ORDER
B. M. KOTHARI, A.M.
1. The Revenue has raised the following ground in this appeal :
“On the facts and in the circumstances of the case, the CIT(A) has erred in law in cancelling the penalty imposed under s. 271(1)(c) amounting to Rs. 1,81,650 as the AO found bogus purchases which the assessee admitted to the extent of Rs. 3,46,000 during the course of assessment proceedings.”
2. The learned Departmental Representative submitted that the CIT(A) has grossly erred in cancelling the penalty on the facts and circumstances of the present case. He submitted that the original return of income was filed on 31st October, 1989, declaring income of Rs. 2,23,640. The AO issued a notice under s. 143(2)/142(1) and a questionnaire fixing the date of hearing for 21st December, 1989. On that date, the case was adjourned to 10th January, 1990, on assessee’s request. The AO examined the books of accounts of the assessee on 10th January, 1990. The assessee soon after such examination of books of accounts by the AO and as a result of certain queries raised during the course of such examination, filed a revised return on 10th January, 1990, in which he declared an additional income of Rs. 3,46,000 on account of certain unverifiable expenses. The AO recorded the facts in the order sheet dt. 10th January, 1990, as under :
“10th January, 1990 – In pursuance of investigation carried out by me today in this case where certain purchases were suspected to be bogus, I had identified certain vouchers for verification of purchases. Assessee admitted concealment on account of unverifiable purchases and filed the revised return declaring additional income of Rs. 3.46 lakhs. However, taxes have not been paid. Therefore, this return will be considered to be non est till the taxes have been paid. This is without prejudice to penalty imposable under s. 271(1)(c).”
2.1. The aforesaid order sheet entry of contemporary date clearly indicates that the assessee has offered the additional income of Rs. 3,46,000 in the so-called revised return furnished on 10th January, 1990, after so-called detection of such bogus purchases by the AO during the course of examination of the books of accounts on 10th January, 1990. The learned Departmental Representative further submitted that the revised return furnished on 10th January, 1990, cannot be treated as a revised return within the meaning of s. 139(5) of IT Act, 1961. Sec. 139(5) provides that where any person, having furnished a return under s. 139(1) or in pursuance of a notice issued under s. 142(1), discovers any omission or any wrong statement therein, he may furnish a revised return at any time before the expiry of one year from the end of the relevant assessment year or before the completion of the assessment, whichever is earlier. The said provision does not enable the assessee to disclose items of concealed income which was not disclosed in the original return of income.
3. The learned Departmental Representative also submitted that the assessee did not disclose the full particulars of bogus purchases in the said revised return furnished on 10th January, 1990. The details and names of the parties representing bogus purchases were not disclosed in the said revised return but only a total figure of Rs. 3,46,000 was surrendered as additional income. The assessee thus did not file true and correct particulars of such bogus purchases even at the time of filing the revised return. The learned Departmental Representative further submitted that the AO continued his enquiries and investigations by deputing his Inspector, Shri V. K. Vadhera to record the statement of some of the parties for verification of purchases claimed to have been made from the following parties : (i) M/s Ankur Textiles, (ii) M/s Pratap Fabrics, (iii) Shop No. 7, Kohli Market, Kucha Khan Chand, Nai Sarak, Delhi.
3.1. The statement of Shri Ashok Kumar working in M/s A. K. Textiles was recorded on 11th January, 1990, who stated that the firm A. K. Textiles is in existence since 1980 and there is no firm by the name of Ankur Textiles at the given address of 48, Manohar Market, Chandani Chowk, Delhi-6. He further stated that they had no business dealing with the assessee. The statement of Shri Pratap Sachdeva, ex-prop. of M/s Pratap Fabrics was also recorded on 11th January, 1990. He stated that the said concern was closed on 30th April, 1988. He also denied to recognise the assessee-firm and stated that when their firm was not in existence after April, 1988, the question of having made any sales to the assessee on 20th August, 1988, does not arise. The AO also sent a summons to M/s Sandhya Sales Corporation at the address given by the assessee, which was received back undelivered with the remark “left W/A”. The learned Departmental Representative submitted that the AO had thus established the fact that the purchases debited by the assessee from various suppliers was bogus.
He, therefore, issued a letter dt. 17th January, 1990, to the assessee. The assessee vide letter dt. 22nd January, 1990, submitted the reply in which the particulars of purchases made from 5 parties aggregating to Rs. 3,45,675 were given. Such particulars of bogus purchases were given by the assessee for the first time vide letter dt. 22nd January, 1990, before which the AO had collected adequate material in the form of a statement of the concerned parties which proved the existence of such concealed income in the form of bogus purchases recorded in the books of accounts of the assessee. He thus strongly urged that the assessee is guilty of concealing the income represented by bogus purchases of Rs. 3,46,000 in the original return. The assessee had thus filed inaccurate particulars of income and also concealed its income in the original return. The true and full particulars of such income were also not furnished along with the so-called revised return furnished on 10th January, 1990. The assessee is, therefore, clearly liable for levy of penalty under s. 271(1)(a).
3.2. The learned Departmental Representative relied upon the judgments Sunanda Ram Deka vs. CIT (1994) 210 ITR 988 (Gau), K. M. Bhatia (Quarry) vs. CIT (1992) 193 ITR 379 (Guj), CIT vs. J. K. A. Subramania Chettiar (1977) 110 ITR 602 (Mad), Kshetra Mohan Roy vs. ITO (1983) 139 ITR 441 (Cal), Badri Prasad Om Prakash vs. CIT (1987) 163 ITR 440 (Raj), Garden Silk Weaving Factory vs. CIT (1988) 172 ITR 575 (Guj) and Vadilal Ichhachand vs. CIT (1957) 32 ITR 569 (Bom).
3.3. The learned Departmental Representative thus strongly urged that the orders of the CIT(A) should be cancelled and the penalty levied by the AO should be restored.
4. The learned counsel for the assessee strongly supported the order of the CIT(A). He drew our attention towards AO’s letter dt. 17th January, 1990. In this letter the AO has himself stated that the assessee has filed a revised return on 10th January, 1990, showing total income of Rs. 5,69,640 against original return of income of Rs. 2,23,640 thereby declaring voluntarily income of Rs. 3,46,000 on account of certain purchases. This letter clearly shows that the income of Rs. 3,46,000 was disclosed by the assessee voluntarily by the assessee by furnishing a revised return on 10th January, 1990. He also invited our attention towards the order-sheet entry dt. 26th March, 1990 of the file of the AO, in which is was indicated that on 10th January, 1990, the AO had made enquiries only in relation to certain cash creditors. The learned lawyer stated that it is clear from the order-sheet entry of 10th January, 1990, that the AO after examining the books of accounts had required the assessee to produce Shri Hari Mohan Gupta, one of the creditors. The first order-sheet entry dt. 10th January, 1990, does not indicate anything about detection of bogus purchases by the AO.
4.1. The learned counsel also invited our attention towards letter dt. 22nd January, 1990. It was inter alia mentioned in the said letter that payment of additional tax of Rs. 87,192 was made by cheque. The learned Departmental Representative after verification from the assessment records, confirmed that the said payment of additional tax of Rs. 87,192 was made by cheque, which was encashed only after few days from the date of furnishing of the revised return on 10th January, 1990.
4.2. The learned counsel also relied upon the judgments Bombay Cloth Syndicate vs. CIT (1995) 214 ITR 210 (Bom), CIT vs. Sri Rajaram Cloth Stores (1995) 214 ITR 262 (Mad), CIT vs. J. V. Appadurai Chettiar Co. (1996) 221 ITR 849 (Mad), F. C. Agarwal vs. CIT (1976) 102 ITR 408 (Gau) approved by the Hon’ble Supreme Court in the judgment G. C. Agarwal vs. CIT (1990) 186 ITR 571 (SC). The learned counsel thus strongly supported the order of the CIT(A).
4.3. In the rejoinder, the learned Departmental Representative submitted a copy of reply dt. 22nd February, 1990, submitted by the assessee before the AO. In this letter, the assessee has admitted that the bills for purchases aggregating to Rs. 3,46,000 surrendered as income in the revised return, were taken out of the file of purchase invoices, as the assessee thought that no useful purpose would be served by keeping them along with other purchase vouchers, particularly in view of the voluntary surrender of the entire amount of Rs. 3,46,000 instead of restricting the surrender of income only to the extent of profit which would have arisen from purchase and sale of the goods involved. The learned Departmental Representative submitted that those bogus purchase vouchers were not produced on the ground that the same are not traceable now. This shows the conduct of the assessee. The learned Departmental Representative also invited our attention towards the order-sheet entry dt. 7th February, 1990, in which it was specifically pointed out to the assessee that the purchase bills of 5 bogus parties are not available in the purchase voucher file which were available in the said file on the earlier date of hearing fixed for 10th January, 1990. The reply dt. 22nd February, 1990, referred to above, was in response to the query raised vide order sheet entry dt. 7th February, 1990. The learned Departmental Representative once again strongly urged that the penalty should be confirmed.
5. We have carefully considered the rival submissions made by the learned Departmental authorities and all other documents to which our attention was drawn during the course of hearing. We have carefully gone through the various judgments cited by the learned representatives of the parties. The principles of law laid down by the various Courts in the judgments relied upon by the learned representatives of both sides is that the filing of revised return and disclosure of additional income will not mitigate the charge of concealment of income or of furnishing inaccurate particulars of income in the original return, in cases where such additional income has been disclosed in the revised return after detection of such income by the AO. If the disclosure of additional income by way of furnishing a revised return or in any other manner has been made after detection of such income by the AO, penalty would be sustainable. However, if the additional income has been offered for tax prior to its detection by the AO, no penalty would be leviable. Therefore, the precise question which we have to consider, is whether on the facts of the present case, income of Rs. 3,46,000 represented by bogus purchases was disclosed by the assessee prior to detection of such income by the AO or that was disclosed after it had already been detected by the AO.
5.1. It is an undisputed fact that the case was partly examined by the AO on 10th January, 1990. During the course of examination of the books of accounts, the AO had examined, inter alia, the accounts of various creditors. The list of sundry creditors as at the end of the relevant previous year as on 31st March, 1989, included the balances in the accounts of the 5 parties in question as per details mentioned below:
Rs.
1. M/s Partap Fabrics, Shop No. 7, Kucha Khan Chand, Nai Sarak, Delhi. 35,150 2. M/s Ankur Textiles, 48, Manohar Market, Kt. Neel, Chandani Chowk, Delhi. 40,711 3. M/s N. K. Textiles, 5478, Chandni Chowk, Delhi. 77,846.20 4. M/s Naresh Traders, 5655, Kucha Khan Chand, Nai Sarak, Delhi. 36,592.50 5. M/s Sandhya Sales Corporation, Maharaja Chamber, Salabatpura, Surat. 1,55,375.87 ------------- Total 3,45,675.57 -------------
5.2. However, the AO in the first order-sheet entry of 10th January, 1990, required the assessee to produce Shri Hari Mohan Gupta, creditor who was not one of the aforesaid 5 parties. The assessee after such examination of books by the assessee immediately prepared a revised return on that very date i.e. on 10th January, 1990, and surrendered the amount of Rs. 3,46,000 on account of unverifiable purchases. It may be quite probable that the AO during the course of hearing on 10th January, 1990, might have given an indication to conduct investigation for verification of the genuineness of the purchases made from the parties in whose accounts there were outstanding credit balances at the end of the year or the AO might have indicated his suspicion about the genuineness of purchases made from the above-named parties. The second order-sheet in the file of the AO dt. 10th January, 1990, indicates that the AO suspected the genuineness of certain purchases and he had identified certain vouchers for verification of purchases. The assessee must have realised that the further investigation by the AO may conclusively establish that purchases made by the assessee from these 5 parties are bogus and the concealment of income may stand established against them. These facts might have prompted the assessee to immediately file a revised return on the same day i.e. on 10th January, 1990.
5.3. The expression ‘detection of the income by the AO’ is clearly different and distinct than the formation of a suspicion by the AO and starting further enquiries and investigation by the AO to confirm or remove such suspicion. It is true that the AO might have valid reasons to suspect the genuineness of some of the purchases and he might have identified certain vouchers for further probe and investigations. But these facts by itself cannot establish that the AO had detected the concealment of income by way of bogus purchases to the tune of Rs. 3,46,000 which were surrendered by the assessee by filing a revised return on 10th January, 1990.
5.4. Before any concealment of income can be said to have been detected, the AO may have to carry out certain exercise as pre-detection actions. During the course of scrutiny of the books of accounts and purchase vouchers, he could come across certain purchase vouchers which need further probe. This would provide a warning to the AO to conduct deep investigation and further probe. Consequent upon such results of the scrutiny of accounts, the AO might conduct further investigation such as has been done by the AO in the present case by deputing the Inspector for recording the statement of various suppliers. After obtaining the results of such investigations carried out by the AO behind the back of the assessee, the AO may be right in entertaining reasons to suspect the genuineness of the purchases. After such investigations, the AO will have to give a show-cause notice to the assessee and will also have to provide copies of the statement and material gathered behind the back of the assessee with a view to allow an opportunity to the assessee to submit his defence and evidence in rebuttal of the material gathered against him. The AO will then have to consider the assessee’s reply to such show-cause notice and thereafter he will have to draw his own conclusions. At this stage, it can be said that the concealment has been detected by the AO. If these sequence of events are considered, it will be found that the AO scrutinised the books on 10th January, 1990. At this stage, the AO did not even arrive at tentative or a prima facie satisfaction about the existence of any bogus purchases. He only made up his mind to conduct further investigation. Before the AO started conducting further investigation, the assessee filed a revised return on 10th January, 1990, in which the amount of unverifiable purchases to the tune of Rs. 3,46,000 were surrendered. The AO made investigations only after furnishing of the revised return by the assessee. The show cause notice was also given at a later date. Therefore, such a revised return filed on 10th January, 1990, will have to be treated as a revised return voluntarily filed by the assessee in which the additional income of Rs. 3,46,000 was surrendered prior to its detection by the AO.
5.5. The aforesaid view is further fortified by the fact that the AO had himself written a letter dt. 17th January, 1990, to the assessee which reads as under :
“No. AC/Cir. 5(1)/89-90/430
Office of the
Assistant Commissioner of Income-tax
Cir. 5(1), New Delhi.
Dated : 17th January, 1990,
M/s Jai Narain Radhey Shyam & Co.,
5551, Kt. Rathi, Nai Sarak, Delhi.
Sub : Assessment proceeding for asst. yr. 1989-90.
Sirs,
Please refer to assessment proceedings for asst. yr. 1989-90 on 10th January, 1990, you have filed a revised return showing total income at Rs. 5,69,640 against originally returned income of Rs. 2,23,640 thereby declaring voluntarily an income of Rs. 3,46,000 on account of certain purchases. In this connection you are requested to furnish following details : 1 Detail of unverifiable purchase party wise; 2. Copy of challan for payment of tax on the basis of revised return.
Please furnish the above details within 3 days of receipt of this letter positively.
Yours faithfully,
Sd/-
Asstt. Commr. of Income-tax
Cir. 5(1), New Delhi.”
5.6. It is clear from the aforesaid letter that the AO had himself treated the disclosure of additional income at Rs. 3,46,000 as having been made voluntarily by the assessee by filing the revised return on 10th January, 1990.
5.7. The learned counsel for the assessee had also invited our attention towards the decision of the CIT(A) dt. 22nd October, 1992, in the quantum appeal for the aforesaid year. The CIT(A) in the said quantum appeal has given the following finding in para 2.1 of the order passed by him which is reproduced hereunder:
“2.1 A perusal of the assessment order shows that the order passed is not against the facts of the case. The revised return filed by the appellant has not been ignored but has been duly considered along with the original return while framing the assessment. While it may be true that the results of the enquiries made by the AO were not confronted to the appellant, but at the same time no extra additions have been made to the income returned as per the revised return while framing the assessment. Similarly there is no doubt that the addition of Rs. 3,46,000 has been termed as addition on account of certain purchases but the addition made is not of the above what the appellant had on their own declared in the revised return. The issue regarding this addition has been discussed in detail in the appeal order with respect to the appeal filed against the penalty order under s. 271(1)(c) vide appeal No. 453/90-91 dt. 30th January, 1991. Further, the observation regarding this addition being on account of bogus purchases may not be wrong in view of the enquiries conducted by the AO in this respect but considering the fact that this income was declared voluntarily before such detection by the AO, there is no extra addition to the income returned as per the revised return on this account. The appellant’s prayer, therefore, that the order should be set aside and the additions be deleted cannot be accepted because the order is not without jurisdiction and the additions have been made on the basis of a voluntary surrender made by the appellant through a revised return which has been duly considered and taxed by the AO. In fact, there are no such additions to the returned income which need to be deleted because the only additions made are statutory additions on account of interest paid to partners income-tax, and difference in trial balance.”
5.8. The learned counsel had further submitted that the above referred order has achieved finality and no further appeal has been preferred by the Revenue against this order of the CIT(A). The aforesaid findings given by the CIT(A) in the quantum appeal further support the assessee’s contention that the additional income had been declared voluntarily by the assessee before detection thereof by the AO.
5.9. In view of the aforesaid facts and discussions and in view of the elaborate reasons given in the order of the CIT(A), we are of the considered opinion that the CIT(A) has rightly cancelled the said penalty. We do not find any justification to interfere with the view taken by the CIT(A).
6. In the result, the Revenue’s appeal is dismissed.