ORDER
R.N. Singhal, Accountant Member
1. Assessee’s this appeal is directed against the levy of penalty under Section 271(1)(c) for concealment of income. The Assessing Officer had quantified it with reference to the concealed income of Rs. 14,03,311 and levied the minimum penalty leviable under the Act amounting to Rs. 8,33,566. The CIT (Appeals) directed that the penalty should be quantified with reference to a smaller figure of concealed income. He noted that Rs. 14,03,311 was the gross income but the penalty should be quantified with reference to the net income. He had noted that expenses of Rs. 7,00,110 related to the said gross income of Rs. 14,03,311 and consequently he noted that the penalty was leviable with reference to the net income of Rs. 7,03,201 (Rs. 14,03,311 minus Rs. 7,00,110). The assessee is aggrieved even by this order. It is pointed out that as a result of the order of the CIT (A) the penalty amount is reduced to Rs. 5,54,570 but according to the assessee it was not a fit case for levy of penalty under Section 271(1)(c) at all.
2. Basic facts may be noted first. The assessee-company is engaged in the business of transportation of very heavy machinery, equipment and material and it undertakes jobs of eminent companies and undertakings like BHEL, GEB and NTPC, etc. The previous year relevant to this appeal is financial year 1989-90. Return of income was filed on 1 -2-1991 showing income of Rs. 12,67,206. The Assessing Officer took up the processing of the assessment and noted that “the assessee had not shown anything in its profit and loss account by way of work-in-progress or work uncertified”. He called upon the assessee to explain why the same should not be treated as income. The assessee thereupon “gave the details of work in progress and filed revised return on 20-11-1991” offering “for taxation a sum of Rs. 13,60,883 being income receivable”. In the revised return filed on 20-11-1991 the income shown was Rs. 13,30,110 and by way of reconciliation the assessee claimed two deductions against the said sum of income receivable Rs. 13,60,883. One was of expenses amounting to Rs. 7,00,110 which were not provided but were actually incurred and another was of Rs. 5,60,000 which was shown as income in original return but it was simply an advance received from NTPC. Ultimately assessment was made on a total income of Rs. 13,44,439; obviously with minor adjustments (against income shown in the revised return at Rs. 13,30,110). The Assessing Officer initiated penalty proceedings under Section 271(1)(c) and ultimately levied penalty with reference to the income receivable (Rs. 14,03,311) as indicated above. The CIT (A) in appeal had held that expenses relatable to the income receivable should be deducted for arriving at the concealed income and penalty should be quantified accordingly.
3. Before proceeding to narrate and consider the submissions, it would be beneficial to take note of variations in the figures of different items, as follows :
(i) For gross income receivable; as already noted assessment order (vide para 4) dated 29-4-1992 mentioned the figure of Rs. 13,60,883. The penalty order dated 28-9-1992 took the corresponding figure at Rs. 14,03,311 and we were told that this was the correct figure.
(ii) For expenses relatable to that income the assessment order mentioned the figure of Rs. 7,00,110 (vide para 4) but we are now told that that figure really is Rs. 4,88,174. It is pointed out that the latter figure is adopted by the Assessing Officer in his order dated 31-5-1993 giving effect to the order of the CIT(A) for reduction of amount of penalty under Section 271(1)(c).
4. The learned advocate for the assessee started by giving the background of the case and submitted that this was the fourth year of assessee’s business and in all the preceding three years this very system of accounting had been adopted by the assessee and accepted by the Department. Drawing our specific attention to ground No. 4 taken before the Tribunal he submitted that five factors enumerated therein had not been properly appreciated by the CIT (A). Then drawing our attention to the statement of facts furnished before the CIT(A) he submitted that the income in respect of works done but not certified by the concerned parties was actually not even income accrued and at any rate this was the practice followed all along in the past and it was accepted by the department. Then he drew our specific attention to the grounds of appeal taken before the CIT(A) and highlighted the aspect that apart from the other factors mentioned above it was also pointed out to the CIT(A) that a refund of Rs. 2,04,090 of retention money was credited as income. Then he proceeded to say that revised return was filed by the assessee by accepting the hint of the Assessing Officer because overall tax effect to the assessee was negligible. He reiterated that now in penalty proceedings he was entitled to claim that the value of the work which remained uncertified by the same authorities cannot be regarded as income accrued even on mercantile system of accounting. He submitted that the assessee had cooperated with the department by not only filing the revised return but by accepting the assessment. He emphasised that department had not proved that there was any concealment or furnishing of inaccurate particulars. According to him, it was only a bona fide difference of opinion and at any rate there were many other items which had been wrongly included in the total income. He submitted that in the account books for the subsequent year, the entries to the corresponding sum of Rs. 14,03,311 had been reversed because originally adjustments for deduction of income-tax, etc., credit for Rs. 13,60,884 had been taken.
5. Drawing our attention to the fact of all the entries passed for mistakes and omissions he submitted that profit as per original profit and loss account was only Rs. 14,77,753 while profit as per the revised profit and loss account was Rs. 15,40,550. He emphasised that the difference was obviously about Rs. 63,000 and no motive can be attributed to this assessee for under-stating income by that paltry sum when the assessment was made on a total income of Rs. 13,44,440. He drew our attention also to the original and revised profit and loss accounts kept on pages 44 and 52 respectively of the assessee’s paper book.
6. On law points he has submitted a synopsis by mentioning under five different heads in all 12 High Court and Supreme Court decisions and one Tribunal decision. The synopsis of the same is as follows :
I. Uncertified, receipts not Taxable
1. Smt Ramalaxmi Jivraj v. CWT [1982] 138 ITR 731 9 Taxman 205 (Guj.)
2. CIT v. Motor Credit Co. (P.) Ltd. [1981] 127 ITR 572 (Mad.)
3. CIT v. Western India Engg. Co. [1971] 81 ITR 712 (Guj.)
4. CIT v. British Paints India Ltd. [1991] 188 ITR 44 (SC)
4(a) Tribunal’s decision in the case of Associated Engineers [IT Appeal Nos. 2029 to 2031 (And.) of 1988].
II. ‘Agreed addition’ cannot lead to a ‘Concealment’ by itself.
5. CIT v. Punjab Tyres [1986] 162 ITR 517 (MP)
6. CIT v. Vinaychand Harilal [1979] 120 ITR 752 (Guj.)
7. Sir Shadilal Sugar & General Mills Ltd. v. CIT [1987] 168 ITR 705 33 Taxman 460A (SC).
III. ‘Incomes’ in question not shown under bona fide belief.
8. Hindustan Steel Ltd. v. State of Orissa [1972] 83 ITR 26 (SC)
9. Cement Marketing Co. of India Ltd. v. Asstt. CST [1980] 124 ITR 15, 18 4 Taxman 44(SC)
IV ‘Revised return’ to be considered alongwith conduct and all circumstances:
10. CITv. K. Mahim [1984] 149 ITR 737 [1983] 15 Taxman 557(Ker.)
11. D.V. Patel & Co. v. CIT [1975] 100 ITR 524 (Guj.) V. Effect of deletion of word ‘ deliberately’ from 1-4-1964.
12. Bakshi Mohd. Yusuf and Bakshi Mohd. Shaft v. CJT [1974] 93 ITR 38 (J & K).
Explaining the position, he distinguished the Allahabad High Court decision in the case of Rukmani Bahu v. Addl. CIT [1979] 116 ITR 468 which has been relied upon by the CIT(A). He submitted that the said decision of the Allahabad High Court was based on the 80-20 Explanation below Section 271(1) which stood omitted. He further submitted that though the CIT(A) had relied inter alia on the Patna High Court Full Bench decision in the case of CIT v. Nathulal Agarwala & Sons [1985] 153 ITR 292 22 Taxman 199 and that decision had been approved by the Hon’ble Supreme Court in the case of CIT v. Mussadi lal Ram Bharose [1987] 165 ITR 14 30 Taxman 546H, the ratio of those decisions was not applicable to this case because those decisions were rendered on the footing that the returned income of the assessee was less than 80% of the total income assessed and in terms of Explanation below Section 271(1) which existed at that time stood omitted and was not applicable for assessment year 1990-91.
7. The learned Departmental Representative submitted that the contentions raised by the learned advocate have been duly considered by the CIT(A). He submitted that it did not matter that in preceding three years department had not detected this omission and once it is detected in this year the assessee becomes liable to penalty. He relied on the Tribunal’s Bombay Bench decision in the case of B. Tex Corpn. v. 1TO [1993] 46 ITD 61 wherein the loans credited were surrendered and they were treated as concealed income and the onus was still on the assessee to prove that they were genuine loans. He also relied on the Rajasthan High Court decision in the case of CIT v. Dr. A.K. Sharma [1993] 204 ITR 62. He submitted further that the CIT(A) had distinguished the instant case from the decisions which were cited before him on behalf of the assessee, viz., CIT v. Anwar Ali [1970] 76 ITR 696(SC), CIT v. Khoday Eswarsa & Sons [1972] 83 ITR 369 (SC) and Sir Shadilal Sugar & General Mills Ltd’s case (supra) and had relied on the Allahabad High Court in the case of Rukmani Bahu [supra) and Patna High Court Full Bench decision in Nathulal Agarwala & Sons’ case (supra). He also cited the following three other decisions :
1. CIT v. Mansa Ram & Sons [1977] 106 ITR 307 (All.)
2. CITv. Prabhat Bakery [1979] 118 ITR 35 (Mad.)
3. CITv. T.K. Manicka Gounder [1989] 178 ITR 274 43 Taxman 208(Mad.).
8. In reply, the learned advocate for the assessee submitted that though guidance may be had from the decided cases the exigibility of penalty under Section 271(1)(c) in the ultimate analysis depends on facts and circumstances of each case. He further added that the totality of circumstances should be taken into account for judging whether there was any concealment or furnishing of inaccurate particulars of income.
9. We have very carefully considered the rival submissions and the material on record. It is almost axiomatic that exigibility of penalty under Section 271 (1)(c) would depend upon facts and circumstances of each case and totality of circumstances has to be taken into account. In this case, first and foremost thing is that even as per the original return income shown was 12.67 lakh. As per the revised return income shown was Rs. 13.30 lakhs, i.e., higher by about Rs. 63,000 as compared to the original return. Income assessed as per the assessment order was Rs. 13.44 lakhs, i.e., only about Rs. 14,000 higher than the income shown in the revised return and only about Rs. 77,000 higher than the income as per the original return. Obviously, these differences are very small as compared to the amounts of incomes returned and assessed. More importantly penalty order seeks to quantify penalty with reference to concealment of Rs. 14,03,311 and CIT(A) seeks to quantify penalty with reference to Rs. 7,03,201. These amounts with reference to which penalty is quantified by the Assessing Officer and the CIT(A) are obviously much more (i.e., about 10 to 20 times more) than the amounts of difference in incomes returned and assessed. The reason is not far to seek. The assessee had omitted to include income in the original return but had committed countervailing errors of including other items which were not really taxable. That is how the difference of income receivable taken at about Rs. 14 lakhs (Rs. 14,03,311) got really reduced, and ultimately income finally assessed was Rs. 13.44 lakhs against originally returned income shown at Rs. 12.67 lakhs. The point is that actually there were many omissions and mistakes in the originally filed return of income. Because of some of them income returned looked low but because of others it was higher than what it should correctly have been. There was no intention to conceal income or furnish inaccurate particulars thereof. This is the position even if we presume that failure to include the value of uncertified works was really an error.
10. Assessee’s counsel is right in mentioning that on the facts and in the circumstances of the case, assessee could have reasonably believed that the value of uncertified works was not includible in the income of this year. He is right in mentioning that in preceding three years, i.e., right from the inception of the company, this position had been adopted by the assessee and accepted by the department.
11. Our inference of unintended mistakes in figures is further borne out from the variations in some figures noted in para 3 above. The point is that for some of the items the figures had to be revised and re-revised on cross verification of figures.
12. There is force in assessee’s argument that it is the case of a company and in reality the item for which penalty is levied involves merely transfer of net income from this year to next year. Having accepted the system followed by the assessee in preceding three years and having allowed that position to prevail to this date the department cannot allege that it was a case of adoption of systematic device for postponement of a part of tax liability. At any rate this point is neither raised nor substantiated on behalf of the department. The point is that for a corporate assessee net tax effect over the years is Nil or negligible under such circumstances. The assessee followed a particular system in first four years. It was accepted in first three years. In the fourth year (i.e., the year under appeal) it was questioned. Assessee accepted the position gracefully and passed accounting entries accordingly meaning thereby that it accepted the position. No charge of penalty for concealment can be put on assessee’s doors.
13. For all these reasons, we would hold that it is not a fit case for levy of penalty under Section 271(1)(c) at all. Penalty order is cancelled.
14. Assessee’s appeal is allowed.