ORDER
A. Kalyanasundharam, Accountant Member
1. The assessee, a registered firm, has filed this appeal aggrieved by the imposition of penalty aggregating to Rs. 2,42,890 under Section 271(l)(c) of the Act.
2. The brief facts of the case are that the assessee, a registered firm, is a dealer in foodgrains. It filed its return for the assessment year under appeal on 21-7-1977 on an income of Rs. 27,710. The assessment initially was concluded at the returned figure. The sales-tax department conducted a raid in the premises of the assessee and seized certain documents, books of account, etc. Based on the information gathered from the sales-tax department notice under Section 148 came to be issued on 21 -8-1980. The assessee filed the return at the assessed figure. However, the reassessment was made on an income of Rs. 4,09,370. The additions that were made to the returned income were profit at 10 per cent on suppressed sales of Rs. 7,89,240, Rs. 78,924 and unexplained cash credit aggregating to Rs. 3,02,727. The assessee challenged the additions before the C.I.T. (Appeals) and the C.I.T. (Appeals) allowed the assessee relief of Rs. 43,924 on the trading addition only. The assessee challenged the order of the C.I.T. (Appeals) both on account of trading addition partly sustained as well as the addition on account of unexplained cash credit, before the Income-tax Appellate Tribunal. During the pendency of the appeal with the Tribunal the Government had announced the Amnesty Scheme. The assessee has in the statement of facts as filed before the C.I.T. (Appeals) had stated that the partners had decided to take shelter of the Amnesty Scheme. The authorised representative of the assessee met the I.T.O., B-Ward, Faridabad and also approached the C.I.T., Rohtak & discussed the matter with them on 26-3-1987. Pursuant to the discussion they had with these two officers the assessee-firm deposited on 28-3-1987 the entire tax payable by the firm as also its partners aggregating to Rs. 1,80,880. This tax so paid by it was based on the re-assessment figure concluded by the Assessing Officer, not considering the relief already allowed by the C.I.T. (Appeals). Based on this the assessee also filed its return under the Amnesty Scheme. Since the assessee had filed the return under the Amnesty Scheme, it chose to withdraw the appeal from the Tribunal. In the statement of the case the assessee also has stated that the Chairman of the CBDT in his Circular No. 451 dated 17-2-1986 had clarified that in a case where an addition was disputed in appeal, the assessee should withdraw that appeal and make declaration before the Administrative Commissioner concerned and also agreed to pay the tax thereon, which was duly complied by the assessee. The Assessing Officer during the course of penalty proceedings was apprised of the above. The Assessing Officer in his order under Section 271()(c) has reproduced the letter that was submitted by the assessee dated 2-4-1987 to the CIT, Haryana, Rohtak in which the assessee had drawn the attention of the meeting in the presence of ADI, DDI and the Commissioner on 26-3-1987, and as per the discussions the required tax was deposited, including on that amount on which the CIT (Appeals) had granted relief and that the appeal pending with the Income-tax Appellate Tribunal was withdrawn and the copies of the withdrawal application along with the receipt of the challans were filed with the Income-tax Department, Faridabad on 30-3-1987 and that the returns under the Amnesty Scheme were also filed on 30-3-1987. In this letter the assessee has stated that it was shocked to learn that criminal proceedings had been instituted against it. The attention of the authorities was drawn to the meeting earlier mentioning therein the sympathetic hearing provided by the authorities, stating that on receipt of the report from the Assessing Officer criminal proceedings would be dropped. The letter of the ADI in reply to the assessee’s letter was also reproduced in which it was stated that the ADI, DDI nor the CIT gave any assurance on 26-3-1987 that no prosecution would be launched, even if the returns were filed under the Amnesty Scheme and taxes paid accordingly. It was further stated that even though the assessee pleaded for dropping of the prosecution, no one had assured that the proceedings shall be dropped. It was further stated that the argument as raised by the assessee was that two of the partners had died, one a lady of 70 years and the 4th person of little over 66 years.
3. The Assessing Officer after reproducing the above rejected the contention of the assessee that the revised return was filed under the Amnesty Scheme on the understanding that no penalty proceedings would be initiated. The Assessing Officer then considered the two additions. On the addition of profit on suppressed sales of Rs. 78,924 he observed that though the CIT (Appeals) had allowed the relief, the assessee having chosen to file higher income disregarding the relief so provided by the CIT (Appeals), that too in the return filed under the Amnesty Scheme, clearly showed that the assessee had concealed the particulars of income. On the addition of unexplained cash credit it contained the amounts standing to the credit of the following 6 persons and the amounts mentioned against them:
Name Credit balance Credit balances
as per cash books as per books of
seized by the sales a/c seized by
tax authorities the IT Deptt.
Rs. Rs. 1. Sh. Naresh Kumar 1,03,000 6,000 2. Sh. Suresh Kumar 1,33.560/92 3,600 3. Sh. Kishan Chand 31,720 Nil 4. Sh. Jag Raj 21,000 18,545-53 5. Sh. Naresh Kumar 8,745 8,745 (Dr.) 6. Sh. Hukum Chand 8,428-62 17,582-33
On this the Assessing Officer observed that the said addition was confirmed and the assessee has chosen to withdraw the appeal from the Tribunal. He thereafter observed that the assessee had revised its income alleged to be under the Voluntary Disclosure Scheme of 1985 and paid the taxes thereon. On this basis he came to the conclusion that the assessee had concealed particulars of income on that account as well. He calculated the tax on the assessed income treating the assessee as an unregistered firm and arrived at the minimum penalty of Rs. 2,42,890. The assessee was aggrieved and approached the CIT (Appeals) bringing to his attention the various facts under which the assessee had filed its revised return under the Amnesty Scheme, the discussion which it had with the CIT, ADI, DDI etc. The attention of the CIT (Appeals) was also drawn to the Circular No. 451 dated 17-2-1986. The assessee also placed reliance on various decisions of the Courts. The assessee also drew specific reference to question Nos. 19 & 28 and the answers as provided by the Board, in the Circular No. 451. The CIT (Appeals) was of the opinion that no assurance was given by the CIT, Rohtak against any immunity and prosecution. The CIT (Appeals) observed that the blame worthiness attached to the assessee with reference to the original return cannot be avoided by filing a fresh return after the concealment was detected by the Assessing Officer. The CIT (Appeals) thereafter observed as follows:
In the instant case, the assessee had filed the revised return, though stated to be under amnesty scheme, after the re-assessment has been completed and addition to the income declared had been made on account of concealed income. The very fact that the Administrative Commissioner did not issue any direction in regard to waiver of penalty imposable under Section 271(l)(c) in itself show that the assessee’s case was not covered under the amnesty scheme. The contents of circular No. 451 dated 17-2-1986 as stated above, show that in all likeliness the assessee was not covered by the amnesty scheme as the concealment had already been detected.
He further observed in sub-paragraphs (ix) and (x) as under :
(ix) The very fact that the assessee filed a revised return declaring the income already assessed at Rs. 4,09,370 in itself shows that the assessee was within itself aware of the fact that the income suppressed belong to it and he has no explanation for having suppressed the said income. Although the assessee has contended that the books on the basis of which the additions have been made to its income in the reassessment proceedings, did not belong to it but this does not seem to be true because it is highly improbable that 6 persons who had credit balances in the books of the assessee also had credit balances in the books seized by the Sales Tax Authorities and contended by the assessee as not belonging to it. For instance, Shri Naresh Kumar had credit balance of Rs. 8,745 in the books seized by the Sales Tax Department and had a debit balance of Rs. 8,745 in the books of the assessee.
(x) I have deliberated on the case laws relied upon by the assessee. None of the case would apply in the case of the assessee as the facts are not similar and identical. As already stated, the revised return filed by the assessee cannot be regarded as a voluntary disclosure since it had been made after the income concealed had already been detected by the department. It cannot be regarded also as a measure to purchase peace with the department. In fact, the assessee had no other option but to take this chance of filing revised return under the amnesty scheme to escape the imposition of penalty.
On the abovementioned facts, the assessee has come up in appeal.
4. Shri C.S. Agarwal appearing for the assessee submitted that the. reading of the order of the Assessing Officer as well the CIT (Appeals) indicates that they have proceeded to impose a penalty for concealment based on the only fact that the assessee had filed a revised return under the Amnesty Scheme. He submitted that the reading of the orders does not in any way indicate that there has been any finding of fact that the various additions which were made, partly allowed relief by the CIT (Appeals), as well as the addition made on account of undisclosed sources, were found to be really the income belonging to the assessee. He submitted that the penalty has been imposed based on the additions that were made but the main criteria for coming to the conclusion that the concealment was effected by the assessee was with reference to the return that was filed under the Amnesty Scheme. Therefore, on this basis alone the very basis of penalty being wrong, the order of penalty is null and void and has to be held as bad in law and has to be quashed. He submitted the following with reference to the order of the Assessing Officer as well as the CIT (Appeals) that the appeal on the re-assessment proceedings was pending with the Tribunal. There was time available under the Amnesty Scheme which got expired on 31 -3-1987. The assessee, therefore, with a view to buy peace approached the CIT as well as the Assessing Officer in view of the clarification issued by the Board in Circular No. 451 dated 17-2-1986. He referred to the abovementioned Board’s Circular, specially with reference to question Nos. 19 & 28. He submitted that query No. 19 was related to the expression before detection by the department and the query was to clarify this particular expression. The answer was that if the Assessing Officer had already found material to show that there has been concealment, that would mean that the department has detected the concealment. If, on the other hand, the Assessing Officer had primafaciebelief, it would mean that there had been no concealment detected. He submitted that question No. 28 was with reference to an addition which was decided in appeal and whether the assessee could make a declaration and agree to pay tax thereon. The answer was that the assessee could do so but it must withdraw the appeal and make the declaration before the Administrative Commissioner. In such a case lenient view was taken though such a declaration cannot be taken as entirely voluntary. He submitted that the search was made by the sales-tax department based on which the reassessment was initiated by the Revenue. He submitted that no doubt he had made additions on account of unexplained cash credit but the assessee had filed sufficient evidence from all those cash creditors who were 8 in number, each holding 15 to 20 acres of agricultural land and they had provided the necessary confirmations/affidavits in this regard. He submitted that the assessee had not moved any petition under Section 273A. At this point he made reference to the order of the Chief Judicial Magistrate. He submitted that the Chief Judicial Magistrate had held that the prosecution is unfounded and without any basis. The day the accused were given an opportunity to file fresh return disclosing everything fairly and fearlessly under the Amnesty Scheme, the department loses its right to proceed with the present prosecution having been launched on the basis of the previous assessment having been made in the light of the return filed by the accused earlier. The accused acting under the Amnesty Scheme withdrew their appeal already pending before the Income-tax AppellateTribunal and when that was so done, they were certainly entitled to seek immunity from prosecution having been launched with respect to the same return having been filed earlier. He submitted that the entire approach had been bona fide with a view to buy peace. He made reference to the Allahabad High Court decision in Jyoti Steels v. CIT[ 1987] 166 ITR 558′. He submitted that the words ‘lenient view’ were considered by Their Lordships with reference to a particular addition which was decided in appeal, subsequently withdrawn by the assessee, and the assessee paying the tax thereon, an application moved to the C.I.T. under Section 273A based on the Board’s Circular, it was held that lenient view with reference to the gesture on the part of the taxpayer might be treated as exonerating circumstance calling for a liberal view in the matter of imposition of penalty. He referred to the order of the Supreme Court in Sir Shadilal Sugar & General Mills Ltd. v. CIT[1987] 168 ITR 7052 to the effect that where the assessee had agreed to the addition to maintain good relations, the Tribunal coming to the conclusion that the admission on the part of assessee did not establish any concealment on his part was held to be valid and the same was upheld by the Supreme Court. He made reference to the Gujarat High Court decision in CIT v. Vinaychand Harilal [1979] 120ITR 752 where it was held that admission before the A. A. C. that the amount belonged to him did not amount to admission that it was income of a particular year and, therefore, was not sufficient for levying the penalty. He also made reference to the Punjab and Haryana High Court decision in Smt. Shanta Devi v.CIT[1988] 171 ITR 532′. It was held that the books of account of the firm cannot be treated as those of the individual member. Cash credit entries in the books of the firm in the names of a partner and the partner not maintaining any accounts, the conclusion was that the same cannot be assessed as income from undisclosed sources of the individual member. Shri Agarwal, the Counsel for the assessee, pointed out that the judgment of the Punjab and Haryana High Court has been cited by him with reference to the fact that the addition on acount of unexplained cash credit was made not based on the fact that there were appearing as credits in the books of account. The real fact is that no such credit was found in the books of account and, therefore, Section 68 could not have been invoked at all. Shri Agarwal submitted that Shri Ganshyam Dass had very categorically stated that the transactions which were found in the documents seized by the Sales Tax authorities were belonging to him and not to the firm, which was rejected by the department and addition made in the hands of the assessee. He also placed reliance on the decision of the Allahabad High Court in Ashok Kumar Rustogi v. CIT. Shri Agarwal submitted that the Revenue had presumed that merely because the assessee had been classified to have business outside its books, it must be that the assessee must have made investment outside the books also. This, he submitted, was with reference to the observation of the Assessing Officer at page 2 of his order with regard to the interpolation on 6-7-1977. He submitted that the principle based on which penalty is to be imposed has not undergone any change. He submitted that the order of the Assessing Officer was explicit because he had proceeded to impose penalty based on the fact that the assessee had filed a revised return under the Amnesty Scheme. He also submitted that on facts he had already pleaded that penalty is not imposable and that Shri Ganshyam Dass did not have any licence at all to deal in foodgrains.
5. Appearing for the Revenue Shri Amitabh Mishra submitted that the answer to query No. 28 was the reference to the bona fide dispute. The books of account were seized. He referred to the order of the C.I.T. (Appeals) with reference to paragraph 2(iv). The books that were seized by the sales-tax department were claimed to be not belonging to the assessee. He made reference to the order of the Assessing Officer with regard to the above credits appearing in the Balance Sheet for the year ending 31-3-1977. Shri Amitabh Mishra submitted that reference made by the authorities to the revised return under the Amnesty Scheme was only to show the quantum but they had based the imposition of penalty on the return that was filed initially. He submitted that there was no presumption that the same was available in the shape of Balance Sheet.
6. We have given our very careful consideration to the rival submissions as well as the various materials that have been placed on our record. We have no doubt in our minds that there is considerable merit in the argument advanced by Shri C.S. Agarwal. The reading of the order of the Assessing Officer as well as the C.I.T. (Appeals) is explicitly clear that they have proceeded to come to the conclusion that the assessee had concealed particulars of income only because the assessee chose to file a revised return under the Amnesty Scheme. The reading of the order of the Assessing Officer does not in any way indicate that in regard to the trading addition that was made, partly relief allowed by the C.I.T. (Appeals) and also with reference to the addition made of the cash creditors, there was any material available on record indicating that these were really the incomes of the assessee which the assessee had concealed particulars of income. The assessee on its part had requested for cancellation of the penalty basing on the Board’s Circular No. 451 issued on 17-2-1986. The Board’s Circular No. 451 by which the Amnesty Scheme was extended under the Income-tax Act was also effective till 31-3-1987. Since the Amnesty Scheme was floated by the department of revenue with a view to collect more revenue, it issued various Circulars from time to time, from the inception of the issuance of the Amnesty Scheme. In Circular No. 441 one question that was raised was whether an old assessee who has been regularly filing returns, whether would be eligible for the benefit of the Circulars if he chose to file a return of income which has escaped assessment for an earlier assessment year, whether the assessment is completed or pending. The answer was that the Circulars apply to old assessee as well. Question No. 4 was that the Income-tax Circulars are not very clear whether the immunity from penalty and prosecution is guaranteed to the assessee unlike the Circular in respect of Wealth-tax which appears to be clear on this point. The answer to this question was that the immunity from penalty and prosecution applies in all cases whether of Income-tax or of Wealth-tax where the assessee admits the truth and pays tax properly. Question No. 5 was that has any time limit within which the Commissioner would pass the order of waiver of penalty, interest etc. been fixed. The answer was, since the Income-tax Officers have been instructed not to initiate penalty proceedings and be liberal in waiver of interest, the question of waiver by the Commissioner does not arise. The question No. 6 was, will the Amnesty Scheme apply in cases where cash credits which have been accepted as genuine by the Income-tax Officer, while making the assessment originally, are now disclosed as income. The answer was ‘yes’. The question No. 19 was with reference to the term “before detection by the department”. They have clarified that prima facie belief does not tantamount to detection but it is only the conclusion arrived at based on the materials found, it would mean that there was detection by the department. Question No. 28 was with reference to addition that is contested in appeal, whether the assessee could still make a declaration under the Scheme and pay the tax thereon and if so. What would happen to penalty, interest etc. The answer was that the assessee could do so by withdrawing the appeal and by making the declaration before the Administrative Commissioner, in such cases lenient view will be taken. In the instant case as the facts emerge, the additions that were made were on account of trading, which one of the partners claimed to be his personal income and in regard to cash credits which were not appearing in the books of the firm. The assessee on its part had obtained relief partially from the C.I.T. and was agitating the balance before the Tribunal. Therefore, to this extent concealment could not be said to have been established and also it could not be said that there was detection by the department except that the department was of the opinion that the suppressed profit belonged to the firm. He submitted that the term ‘detection’ has been clarified to mean ‘actual detection’ and the belief does not tantamount to detection. In regard to the addition on account of cash creditors, these have not been found credited in any of the books of account. They are prima facie, therefore, outside the purview of Section 68. However, the assessee had filed affidavits from various persons including providing of particulars of their address as well as their credibility to have advanced moneys by establishing that they own agricultural land which is sufficiently large enough for providing money between Rs. 13,500 and Rs. 40,000. It has not been established that these creditors do not exist and that all the confirmations as well affidavits provided by the assessee are false. In other words, it has not been established that these are, in fact, concealed income of the assessee. Therefore, even on merits penalty could not have been levied at all. The question that came up for consideration was whether the assessee could still file a revised return while it was in appeal. This was clarified in the Circular that it could do so provided it withdraws the appeal. Therefore, there being no bar for the assessee to resort to the Amnesty Scheme, the assessee could still file the revised return. The clarification issued also provides that the assessee could still file a return in respect of an assessment which had already been completed and which is not pending. We may observe here that merely because the assessee has chosen to file a revised return under the Amnesty Scheme it does not automatically go to conclude that the addition that was made on the basis of the return originally filed which has now been offered under the Amnesty Scheme, is concealed income of the assessee. There is nothing like automatic presumption. Even if there is automatic presumption, it was with reference to this aspect the answers were sought from the Board in regard to immunity from penalty, waiver from interest etc. The Circular No. 432 which was referred to in Circular No. 441 dated 15-11-1985, was issued with reference to the returns filed under the Wealth-tax Act. The clarification issued was to the effect that taxpayers filing wealth-tax returns need not have any apprehension that they will be subject to penalty or prosecution so long as they come forward suo motu before detection by the department. They will have to pay wealth tax but will not be subject to any penalty or prosecution. It was with reference to this particular clarification that question No. 3 in Circular No. 441 was raised. Also question No. 5 was raised which was with reference to the passing of the order by the Commissioner to waive the penalty and interest, whether there was any fixation of time limit. The answer was that the Income-tax Officers have been instructed not to initiate penalty proceedings. In the instant case the claim of the Revenue was that they have detected the concealment and that is why they are proceeding to hold that the revised return so filed by the assessee could not be said to have been filed prior to the detection and, therefore, in spite of the Circular under the Amnesty Scheme penalty was still imposable. As observed earlier, the Assessing Officer held the assessee as having concealed the income based on the fact that there were search proceedings and information from the sales-tax department, they have concluded that certain incomes had escaped assessment. They had also concluded that since they made addition, which was confirmed in the first appeal, but later on the appeal that was filed before the Tribunal having been withdrawn followed by the assessee filing the return under the Amnesty Scheme, such a filing of the return was consequent to the Revenue having detected the concealment of income. The term ‘detect’ has been defined to mean to find out, to discover being or doing something, to discover the presence, existence or fact of something. In the instant case the addition to the trading account was partially deleted by the CIT (Appeals). Cash creditors were confirmed, which the assessee had appealed to the Tribunal. These were proceedings in the quantum. In the penalty proceedings, was any effort made to establish concealment? The answer to this question is clearly ‘no’. There are several judicial pronouncements which have clearly held that the materials that have been collected during the bourse of assessment and the assessment order itself could no doubt be prima facie evidence but would not be sufficient to establish that there was concealment. It is in this connection that we have referred to the observations made by the Assessing Officer of the revised return filed under the Amnesty Scheme. The Amnesty Scheme return no doubt was filed after having discussion with the concerned authorities. The return under the Amnesty Scheme also contained an income which was partly deleted by the CIT (Appeals), in other words, the income that was returned under the Amnesty Scheme was larger than the income that remained after the order of the CIT (Appeals). The assessee had made reference to the decision of the Supreme Court in Sir Shadi Lal Sugar & General Mills Ltd.’s case (supra) where the assessee had surrendered certain income and in the penalty proceedings the Tribunal had found that such surrender could not establish that it was concealed income of the assessee and the Supreme Court held that the Tribunal had based its conclusion that there was no concealment on the part of the assessee, based on evidence. In the instant case, in the absence of the revised return filed under the Amnesty Scheme, the assessing authorities have necessarily to indicate the exercise of establishing that the incomes that have been added are really incomes of the assessee. This exercise has not been done at all. Therefore, the order of the Assessing Officer is bad and the penalty order is quashed.
7. In the result, the assessee’s appeal succeeds and is allowed.