Full Judgment
2. The assessee in this case has been assessed in the status of an AOP on an income of Rs. 41,320 as against return filed on 4th January, 1988 declaring a deficit of Rs. 700 plus agricultural income of Rs. 3,056.
It would also be necessary to mention that the assessee at the first instance did not file a return of income, but only did so after a notice under Section 148 had been issued on 18-11 -1987 and served on the assessee on 3-12-1987. The further relevant facts of the case are that up to the assessment year 1984-85 the assessee had been maintaining its books of account on the mercantile basis, but during the assessment year under consideration had changed the method from mercantile to cash and filed the return on the changed basis. It is also an accepted fact that in the course of the assessment proceedings, the Income-tax Officer rejected the changed method on the ground that it had been done with a view "to avoid incidence of tax on interest receivable on accrual basis". The Income-tax Officer further noted that the funds had been invested in the debentures of Pvt. Ltd. companies, which were controlled by the trustees and their relatives. He also took note of the fact that certain deposits had been made in private companies which once again were controlled by the trustees and their relations or other sister concerns. He also took note of the absence of steps on the part of the assessee to recover the amount of interest which had become due to it although the payees had made provision for interest in their accounts and had credited the interest to the interest payable account. The aforesaid views expressed by the Income-tax Officer led to an addition of Rs. 43,656 on account of "accrued interest". To conclude the sequence of facts, the Income-tax Officer initiated penalty proceedings under Section 271 (1)(a) for the late filing of the return and which ultimately came to be imposed in a sum of Rs. 13,620. On further appeal, the said levy of penalty came to be confirmed by the DC (Appeals) on the ground that the assessee's counsel could not give any satisfactory explanation for delay in the filing of the return.
3. I have heard both the parties at some length in respect of the specific grounds raised in the assessee's appeal. The learned counsel made the following points :- (i) That the return showing deficit of Rs. 700 had been filed on the basis of the audited accounts which had earlier been filed with the Department on 26th June, 1985; (ii) Even the return filed in response to notice under Section 148 reflected the same figure of loss; (iii) On the basis of the audited accounts the assessee was under the bona fide belief that the return need not be filed and the rejection of the changed method of accounting was a later event which was not contemplated by the assessee; and (iv) That the same income which had been taxed in the assessment year under appeal had been included in the taxable income of the assessee in assessment year 1988-89.
4. The learned counsel also sought to draw a parallel between the present case and that of another connected trust, namely, Jama Bhagat Public Charitable Trust which according to him had already been adjudicated upon by the Tribunal deciding in the ultimate analysis that penalty under Section 271(1)(a) was not exigible. According to him the dates of filing the return, issue of notice under Section 148 and the audited accounts reflecting the deficit were absolutely identical. A copy of the order of the Tribunal in IT Appeal No. 123 (Delhi) of 1992 (S.M.C.) dated 26-12-1993 was placed on record. The learned counsel took us through the relevant portions of the order of the Tribunal placing reliance on the same decisions as had been relied upon during the course of the hearing of that appeal and these being the ones reported in Reform Flour Mills (P.) Ltd. v. CIT [1978] 114 ITR 227 (Cal.): Snow White Food Products Co. Ltd. v. CIT[1983] 141 ITR 847 (Cal.) and CIT v. Ganga Charity Trust Fund [1986] 162 ITR 612 (Guj.).
He concluded his arguments by urging that the penalty be deleted in line with the order of the Tribunal cited. The learned Departmental Representative, on the other hand, strongly supported by the order passed by the DC (Appeals) contending in the process that in the present case the change in the method of accounting had not been found bona fide by the tax authorities and in that view of the matter, there was no valid basis on the part of the assessee's counsel to urge that penalty under Section 271(1)(a) be cancelled. He placed reliance on the decision of the Karnataka High Court in the case of CIT v. Corporation Bank Ltd. [1988] 174 ITR 616 (Kar.).
5. In reply the learned counsel for the assessee placed on record a copy of the order of the Tribunal in the quantum appeal as directed by us accepting that the Tribunal had been pleased to hold that the change in the method of accounting was not a bona fide one, but contending that this should not have effect on the penalty proceedings as the question of filing the return was to be seen in the light of the circumstances as existed at the relevant point of time and not subsequently. He reiterated reliance on the decision in the case of Jama Bhagat Public Charitable Trust (supra).
6. I have considered the rival submissions and have also perused the material on record, to which my attention was invited during the course of the hearing. The decisions cited at the bar have also been duly considered. I may, at the outset, mention that the three decisions relied upon by the learned counsel were duly considered by the Tribunal in the quantum appeal viz., ITA. No. 6484 (Delhi) of 1989 dated 17th December, 1993, to which one of us (the Accountant Member) was a party.
This is what the Tribunal observed after considering the aforesaid decisions and dealing with the arguments of both the parties : Submissions have been heard and record carefully perused. Assessee was receiving substantial interest income on its advances and investments in various concerns where, the persons controlling the assessee, were controlling the concerned companies wherefrom the interest was receivable. The method of accounting up to the year under consideration was always mercantile. The attempt by the assessee to change the method of accounting was pure and simple to avoid the incidence of tax. The interest was said to have been allowed and recorded in the assessee's accounts with the concerns but the assessee never took steps to realise and collect the same.
In the above circumstances, the Assessing Officer came to the conclusion that the change was not being sought with a bona fide intention and that in fact attempt was to avoid the incidence of tax. The request was denied in the above circumstances. The learned first appellate authority confirmed such action. Now the issue for our consideration is as to whether the revenue authorities were justified to do what is seen to have been done in the present case.
The facts and findings recorded in the orders of the revenue authorities are seen to be quite proper and correct. No proper reason was shown, on behalf of the assessee, that there was any mistake in the orders. It was not shown that the assessee's approach was bona fide. The mention, by the learned counsel, of assessment orders for other assessment years where cash system of accounting was said to have not been disturbed, cannot help the assessee because assessments up to assessment year 1988-89 were framed, without proper application of mind, under Section 143(1) of the Act and for the assessment year 1990-91 there was no occasion for such discussion as no such issue was there before the Assessing Officer as the income shown was nil. The ratios in the cases (supra) of Reform Flour Mills (P.) Ltd. and Snow White Food Products Co. Ltd. do not appear to support the assessee's stand as facts and issues there were not in paramateria with the assessee's case. The ratio in the case (supra) Ganga Charity Trust Fund also cannot help the assessee as in that case the attempt to switch over was not found to be not bona fide whereas in the case before us the assessee's attempt is not bona fide as the assessee's purpose was to avoid the payment of legitimate taxes. For the above reasons and also for the reasons of the revenues authorities, with which we agree, we see no justification to interfere. The order under challenge on this point is confirmed.
7. It may be seen that the Tribunal has held on the facts of the present case that there was a deliberate attempt on the part of the assessee to avoid the incidence and payment of legitimate taxes and the switch-over from one method of accounting to the other was not bona fide. The Tribunal also distinguished the decisions relied upon by the assessee's counsel primarily on the ground that in those cases it was not found that the change from one method to the other was not bona fide and this can also be said of the order passed by the Tribunal in the case of Jama Bhagat Public Charitable Trust (supra). I may refer to para 2 of the aforesaid order where the Tribunal has categorically stated that the additions were made without attracting the provisions of Section 271(1)(c) whereas a perusal of the assessment order in the present case shows that such proceedings have been initiated. Then again there is no finding of the Tribunal in that case to the effect that the switching over from one system to another was not bona fide, whereas in the present case, the Tribunal has recorded such a finding while deciding the quantum appeal. The Tribunal has also gone on to say that the change-over was made with a view to avoid the payment of legitimate taxes. In the final analysis, I have no option, but to observe that the decisions of the various High Courts relied upon by the learned counsel do not come to his aid and to the same effect would be my observations in respect of the decision of the Tribunal in the case of the connected trust.
8. The natural consequence of the aforesaid discussion leads me to no conclusion other than the one that the assessee has deliberately avoided the filing of the Income-tax return in time and the income which subsequently came to be assessed by the ITO and confirmed by the Tribunal was the true and correct income which was above the taxable limit and a return thereof requiring to be filed under the law by the due date stipulated in the Income-tax Act, 1961. In this view of the matter, the action of the tax authorities in penalising the assessee under Section 271(1)(c) is upheld.