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TMI Blog1987 (11) TMI 98X X X X Extracts X X X X X X X X Extracts X X X X ..... 0 approx. in the case of firm and partners. (2) Balance sheet's correct total on asset is Rs. 14,01,609.93 instead of Rs. 13,50,610.23 shown by the assessee. Diff. Rs. 50,999.70. As the asset side's total is more than the liability side's total the above diff. of Rs. 50,999.70 requires to be added into the total income of the assessee. (3) As per details of interest payments furnished by the assessee its total Rs. 34,681 instead of Rs. 94,681 accounted by the assessee. Diff. Rs. 10,000. (4) Total as shown in allocation in the case of Shri M. M. Shah (HUF) partner is incorrect. Correct total is Rs. 29,274 instead of Rs. 19,206 shown in order under section 158. Probable underasstt. in the case of the partner Rs. 10,068. (5) As per notice issued under section 210 dated 26-5-1978 of the Act, assessee has to pay advance tax of an amount of Rs. 26,435 in three equal instalments. In response to the above notice assessee has filed his own estimate, which is a lower one and paid the taxes in 2 instalments at the rate of Rs. 8,300 and Rs. 8,400 on 15-6-1978 and 14-9-1978 respectively. Without filing a revised estimate, assessee paid the last instalment amounting to Rs. 38,960 on 13-1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d consumption of PVC Wire in Asstt. Year 1980-81, we request your honour to rectify our assessments by adding the said amounts. We agree to the same. The mistakes are as under : Asstt. Year 1979-80 : Rs. 1. Totalling in closing stock 50,000 2. Totalling in expenses 51,000 -------- Addition 1,01,000 -------- As a result there is mistake in balance sheet total amounting to Rs. 51,000. Rs. Asstt. Year 1980-81 : 1. Totalling in closing stock 1,00,000 2. Totalling in consumption of P.V.C. Wire 1,00,000 -------- Less : Mistake in closing stock of Asstt. Year 1979-80 2,00,000 50,000 -------- Addition 1,50,000 -------- Under the circumstances we request your honour that our a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A. Y. 1980-81. It is requested that, if approved CIT may cancel both the assessments for A. Y. 1979-80 and A. Y. 1980-81 by recourse to section 263 of the IT Act, 1961. 6. The time limit in respect of A. Y. 1979-80 expires on 17-10-1981 and that for A. Y. 1980-81 on 11-2-1983. Case records accompany." 8. Thereafter the Commissioner passed orders under section 263(1) of the Act both dated 9-9-1981, after following the procedure laid down in the said section of the Act, setting aside the assessments originally framed with a direction to the ITO "to re-compute the income of 1979-80 / 1980-81 as per law". With a view to complete our order we reproduce the order of the Commissioner for the Asst. Year 1979-80 : "The I. T. assessment for the asstt. year 1979-80 was completed by the ITO, Cir. III, Ward-A, Ahmedabad on 18-10-1979 on a total income of Rs. 2,69,000. On going through the records of Income-tax proceedings for the said year it was noticed that the assessment made by the ITO was erroneous in so far as it was prejudicial to the interests of the revenue for the following reasons : (i) Total of the closing stock account was under casted by Rs. 49,990, (ii) There was a bala ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Act and called upon the assessee to show cause why the penalty should not be imposed under section 271(1)(c) of the Act. In its letter dt. 25-7-1981, the assessee wrote as under : "We have not concealed any particulars of income. As soon as the mistake was noticed we have requested your honour for rectification. This proves our bona fides. " As such penalty proceedings may please be dropped. For the identical reasons contained in his orders which read as under : "The explanation of the assessee is not convincing. The assessment was completed on 18-10-1979. The assessee had submitted its letter on 11-7-1981 only when the mistake was found by the department and after the assessee was called in the office with the books of account on 13-7-1981. The assessment had already been completed before the assessee had accepted the mistakes. It is not correct on the part of the assessee to say that it had not concealed any particulars of income. I, therefore, hold that the assessee had deliberately committed mistakes in totalling and thereby defrauding the revenue. A draft order has been sent to the I. A. C. A. R. III, Ahmedabad and his approval was accorded vide letter No. R/III/I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... istake was found out by the department. In fact, the letter of the ITO dt. 4th July, 1981 did not mention the details of the errors which were noticed by him and merely called upon the assessee to attend his office on 13th July, 1981. As stated above, on 11th July, 1981 itself we wrote to the ITO with all the details of the errors for both the periods requesting him to rectify the same. 4.4 Further, our bona fide is amply proved by the fact that on 23rd July, 1981 we filed the return of income for asstt. year 1981-82 after correcting errors in the accounts which errors were continuing as regards not only the errors in stock but errors in the totalling in other expenses account, like the interest and store-consumption. While submitting the above return for A. Y. 1981-82, we had credited the profit and loss account of the earlier two years and thereafter credited the additional incomes in the accounts of the partners as per the mistakes rectified by us. IT is needless to emphasise that when we have filed the return on 23rd July, 1981 for A. Y. 1981-82, it must have been preceded by considerable time our discovery of the said errors in the earlier two accounting years and crediting ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ability of they being simply totalling errors and not any deliberate attempt to conceal income. 7. It is further submitted that there could be no objection of permanent benefit by errors in closings stock because the same error may benefit in one year and harm in the subsequent year because the opening stock also would reflect the same error. As pointed out above, we had substantial income in both the asstt. years and no advantage could be gained by such errors in the value of closing stock. In our case also the errors in closing stock were reflected in similar errors in the opening stock in the subsequent years and there is no permanent advantage which could have been obtained by such errors. 8. We further submit that our conduct throughout speaks eloquently on the question whether there was any bona fide error in the instant case. At the cost of repetition, we submit that as early as by our letter dt. 11th July, 1981 we had pointed out the said errors in details long before the ITO found the said errors. Promptly on discovering the errors we also carried out similar corrections for S. Y. 2036 and filed the necessary returns after the said corrections. This was long before any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e also highlighted the fact that the errors which appeared in the books were in round figures which clearly show that there cannot be any motive behind it. Thereafter, he also took us through the written submissions filed before the CIT (A) (reproduced above) with a view to impress upon us that on proper appreciation thereof, the assessee's case cannot be brought within the mischief of section 271(1) (c) of the Act. He also made out the point that except for the years under consideration, the assessee's record both of the past and of the future is clean and without any blemish. The learned counsel for the assessee was fair enough to state that since the decision in the present case has to be arrived at on the appreciation of the facts and circumstances obtaining in the case, it would not be necessary to refer to any reported decisions. However, according to him, the reported decisions would be a guide to show how a judicial mind should function in a particular case. He cited the two decisions in the cases of Mahadeswara Movies v. CIT [1983] 144 ITR 127 (Kar.) and Addl. CIT v. Solar Chemicals (P.) Ltd. [1984] (All.) where the penalty imposed under section 271 (1) (c) of the Act was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (c) 11,50,000 (c) 11,50,000 --------- --------- Note for Col. No. 1 : In the actual position there is no under totalling of stock. The total income assessable for year Rs. 1,00,000 + Rs. 1 lakh, i.e., equal to Rs. 2 lakhs for both years. Note for Col. No. 2 : 1. In the first year the assessee has under totalled the closing stock by Rs. 25(000) at Rs. 75(000) income concealed Rs. 25,000. 2. (a) In second year if the assessee was to disclose the correct stock, i.e., Rs. 1 lakh there would have been no concealment. On the contrary he would have paid tax on total income of Rs. 75,000 + Rs. 1,25,000, i.e., total Rs. 2,00,000 for the two years equal to actual position. 3. (b) In the second year if the assessee was to disclose closing stock of Rs. 75,000, the profit would have Rs. 1,00,000, i.e., equal to actual position and no concealment for this year. 4. (c) Since the assessee intended to pay tax on lesser income this year also, the closing stock was placed at Rs. 50,000. Thereby declaring profit at Rs. 75,000 only ". The learned DR strongly argued that in the instant cas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the basis that there were certain mistakes in totalling. Therefore, he strongly urged that the arguments made on behalf of the revenue on the basis of the alleged manipulation should not be entertained at all. He, in this connection, once again made it clear that the assessee was obliged to remove the mistakes in the accounts for the years under consideration mainly on the ground that while finalising the accounts for the purpose of filing the return for the asstt. year 1981-82, it found certain mistakes in opening balance which had relation with the opening/closing balances of the years under consideration. 16. We have carefully considered the rival submissions of the parties and the material on record to which our attention was drawn at the time of hearing. At the outset, we would like to record that both the learned counsel for the assessee as well as the learned DR have argued their respective case very commendably, swinging the balance in their favour. This has made our task all the more difficult that too, in a matter of penalty where the entire case rests on the appreciation of facts and circumstances. 17. The facts obtaining in the case are not in dispute and in nutshe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ged with concealing of income or furnishing inaccurate particulars thereof as contemplated under section 271(1) (c) of the Act. 21. Apart from the aforesaid legal technicalities though not argued but cannot be ignored, we are of the view that even on merits, the assessee's case could not be brought within the mischief of section 271(1) (c) of the Act. At this stage we would like to make it clear that right from the stage of audit objection to the framing of the assessments in compliance with the orders of the CIT passed u/s 263 of the Act, there is not a whisper about any "manipulation" done by the assessee in the accounts. The case has all along proceeded on the basis that there were some totalling mistakes in the accounts. It is pertinent to note that the expression "manipulation" has acquired a specific meaning over years. The manipulation of accounts means that they are deliberately and with intention prepared with a view to avoid paying tax which is legitimately due to the Exchequer. On the other hand, mistakes in the accounts can be of two types, namely, an inadvertent mistake or a mistake with some ulterior motive. On the proper appreciation of facts and circumstances obta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , when it sent its letter dated 11-7-1981, requesting the ITO to rectify the assessments. Again, it can be seen from the letter dated 4-7-1981 of the ITO (reproduced above) that he had nowhere indicated therein as to what were the mistakes he had in mind. Therefore, it cannot be said that the assessee wrote a letter dated 11-7-1981 with a view to forestall any action by the ITO. The net result of the analysis of the facts and circumstances obtaining in the instant case would clearly show that the assessee wrote its letter dated 11-7-1981 on its own being totally ignorant of what had transpired or was transpiring in the department. It appears that the assessee was obliged to take this step as it was necessary to correct the totalling mistakes in the accounts of the years under consideration as they had bearing on the process of preparing the return for the A. Y. 1981-82 which was actually filed on 23-7-1981. In this view of the matter, even on merits of the case, we are of the opinion that this is not a fit case where the penalty could be imposed under section 271(1) (c) of the Act. We would therefore cancel the penalty so imposed by the income-tax authorities. 24. In the result t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... asting and posting of the cash book and ledger with a view to detecting the difference before proceeding to prepare the final accounts. It is only if the difference is not detected that it is sought to be reflected as a difference in the books as the assessee has done in asstt. year 1979-80. 8. In the present case if there was a genuine mistake in the casting of the expense heads then these would have been detected at the trial balance stage itself. The assessee's version of mistakes being bona fide accordingly lacks credibility. 9. Another aspect of the matter which invites comment is the continuation of the "mistakes" over a period of two years. As already mentioned earlier the wrong totalling of the stock could remain undetected but not the so called wrong totalling of the balance sheets. The mistake for 1979-80 could have been detected while carrying forward the balances to A. Y. 1980-81. 10. In the preceding paras I have tried to discuss the nature of the mistakes alleged to have occurred in the accounts with a view to show that a mistake in the totalling of the stock accounts can remain undetected but not the mistakes in wrong totalling of expense accounts and balance s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sure by the assessee was not a voluntary one but motivated by the letter of the ITO. The assessee had no option but own up the "mistakes" and agree to the additions. 15. A perusal of the letter dt. 11-7-1981 also leads one to conclude that it is very casual and cursory in nature and not one which an assessee would write to the department in case he wanted to point out some genuine mistakes that had taken place in the accounts. There is no reference as to how the assessee stumbled on to the so called mistakes in the letter dt. 11-7-1981 although subsequently it was argued in the penalty proceedings; before the CIT (A) and before us that the mistakes were detected in May 1981 when the return for the subsequent asstt. year viz., 1981-82 was under preparation. However no evidence was brought on record to show the nature of checking done by the assessee whereby the mistakes were said to have been detected in May 1981. This explanation according to me is only a feeble attempt by the assessee to escape the charge of concealment. 16. The assessee's case is that its letter dt. 11-7-1981 is independent of the ITO's letter dt. 4-7-1981 and accordingly the disclosure is voluntary. I am how ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ON 265(4) OF THE INCOME-TAX ACT Per Shri. U. T. Shah, Judicial Member -since there is a difference of opinion on the following point, the matter may be placed before the Hon'ble President, Income-tax Appellate Tribunal, for hearing and deciding the point in accordance with the majority of those hearing the case : "Whether, on the facts and in the circumstances of the case, the penalty under sec. 27(1) (c) of the IT Act, 1961 was leviable on the assessee ?" THIRD MEMBER ORDER Per Shri. Y. Upadhyaya, Vice President (WZ)-A common question for the assessment years 1979.80 and 1980.81 has been referred to the Third Member u/s 255(4) of the IT Act, 1961. The question referred is as follows : "Whether, on the facts and in the circumstances of the case, the penalty under sec. 271(1) (c) of the IT Act, 1961 was leviable on the assessee ?" 2. The returns for the assessment years 1979-80 and 1980-81 were filed by the assessee on 6-6-1979 and 13-5-1980 showing the income of Rs. 2,55,529 and Rs. 3,00,880 respectively. The assessments were completed on 18-10-1979 and 12-2-1981 respectively. Subsequently memos of objections were received by the Income-tax Officer from the Internal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee before action was taken by the ITO and further after the cancellation of the assessments u/s 263 the letter written by the assessee dated 7-7-1981 was on the record and, therefore, there was no concealment by the assessee. The Hon'ble Accountant Member, on the other hand, was of the opinion that there was a manipulation by the assessee in these two years and, therefore, there was concealment. The Hon'ble Judicial Member deleted the penalty whereas the Hon'ble Accountant Member was of the opinion that the penalty imposed by the ITO should be sustained. Accordingly the question mentioned above has been referred to the Third Member for opinion. 5. Shri Kaji, the learned counsel for the assessee, referred to various papers in the paper book to indicate the mistakes which were committed by the assessee in the assessment year 1979-80 and 1980-81. He very strongly supported the order of the Hon'ble Judicial Member and indicated that the mistake committed by the assessee was only bona fide which is clear from the conduct of the assessee. The assessee filed all the papers before the ITO in which totalling mistakes were found by the Internal Audit Party. He further indicated that the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ernal Audit report there were totalling mistakes in the assessment year 1979-80 and 1980-81. Factually there is no difference of opinion on this fact and the mistakes are as under : Mistakes for A. Y. 1979-80 Rs. Totalling mistakes including stock 50,000 Totalling mistakes in five expenses account 51,000 -------- TOTAL 1,01,000 -------- Mistakes for A.Y. 1980-81 Rs. Totalling mistakes including stock 1,00,000 Totalling mistakes in consumption of P.V.C. Wire 1,00,000 -------- 2,00,000 Less : Mistake in closing stock for A. Y. 1979-80 50,000 -------- TOTAL 1,50,000 -------- The consequential mistake ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ord. Therefore, if the ITO proceeds to make the reassessments in view of the CIT's order u/s 263 the correct figures were before the ITO and there was no question of concealment. If all these conducts of the assessee are taken into consideration, prima facie it appears that it was a bona fide mistake and the bona fide mistake was corrected well within time before any action was taken by the ITO. The said conclusion has been arrived at after considering the arguments and the case laws cited by the revenue in K Mahim's case, Kantilal Manilal's case and Mussadilal Ram Bharose's case. The departmental representative in the course of argument also referred to Explanation to section 271(1)(c) of the Act, though the explanation has not been considered by any of the members of the Tribunal. However, even in view of the Explanation, the penalty is not sustanable. The finding has been given on the facts of the case and it has been indicated that on facts there was no concealment by the assessee and particularly when the order u/s 263 was passed by the CIT. Further before the date of hearing pursuant to the letter of the ITO dated 4-7-1981 the assessee filed its letter on 11-7-1981 for correc ..... X X X X Extracts X X X X X X X X Extracts X X X X
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