This is an appeal directed against the order passed by the Deputy Commissioner (Appeals), Belgaum in the case of M/s Akash Industries, for the assessment year 1988-89. The only ground raised by the revenue in this appeal is that the Deputy Commissioner (Appeals) erred in cancelling the penalty of Rs. 15,000 levied on the assessee under section 271(1)(c) of the Income Tax Act.
At the time of hearing, Shri N.N. Thakur, Assistant Commissioner appeared on behalf of the revenue and Shri Srikrishna Kelkar, chartered accountant, for the assessee.
The assessee is a partnership firm carrying on business in the manufacture and sale of certain safety components. For the assessment year 1988-89 the assessee-firm filed the return declaring a total income of Rs. 70,000. The assessment was completed on a total income of Rs. 97,070 and the enhancement was mainly on account of the addition as suppression in the closing stock account. In the course of the assessment proceedings the assessing officer examined the purchase of raw materials and found that the purchase account showed a debit of Rs. 27,065 on the last day of the accounting year. On verification the assessing officer came to know that the sum of Rs. 27,065 represented the purchase of aluminium sheets from Alco Metal Corporation, Bombay by invoice No. 2296 dated 29-6-1987. The assessing officer found that the materials purchased on a day prior to the close of the accounting year could not have been received and consumed within a day and that the quantity should have been accounted as closing stock. But the assessee had not included the sum of Rs. 27,065 representing the value of the aluminium sheets in transit in the valuation of the closing stock. The assessing officer added the amount in the valuation of the closing stock and determined the total income at Rs. 97,070. Penalty proceedings were initiated under section 271(1)(c) of the Income Tax Act on the ground that by not including the goods in transit in the closing stock valuation, there was suppression of income.
In response to the show-cause notice issued by the assessing officer, the assessee gave their explanation on 1-2-1989, stating that there was no intention on their part to conceal the income and that only by oversight the stock in transit was not included while valuing the closing stock as on 30-6-1987. The assessing officer was not satisfied with the explanation and he proceeded to levy penalty under section 271(1)(c) on the ground that there was concealment of income to the extent of Rs. 27,065. A penalty of Rs. 15,000 was thus levied by the order, dated 20-2-1991. In the appeal filed by the assessee, the Deputy Commissioner (Appeals) cancelled the penalty accepting the plea that the mistake was due to lack of accounting expertise, which did not attract the provisions of section 271(1)(c) to justify the levy of penalty. Aggrieved with the order of the Deputy Commissioner (Appeals) cancelling the penalty, revenue has filed this appeal before the Tribunal.
Shri N.N. Thakur, the learned Departmental Representative, submitted before us that in the present case the Deputy Commissioner (Appeals) was not justified in cancelling the penalty without considering the fact that while debiting the purchase account with the sum of Rs. 27,065 representing the invoice value of aluminium sheets purchased on 29-6-1987, the assessee had not included the same while valuing the closing stock as on 30-6-1987. The learned Departmental Representative pointed out that there was no dispute that the goods had been purchased from Alco Metal Corporation, Bombay, as per their invoice dated 29-6-1987, and that the same were in transit as on 30-6-1987, i.e., the last day of the accounting year. The assessee ought to have included the value of the stock in transit and by not including the same the assessee had concealed the income liable to tax for the assessment year 1988-89. Shri Thakur contended that the assessing officer had rightly levied the penalty and the Deputy Commissioner (Appeals) ought to have confirmed the levy in the circumstances of the case. Shri Thakur further stated that the assessee had accepted the mistake in not including the value of the goods in transit in closing stock only after the assessing officer established the omission after thorough verification of the accounts. By showing a lower value for the closing stock the assessee was furnishing inaccurate particulars of income, which attracted penalty under section 271(1)(c), the learned Departmental Representative submitted. He thus made an earnest plea before us for reversing the order of the Deputy Commissioner (Appeals) and restoring the penalty levied by the assessing officer.
Per contra, Shri Srikrishna Kelkar, chartered accountant supported the order of the Deputy Commissioner (Appeals) and submitted that the appellate authority had rightly come to the finding that there was a genuine mistake on the part of the assessee in not considering the goods in transit while valuing. the. closing stock. Shri Kelkar explained that when the assessee took the stock inventory as on 30-6-1987, aluminium sheets as per the invoice issued by Alco Metal Corporation, Bombay, were not available in, the godown as they were in transit and not reached the assessee's godown. Though according to the correct accountancy principles the value of the goods in transit should have been included in the valuation or the closing stock, Shri Kelkar submitted that by a genuine mistake the assessee did not include the same as the materials had not reached the godown when the stock inventory was taken. The learned representative added that the assessee admitted the mistake as soon as the omission was pointed out by the assessing officer and that according to him this clearly showed the assessee's bona fides. He also pointed out that the goods were delivered in the assessee's godown only on 1-7-1987, i.e., after the last day of the accounting year. Shri Kelkar further stated that the assessee had in fact accounted for the raw materials purchased by the invoice dated 29-6-1987, in the accounts for the succeeding year and their sales by invoice No. 53 were accounted on 28-7-1987. Shri Kelkar submitted that the assessee had not included the sum of Rs. 27,065 in the value of the opening stock for the assessment year 1989-90, which, according to him showed that there was no intention to suppress the income. It was the contention of the learned representative that the Deputy Commissioner (Appeals) was fully justified in cancelling the penalty for the reason that this was not a case of concealment of income, but a genuine mistake committed by the assessee in maintaining the accounts.
We have given due consideration to the submissions on both sides and gone through the facts of the case. The learned representative has also filed before us a paper-book containing various documents. The assessee-firm closed the accounts for the previous year relevant to the assessment year 1988-89 on 30-6-1987. In the trading account for the year ending 30-6-1987, the assessee had shown the value of the closing stock at Rs. 1,05,105 which included the raw materials valued at Rs. 57,376. In the valuation of the closing stock the assessee has not included the value of aluminium sheets purchased from Alco Metal Corporation, Bombay, by invoice No. 2296, dt. 29-6-1987. As per the invoice the value of the sheets was Rs. 27,065. This was debited in the purchase account. The reason why the value of the sheets purchased on 29-6-1987, not being included in the closing stock, according to the assessee, was that the goods had not reached their godown when the stock inventory was taken on 30-6-1987. Shri Kelkar submitted before us that it was the practice of the assessee to take the stock inventory every year on the last day of the accounting period and for the assessment year 1988-89 the stock inventory was taken on 30-6-1987. On that day the materials under consideration were in transit and not reached the assessee's premises. The Deputy Commissioner (Appeals) accepted the assessee's plea that there was a genuine mistake in not including the value of the goods in transit, while valuing the closing stock. As soon as the omission was pointed out by the assessing officer, the assessee accepted the same and did not object to the addition of Rs. 27,065 while computing the total income. In the case of Mahadeswara Moides v. CIT (1983) 144 ITR 127 fKal), the Karnataka High Court held that in a case of an inadvertent mistake levy of penalty under section 271(1)(c) was not justified. In the case decided by the High Court the assessee made the mistake of claiming in the amortisation statement the amount for amortisation already debited in the Profit & loss account. As soon as the mistake was pointed out the assessee accepted the same. The High Court found that there was nothing improbable in the explanation that the mistake was due to inadvertence and circumstances of the case established that the mistake was accidental and inadvertent and that there was no material at all to justify the levy of penalty under section 271(1)(c). Shri Kelkar, the learned representative of the assessee, has also relied on the decision of the Allahabad High Court in the case of CIT v. Rose Lock Factory (1993) 204 ITR 753 (All) for the contention that when the assessee had committed a bona fide mistake in not disclosing income arising from goods in transit, no penalty was leviable on grounds of concealment of income. In the case decided by the Allahabad High Court, the goods had not been received during the relevant accounting year. But the assessing officer found that the assessee had made entries in the accounts for the previous year relating to the purchase of the goods.
When the assessee was asked to give explanation for the omission it filed a revised return including the value of the goods in transit. The High Court held that the Tribunal having come to the conclusion that there was a bona fide omission on the part of the assessee, it was justified in cancelling the penalty. The present case appears to be on all fours with the case decided by the Allahabad High Court. In this context, we may also refer to the following observation made by the Kerala High Court in the case of CIT v. India Sea Foods (1996) 218 ITR 629 (Ker) (FB) : "Penalty proceedings are penal in nature. The elementary principles of criminal law will apply. It is a quasi-criminal proceeding. There should be conscious concealment. The provision should be construed strictly. Even after the addition of the Explanation to section 271(1)(c) of the Income Tax Act, 1961, conscious concealment is necessary and the presumption under Explanation to section 271(1)(c) can be displaced by the assessee proving that the failure to return the correct income did not arise from any fraud or gross or wilful neglect and the quantum of proof necessary would be that required in a civil case, namely preponderance of probabilities. " In the light of the decision in the case of India Sea Foods (supra), it cannot be said that in the present case the assessing officer has established conscious concealment of income on the part of the assessee. We thus find that the Deputy Commissioner (Appeals) was justified in cancelling the penalty in the circumstances of this case.
Accordingly, we uphold the order of the Deputy Commissioner (Appeals) and dismiss this appeal by the revenue.