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TMI Blog2010 (11) TMI 84X X X X Extracts X X X X X X X X Extracts X X X X ..... ts and circumstances of the case, a change in the method of accounting introduced by the assessee without any justifiable reasons? 2. Whether finding recorded by the ITAT that there was no evidence regarding payment of ₹ 36,17,980/- by the assessee to the sub-contractor in connection with the execution of the garbage collection work is perverse? ITA No. 296/2006 "1. Whether the ITAT was correct in law in deleting the penalty of ₹ 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 ₹ 4,50,317/- for the year under consideration. The appellant had shown gross receipts from JMC at ₹ 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 ₹ 1,17,39,415/- as against ₹ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... IT(A) found that on an accrual basis the appellant had actually overstated rather than understated its income for the period under consideration. 4. On the second issue of the non-confirmation of the sundry creditors, the CIT(A) was pleased to delete the addition of ₹ 36,17,979/- on the basis that the factum of rendering of services by the sub-contractors was not in dispute and the appellant had meticulously maintained log books for each sub-contract, which were 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 ₹ 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 ₹ 35,39,631/- the ITAT held that during the period under consideration, the appellant had changed its method of accounting and such change was n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y invoking the provisions of Explanation 1 to Section 271 (1) (c) on the ground that the assessee had concealed the particulars of his income and furnished inaccurate particulars. The CIT(A) by an order dated 30th December, 2004 confirmed the penalty imposed by the Assessing Officer. However, on second appeal the ITAT by its order dated 29th July, 2005 deleted the penalty imposed by the Assessing Officer onthe ground that no "satisfaction" was recorded by the AO in the assessment order before initiating 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 ₹ 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cted from the amount as not payable to the assessee was not taken as having accrued to the assessee. In our opinion, when all the facts have been placed by the assessee itself before the AO and a particular legal stand is taken by the assessee, which is not accepted by the AO, it cannot be said that the assessee is guilty of concealment of income. The first page of the assessment order records that "details of the total bills raised against the JMC were also furnished by the assessee according to which the total receipts of the assessee company for the FY 1994-95 arrive at ₹ 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 po ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y. In this order, the following observations appear: - "The assessee has shown in the balance sheet under the Schedule III as details of sundry creditors - hire charges of ₹ 58,55,005, but during the course of hearing it was intimated by them that it was only the payments to be made to the contractors who were plying the trucks on behalf of the company and the company had hired them for the Jaipur Municipality for removing the garbage. The list of these creditors to whom the 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 ₹ 58,55,005 consists of sundry creditors of ₹ 49,93,063 and other creditors for hire charges of ₹ 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 ou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al is that there was a dispute between the appellant and the JMC with regard to the execution of the work. The appellant had raised bills upon the basis of the certificates issued by the JMC for work executed, but lost sight of the fact that under the mercantile system of accounting, it was bound to show the bills on accrual basis. Mr. Sabharwal contended that the appellant could have claimed bad debts in the subsequent years but could not have changed its system of 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 ₹ 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t is to be brought to tax. In CIT vs. Shoorji Vallabhdas and Company (1959) 36 ITR 25, the Bombay High Court held that the question whether the income accrued or not is not a mere matter of cogency of the entries made in the account books of the assessee, but is essentially one of substance and of the real nature of what happened. A mere book entry is not conclusive of the question whether the assessee had become entitled to the sums or not and whether the income is assessable. "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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... R page 746, the Supreme Court reiterated the concept of real income‟, emphasizing that even under the mercantile system, a mere claim by the assessee is not sufficient to make income accrue on the basis of hypothetical income‟ - the income must actually become due. In the said case the Supreme Court inter alia examined the cash system and mercantile system of accounting in the context of hypothetical income‟. Considering the facts before it, the Court 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 Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /- was unsustainable. We are of the view that the Tribunal failed to take note of three very vital aspects of the matter. The first was the finding of the CIT(A) that the factum of rendering of services by the sub-contractors was not in dispute as the appellant had meticulously maintained log books for each sub-contract, which were duly verified and authenticated by the JMC. The Tribunal casually brushed this aside by stating that mere filing of a log book was not sufficient to discharge the onus 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 file ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncurred for the purpose of the business. It is not, therefore, understood as to how the balance outstanding to such persons at the end of the year can be considered to be non-genuine. The ledger account also shows that the assessee has deducted tax on the higher charges paid to Morari Lal. The ledger accounts of all the other 7 creditors have also been placed in the paper book and these also exhibit the same position." 29. We find no substance in the aforesaid contention as it is well settled that though 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 concl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it would be unsafe to infer that the assessee was guilty of concealment of income or furnishing of inaccurate particulars thereof. It is trite law that where divergent views exist either within the department itself or such divergent views are expressed by different High Courts and there is no uniformity or consensus of opinion of any aspect of law, the assessee cannot be faulted for taking a particular stand. The caveat, of course, is that the assessee must have 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 wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g inaccurate particulars. The learned counsel argued that "submitting an incorrect claim in law for the expenditure on interest would amount to giving inaccurate particulars of such income." We do not think that such can be the interpretation of the concerned words. The words are plain and simple. In order to expose the assessee to the penalty unless the case is strictly covered by the provision, the penalty provision cannot be invoked. By any stretch of imagination, 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... correct the income returns of subsequent years in accordance with order of CIT for the year 1998-1999. The assessed, therefore, filed revised returns deleting the expenses which were disallowed by the CIT (A). In the relevant year assessed had also claimed expenses of ₹ 2 crores paid by the assessed in terms of the agreement entered into by the assessed with the leasing Lesser. The assessed claimed the entire amount of ₹ 2 crores as deduction since the assessed had paid this amount of ₹ 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 Exp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... O was not satisfied and did not agree with the assessed but that by itself is not a ground to invoke the penalty provision of the statute. 6. Learned Counsel for the Revenue relied upon CIT v. Vidyagauri Natverlal and Ors. [1999] 238 ITR 91(Guj). In that case the question that arose was of unexplained cash credit. The Gujarat High Court made a distinction between a wrong claim as opposed to a false claim. In that case, the AO needed to make an enquiry as to whether the claim of the assessed was right or not. Insofar as the present case is concerned, the decision cited by learned Counsel for the Revenue is clearly distinguishable." 7. We find that there was full disclosure of all relevant material. It cannot be said that the conduct of the (assessed) attracted the provisions of Section 271(1)(c) of the Act." 35. In view of the aforesaid we have no hesitation in concluding that the Income Tax Appellate Tribunal was not right in law in holding that there was change in the method of accounting introduced by the assessee without any justifiable reason. The further findings recorded by the ITAT that there was no evidence regarding the payment of ₹ 36,17,980/- by the assessee to t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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