1991 (7) TMI 56 - HC - Income Tax

Penalty under section 271(1)(c) deleted as bona fide accountant error and voluntary revised return proven

HC held that although the Explanation to section 271(1)(c) was automatically attracted because the original return disclosed income below 80% of the ... Imposition of penalty under section 271(1)(c) - filing of the revised return for double deduction for rain wash - bona fide and voluntary - guilty of furnishing inaccurate particulars of its income - assessee contented that it was mistake committed by the accountant - HELD THAT:- In the instant case, since the original return which was filed by the assessee showed income less than 80% of the income which was ultimately assessed by the Revenue authority, the Explanation was rightly held to have been attracted in its case and it was undoubtedly for the assessee to discharge the liability by showing that its failure to return the correct income did not arise from any fraud or any gross or wilful neglect on its part. The assessee can, by leading positive evidence, prove that the failure to return the correct income did not arise from any fraud or any gross or wilful neglect on his part or may prove it from the material which is already on record. If the material on record is sufficient and points to its innocence, the burden cast on it by the Explanation will stand discharged. The material on record would include the conduct of the assessee as reflected from the record and all the relevant factors which may have a bearing on the question whether he had conducted himself fraudulently or by any gross or wilful neglect. If the material on record made the explanation of the assessee plausible or if, in other words, on the basis of preponderance of probabilities, it was reasonably possible to accept the explanation, then the burden will stand discharged. The said Explanation to section 271(1)(c) indicates rule of evidence and the authority which imposes penalty is competent to invoke the Explanation in reaching the final conclusion on the question of concealment. It, therefore, follows that merely because the Explanation has not been specifically referred to at the time when the proceedings were initiated, there would be no legal bar against invoking the Explanation during the course of the proceedings. In the instant case, the original return showed income less than 80% of the income ultimately assessed and, therefore, the Explanation stood attracted and it cannot be said that, because the Income-tax Officer, while initiating the proceedings, did not specifically refer to the Explanation, as he had done in respect of two other items while issuing the notice under section 271(1)(c), it cannot be invoked against the assessee. In other words, the Income-tax Officer had no choice to invoke or not to invoke the Explanation because it stood automatically attracted in view of the fact that the original return showed income less than 80% of the income ultimately assessed. Tribunal as also the Inspecting Assistant Commissioner have proceeded on the footing that the assessee got alerted in view of the letter dated February 4, 1974, written by the Income-tax Officer and, therefore, the revised returns which were filed by it were not filed voluntarily. By the letter dated February 4, 1974, the Income-tax Officer had called upon the assessee to state the basis for working out deduction due to rain wash at 10%. - It, appears to us that the assessee had filed the revised returns voluntarily. The conclusion arrived at by the Tribunal that the revised returns filed by the assessee was a forced return due to the letter dated February 4, 1974, is a conclusion which cannot be reasonably arrived at in view of the contents of the said letter which in no way indicate that the Income-tax Officer had the aspect of double deduction even remotely in his mind. The finding of the Tribunal is, therefore, not at all warranted by the evidence on record and is based on an erroneous inference from the said letter of the Income-tax Officer. The matter which clearly shows that the Tribunal adopted an inconsistent and incongruous stand for upholding the penalty in respect of the year 1971-72. Admittedly, the assessee had for the year 1970-71 voluntarily requested the Appellate Assistant Commissioner to add a sum of Rs. 32,000 to its income which was claimed due to the said mistake of double deduction even though there was no appeal as regards the item of the claim for rain wash. Admittedly, while adding that amount to the income, the appellate authority did not find any case for issuing notice under section 271(1)(c) for the year 1970-71. If the explanation is true and acceptable for the preceding and the succeeding years, it cannot be said that the same explanation is not true for the year 1971-72. We, therefore, find that the Tribunal had adopted an erroneous approach in rejecting the same explanation, namely, the mistake of the accountant for the year 1971-72 when it accepted the same for the subsequent year and when it had material on record to show that it must have been accepted for the earlier year 1970-71 by the Appellate Assistant Commissioner who added the amount at the instance of the assessee for the double claim due to rain wash and did not initiate any proceedings under section 271 (1) (c) of the said Act. We, therefore, hold that the Tribunal has committed an error in rejecting the explanation given by the assessee. The Tribunal has not taken into account the above relevant evidence and the conduct of the assessee and has reached findings which are not warranted by the evidence on record. The findings of the Tribunal are such that it cannot be reasonably arrived at on the basis of the evidence on record and the attendant circumstances. We, therefore, hold that the Tribunal committed an error in upholding the penalty imposed on the assessee. The finding of the Tribunal that the filing of the revised return adding on account of double deduction claim for rain wash is not voluntary is against the clear evidence on record, unreasonable and not arrived at by considering the relevant facts of the case and is given ignoring the relevant material on record. Issues Involved:1. Whether the filing of the revised return adding Rs. 57,000 on account of double deduction claimed for rain wash was voluntary.2. Whether the Tribunal was correct in law in confirming the penalty to the extent of Rs. 60,000 for the assessment year 1971-72, especially when a similar penalty imposed for the assessment year 1972-73 was canceled.Summary:Issue 1: Voluntariness of the Revised ReturnThe Tribunal found that the filing of the revised return by the assessee was not voluntary, suggesting it was prompted by the Income-tax Officer's letter dated February 4, 1974. However, the High Court observed that the letter did not indicate any detection of double deduction and was focused on the basis for a 10% rain wash deduction. The High Court concluded that the assessee's revised return was voluntary, as the letter did not alert the assessee to the double deduction issue. The Tribunal's conclusion was deemed unreasonable and not supported by the evidence on record.Issue 2: Legality of the PenaltyThe Tribunal upheld a penalty of Rs. 60,000 for the assessment year 1971-72, despite canceling a similar penalty for 1972-73. The High Court noted an inconsistency in the Tribunal's approach, as the same explanation of an accountant's mistake was accepted for 1972-73 and implicitly for 1970-71. The Tribunal's rejection of the explanation for 1971-72 was found to be erroneous. The High Court emphasized that the Tribunal did not consider relevant evidence and the conduct of the assessee, leading to an unreasonable conclusion. Consequently, the penalty was deemed improperly upheld.Conclusion:1. The Tribunal's finding that the revised return was not voluntary was against clear evidence and unreasonable.2. The Tribunal erred in confirming the penalty for 1971-72, especially given the cancellation of a similar penalty for 1972-73.The reference was disposed of in favor of the assessee, with no order as to costs.