P.K. Balasubramanyan CJ.
The Income Tax Appellate Tribunal, Patna, has referred the following question to this court under section 256(1) of the Income Tax Act
'Whether on the facts and in the circumstances of the case, the imposition of penalty under section 271(1)(c) of the Income Tax Act amounting to Rs. 2,20,000was legal and valid'.
2. During the course of the assessment for the assessment year 1985-86, the assessing officer noticed that a sum of Rs. 2,96,575 was shown by the assessee as an amount due to sundry creditors, but that the said amount was not an amount payable by the assessee, but the said amount was one which was already received by the assessee and credited to its bank account, though, the certificate for deduction of tax at source had not been received. The assessee had earlier filed a revised return continuing to show the sum of Rs. 2,96,575 as due to sundry creditors. After the aspect was highlighted by the assessing officer, the assessee filed yet another revised return accepting the receipt of the sum of Rs. 2,96,575 as having been received on 27-7-1984. The assessee did not account for the other receipt totalling Rs. 46,464 which also formed part of the gross receipt of the assessee. Ultimately, the assessing officer completed the assessment adding a sum of Rs. 2,96,575 and a sum of Rs. 46,464 as the income of the assessee. The said assessment became final, the assessee not having appealed against it.
3. The assessing officer initiated penalty proceedings under section Rs. 3,43,239. The assessee resisted the penalty proceedings by submitting that he had included the sum of Rs. 2,96,575 as income in his revised return and the assessing officer had completed the assessment accepting that position and no occasion for the imposition of penalty based on that addition existed in the case. The sum of Rs. 46,464 could not be brought into account by the assessee due to non-receipt of the certificate of the tax deducted at source and the assessee had not concealed that income wilfully. The assessing officer held that the assessee had declared the income in the revised return only after the detection of the same by the assessing officer and in that situation, penalty was liable to be imposed on the assessee under section 271(1)(c) of the Act. The penalty of Rs. 2,20,000 was imposed. The assessee appealed before the Commissioner (Appeals). The assessee contended that he intended to account for the amount on 'completed projected basis' since he had undertaken a new project of erection of sulphuric acid plant in the year 1983. Accordingly, the receipt of Rs. 4,44,815 during the calendar year 1983 and Rs. 2,96,575 during the calendar year 1984 had been shown in the 'sundry creditors' account instead of being credited to the receipt account. In the year 1985, the project was completed and the entire receipt of Rs. 9,55,653 including the amounts received earlier, had been duly shown as income for the assessment year 1986-87. Thus, the amount of Rs. 2,96,575 was not included in the return for the assessment year 198586. But since, the assessing officer questioned the entry, the assessee had offered the amount for taxation during the relevant accounting year itself' in the revised return in order to avoid any controversy. As regards the sum of Rs. 46,464 it was sought to be explained that the assessee received only an advance for the work against the running bills. In the meantime, TDS certificate had not been received and it alone could have reflected the details of the recoveries. Failure to include the amount in the return could not be attributed to any effort at concealment of the income. The books of account of the assessee had been audited and all the amounts received finally had been accounted for in the books. The Commissioner (Appeals) accepted these contentions of the assessee and verified the profit and loss accounts for the assessment year 1986-87 and accepted the case that the total receipt had been accounted for in that year. Hence, it could not be said that the assessee had made any attempt at concealing its income or receipt. Similarly, the omission to include Rs. 46,464 was attributable to non-receipt of TDS certificate during the year. Hence, the imposition of penalty under section 271(1)(c) of the Act was justified. Hence, he allowed the appeal and set aside the order imposing the penalty.
4. The department appealed to the Income Tax Appellate Tribunal. The Tribunal held that the assessee did not offer an explanation at the assessment stage and this is a case to which Explanation 1(A) to section 271(1) was attracted and the explanation offered at the stage of penalty proceedings was not bona fide and that projected completion method was not being followed and that all materials enabling the computation of total income of the assessee were not disclosed at the assessment stage. Even if any justification could be found for disclosing the profit on project completion basis under certain circumstances, there was no justification for showing actual receipts as outstanding liabilities due to sundry creditors. As regards the sum of Rs. 46,464, the TDS certificates were obtained by the assessee ever as per his books of account on 18-9-1985 and though the assessee filed a second revised return on 10-10-1985, the amount was not disclosed. The assessee could have clearly included this income when he filed the second revised return. There was no justification in omitting this amount in the revised return filed on 10-10-1985 and consequently, the imposition of penalty was justified. The Commissioner (Appeals) was in error in interfering with the order of the assessing officer. Thus, the Income Tax Appellate Tribunal reversed the decision of the Commissioner (Appeals) and restored the order of the assessing officer imposing penalty.
5. The assessee sought a reference of five questions in his application under section 256(1) of the Income Tax Act, filed before the Income Tax Appellate Tribunal, which decided that the question that really arose for decision was the one that has been quoted above by us in the beginning which, in effect, is an omnibus question covering all the aspects sought to be raised by the assessee.
6. Learned counsel for the assessee contended that the assessee had shown in its second revised return the sum of Rs. 2,96,575 as the receipt of income and the assessing officer had completed the assessment based on that return. It could not, therefore, be said that there was any concealment of income by he assessee, or the furnishing of inaccurate particulars by the assessee justifying the imposition of penalty under section 271(1)(c) of the Act. As regards the sum of Rs. 46,464 the counsel tried to reiterate the contention of the assessee that the TDS certificate had not been received at the relevant time and that is the reason for not disclosing the amount even in the second revised return of the assessee. But this contention could not be successfully pursued by the learned counsel in view of the fact that TDS certificate had been received on 18-9-1985 even as per the written submissions made on behalf of the assessee before the Income Tax Appellate Tribunal, the second revised return was filed only on 10- 10- 1985 and even in that return, receipt of this amount was not disclosed. As regards, the sum of Rs. 2,96,575, learned counsel submitted that the Commissioner (Appeals) had made the correct approach to the question and has rightly accepted the contention of the assessee. It was not as if the assessee had not disclosed this amount. He had included it in the return, though no doubt, it was shown as the amount due to sundry creditors. But the assessee himself had revised the return accepting that the said sum was received during the relevant accounting year in its second revised return and in that situation, the imposition of penalty was not justified. There was no mens rea and there was no concealment of any material particulars by the assessee and it could not also be said that he had furnished inaccurate particulars in the return. Counsel relied on the decision in CIT v. Suresh Chandra Mittal : [2000]241ITR124(MP) in support. In that decision, the Madhya Pradesh High Court held that once a revised assessment was regularized by the revenue and once the assessing officer had failed to take any objection in the matter, the declaration of income made by the assessee in his revised returns and his explanation that he had done so to buy peace with the department and come out of vexation litigation could be treated as bona fide on the facts and in the circumstances of that case and hence, the Tribunal was justified in cancelling the penalty levied by the assessing officer and affirmed by the Commissioner (Appeals). The appeal against the decision of the Madhya Pradesh High Court at the instance of the department was rejected by the Supreme Court with the following statement:
'We have read the order of the High Court and the statement of case. Given the facts and circumstances, we do not think that any interference with the order of the High Court is called for.' - CIT v. Suresh Chandra Mittaff (2001) 251 ITR 91 '.
7. Learned counsel for the department submitted that the decision rested on the peculiar facts of that case and it could not be understood as laying down the law on the subject or laying down a proposition that in every case, where a revised return was accepted by the department, no penalty could be imposed under section 271(1)(c) of the Income Tax Act.
8. We find that the legal position is really covered by the decision of the Supreme Court in K.P. Madhusudhanan v. CIT : [2001]251ITR99(SC) . Therein, the Supreme Court affirmed the decision of the Kerala High Court in CIT v. K.P. Madhusudhanan : [2000]246ITR218(Ker) . Considering the effect of the addition of explanation to section 271(1)(c) of the Act and the amendment to section 271(1)(c) of the Act by deletion of the word 'deliberately', the Kerala High Court came to the conclusion that whether penalty was liable to be imposed in a case where the assessee could offer no acceptable explanation for the income not disclosed or the inaccurate particular he had furnished in his return, had to be examined and if found unacceptable, penalty was liable to be imposed. The Kerala High Court stated as follows---
'Section 271(1)(c) of the Income Tax Act, 1961, is attracted where, in the course of any proceedings under the Act, the assessing officer or the first appellate authority is satisfied that : (a) any person has concealed the particulars of his income; or (b) has furnished inaccurate particulars of such income. The expressions has concealed 'andhas furnished inaccurate particulars' has not been defined either in the section or elsewhere in the Act. However, notwithstanding differences in the two circumstances, they lead to the same effect, viz,' keeping off a certain portion of income. The former is direct while the latter may be indirect in its execution.
A conspectus of the Explanation added by the Finance Act, 1964 and the subsequent substituted Explanations makes it clear that the statute visualized the assessment proceedings and penalty proceedings to be wholly distinct and independent of each other. In essence, the Explanation (both after 1964 and 1976) is a rule of evidence. Presumptions which are rebuttable in nature are available to be drawn. The initial burden of discharging the onus of rebuttal is on the assessee. Explanation 1 automatically comes into operation when, in respect of any facts material to the computation of total income of any person, there is failure to offer an explanation or an explanation is offered which is found to be false by the assessing officer or the first appellate authority, or an explanation is offered which is not substantiated. In such a case, the amount added or disallowed in computing the total income is deemed to represent the income in respect of which particulars have been concealed. As per the provision of Explanation 1, the onus to establish that the explanation offered was bona fide and all facts relating to the same and materials to the computation of his income have been disclosed by him will be on the person charged with concealment. The assessing officer is not obliged to intimate the assessee that Explanation 1 to section 271(1)(c) is proposed to be applied. The scheme of the provisions does not provide for such a requirement either directly or inferentially. In Sir Shadilal Sugar and General Mills Ltd. v. CIT : [1987]168ITR705(SC) , what the Supreme Court observed was that there may be several reasons for which the assessee may have offered an amount for addition, but that itself is not sufficient to infer concealment. It has not laid down as a rule of general application that whenever such is the case, penalty cannot be imposed. On the contrary, in such cases also the assessee is required to discharge the burden placed by the Explanation appended to section 271(1)(c). In case an explanation is offered, the assessing officer is to examine it and find out whether the assessee has been able to establish that there was no concealment.
Held, that, in the case at hand, no explanation worth the name was offered by the assessee. The statement made by the assessee was to the effect that hand loans were obtained which were intended to be refunded immediately and, therefore, the entries were not made, but, later on, the arrangement did not work out. Therefore, the amount was offered for taxation. There was a clear admission that the entries were not made on the relevant dates. It was not a case where entries were made on the relevant dates and the source of money was omitted. The entries on the contrary were made on dates when there was sufficient cash balance. The intention to hide the actual state of affairs was clear. The explanation offered was fanciful and vague. The imposition of penalty was valid and the Tribunal erred in cancelling it.' (p. 218)
9. The Supreme Court while affirming the said decision in K.P. Madhusudhanan's case (supra) held as follows :-
'The Explanation to section 271(1)(c) is a part of section 271. When the assessing officer or the Appellate Assistant Commissioner issues a notice under section 271 he makes the assessee aware that the provisions thereof are to be used against him. These provisions include the Explanation. By virtue of the notice under section 271 the assessee is put to notice that, if he does not prove, in the circumstances stated in the Explanation, that his failure to return his correct income was not due to fraud or neglect, he shall be deemed to have concealed the particulars of his income or furnished inaccurate particulars thereof, and, consequently be liable to the penalty under the section. No express invocation of the Explanation to section 271 in the notice under section 271 is necessary before the provisions of the Explanation are applied.' (p. 100)
10. The decision of the Patna High Court in CIT v. Nathulal Agarwala & Sons : [1985]153ITR292(Patna) relied on by the learned counsel for the assessee also does not come to the aid of the assessee in this case. Therein, the Full Bench of the Patna High Court considered the effect of the amendment brought about to section 271(1) of the Income Tax Act and the addition of the explanation and noticed that the burden had shifted to the assessee from the department to offer a reasonable explanation for his furnishing an alleged inaccurate particulars or concealing a particular income and it was for the assessing officer to consider the acceptability or otherwise of that Explanation. This position has been adopted by the Supreme Court also in the above quoted decision and, therefore, no support can be derived by the learned counsel from the decision of the Patna High Court to contend that it was still for the department to establish that a particular income had been wilfully concealed or that an inaccurate particular had been deliberately furnished.
11. In the case on hand, as we have noticed, the explanation of the assessee for non-inclusion of the sum of Rs. 46,464, as non-receipt of TDS certificate even when it filed the second revised return, is clearly unacceptable on the facts found by the Tribunal. Therefore, it was established that the assessee concealed or attempted to conceal that income while offering his income for assessment. As regards Rs. 2,96,575 the only explanation attempted by the assessee during the proceedings for imposition of penalty was that the assessee was following the 'completed project basis' accounting. This explanation was clearly found to be unacceptable by the assessing officer and also by the Income Tax Appellate Tribunal. The Commissioner (Appeals) proceeded to accept this explanation of the assessee without properly looking into the relevant aspects and failing to take note of the fact that the assessee had no case at the earlier stage that it was following the basis of completed project while submitting its returns. This is really a question of fact and this explanation has been found unacceptable on the facts of this case, both by the assessing officer and by the Income Tax Appellate Tribunal. It could not be argued successfully before us, even if it is open to us to go into the acceptability or otherwise of that explanation in this reference, that the Income Tax Appellate Tribunal was not justified in rejecting this explanation sought to be put forward by the assessee at the stage of imposition of the penalty. Thus, the explanation offered by the assessee in our view, has been properly considered by the Income Tax Appellate Tribunal and the Appellate Tribunal was justified in its finding that the explanation offered by the assessee for furnishing inaccurate particulars and for concealing a part of its income could not be accepted. The Tribunal in our view, is also correct in stating that the assessee just cannot claim that the project completion method was being followed without being able to substantiate it in any manner and to show that the facts of the case justified the deferring of the profit. It is also in our view, justified in finding that the explanation offered by the assessee was a mere after-thought. In this situation, it cannot be said that the imposition of penalty was not justified or was not supported by section 271(1)(c) of the Act.
12. Learned counsel for the assessee attempted to question the quantum of penalty imposed. We find that no such objection was raised on behalf of the assessee either before the Commissioner or before the Income Tax Appellate Tribunal, though the question referred to us in an omnibus form, may also take in the question of quantum. This was a dispute that was not raised by the assessee at any time before. Learned counsel for the department also submitted that the quantum of penalty was proper and it could not be said to be excessive or as not permitted by law. In the circumstances of the case and in the absence of the plea being raised earlier, we are not in a position to find any merit in this contention regarding the quantum of penalty imposed.
13. We thus answer the question referred to us for decision in the positive and in favour of the department and against the assessee. We make no order as to costs.