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TMI Blog1990 (1) TMI 158X X X X Extracts X X X X X X X X Extracts X X X X ..... furnish inaccurate particulars of income and following the principles of Courts, penalties were not warranted. The department is in appeal urging that the first appellate authority erred in cancelling the penalties imposed by the I.T.O u/s 271(1)(c) and therefore, their orders should be vacated and those of the I.T.O be confirmed. 3. The facts of the case leading to the imposition of penalties and cancellation of penalties are enumerated in the orders of the authorities. The gist of the case is that the assessee is a registered firm carrying on business in readymade garments and hosiery. Regular books of accounts have been maintained and the original assessments were completed for the assessment years 1974-75 and 75-76 under sec. 143(3) while rest of the assessments were completed under sec. 143(1). During the course of the assessment proceedings for the assessment year 1981-82 it transpired that the assessee had not accounted for the credit sales recorded in 'Jangad' books which, according to the method of accounting regularly followed by the assessee would be reflected in the sales as and when cash was realised from the customers by giving credit to the customers' account. It ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dt. 5-10-1981 issued by the Central Board of Direct Taxes. 5. The I.T.O. held that there was detection of income which escaped assessment for these years and but for the particulars called for by the I.T.O. the assessee would have gone scot-free and the income would have escaped tax. Therefore, he was satisfied that the assessee concealed particulars of income and furnished inaccurate particulars of income in the original returns filed for these years. Consequently, he levied minimum penalty for these years as detailed in the penalty orders. 6. On appeal, the C.I.T.(A), Nashik, while disposing of the penalties for assessment years 1974-75 and 1980-81 elaborately considered the facts of the case, written explanation offered by the assessee and concluded that in the totality of circumstances and the facts of the case as well as the conduct of the assessee, there was no conscious attempt to conceal any income or furnish inaccurate particulars of income in the light of decisions relied upon by him and therefore, held that there was no justificafion for levy of penalty. Therefore, he cancelled the penalties impossed by the I.T.O. for the assessment years 1974-75 and 1980-81. 7. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uppliers by debiting suppliers' account and crediting Mal Parath Account. The closing stock was, however, shown on estimate basis only. It is only with reference to the method of accounting regularly followed by the assessee the income in respect of Jangad Vahi and the expenditure in respect of Mal Parath Account have not been duly adjusted and reflected in the books of accounts. When once the I.T.O. has pointed out the correct method of accounting of profits from business, the assessee had chosen to file revised return admitting resultant income in respect of these two items. He submitted that mere omission to admit the income did not amount to concealment or deliberate furnishing of inaccurate particulars of income, unless attributed to an intention or desire on the part of the assessee to hide or conceal income so as to avoid imposition of tax. Reliance was placed on the decision of the Bombay High Court in the case of D.M. Dahanukar v. CIT [1967] 65 ITR 280, Madras High Court in A.V. Thomas Co. (India) Ltd. v. CIT [1966] 59 ITR 499, Karnataka High Court in Mahadeswara Movies v. CIT [1983] 144 ITR 127 and the Andhra Pradesh High Court in the case of Lakshmi Jewellery v. CIT [1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cash method of accounting both in respect of cash sales and credit sales which were on approval basis. The orders passed by the I.T.O. are inconsistent in this regard. However, the assessment order for the assessment year 81-82 during the course of hearing of which the defects came to the surface shows that there is a contradiction in the statements of the I.T.O. in this regard. In para 1 of his assessment order for the assessment year 81-82, the I.T.O. described the " peculiar method " of accounting and went on to say that credit sales for which bills were issued were not shown in the trading account on the date of sale, but were accounted for when the sales were realised. At the same time, in para 2 of his assessment order, he stated as under : " No bills for sales either cash or credit are issued by the assessee. " The statement contained in para 2 of assessment order is more emphatic and is conclusive of the issue as to the cash method of accounting followed by the assessee. This conclusion is reinforced by the fact that when the I.T.O. called upon the assessee to produce particulars of trade debtors on 9-2-1982, the assessee furnished details of credit sales on 1-3-1982 f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntention of avoiding further legal complication. Therefore, the assessee prayed that no concealment was involved in the accounting method followed by the assessee and relied on various decisions enumerated in the appellate order. 13. From the aforesaid extract of the written submissions before the C.I.T.(A), it is clear that when once the proper method of accounting was brought to the notice of the assessee, the assessee hastened to make a clean breast of the whole affairs and admitted the net accretion in the credit sales account and goods returned account not only for the assessment year 81-82 but also for earlier years for which assessments were already completed. In these circumstances, it cannot be said that the assessee had deliberately furnished inaccurate particulars of income or concealed particulars of income in terms of sec. 271(1)(c) of the Income-Tax Act, 1961. On the contrary, all the material facts relating to the credit sales account and goods returned account were duly reflected in the accounts of the assessee. It is with reference to these material particulars the assessee could collate the net accretion and offer the same as additional income in respect of thes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed returns were accepted by the I.T.O. Thus, it is abundantly clear that the assessee has made a clean breast of the true income according to the proper method of accounting insisted upon by the I.T.O. as seen from his assessment order for the assessment year 1981-82. We, have already pointed out that these revised statements and the revised returns were based on the material particulars already available on record and therefore the basic facts had been disclosed and there was no attempt of suppression of any material fact on the part of the assessee. Such was the situation even in respect of the earlier assessment years right from the assessment year 1971-72 because the assessee had followed the same method of accounting. Thus the case of the assessee boils down to one of changing the original method of accounting adopted by the assessee, namely, cash method of accounting into hybrid method of accounting adopted by the I.T.O. for the assessment year 1981-82, in that, the credit sales made on approval basis were also treated as regular sales notwithstanding the fact that the assessee has been accounting for only cash sales as sales. Therefore, it is only a question of substitution ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of concealment of income by the I.T.O. It appears that even before the I.T.O. concluded the assessment for 1981-82 he issued notice u/s 148 for the aforesaid two years because of the fact that there was credit balance in the Mal Parath Account for these two years. Obviously it is in the course of assessment proceedings for 81-82 during which the proper method of accounting has been pointed out by the I.T.O., the I.T.O. could validly reopen the assessment for the years 78-79 and 80-81. The assessee had filed returns so as to enable the ITO to regularise the assessments for those years. It can be seen that the so-called concealment of income in respect of which the I.T.O. has reason to believe that income has escaped assessment for those two years, was nothing but a credit balance in the Mal Parath account which was the same involved in the assessment year 81-82 and also other earlier years. The common reasons recorded by the I.T.O. for reopening the assessments as seen from the record are as under : " A.Ys. 78-79 80-81 : The assessment in this case was finalised u/s 143(1) on 29-9-78/27-8-80 on a total income of Rs. 37,910/Rs. 27,280. During the course of assessment proceedin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t this juncture, we shall not go into the question of correct method of accounting to be followed in this case, inasmuch as the assessee has chosen to adopt the revised method of accounting and which is acceptable to the department. However we are only concerned with the question whether penalty for concealment of income is warranted or not. It is admitted that each case law stands on its own peculiar facts and therefore, it is not necessary to deal with the cases relied upon by the parties. In view of the facts and reasons stated above, we are satisfied that there was no concealment of particulars of income or furnishing of inaccurate particulars of income by the assessee. Therefore, penalty is not warranted for these years. 16. However, for the sake of completion of proceedings, we shall consider the question of quantum of penalty also. If at all penalty was to be levied, penalty should be levied only with reference to tax base as held in Rasoolji Buxji's case, R. Kuppuswami Chetty's case, C.H. Sheth's case and Capital Cinema's case. 17. In the result, we uphold the orders of the first appellate authority cancelling the penalties for these years. The appeals are dismissed - ..... X X X X Extracts X X X X X X X X Extracts X X X X
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