ORDER
Bandyopadhyay, A.M.
1. The departmental appeals directed against the order of the CIT (Appeals) cancelling the penalty of Rs. 5,48,030 levied under section 271(1)(c).
2. In the impugned penalty order, the Assessing Officer mentions that the return of income was originally filed by the assessee on 30-11-1983 declaring a total loss of Rs. 2,46,390. The assessment was, however, completed on 27-3-1986 on a total income of Rs. 14,23,429, which included, inter alia an addition of Rs. 8,91,108 towards excessive burning loss claimed by the assessee company in its re-rolling process. The assessment was accepted by the assessee and no appeal was filed thereafter. In fact, the assessee filed another return on 31-3-1986 (the same day on which the penalty notice with regard to the earlier return was served on the assessee) in which instead of the loss claimed in the return, it showed an income of Rs. 40,000. It was claimed by the assessee that no penalty for concealment was warranted inasmuch as the return was filed under the Amnesty Scheme. The Assessing Officer discussed that the original return having been filed much earlier, did not come within the purview of the Amnesty Scheme. He also mentions that a number of irregularities and shortcomings in the books of account of the assessee were found out during the course of the original assessment proceeding. He also stated that as against the irrecoverable loss claimed by the assessee, at the abnormally high figure of 8.035%, the Assessing Officer had actually restricted the same to 4% only applicable to this line of business and accordingly made an addition of Rs. 8,91,108 corresponding to the excess loss claimed by the assessee. The Assessing Officer held that this amount constituted concealed income by the assessee. He levied minimum penalty of Rs. 5,48,030 thereon.
3. In the first appeal, the CIT (Appeals) firstly held that the provisions of the Amnesty Scheme should apply to the present case and hence levy of penalty for concealment would not be called for. So far as the addition under consideration is concerned, the CIT (Appeals) held that the addition was not on tangibles but on intangibles and more specifically on the burning losses claimed at 8% (approx.), but allowed by the Assessing Officer at 4.5%. He referred to the letter of the ITO dated 25-8-1989 bearing No. 38/Co-W-4(1)/89-90 submitted to his predecessor in which it had been conceded by the ITO that there was no evidence of any sales outside the books or of quantities not tallying and furthermore that in the said letter, reconciliation of all the defects as pointed out in the impugned penalty order had been accepted. The CIT (Appeals) noted that in respect of the quantitative particulars, full reconciliation had been furnished by the assessee. He thereafter noted that the Joint Plant Committee of the Government of India had held that claim of burning loss at 8% was not unduly excessive and furthermore that All India Steel Rerollers Association had communicated that burning loss could usually be taken at 10%. In the circumstances, when the addition had been made merely by estimating the percentage of burning loss, the CIT (Appeals) was of the opinion that no penalty was exigible. Accordingly, he cancelled the penalty.
4. During the course of the hearing of the appeal before us, the learned DR argued very vehemently that the assessee had accepted the concealment on its part by claiming excess burning loss, firstly by not filing any appeal against the assessment order and secondly by filing a revised return showing therein the entire addition made in the assessment, as its income. In support of the contention that penalty can be levied even if assessment be based on estimate, the learned DR has placed reliance on the decision of Madras High Court in the case of CIT v. S. Krishnaswamy & Sons [1996] 219 ITR 157. In that particular case, however, although the total income was based on estimate, the search operations conducted in the premises of that assessee had clearly established that various items of income had been concealed in the return filed.
The learned DR has also placed reliance on the judgment of the Bombay High Court in the case of Western Automobiles (India) v. CIT [1978] 112 ITR 1048, In this particular case, the assessee agreed to inclusion of certain cash-credit amounts discovered in the accounts in the assessment. The High Court held that the onus shifted to the assessee in the penalty proceedings to show that the amount was not concealed income. Reliance was also placed on the decision of the Delhi High Court in the case of Durga Timber Works v. CIT [1971] 79 ITR 63. Here also, the facts and the decision of the High Court were in similar lines as in the earlier case of Western Automobiles (India) (supra). It may, however, be mentioned in this connection that these 2 decisions have virtually been overruled by the Supreme Court in the case of Sir Shadilal Sugar & General Mills Ltd. v. CIT [1987] 168 ITR 705/33 Taxman 460A.
Thereafter, the learned DR has relied on the judgment of the Gujarat High Court in the case of CIT v. Somnath Oil Milk [1995] 214 ITR 32/83 Taxman 4. It was held in this particular case that even though the finding given in the assessment proceedings for determining the tax on the basis of suppressed sales or purchases is not conclusive, but yet, the same would be good evidence for the purpose of levying penalty for concealment. One has got to agree with the judgment in this case. At the same time again, one is required to take note of the judgments of various courts including that of Supreme Court that the findings in the assessment proceedings, by themselves are not sufficient to support the case of levy of penalty for concealment, for which further independent finings and evidences are also necessary.
The judgment of Punjab & Haryana High Court in the case of Mahavir Metal Works v. CIT [1973] 92 ITR 513 has also been relied upon by the learned DR. In this particular case, the assessee admitted that the disputed income belonged to him and submitted revised returns including such income during the assessment proceedings. The Court held that the assessee had failed to establish that he had not concealed income.
Another judgement in the case of Banaras Chemical Factory v. CIT v. [1977] 108 ITR 96, as decided by the Allahabad High Court has also been relied upon by the learned DR. In this case, it was held that by making voluntary disclosure of the income, the assessee does not get absolved from the guilt of penalty for concealment.
Lastly, the decision of the Karnataka High Court in the case of K.P. Sampath Reddy 179 ITR 232 (sic) has also been relied upon. However, in that particular case, certain materials were detected during the course of a survey operation conducted in the premises of the assessee which clearly led to the conclusion that the assessee had concealed the particulars of its income. The facts of that case are thus distinguishable from those of the present case.
5. On the other hand. the learned counsel for the assessee has strongly contended that the report given by the ITO to the CIT (Appeals) resolves all the discrepancies as pointed out in the impugned penalty order. This point has also been mentioned by the CIT (Appeals) in his appellate order.
6. The departmental contention is based mostly on the fact of admission of the income in the return filed by the assessee subsequent to the assessment and also on the other fact that no appeal was filed against the impugned addition. The latter fact, by itself, cannot be a conclusive evidence for concealment in respect of the amount added back in the assessment. So far as the second return filed by the assessee is concerned, that was filed under the Amnesty Scheme. Hence, no question of concealment can come in respect of anything offered or declared in that return. Although, therefore, we are of the view that the present issue concerns concealment of income as committed in the first return and hence filing of another return under the Amnesty Scheme showing the disputed income does not absolve the assessee of its default vis-a-vis the first return. At the same time again, we also must hold that filing of the second return should in no way affect the position of concealment, or otherwise in the first return. Hence, whether the added-back amount was admitted by the assessee in the second return filed under the Amnesty Scheme, is of no consequence in judging the guilt of the assessee, so far as the first return is concerned.
It is, therefore, required of us to judge independently whether the amount of Rs. 8,91,108 added-back in the assessment constitutes the concealed income of the assessee. There is no doubt about the fact that the addition has been made simply by rejecting the claim of the assessee towards burning loss at 8% (approx.). The CIT (Appeals) has clearly discussed that the claim of the assessee in this regard is neither exorbitant nor fantastic and on the other hand can be considered to be within reasonable limits as certified by different authorities as mentioned by him. The Assessing Officer has chosen the reasonable limit towards allowance of burning loss at 4.5% according to his suitability. There is no sanctity about this figure. Hence, we must come to the conclusion that the entire addition is merely based on estimate and furthermore that the claim of the assessee is also a plausible one, although rejected by the assessing Officer. As has been discussed by the CIT (Appeals), the quantitative discrepancies have been fully reconciled, proper answers have been given to the points of anomalies, etc., mentioned in the penalty order, in the report of the Assessing Officer submitted to the CIT (Appeals) and no finding has been given by the department anywhere about any purchase or sales having been made outside the books. In the face of all these facts, therefore, we are of the opinion that none of the citations relied upon by the DR applies to the facts of the present case.
On the other hand, we may like to discuss 2 recent judgments of the Madras High Court in this connection. In the case of CIT v. C.J. Rathnaswamy [1997] 223 ITR 5 (Mad.) although that assessee agreed to inclusion of certain cash-credit amounts as its income, at the same time, not admitted that the cash-credits represented its undisclosed income, the High Court held that inasmuch as no evidence had been produced to prove the concealment of income independently, penalty under section 271(1)(c) could not be imposed. Again, in the case of CIT v. Adamkhan [1997] 223 ITR 264 (Mad.), search operations conducted by the department showed undisclosed loans and the assessee agreed for addition of the amount on the condition that penalty would not be levied. The finding of the Tribunal was, however, that income had been computed on basis of estimate. The High Court held that the Tribunal was justified in cancelling the penalty levied under section 271(1)(c).
On the basis of the facts of the present case, therefore, and taking into consideration the abovementioned 2 decisions of the Madras High Court, we must agree with the CIT (Appeals) that this is not a fit case for levy of penalty for concealment of income. We, therefore, uphold his order.
7. In the result, the departmental appeal fails.