High Court Of Kerala
CIT vs. Kerala Transport Co.
Sections 271(1)(c), Expln.
Asst. Year 1982-83
K.S. Radhakrishnan & C. Kuriakose, JJ.
IT Ref. No. 295 of 1997
5th November, 2003
Counsel Appeared
P.K.R. Menon & George K. George, for the Applicant : C. Kochunny Nair, for the Respondent
JUDGMENT
K.S. Radhakrishnan, J. :
The CIT, Cochin requested the Tribunal to refer the following questions of law under s. 256(1) of the IT Act to this Court : “1. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law and facts in holding that mens rea cannot be attributed to the assessee? Whether, on the facts and in the circumstances of the case, was the Tribunal right in law and fact in upholding the finding of the CIT(A) that there was no intention to conceal the income and the omission to claim expenditure was unintentional error? Whether, on the facts and in the circumstances of the case, was the Tribunal right in law and fact in holding that immunity should be granted in respect of Rs. 4,02,362? Whether, on the facts and in the circumstances of the case, was the Tribunal right in law and fact in concurring with the finding of the CIT(A) that it was due to oversight that the freight receipts lying in the hands of M/s Nidhish Transport Corporation were omitted to be included in the accounts of the assessee as the income when it filed its return of income and in holding that the CIT(A) has rightly deleted the penalty on this count? Whether, on the facts and in the circumstances of the case, was the Tribunal justified in law and fact in upholding the finding of the CIT(A) in cancelling the penalty levied on the assessee for twice accounting lease rent of lorry in favour of Smt. P.V. Sherine and M/s. Mavoor Trade Links?” We consolidate the above questions and reframe as the following two questions:
“1. Whether, in the absence of a reference application filed at the instance of the assessee, the assessee is precluded from raising the contention whether he is entitled to get full exemption under the Amnesty Scheme?
2. Whether, on the facts and in the circumstances of the case, the Tribunal is justified in cancelling the penalty imposed under s. 271(1)(c) of the Act?”
2. The assessee is a registered firm engaged in the business of transportation of goods. Upto the previous year, relevant to the asst. yr. 1981-82, the assessee followed mercantile system of accounting. For and from the asst. yr. 1982-83, however, it changed its method of accounting to cash system in respect of receipts only and accounted for the expenditure on accrual basis. Assessee returned a loss of Rs. 12,13,367. Assessment was completed on 28th Oct., 1985, on a total income of Rs. 63,79,240. While completing the assessment, AO rejected the cash system of accounting adopted by the assessee in respect of its receipts and applied mercantile system of accounting. ITO felt that the method of accounting adopted by the assessee was incorrect and irrational. According to the officer, if the appellant wanted to follow cash system for receipts it should have followed the same cash system for expenses also. ITO also took note of the fact that the assessee by its letters dt. 3rd Oct., 1985 and 18th Oct., 1985, had agreed to the inclusion of Rs. 15,88,204 (general freight receipts) and Rs. 7,32,917 receipts from sister concern Nidhish Transport Corporation. Various additions were also made in the assessment. AO also initiated penalty proceedings under s. 271(1)(c) of the Act in respect of some of the additions.
In the quantum appeal, the first appellate authority had allowed relief of Rs. 3,05,075 and consequently reduced the total income to Rs. 60,74,170. First appellate authority also upheld the rejection of the cash system of accounting adopted by the assessee in respect of its receipts. Assessee filed a further appeal before the Tribunal objecting to the rejection of the cash system of accounting. For taking the benefit under the Amnesty Scheme the assessee withdrew that appeal on 28th Feb., 1986 and filed an amnesty return admitting a total income of Rs. 60,19,550. Subsequently, the assessee filed a revised return admitting total income of Rs. 60,87,420. Reassessment order was passed on 31st July, 1986, accepting the total income declared in the return stating that the assessee is entitled for immunity under the Voluntary Disclosure Scheme only in respect of Rs. 23,77,780 i.e., the amount disputed in appeal. In respect of other additions the assessee is not entitled for the benefit of immunity under the Voluntary Disclosure Scheme. Penalty proceedings originally initiated were allowed to continue.
The ITO after obtaining the assessee’s explanation levied penalty of Rs. 21 lakhs under s. 271 (1)(c) of the IT Act. Assessee took up the matter before the CIT(A) and contended that there was no deliberate defiance of law and that all receipts were duly accounted for in the books, but because of voluminous transactions and the absence of qualified staff there were clerical errors and wrong postings in the accounts. Further, it was also contended that additions were made by not accepting the change in the method of accounting and further that as higher income had been offered under the Amnesty Scheme no penalty was exigible. The CIT(A) held that the immunity under the Amnesty Scheme need not be with reference to the entire income declared thereunder, but could be restricted to a part of the income declared under the scheme. Appellate authority noticed that the Department had granted immunity in respect of freight collections receivable for a sum of Rs. 24,01,534 and held that in the same manner immunity should have been extended to freight collections receivable from Nidhish Transport Corporation in a sum of Rs. 4,02,362. CIT(A), therefore, cancelled the penalty of Rs. 21 lakhs levied under s. 271(1)(c) of the Act. Revenue took up the matter in appeal before the Tribunal. Tribunal also concurred with the view of the CIT(A) that the benefit under the Amnesty Scheme should have been extended to the amount collected from Nidhish Transport Corporation. Tribunal observed that the assessee being a transport company having large number of branches with transactions running into crores of rupees the switchover to cash basis from mercantile system in respect of receipts could not be said to be without reasonable cause. Tribunal observed that it was not open to the AO to make the computation of income upon such basis and in such manner as it may determine in a case where the income could not be correctly deduced from the accounts maintained by the assessee and that was what had happened in respect of the freight collection of Rs. 24,01,534 and also in respect of the sum of Rs. 4,02,362 also being freight collection. Tribunal felt that once immunity was granted in respect of the former amount there was inequity in not granting immunity in respect of the second sum as well. Tribunal accordingly dismissed the appeal in favour of the assessee.
Learned senior standing counsel for IT Department, Sri P.K. Ravindranatha Menon, argued two cardinal points. Counsel submitted that the ITO is justified in awarding penalty of Rs. 21 lakhs under s. 271(1)(c). Counsel submitted in the light of Expln. 1, the explanation that could be taken note of or taken cognizance of by the authorities and the Tribunal is the explanation offered by the assessee during the course of assessment of income (quantum assessment). In the quantum assessment the assessee had no explanation to offer with reference to the concealed income subjected to penalty. Counsel pointed out Rs. 15,88,204 and Rs. 7,32,917 were offered/admitted by the assessee and the assessee instead of offering an explanation for not returning the amounts offered the amount as per two letters as income to be assessed. Counsel submitted an admission or offer of amounts in the assessment or quantum assessment would justify a penalty especially in the light of Expln. 1. Counsel pointed out in the light of cl. (A) of Expln. 1 to s. 271(1)(c) where in respect of any facts material to the computation of total income such person fails to offer an explanation, then the amount added in computing the total income of such person as a result thereof shall for the purpose of cl. (c) of s. 271(1) be deemed to represent the income in respect of which particulars have been concealed. Counsel submitted in the instant case instead of offering an explanation assessee offered the amounts as income. Further, it is also pointed out that with reference to the amounts subjected to penalty the assessee did not offer any explanation, instead agreed for the addition. So, there was no question of substantiating the same as contemplated under sub-cl. (B) of Expln. 1 to which alone the proviso applies.
In order to establish his contention counsel placed reliance on the decisions of this Court and Supreme Court in Addl. CIT vs. Jeevan Lal Sah (1994) 117 CTR (SC) 130 : (1994) 205 ITR 244 (SC), CIT vs. A. Sreenivasa Pai (2000) 160 CTR (Ker) 216 : (2000) 242 ITR 29 (Ker), CIT vs. K.P. Madhusudanan (2001) 165 CTR (Ker) 353 : (2000) 246 ITR 218 (Ker), CIT vs. Kishorekumar Shamji (2000) 161 CTR (Ker) 225 : (2000) 244 ITR 702 (Ker) and ITO vs. C.D. Joseph (2003) 179 CTR (Ker) 137 : (2003) 126 Taxman 220 (Ker). Counsel also took us through the explanation to the contention raised by the counsel for the assessee that the assessee is entitled to the benefit of Amnesty Scheme for the entire amount and the same should not be limited to the amounts deleted in appeal. Counsel submitted in the absence of a reference application filed at the instance of the assessee, the assessee is precluded from raising the contention that it is entitled to full exemption. Counsel placed reliance on the decision of the Supreme Court in CIT. vs. V. Damodaran (1979) 13 CTR (SC) 191 : (1980) 121 ITR 572 (SC).
7. Counsel appearing for the assessee, Sri Kochunni Nair, on the other hand, contended that the assessee being a transport company having large number of branches spread over the country with transactions running into crores of rupees, the switch over to cash basis from mercantile system in respect of its receipts cannot be said to be without any reasonable cause. Counsel submitted there is no concealment of income by the assessee and for such concealment of particulars of income or the furnishing of inaccurate particulars of such income s. 271(1)(c) would not apply. Counsel submitted according to the assessee, cl. (B) to Expln. 1 would apply since assessee had offered explanation. Explanation was the change in method of accounting system. Any way counsel submitted cl. (A) to Expln. 1 would not apply as contended by the Revenue. Counsel also made reference to the decision of this Court in CIT vs. A.M. Zainalabdeen Musaliar (2001) 168 CTR (Ker) 243 : (2001) 250 ITR 534 (Ker). Counsel also submitted that he is entitled to get full benefit of Amnesty Scheme. Counsel submitted assessee is entitled to claim full benefit under the Amnesty Scheme through the reference application made by the Department. Counsel also placed reliance on V. Damodaran’s case (supra).
We heard counsel on either side at length. We have also gone through the various circulars issued under the Amnesty Scheme and also examined the scope of s. 271 of the IT Act. We have also perused the decisions of this Court in K.P. Madhusudanan’s case (supra), A. Sreenivasa Pai’s case (supra) and Kishorekumar Shamji’s case (supra). We are in agreement with the counsel appearing for the Revenue that the CIT(A) or the Tribunal has not properly understood the scope of the said provision and not addressed the question in the right perspective. On going through the materials placed before us we are in agreement with the counsel for the Revenue that the assessee had not offered any explanation with regard to certain additions made. On the contrary the assessee by its letters dt. 3rd Oct., 1985 and 18th Oct., 1985, had agreed to the inclusion of Rs. 15,88,204 (general freight receipts) and Rs. 7,32,917 receipts from sister concern Nidhish Transport Corporation. In fact CIT(A) and the Tribunal have taken note of the fact that there was a clear omission of Rs. 15,88,204 out of general freight receipts and a further omission of Rs. 7,32,917 out of receipts from the sister concern viz., Nidhis Transport Corporation. CIT(A) also took note of the fact that the appellant by its letters dt. 3rd Oct., 1985 and 18th Oct., 1985, had agreed to the inclusion of these two amounts in the total income. We may also point out in the voluntary disclosure assessment except two amounts viz., Rs. 23,63,318 and Rs. 14,400 assessee did not dispute the additions in appeal. The amounts objected to by the assessee or the amounts for which the assessee had offered an explanation in the assessment (quantum) has been given the benefit of the Amnesty Scheme. We are of the view these vital aspects were not taken note of either by the CIT(A) or by the Tribunal. We also notice that the CIT(A) or the Tribunal had not properly addressed application of Amnesty Scheme and the various circulars pertaining to the said scheme. Contention was raised by the counsel for the Revenue that the circulars would indicate that Amnesty Scheme would apply only to the additional income and the assessee had not returned any additional income and the so-called additional income (difference between Rs. 60,74,170 and Rs. 60,87,420) was not voluntarily returned.
In the said circumstances we feel the matter requires a second look at the hands of the Tribunal. Under such circumstances we are inclined to set aside the order of the Tribunal Annex. C. We also feel that in order to answer the questions raised as to whether the assessee had given any proper explanation before the assessing authorities which would satisfy cl. (B) to Expln. 1 of s. 271(1)(c) and the question as to whether the assessee had failed to offer explanation, etc. a further examination is necessary. The applicability of Amnesty Scheme in the facts of the case and the circulars issued under the scheme are also to be examined by the Tribunal afresh. We therefore, set aside Annex. C order and direct a de novo consideration. Considering the fact that the issue arises out of asst. yr. 1982-83, it would be appropriate that the Tribunal would pass final orders within a period of three months from the date of receipt of a copy of this judgment. Parties would co-operate for early disposal of the same.
[Citation : 270 ITR 149]
