High Court Of Gujarat
Garden Silk Weaving Factory vs. CIT
Section 271(1)(c)
Asst. Year 1968-69
R.C. Mankad & S.B. Majmudar, JJ.
IT Ref. No. 299 of 1978
28th March, 1988Â
Counsel Appeared
Thakore with J.P. Shah, for the Assessee : K.N. Raval i/b M/s R.P. Bhatt & Co., for the Revenue
C. MANKAD, J.:
The Income-tax Appellate Tribunal (“the Tribunal” for short) has referred to us for our opinion the following questions under s. 256(1) of the IT Act, 1961 (“the Act” for short) : “(1) Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in rejecting the contention of the assessee that it had disclosed a profit of Rs. 3 lakhs in the first revised return on its own without any inquiry being made by the ITO and without any evidence to the contrary adduced by the Department ?(2) Whether there is any evidence on record to support the finding that the appellant had concealed a profit of Rs. 5,28,547 ? (3) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that the assessee was liable to penalty on the estimated profit of Rs. 5,28,547 under the substantive provisions of s. 271(1)(c) of the Act or in the alternative under the Explanation to s. 271(1)(c) of the Act ? (4) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that the assessee was liable to penalty of Rs. 7,92,820—150 per cent of the income concealed ?”
2. The controversy involved in the questions which are referred to us for our opinion relates to the asst. yr. 1968- 69. The assessee is a registered partnership firm carrying on the business of manufacture of cloth. It purchases yarn from the local market and also imports the same. Sometimes the yarn is sold as such and sometimes art silk cloth is manufactured from yarn and sold in the local market as well as exported. The assessee submitted in all four returns for the assessment year under reference as follows : S. No. Date of filing the return Total income returned . . Rs. 17-9-1968 3,94,483 30-3-1971 4,42,764 28-2-1972 5,90,662 17-2-1973 17,041
In the first revised return which was held on 30th March, 1971, the assessee returned a profit of 3 lakhs on account of sale of import licence No. P/EP 2568395 valued at Rs. 12,708. It appears that the assessee had exported its products in the calendar year 1966 and as a result of such export, it became entitled to certain import licences. Two licences were issued to the assessee on 25th Feb., 1967. One of such licences was a licence for Rs. 12,708 referred to above and under this licence, the assessee was entitled to import art silk yarn, tar dyes and textile chemicals of the value of Rs. 12,708. Second licence No. P/EP 2568396 authorised the assessee to import art silk yarn valued at Rs. 8,402. The amounts of both the licences were altered. The amount of the first licence was altered from Rs. 12,708 to Rs. 1,12,708 while the value of the second licence was altered from Rs. 8,402 to Rs. 68,402. It is the assessee’s case that it sold the licence, the value of which was Rs. 12,708 (altered to Rs. 1,12,708) for Rs. 3 lakhs and thus a profit of Rs. 3 lakhs was earned. This profit was disclosed in the first revised return filed on 30th March, 1971, as stated above. In this first revised return, the assessee also claimed depreciation and development rebate. In the second revised return, the assessee claimed deduction of Rs. 4,18,000 being the penalty levied under the Central Excises and Salt Act. It also claimed deduction under s. 80J of the Act in the last revised return which was filed on 17th Feb., 1973. The Income-tax officer (“the ITO” for short) computed the total income of the assessee for the assessment year under reference at Rs. 19,17,460 as per his assessment order passed on 14th March, 1973. The ITO also initiated action for imposition of penalty before completion of the assessment under s. 271(1)(c) of the Act and as the minimum penalty imposable exceeded Rs. 25,000, the penalty proceedings were referred to the Inspecting Assistant Commissioner (“the IAC” for short).
The assessee preferred an appeal before the Appellate Assistant Commissioner (“the AAC” for short) against the assessment order. The AAC reduced the total income of the assessee to Rs. 14,95,537. In the further appeal by the assessee, the Tribunal confirmed the assessment of the total income made by the AAC.
The ITO had initiated penalty proceedings as stated above for the following items of income which were not disclosed by the assessee in the original return : . Rs. (1) Profit on goods imported and sold 5,67,523 (2) Investment and expenses sources of which remained unexplained . (a) Amount paid into the United Bank of India, Jhaveri Bazar Branch, for 1,13,253 opening letters of credit (b) Customs duty paid on different dates 4,33,403 (c) Payment made to one Shri Pankaj for forgery 20,000 Total 11,34,179
An addition in respect of the first item of income was reduced to Rs. 5,28,407 from Rs. 5,67,523 as a result of the decision of the AAC and the Tribunal in the appeals preferred by the assessee. The addition in respect of item No. 2(a) was reduced to Rs. 87,152 from Rs. 1,13,253 in the appeal by the AAC which was confirmed by the Tribunal. The addition of item No. 2(b) was reduced by the Tribunal to Rs. 1,05,790 from Rs. 4,33,403, while addition of item No. 2(c) was confirmed both by the AAC and the Tribunal. Thus, the total addition of the aforesaid items as a result of the decisions of the AAC and the Tribunal in the appeal preferred by the assessee worked out to Rs. 7,41,408.
The IAC issued notice to the assessee, calling upon it to show cause why penalty should not be levied in respect of the aforesaid items which were either concealed or in respect of which inaccurate particulars of income were furnished by the assessee. The assessee gave reply dt. 10th Aug., 1976, to the notice and sent along with its reply photostat copies of three affidavits. The IAC thereafter sent a communication to the assessee fixing the hearing of the case on 13th Aug., 1976, and calling upon the assessee to produce the original affidavits and the persons who had made affidavits for examination. The assessee requested for further time to produce the persons who had made affidavits. These persons were Sureshbhai A. Shah, Girish Mohanlal and Shantilal S. Parekh. The IAC, however, informed the assessee that as penalty proceedings were becoming time-barred on 31st Aug., 1976, it was not possible to extend the time. Shantilal S. Parekh was produced before the IAC and his statement was recorded by the IAC. The assessee submitted before the IAC that as the other two persons who had made affidavits could not be produced, their affidavits may be considered. The IAC, after hearing the assessee, for the reasons set out in his order, imposed penalty of Rs. 11,02,000.
Being aggrieved by the penalty imposed by the IAC, the assessee carried the matter in appeal before the Tribunal. The Tribunal considered the following items of income for the purpose of penalty : The Tribunal, by its order dt. 29th July, 1977, held that no penalty was leviable in respect of items Nos. 2, 3 and 4. In other words, the question of levy of penalty was confined to the first item of Rs. 5,28,547. The Tribunal rejected various contentions raised before it by the assessee in the context of the above item of income and decided to levy penalty of Rs. 7,92,800. In other words, penalty of Rs. 11,02,000 levied by the IAC was reduced to Rs. 7,92,820 under s. 271(1)(c) of the Act. It is in the background of the above facts that the four questions set out above are referred to us for our opinion.
7. Sec. 271(1)(c), insofar as is relevant and as it stood at the relevant time, read as under : “271(1). If the ITO or the AAC, in the course of any proceedings under this Act, is satisfied that any person—… (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,—… (iii) in the case referred to in cl. (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. Explanation.—Where the total income returned by any person is less than eighty per cent of the total income (hereinafter in this Explanation referred to as the correct income) as assessed under s. 143 or s. 144 or s. 147 (reduced by the expenditure incurred bona fide by him for the purpose of making or earning any income included in the total income but which has been disallowed as a deduction), such person shall, unless he proves that the failure to return the correct income did not arise from any fraud or any 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 cl. (c) of this sub-section.”
It is not disputed that the assessee’s case is covered by the Explanation and, therefore, it was for it to establish that failure to return the correct income did not arise from any fraud or gross or wilful neglect on its part and unless it so establishes, it shall be deemed to have concealed the particulars of its income or furnished inaccurate particulars of its income for the purposes of cl. (c) of s. 271 (1). As pointed out above, the Tribunal held that the assessee was guilty of having concealed income of Rs. 5,28,547 or of having furnished inaccurate particulars thereof. Therefore, under sub-cl. (iii), the minimum penalty which was leviable was Rs. 5,28,547 and the maximum was of Rs. 10,57,094. As stated above, the Tribunal has levied a penalty of Rs. 7,92,820.
8. The learned Advocate-General appearing for the assessee raised the following contentions in support of the assessee’s plea that no penalty could have been levied under s. 271(1)(c) : (1) The assessee had voluntarily filed a revised return on 30th March, 1971, in which it had disclosed an income of Rs. 3 lakhs earned by it by sale of the licence valued at Rs. 12,708. (2) The Central Board of Direct Taxes (“the CBDT” for short) had issued an advertisement in the newspaper dt. 5th Jan., 1971, wherein it was stated to the effect that if the original return filed by the assessee was false, he might file a revised return to avoid the consequences of discovery. The revised return, in which a profit of Rs. 3 lakhs was disclosed as stated above, was filed after the advertisement was given. (3) The addition of Rs. 5,28,547 was made only on the basis of an estimate of profit earned by the assessee by sale of yarn. (4) There was no justification for rejecting the assessee’s plea that it had earned only Rs. 3 lakhs by sale of the licence and to estimate the profits at Rs. 5,28,547. In other words, it was submitted that the question whether or not there was any justification for the addition of Rs. 5,28,547 should have been examined on merits by the Tribunal. (5) There was no evidence to support the conclusion that the assessee had earned the profit of Rs. 5,28,547 by sale of yarn.
The evidence and material on record disclose that the assessee had exported its product in the calendar year 1966 and on account of such export, it became entitled to two import licences. As stated above, one licence for Rs. 12,708 was for import of art silk yarn, tar dyes and textile chemicals while the licence for Rs. 8,402 was for import of art silk yarn. Alternations were made in both the licences by altering the amounts for which the licences were issued. The figure of Rs. 12,708 was altered to Rs. 1,12,708 in one licence, while the figure of Rs. 8,402 was altered to Rs. 68,402 in the other. The case of the assessee is that it had sold the licence for Rs. 12,708 for Rs. 3 lakhs. It appears that it was only when yarn was sought to be imported on the second licence which was for Rs. 8,402 before its alternation that it came to light that both the licences were altered as stated above. The Customs authorities and the Central Bureau of Investigation (“the CBI” for short) instituted an inquiry and it was in the course of this inquiry that it was found that the amounts mentioned in the licences were altered. In the course of the inquiry, it appears, the CBI searched the premises of the assessee on 20th Dec., 1968. The IT Department was also associated with this search and at that time cash amounting to Rs. 80,000 was recovered. The assessee’s contention was that it had sold the licences to two parties, namely, one Vanmalidas Dahyabhai, proprietor of M/s Sanghavi & Co., and Maneklal Dharamchand Shah. The CBI recorded the statements of the said two persons. In his statement recorded on 2nd Jan., 1969, Maneklal D. Shah denied having purchased either the licence or goods from the assessee. Vanmalidas Dahyabhai, in his statement recorded on 28th Jan., 1969, admitted that he had purchased 54 cartons of nylon yarn from the assessee on 17th Aug., 1967, for Rs. 1,10,272. He, however, stated that the purchase voucher was issued on the letterhead of one M/s Alka Textiles, of which one N.S. Maniar was the proprietor. All the 54 cartons were sold to Kohinoor Mills Co. Ltd. at Rs. 3,316 per carton. The statements of Mangaldas T. Shah, partner of M/s Kantilal Chhaganlal Damania, clearing agents for the consignment, and of Shri Narayan Sahdev Tumbra, an employee of the said clearing agents, were recorded. Mangaldas T. Shah, whose statement was also recorded by the Customs officers, stated that customs duty for some of the consignments was paid by Maneklal D. Shah, though the goods were cleared on the instruction of the partner of the assessee-firm.
It was after this inquiry by the Customs officers and CBI that the assessee addressed a letter dt. 29th March, 1971, to the CIT wherein it stated that licence No. P/EP 2568395 dt. 25th Feb., 1967, valued at Rs. 1,12,708 was sold for Rs. 3 lakhs. It is significant to note that in this letter the value of the licence is stated to be Rs. 1,12,708 and not Rs. 12,708 which admittedly was the value of the licence when it had been issued. It would, therefore, appear that alternation in the licence was made before the alleged sale of the licence. It was further stated in the application that a revised return disclosing the aforesaid income of Rs. 3 lakhs was filed. It was thereafter in that revised return filed on 30th March, 1971, an income or profit of Rs. 3 lakhs was disclosed. There is no doubt whatsoever that it was only after the inquiry by the Customs Department and the CBI and recording of the statements of various persons that the assessee decided to file the revised return. It is true that the revised return was filed after the advertisement as aforesaid was given by the CBDT and before the assessment for the year under reference was framed. However, the question is : Whether for that reason, the assessee can escape the penalty as urged on its behalf. Addition of Rs. 5,28,547 was made by the AAC and the Tribunal after examining various statements and the evidence on record. It was after examining the evidence on record that the AAC and the Tribunal rejected the assessee’s contention that it had sold the licence for Rs. 3 lakhs. It was found that the assessee itself had imported yarn and sold it. In other words, the assessee’s plea that it had sold the licences to two parties and that it was not in anyway concerned with the import of yarn on the basis of the said licences was disbelieved. It was further found that 54 cartons were sold to Kohinoor Mills Co. Ltd. at Rs. 3,316 per carton and it was on the basis of such sale that the market value of the total number of cartons imported was worked out. It would, therefore, appear that it was on the basis of the actual sale that the total profit earned by the assessee was worked out. The Tribunal re- examined the merits of the claim made by the assessee while dealing with the appeal preferred by the assessee against the penalty imposed by the IAC. It again, on re-examining the evidence found that the assessee’s claim that it had sold the licence for Rs. 3 lakhs was false and that it had itself imported yarn and sold it in the market. We have not referred to the evidence appreciated by the Tribunal in detail since, in our opinion, the finding which is recorded by the Tribunal is a finding of fact and there is no reason to disturb that finding in this reference. The entire evidence had been critically examined by the Tribunal in the light of the points raised by the assessee. And it is only after such examination that it has negatived the claim of the assessee and affirmed the view which was taken by it when dealing with the assessee’s quantum appeal. We have ourselves examined the evidence to which our attention was invited and we fully agree with the view taken by the Tribunal that the assessee’s claim that it had sold the licence for Rs. 3 lakhs is false and that it had itself imported yarn and sold it in the market. There is also no reason to take a view different from the view taken by the Tribunal so far as the market price of the yarn sold by the assessee is concerned.
11. It would thus appear that the statement which the assessee had made in its application to the CIT and the revised return which was filed on 30th March, 1971, as regards profit of Rs. 3 lakhs made by it was totally false. Although the assessee had earned a profit of Rs. 5,28,547, it had disclosed only Rs. 3 lakhs. The particulars of the profit of Rs. 3 lakhs were also false inasmuch as this profit was not earned by sale of the licence as stated by the assessee. Therefore, mere filing of a revised return will not absolve the assessee from liability to pay penalty for concealment of the aforesaid income or furnishing inaccurate particulars thereof. It is true that while considering the question of levy of penalty, as held by this Court in D. V. Patel & Co. vs. CIT (1975) 100 ITR 524 (Guj) : TC50R.803, the revised return which is voluntarily filed has to be taken into consideration. However, it is not the mere fact of filing of the revised return which has to be taken into account. It is the entire conduct of the assessee right from its inception to the filing of the revised return which has to be taken into consideration. The assessee did not disclose any profit earned by it either by sale of licence or by sale of yarn in the first return which it had filed. In the revised return, what was disclosed was not true. Instead of disclosing the profit earned by it by sale of yarn, it disclosed only a part of its profit by falsely stating that it was earned by sale of licence. For the same reasons, the mere fact that the CBDT had given an advertisement and invited assessees to file the revised return in cases where the original return was false, to avoid the consequence of discovery is also of no help to the assessee. If the assessee had returned the correct income in its revised return, then, perhaps, it could have been urged that since the assessee had filed the revised return in view of the advertisement given by the CBDT, no penalty was leviable. However, as already pointed out above, the assessee not only failed to return the correct income in the revised return but also made false statement regarding income which it disclosed. We are also inclined to agree with the view taken by the Tribunal that the revised return filed by the assessee was filed on account of the inquiry made by the Customs Department and the CBI and the statements recorded in the course of the inquiry. It is true that before the Customs Collector’s order levying penalty on the assessee was communicated to the assessee, the
assessee had filed the revised return. The Collector’s order imposing penalty of Rs. 3,43,000 on the assessee was passed on 5th March, 1971, but it was dispatched on 15th May, 1971. It is, therefore, clear that the assessee filed the revised return before the said order was dispatched or communicated to it. However, the assessee knew about the inquiry by the Customs Department and the CBI and the penalty proceedings which were pending before the Customs Collector when it filed the revised return. The assessee, therefore, it must be assumed, must have known that the true facts would come to light in the course of the income-tax assessment proceedings. It was, therefore, that it filed the revised return. The revised return was no doubt voluntary in the sense that it was filed without any notice or before the concealed income was detected by the ITO, but it could not be said to have been filed bona fide. But apart from that, as already pointed out above, even if it was voluntarily filed, it did not disclose its income truly and fully. In our opinion, having regard to the facts and circumstances of the case, the Tribunal was right in holding that penalty in respect of the aforesaid item of Rs. 5,28,547 was leviable under the substantive provisions of s. 271(1)(c) or the Explanation thereto. Once it is found that the assessee had concealed the income of Rs. 5,28,547 or furnished inaccurate particulars in respect thereof, it must be held that the penalty imposed on it by the Tribunal is reasonable and justified. In fact, having regard to the facts and circumstances of the case, even if the Tribunal had imposed the maximum penalty prescribed under law, it would have been justified. Therefore, having regard to the facts and circumstances of the case, imposition of penalty at 150 per cent of the income concealed, in our opinion, is fully justified.
In the view which we are taking, we answer all the questions referred to us for our opinion in the affirmative and against the assessee.
Reference answered accordingly with no order as to costs.
[Citation : 172 ITR 575]
