ORDER
G. Santhanam, Accountant Member
1. This is an appeal against the levy of penalty under Section 271(1)(c) of the Income-tax Act, 1961. The appellant filed its return of income on 3-7-1981 declaring a total income of Rs. 1,42,800. In the course of the scrutiny assessment, the Assessing Officer noticed an account captioned as “India Pepper & Spices Trade Association Clearance Account”. There was a credit balance of Rs. 1,42,837 in this account. The assessee clarified that during the year the appellant had entered into forwarding contracts for export of pepper to various countries including U.S.S.R. As it had to purchase pepper at higher rates than the contracted rate in order to meet the export obligations, it was explained that the appellant had made use of the hedging facilities with India Pepper & Spices Trade Association. As exports were fulfilled only somewhere in the Samvat Year 2038 relevant to the assessment year 1983-84, the credit balance standing in the IPSTA Clearance Account of Rs. 50,117 was duly transferred to the profit and loss account. At the same time the assessee conceded that the speculation profits resulting from such hedging transactions required to be accounted for from year to year and accordingly filed a revised return on 15-3-1983 including therein the credit balance of Rs. 1,42,837. The assessment was completed on the basis of the revised return. The Assessing Officer initiated action under Section 271 (1)(c) of the Income-tax Act. The assessee contended that it was under a bona fide belief that the profit or loss on the hedging transactions was to be taken into account only where the export obligations were fulfilled and not before. In order to foreclose any dispute on that issue, it had agreed for the assessment of the impugned amount by including the same in the revised return and therefore penalty is not exigible. The Assessing Officer did not accept this version of the assessee as according to him in the assessee come forward with the revised return only upon enquiry by him the course o f assessment. He further held that even if the revised ret urn was filed voluntarily it would make no difference and it will not absolve the assessee from penalty under Section 271 (1)(c) of the Act, as the assessee had not taken the profit on the hedging transactions as its income in the originally return. The treatment given to showing the credit balance of Rs. 1,42,837 as a liability to ‘be carried forward in ‘the balance-sheet was with a view to reduce the tax liability and but for the enquiries made by him, the assessee would not have come forward with a proposal for inclusion of the impugned amount in the revised return Thus, he levied penalty in a sum of Rs. 47,137. The assessee Appealed.
2. The CIT (Appeals) was of the view that the assessee came forward with a revised return only when his attention was drawn to the credit balance in the IPSTA Clearance Account and that too in the course of the assessment proceedings. He also noticed that the appellant did not raise any whimper that such speculation profit was properly assessable in the year in which the export contracts were fulfilled. From this he drew the inference that the appellant was aware that the speculation profit was to be offered from year to year and inspite of such awareness, the appellant did not do so and such omission could only be the out-come of adjusting the future speculation loss against the current speculation profits. Regarding the contention of the assessee that the revised return was filed voluntarily though it had in fact offered such income in the subsequent year was also negatived by the CIT (Appeals) following the ratio of the Kerala High Court in the case of CIT v. Haji P. Mohammed [1981] 132 ITR 623. Another argument of the appellant was that the penalty imposed, was excessive. But then the CIT (Appeals) held that it was reduced to 50% of the minimum penalty by the CIT under Section 273A(1)(ii) of the Act, and therefore he declined to interfere in the quantum of penalty imposed. Thus he sustained the levy of penalty and dismissed the appeal of the assessee. The assessee is aggrieved.
3. Having regard to rival submissions, we cancel the levy of penalty. This is a case in which the impugned amount of Rs. 1,42,827 was found entered in the books of account. The amount in question ‘was the balance standing to the credit of IPSTA Clearance Account. The impugned amount was shown as a liability in the balance-sheet. The purpose of maintaining this account was to trade off any possible loss arising from the export obligations as the purchase price of pepper was higher than the contracted rates for export. The statements furnished to the authorities contained the impugned amount though it was not included as income of the assessee. Thus the existence of the account was not withheld from the authorities. In the course of the scrutiny of the account books when the Assessing Officer made enquiries about the nature of the transactions, it dawned on the assessee that the impugned amount being a positive figure arising on hedging transactions was to be included in the income of the assessee on year-to-year basis and that prompted the assessee to come forward with a revised return. The explanation of the assessee in this connection is worth recalling :
SOUTH INDIA PRODUCE CO.
P.B. No. 344, Cochin – 2.
14-9-1983
The Income-tax Officer, A-Ward, Mattancherry.
Sir,
Ref. : 46-011-FT-9391/CHN-MAT-A/81-82
1. On 12-9-1983 when our Advocate Sri D.A. Kamath had appeared before you in connection with the finalisation of our assessment for the assessment year 1981-82, he had submitted before you that the sum of Rs. 1,42,837:00 being the credit balance remaining in the India Pepper and Spice Trade Association Clearance Account may be included in the net taxable Income.
2. This amount represents the result of the Forward Trading in Pepper done through the India Pepper and Spice Trade Association which has been carried forward and adjustment in the Profit and Loss Account has been made only in the subsequent years.
3. However, we are advised to file a Revised Return voluntarily and of our own accord for the assessment year 1981-82 including therein the sum of Rs. 1,42,837.00 being the credit balance in the IPSTA Clearance Account.
4. A copy of the IPSTA Clearance Account is also enclosed herewith.
5. Since our Advocate on 12-9-1983 had personally represented that the sum of Rs. 1,42,837.00 may be included in the taxable income and since this Revised Return of Income is also being filed by us in pursuance of advise received by us in the matter voluntarily and of our own accord, we pray that you may be pleased to kindly accept the revised Return and finalise the assessment for the assessment year 1981-82 without initiating any penalty proceedings against us especially under Section 271(1)(c).
6. This Revised Return is being filed by us voluntarily and of our own accord in good faith and with full bona fides.
Thanking you, Yours faithfully
It is also seen that in the subsequent assessment year the assessee has admitted the income from such transactions as the export obligations by then was fulfilled. From these facts, we hold that the assessee had not concealed the existence of the account showing the credit balance. The very fact that the assessee included the credit balance as income in the subsequent year would support the plea of the assessee that it was under the bona fide impression that the credit balance if any in the IPSTA Clearance Account was to be offered for assessment only upon completion of the export obligation. May be, the view that profit or loss on the hedging transactions are to be considered only along with fulfilment of export obligations is untenable in law but validity or otherwise of such a view is not germane to the issue whether the belief entertained by the assessee was a bona fide one or not. Further when the assessee was apprised of the legal character of the credit balance and its taxability in the course of the assessment proceedings by the Assessing Officer, it had come forward with a revised return. Whether that revised return is valid or not is another question and what is material is that it had agreed to be assessed on such sum and had not pursued the matter in appeal. Further it is seen that the learned Commissioner of Income-tax having regard to the circumstances of the case had intervened and waived 50% of the penalty levied on the assessee. In the circumstances, we hold that the assessee has not deliberately concealed the income or particulars of income. The omission to include the income from IPSTA Clearance Account was a bona fide omission borne out a mis-understanding of the provisions of law in relation to the said sum. The cases relied on by the Assessing Officer or by the CIT (Appeals) are on the basis of different set of facts and circumstances of the cases. In the light of our discussion, we set aside the order of the CIT (Appeals) and cancel the levy of penalty.
4. In the result, the appeal is allowed.