the assessee was even then fully aware that the entries in the books of account on which the return was based were made up entries and did not reflect the correct position. Even subsequently, in the petition filed by the assessee under s. 271(4A) of the Act, it did not give any further details or particulars disclosing the income not returned earlier, but maintained that its income would be Rs. 58,600. Being thus aware of the fact that the entries in the books of account do not reflect the correct position and that on the basis of those entries the earlier return had been filed disclosing an income of Rs. 58,574, the assessee had persisted in maintaining that even though the entries in the books of account did not reflect the correct position, nevertheless its income would only be Rs. 58,600. In other words, the assessee mutinied that the income returned by it earlier on the basis of entries in the books of accounts which were later admitted by it not to be correct, would be the same, though it declared that the entries do not reflect the correct position. We do not see how this can be so. It is thus obvious in this case that the faith and trust reposed in the assessee by the provisions of the Act expecting the assessee to disclose its true income in the the returns submitted by it has been defeated by the assessee by filing an untrue return based on admittedly incorrect entries on the books of account. Subsequently, the assessee had persisted in maintaining that the income returned by it would be Rs. 58,600 even after admitting that the entries in the books of account were false and no other or further particulars disclosing its income were given. This shows that the assessee had furnished deliberately inadequate and inaccurate particulars of its income with a view to conceal its true income. Undoubtedly, therefore, in the circumstances of this case, the assessee concealed particulars of its income with a view to conceal its income deliberately. Even otherwise, the assessee had admittedly made wrong entries in its books of account. On the basis of those accounts, it had filed a return disclosing an income of Rs. 58,574. The entries did not reflect the true position even according to the assessee. The assessee had thus furnished particulars of income in its original return at Rs. 58,574 on the basis of entries in accounts false it its knowledge and this would amount to furnishing of inaccurate particulars of income as well. Considering the contents of the petition admittedly filed under s. 271(4A) of the Act by the assessee, we are of the opinion that his case is one of a self-confessed furnishing of inadequate particulars and concealment by the assessee. On the facts and circumstances of this case, therefore, we have no hesitation in holding that the requirements of s. 271(1)(c) of the Act are fulfilled.

6. The learned counsel for the Revenue also relied upon the Explanation to s. 271(1)(c) of the Act to contend that the income returned by the assessee in this case was Rs. 58,600, while it was assessed at Rs. 1,56,102 and the assessee had not established that its failure to return its correct income did not arise from any fraud or neglect on its part and, therefore, the assessee should be deemed to have concealed particulars of its income or furnished inaccurate particulars for purposes of clause (c) of s. 271(1) of the Act. The learned counsel for the assessee, however, attempted to submit that the Explanation to s. 271(1)(c) of the Act was never invoked at all and cannot be pressed into service to contend that the assessee must be deemed to have concealed its income or furnished inaccurate particulars of its income. We do not think it is necessary to go into this question as we have held already that the requirements of s. 271(1)(c) of the act are fulfilled in this case.

7. We may now refer briefly to the decisions relied on by the learned counsel for the Revenue. CIT v. Ramdas Pharmacy : [1970]77ITR276(Mad) , was concerned with the question whether a true disclosure of income made in the revised return filed before the completion of the assessment may be taken into account in deciding the liability of the assessee for penalty under s. 28(1)(c) of the Indian I.T. Act, 1922. In that case, it was pointed out that all the facts and circumstances commencing with the filing of the original return and ending with the assessment may be taken as relevant for considering the liability of the assessee for penalty under s. 28(1)(c) and that the assessee had satisfactorily explained the omission or the non-disclosure of certain amounts in a revised return filed before the completion of the assessment and, therefore, there cannot be any deliberate concealment of income. The Tribunal in the course of its order has relied on this decision. The Tribunal was fully aware that no revised return was filed by the assessee in the present case. Besides, as stated earlier, the contents of the petition filed by the assessee under s. 271(4A) of the Act clearly established that there was no full or complete disclosure and that the assessee was guilty of having furnished in the return inaccurate particulars of its income based on entries in the books of account admitted by the assessee not to reflect the correct position. To such a situation, the decision relied on by the Tribunal can have no application whatever. We, therefore, hold that the Tribunal was in error in having applied the decision in CIT v. Ramdas Pharmacy : [1970]77ITR276(Mad) .

8. CIT v. J. K. A. Subramania Chettiar : [1977]110ITR602(Mad) , had to consider the question whether the fact that the assessee filed a petition before the Commissioner under s. 271(4A) of the Act and also filed a second return will be sufficient to absolve him from liability to pay penalty under s. 271(1)(c) the Act. It was held that if a person who furnished the return was aware of the falsity of the statement and the incorrectness of the particulars of the income even at the time of the filing of the original return, there was no question of a subsequent discovery of an omission in the return already filed and the filing of a second return or a petition under s. 271(4A) of the Act would not be germane to a consideration of the scope of s. 271(1)(c) of the Act and that the levy of penalty on an assessee, who had intentionally or deliberately concealed particulars of income in the first and second return, would be justified. By the very petition filed by the assessee in this case under s. 271(4A) of the Act, it accepted that it is aware that the entries in the books of account on the basis of which particulars of income had been furnished earlier, did not reflect the correct position. That would mean that the assessee was all the while aware that the entries in the books of account were not true, but nevertheless the assessee furnished its return of income on the basis of those entries. There was no attempt by the assessee to make goods its omissions in the regard prior to the completion of the assessment by filing another return or at least coming out with a full disclosure of all the particulars in its petition under s. 271(4A) of the Act. On the contrary, the assessee even in its petition under s. 271(4A) of the Act, without further disclosure, justified the income returned earlier, though admittedly based on the inaccurate entries in the books of account. We are, therefore, of the view that the principle laid down in CIT v. Subramania Chettiar : [1977]110ITR602(Mad) , would be applicable to this case. In Addl. CIT v. Perumalsamy (Tax Cases Nos. 979 and 980 of 1977, dated November 4, 1981 : [1984]150ITR600(Mad) , the question of levy of penalty under s. 271(1)(c) of the act for two assessment years 1963-64 and 1964-65 came to be considered. In that case also, prior to the receipt of notice under s. 148 of the Act for reopening of the assessment for 1963-64, the assessee had filed a petition before the Commissioner under s. 271(4A) of the Act, but following a notice for reassessment, he furnished a return showing profit, more or less adopting the figures at which the original assessment was completed. In that return, the assessee did not disclose, as in this case, the sale of import licences and the sale of imported art-silk yarn in respect of which the assessee had made certain admissions in its petition before the Commissioner under s. 271(4A) of the Act. However, before the ITO, who proceeded with the reassessment, the assessee filed a revised return incorporating the figures furnished in the voluntary disclosure petition as representing the estimated profits realised on direct sales of import licences and direct sale of imported yarn. The ITO did not accept the revised return, but determined the income of the assessee on the probable range of profit in such transactions of trafficking in permits. In the proceedings for the levy of penalty, the IAC referred to the confessions made by the assessee that its books of accounts were unreliable and concluded that the assessee was guilty of concealment of income and levied penalty. On appeal to the Tribunal, it took the view that as the revised return had been filed and a voluntary disclosure petition had also been put in, there was not case for imposition of penalty. On a reference, touching upon the correctness of this conclusion of the Tribunal, this court pointed out thus (at p. 605 of 150 ITR) :

'......... The Tribunal had clearly overlooked that the assessee was sought to be penalised not with respect to what it had furnished in its returns of income in the reassessment proceedings, or even in its revised return in the same proceedings, by way of estimate of the profits on sale of import licences. On the contrary, the penalty was directed against the assessee for its having suppressed and concealed its income in the original return which it had filed on October 15, 1963, wherein it had disclosed only an income of Rs. 47,086 making it appear that that income was derived by it from a business of manufacturing finished textile goods from out of art-silk yarn imported from abroad by utilisation of import permits. It was this original return filed by the assessee in the original assessment proceedings which was pinpointed in the order of penalty passed by the IAC. He had clearly referred to the assessee's subsequent repudiation of its account and its original return. He had referred to the assessee's disclosure petition and its clear admission both in that petition and in the course of the reassessment proceedings that its original return as well as the accounts on which it was based did not disclose the true state of affairs. It is this self-confessed concealment on the part of the assessee in its original return which was highlighted by the IAC. The Tribunal's order has signally omitted to make any reference to the original return and the veracity of the particulars of income declared therein as an important ingredient in the proceedings for penalty under section 271(1)(c) of the Act. We are satisfied that on the assessee's own showing, the filing of its original return for 1963-64 was an act of deliberate concealment of income and it did call for a penalty. The Tribunal was not warranted in cancelling the penalty on any account whatsoever.'

9. We are of the opinion that on the facts and in the circumstances of this case, the above observations are apposite. In this case also, the IAC had referred to the original sale of import licences by the assessee, the bogus entries in the books as if the goods had been imported and used in manufacture, the admission of the assessee that it had cooked up its books to camouflage its transactions, and the omission of the part of the assessee to state the persons to whom the licences had been sold as well as those from whom foreign exchange was purchased, to conclude that the assessee had deliberately furnished inaccurate particulars of income in the return and, therefore, it was a fit case for the levy of penalty. The Tribunal, on the contrary, proceeded to apply the decision in CIT v. Ramdas Pharmacy : [1970]77ITR276(Mad) which, as pointed out earlier, is inapplicable. We, therefore, answer the question referred in the negative and against the assessee. The Department will be entitled to recover the costs of this reference from the assessee. Counsel's fee Rs. 500.


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