9911796707
TMI Blog1981 (7) TMI 112X X X X Extracts X X X X X X X X Extracts X X X X ..... The sales for that month was a sum of Rs. 1,39,789. It may be mentioned at this stage that the assessee does not post the sales into the sales account every day. The sales account is entered in a register every day and the monthly totals are carried over to the sales account in the ledger. Thus the sales account in the ledger would contain 12 credit entries for the year, i.e., one for each month. The credit entry for the month of December 1974 was not made but the books were closed without making such posting. There is no dispute that the assessee had posted the sales in the sales register. It is not the case of the ITO that there was any omission to post in the sales register. 3. The ITO pointed out this omission to the assessee and called for an explanation for this omission. The books of account were detained by the ITO for a detailed examination. The entry in the order sheet details the reasons for impounding. An adjournment was granted to 9-12-1975. On 15th, the chartered accountant then representing the assessee appeared and requested for time to furnish the explanation and the assessee was granted time up to 31-1-1976. Subsequent to this the assessee-firm made a disclosur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ea of the assessee that the statements, returns and accounts have been prepared by the chartered accountant. For this he relied upon the report of the auditor which said "prepared from books of accounts produced before us, viz., day book and ledger". It was considered by the Commissioner (Appeals) that the sales register had not been produced before the chartered accountant and if such register had been produced before the chartered accountant, this omission would have been noticed by the chartered accountant and there would not have been any escapement of this particular income from being included in the return originally filed. He, therefore, upheld the levy of penalty. 5. It is submitted on behalf of the assessee that the omission to post the sales of the month of December 1974 in the sales account from the sales register was a bona fide mistake on the part of the assessee and, therefore, the levy of the penalty is not justified. It is pointed out that the assessee has given the books of account to the chartered accountant for the preparation of the statements and the return. This has been done every year and such an incident had not taken place in earlier years. The assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d accountant also did not notice the mistake in the non-posting of the sales of December 1974 to the sales account. If the chartered accountant could commit this error, the possibility of the assessee also committing that error as an error could not be ruled out. 7. It is further submitted that even the day book and ledger would have indicated this omission and the chartered accountant could have noticed this, namely, the absence of any sales for the month of December. This would show that the omission had been overlooked by the chartered accountant in the same manner as has been overlooked by the assessee itself. 8. The disclosure made by the assessee under the Voluntary Disclosure Scheme was of a sum of Rs. 80,000 while the actual omission in the sales account was about Rs. 1,40,000. The lower amount declared by the assessee was because of another mistake committed by the assessee in working out the omission. In any case the omission in the voluntary disclosure cannot be equated to the omission in the sales account and consequently in the return of income filed for the purpose of the levy of penalty. It is only the circumstances surrounding the omission that occurred at the t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed as the bank account on the asset side would have shown a larger amount than in the books of the assessee. There could, therefore, be no suppression or concealing these facts. The intention of the assessee could not be, therefore, to suppress the sales and the resultant income for the month of December 1974. It is also pointed out that the turnover shown by the assessee does not compare unfavourably with the turnover shown for the preceding year and the assessee had returned a margin of profit when compared favourably with the margin for the previous year. The addition made by the ITO has, originally, nearly doubled the margin of profit which would not be possible in this line of business. 11. On behalf of the department, it is submitted that but for the alertness shown by the ITO the income returned by the assessee in the original return would not have been accepted especially as the results disclosed by the assessee was acceptable ex facie and could have passed muster normally. The assessee must have been aware of the value of its business and it could not have been a bona fide mistake. The further attempt on the part of the assessee to explain away the difference of Rs. 45,0 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ledger. 14. Even leaving aside the question whether the sales register was produced before the auditor or not, the fact that there were no sales recorded at all for the month of December 1974 in the sales account should have raised the curiosity of the chartered accountant as it has subsequently raised the curiosity of the ITO. The chartered accountant admittedly had not noticed this particular fact. This failure on the part of the chartered accountant must be considered to be simply a mistake, i.e., an inadvertent act on his part not to notice it. Considering that the chartered accountant is bound to notice such omissions but has not actually noticed this omission, there does not appear to be any improbability in the assessee and his employees committing a similar mistake inadvertently. It is not beyond the realm of probability for particular set of entries to be made at a particular time, namely, at the end of the month, to have been passed over by mistake. 15. The Commissioner (Appeals) considered that the sales register was not produced before the chartered accountant while he prepared the statements and the return of income. This conclusion of the Commissioner (Appeals) i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ke on its part. 18. It is true that the assessee had in the course of the proceedings subsequent to the disclosure under the Voluntary Disclosure Act resorted to explaining the difference between the sales omitted and the income disclosed as due to trade discounts but even in that letter the assessee has admitted that the sales were omitted by a mistake. The explanation given could be considered in two lines. It could be treated as an explanation bona fide believed by the assessee to be the reason for its having disclosed only Rs. 80,000 and not a sum of Rs. 1,40,000 or so. The other possibility is that the assessee still entertained or started to entertain a desire to suppress atleast part of this income. The manner in which the assessee has proceeded to act before this letter and subsequently, i.e., the readiness with which he has made the disclosure under the Voluntary Disclosure Act and the filing of the revised return not very long thereafter, indicates to us that the assessee had also committed a further error in considering that the entire sales omission would not be equivalent to the income not returned by the assessee. Even assuming that the assessee had wanted to evade ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... out the assessee being aware of it, it cannot be said that a penalty under section 271(1)(c) can be levied. 22. It has also been urged on behalf of the revenue that if the assessee is not guilty of wilful negligence, it is certainly guilty of gross negligence and since the vast difference between the income returned and the income finally assessed is more than the margin contemplated in the Explanation to section 271(1)(c) as obtaining at that time, the burden is on the assessee to show that there was no gross negligence. It is claimed that the assessee has not been able to show that it was not guilty of gross negligence. 23. We are not able to accept this argument either. The assessee has taken all steps that it could be expected to take in order to avoid the negligence in the circumstances. It has produced account books before the chartered accountant. As pointed out by the learned counsel for the assessee, the omission to enter the sales for one month coupled with the fact of the practice of the assessee of entering sales in a bulk manner for every month should have indicated to the chartered accountant that there was something wrong in there being no sales at all for one mo ..... X X X X Extracts X X X X X X X X Extracts X X X X
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