TaxTMI 
TaxTMI 
2010 (11) TMI 84
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.... the penalty of Rs. 36,07,220/- imposed by the Assessing Officer under Section 271(1)(c) of the Income Tax Act, 1961?" 2. The necessary facts available on the record are that the appellant derives income as a contractor with the Jaipur Municipal Corporation (hereinafter referred to as 'the JMC') for lifting the garbage from the walled city of Jaipur and had filed its return of income on 30th November, 1995 declaring the total income of Rs. 4,50,317/- for the year under consideration. The appellant had shown gross receipts from JMC at Rs. 81,90,784/-. From the details of the bills submitted by the appellant, however, the Assessing Officer concluded that the total receipts of the appellant from JMC were Rs. 1,17,39,415/- as against Rs. 81,90,780/- as shown by the appellant. The Assessing Officer also concluded that the appellant had declared receipts on the basis of the amount actually received which was contrary to the system of accounting maintained by the appellant, viz., the mercantile system. Accordingly, the Assessing Officer made an addition of Rs. 35,39,631/- to the total receipts of the appellants and enhanced the income of the appellant by such amount as undisclosed inco....
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.... duly verified and authenticated by JMC. These log books were shown to the A.O. during the assessment and produced before the C.I.T. The latter accordingly held that the onus that lay on the appellant had been discharged and therefore the addition of Rs. 36,17,979/- was totally unwarranted. 5. Against the order of the First Appellate Authority, the Department preferred an appeal before the Income Tax Appellate Tribunal (for short 'ITAT'). The ITAT reversed the order of the CIT(A) on both counts by its order dated 4th February, 2004. As regards the addition of Rs. 35,39,631/- the ITAT held that during the period under consideration, the appellant had changed its method of accounting and such change was not bonafide. The Tribunal found that the appellant, despite the fact that that he had been maintaining the accounts on mercantile system, had declared the receipts from the JMC on the basis of the amounts actually received. The Tribunal observed that though it is the prerogative of a party to maintain accounts in the manner it likes, but the assessee cannot be at liberty to change his system of accounting at the drop of the hat, at his whims and fancies. 6. As regards the addit....
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....iating penalty proceedings. On facts, the ITAT held that the assessee could not be said to have concealed its income or furnished inaccurate particulars thereof. The assessee had itself placed the details of the total bills raised against the Jaipur Municipal Corporation, according to which the total receipts of the assessee company for the financial year 1994-95 was Rs. 11,73,945/-. The amount deducted from this amount by the JMC as not payable to the appellant was, however, not declared by the appellant as its income. The non-acceptance of these particulars stated by the AO did not amount to concealment of income. Regarding penalty in respect of the balance outstanding in favour of the sundry creditors, the ITAT observed that the addition was made by the AO on the ground that the appellant was not able to prove the same. However, the credit outstanding against the same creditors was accepted by the AO in subsequent years and therefore no penalty could be levied. Since the additions were made only on account of divergent views taken with regard to the material on record, it was unsafe to conclude that the appellant was guilty of concealment of income or of furnishing inaccurate pa....
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....ing to which the total receipts of the assessee company for the FY 1994-95 arrive at Rs. 1,17,39,415/-. When these facts have been placed before the AO by the assessee itself as income, the assessee can be said to have taken a legal stand on the facts disclosed by it and, if such a stand is not accepted by the AO, there is no question of concealment by the assessee. Reference may be made in this connection to the following judgments: 1. ITO vs. Burmah Shell Oil Storage Co. Ltd., 163 ITR, 496 (Cal.) 2. CIT vs. Late G.D. Naidu & Others, 165 ITR 63 (Mad.) 3. Cement Marketing Co. of India Ltd. ACIT, 124 ITR 15 (SC)." 12. The learned Senior counsel for the appellant was also at pains to point out that as regards the second issue, viz., addition of Rs. 36,17,980/- as well, contradictory findings had been rendered by the ITAT in its order dated 4th February, 2004 passed in quantum proceedings and its order dated 29th July, 2005 passed in the penalty proceedings. In the former order, the ITAT observed that there was no evidence on record to show, except the logbook maintained by the appellant, that the amounts were payable to the contractors for the services r....
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.... amount is payable have been filed and affidavits to the effect for the person concerned have been filed statement thereby the amounts receivable by them from M/s. Devsons Pvt. Ltd. (sic) The total amount of Rs. 58,55,005 consists of sundry creditors of Rs. 49,93,063 and other creditors for hire charges of Rs. 8,61,942. Thus, there has been a scrutiny of the amount outstanding towards these 8 persons in the subsequent years and at least in one of the assessment orders there is a finding that the amounts were actually due to them and that some of them have filed affidavits also to the effect that the amounts are due to them. At our instance, the learned counsel for the assessee pointed out to the ledger accounts of the sundry creditors placed at pages 70-109 of the paper book No.1. The account of Morari Lal to whom an amount of Rs. 4,71,658 is outstanding as on 31.3.95 is at pages 71A to 73A. The account shows that several payments were made during the year under appeal to this contractor and there has been no disallowance of the amounts so paid. This indicates that the AO has no objection to allowing the actual amounts paid to these persons, which could have been only on his being ....
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.... accounting. He further contended that note of the accounts attached with the audited accounts also showed that the appellant was adopting the accrual system of accounting - the income and expense has been accounted for in the mercantile method. Thus, the difference of Rs. 35,39,631/- in the receipts on accrual basis and receipt basis was unexplainable. Mr. Sabharwal, in this context, placed reliance upon the matching concept of accounting. 16. On the second issue it was contended by Mr. Sabharwal that with regard to the issue whether the sundry creditors were genuine or not, it was not open to a coordinate Bench of the Tribunal to set aside the findings of fact arrived at by an earlier Bench in quantum proceedings. Mr. Sabharwal was, however, not in a position to dispute that there was a total of 8 persons to whom the assessee owed Rs. 36,17,979/- from the year under appeal and that during subsequent years there had been a scrutiny of the amounts outstanding towards these 8 persons, and at least in one of the assessment orders there is a finding that the amounts were actually due to them and that some of them have filed affidavits also to the effect that the amounts were due to....
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....e. "Income-tax is a levy on income. No doubt, the Income-tax Act takes into account two points of time at which the liability to tax is attracted, viz., the accrual of the income or its receipt; but the substance of the matter is the income. If income does not result at all, there cannot be a tax, even though in book-keeping, an entry is made about a 'hypothetical income', which does not materialize." 19. Where income has, in fact, been received and is subsequently given up in such circumstances that it remains the income of the recipient, even though given up, the tax may be payable. Where, however, the income can be said not to have resulted at all, there is obviously neither accrual nor receipt of income, even though an entry to that effect might, in certain circumstances, have been made in the books of account. See, CIT, Bombay City I vs. M/s. Shoorji Vallabhdas and Company, (1962) 46 itr 144, 148 (S.C.)" (emphasis supplied) 20. The Bombay High Court in the case of H.M. Kashi Parekh & Co. Ltd. vs. Commissioner of Income-tax (1960) 39 ITR 706 (Bom) reiterated if the accounts are maintained under the mercantile system, what has to be seen is as to whether t....
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....ourt said that although the assessee company was following the mercantile system of accounting and had made entries in the books regarding enhanced charges for the supply of electricity made to its consumers, no real income had accrued to the assessee-company in respect of those enhanced charges in view of the representative suits filed by the consumers which were decreed by the court and ultimately, after various proceedings which took place, the assessee-company had not been able to realize the enhanced charges. No real income having accrued, it was held, the amount due on enhancement was not assessable. 23. In a subsequent decision rendered in CIT vs. Bokaro Steel Limited (1999) 236 ITR 315, the Supreme Court, following its earlier decision in Godhara Electricity case (supra) affirmed the decision of the Patna High Court wherein it was held that the entry in the books of account shown as income from Hindustan Steel Ltd. for the 8 locomotives supplied by the assessee-company to them could not be brought to tax as income since this entry reflected 'hypothetical income' and only the real income could be brought to tax. 24. This court in CIT V vs. Modi Rubber Ltd. (1998) 230 I....
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.... laid upon the appellant. The log book was a contemporaneous document maintained by the assessee company on a day-to-day basis and it was on the basis of the said log book that the claims of the assessee-company were accepted and/or rejected by the JMC, whose officials were verifying and authenticating the log books. The second was that the Tribunal altogether lost sight of the fact that the appellant had duly deducted tax at source in respect of the entire amount credited in the favour of these parties. Thirdly, it is also not disputed by the Revenue that in the assessment order for the assessment year 1998-99, the list of these sundry creditors to whom the amount was payable had been filed and their affidavits to this effect had also been filed. It is also not in dispute that the entire payment has been made to all the 8 sub-contractors as on date. 28. Another contention of the learned counsel for the Revenue is that this issue whether the sundry creditors are genuine or not could not have been re-examined by a co-ordinate Bench of the Tribunal in penalty proceedings to arrive at a contrary conclusion by relying upon the assessment order of the 1998-99 passed under Section 143....
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....ugh assessment and penalty proceedings are distinct, and the findings recorded in the assessment proceedings may constitute evidence in the course of penalty proceedings, but they cannot be regarded as conclusive. This is the law enunciated by the Supreme Court in the following cases: 1. CIT & Anr. vs. Answar Ali, 761 ITR 696; 2. CIT vs. Khoday Eswarsa & Sons, 831 ITR 369 and 3. Anantharam Veersinghaiah & Co. vs. CIT, 123 ITR 457 30. In the present case, the Tribunal in assessment proceedings has restored both the additions made by the Assessing Officer, but the question arises as to whether the said findings of the Tribunal in assessment proceedings must be regarded as conclusive and binding on a coordinate bench of the Tribunal in penalty proceedings. The answer to the aforesaid must, in our considered opinion, be in the negative. The Supreme Court in the decisions referred to in the preceding paragraphs has categorically held that it is incumbent upon the Tribunal in penalty proceedings to independently examine the evidence and the material on record for the purpose of judging whether the penalty proceedings are justified on account of concealm....
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....ave placed all his cards on the table by disclosing each and every fact to the departmental authorities or the court concerned. If the assessee does so then merely because the departmental authorities concerned or the High Court concerned does not concur with the legal stand adopted by the assessee will not be reason enough to hold that the assessee is guilty of concealment of income or of furnishing inaccurate details. Thus, the questioner whether the assessee has invited upon himself the penalty sought to be imposed on him by the authority concerned is really a question of fact and has to be decided keeping in mind the entire gamut of events and circumstances. 31. In the instant case, it cannot be said that the assessee withheld any relevant information regarding his income and receipts from the Assessing Officer. It bears repetition that the figure arrived at by the Assessing Officer pertaining to the income of the assessee was a figure disclosed by the assessee himself. Similarly, with regard to the addition made in respect of the sundry creditors, the very same creditors were subsequently found by the Department itself to be genuine creditors of the assessee. It is also on ....
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....n, making an incorrect claim in law cannot tantamount to furnishing inaccurate particulars. In CIT vs. Atul Mohan Bindal (2009) 9 SCC 589, where this court was considering the same provision, the court observed that the Assessing Officer has to be satisfied that a person has concealed the particulars of his income or furnished inaccurate particulars of such income. This court referred to another decision of this court in Union of India vs. Dharamendra Textile Processors [2008] 13 SCC 369 as also, the decision in Union of India vs. Rajasthan Spg. & Wvg. Mills [2009] 13 SCC 448 and reiterated in paragraph 13 that (page 13 of 317 ITR): "13. It goes without saying that for applicability of section 271(1)(c), conditions stated therein must exist." 33. In the case of Commissioner of Income-tax vs. Bacardi Martini India Ltd. (2007) 288 ITR 585 (Delhi), a Division Bench of this Court held that merely because there was a difference of opinion between the assessed and the Assessing Officer, it cannot be said that the assessed had intention to conceal his income. The relevant portion of the judgment is as under : "13. We have heard the counsel for the parties and perused ....
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.... as deduction since the assessed had paid this amount of Rs. 2 Crores to the Lesser. There is no dispute that the assessed had disclosed all particulars. It was only difference of opinion between the assessed and the Assessing Officer and the assessed accepted the opinion of the Assessing Officer instead of preferring an appeal. 15. It is not a case where assessed had not been able to explain any expenditure or had failed to give any details and the Assessing Officer had added the same into the income. In Durga Timber v. CIT 197 ITR 63, relied upon by the appellant, during the course of the assessment proceedings the Income Tax Officer had noticed cash credits and investments shown in the books of account and asked the assessed to give Explanationn. The assessed could not give Explanationn of entires nor could explain the source of income and admitted that the two amounts be treated as his concealment. Under these circumstances court observed that there was concealment of income and penalty was justified. In the present case assessed had explained all the expenditure and had actually incurred the expenditure but the expenditures were disallowed because of difference of opi....