ORDER
Joginder Pall, A.M.
These are cross-appeals-one by the revenue and another by the assessee which arise from the order, dated 12-8-1993 passed by Commissioner (Appeals) for assessment year 1991-92. Since both the appeals relate to common issues and the same appellate order of Commissioner (Appeals), there were heard together and are being disposed of by this consolidated order for the sake of convenience.
2. In appeal of the revenue, the ground taken is that learned Commissioner (Appeals) was not justified in directing assessing officer to amend the penalty order treating only an amount of Rs. 85,000 as concealed income and restricting the penalty to the extent of 100 per cent of tax sought to be evaded with reference to amount of Rs. 85,000 only. The assessees grievance is that learned Commissioner (Appeals) was not justified in directing assessing officer to levy penalty in respect of concealed income of Rs. 85,000. The facts of the case are that while completing assessment for assessment year 1991-92, assessing officer noted that the assessee had shown contract receipt of Rs. 33,18,532 and miscellaneous receipt of Rs. 3,497. During assessment proceedings. Assessing Officer called for details of miscellaneous receipt. On examination of these details, assessing officer noted that the assessee had accounted for payments of Rs. 30,000, Rs. 41,563 and Rs. 16,934 (aggregating to Rs. 88,497) on 12-5-1990, 16-6-1990 and 16-8-1990 respectively under the head miscellaneous receipt. As against these receipts, the assessee had debited a sum of Rs. 85,000 with the narration “To security deposit and balance amount of Rs. 3,497 was shown as credit balance in miscellaneous receipt account. On being asked to explain the nature of debit entry of Rs. 85,000, the assessee submitted that no such security deposit was paid as the amount was explained to be on account of penalty and liability of Rs. 3,68,980. The assessee had explained that it had undertaken a contract for construction of primary school building in Sector 43-A, Chandigarh. The portion of the building collapsed. As a result, the contracting authority imposed a penalty of Rs. 3,68,980, which was intimated to the assessee vide letter dated 4-10-1991. Assessing Officer noted that the previous year of the assessee covered period from 1-4-1990 to 31-3-1991 and intimation in this regard was received in subsequent assessment year, i.e. relating to assessment year 1992-93. Thus, an amount of Rs. 3,68,980 was not a liability of the assessment year under reference. He further noted that earlier the contracting authority had imposed a penalty of Rs. 1,75,800 on account of the assessees non-undertaking of construction of the school building which had collapsed. The letter from the contracting authority was received on 19-8-1989, i.e. relating to assessment year 1990-91, the assessee adjusted penalty of Rs. 1,75,800 as under :
Less security
Rs. 59,755
Payment due from the department
Rs. 40,245
Balance claimed in assessment year 1990-91
Rs. 75,800
The entire amount of Rs. 1,75,800 was adjusted against receipts for assessment year 1990-91. However, assessing officer had not allowed deduction in respect of penalty because of the assessees failure to produce bills and vouchers for various expenses incurred. This resulted in rejection of book results and estimation of income by applying net profit rate 9 per cent. Thus, amount of Rs. 1,75,800 which was intimated to the assessee vide letter dated 29-8-1989 stood adjusted against assessment year 1990-91 and, therefore, there was no reason for debiting further amount of Rs. 85,000 to miscellaneous receipt with the narration To security deposit. This way, according to assessing officer, by making such entry the assessee had reduced its income by Rs. 85,000 for assessment year 1991-92. Therefore, this was added to its total income.
2.1. Besides assessing officer also noted that for assessment year under reference, the assessee had not declared any work in progress in the closing stock. The assessee had executed work during the period from 15-3-1991 to 31-3-1991. Though the assessee had debited a sum of Rs. 42,000 and Rs. 35,000 being mason charges payable and labour charges payable during the period from 16-3-1991, to 31-3-1991, corresponding work completed during this period had not been included. Considering the fact that in addition to expenses of Rs. 77,000 incurred during the period from 15-3-1991, to 31-3-1991, the assessee had completed other works for which raw material was supplied by the contracting party. The assessing officer, therefore, found that the assessee had completed work-in-progress to the tune of Rs. 1 lakh, which had not been reflected in profit & loss account. He, therefore, recasted trading-cum-profit & loss account by including cost of work-in-progress Rs. 1 lakh on credit side and thereby made an addition of the like amount. Besides, assessing officer verified various expenses with regard to actual bills. He noted that the assessee had not maintained any regular bills in respect of purchase of Bajri, Galka, sand, bricks, as payments were made purely on the basis of plain paper only. He, therefore, made a disallowance of Rs. 10,000 on estimate basis. While completing assessment, assessing officer initiated penalty proceedings under 271(1)(c) for furnishing inaccurate particulars of income. The assessee did not file any appeal against order of assessing officer on the point of quantum.
3. During penalty proceedings, the assessee replied that entry of Rs. 85,000 was made in miscellaneous receipt account because subsequently penalty was imposed at Rs. 3,68,980 and this intimation was received on 4-10-1991. This deduction was claimed in a bona fide belief that at least this amount was allowable because it related to earlier year. Only omission on the part of the assessee was that no split up was given due to oversight. It was contended that since the claim was bona fide, no penalty was exigible in regard to this amount. As regards addition of Rs. 1 lac made by assessing officer by recasting trading-cum-profit & loss account, the assessee had submitted that all throughout it had been following the same method of accounting. Even in earlier year, i.e., assessment year 1990-91, the assessee had debited labour charges of Rs. 1,40,756 for the period from 1-3-1990, to 31-3-1990, and further labour charges of Rs. 50,000 was shown as payable on 31-3-1990. Payment to the tune of Rs. 55,160 was received in April 1990, which clearly shows that work in progress as on 31-3-1990 could be more than Rs. 1 lakh. No. such work in progress was estimated for assessment year 1990-91. If method of accounting followed by the assessee was to be disturbed, similar adjustment was required to be made for opening work-in-progress at the beginning of the accounting year, which would offset the addition of Rs. 1 lakh. In net effect, no addition would be called for on this account and, therefore, there was no justification for levy of penalty in respect of addition of Rs. 1 lakh, However, assessing officer was not satisfied with the explanation given by the assessee on the ground that entry of Rs. 85,000 was made with the narration To security deposit, though this amount could have been debited to profit & loss account. But for detailed examination of accounts by assessing officer, this amount would not have been detected. Therefore, the assessee had chose this method to defraud the revenue. Similarly, the assessee had not accounted for work-in-progress only with a view to understate its income. Moreover, no appeal was filed against addition made by assessing officer. Relying on two judgments of the jurisdictional High Court in the cases of Shiv Narain Khanna v. CIT (1977) 107 ITR 542 (P&H) and Vishwakarma Industries v. CIT (1982) 135 ITR 652 (P&H)(FB), assessing officer imposed penalty of Rs. 1,88,100 at the rare of 200 per cent of tax sought to be evaded on the difference between the income returned and income assessed. Of course, assessing officer did not include disallowance of expenses of Rs. 10,000 for levy of penalty under section 271(1)(c).
4. Aggrieved the assessee took the matter in appeal before Commissioner (Appeals). The submissions of the assessee were the same as made before assessing officer. As regards addition of Rs. 1 lakh made on the basis of estimate of work progress, Commissioner (Appeals) held that the explanation of the assessee was fully substantiated by assessment order for earlier assessment year 1990-91. No such work-in-progress was estimated for assessment year 1990-91. Addition of Rs. 1 lakh made by AC, was purely on the basis of following a different method for estimating the profit. In case results for both the years were prepared in a similar manner, there would not have been any material difference in profits disclosed. Learned Commissioner (Appeals), therefore, held that there was no justification in treating this addition as concealed income of the assessee, even though no appeal had been filed against assessment order on this issue. However, as regards addition of Rs. 85,000, Commissioner (Appeals) upheld the finding given by assessing officer that this amount represented concealed income of the assessee. The relevant finding of Commissioner (Appeals) is reproduced as under :
“As regards the other amount of Rs. 85,000, it is observed that a debit entry was made in miscellaneous income account with a narration to security deposit. No such deposit was made and later on this entry was explained being on account of penalty and liability of Rs. 3,68,980, which was still to be determined at that point of time. In case this deduction was being claimed on account of penalty levied in assessment year 1990-91, due explanation should have been given in accounts. No such mention was made and the explanation was furnished only when the entry was detected by assessing officer. Again the liability for executing work of school building by the department was not in existence at the time when debit entry of Rs. 85,000 was made, which can prove the incorrectness of the claim. Thus, the appellant has not been able to substantiate the genuineness of the claim of Rs. 85,000, which was mentioned as security deposit. In view of Explanation to section 271(1)(c) of the Act, any addition made in such circumstances for which bona fide explanation does not exist is deemed to be concealed income. Accordingly, the levy of penalty with reference to this amount of Rs. 85,000 is held to be justified. Further, penalty levied at the rate of 200 per cent of tax sought to be evaded is considered excessive and minimum penalty imposable at the rate of 100 per cent is held to be justified. To conclude, assessing officer is directed to amend the penalty order treating only the amount of Rs. 85,000 as concealed income and restrict the penalty to the extent of 100 per cent of the tax sought to be evaded w.r.t. this amount of Rs. 85,000 only.”
The revenue is aggrieved by the order of Commissioner (Appeals) in reducing the quantum of concealed income to Rs. 85,000 and also reducing the rate of penalty from 200 to 100 per cent of tax sought to be evaded in respect of concealed income of Rs. 85,000. The assessee is aggrieved with the order of Commissioner (Appeals) in sustaining the finding of assessing officer for concealed income of Rs. 85,000.
5. Learned Departmental Representative strongly relied on order of assessing officer for imposing penalty under section 271(1)(c). He submitted that additions made by assessing officer were accepted by the assessee and no appeal filed. He submitted that the assessee had not disclosed the work-in-progress, which had the effect of reducing the income of the assessee by Rs. 1 lakh. Drawing our attention to pp 3-4 of penalty order, he submitted that the manner of debiting the amount of Rs. 85,000 with the narration To security deposit, when in fact it was not towards security deposit, indicated that the intention of the assessee was to conceal its income of Rs. 85,000. Relying on the judgment in the case of Shiv Narain Khanna (supra), which was also relied upon by assessing officer, learned Departmental Representative submitted that it was not necessary that some additional material should always be placed on record for levy of penalty in which assessment was based. The very same material can form the basis for assessment and penalty, depending on facts and circumstances of the case. Further, relying on the judgment in the case of Vishwakarma Industries (supra) learned Departmental Representative submitted that the onus was entirely on the assessee to prove that it had not concealed its income. He submitted that the assessee has not discharged the onus to establish that it had not concealed its income. He further submitted that on facts and circumstances of the case penalty at the rate of 200 per cent was fully justified and Commissioner (Appeals) was not correct in reducing concealed income to Rs. 85,000 and reducing the rate of penalty to 100 per cent in respect of concealed income of Rs. 85,000.
5.1. Learned counsel submitted that the assessee had all along been accounting for its receipts and expenses from contract works on cash basis. This method has been regularly followed. Even for assessment year 1990-91, the assessee had completed work-in-progress exceeding Rs. 1 lakh. It was not shown in trading-cum-profit & loss account because the assessee had been following the same method of accounting. While completing assessment for assessment year 1990-91, assessing officer accepted the method of accounting followed by the assessee and no addition by including work-in-progress was made. He submitted that assessing officer made additions on this account by following a different method of accounting. However, corresponding adjustment was also required to be made in the opening value of work-in-progress, which exceeded an amount of Rs. 1 lakh. If this was taken into account, there would not have been any addition of Rs. 1 lakh on account of inclusion of estimated work-in-progress of Rs. 1 lakh for assessment year 1991-92. He also submitted that Commissioner (Appeals) had rightly observed that there would have been no addition on this account in both the years, i.e. 1990-91 and 1991-92 were considered together. He submitted that addition to value of work-in-progress would not make any difference on quantum of addition, in view of the fact that it would become opening balance in next year. He also submitted that mere fact that the assessee had not filed an appeal against addition made by assessing officer on this issue would not, by itself, justify levy of penalty under section 271(1)(c). For this proposition, he relied on the decision of Rajasthan High Court in the case of CIT v. Ganesh Mal Nanak Chand 1976 CTR (Raj) 193. Further he relied on two judgments of Kerala High Court in the cases of CIT v. Saraf Trading Corporation (1987) 167 ITR 909 (Ker) and CIT v. Pawan Kumar Dalmia (1987) 168 ITR 1 (Ker), where Kerala High Court has held that penalty proceedings are distinct and different from assessment proceedings. Findings in the assessment proceedings are not conclusive but are relevant. The entire material available should be considered afresh by the authorities before imposing penalty under section 271(1)(c).
5.2. As regards debit entry of Rs. 85,000 made to miscellaneous income learned counsel submitted that the contracting authority had intimated the assessee vide letter dated 29-8-1989, at p 49 of paper book, about imposing a penalty of Rs. 1,75,800 for its failure to complete work of school building of which one portion had collapsed. He submitted that for assessment year 1990-91, the assessee had claimed Rs. 75,800 out of amount of Rs. 1,75,800. In fact, the contracting authority intimated vide its letter dated 4-10-1991, i.e. relevant to assessment year 1992-93, that a sum of Rs. 3,68,980 was indeed recoverable from the assessee. Thus, eventually penalty of Rs. 1,75,800 was revised to Rs. 3,68,980. He further submitted that for assessment year 1990-91, the assessee had debited a sum of Rs. 75,800 in its accounts. Assessing officer had allowed Rs. 33,033 only. The basis of making such statement was to the effect that for assessment year 1990-91, assessing officer had rejected the book results and estimated income by applying NPR of 9 per cent. He submitted that in case of contractors generally NPR of 10 per cent was being applied but assessing officer had applied a rate of 9 per cent taking note of the fact that cost of inputs had increased, there was scarce position of labour in Punjab and also penalty of Rs. 75,800 was payable by the assessee which was levied by the contracting authority. He submitted that if we take 1 per cent reduction in NPR of total receipt of Rs. 33,00,330, it would mean that assessing officer had allowed deduction of Rs. 33,033 for assessment year 1990-91, whereas actual amount was Rs. 1,75,800. Therefore, the assessee debited a further sum of Rs. 85,000 to its miscellaneous receipt. He, therefore, submitted that there was no concealment on the part of the assessee and Commissioner (Appeals) was not correct in confirming penalty in respect of income of Rs. 85,000. He, therefore, submitted that order of Commissioner (Appeals) be set aside and entire penalty sustained should be deleted.
6. We have heard both the parties at some length and carefully considered the rival submissions. We have also examined the facts, evidence and material on record and perused orders of the authorities below. We have also referred to relevant pages of paper book to which our attention was drawn. Now the basic issue which we have to decide is whether on the basis of material and evidence on record, it can be said that the assessee has concealed its income for which assessing officer has imposed the penalty. As regards addition of Rs. 1 lakh made by assessing officer on account of estimated value of work-in-progress, we find that the assessee has been regularly following such method of accounting. Even in earlier year the same method was followed, which was accepted by assessing officer. Addition in this regard has been made by assessing officer on account of changing the method of accounting. If the method of accounting was changed at the close of the year, similar treatment was required to be made in regard to opening value of work-in-progress. The facts brought on record clearly show that opening value of work-in-progress exceeded Rs. 1 lakh. If it had been taken into account, there would have been no addition on this account. Mere fact that the assessee had accepted this addition would not, by itself, justify imposition of penalty under section 271(1)(c) because penalty proceedings are distinct and different. For levy of penalty, assessing officer is required to establish that the explanation given by the assessee was not bona fide. In view of these reasons and the reasoning given by Commissioner (Appeals) in her appellate order, we hold that no penalty is leviable in regard to addition of Rs. 1 lakh made by assessing officer on account of estimation of work-in-progress. We confirm the order of Commissioner (Appeals) and dismiss this part of ground of appeal.
6.1. The next item of income in respect of which penalty under section 271(1)(c) has been levied is a sum of Rs. 85,000 debited to miscellaneous income with the narration to security deposit. After careful consideration of material brought on record, we are of the opinion that Commissioner (Appeals) was justified in holding that the explanation submitted by the assessee was not bona fide. Our findings are based on the following reasoning :
(i) Because the assessee had debited a sum of Rs. 85,000 in miscellaneous receipt rather than debiting it to profit & loss account. Entry was also made with the narration to security deposit when in fact no such payment for security deposit was made by the assessee. The assessee appears to have resorted to this procedure in order to camouflage income of Rs. 85,000;
(ii) Because the assessee had not given any narration for making such entry which could easily be detected. It was only after the matter was subjected to detailed scrutiny by assessing officer that the real nature of such debit entry was found;
(iii) Because it is incorrect on the part of the assessee to say that for assessment year 1990-91 only a sum of Rs. 75,800 was claimed. In fact, we find that the contracting authority had intimated the assessee about levy of penalty of Rs. 1,75,800 by a letter dated 29-8-1989, i.e. relevant to assessment year 1990-91. The assessee had adjusted amount of Rs. 1,75,800 as under :
Against security deposit
Rs. 59,755
Amount recoverable from department
Rs. 40,245
Balance debit to account
Rs. 75,800
Thus, the entire penalty of Rs. 1,75,800 was claimed by the assessee. Adjustment against security and amounts recoverable from the contracting party had direct effect on receipt of the assessee. In this manner the assessee had already reduced its receipt by a balance of Rs. 1 lakh (Rs. 59,755+Rs. 40,245) for assessment year 1990-91. Further the assessee had claimed balance amount of Rs. 75,800. By this manner, the entire amount of Rs. 1,75,800 stood claimed by the assessee. Therefore, the contention of the assessee that it had claimed only a sum of Rs. 75,800 for assessment year 1990-91, is not correct. Once the amount had already been claimed and adjusted against receipt/expenses for assessment year 1990-91, there was no scope for making a further debit of Rs. 85,000 for assessment year 1991-92. Obviously, entry in this regard was wrongly made to miscellaneous income with wrong narration in order to avoid detection by assessing officer;
(iv) Because the assessees contention that in fact recovery in this regard amounted to Rs. 3,68,980 is not correct. The letter at p 50 of paper book is dated 4-10-1991, which falls in accounting year relevant to assessment year 1992-93. Therefore, the assessee could not have anticipated such liability in assessment year 1991-92 and debited a sum of Rs. 85,000 for assessment year under reference. There is no logic for debiting only Rs. 85,000 if liability in this regard was Rs. 3,68,980. In any case this event being of latter date could not be of any consequence so far as assessment year under reference is concerned;
(v) Because the contention of learned counsel that while completing assessment for assessment year 1990-91 assessing officer had allowed a sum of Rs 33,003 on account of penalty, is not correct. Assessing officer has only taken into account this fact along with others for applying NPR of 9 per cent instead of 10 per cent generally being applied in similar cases. But this does not mean that he has allowed deduction of Rs. 33,003 on this account; and
(vi) Because the amount could have not been claimed for assessment year under reference either on accrual basis or receipt basis, as it did not relate to assessment year under consideration.
Having regard to these facts and circumstances of the case, we hold that Commissioner (Appeals) was justified in confirming penalty under section 271(1)1(c) in regard to income of Rs. 85,000. The ratio of two judgments relied upon by learned counsel is not applicable to facts of the present case. Further, we find that assessing officer has not made out such a strong case to warrant levy of penalty at the rate of 200 per cent as against minimum rate of 100 per cent. Therefore, we uphold the order of Commissioner (Appeals) on this issue as well. Accordingly, the order of Commissioner (Appeals) is confirmed and both the appeals of the revenue and the assessee fail.
7. In the result, both the cross-appeals are dismissed.