TMI Blog2006 (8) TMI 232X X X X Extracts X X X X X X X X Extracts X X X X ..... seized material could at the time of search. But for the co-operation extended by the appellant by voluntarily disclosing its correct income, it would have been extremely difficult for the Department, if not impossible, to determine the correct income from the loads of seized papers. Thus, it could not be said that the appellant-company deliberately concealed particulars of its income or deliberately furnished inaccurate particulars thereof. In order u/s 158BFA(2), which we have quoted earlier, the Assessing Officer categorically stated that the assessee did not deliberately conceal his correct income to the extent of Rs. 14,25,052 implying thereby the correctness of the aforesaid assertion of the appellant, which the CIT(A) doubted for the unfounded reasons discussed above. In the order, the CIT(A) did not give any cogent reasons for not accepting such finding of the Assessing Officer. The other officials of the Department also appeared to accept the fact of conditional disclosure made by the appellant through their various actions. The penalty order was passed by the Assessing Officer with the approval of the Addl. CIT. The CIT, had also acknowledged the contents of the disclosu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rectors on 14th December, 1999 under section 132 of the Act. It was brought to the notice of the Bench by the assessee's learned counsel that, as a matter of fact, the appellant-group faced several search and seizure proceedings conducted by various authorities from time to time. Owing to the frequent raids the entire accounting system of the company went haywire. The records seized by the DGAE Department were released only in November, 1999. A month thereafter the same records were again seized by the IT Department making it extremely difficult for the appellant to reconcile the pending accounts in a reasonable time. Copies of the voluminous seized documents could not also be obtained from the Department within the prescribed time-limit for filing the block return. In the circumstances the appellant could file its return for the block period only on 14th August, 2001 (sic) declaring a net loss of Rs. 1,29,57,430/-. As the said return was based only on available records which gave incomplete information, the appellant subsequently filed an application before the Settlement Commission under section 245C(1) of the Income-tax Act, 1961 on 21 st November, 2001 disclosing its modifi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... further observed as under in para 15 of his order: 15....The original return disclosed loss of Rs. 1,29,57,430/-. The disclosure petition-if there is any such thing in the law-offered to agree for the assessment of income of the block period at Rs. 14,25,052/-. The revision of income in this manner is to the extent of Rs. 1,43,82,482/-. The appellant found out that the disclosure made in the return under section 158BC had been short by an amount of Rs. 1,43,82,482/-. Now instead of loss there is some income. The non-disclosure of such huge amount in the return under section 158BC has not been explained. There is no way in which it can be treated as a voluntary disclosure. It is made after the search action and after the appellant had already made application for settlement of his case. There is no provision under which such disclosure can be treated as revision of the return under section 158BC and there is no scope under the law for any promise that penalty shall not be levied. Even the disclosure thus made was further revised to Rs. 35,73,902/- on detection of additional income by the Assessing Officer of Rs. 21,50,850/-. The total difference between the declaration of undisclose ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cated. In p. 2 of the block assessment order, the Assessing Officer acknowledged this fact and observed that due to this reason the books of account maintained in the computer were found incomplete and there were other information gaps in the various accounts maintained by the assessee which needed reconciliation. The non-availability of the copies of the seized books of account created further obstacles for the appellant and furnishing of the correct return of income for the block period proved an extremely difficult task. The loss return filed by the assessee in response to notice under section 158BC has to be viewed in this background. As soon as the assessee could lay its hands on the relevant materials needed to determine its correct income during the block period. It filed an application before the Settlement Commission disclosing the said income. Subsequent to the filing of the settlement application the Authorised Representative of the appellant had occasions to meet the learned CIT, Central-I, Kolkata, as well as the Addl. CIT and the Assessing Officer. It was explained to the learned CIT that the case of the group was full of complexity as complete particulars and/or info ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... block period as soon as it was in possession of the material necessary for computing its correct income. It was in fact a sincere effort on its part to remove the shortcomings and defects from which the return filed for the block period suffered. It has been held by the Madras High Court in the case of CIT v. Best Supply Agency [2000] 241 ITR 208 that where the assessee endeavoured to correct the mistake in accounting occurring due to extraneous factor (death of the accountant) by agreeing to additions to income and filing revised return, no penalty for concealment is leviable. The ratio of the above decision squarely applies to the facts of the appellant's case. (iv) That the learned CIT(A) has stated that there is no provision of filing a revised return under Chapter XIV-Band the disclosure petition filed by the assessee has no legal sanctity. It has never been the contention of the appellant that the disclosure petition filed by it should be construed as a revised return. In fact that was not necessary. All that the appellant-company sought to do by filing the disclosure petition was to make good the defects in the return filed under section 158BC. In this connection, relia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... penses (1999-2000) 1,00,000/- Disallowance on expenses (2000-01) 3,00,000/- 2,29,95,146/- 2,51,45,996/- Difference = Rs. 21,50,850/- (Rs. 2,51,45,996/- - Rs. 2,29,95,146/-) (vii) That as far as the disallowances of donations and estimated expenses are concerned, by no stretch of imagination these can be cons trued as undisclosed or concealed income of the appellant on which penalty under section 158BFA(2) could be levied. Similarly the ad hoc increase by Rs. 30,000/- to the amount surrendered as Unaccounted sales of Shree Ganesh Enterprises, without mentioning any reason therefor, can hardly be regarded as addition of concealed income. The Assessing Officer made another addition of Rs. 5,47,000/- to the income surrendered as Excess purchase written back (sundry creditors written off) . No reason whatsoever has been given by the Assessing Officer for adding this additional amount to the amount of Rs. 1,42,53,164/- disclosed under this head. Indeed it is a mystery as to how the Assessing Officer arrived at this precise amount. The appellant had offered Rs. 77,87,000/- as errors and omissions in sales and purchases and difference in accounts of individuals . The Assessing Officer has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ary disclosure of undisclosed income and, accordingly, disclosure petition dated 20th December, 2001 was filed with your Department. The assessee is offering enhanced tax appropriation against seized KVP vide separate petition enclosed herewith . (ix) That, moreover, the mere fact that the appellant did not challenge the addition would not necessarily mean that it accepted that the impugned amount represented its concealed income detected during the course of block assessment. Therefore, by a letter dated 4th January, 2002, the appellant objected to the initiation of penalty proceedings under section 158BFA(2) and urged the Assessing Officer to drop the same on the ground that a conditional surrender of cash credits or agreement to certain assessment does not attract penalty proceedings. It was further contended that where the assessee agreed to higher assessment to escape penal consequences and the assessment was made on estimate, there being no evidence of concealment, cancellation of penalty was justified. In support of the above submissions, the following case laws were relied upon: (a) CIT v. Dharamchand L. Shah [1993] 204 ITR 462 (Bom); (b) CIT v. Mansa Ram Sons [1977] 106 IT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on facts. That it is an admitted position that return under section 158BC(1) was filed by the assessee only after detection of concealed income during the course of a search. Therefore, it is a return of the income concealed by it and detected through the efforts of the Department and this block return cannot be equated with a return under section 139(1). According to the learned Departmental Representative, although penalty is not mandatory, but when the addition to the declared undisclosed income is not disputed, levy of penalty is justified even if the addition proceeds on the basis of admission in the course of block assessment proceedings. Referring to judgment of Hon'ble Supreme Court in the case of G.C. Agarwal v. CIT [1990] 186 ITR 571, he contended that on analogous facts and circumstances the Court has held that no particular item of income has been pointed out to explain that the revised returns were merely the result of inadvertent mistakes or omission and in that context the conclusion that the assessee had submitted inaccurate particulars of his income and had also concealed the particulars of his income while filing his original return is established. Referring ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r was, on the facts and in the circumstances of the case, justified or not. Elaborate arguments have been made by the assessee's learned counsel on this issue. It is a fact that the appellant-group faced several search and seizure proceedings conducted by several authorities consecutively. The seized material included apart from valuables and books of account, about 6000 loose sheets under different Panchnamas. Therefore, it is evident that the accounting system of the assessee due to these frequent searches by different authorities got dislocated. Even the Assessing Officer has acknowledged this fact by stating that due to this reason the books of account maintained in the computer were found incomplete and there were other information gaps in the various accounts maintained by the assessee which needed reconciliation. The assessee also could not obtain the copies of the voluminous seized documents from the Department within the prescribed time-limit for filing the block return which also resulted in further obstacles for furnishing block return with true disclosure. Therefore, there is substance in the argument of the assessee that with a view to file the block return as per ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... asion to be present before your honour as well as before the Addl. CIT and the Dy. CIT. It was explained to your honour that the case(s) of the group was peculiar and full of complexities since complete particulars and/or information were not available and there was no other way than to approach the Hon'ble Settlement Commission for a practical and judicious adjudication of the complex case(s) and avoiding protracted litigations. Accordingly, an application for settlement under section 245C(1) of the IT Act, 1961 was already filed by Enfield Industries Ltd. for the block period as well as for the assessment year 2000-01 and the individuals, namely. Sri Satyadeo Santhalia, Sri Sudesh Kumar Santhalia and Sri Rajesh Kumar Santhalia were on the verge of filing their respective settlement applications. Your Honour were kind enough to suggest that the assessees make a true and full disclosure of their income before the Department itself and full immunity from penalty and prosecution will be granted to them and their disclosures will be accepted with due considerations. Your kind suggestion and assurance was seconded and supported by the Addl. CIT and the Dy. CIT. in view of the assur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Central-I to make a true and full disclosure of their income before the Department itself and assurance of granting full immunity from penalty and prosecution, the assessee came forward with the disclosure petition surrendering further undisclosed income, which ultimately resulted in income instead of loss originally shown in block return under section 158BC. The above facts would thus show that the assessee acted in good faith and made a bona fide disclosure of its income during the block period as soon as it was in possession of the material necessary for computing its correct income. 6.3 It has been held by Hon'ble Madras High Court in the case of Best Supply Agency that where the assessee endeavoured to correct the mistake in accounting occurring due to extraneous factor (death of the accountant) by agreeing to additions to income and filing revised return, no penalty for concealment is leviable. The ratio of the above decision applies to the facts of the assessee's case. In this context, it is pertinent to refer to the decision of Hon'ble Allahabad High Court in the case of Dhampur Sugar Mills Ltd. Their Lordships at pages 239 and 241 of the report has observed as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing satisfactory evidence. He admitted the amount to be his undisclosed income only with a prayer that no penalty was to be levied. On these facts, the Tribunal cancelled the levy of penalty. The Calcutta High Court held, affirming the decision of the Tribunal, that the admission made by the assessee was a conditional admission and could not be relied upon for imposing penalty as an unconditional admission. Further, in the case of Sir Shadilal Sugar General Mills Ltd. v. CIT [1987] 168 ITR 705, the Hon'ble Supreme Court also held that mere acceptance by an assessee of certain amount as his taxable income cannot mean that he deliberately concealed any part of his income. From the fact that the assessee agreed to the proposed additions to his income, it does not follow that the amount agreed to be added was his concealed income. Ratio of both these decisions would apply squarely to the facts of the assessee's case. 6.5 The CIT(A) further observed that the penalty under section 158BFA(2) is a penalty on concealment of income to the extent not admitted in the return filed under section 158BC, but determined in the block assessment. He further observed that where the additions t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee, excepting an addition of Rs. 21,50,850/- said to have been detected from the seized documents. 6.6 It is pertinent to mention here that while penalty proceeding initiated under section 158BFA(2), the assessee's learned Authorised Representative vide his letter dated 4th January, 2002 explained to the Dy. CIT, CC-VII the reasons for not contesting the addition made to the undisclosed income in the block assessment in the following manner: (2) While passing the assessment order, your goods elf has initiated penalty proceedings under section 158BFA(2) of the I.T. Act, 1961. It may be recalled that the assessee-group made a conditional disclosure of revised undisclosed income of Rs. 14.25 lakh before your goods elf on the assurance given by the Hon'ble CIT, Central-I as well as by the Addl. CIT, Range-II and your goodself, that no penalty and prosecution proceedings will be initiated in the cases. (3) The Hon'ble Calcutta High Court in the case of CIT v. Amalendu Paul [1984]/[1983] 13 Taxman 325/[1984] 145 ITR 439 (Cal.) has held that penalty cannot be levied on the basis of conditional admission. (4) Your goods elf, while finalizing the block assessment, ind ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... showing higher income. Eventually assessment orders were passed on the basis of return submitted under section 148. In the penalty proceeding under section 271(1)(c) the assessee claimed that he had offered additional income to buy peace of mind and avoid litigation. On the above facts, the High Court held that no penalty could be levied for concealment. The Hon'ble Supreme Court affirmed the order of the High Court. 6.9 The CIT(A) observed in p. 14 of his order that the return under section 158BC is filed only after detection of concealed income during the course of search. It is a return of concealed income only, detected by the efforts of the Department. In our considered opinion, the CIT(A) was wrong in entertaining such a view. A plain reading of section 158BC( a) would show that the assessee, in response to a notice received by him under section 158BC, is required to furnish within the stipulated time a return in the prescribed form setting forth his total income including the undisclosed income of the block period . In the object of requiring the assessee to file block return was merely to make him state the amount that the Department claimed to have already detected as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y gross or wilful neglect on his part, be deemed to have concealed the particulars of his income or furnished inaccurate particulars of such income for the purposes of clause (c) of this sub-section . From a plain reading of the above it would be clear that the observation of the CIT(A) that the said Explanation clause is applicable to the facts of the instant case is erroneous. As a matter of fact, these two provisions i.e. sub-section(2) of section 158BFA and the Explanation to section 271(1)(c) as inserted by the Finance Act, 1964, have nothing in common. Most importantly, unlike the letter, there is no presumption for concealment in the former. So onus would lie heavily with the Department to prove concealment for the purpose of imposing penalty under section 158BFA(2), which is lacking in this case. 6.11 The CIT(A) also relied on the decisions of CIT v. Mussadilal Ram Bharose [1987] 165 ITR 14 (Sc), J.K.A. Subramania Chettiar's case, CIT v. Hazi P. Mohammed [1981] 132 ITR 623 (Ker.) and Nav Nirman Co. v. CIT [1984] 148 ITR 703 (MP) to contend that mere filing of a revised return cannot exonerate the assesee from penalty incurred by filing a false first return and that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Bharose's case. In the case of J.K.A. Subramania Chettiar the Hon'ble Madras High Court held that it is implicit in the word concealed used in section 271(1)(c) that there has been a deliberate act on the part of the assessee. The word omission occurring in section 139(5) connotes an unintentional act. Equally, the words wrong statement will not take in a statement known to be false to the person who made the statement . However, the word discovers occurring in section 139(5) will make it clear that only at the time of discovery a person who had furnished a return finds out that an inadvertent omission or unintended wrong statement had crept in the return filed by him. If a person who furnished the return was aware of the falsity of the statement and the incorrectness of the particulars of income even at the time when he filed the original return, there was no question of that person subsequently discovering the existence of the omission or creeping in of the wrong statement in the return already filed by him. Therefore, section 139(5) will apply only to cases of omission or wrong statements and not to cases of concealment or false statements . In the assessee's case, n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e the penalty. In the assessees's case before us, there was no question of prior knowledge of real facts since even the Assessing Officer admitted that due to frequent searches by various Government Agencies the accounts of the appellant were in total disarray. So the facts in these two cases are hardly comparable. 6.13 Even otherwise also, penalty for concealment is not warranted merely because the assessee has disclosed certain additional amount as his income. It is well-settled principle of law that in order to justify levy of penalty, the following factors must coexist: (i) there must be some material or circumstances leading to the reasonable conclusion that the amount does represent the income of the assessee, and (ii) the mere fact that the amount has been assessed as income is not sufficient for the purpose of levying penalty, but the circumstances must show that there was conscious and deliberate concealment of income or conscious furnishing of inaccurate particulars thereof on the part of the assessee with a view to evade tax. In the case of the appellant neither of the above two factors existed. There was no material or circumstances which could have led the Assessin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent must have before it cogent material or evidence to show that the assessee had consciously concealed the particulars of his income or had deliberately furnished inaccurate particulars of the same. Similar is the position dealt in by the jurisdictional High Court in the case of CIT v. Bengal Iron Galvanising Works [1987] 165 ITR 249 (Cal.) where the Court observed that it was not mandatory under section 271 of the Act, that a penalty must be imposed in every case. If the conditions laid down in the said section are established, then the authority concerned may direct that the person committing the default within the meaning of the said section shall pay the penalty imposed. In p. 252 of the said judgment their Lordships observed: It is settled law that before a penalty can be imposed, it has to be established that the assessee proceeded deliberately with an intention to conceal his correct income or to furnish incorrect particulars thereof. In the facts, the assessee by its subsequent conduct may be said to have established that there was no deliberate intention on its part to conceal its income and the incorrect return, which was initially filed, was sought to be rectified by it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me before the Department (as already done in the petition filed before the Settlement Commission) provided it was promised immunity from penalty and prosecution, because he did not find any documentary evidence thereof. Incidentally, for reasons best known to him, he did not consider the letters of the appellant/learned Authroised Representative dated 20th Dec., 2001 and 21st Dec., 2001 in which the disclosure was made as good enough evidence. On similar facts the Hon'ble Allahabad High Court in the case of CIT v. Mansa Ram Sons [1977] 106 ITR 307 observed: It was clear that after the assessee had written the first letter disowning the cash credit, there was a discussion between its representative and the ITO, as a result whereof the cash deposits were surrendered for assessment as desired provided no penalty was imposed . The ITO must have induced the assessee to surrender the cash deposits so as to avoid penalty which could be as high as one-and-a-half times the tax sought to be evaded. It was possible that the surrender was made to escape the penal liability. It was also clear from the letter quoted above that some sort of assurance was given by the ITO to the assessee that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aid that the disclosure petition filed by it should be construed as a revised return. All it sought to do by filing the disclosure petition was to make good the deficiencies in the block return filed by it, which crept in because of non-completion of accounts due to frequent searches by various Government agencies, non-receipt of the copies of the voluminous seized material and resultant complexity in determining the true income. From the conduct of the assessee and evidentiary documents placed on record, it is established that the declaration of additional income was to co-operate the Department to complete error-free block assessment at the best possible manner. On the above facts, circumstances of the case and legal position involved in this case, we have no hesitation to hold that the CIT(A) was not justified in enhancing the quantum of penalty. 7. To sum-up, on an in-depth study of the entire case record and after due consideration of the rival submissions from both the sides along with the case laws, it is needless to say that the learned counsel for the assessee has justified the case of the assessee-appellant both factually as well as legally and, on the other hand, despite ..... X X X X Extracts X X X X X X X X Extracts X X X X
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