Road Masters Industries of India Ltd. vs Commissioner of Income Tax and Another

G.S. Singhvi, J.—In this appeal filed u/s 260A of the Income Tax Act, 1961 (for short "the Act"), the appellant has sought determination of the following questions of law :

"(i) Whether, in the facts and circumstances of the case, annexures P-1 to P-3 are legally sustainable ?

(ii) Whether, in the facts and circumstances of the case, the order of the Appellate Tribunal upholding the imposition of penalty especially when the replies had been filed by the assessee-appellant is legally sustainable ?

(iii) Whether, in the facts and circumstances of the case, the order of the Appellate Tribunal in upholding the imposition of penalty even when the issue of surrender of import entitlements being included in the estimate of advance tax was not a confirmed position of law, is legally sustainable ?

(iv) Whether, in the facts and circumstances of the case, the order annexure P-3 sustaining the imposition of penalty when the Revenue had failed to discharge the onus of proof as imposed on it by law, is legally sustainable ?

(v) Whether, in the facts and circumstances of the case, the confirmation of the imposition of penalty is legally sustainable in spite of the specific mandate provided by the court in Commissioner of Income Tax Vs. Pratap Chand Maheshwari, .

(vi) Whether, in the facts and circumstances of the case, the sustaining of the imposition of penalty on the estimate of advance tax filed by the assessee while not following the mandatory provisions of Section 174(1) of the Income Tax Act, 1961, is legally sustainable ?"

The facts necessary for deciding the appeal are that the appellant-asses-see initially filed an estimate of advance tax on June 11, 1981, showing a total income of Rs. 2,17,820. On December 15, 1981, it filed a revised estimate in Form No. 29 showing an income of Rs. 44,00,000 and paid tax amounting to Rs. 27,06,000. The return of income was filed on June 29, 1982, in which the assessee declared a total income of Rs. 58,26,380. The assessment was completed u/s 154 of the Act on April 15, 1986, at an income of Rs. 1,03,12,120, but in pursuance of an order dated August 22, 1991, passed by the Income Tax Appellate Tribunal (for short "the Tribunal"), it was worked out at Rs. 1,02,23,174. In the meanwhile the Assessing Officer initiated penalty proceedings u/s 273(2)(aa) of the Act and vide order dated January 22, 1991, he imposed a penalty of Rs. 4,44,100. The Commissioner of Income Tax (Appeals), Patiala (for short "the CIT (A)"), partly accepted the appeal filed against that order and reduced the amount of penalty to Rs. 2,22,050 by making the following observations :

"I have carefully considered the arguments for the appellant and find some force in these. Before the learned Assessing Officer, the appellant did not file any reply in response to show-cause notice. At the first appeal stage before me, learned counsel for the appellant confined his arguments only to the appellant''s bona fide belief at the time of filing the estimate of advance tax that profit on import entitlements amounting to Rs. 31,29,819 was not taxable as mentioned in the appellant''s written submissions dated March 11, 1992. It is however, seen that penalty would be leviable even if the amount of Rs. 31,29,819 is excluded from the assessed income. In fact, penalty would be leviable even on the basis of the returned income which did not include the aforesaid amount of Rs. 31,29,819 as would be clear from the following details :

Rs. Returned income 58,26,380 income tax payable on returned income 34,95,828 Surcharge at 2.5 per cent. 87,395 ---------- Total tax payable 35,83,223 ---------- 83.33 per cent, of the tax payable 29,85,900 Less : Advance tax paid 27,06,000 ----------- Deficiency 2,27,900 ------------

It is seen that the appellant''s accounting period for the year under consideration ended on June 30, 1981, and the estimate of advance tax in question was filed by the appellant on December 15, 1981, i.e., 5 1/2 months after the close of the accounting period. The appellant must, therefore, have been aware of its income for this year when it filed the estimate of advance tax on December 15, 1981. No reason has been given by the appellant as to why the income estimated in the estimate of advance tax is much less than even the income returned, and the circumstances show that the appellant must have been aware of its true income when the estimate of advance tax was filed, the accounting year of the appellant having ended 5 1/2 months before the filing of the estimate of advance tax. The rule of evidence in Income Tax proceedings is preponderance of probability and in view of the facts mentioned above, it looks highly probable that the appellant knew or had reason to believe that the estimate of advance tax filed by it on December 15, 1981, was untrue. Penalty u/s 273(2)(aa) is, therefore, held to be exigible in the facts and circumstances of the instant case. Regarding calculation of penalty and the appellant''s contention that the penalty should be imposed at the minimum rate after excluding the amount of Rs. 31,29,819 from income assessed we find that the calculation of penalty is statutorily prescribed and has to be adhered to. Once penalty is held to be exigible, it has to be calculated with reference to the assessed tax, and no discretion is given to any authority to alter the figure of assessed tax by excluding there form the tax payable on items of income, the taxability of which could not be envisaged by an assessee at the time of filing the estimate of advance tax. If such items of income are found included in the assessed income then it could, at best, be a mitigating circumstance, keeping in view which, the minimum penalty may be imposed, as in the matter of calculation of penalty, the only discretion vested in the assessing/appellate authorities is to impose penalty ranging from 10 per cent. to 150 per cent. Therefore, the appellant''s plea that tax payable on the aforesaid income of Rs. 31,29,819 should be excluded from the assessed tax for the purpose of calculation of the impugned penalty, cannot be acceded to. However, this is indeed a mitigating circumstance and I am of the view that in view of this mitigating circumstance, only the minimum penalty at 10 per cent. should have been imposed. The penalty of Rs. 4,44,100 imposed by the learned Assessing Officer at the rate of 20 per cent. is accordingly reduced to the minimum penalty leviable at 10 per cent., i.e., Rs. 2,22,050."

The second appeal filed by the appellant was dismissed by the Tribunal by assigning the following reasons :

"After considering the rival submissions, we are of the view that there is no merit whatsoever in the arguments advanced by counsel for the appellant on the question of onus. As rightly contended by the learned Departmental Representative the onus shifts to the Revenue only after relevant information is placed by the assessee on record. In the present case there was a shortfall of Rs. 2,79,900 vis-a-vis the estimate filed and the returned income itself which excluded the income on account of import entitlements. Further as rightly noted by the Commissioner of Income Tax (Appeals) the previous year of the assessee ended on June 30, 1981, and the estimate was filed in December, 1981, showing estimated income of Rs. 44 lakhs and in response to a specific query from the Bench, learned counsel could not indicate as to how the aforesaid figure had been worked out. It may be appreciated that this is the case of a private limited company whose accounts are audited and the report of the auditor is dated April 16, 1982. The net profit as per profit and loss account was worked out a figure exceeding a crore of rupees and it is not possible to accept that in December, 1981, when the estimate was filed, the assessee had no inkling as to what was its estimated income. A perusal of the order passed by the Tribunal in the quantum appeal, shows that the assessee conceded that the sum on account of import entitlements was taxable and the decisions in the past had been against it. The learned counsel did not place on record the earliest judgment of the Tribunal which had taken a view against it on the point at issue. In the final analysis, we uphold the action of the Commissioner of Income Tax (Appeals) in confirming the penalty u/s 273(2)(aa) on the assessee."

Shri A. K. Mittal referred to the provisions of Sections 28(iii)(a) of the Act to show that the profits on import entitlements were made exigible with retrospective effect from April 1, 1962, by the Finance Act, 1990, and argued that the non-inclusion of Rs. 31,29,819 representing the profits on import entitlements cannot be treated as an act of deliberately furnishing untrue estimate of advance tax so as to attract penalty u/s 273(2)(aa) of the Act. Learned counsel then submitted that the view taken by the Allahabad High Court in Swadeshi Cotton Mills Co. Ltd. Vs. Commissioner of Income Tax, , that the amount of profits on import entitlements is exigible as income from business was the subject-matter of Section L. P. No. 1049 of 1980 in which notice had been issued by the Supreme Court and, therefore, the petitioner had not included the profits on import entitlements in the estimate of advance tax. Learned counsel further argued that the initial statement of advance tax filed on June 11, 1981, showing an income of Rs. 2,17,720 was based on the income of the previous year and the mere fact that at a later point of time, the revised estimate of advance tax showing an income of Rs. 44,00,000 had been filed cannot lead to an inference that the appellant had deliberately furnished an incorrect estimate of advance tax. Shri Mittal also pointed out that the accounts of the appellant had been audited on April 16, 1982, and submitted that it cannot be accused of having concealed the income. In support of his arguments, Shri Mittal relied on the decisions of this court in Additional Commissioner of Income Tax Vs. Bipan Lal Kuthiala, and Commissioner of Income Tax Vs. Pratap Chand Maheshwari, .

Shri R. P. Sawhney, learned senior counsel appearing for the respondents, controverted the submissions of Shri Mittal and argued that none of the questions sought by the appellant can be treated as a substantial question of law requiring determination by this court. Shri Sawhney pointed out that the lack of bona fides on the part of the appellant is established from the fact that as on the date of the filing of revised estimate of advance tax, the appellant was aware of its total income and yet it had filed an incorrect return of income by suppressing the profit of Rs. 31,29,819 on import entitlements and the business income of Rs. 14,00,000 (approximately). Learned counsel argued that the concurrent findings recorded by the Assessing Officer, the Commissioner of Income Tax (Appeals) and the Tribunal that the appellant had an filed incorrect estimate of advance tax do not give rise to any substantial question of law. He further argued that the profit on the import entitlements could not have been excluded from the estimate of advance tax because the appellant was conscious about the status of such profits.

We have considered the respective submissions. In our opinion, the questions sought by the appellant cannot be treated as substantial questions requiring determination by this court u/s 260A of the Act. Section 273(2)(aa) read with Sub-section (I)(a) thereof lays down that if the Assessing Officer, in the course of any proceedings in connection with the regular assessment for the assessment year commencing on April 1, 1970, or any subsequent year, is satisfied that any assessee has furnished under Sub-section (4) of Section 209A or under Sub-section (3A) of Section 212,"an estimate of the advance tax payable by him which he knew or had reason to believe to be untrue, he may direct that such person shall, in addition to the amount of tax, pay by way of penalty a sum which shall not be less than 10 per cent, but shall not exceed 1 1/2 times the amount by which the tax is actually paid during the financial year immediately preceding the assessment year under the provisions of Chapter XVII-C falls short of 75 per cent. of the assessed tax as defined in Sub-section (5) of Section 215. The crucial expression used in clause (aa) of Sub-section (2) of Section 273 is "which he knew or had reason to believe to be untrue." Therefore, what is to be seen is as to whether the appellant had knowingly furnished an untrue estimate of advance tax or had reason to believe that the estimate furnished by it was untrue. A look at the order passed by the Assessing Officer shows that after issuing notice to the appellant u/s 273(2)(aa) to which it did not submit reply, the Assessing Officer passed the order of penalty on the premise that it had knowingly filed an untrue . estimate of advance tax. The Commissioner of Income Tax (Appeals) considered the written submissions dated January 16, 1992, and March 11, 1992, filed on its behalf and held that the appellant had knowingly filed an untrue statement of income and, therefore, it was liable to suffer penalty. He, however, reduced the amount of penalty by 50 per cent. The Tribunal confirmed the order of the Commissioner of Income Tax (Appeals) by observing that counsel appearing on behalf of the appellant could not indicate as to how the figure of Rs. 44 lakhs shown in the return of estimated income filed in December, 1981, had been worked out. It further observed that as per the profit and loss account, the net profit was worked out at a figure exceeding rupees one crore and, therefore, it was not possible to accept that in December, the appellant had no inkling about its estimated income. The Tribunal also took note of the fact that in the quantum appeal, the representative of the appellant had conceded that the profit on import entitlements was taxable.

In our opinion, the concurrent findings recorded by the Commissioner of Income Tax (Appeals) and the Tribunal do not suffer from any legal error and the orders passed by them do not give rise to any substantial question of law. At the cost of repetition, we deem it necessary to mention that as on the date of filing of the revised estimate of income, i.e., December 15, 1981, a period of more than 5 1/2 months had elapsed from the end of the accounting year and as on that day, the appellant was aware of its true income. Notwithstanding this, it chose to file the estimate of advance tax suppressing an income of Rs. 14,00,000. Therefore, the conclusion recorded by the Assessing Officer, the Commissioner of Income Tax (Appeals) and the Tribunal about the deliberate filing of incorrect estimate of advance tax cannot be termed as perverse giving rise to a question of law. We are further of the view that non-inclusion of the profits on import entitlements was a deliberate act of not filing the true estimate of income with the object of avoiding payment of advance tax and the appellant cannot rely upon the notice issued by the Supreme Court in the Section L. P. filed against the judgment of the Allahabad High Court in the case of Swadeshi Cotton Mills Co. Ltd. Vs. Commissioner of Income Tax, , to justify its action, more so because no evidence was produced by it before the Assessing Officer to show that it was relying upon the order passed by the Supreme Court for not including the profit on import entitlements in the estimate of advance tax.

The decisions relied upon by Shri Mittal do not have any bearing on the facts of this case. In those cases, this court had found that the assessee was not guilty of deliberately filing incorrect returns and, therefore, there was no justification to impose penalty. As against this, in the present case the concurrent findings recorded the by the Commissioner of Income Tax (Appeals) and the Tribunal are that the appellant had filed an estimate of advance tax fully knowing that it was untrue. Therefore, we do not find any valid ground to entertain the appellant''s prayer for determination of questions of law framed by it.

For the reasons mentioned above, the appeal is dismissed.