Hotel Samrat Bar & Restaurant, Opp.Bus Stand, Gandhibag, Nagpur vs Assistant Commissioner of Income Tax

The appellant-assessee is a partnership firm that runs a bar and restaurant. A survey under section 133A of the Income Tax Act, 1961 was conducted on 12/01/1993 at the business premises of the assessee and in the course of search, it was noticed that stock worth Rs.79,000/-was shown in excise register, however, as per the books of accounts as on 01/04/1992 it was shown at Rs.14,758/-. There was a difference of Rs.64,242/-in the stock. The statement of the partner of the assessee firm was recorded during the search. The partner explained that the difference in stock was not of the relevant year, but the same pertained to the earlier years. The assessee offered an amount of Rs.69,000/-on account of difference in stock for the assessment year 1992-93, to buy peace. The Assessing Officer, however added a sum of Rs.69,000/-to the returned income of the assessee of the relevant assessment year 1993-94 and also initiated penalty proceedings under section 271(1)(c) of the Act. In the penalty proceedings, the assessee tried to point out that there was an accidental slip in the original return filed on 31/08/1994 and the omission on the part of the assessee was not deliberate. The assessee further pointed out that though there was no concealment of particulars of the income, the assessee had surrendered a sum of Rs.69,000/-with a view to buy peace and to avoid litigation. The Assessing Officer was not convinced with the explanation tendered by the assessee, as according to the Assessing Officer, the assessee had concealed the income by suppressing the actual value of the stock which would not have been revealed but for the survey operation conducted on 12/01/1993. The Assessing Officer levied a minimum penalty of Rs.27,600/-on the assessee. The assessee challenged the said order before the Commissioner of Income Tax (Appeals). The Commissioner (Appeals) allowed the appeal filed by the assessee and held that the penalty was wrongly levied. The Commissioner (Appeals) held that merely because the difference in stock was detected during the course of the relevant assessment year, the difference should not have been assessed as income for the relevant assessment year, but should have been correctly assessed as income for the assessment year 1992-93 as the opening stock as on 01/04/1992 was the closing stock on 31/03/1992. The Commissioner (Appeals) held that the assessee was not guilty of concealing the particulars of its income. The order of the Commissioner (Appeals) was challenged by the revenue before the Income Tax Appellate Tribunal. The Income Tax Appellate Tribunal, by the order dated 16/11/2000 allowed the appeal of the revenue and set aside the order of the Commissioner (Appeals). The order of the Income Tax Appellate Tribunal is challenged by the assessee in this appeal.

Shri Bhattad, the learned counsel for the assessee, submitted that the Assessing Officer could not have levied the penalty on the assessee under section 271(1)(c) of the Act after holding that the assessee had concealed the particulars of income during the relevant assessment year 1993-94. It is submitted that the difference in stock, related to the assessment year 1992-93 as rightly held by the Commissioner (Appeals) as the opening stock as on 01/04/1992 was the closing stock on 31/03/1992. It is stated that though the Assessing Officer had narrated the facts in regard to the opening stock and the closing stock in his order levying penalty, the Assessing Officer erroneously held that the difference in stock should be considered for the relevant assessment year 1993-94. It is submitted that despite the fact that the Commissioner (Appeals) had allowed the appeal filed by the assessee after holding that the difference was referable to the assessment year 1992-93 and the penalty could not have been levied on the assessee, the tribunal has not considered this aspect of the matter while deciding the appeal in favour of the revenue. The learned counsel relied on the judgment, reported in 1988, 170 ITR 399 (Jainarayan Babulal v. Commissioner of Income Tax) to substantiate his submissions.

Shri Mohta, the learned counsel for the revenue, supported the order of the tribunal. The learned counsel was however not able to point out from the order of the tribunal that the tribunal had adverted its mind to the reasons recorded by the Commissioner (Appeals) for allowing the assessee''s appeal. It is submitted that the difference in stock pertained to the relevant assessment year and, therefore, the Assessing Officer had rightly levied the penalty on the assessee for concealment of particulars. It is stated that the judgment reported in 1988, 170 ITR 399 cannot be made applicable to the case in hand.

On a reading of the orders of the authorities, we find that the tribunal was not justified in reversing the order of the Commissioner (Appeals). It appears from the facts that are narrated in the orders of the Assessing Officer levying penalty and the Commissioner (Appeals) that during the survey under section 133A of the Act, a physical verification of the stock was made and it was found that there was a difference in stock in the excise register and the books of accounts to the extent of Rs.64,242/-. It was found that the stock as per the books of accounts as on 01/04/1992 was at Rs.14,758/-whereas the stock shown in the excise register as on 01/04/1992 was to the tune of Rs.79,000/-. The Assessing Officer wrongfully held that the difference in stock pertained to the relevant assessment year 1993-94 though the difference should have been correctly assessed as income for the assessment year 1992-93. Merely because the difference in stock was detected at the time of survey under section 133A of the Act during the relevant assessment year 1993-94, the same could not have been attributed to the relevant assessment year. The Commissioner (Appeals) considered this aspect of the matter and held that on facts it was clear that the difference in stock related to the assessment year 1992-93, i.e. the previous assessment year and not the relevant assessment year 1993-94. On holding so, the Commissioner (Appeals) rightly allowed the appeal filed by the assessee after observing that the assessee could not be held guilty of concealing the particulars of its income amounting to Rs.69,000/-in the relevant assessment year 1993-94 and hence penalty could not have been levied on the assessee. Though the appeal filed by the assessee was allowed on this short ground, the Income Tax Appellate Tribunal in its rather longish order did not even refer to the said factual and legal position and allowed the appeal filed by the revenue by only referring to the provisions of section 271(1)(c) of the Act. It was necessary for the tribunal to have adverted its mind to the reason recorded by the Commissioner (Appeals) for allowing the appeal filed by the assessee and setting aside the order of the Assessing Officer. It is well settled that when an appellate authority reverses the order of the subordinate authority, it would have to first advert its mind to the reasons which the subordinate authority had recorded in its order that is reversed by the appellate authority. In the instant case, the tribunal committed a serious error in not considering this vital aspect of the matter while deciding the appeal of the revenue. From the facts of the case, it is clear that the difference in stock did not pertain to the relevant assessment year 1993-94 but pertained to the assessment year 1992-93. The Commissioner (Appeals), therefore, rightly held that there was no concealment or suppression of material by the assessee in the year 1993-94, i.e. relevant assessment year which would result in levying of penalty under section 271(1)(c) of the Act. The judgment in the case of Jainarayan Babulal v. Commissioner of Income Tax (supra) and relied on by the counsel for the assessee would apply to the facts of this case with full force. In the said case also, the Income Tax Officer included the amount of Rs.24,600/-in the total income of the assessee for the assessment year 1950-51 and imposed penalty under the provisions of the Income Tax Act, 1922 though in the books of accounts relating to November 1948, certain cash credits aggregating to Rs.24,600/were found. The High Court held in the aforesaid set of facts that the entries aggregating to the amount of Rs.24,600/-being made in the assessment year 1948-49 and the relevant assessment year being assessment year 1949-50, no penalty could be imposed on the assessee for non disclosure of the income for the assessment year 1950-51. The facts in the reported case and the present case are not only similar, but are identical. The view of the Commissioner (Appeals) is fortified by the judgment in the case of Jainarayan Babulal (supra).

Hence, for the reasons aforesaid, we answer the substantial question of law in favour of the assessee and set aside the order of the tribunal. The order of the Commissioner (Appeals) is confirmed. In the circumstances of the case, there would be no order as to costs.