1981 (7) TMI 112 - AT - Income Tax

Issues Involved:
1. Penalty under Section 271(1)(c) of the Income-tax Act, 1961.
2. Omission to record sales for December 1974.
3. Voluntary Disclosure Scheme.
4. Explanation and behavior of the assessee.
5. Role and responsibilities of the chartered accountant.
6. Gross negligence and mens rea.
7. Reconciliation of quantitative statements.

Detailed Analysis:

1. Penalty under Section 271(1)(c) of the Income-tax Act, 1961:
The primary issue in this case is whether the penalty of Rs. 1,08,084 levied under Section 271(1)(c) for concealment of income is justified. The assessee argued that the omission to record sales for December 1974 was an honest mistake and not a deliberate act of concealment.

2. Omission to Record Sales for December 1974:
The assessee failed to post sales amounting to Rs. 1,39,789 for December 1974 in the sales account. The sales were recorded in the sales register but not transferred to the ledger. The ITO pointed out this omission and initiated penalty proceedings. The assessee contended that this was a bona fide mistake and not an intentional act to suppress income.

3. Voluntary Disclosure Scheme:
The assessee made a disclosure of Rs. 80,000 under the Voluntary Disclosure Scheme, claiming it covered the omission. However, the ITO found discrepancies and concluded that the remaining Rs. 59,789 represented concealed income. The ITO assessed the total income at Rs. 2,03,040, allowing a deduction for the disclosed amount.

4. Explanation and Behavior of the Assessee:
The assessee argued that the omission was due to an honest mistake and that the books of account were given to the chartered accountant for preparation of statements and returns. The Commissioner (Appeals) rejected this explanation, considering it a deliberate attempt to suppress turnover. The assessee's subsequent behavior, including the voluntary disclosure and cooperation with the ITO, was highlighted to support the claim of an honest mistake.

5. Role and Responsibilities of the Chartered Accountant:
The assessee contended that the chartered accountant also failed to notice the omission, indicating that it was an inadvertent mistake. The Commissioner (Appeals) inferred that the sales register was not produced before the chartered accountant, a conclusion based on the auditor's report. The Tribunal found this inference incorrect, noting that the quantitative statements appended to both the original and revised returns showed consistency, suggesting that the sales register was indeed before the chartered accountant.

6. Gross Negligence and Mens Rea:
The revenue argued that the assessee was guilty of gross negligence, if not deliberate concealment, and thus liable for penalty under Section 271(1)(c). The Tribunal referred to the Kerala High Court's decision in CIT v. Gujarat Travancore Agency, noting that mens rea need not be established but the circumstances must indicate an attempt to conceal income. The Tribunal found that the omission was not a result of gross negligence but an inadvertent mistake, as the assessee had taken reasonable steps to avoid such errors.

7. Reconciliation of Quantitative Statements:
The quantitative statements for yarn and cloth dealt with by the assessee showed substantial consistency between the original and revised returns. This consistency indicated that the sales register was considered during the preparation of the original return, supporting the claim of an honest mistake.

Conclusion:
The Tribunal concluded that the omission to post sales for December 1974 was an inadvertent mistake and not a deliberate act of concealment. The assessee had taken reasonable steps to ensure accuracy, including entrusting the preparation of statements to a chartered accountant. The penalty of Rs. 1,08,084 levied by the ITO and confirmed by the Commissioner (Appeals) was canceled, and the appeal was allowed.

← Previous Next →