ORDER
Deepak R. Shah, AM
1. These three appeals by the assessee are arising out of the orders of CIT(A)-I, Bangalore dated 1-1-2002 against the assessee order Under Section 143(3) of the Income-tax Act (The Act) as well as penalty orders Under Section 271(1)(c) of the Act and 271B of the Act pertaining to assessment year 1998-99.
ITA No. 536 (Bang.)/02
2. We shall first take up the assessee’s appeal in quantum proceedings Under Section 143(3) of the Act. The Only issue in this appeal relates to taxability of a sum of Rs. 27,89,216/- which as per the Assessing Officer has treated the same as taxable for the assessment year 1998-99.
3.1 The facts of the case are as under:
The assessee an advocate filed his return of income for the assessment year 1998-99 on 26-10-1998. The return was processed Under Section 143(1)(a) on 31-8-1999. A notice Under Section 143(2) was issued and in response to this assessees’s representative Sri Srinath, CA appeared from time to time and furnished details called for. He was heard. Written and oral submissions made by the assessee and his representations were carefully considered. One of the main issues which came up for consideration during this proceedings related to a receipt of Rs. 27,89,216/- from abroad in foreign exchange for professional services rendered by the assessee outside India to M/s Ham, Dredging Rivium, Rotterdam, Netherlands, during the previous year 1996-97. The bills in respect of the services rendered were stated to be raised on 11-02-1997 relevant for assessment year 1997-98. However, the assessee received the fees in respect of this bill in two instalments as under:-
5-4-1997 Rs. 13,98,434
15-9-1997 Rs. 13,90,782
Total Rs. 27,89,216
The receipts are received during the previous year 1997-98 relevant to assessment year 1998-99. The short question for consideration is in which year this income is taxable, taking into consideration the method of accounting followed by the assessee. For the assessment year 1997-98, the assessee filed his return of income on 29-10-1997 admitting a total income of Rs. 3,96,160/-. In this return he did not admit the above professional income of Rs. 27.89 Lakhs. A received return was filed on 16-12-1997 admitting an income of Rs. 3,86,160/-. In this return also he did not admit the above income. Yet another revised return was filed on 18-3-1997 admitting an income of Rs. 17,86,160/-. In this second revised return he admitted the income of Rs. 28 Lakhs and claimed a deduction of Rs. 14 Lakhs being 50% of the gross receipts Under Section 80-O. The tax on the revised total income was also paid. This return was processed Under Section 143(1)(a). The case was not taken up for scrutiny. Section 80-O had undergone an amendment by Finance Act, 1997 with effect from the assessment year 1998-99. The effect of this amendment was quite drastic in that the deduction was no longer available in respect of “income by way of royalty, commission, fees or any similar payment received by the assessee from Government of a foreign State or a foreign enterprises….. in consideration of technical or professional services rendered outside India to such Government or foreign enterprise.” From 1-4-1998, this deduction is confined to income received in consideration for the use outside India of any patent, invention, design or registered trade mark.
3.2 The Assessing Officer came to a conclusion that the second revised return was filed by the assessee on 18-3-1998 which was the result of an after thought with the sole subject of claiming the deduction Under Section 80-O which the assessee would not have been eligible for if the income was offered in the assessment year 1998-99 in the light of the amendment herein above mentioned. The assessee had not filed the report Under Section 44AB for the assessment year 1997-98 and 1998-1999. These reports were called for and they were filed on 30-10-2000. In both these reports the assessee’s CA Sri Srinath stated in Col. 11(a) in Form 3CD relating to “Method of accounting employed by the assessee” as cash system. If the assessee was following cash system of accounting as certified by the Chartered Accountant, this income ought to have been offered for the assessment year 1998-99 on receipt basis. In the course of discussion assessee’s representative was asked as to why this income should not be treated as the income of the assessment year 1998-99 since the income was received only during the previous year relevant to assessment year 1998-99 and the assessee was following cash system of accounting. The assessee in his letter dated 19-12-2000 stated that he had charged the method of accounting from the assessment year 1997-98 to mercantile system instead of cash system followed earlier. He also filed revised reports Under Section 44AB from his auditor wherein against column 11(a) of Form 3CD, the auditor stated that the assessee was following mercantile system of accounting during the previous year relevant to assessment years 1997-98 and 1998-99.
3.3. The Assessing Officer asked the assessee to produce the books of accounts which the assessee’s representative did on 29-12-2000. In the course of hearing, it was pointed out by the Assessing Officer to the representative that as on 31-3-1997, the amount of Rs. 28 Lakhs being the fees due from abroad should have appeared as “receivable” if the assessee was following mercantile system of accounting. As per the Balance Sheet filed, this is not shown as a receivable which clearly shows the fact that the claim made by the assessee that he was following mercantile system of accounting is not tenable. The books produced were for the period 1-4-1997 to 31-3-1998 only. In these books, as on 1-4-1998, a credit entry was made showing a receivable of Rs. 28 Lakhs which was closed later on during the year itself, by debiting the account. Admittedly, this receivable is not a carried forward item. The Balance Sheet as on 31-3-1997 filed by the assessee alongwith the audit report does not show this amount as a “receivable”. The Assessing Officer also reproduced in this connection the order sheet entry made on 29-12-2000 which is accepted by the assessee’s representative as below:
“Shri Srinath, CA appears. Please see letter filed. It has been pointed out to him that as on 31-3-1997 the amount of Rs. 28 Lakhs should have appeared as a receivable had the assessee been following mercantile system of accounting from 1-4-1996 to 31-3-1997 and subsequently. Admittedly, this does not appear as a receivable as on 31-3-1997. The books produced for the accounting period 1-4-1997 to 31-3-1998 shows a receivable of Rs. 28 Lakhs as on 1-4-1997 in the day book and ledger. Admittedly this is not a brought forward entry.”
3.4 The Assessing Officer thereafter concluded that the assessee’s claim of having changed the method of accounting is false and hence the assessee’s claim that he changed his method of accounting from cash to mercantile is incorrect and against facts. The second revised return filed for the assessment year 1997-98 was an after thought with the only objective of availing the deduction of Rs. 14 Lakhs Under Section 80-O.
3.5 In appeal before the CIT(A), it was contended that the assessee has raised a bill dated 11-2-1997 for the work to be carried out at Rotterdam from 15-02-1997 to 19-02-1997. It was argued that since the revised return was filed due to change in method of accounting, much earlier to the filing of regular return for the assessment year 1998-99. Such change in method should be considered bonafide and hence the income which has been taxed for the assessment years 1997-98 should not be taxed again for the assessment year 1998-99. The CIT(A), confirmed the action of the Assessing Officer holding that the change was only an after thought to claim deduction Under Section 80-O as the same relief was not available in the subsequent assessment year i.e. 1998-99. The CIT(A) further held that even as per in mercantile system of accounting the amount of Rs. 28.00 Lakhs was not taxable in the assessment year 1997-98, since the income has never accrued to the assessee. The bill dated 11-02-1997 is at the best an advance and not a final bill. When the assessee received short payment from the said sum of Rs. 28.00 Lakhs a reminder was sent to the client of the assessee asking for the payment as per the bills sent earlier. The CIT(A), asked for the copy of such bills for short payment which was not furnished by the assessee and hence an adverse inference was drawn. He therefore, concluded that the income, even on mercantile system of accounting is taxable in assessment year 1998-99 only. The assessee is therefore, in appeal before us.
4.1 The learned counsel for the assessee Mr. Khincha, argued that the original return for the assessment year 1997-98 was filed on 29-10-1997. Thereafter, a revised return was filed for the assessment year 1997-98 on 18-03-1998, which is within the time limit prescribed Under Section 139(5). The said revised return was filed due to change in method of accounting in respect of professional services rendered by the assessee in his individual capacity. Since the assessee changed his method of accounting from cash system to mercantile system, a change was necessitated in recognising the income in respect of professional services rendered. The return for the assessment year 1998-99 was filed on 26-10-1998 i.e. Under Section 139(1). In the said return the income which accrued in earlier year was not declared. However, the income which accrued during the relevant assessment year amounting to Rs. 19.00 Lakhs was also offered. Subsequently also on the basis of accrual of income, the income of Rs. 15.00 Lakhs and 4.00 Lakhs were offered for taxation in the assessment year 1999-2000 and 1200-2001 respectively. He went on to argue that since the change in method is bonafide which has been consistently followed thereafter such change should be accepted and the income needs to be taxed only in the assessment year 1997-98. He also submitted that when the same income was offered for taxation in the assessment year 1997-98, the Assessing Officer has taxed the same income in the assessment year 1997-98 also. Even the request for rectification has been turned down. He submitted that the assessee is legally entitled to change the method of accounting regularly employed by him. When the assessee bonafide changed his method of accounting and satisfied the department that he intends to adopt the changed method of accounting thereafter, that satisfies the requirement of Section 145. Neither principle nor authority bars an assessee from substituting one method of account for another at his choice. For this proposition, he relied upon the decision of the Hon’ble Calcutta High Court in the case CIT v. Mahendra Mills and Ors. reported at 243 ITR 56 for the proposition that just as the assessee has right to claim or not to claim depreciation benefit. Similarly, the assessee has the right to choose a particular method of accounting.
4.2 The other limb of his argument was that there is no change in the method at all and all the while the assessee was following the mercantile system of accounting only. Till the assessment year 1997-98, the assessee was receiving remuneration from the partnership firm which was offered for taxation on accrual basis only. His income from other sources included certain dividend which is taxable as per the relevant provision to Section 55. The remuneration from the firm is first credited to his capital account and the same is offered for taxation in the year of credit. This action of assessee shows that he is following only mercantile system of account in respect of his professional income.
4.3 One more argument was placed before us for the proposition that Section 80-O itself pre-supposes mercantile system of accounting. It was submitted that the income accrued needs to be brought into India in convertible foreign exchange within six months from the end of relevant previous year. Therefore, if the income was brought within the stipulated period, the benefit Under Section 80-O is still available irrespective of method of accounting employed by the assessee. As regards the mistake in mentioning the cash system of accounting in audit report, it was submitted that the same is inadvertent mistake on the part of the auditor concerned. What is to be seen is the correct fact and not what is inadvertently mentioned by the auditor. He also drew our attention to the letter of auditor addressed to the Assessing Officer stating that there was an inadvertent mistake in mentioning the method of accounting as cash system for the assessment year 1997-98 and subsequent years. To sum up the argument, it was mentioned that the professional income of Rs. 28.00 Lakhs which accrued to the assessee as per his bill dated 11-02-1997 should be taxed only in the assessment year 1997-98 and not 1998-99.
5. The departmental representative took us through the relevant assessment order and the appellate order. A paper book containing 80-pages was also filed. It was submitted that though the assessee can validly change the method of accounting, yet whether such whether such method can be changed even after filing the return of income is an issue. It was argued that the assessee has changes its method of accounting only after the Finance Bill 1998 was tabled which withdrew the benefit Under Section 80-O in respect of services rendered outside India like the one which the assessee is rendering. Thus, it cannot be said that the change in method of accounting is bonafide. It was also argued that the Tribunal need to find out whether the change was a bonafide change. if the assessee was truly following the mercantile system of accounting that would have very well reflected in the audit report obtained Under Section 44AB of the Act. It was also submitted that the income of Rs. 28.00 Lakhs as per bill dated 11-02-1997 never accrued to the assessee. It was only ‘on account’ and ‘part payment’ which was contingent upon rendering certain services. The services were rendered much thereafter and hence even on accrual basis, the income is taxable in 1998-99 only. The learned departmental representative submitted that this is a clear case of tax evasion due to artificial change of method of accounting and hence such change need not be rejected, in view of the decision of the Hon’ble Supreme Court of India in the case of McDowell & Co. Ltd. v. CIT reported at 154 ITR 148. As per the scheme of the Act, the income has to be taxed in the year in which it is rightly taxable and only because the same has been taxed in earlier year as per the return filed, the Assessing Officer is not precluded from taxing the same income in the current assessment order. The learned departmental representative thereafter took us through the paper book filed by him showing that since assessment year 1992-93 till the assessment year 1997-98, the assessee is offering the remuneration from the partnership firm on the basis of receipt as mentioned in the statement of total income which shows the remuneration ‘received’ from the firms. He invited our attention to the fact that for the assessment year 1997-98, the assessee filed original return of income and even paying the self assessment tax to last rupee ignoring the professional income accruing to him. Even in the return of income in the relevant column of method of accounting the word “NA” is mentioned and not the word “mercantile”. The assessee has filed the revised return on 16-12-1997 for claiming a rebate Under Section 88-CCC even for a small sum of Rs. 10,000/-. In the said return also the income which accrued to the assessee based on the mercantile system of accounting was not disclosed. Even as per the tax audit report dated 25-10-2000, the method of accounting shown by the assessee is cash system. The said tax audited report is also countersigned by the assessee. The learned departmental representative submitted that the copy of the bill dated 11-02-1997 was not furnished before the Assessing Officer. The letter from the client of assessee from whom the payment is received also shows that the letter was issued as requested by the assessee. It was therefore, argued that no weightage should be given for the proposition that the income accrued to the assessee based on the bills raised. The learned departmental representative relied upon the decision in the case of Sumati Dayal v. CIT reported at 214 ITR 801, for the proposition that the matter should be viewed from preponderance of probability and if on the facts, it is found that such probability do not exist, the matter should be viewed accordingly. The learned CIT(A), asked for the copy of certain bills which were not furnished. The learned departmental representative therefore argued that if the evidence called for is not put forth by the assessee, the revenue authorities are entitled to draw an adverse inference. For this proposition, he also relied upon the decision of the Hon’ble Madras High Court in the case of CIT v. Krishnaveni Ammal reported at 158 ITR 826 (PP:829). In the end, it was submitted that the orders of authorities below be upheld.
6.1 We have carefully considered the relevant facts of the case, the argument advanced and the decision relied upon. We have also perused the paper book filed by both the learned counsel.
6.2 We are first required to ascertain whether the assessee was following any regular method of accounting in respect of income chargeable under the head “Profits & gains of business or profession”. Till the assessment year 1996-97, the assessee was receiving only remuneration from the partnership firm which was taxed as its income from business or profession. He was not rendering any services in his individual capacity apart from being the partner of certain firms. The remuneration from partnership firm is taxable as income from profession only as per Section 28(v) of the Act, which is due to or received by a partner from such firm. It is the contention of learned authorised representative that the remuneration is first credited to the account of the partner and still it has been offered for taxation, the same should therefore be treated as offered on mercantile system of accounting. We are unable to accept such a contention. Though, the remuneration is first credited to the account of partner, yet as per the copy of the account submitted the firm M/s Sundaraswamy Ramdas & Anand, Advocates, the assessee has withdrawn much more amount than the remuneration available to him. The professional firms in which the assessee is a partner is maintaining their books of accounts on cash system. Those firms are also claiming remuneration payable to partners as allowable expenses as per copy of Profit & Loss Account of firms furnished before us. If by crediting the remuneration to partners accounts it can be said that same is ‘paid’ to claim it as an expenditure as per cash system followed, it can be therefore concluded that same is received by assessee partner so as to tax the same as per cash system of accounting in the hands of partner. Thus, there is a conclusive proof to say that the income by way of remuneration from firm has been all along been offered for taxation on accrual basis.
6.3 For the first time during the previous year relevant to the assessment year 1997-98, the assessee rendered the services in his individual capacity hence, this was the first year to choose his method of accounting in respect of such income. The assessee filed original return of income without disclosing the accrued income of Rs. 28.00 Lakhs. He also filed a revised return for claiming deduction Under Section 80-CC wherein also the accrued income was not offered for taxation. It is only in the second revised return filed on 18-03-1998, the assessee offered the income accrued to it and claimed deduction Under Section 80-O. As per the accounts filed with the return of income, the amount receivable was not shown as asset in the balance sheet, which otherwise would have appeared had the assessee been following the mercantile system of accounting. Even the tax audited report obtained Under Section 44AB of the Act dated 25-10-2000 shows that the method of accounting as cash system without considering the accrued income of Rs. 28.00 Lakhs. The assessee calculated the tax and paid the amount to the last rupee. Thus, it can be conclusively held that the assessee has chosen to follow the cash system of accounting in respect of professional income rendered in individual capacity at the time of drawing final account while filing original return of income. We are therefore to examine whether the assessee bonafide changed the method of accounting which is proved by filing of the revised return of income. Time and again various courts have held that an assessee can change his method of accounting from cash system to mercantile system or vice versa. What he must alter is his regular method that is to say he must abandon what upto that time his regular method and start a new regular method. It has also been time and again held that if the change is bonafide and followed subsequently such change can be approved. Various authorities have time and again held including the Hon’ble Calcutta High Court relied by Mr. Khincha in Snow White Food Products case (supra). However, what is to be seen is that when an assessee can change his method of accounting. A new method can be adopted only prospectively. The courts have held that the method can be changed hitherto followed. Even if it is assumed that the assessee changed his method from cash to mercantile system, as per the revised return filed on 18-03-1998, it can apply only prospectively i.e. with effect from financial year 1997-98 only and not for the financial year 1996-97. As held earlier, based on various facts, the assessee is shown to have followed the cash system of accounting in respect of professional income rendered in individual capacity. The method of accounting in respect of such income was changed after the close of the relevant accounting year ending on 31-03-1997, method of accounting is to be followed for a particular year. Whereas the account for the financial year is prepared following a particular method of accounting, subsequent change in the method of accounting does not alter the account of earlier year which is already drawn up and finalised.
6. we are also to examine whether the change is bonafide. Universally almost all the professionals are following cash system of accounting in respect of professional income. The assessee was also following cash system of accounting till filing of the revised return on 18-03-1998. What prompted the assessee to change his method of accounting is required to be examined. The Assessing Officer has held that since after introduction of Finance Bill 1998 an amendment was proposed withdrawing the deduction Under Section 80-O which the assessee could have otherwise obtained if this amendment was not proposed effective from assessment year 1998-99 also. The assessee has not included the accrued income even during the first revised return filed in December, 1997. It is the Finance Act, 1997 which amended Section 80-O with effect from 1-4-1998 and not through the Finance Bill 1998. The amendment to Section 80-O was explained by CBDT in its Circular No. 763 dated 18-02-1998. As per which the assessee was no longer eligible for benefit Under Section 80-O with effect from assessment year 1998-99. This shows that the change in method of accounting is just an after thought to simply avail benefit. We are totally in agreement with the finding of the Assessing Officer and would hold that the change in method of accounting exercised by the assessee is not bonafide. We may also examine as to when a revised return can be filed Under Section 139(5), due to subsequent change in method of accounting. As per Section 139(5), if an assessee discovers any omission or any wrong statement in the original return of income filed he may file a revised return. In the case of assessee, it is not a case of omission or finding of any wrong statement therein. The assessee has chosen to file the revised return only after the change in method of accounting. Subsequently followed, thus revised return filed does not fall in line with intention prescribed in Section 139(5) of the Act.
6.5 We have already heard that the change in method was not bonafide action and hence, it cannot be held that since the revised return was filed disclosing the income for the assessment year 1997-98, the same cannot be taxed for the assessment year 1998-99 on receipt basis. We have also held that any change in the method of accounting can be only a prospective and hence in the year of change the assessee is liable to be taxed in respect of income received during the year as well as income accrued to him during the year based on prospective new method of accounting. We have therefore, no hesitation in upholding the order of the authorities below.
7. The ground relating to charging of interest Under Section 234(B) was to pressed before us. It is not the case of assessee that he denies his liability to pay the advance tax. We therefore, uphold the levy of interest Under Section 234(B) of the Act.
In the result, the appeal of the assessee in ITA No. 536(Bang)/02 is dismissed.
ITA No. 535(Bang.)/02
8. We shall now take up the assessee’s appeal against the order Under Section 271(B) of the Act.
9. For the relevant assessment year the assessee filed the return of income but has not filed the audit report as required Under Section 44AB of the Act (“The Act”) when the assessee was asked as to how no report is filed, the assessee filed the audit report as obtained on 20-12-2000. Apparently the audit report is not within the time limit prescribed Under Section 44AB of the Act. The Assessing Officer therefore levied penalty of Rs. 28,052/- being one half percent of the gross receipt of Rs. 56,10,325/-.
9.2 During the course of appeal, no reasonable cause was furnished before us. Infact, the learned counsel for the assessee did not press the ground regarding the levy of penalty. However, it was brought to our notice that the penalty is not correctly calculated. It was submitted that the penalty should be levied only in respect of the gross receipts as accruing to the assessee in his profession in his individual capacity and not by way of remuneration received from the partnership firm in which he is a partner. The learned departmental representative submitted that he has no objection if such amount being the remuneration from the firm is excluded from the gross receipts.
10. Since no reasonable cause has been shown for the delay in obtaining the audit report, the assessee is liable for penalty Under Section 271B of the Act. However, the penalty should be calculated being one and half percent of the gross receipt received by the assessee in his individual capacity in exercise of his profession. The receipt by way of remuneration from the firms in which he is a partner is not to be considered for the purpose of gross receipt. Accordingly, if such amount is excluded in the total gross receipt shown by the Assessing Officer at Rs. 56,10,325/- same should be included and only on balance figure penalty should be calculated.
In the result, appeal No. 535(Bang)/02 is partly allowed.
ITA No. 534(Bang.)/02
11. We shall now take up the assessee’s appeal against the order Under Section 271(1)(c) of the Act.
12. As per the facts of the case, as noted above in the assessee’s appeal against an order Under Section 143(3), the Assessing Officer during assessment proceedings came to a conclusion that the assessee has concealed the income of Rs. 27,89,216/- being his professional fees received during the year from M/s Ham, Dredging Rivium, Rotterdam, Netherlands. Before the Assessing Officer, it was argued that the fees of Rs. 27,89,216/- disclosed by the assessee in the revised return filed for the assessment year 1997-98 on 18-03-1998. The tax has also been paid on the same. Since the amount was included in the return for the assessment year 1997-98, the assessee has not included the same once again for the assessment year when he filed his return on 26-10-1998. It was also argued that there is no deliberate act on the part of the assessee i.e. international suppression of truth or fact to cause injury or prejudice to another. Since there is no conscious concealment and in absence of any mens rea, no penalty should be levied. The Assessing Officer held that as per the books of account, the assessee is following cash system of accounting and even in the books of account though the receipt is recorded, the amount was not disclosed in the return of income. The revised return filed for the assessment year 1997-98 is an after thought due to proposed amendment in Section 80-O by Finance Bill 1998. This amounts to furnishing of inaccurate particulars. The Assessing Officer also held that no mens rea is required to be proved before levying of penalty in view of the amendment in Section 271(1)(c) w.e.f. 10-4-1964 whereby the word “deliberately” was removed. The assessee fully knowing the facts and since in practice he was following cash system of accounting, yet for the purpose of make belief, it was shown that he is following mercantile system of accounting. He thus, concluded that the assessee has deliberately twisted the facts and furnished inaccurate particulars of income with an intention to avail deduction Under Section 80-O for the assessment year 1997-98. He therefore, levied the penalty on tax sought to be evaded on 50% of Rs. 27,89,216/- being the deliberate wrong claim of deduction Under Section 80-O for the assessment year 1997-98. The CIT(A) confirmed the penalty levied by the Assessing Officer. He held that even as per mercantile system of accounting the income of Rs. 27,89,216/- was not taxable in the assessment year 1997-98 but was taxable in the assessment year 1998-99 only. Thus, the explanation of assessee is found to be false and applying explanation to Section 271(1)(c), the penalty levied was confirmed. The assessee is therefore is appeal before us.
13. The learned counsel for the assessee submitted that the observation of the Assessing Officer while levying the penalty was not correct. He drew our attention to the following observation stating that none of them is factually correct.
a) that the revised return for the assessment year 1997-98 was filed as an after thought with the sole object of claiming deduction Under Section 80-O.
b) that the appellant’s claim of his following mercantile system of accounting is false.
c) that no entry was made in book of account recording receipt of Rs. 27,89,216/-
d) that the appellant attempted top misled the revenue authorities.
e) that the Mens rea exists in the instant case, in its abundance.
f) that the appellant deliberately twisted the facts and furnished inaccurate particulars of his income.
He also submitted that the second revised return for the assessment year 1997-98 was filed on 18-03-1998 whereas the original return for the assessment year 1998-99 i.e. the year under appeal was filed on 26-10-1998. Since the income was disclosed in the revised return for the assessment year 1997-98 much earlier prior to filing of return for the assessment year 1998-99, it cannot be said that the assessee has furnished inaccurate particulars of income. The assessee was under bonafide belief that he can change his method of accounting at any point of time and thereby he has disclosed the income as per the new method of accounting followed by him. All the facts were correctly disclosed and all the income are also correctly offered for taxation. If by offering the income in a particular year, the assessee is entitled to get certain benefit as per the scheme of Act, it does not become furnishing of inaccurate particulars. He went on to argue that the penalty is not leviable solely relying on the addition made during the assessment proceedings Under Section 143(3) of the IT Act. The penalty proceedings are different than the assessment proceedings and in the absence of any independent adjudication to conclude that the income was not offered for taxation, penalty Under Section 271(1)(c) is not attracted. It was also submitted that no material is suppressed before the revenue authorities thus all the facts are correctly stated. However, if a different inference is drawn from the said facts it cannot be held that the assessee has furnished inaccurate particulars. In the end, it was submitted that though the penalty was initiated for concealment of income, the penalty was ultimately levied for furnishing inaccurate particulars. A penalty initiated for one limb of the section and if ultimately the penalty is levied on the other limb of the same section, penalty in such a situation is not attracted.
14. On the other hand, the learned departmental representative submitted that the Assessing Officer is not required to establish any “mens rea”. What is to be seen is whether the assessee acted bonafide. It is not a case of mere inadvertence or pure mistake of calculation but a deliberate act in not furnishing certain receipt as income. The learned departmental representative also relied upon the decision of the Hon’ble Karnataka High Court in the case of Saraswathi Estate v. Commissioner of Agricultural Income-tax and Anr. reported at 251 ITR 168.
15. We have carefully considered the rival submission and the facts of the case and also the decision relied upon. It is an accepted fact that the assessee is accounting for all the receipts in his regular bank account. On the basis of change in the method of accounting, the assessee offered the entire receipt of Rs. 28.00 Lakhs as his income for the assessment year 1997-98 in the revised return filed on 18-03-1998. At this moment even the financial year relevant to the assessment year 1998-99 (the year under appeal) has not ended, whereas the entire receipt of Rs. 28.00 Lakhs was offered for taxation by way of revised return which has also been accepted by the Assessing Officer. The assessee has all the reason not to include the same once again in his return for the assessment year 1998-99. It is not the case of the Assessing Officer that certain income accrued or received by the assessee was never shown in any income tax returns. It is also not a case that certain fresh receipts are found out or new source of income has been found. It is only a change of opinion with respect to taxability of income in one year or the other. Since the income was already offered for earlier year even prior to filing of the return for the assessment year 1998-99, it cannot be said that offering the income in earlier year by revised return is an after thought to save oneself from the clutches of penalty. This action of assessee does not amount to concealment of income or furnishing of inaccurate particulars of income.
15.2 The word “conceal” is derived from the Latin concelare which implies con + celare, to hide. Webster’s in his New International Dictionary equates its meaning “to hide or withdraw from observation; to cover or keep from sight; to prevent the discovery of; to withhold knowledge of”. The offence of concealment is thus a direct attempt to hide on item of income or a portion thereof from the knowledge of the income-tax authorities. It is implicit in the word “concealed” that there has been a deliberate act on the part of the assessee. The meaning of the word “concealment” as found in Shorter Oxford English Dictionary, third edition, volume-I, is as follows: “In law, the intentional suppression of truth or fact known, to the injury or prejudice of another” (CIT v. J.K.A. Subramania Chettiar (1977) 110 ITR 602, 608 (Mad). Concealment can be only of facts and not of conclusions to be drawn from facts. It is the case of assessee that since the income was already offered for taxation in earlier year, the same was not offered during the year under appeal. This is an uncontroverted fact. We therefore, hold that penalty Under Section 271(1)(c) is not attracted either for concealment of income or for furnishing inaccurate particulars of income.
15.3 The Assessing Officer has observed in the penalty order that the assessee has furnished inaccurate particulars of his income with a clear intention to avail deduction Under Section 80-O for the assessment year 1997-98 and this act of the assessee attracts penal consequence. If this is the conclusion, the assessee could be penalised for furnishing inaccurate particulars for the assessment year 1997-98 and not for the assessment year 1998-99. Even the Assessing Officer has levied the penalty considering the income on which tax is sought to be evaded being 50% of Rs. 27,89,216/-. This fact also proves that the assessee offered the entire income of Rs. 27,89,216/- in his return of income, but has claimed the deduction Under Section 80-O as available to him for the assessment year 1997-98. This finding of the Assessing Officer also proves that even in his opinion the wrong claim pertains to assessment year 1997-98 and not for the assessment year 1998-99. On this count also it cannot be held that the assessee has furnished inaccurate particulars for the assessment year 1998-99 which attracts the penalty Under Section 271(1)(c). We, therefore, cancel the levy of penalty.
15.4 One more argument was placed before us for the proposition that since the penalty was initiated in the assessment order for concealment of income and since penalty is levied for furnishing inaccurate particulars, penalty cannot be legally levied. We are totally in agreement with this argument advanced. At the time of hearing, the learned departmental representative was confronted that the decision of the Hon’ble Gujarat High Court in the case of CIT v. Lakhdhir Lalji reported at 85 ITR 77 to which no contrary decision was cited. In view of the decision in (SIC) Lakhdhir Lalji (Supra), we delete the penalty Under Section 271(1)(c) on this ground also.
15.5 We therefore, set aside the order of the learned CIT(A) and cancel the levy of penalty Under Section 271(1)(c) of the Act.
In the result, the appeal in ITA No. 534 Bang/02 is allowed.