Commissioner of Income Tax vs Bharath Sea Foods

K.P. Radhakrishna Menon, J.—IT Reference 287 of 1982 is at the instance of the revenue whereas IT Reference No. 288 of 1982 is at the instance of assessee. The question referred to this Court for opinion at the instance of the revenue reads:

Whether on the facts and in the circumstances of the case and in view of the application of the Explanation to section 271(1)(c) of the Act, 1961 and also in view of the finding of the conscious concealment, the Tribunal was right in law in reducing the quantum of concealed income?

The question formulated at the instance of the assessee reads:

Whether, on the facts and circumstances of the case, the Tribunal was right in sustaining the penalty to the extent of Rs. 47,000 holding that there was concealment?

Facts relevant to dispose of the issue can briefly be stated thus: In the course of the assessment proceedings, the ITO was satisfied that the assessee had concealed particulars of his income which is Rs. 1,00,804 and consequently initiated proceedings u/s 271(1)(c) of the income tax Act, 1961 (''the Act''). This amount represented the purchases made in the peeling shed for which no explanation 1 was forthcoming. The IAC who completed the proceedings was of the view that the assessee had concealed the particulars of the above income and, consequently, levied a sum of Rs. 1,05,000 as penalty. A reference in this connection to the following excerpts from the order of the IAC is relevant:

The facts of this case in brief are not as stated by the assessee''s representative. In the Chandiroor Peeling Shed, there was a credit balance of Rs. 4,57,868 according to the ledger produced before the ITO. The ITO has held that these purchases which have been made from 21st March, 1971 to 31st March, 1972 were fictitious and added the entire amount as inflation of purchases. Subsequently, at a search of the assessee''s premises, certain papers were seized which reveal the actual position in the Chandiroor Peeling Shed Account.

The credit balance in the Chandiroor Peeling Shed as per the ledger produced before the IT Authorities was Rs. 4,57,868. On a search of the assessee''s premises, the peeling, shed statements for the period 1st April, 1971 to 31st March, 1972 were seized. These showed the credit balance of Rs. 3,81,194. Adjustment for cash payments of Rs. 24,189 was made which left the credit balance of only Rs. 3,57,004. (See copy of shed statement below):

Rs.

Purchases 21st March, 1972 to 31st March, 1972

3,61,676.37

Grading charge

478.20

Bhata paid to Driver and Cleaner

433.50

Ice Bill

7,613.25

Petrol

1,543.86

Ferry for lorry for going to Azhikode

52.00

Prawns loading charge

91.50

Workshop bill repairing a/c for vehicles

1,250.96

Peeling charge

4,303.07

Loading and Unloading

580.80

Salary and Rent

1,870.00

Lorry Hire

1,070.00

Printing and Stationery

37.50

Current charge

132.98

Expense

18.40

Travelling Expenses

41.50

3,81,193.89

Received Cash

24,189.45

3,57,005.44

This is the actual credit balance of the depot as on 31st March, 1972 and not Rs. 4,57,868 shown in the ledger. Thus, the difference of Rs. 1,00,864 is an inflation of credit balance in the Chandiroor shed account and consequential inflation of purchases to the same extent. Thus, from the assessee''s own documents, that is, peeling shed statements from 1st April, 1971 to 31st March; 1972, which have been seized, an inflation of purchases of Rs. 1,00,864 is proved; and on this item, penalty under the substantive provisions of section 272(1) will be leviable, in view of the decision of the Supreme Court in Commissioner of Income Tax, West Bengal I, and Another Vs. Anwar Ali, and The Commissioner of Income Tax Madras Vs. Khoday Eswarsa and Sons, . The seized documents in the possession of the ITO would prove that the assesses is guilty of conscious concealment to the extent of Rs. 1,00,864.

Aggrieved by this order, the assessee filed an appeal before the Tribunal which while concurring with the finding of the IAC that there was concealment, interfered with that order and reduced the penalty entered finding that the concealment of the particulars of income can be stated to be only in respect of a sum of Rs. 47,000. How the Tribunal arrived at this figure, it is relevant to consider at this stage. We shall in this connection refer to the discussion discernible from the order of the Tribunal. It reads:

We next would come to the quantum of penalty to be imposed. There is no dispute that the minimum penalty leviable is equal to the concealed income. The IAC had levied a penalty of Rs. 1,05,000. He had assumed that the discrepancy would also show inflation in purchase as the quotation from his order extracted above by us in paragraph 6. However, what is really added is not inflation in purchases but excess of assets over liabilities as disclosed in the balance-sheet. Now in order to establish that Rs. 1,00,864 is concealed income for this year it is necessary to establish that this discrepancy arose in the course of the accounting year. In other words, it presupposes that the balance sheet for the immediately prior year would be correct and would show no such excess. For this purpose we checked up the figures for the prior year. We found that the opening credit balance in favour of the peeling shed account was Rs. 77,900.42. Just as file No. 149 shows the statement of purchases, etc., made by the peeling shed, file No. 135 shows these purchases during the prior accounting year of 1st April, 1970 to 31st March, 1971. In order to find out whether Rs. 77,900 was the correct credit balance we checked up the last statement of accounts for the prior accounting year. This covered the period 21st March, 1971 to 31st March, 1971. During this period the purchases made were Rs. 1,33,533.21. There were other expenses incurred and the total including purchases amounted to Rs. 1,44,436.35. The closing balance was Rs. 10,400.38. The peeling shed has also received during the period Rs. 1,10,000. So in the books of the head office the peeling shed should have been given a credit of Rs. 1,44,436 and a debit of Rs. 1,20,400. The actual credit balance, therefore, would be Rs. 24,036. The opening credit balance of Rs. 77,900 is, therefore, wrong. There is excess credit for the peeling shed to the extent of Rs. 53,864 for that year. This figure of Rs. 53,864 is identical to the figure of Rs. 1,00,864 found by the IAC for this accounting year.

This part of the order reducing the penalty is not sustainable because the same is based on the finding accepting the case which the assessee at no point of time had put forward.

Whatever that be, the finding of the Tribunal that the penalty can be levied only in the manner suggested by it, under the circumstances, cannot be taken cognizance of. It is relevant in this context to note that it is not the case of the assessee nor for that matter the case of the department that the opening balance in the ledger (Annexure-F) does not reflect the true state of affairs. The Tribunal has verified the accounts maintained by the assessee during the previous year as if it was considering a case of reopening the assessment for the previous year. This approach to the issue is uncalled for.

It is in this background the whole case requires to be considered. If this finding is eschewed from the order) what remains is only the concurrent finding of fact that the assessee has concealed particulars of income. We shall in this connection refer to the finding entered by the Tribunal in the order disposing of the appeal:

It is not possible now to dispute that the actual credit balance in the peeling shed advance account should be as stated by the IAC Rs. 3,57,005. The books, however, show Rs. 4,57,868. There is no explanation at all for this discrepancy of about a lakh of rupees. Even before us no explanation has been advanced. Now, insofar as the assessee has inflated the liability side of the balance sheet by Rs. 1 lakh there is a difference in the balance sheet to the same extent and so the assets exceed the liabilities by Rs. 1,00,864. Insofar as there is excess of assets over liabilities unless the assessee explains how this difference could persist it is to be the income of the assessee. We cannot accept on the fact of this evidence that there is no concealment. The liability of Rs. 4,57,868 shown in the accounts is deliberately inflated. We find from the ledger that two entries are made on the last days as if cash has been received from the peeling shed to the head office showing receipt of Rs. 35,000 and Rs. 12,000 both on 31st March, 1972. The statements seized from the peeling shed do not support any such receipt of cash. So these two amounts had been shown only to give a false picture about the balance sheet. But for these entries there would have been a clear difference which would attract the notice of the income tax authorities. We cannot accept that these discrepancies were innocent mistakes. It is deliberate act to show a receipt of monies where there is none received. It is not a sin of omission but a sin of commission. We, therefore, agree with the department that the seized materials would show manipulations in order to conceal income.

It can be seen from the discussion above that the assessee has not produced any materials in proof of his case that the alleged concealed income represents the price he paid to the sellers of prawns. Though he had the opportunity to prove the above case, he has not taken any steps in that regard.

Under these circumstances the order reducing the penalty is not sustainable. The Tribunal in considering a case the assessee had not set up either before the IAC or even before the Tribunal, it must be held to have misdirected in law and as such the order is liable to be interfered with.

The concurrent finding of fact, namely, there is concealment is not under challenge. If that be the position, it may not be possible for this Court in the exercise of advisory jurisdiction to reconsider the entire matter taking into account fresh materials and decide the issue. The facts and circumstances of the case alone can be taken into account to see whether the Tribunal has decided the issue properly. We, therefore, are of the view that the order of the Tribunal reducing the penalty is not sustainable.

The learned counsel for the assessee nonetheless contended that the Tribunal had the power to reduce the penalty and in support of this contention relied on sub-clause (iii) of section 271(1)(c) as it stood at the relevant time. It reads:

Failure to furnish returns, comply with notices, concealment of income, etc. -(1) If the income tax Officer or the Appellate Assistant Commissioner in the course of any proceedings under this Act, is satisfied that any person-

(a) and (b) ******

(c) has concealed the particulars of his income or furnished inaccurate particulars of such income,

he may direct that such person shall pay by way of penalty,-

(i) and (ii) ******

(iii) in the cases referred to in clause (c), in addition to any tax payable by him, a sum which shall not be less than, but which shall not exceed twice, the amount of the income in respect of which the particulars have been concealed or inaccurate particulars have been furnished.

This clause provides that in addition to any tax payable by the assessee a sum which shall not be less than but which shall not exceed twice, the amount of the income in respect of which the particulars of income have been concealed or inaccurate particulars thereof have been furnished, shall be paid by way of penalty. The counsel submits that before the penalty is levied, the authority concerned has to determine the actual amount of income of which particulars have been concealed or inadequate particulars have been furnished and only that income can provide the basis for the levy of the penalty and not the entire income as if the concealment of particulars pertain to that income. Assume that there is substance in, this argument, it is not necessary for us to go into this question because going by the findings the assessee has concealed particulars of the entire income of one lakh and odd rupees. In the light of the discussion above, the question referred at the instance of the revenue is answered in the negative and in favour of the revenue. It is unnecessary to answer the other question and, therefore, we decline to answer the same.