Madras H.C : Whether, on the facts and in the circumstances of the case, the Tribunal was right in cancelling the penalty of Rs. 40,000 levied under s. 271(1)(c) of the Act for the reason that the addition had only been sustained on the basis of some estimate ?

High Court Of Madras

CIT vs. K.R. Chinni Krishna Chetty

Sections 271(1)(c)

Asst. Year 1970-71

R. Jayasimha Babu & N.V. Balasubramanian, JJ.

Tax Case No. 1316 of 1981

9th June, 1998

Counsel Appeared

C.V. Rajan, for the Revenue : None, for the Assessee

JUDGMENT

R. JAYASIMHA BABU, J. :

The question referred to us at the instance of the Revenue arising out of the respondent’s assessment under the IT Act, 1961, for the asst. yr. 1970-71 is as to “Whether, on the facts and in the circumstances of the case, the Tribunal was right in cancelling the penalty of Rs. 40,000 levied under s. 271(1)(c) of the Act for the reason that the addition had only been sustained on the basis of some estimate ?’ The Tribunal has found that the assessee had reported an expenditure of Rs. 70,000 as the cost of construction of a factory building. That amount came to be debited in the assessee’s books of account on 2nd Jan., 1971. The ITO being of the opinion that the amount so shown as the expenditure on the construction was on the lower side, obtained a report of the valuer and estimated the cost of construction on that basis and estimated the cost at a higher figure. The estimate so made by the AO was the subject-matter in appeal before the Tribunal which found that the addition to be made was to be limited to Rs. 40,000 as an estimate of income from the undisclosed sources being part of the value of the construction. There was no material before the AO or the Tribunal to show that there was any deliberate concealment of income, the receipt of which had been established by any other evidence. The only material before the AO for holding that there was concealment of income was the report of the valuer who had estimated the value of the construction put up by the assessee at a figure higher than the one reported by the assessee. The proceedings for imposition of penalty were initiated after the assessment proceedings were finalised. The AO and the IAC were of the opinion that there was concealment, that in their view the assessee had failed to report that a construction was in progress; that he had been incurring expenditure thereon; and he had failed to maintain a subsidiary book of account to show the expenditure incurred on the construction while the construction was in progress. They were also of the view that the assessee had filed to report the correct value of the construction even after a search had taken place in his premises on 6th Feb., 1971. In their view the fact that there was a construction would not have come to light but for the search. A penalty of Rs. 40,000 was imposed on that basis.

The assessee having taken up the matter in appeal before the Tribunal, the Tribunal, in our opinion, rightly held that the assessee could not be faulted for not reporting the fact that the construction was in progress as the form in which the return was required to be submitted did not impose any such duty upon the assessee. The assessee had reported the fact that the construction had been put up, and after the same was completed the assessee had also shown in his books of account the expenditure which according to him had been incurred on the construction being a sum of Rs. 70,000. The assessee, therefore, could not be charged with concealment of the construction of the factory buildings solely on the ground that construction while in progress had not been mentioned by him in his return. After having so held, the Tribunal further held that on the facts of the case there was no concealment at all and all that had happened was that the value of the construction as reported by the assessee had not been accepted by the assessing authorities, and the addition made to the income of the assessee was based solely on the report of the valuer, and there is no other material from which a definite conclusion that there had been concealment could be drawn. We do not find any error in the reasoning of the Tribunal. Under s. 271(1)(c) of the Act the authority is given the discretion to levy a penalty if there is concealment of particulars of income and even as regards the quantum of the penalty there is a discretion. That discretion was available to the Tribunal as well when it considered the matter in appeal. Of greater importance is the necessity for a definite finding that there is concealment, as without such a finding of concealment, there can be no question of imposing any penalty. The mere revision of the income to a higher figure by the assessing authority does not automatically warrant an inference of concealment of the expenditure on the construction. The addition to the income of the assessee based on the report of the valuer was rightly regarded by the Tribunal as being insufficient for recording a finding of concealment of income. Concealment implies some deliberate act on the part of the assessee in withholding the true facts from the authorities. The fact that the valuer assessed the building at a figure higher than the onereported by the assessee does not by itself as observed earlier lead to the inference that there had been concealment. This Court in the case of T.P.K. Ramalingam vs. CIT (1995) 125 CTR (Mad) 99 : (1995) 211 ITR 520 (Mad) : TC 50R.915 in similar circumstances set aside the order of the Tribunal which had upheld the levy of penalty on an assessee whose income had been assessed at a higher figure solely on the basis of the valuer’s report which showed the cost of construction at a figure higher than the one reported by the assessee. This Court followed its earlier decision in the case of CIT vs. Apsara Talkies (1985) 155 ITR 303 (Mad) : TC 50R.469 and held that concealment must be deliberate and there being no proof of such deliberate concealment ,the imposition of penalty was not warranted. The facts of this case are similar.

There is no evidence to show that the assessee had deliberately concealed the cost of construction. The assessee had reported the cost of construction at Rs. 70,000. The assessee was not required to report the progress of the construction as the return did not require him to do so. The figure given by the assessee as the cost of construction was revised by the assessing authorities on the basis of the report of the valuer and addition made to the assessee’s assessable income. Such addition in the context cannot be regarded as addition of income concealed which would attract the levy of penalty under s. 271(1)(c) of the Act. The Tribunal has recorded a finding that there is no material on record to show that the assessee concealed any of its income for the assessment year under appeal so as to attract the provisions of s. 271(1)(c) of the Act. The reference made at the instance of the Revenue, therefore, is answered in the affirmative, in favour of the assessee and against the Revenue. As the assessee has not appeared before us, there will be no order as to costs.

[Citation : 246 ITR 121]

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