Judgment:
1. These appeals are filed at the instance of the assessee and they pertain to the asst. years 1990-91 & 1991-92. Penalty levied by the Assessing Officer under Section 271(1)(c) of the Act having been confirmed by the learned C.I.T.(Appeals), the assessee is in appeal before us.
2. The assessee is Managing Partner of M/. K.M. Abdul Sattar Corpn., Adoni. For the years under consideration, the assessee declared total income of Rs. 26,440/- and Rs. 56,333/- respectively which included share income from two firms. The returns were originally processed under Section 143(1)(a) of the Act.
3. In the course of assessment proceedings of the firm M/s. K.M. Abdul Sattar Corporation, it came to light that a benami S.B.A/c was operated by the Managing Partner (appellant in these appeals). In the name of Mr. M.S. Abdul Khader, Savings Bank a/c in Laxmi Vilas Bank, Adoni was maintained bearing a/c. No. 1631. When this was put to the assessee, he agreed that the entries in. bank a/c reflect his transactions. Letter dated 30.7.92 addressed by assessee to ITO, reads as under: "Kindly permit me to file this submission before I answer your questions in pursuance of a summon issued upon me to appear before you on 31.7.92.
I own the responsibility of maintaining an S. Account in the name of M.S. Abdul Khader in Laxmi Vilas Bank, Adoni (S.B. Account).
Immediately on obtaining the bank extracts in a day or two I will file my revised return of income with the peak credit of deposits in that account, along with the self-assessed tax." 4. The assessments were therefore reopened by issuing a notice dated 31.7.92 Under Section 148 of the Act. In response to the notice the assessee declared peak unexplained credit of Rs. 37500 for assessment year 1990-91 and Rs. 9,086 for the asst. year 1991-92. After adjusting the earlier years peak credit offered to tax, the assessee offered Rs. 53,586/- as income for the asst. year. 1991-92. Covering letter dated 6.8.92 addressed to Assessing Officer read as under: "I am filing my Revised Returns for the. Asst. Years 90-91 and 91-92 along with the 140-A tax paid chalans. The bank statements, a copy of which I have obtained now in the name of M. S. Abdul Khader, Adohi, starts on 8.12.89 and ends on 8-3-91 relevant for the assessment year 90-91 and 91-92 and on 8-3-91 when the Bank account is closed once and for all.
The Statements show that both deposits and withdrawals are there on various dates, money is kept in and taken out. The money revolves and circulates both as deposits and outgoings. Therefore, it is from the statement, peak credit is worked out for both the years.
Detailed statement is enclosed.
For the assessment year 90-9l ending on 31-3-90 the peak works out on 16-2-90 is Rs. 37,500/-.
In the assessment year 91-92 the peak works out as per statements enclosed as on 4-3-91 at Rs. 91,086/-(excluding S.B.A/c. interest at Rs. 204-15).
As the money rotates and there is balance on 1-4-90 brought forward from previous year, the amount of Rs. 37,500/- is being there already in the previous year, the peak is worked out as under-Total peak credit for the year 4-3-91 (91-92) Rs. 91,086/- ending 31-3-90 (90-91) Rs. 37,500/- Balance Rs. 53,586/- This fact has already been submitted in my letter dt. 30-7-92 and filed before you on 31-7-92 even before I gave the deposition may be treated as my income and tax payable is worked out on this basis.
This income now offered for two years is my Individual one.
I pray that my submission maybe accepted in the same spirit with which I came forward to right the wrong, if any." 5. Based on the revised return filed in response to the notice issued Under Section 148 of the Act, the Assessing Officer completed the assessments and initiated proceedings under Section 271(1)(c) of the Act. In response to the show cause letter, the assessee vide letter dated 21.9.92 replied as under: "Your letter Sir, has brought out all the facts of the same and there is no denial of the same even now. All the partners of the firm have been examined on oath. Except one, all the others have no knowledge of the Bank account in the home of M.S. Abdul Kader nor its operation.
On the other hand even before I gave testimony filed a letter before you owning the responsibility of. the Bank account.
I submit there is no shame in making a mistake but there is a greater wisdom in recognizing it great humility in admitting it but above all, great glory in correcting the same, I have exactly done this.
I filed Revised Returns for both the years admitting peak credits. I paid the taxes on this spot. The Bank entries consists of deposits and withdrawals.
On 8-12-89, I deposited Rs. 20,000/- while opening the account. The very next day, I withdrew Rs. 10,000/- and the other next day I withdrew Rs. 1,000/-. This would not have been possible but for the earlier credit. Similar is the case with all other entries for two years. As seen from the Bank account, each deposit is linked to withdrawal and there is nexus between both.
Considering only the credits would have been justified as proposed in your notice, if there were no debit entries. Both being there, they cannot be divorced and bifurcated one from the other. The money is circulating, some times credit being made into the Bank and at other times withdrawing from the same account.
The amount withdrawn on 5-3-91 at Rs. 10,000/- and Rs. 80,000/- is a debit item. The fact that you desire to consider its ultimate destination is in itself a proof that both debits and credits is being considered.
The amounts withdrawn on the above dates is spent in the following manner.
2. Rs. l 5,000/- Medical and Travelling expenses for my father and myself at Madras and Kurnool for his treatment. He died on 27-8-91.
5. Rs. 30,000/- Cash on hand now with friends without interest and with myself.
The two deposits of demand drafts of Rs. 10,000/- and Rs. 15,000/- credited into the Bank on 17.11.90 and withdrawn on the same date is drafts brought my parties and given to me for cashing the same and to be returned to them to avoid identification problem from the Bankers. I do not have details. If I am given details of places and names of purchasers of D.Ds, I can explain in detail. Even these amounts have gone into peak credit, offered for taxation.
As regards the proposal to levy of penalty under Section 271(1)(c) I have placed before your, all the cards even before enquiry. If telling truth is punishable, I have little defense.
I never wished to carry the guilt all to myself till I am alive. It had to be corrected and I did the same. To punish or not to punish will be in your good hands. The law has every force to punish a person. Should it not encourage a person when he wants to reform himself.
A prose has no place in taxation. But yet permit me to quote a historical fact.
"A mother sought from Napoleon the pardon of her son. The Emperor said it was the man's offence and justice demanded his death.
Sir, cried the mother. It would not be mercy if he deserves if, and mercy is all I ask.
Well, then, said the Emperor, I will have mercy. And her son was saved." As quality of mercy is not strained, it could still drop gently from your pen." 6. It may be relevant to notice that the Assessing Officer was of the opinion that the income offered to tax by the assessee is not assessable in his hands since it is the income of the firm. In other words, though the investigation made by the Assessing Officer and other material available on record indicates that the income referable to peak credits is assessable in the assessee's hands, the assessing officer was not clear about it and hence he made protective assessments in the assessee's hands. Assessing Officer was of the opinion that peak credit is taxable in the hands of the firm.
7. In the penalty proceedings, the Assessing Officer observed that the assessee was cornered and hence he filed revised returns, which cannot save him from levy of penalty. Appeals filed before C.I.T. (Appeals) were also dismissed on the ground that the revised returns were filed consequent to the notice Under Section 148 as a result of detailed investigation undertaken by the department and hence they cannot be treated as voluntary returns. The assessee had full knowledge of the transactions in the bank account and thus assessee can be said to have willfully furnished inaccurate particulars of income. Further the explanation offered in response to notice under Section 271(1)(c) was found to be false. Learned Commissioner (Appeals) observed that the assessee failed to prove that the explanation offered is bona fide.
8. Further aggrieved, assessee is in appeal before the Tribunal.
Learned counsel for the assessee reiterated the submissions before us.
He contended that peak credit was offered to tax to purchase peace with the Department and, in fact, even as per Assessing Officer it was not the income of the assessee but added on protective basis. The same income was added in the firm's hands. Learned counsel relied upon the following decisions in support of his contention that penalty is not leviable, merely because addition is agreed to inasmuch as, the assessee voluntarily came forward to offer the peak credit as his income much before the Assessing Officer could decide upon the taxability of the credit in assessee's hands. Further the assessee fully co-operated with the department.
a) Sir Shadilal Sugar & General Mills Ltd. and Anr. v. C.I.T., 168 ITR 705 (S.C.) 9. On the other hand, learned Departmental Representative strongly relied upon the orders of the tax authorities. She submitted that assessee initially denied the transactions in the Bank account and filed returns only upon detailed enquiry. Learned Departmental Representative, therefore, contended that there was intention to evade payment of tax.
10. We have carefully considered the rival submissions and perused the record. Admittedly the assessee owned the transactions in the Bank account only upon enquiry by the assessing officer. It is not a case where the assessee offered an explanation to state that the income assessed to tax is not his income. He categorically submitted that he owned the responsibility of maintaining a bank account in a benami name. Thus assessee stated the truth in response to the show cause notice. Learned Commissioner of Income-tax (Appeals) observed that the explanation is false and assessee did not prove that it is bona fide.
When the assessee admits that he has committed a wrong it cannot be said that his statement is false or not bona fide. If the statement of the assessee is false, the converse must be true. If the converse is true, it implies that the assessee's statement that the transactions in the Bank account are his own funds is wrong in which event no addition could have been made by the assessing officer and consequently penalty is not imposable. In fact, it would be in conformity with the view of the assessing officer in as much as he did not accept, at the first instance, that income was earned by assessee but held that it was the income of the firm. If statement of the assessee is not false, it is bona fide statement. However, nothing much turns upon this statement.
In fact, it is not the case of the assessee that he has furnished true and correct particulars of income. He admitted the mistake and filed revised returns in response to notice Under Section 148 of the Act.
Thus the only question remains to be considered is whether penalty is automatic even if assessee corrects his mistake. This is a case where it cannot be said that the revised returns were filed after detection by the Department. The very tact that the income returned in response to notice under Section 148 was assessed on protective basis shows that on the date of filing revised return, the assessing officer has not detected concealment of income of assessee. The returns of income were filed by the assessee voluntarily and co-operated with the Assessing Officer in ail respects in completion of assessment. Section 271(1)(c) of the Act gives discretion to the assessing officer to exonerate an assessee from levy of penalty, even in a case where the assessee concealed income or furnished incorrect particulars of income. The expression (c) has concealed the particulars of his income or furnished inaccurate particulars of such income, shows that the assessing officer is vested with a discretion to levy or not to levy penalty in a deserving case. In the case of Hindustan Steel Ltd. (83 ITR 26 (SC), the Apex Court held that penalty should not be imposed merely because it is lawful to do so. The Assessing Officer has to exercise his discretion judicially. The Hon'ble Madhya Pradesh High Court (Indore Bench) in the following cases observed that if an assessee files a revised return, though at a later stage, and disclosed true income, penalty need not be imposed.
11. No doubt mere filing of revised return will not automatically protect an assessee from levy of penalty but, in a given case, where an assessee comes forward with clean breast though after detection, and files returns of income offering additional income and expresses remorse for his past conduct unhesitantly, the assessing officer may have to exercise the discretion in favour of such assesses as otherwise the expression 'may' in Section 271(1)(c) remains a dead letter if it is understood that in a case of admitted concealment penalty is automatic. At least in some exceptional cases, discretion vested in the officer should be used to drop proceedings. In our considered view, the case before us is a more befitting case to exercise such discretion, particularly in view of the fact that at the time of filing revised returns, the Assessing Officer has not made up his mind to add the income in assessee's hand but assessee voluntarily offered it to tax and thus it cannot be said to be a case of declaring the income after detection by department.
12. The case law relied upon by the learned counsel are not applicable to the facts of this case. However, considering the peculiar circumstances of the case we deem it a fit case for cancelling the penalty and we direct the Assessing Officer accordingly.