High Court Of Kerala
Income Tax Officer vs. Late C.D. Joseph
Section 271(1)(c), Expln. 1
Asst. Year 1989-90
G. Sivarajan & K. Balakrishnan Nair, JJ.
IT Appeal No. 8 of 1999
27th November, 2002
Counsel Appeared
P.K. Ravindranatha Menon & George K. George, for the Appellant : P. Balachandran, for the Respondent
JUDGMENT
K. Balakrishnan Nair, J. :
This is an appeal filed by the Revenue challenging the decision of the Tribunal affirming the decision of the CIT(A), which set aside the order of penalty imposed by the AO on the respondent. The brief facts of the case as disclosed by the pleadings of the appellant are the following :
The assessee is the proprietor of Chemmannur Jewellery, Thrissur. The assessment year concerned is 1989-90. The assessee filed a return of income showing a net loss of Rs. 1,27,600. The total turnover was Rs. 1,44,26,152 and the gross profit declared was only Rs. 7,99,933. The AO felt that it is too low as the percentage of gross profit worked out to be only at the rate of 5.54 per cent. Therefore, the AO. started investigation by calling for various details including books of accounts. Finally, the bill books were impounded under s. 131(1) on 28th Nov., 1991, by the assessing authority for further investigation. The assessee, on the very next day, i.e., 27th Nov., 1991, preferred a petition before the CIT under s. 273A making an offer of Rs. 15 lakhs by way of income from business to cover the undisclosed income for the relevant year. He also offered an additional amount of Rs. 1 lakh towards probable disallowance out of expenditure charged to P&L a/c. The AO, taking into account, the above offer and also on the basis of the investigation held by him, completed the assessment on a total income of Rs. 16,25,000. The assessment was completed by order dt. 24th March, 1992. In the said order, it was also stated that separate proceedings for imposing penalty under s. 271(1)(c) shall be initiated. Later, a show-cause notice under s. 274 r/w s. 271(1)(c) was issued to the assessee on 24th March, 1992, by the AO. The assessee replied on 20th April, 1992. The assessee was heard and taking into account the explanation and other relevant materials, the AO took the view that the assesee had concealed the particulars of his income and has furnished inaccurate particulars of income attracting penalty under s. 271(1)(c) and the minimum penalty of Rs. 9,05,373 was imposed on the assessee. Annexure A dt. 28th Sept., 1992, is the said order imposing penalty on the respondent-assessee.
The assessee filed an appeal before the CIT(A), Cochin, and the same was allowed by the appellate authority by Annexure B order dt. 9th Jan., 1995. The CIT(A), in the said order, held as follows : “From all facts, in my opinion, there was no clear establishment of concealment by the AO and hence the AO was not justified in levying penalty under s. 271(1)(c). In view of the decision of the Tribunal on similar facts in the case of Alapat Palathingal Fashion Jewellery and the decision of the Supreme Court in the case of Shadilal Sugar & General Mills Ltd. vs CIT (1987) 64 CTR (SC) 199 : (1987) 168 ITR 705 (SC) and the decision of the Kerala High Court in the case of CIT vs. Saraf Trading Corpn. (1987) 65 CTR (Ker) 60 : (1987) 167 ITR 909 (Ker), I am of the opinion that the AO was not justified in levying penalty under s. 271(1)(c) as he had not completely established the concealment on the part of the appellant and hence the order levying the penalty under s. 271(1) (c) is cancelled. In the result, the appeal is allowed.”
5. The aggrieved ITO appealed to the Tribunal mainly on two grounds. It was submitted that the burden was wrongly shifted to the AO to prove concealment. It was also submitted that the first appellate authority did not consider the effect of the Explanation to s. 271(1)(c). But, the Tribunal, by Annexure C order dt. 27th Oct., 1998, affirmed the order of the first appellate authority. The Tribunal held as follows : “On the facts and in the light of the ratio of the decisions relied on by the learned representative of the assessee, we are inclined to hold that no case of concealment has been established in this case in order to invoke the provisions of s. 271(1)(c) and that the CIT(A) was justified in cancelling the penalty levied under the above section. His order is accordingly upheld.
In the result, the Revenue fails and the appeal filed by it is dismissed.”
6. The Revenue appeals to this Court stating that the following substantial questions of law arise out the decision of the Tribunal :
“1. Whether, on the facts and in the circumstances of the case and also in the light of Explanation to s. 271(1)(c), the Tribunal is right in law in cancelling the penalty ?
Whether, on the facts and in the circumstances of the case and the question agitated before the Tribunal being the levy of penalty under s. 271(1)(c) should not the Tribunal have on its own considered the question under the relevant Explanation to s. 271(1)(c) or remitted the question to be considered under the relevant Explanation to s. 271(1)(c) ?
Whether, on the facts and in the circumstances of the case, the Tribunal is right in law and fact in holding that “no concealment has been established in this case in order to invoke the provisions of s. 271(1)(c) and is not the above finding wrong and against/without considering the relevant Explanation to s.271(1)(c) ?
Whether, on the facts and in the circumstances of the case and in the light of the decision of the Kerala High Court reported in Kerala Chemicals & Proteins Ltd. vs. CIT (1998) 150 CTR (Ker) 403 : (1999) 235 ITR 467 (Ker) and the specific ground relying on Explanation to s. 271(1)(c), being canvassed before the Tribunal is not the Tribunal bound to consider the relevant Explanation to s. 271(1)(c), the same being part of the provision itself ?”
Questions 2 to 4 practically deal with the same point, as to the omission of the Tribunal to consider the effect of the Explanation to s. 271(1)(c).
7. We heard both sides. The assessee relied on the decisions in CIT vs. Suresh Chandra Mittal (2000) 158 CTR (MP) 26 : (2000) 241 ITR 124 (MP), CIT vs. Suresh Chandra Mittal (2001) 170 CTR (SC) 182 : (2001) 251 ITR 9 (SC) and CIT vs. Sureshkumar Bansal & Anr. (2002) 173 CTR (P&H) 7 : (2002) 254 ITR 130 (P&H). The Revenue, on the other hand, relied on the decisions in Western Automobiles (India) vs. CIT 1977 CTR (Bom) 303 : (1978) 112 ITR 1048 (Bom), CIT vs. K. Mahim (1984) 39 CTR (Ker) 337 : (1984) 149 ITR 737 (Ker), CIT vs. P. T. Antony & Sons (1984) 42 CTR (Ker) 86 : (1985) 151 ITR 34 (Ker), CIT vs. M George & Brothers (1987) 59 CTR (Ker) 298 : (1986) 160 ITR 511 (Ker), Addl. CIT vs. Jeevan Lal Sah (1994) 117 CTR (SC) 130 : (1994) 205 ITR 244 (SC), Kerala Chemicals & Proteins Ltd vs. CIT (1998) 150 CTR (Ker) 403 : (1999) 235 ITR 467 (Ker), CIT vs. A. Sreenivasa Pai (2000) 160 CTR (Ker) 216 : (2000) 242 ITR 29 (Ker), K. P. Madhusudhanan vs. CIT (2001) 169 CTR (SC) 489 : (2001) 251 ITR 99 (SC), Dy. CIT vs. K. Sureshkumar (2002) 172 CTR (Ker) 375 : (2002) 253 ITR 640 (Ker). Every decision has to be understood in the light of the facts of that particular case. As rightly said by the Honourable Supreme Court in Willie Slaney vs. State of Madhya Pradesh 1955 (2) SCR 1140, “there is no such thing as a judicial precedent on facts that counsel and even Judges, are sometimes, prone to argue and to act as if they were”. A decision is available as precedent only if it decides a question of law. In other words, the principles laid down for arriving at a decision alone will bind as a precedent. In view of the above principles, we are not referring to all the decisions mentioned above, but will be considering only those decisions which are strictly relevant. But, before considering those decisions, it will be beneficial to refer to the relevant statutory provision. The relevant portion of s. 271 as it stood at the relevant time reads as follows : (1) If the AO or the CIT(A) in the course of any proceedings under this Act, is satisfied that any person(a)……………………………….. (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) .. (ii) . (iii) in the cases 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 three times, the amount of tax sought to be evaded by reason of the concealment of particulars of his income or the furnishing of inaccurate particulars of such income.
Explanation 1—Where in respect of any facts material to the computation of the total income of any person under this Act,- (A) such person fails to offer an explanation or offers an explanation which is found by the AO or the Dy. CIT(A) or the CIT(A) to be false, or(B) such person offers an explanation which he is not able to substantiate and fails to prove that such explanation is bona fide and that all the facts relating to the same and material to the computation of his total income have been disclosed by him, then, the amount added or disallowed in computing the total income of such person as a result thereof shall, for the purposes of cl. (c) of this sub-section, be deemed to represent the income in respect of which particulars have been concealed.” [Emphasis, italicised in print, supplied]
The main grievance of the Revenue, as stated earlier, is that the Tribunal failed to consider the impact of the Explanation to s. 271(1)(c). According to the Revenue, the assessment order will reveal the following facts. Originally, the gross profit shown by the assessee in his return was only 5 per cent whereas other jewellers admit that the gross profit will come to 10 to 15 per cent. The assessee was purchasing old gold ornaments on outright cash payment basis or in exchange for new gold ornaments. The purchase bills of the assessee for old gold ornaments did not show the actual weight, but the net weight after deducting the wastage alone was shown. It was also found that many of the purchase bills were bogus. They were prepared in the names of persons who actually did not sell any ornaments or in the name of his employees. It was also found that the purchase value of all the ornaments was inflated. When called upon to explain this aspect, the assessee could not give any proper explanation. It was also found that the assessee was issuing sale bills for new ornaments only to a nominal extent. Large extent of sale was conducted using estimate slips. This fact was verified from several customers. During the course of the assessment proceedings, as stated earlier, the assessee filed a petition under s. 273A and offered an amount of Rs.15 lakhs as net assessable business income and also Rs. 1 lakh to cover the probable disallowance. The AO also found that the claim of receipt of loans totalling to Rs. 4,86,516 from M/s Dharmapalan, Raman and Premkumar, was not proved to be genuine. It was also found that the, claim of loan for Rs. 2,90,000 from one Smt. Leela Menon was not genuine. Since the amount offered covered the said two amounts also, no separate additions were made in the income on the basis of those loans. On the basis of the above view of the facts, the AO decided to initiate penalty proceedings which were finalised as per Annexure A. But, the CIT(A) set aside the said order. The main ground for reversal of the penalty order is that the AO did not establish concealment from the part of the assessee. Reliance is placed on the words of the AO that “the AO has almost established concealment on account of net valuation of closing stock, inflation of purchases, suppression of sales, inexplainable cash credits in the form of fresh loans, etc…” The appellate authority also relied on the report of the Asstt. CIT Thrissur, sent to the CIT Cochin, on 24th Dec., 1991, in connection with the Settlement Commission’s proceedings. In the said report, it is stated that no foolproof case of concealment is made out. On the basis of the above finding, the penalty order was set aside by the first appellate authority. More or less relying on the very same reason, the Tribunal affirmed it. The assessee mainly relied on the decision in CIT vs. Suresh Chandra Mittal (supra). That was a decision rendered relying on Shadilal Sugar & General Mills Ltd. vs. CIT (1987) 64 CTR (SC) 199 : (1987) 168 ITR 705 (SC). But Shadilal has since been held to be not laying down the correct law in K.P. Madhusudhanan vs. CIT (supra). In this decision, the apex Court held that even if there is no mention about the Explanation to s. 271(1)(c), in the notice issued to the assessee, the authorities are bound to consider the effect of the Explanation also. The other decisions cited at the Bar, as stated earlier, are mainly decisions rendered on the facts of the relevant cases. In this case, the AO in the assessment. order dt. 24th March, 1992, for the year 1989-90, had made certain observations/findings regarding concealment of the particulars of income disclosed. The assessing authority had also noted that the explanation offered by the assessee in reply to the letter dt. 6th March, 1991, wherein he was asked to explain why 10 per cent of the old gold purchases should not be taken as the purchase inflation as was done for the earlier assessment year, is not convincing. As already noted, the appellant had filed petition under s. 273A before the CIT offering a sum of Rs. 16 lakhs as income and gave his own reasons for such offer. The AO had accepted the said figure, as according to him, it reasonably covers the purchase inflation and profit on sale of ornaments outside the accounts and other inadmissible claims in the accounts. It is relevant to note here that since the AO had accepted the income offered in the petition under s. 273A and completed the assessment, the appellant could not and did not have any occasion to file any appeal against the said assessment order. In such circumstances, it was open to the appellant, when proceedings were initiated for imposition of penalty under s. 271(1)(c), to offer his explanation on all the matters dealt with by the assessing authority in the assessment order. When the appellant had filed such explanation in reply to the notice, the AO as well as the appellate authorities are bound to consider the explanation in the light of cl. (B) to Expln. 1 to s. 271(1)(c) of the Act. In this case, the Tribunal had erroneously cast the burden on the Department. In these circumstances, we are of the view that the Tribunal should have considered the effect of the Explanation to s. 271(1)(c) while judging the validity of the penalty order. The omission to consider this aspect gives rise to a question of law from the order of the Tribunal justifying interference by this Court . Therefore, we feel that this is a matter requiring re-examination by the Tribunal. Since the Tribunal has to consider the entire matter afresh both in respect of facts and in respect of law with particular reference to Expln. 1 (B) of s. 271(1)(c) of the Act, in the light of the principles laid down by the decisions of the Supreme Court and of this Court referred to earlier, we do not think it necessary to answer any of the questions formulated by the Revenue on which notice is ordered at the time of admission. Hence, we decline to answer those questions.
We accordingly set aside the order of the Tribunal impugned in this appeal and remit the matter to the Tribunal for fresh disposal in accordance with law and in the light of the observations made hereinabove after affording opportunity to the parties. It is open to the parties to rely on all the decisions which they consider relevant for the purpose of this case.
The appeal is disposed of as above.
[Citation : 266 ITR 609]
