B. Damodar Vaman Baliga Jewellers vs Joint Commissioner of Income Tax

Ravi Malimath, J.—This appeal is by the assessee being aggrieved by the order of the Tribunal dismissing its appeal by confirming the order passed by the assessing authority. The assessee is a jeweller. For the assessment year 1995-96, it had filed a return of income along with the trading account, profit and loss account on March 31, 1997, declaring an income of Rs. 84,470 from the business. In the statement accompanying the return of income, the assessee had disclosed the value of closing stock of Rs. 17,88,961 and the sales at Rs. 22,77,592. A survey u/s 133A was conducted in the assessee''s business premises on March 22, 1999. During the survey, it was found that the stock book was not maintained properly and that there were unaccounted sales and unaccounted cash credits, and that there was excess stock of gold, which was not reflected in the books of account. After this was accosted to the assessee, he filed a revised return of income declaring a taxable income of Rs. 9,79,760 showing the closing stock as on March 31, 1995, at Rs. 37,34,245 as against Rs. 17,88,961 declared in the original return of income. The assessment was accordingly completed and the assessee has not disputed the additions.

Penal action u/s 271(1)(c) was initiated for having concealed the income for the assessment year. In response to the same, the assessee stated that one Sri Devadas Baliga who was the managing partner of the firm was looking after the accounts of the firm and committed an error in the valuation, which was neither deliberate nor intentional. As soon as the error was detected, a revised return was filed by correctly showing the stock valuation and the tax due thereon was also paid. It was further contended that the firm was reconstituted on April 1, 1994, admitting Sri Suresh Baliga as a partner, who did not bring any cash as his share of capital, but introduced 3 kgs. of gold as his share of capital. However, the 3 kgs. of gold introduced by the new partner was brought in the stock register but was not entered in the books of account maintained by the assessee. The explanation of the assessee was considered and in view of the admitted concealment, the penalty proceedings were concluded by ordering a penalty u/s 271(1)(c) of a sum of Rs. 3,58,000. Aggrieved by the said order of penalty, an appeal was preferred before the Commissioner, who held that the minimum penalty leviable would be Rs. 3,58,116 as against the penalty levied for Rs. 3,58,000 and, hence, increased the penalty by Rs. 116. Accordingly, the penalty order was confirmed. Aggrieved by the same, the assessee preferred an appeal before the Tribunal, wherein the Tribunal dismissed the appeal. Hence, the present appeal by the assessee.

This appeal was admitted to consider the following substantial questions of law:

(i) Whether, on the facts and in the circumstances of the case, the Tribunal is justified in confirming the levy of penalty in the absence of recording of satisfaction within the meaning of section 271(1)(c) before initiation of the proceedings u/s 271(1)(c) of the Act?

(ii) Whether, on the facts and in the circumstances of the case, the Tribunal is justified in confirming the penalty even though the discrepancy alleged was on March 22, 1999 (date of survey) relating to the assessment year 1999-2000 and the impugned penalty was levied for the assessment year 1995-96 even though no discrepancy whatsoever was found relating to the year, under challenge?

(iii) Whether, on the facts and in the circumstances of the case, the appellant having filed the revised return of income voluntarily, whether the penalty u/s 271(1)(c) was exigible?

(iv) Whether, on the facts and in the circumstances of the case, the Tribunal is justified in contradicting from its own findings given in the cases relied upon before it?

The learned counsel appearing for the appellant contends that the order of the Tribunal and the lower authorities are bad in law and are liable to be set aside. That there is no recording of any satisfaction within the meaning of section 271(1)(c) and, hence, the proceedings initiated are bad in law. By placing reliance on section 271, he contends that the Assessing Officer or the Commissioner has to be satisfied and unless the satisfaction is borne out no proceedings could be initiated thereof. He, therefore, pleads that no satisfaction is recorded with regard to the initiation of the proceedings u/s 271(1)(c).

Section 271(1B) reads as follows:

271.(1B) Where any amount is added or disallowed in computing the total income or loss of an assessee in any order of assessment or reassessment and the said order contains a direction for initiation of penalty proceedings under clause (c) of sub-section (1) such an order of assessment or reassessment shall be deemed to constitute satisfaction of the Assessing Officer for initiation of the penalty proceedings under the said clause (c).

The said amendment was inserted by the Finance Act, 2008, with retrospective effect from April 1, 1989. Hence, the said amendment is applicable to the case on hand. The said amendment would indicate that wherein in an order of assessment; the same contains a direction for initiation of penalty proceedings under clause (c) of sub-section (1), such an order of assessment or reassessment shall be deemed to constitute satisfaction of the Assessing Officer for initiation of the penalty proceedings. In the instant case, the penalty proceedings have been initiated in the reassessment proceedings and, hence, that itself is deemed to constitute satisfaction of the Assessing Officer in terms of section 271 (1B).

A reading of section 271 (1B) clearly shows that the satisfaction of the authority is a deemed satisfaction when in an order of assessment or reassessment a direction for initiation of penalty proceedings is made. Hence, the contention of the appellant that recording of a satisfaction is absent in the instant case is wholly without reason. In terms of section 271(1B), the satisfaction being a deemed satisfaction, the question of recording of satisfaction within the meaning of section 271(1)(c) does not arise for consideration. Accordingly, question No. 1 is answered in favour of the Revenue and against the assessee.

Question No. 2 is as to whether the Tribunal was justified in confirming the penalty relating to the assessment year 1999-2000 when the penalty was levied for the assessment year 1995-96, when the alleged discrepancy was on March 22, 1999.

In the course of the proceedings, various materials have been unearthed. The assessee was asked to explain the same. He replied admitting the discrepancy and has offered the undisclosed income. In particular reference to question No. 12 which reads as under:

Question No. 12: As per the profit and loss account and the balance-sheet filed by your firm, the total closing stock of ornaments as on March 31, 1996, is Rs. 13,61,468 only. But as per the stock registers, i.e., G.S. 11 and G.S. 12, the total stock of gold ornaments at the end of the day March 31, 1996, is 9063 grams. From this it appears that the dosing stock is undervalued. What is the reason for this? (Please note that this observation is made without taking the closing stock of silver ornaments)

The answer of the assessee was as follows:

Answer: There is some mistake in the computation of value of dosing stock. I will rectify this and file revised returns of income.

Question No. 14 was with reference to the physical inventory of gold ornaments taken at the time of survey, which reads as under:

Question No. 14: As per the physical inventory of gold ornaments taken at the time of survey, the total weight of ornaments (gold) is 16,524,616 grams (net). Apart from this, gold ornaments weighing 2535360 grams were available at your bedroom at your residence. So the total comes to 19,059376 will be the total. But as per the stock book, the total amount of gold ornaments work out to 9659.990 (G.S. 3526.750, G.S. 12-5712.240 and with goldsmiths 421 grams). There is an excess of 9820.916 grams of gold ornaments. Also there is a physical stock of 32,850 Kgs. (29.593) kgs. at shop and 3,26 kgs. at residence) of silver ornaments which are not accounted in any books of account. Please explain the source for these stocks?

The assessee''s answer is as followed:

Answer: I had declared 8306.500 grams of gold ornaments under VDIS, 1997. These ornaments I was keeping at my residence and in the shop. By mistake, I have not accounted this in the stock books of the firm. I request you to kindly give credit for this declaration and allow me to introduce this in the stock books. I am offering the balance 1,514,416 grams of gold ornaments for taxation. Also, I am offering the entire 32,850 kgs. of silver ornaments for taxation as our unaccounted income. Both these amounts will be offered for taxation in the current financial year.

From the abovesaid replies of the assessee, it is evident that a substantial discrepancy was found for the assessment year 1995-96. The assessee has also admitted to the same. Therefore, the statement of Sri Suresh Baliga clearly admits to the alleged discrepancy relating to the assessment year 1995-96. Under these circumstances, the Tribunal was justified in confirming the said penalty. Even though the discrepancy was unearthed on the date of survey, the assessee has admitted to the discrepancy for the year 1995-96. Under these circumstances, the Tribunal was justified in passing the impugned order. Accordingly, question No. 2 is answered in favour of the Revenue and against the assessee.

Question No. 3 is as to whether the penalty u/s 271(1)(c) was exigible when the assessee has filed the return of income voluntarily.

When the survey was conducted, it was brought to the notice of the assessee with regard to the discrepancies. The assessee admitted the concealment and, consequently, filed a revised return wherein the admitted undisclosed income as well as the undisclosed stock was disclosed in the return. The assessee has not only declared higher value of closing stock but has also increased the quantity of closing stock, namely, gold. Under these circumstances, it is evident that but for the survey being conducted, the same would not have been detected. In view of the deliberate action of the assessee in concealing the income, the proceedings u/s 271 were conducted. We do not find any error committed by the authorities in imposing the penalty. The penalty has been imposed in view of the deliberate concealment.

The appellant''s counsel contends that since the revised returns has been accepted, the initiation of proceedings is erroneous. In support of his case, the appellant relies on the judgment of the Delhi High Court in the case of Ms. Madhushree Gupta Vs. Union of India (UOI) and Another,

On a perusal of the same, it can be seen that the provisions of section 271 were held as not violative of article 14 and that the position of both pre and post-amendment of the section is similar. Under these circumstances, the said judgment would not come to the aid of the appellant in any manner.

Further, reliance was placed on the judgment of this court in the case of Commissioner of Income Tax and Another Vs. Vasant K. Handigund, In the said judgment, the appeals were dismissed on the ground that in view of the concurrent findings on the question of fact arrived at by the lower authorities, no question of law arises for consideration. However, in the instant case, the concurrent findings are against the assessee. Hence, the said judgment is not helpful to the appellant.

Further, reliance was placed on the judgment of the hon''ble Supreme Court in the case of Sudarshan Silks and Sarees Vs. Commissioner of Income Tax, Karnataka, In the said judgment, it was held that the penalty u/s 271(1)(c) was not exigible on the facts and circumstances of the case. The Tribunal upheld the findings of the Commissioner of income tax (Appeals) by cancelling the levy of penalty u/s 271(1)(c) by holding that the revised return were not made on the basis of the incriminating materials found during the search operations.

It is apparent that the revised return has been filed as a result of the search operations unearthing undisclosed income. The same has been admitted by the assessee. Therefore, it cannot be considered as a return of income having been filed voluntarily. Under these circumstances, the assessee is liable for penalty. Accordingly, question No. 3 is answered favour of the Revenue and against the assessee.

Question No. 4 is as to whether the Tribunal was justified in contradicting from its own findings given in the cases relied upon before it?

The Tribunal has considered the decisions and has distinguished the same on facts and it came to the conclusion that the cited decisions of the Tribunal are not relatable in any manner to the facts of the present case. Therefore, the Tribunal was justified in applying the law to the facts and circumstances of the present case. The questions of law and the decisions are necessarily based on the facts and circumstances of each of the cases. The said question of law is answered with reference to and in terms of the facts and circumstances of the relevant cases. Therefore, when the facts in two cases are different, applying the cited decision to another case would be highly erroneous. Under these circumstances, question No. 4 is answered in favour of the Revenue and against the assessee. Hence, we are of the considered view that the authorities have rightly considered the material on record. The penalty proceedings are in accordance with law. There is no error committed by any of the authorities that calls for any interference. For the aforesaid reasons, the substantial questions of law are answered in favour of the Revenue and against the assessee and consequently the appeal is dismissed.