TMI Blog1984 (1) TMI 10X X X X Extracts X X X X X X X X Extracts X X X X ..... to the assessment year 1962-63 made at the instance of the Revenue, the following question of law has been referred for the opinion of the court : " Whether, on the facts and in the circumstances of the case, the Tribunal was legally correct in cancelling the penalty of Rs. 3,41,000 levied under section 271(1)(c) of the Income-tax Act, 1961 The assessee is a public limited company doing business in the manufacture of cloth, chemicals and sugar, etc. The total income of the assessee for the assessment year 1960-61 was determined at Rs. 1,71,15,426 against its returned income of Rs. 1,52,57,976. The Income-tax Officer while examining the balance-sheet and books of account as maintained by the assessee found that the company had maintained in the books an account in the name of Central Marketing Organisation where large sums were debited as expenses. No separate profit and loss account was prepared for this item, nor was a separate balancesheet prepared. At the end of the year, the total net expenses debited to this account were transferred to the different units on the proportionate sales of the products of the units sold to this organisation. There were also a number of deb ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ity and facilities. The unit accounts officer responsible for the compilation of the accounts of the different units probably found that the expenditure relating to the cost of furniture was of a highly temporary nature and which had to be dismantled to refit the two shops and so the amount on the making of that furniture was debited to the account of cloth business. It was further submitted that the company's accounts were duly audited by M/s. A.F. Ferguson Co. and they also never pointed out any error in the said expenditure being so debited. Further submissions were made that the income-tax matters of the assessee are attended to by a separate department by the head office and while every possible care is taken to scrutinise the account, some items escaped attention. It was submitted that the assessee bona fide believed the expenditure in question to be of revenue nature and there was no mistake on its part in debiting the same to the account of the cloth business although it had been held up to the Tribunal as that of capital nature. Regarding the item of Rs. 33,000 as expenditure on acquisition of Park Street and College Street depots, it was submitted that they were not add ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s the second item of Rs. 22,028, as reduced to Rs. 8,929 on appeal by the Appellate Assistant Commissioner, the relevant facts are that the managing agent's remuneration payable by the company was calculated with reference to the net profits of the different units of the assessee. In the relevant previous year, the sugar mill had shown a profit, while the sugarcane farm had shown loss. The total commission that was debited to this unit was to be on the basis of the net profit of the sugar mill. The company, however, credited a sum of Rs. 22,028 to the profit and loss account of the farm and made an excess debit to the sugar mill account of an equal amount. The explanation of the assessee regarding this treatment being given was as follows: " ......... the allocation was made in accordance with the practice followed by the company for the past so many years and since the net profit and loss with regard to the farm account was separately worked out, the adjustment was necessary for showing the results of the working of the sugar mill and the farm separately. In the past when there was profit in the farm, the proportionate managing agent's remuneration was debited in the farm accou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eing with the Inspecting Assistant Commissioner that penalty was exigible. With regard to the other items of disallowances, namely, that of Rs. 18,039 towards cost of fans and of Rs. 33,000 as expenditure on acquisition of Park Street and College Street depots at Calcutta, regarding the inclusion of Rs. 18,039 representing the cost of electric fans, the Tribunal observed that according to law, the cost of electric fans had necessarily to be treated as capital cost and the fact that this had made the accounting a very difficult problem for the assessee which was an organisation with far flung depots, did not in any way change the nature of the expenditure or made the responsibility of the company any the less exacting. It was also observed that the fact that the auditors of the assessee had passed the accounts without questioning the credit given by the company to the said items did not exonerate the company from its responsibility. Lastly, it was observed that so far as the expenditure on fans was concerned, the assessee's failure to add the amount back to the total income resulted in concealment of income on its part or in deliberately furnishing inaccurate particulars of income a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ence that the assessee had furnished inaccurate particulars in regard to that item. Penalty on account of concealment can be imposed only if there is conscious and deliberate concealment on the part of the assessee. The Supreme Court in the case Hindustan Steel Ltd. v. State of Orissa [1972] 83 ITR 26 observed as below (at p. 29): " An order imposing penalty for failure to carry out a statutory obligation is the result of a quasi-criminal proceeding, and penalty will not ordinarily be imposed unless the party obliged, either acted deliberately in defiance of law or was guilty of conduct contumacious or dishonest, or acted in conscious disregard of its obligation. Penalty will not also be imposed merely because it is lawful to do so. Whether penalty should be imposed for failure to perform a statutory obligation is a matter of discretion of the authority to be exercised judicially and on a consideration of all the relevant circumstances." In that case, the question for consideration before the Supreme Court was that even if the appellant-assessee, namely, Hindustan Steel Ltd. was found to be a dealer as per the Orissa Sales Tax Act, whether, on the facts and circumstances of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lso on electric fans provided therein during the past years as revenue expenditure and the same was being allowed as such. None of the submissions of the assessee were shown by the departmental authorities to be factually incorrect. In fact, the Tribunal accepted the plea of the assessee that so far as the expenditure of Rs. 1,56,699 incurred towards providing of furniture was concerned, the assessee could be entertaining a bona fide belief that the same was revenue expenditure. The other facts to be taken note of are that the fans were provided in the retail shops which did not belong to the assessee and were taken by the assessee on rent. This is not a case in which the assessee had not disclosed the expenditure in question at all, but is a case in which the assessee had wrongly classified the expenditure, i.e., having shown and treated the same as revenue expenditure and of course without inviting the specific attention of the Income-tax Officer to that question. It is also to be noted that the assessee would have got rebate to the extent of 25% of the cost of fans if the expenditure was to be treated as capital expenditure. Thus, on a totality of the facts and circumstances of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The approach of the Tribunal in considering the question of exigibility of penalty with regard to these items as also the conclusion arrived at by the Tribunal are proper and reasonable. The conclusion as arrived at by the Tribunal could not be said to be erroneous in law. As regards the expenditure of Rs. 8,796, the Tribunal accepted the explanation of the assessee as mentioned by us above to be reasonable. It was observed by the Tribunal that it could not be said that the assessee was guilty of suppression of material particulars of its income in the income-tax proceedings in so far as it made adjustment of the remuneration of managing agents from the farm loss and that in view of the facts and circumstances relating to this adjustment in conformity with the assessee's practice in the past, they were unable to share the view of the Inspecting Assistant Commissioner that there was any obligation cast on the assessee to reverse the entries of adjustment while submitting income-tax returns and/or that their failure to do so was a wilful act on the assessee's part. We find no error of law in the approach or the conclusion of the Tribunal. We accordingly answer the question referre ..... X X X X Extracts X X X X X X X X Extracts X X X X
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