TMI Blog2002 (7) TMI 215X X X X Extracts X X X X X X X X Extracts X X X X ..... t notice on 11th Dec., 1992, the AO had annexed the annexures raising therein routine queries. He drew our attention to the said notice dt. 11th Dec., 1992, along with its annexures placed at pp. 21 to 23 of the paper book. Vide query No. 2 of said annexure, the AO inter alia, required the assessee to furnish detailed inventory of opening and closing stock. Since this was the first year of assessee's business, the query relating to inventory of opening stock clearly shows that various requirements made in the annexure to notice under s. 142(1) were made without application of mind and such queries were raised in a routine manner. The assessee on the very first date of effective hearing viz. 15th March, 1993, submitted a letter in which it was voluntarily pointed out that the closing stock shown at Rs. 13,13,146.29 suffered from an inadvertent mistake as one sheet of stock inventory in respect of 15,260 mtrs of cloth valued at Rs. 5,34,452 was inadvertently omitted. The assessee accordingly furnished a revised trading account in which the value of closing stock was enhanced by Rs. 5,34,452. The amount of net profit was also accordingly increased. The learned counsel contended that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... accountant. An affidavit of the accountant submitted before the CIT(A) admitting the mistake of not including one sheet of inventory on his part does not in any manner help the assessee as it is against the normal human probability and is also clearly contrary to the certificate given to the auditors that the stock has been valued and certified by partners. The learned senior Departmental Representative pointed out that the GP rate as per the original return comes to 6.7 per cent on total turnover of Rs. 99,81,247. The net profit shown as per P L a/c was Rs. 1,50,652. The GP rate as per revised trading account after including the stock difference of Rs. 5,34,452 comes to 12 per cent and net profit has been enhanced to Rs. 6,85,104. The learned senior Departmental Representative submitted that it is highly improbable that the owners would not be able to notice such a mistake of understating net profit by an amount of more than Rs. 5 lacs at the time of finalisation of books of account and its audit. The original return in which the closing stock was understated by Rs. 5,34,452 was clearly a guilty action on the part of the partners to conceal the firm's income by more than Rs. 5 la ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e in the value of closing stock shown in the original return of income. It is also undisputed fact that the first effective hearing took place on 15th March 1993. This factual submission made by the assessee's counsel has not been disputed by the learned senior Departmental Representative nor by the learned CIT(A) in the appellate order passed by him. The assessee on the first effective hearing fixed on 15th March, 1993, submitted a letter dt. 15th March, 1993, to the Asstt. CIT in which it was clearly stated that the closing stock was inadvertently shown at a lower figure as one inventory sheet in respect of 15,260 mtrs of cloth valued at Rs. 5,34,452 was inadvertently omitted while arriving at the figure of closing stock as on 31st March, 1992. The assessee also submitted the revised trading and P L a/c along with the said letter in which the value of closing stock and net profit was enhanced by Rs. 5,34,452. According to the assessee, this inadvertent omission had occurred on account of bona fide mistake on the part of the accountant. The learned senior Departmental Representative submitted that this explanation is wrong as the tax audit report clearly reveals that the closing s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d that the impounding of books for the purpose of scrutiny of entries itself was a factor which had not been considered by the Tribunal in its proper perspective. The revised return was filed as an attempt to plug the loopholes after detection and it was not intended to bring on record the materials which were discovered subsequent to the filing of the return. The inevitable conclusions was that the penalty was imposable and the Tribunal was not justified in cancelling it. In this case the stand of the Revenue was that the IT Inspector has submitted his report on 14th Oct., 1987, which would mean that he had visited the banks on or before the date of making enquiries about the assessee and the assessee had got wind of the same, as a result whereof he had rushed with the second return of income on 16th Oct., 1987, offering additional income of Rs. 3,24,650. On these facts, the Hon'ble High Court held that the revised return was filed after detection and, therefore, penalty was imposable. Addl. CIT vs. Joginder Singh It was held in the aforesaid judgment that the basic obligation of an assessee is to file a proper and correct return of income for a particular assessment year an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ees carrying on business in the name and style of SSS and SS. Assessments of both the assessees had already been completed for asst. yr. 1986-87. Some time thereafter, search and seizure proceedings in terms of s. 132 of the Act were conducted on the common business premises of the two assessees on 14th/15th Oct., 1987. During the course of search, certain goods and papers containing details of sales as well as purchases not otherwise accounted for in the books maintained by the assessee were discovered. R, one of the partners, made a clean breast of the modus operandi adopted by the assessees in concealing the true turnover for the relevant period. He admitted that only a part of the sales and purchases were recorded in the account books of the concerns during the assessment years in question. Based on the incriminating documents containing the details of the sales and purchases, the assessees were asked to explain the position with respect to earlier years. The assessees filed revised returns for the years under consideration on the basis whereof reassessment proceedings were completed accepting the figures disclosed in such returns. On these facts it was held that the revised re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the bona fide belief that it was not liable to be included in the taxable turnover, the assessee could not be said to have filed a "false" return and penalty could not be imposed on the assessee under s. 43 of the MP General ST Act and under s. 9(2) of the Central ST Act. The question involved meaning of expression "sale price" as defined in MP General ST Act and Central ST Act. The question relating to includibility of freight charges in the sale price was a highly debatable question. On such facts the Hon'ble Supreme Court cancelled the penalty levied under the ST Act. The facts of the aforesaid judgment are clearly distinguishable. G.C. Agarwal vs. CIT The Hon'ble Supreme Court in the aforesaid case has affirmed the decision of Gauhati High Court in the case of F.C. Agarwal vs. CIT 1976 CTR (Gau) 82 : (1976) 102 ITR 408 (Gau), it will, therefore, be necessary to refer to the said judgment of Gauhati High Court where the relevant facts have been given. The relevant extracts from the headnote of the said judgment of Gauhati High Court are reproduced below: "As a proposition of law it may be correct that where a revised return as contemplated under s. 139(5) is submitt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. 1,01,917. Thereafter, on 11th March, 1974, the assessee filed a revised return declaring a total income of Rs. 1,58,917, the difference being an identical item of Rs. 57,000 which was debited twice firstly by debiting the value of 14,250 tonnes of salt stated to have been washed away due to rain and again by showing less closing stock on account of reduction at 10 per cent (14,250 tonnes) on account of rain wash. The ITO had written a letter dt. 4th Feb., 1974, enquiring about the basis on which 10 per cent adjustment for rain wash had been claimed. The assessee had made similar mistakes in the asst. yrs. 1970-71 and 1972-73 but no penalty was levied for those years. However, for the asst. yr. 1971-72, in respect of the item of Rs. 57,000, the IAC levied penalty relying upon the letter dt. 4th Feb., 1974, written by the ITO to the assessee, and the Tribunal, agreeing with the IAC, confirmed the penalty. On a reference: Held, that the ITO had initiated proceedings under s. 271(1)(c) on the ground that the assessee was guilty of furnishing inaccurate particulars of income and not on the ground that there was concealment of income. By the letter dt. 4th Feb., 1974, the ITO had c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... detected, it was obligatory on the tax authorities to look into the seized books and documents, verify the entries therein with the income already disclosed by the assessee in his original returns and thereafter if the tax authorities had found that certain income, although found to be reflected in the seized books and records, had not been disclosed by the assessee in the original returns, it could have been said that the concealment had already been detected by the Department prior to the furnishing of revised returns. This is not the case here." K.S.N. Murthy vs. Chairman, CBDT: This judgment was cited by the learned counsel to explain as to what is the true meaning of the expression "voluntary return" in the context of s. 273A. The learned counsel submitted that the revised return in the present case was filed voluntarily without any detection by the Department. National Textiles vs. CIT The relevant extract from the headnote from this judgment is reproduced below: "In order to justify the levy of penalty, two factors must co-exist, (i) there must be some material or circumstances leading to the reasonable conclusion that the amount does represent the assessee's ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... edings failed to produce the accountant but the Department also in penalty proceedings made no effect to summon him. Therefore, it was a case where there was no circumstances to lead to a reasonable and positive inference that the explanation that cash credits were arranged as temporary loans was false. The facts and circumstance were equally consistent with the hypothesis that they could have been sundry loans in small amounts obtained from different parties. Therefore, the imposition of penalty was not justified." A useful reference may be made to the judgment of the Hon'ble Gujarat High Court in the case of CIT vs. Manilal Tarachand (2001) 170 CTR (Guj) 466 : (2002) 254 ITR 630 (Guj). The Hon'ble High Court held that the dispute in assessment between the assessee and the Department was regarding the year in which the compensation received by the assessee was taxable. No penalty under s. 271(1)(c) was leviable on the dispute relating to year of taxability in view of the facts of the said case. The aforesaid finding given by the Hon'ble High Court in this case also provides a useful guidance for deciding the point in issue in the present case as the value of closing stock enhan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... peace with the Department and to come out of vexed litigation could be treated as bona fide in the facts and circumstances of the case. Therefore, the Tribunal was justified in cancelling the penalty levied by the AO and affirmed by the CIT(A) in the facts and circumstances of the case. This reference is accordingly answered in the affirmative holding that the Tribunal was justified in doing so." Special Leave Petition against this judgment of Madhya Pradesh High Court was admitted and the Hon'ble Supreme Court vide judgment dt. 26th July, 2001, has affirmed the judgment of the Madhya Pradesh High Court. 10. We have carefully examined the facts and circumstances of the present case in the light of legal principles emerging from the various judgments referred to hereinbefore. The issue of routine queries along with the first notice of hearing under s. 142(1) requiring the assessee to furnish detailed inventory of "opening stock and closing stock" cannot establish that the Department had detected any concealment in the form of suppression of value of closing stock. The assessee on the first effective date of hearing had voluntarily disclosed the fact in their letter dt. 15th Ma ..... X X X X Extracts X X X X X X X X Extracts X X X X
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