Mansukh Dass Soni Vs. Assistant Commissioner of Income - Court Judgment

Excerpt:
1. these three appeals by the assessee relating to asst. yr. 1985-86 emanate from the orders passed by the learned cit(a) on 22nd sept., 2005 confirming the penalties imposed by the ao under sections 271(1)(a), 273(1)(b) and 271(1)(c). since common issues are raised in all these appeals, i am, therefore, proceeding to dispose them off by this consolidated order for the sake of convenience.2. briefly stated, the assessee, an individual, derived income from gadai of gold and silver ornaments along with interest income. the return for asst. yr. 1985-86 was not filed. it was only pursuant to action under section 132 that notice under section 148 was issued and accordingly return was filed on 7th june, 1993. the ao observed that there was a delay of 93 months in filing the return. on being called upon to explain the reasons for not filing the return, it was explained that his income was far below the taxable income and, as such, no return was required to be filed under section 139(1). explaining further, it was stated that the assesses had furnished his return declaring income of rs. 11,500, which was much below the taxable limit of rs. 15,000 at the relevant time. not convinced, the ao imposed penalty of rs. 40,948 under section 271(1)(a) on the assessed tax. no relief was allowed in the first appeal.3. i have heard both the sides and perused the relevant material on record. it is observed that the assessee filed his return declaring income of rs. 11,500 pursuant to notice under section 148, which was admittedly belated by 93 months. the ao completed the assessment at rs. 96,332 by estimating the gadai income at rs. 30,000 as against rs. 9,000 declared by the assessee and estimating interest income of rs. 50,082 as against rs. 24,000 declared by the assessee. no deduction was allowed for the expenses of rs. 21,500 claimed by the assessee. the first appeal of the assessee against the assessment order failed to bring any relief. however, the tribunal modified the assessment by reducing the estimate of gadai income and interest income. on the question of deduction of expenses, the matter was restored to the file of the ao, who, in the fresh proceedings, allowed deduction of rs. 14,000. these facts indicate that the opinion of the assessee about his income, which was projected through the return of income, was that his income was below taxable income. the ao though completed assessment at higher figure but the basic premise of such assessment was the estimation of income at a higher level from the one declared by the assessee. such estimated of the ao was considerably reduced in the further proceedings. the mere fact that income from job work and interest income has been estimated by the ao on a higher side cannot form basis for imposition of penalty under section 271(1)(a). the hon'ble jurisdictional high court in the case of cit v. r.k. golecha has held that the impression of the assessee about his income being below taxable limit constitutes a reasonable cause for non-furnishing of the return of income. similar view has been expressed by the hon'ble allahabad high court in the case of cit v. chander prakash holding that "the bona fide belief of the assessee that his income was below taxable limit was a reasonable cause for delay in furnishing the returns and the mere fact that he agreed to a settlement with the it authorities would not necessarily militate against his bona fide belief". these decisions are authority for the proposition that the impression of the assessee about his income being below taxable limit constitutes a reasonable cause for non-furnishing of the return in time and hence, the penalty cannot be imposed. in my considered opinion, the learned cit(a) was not justified in upholding the penalty order.4. in the result, the appeal of the assessee is allowed. penalty under section 273(1)(b) 5. the ao imposed penalty of rs. 1,651 under section 273(1)(b) for failure of the assessee to furnish statement of advance tax, which came to be confirmed in the first appeal.6. i have heard both the sides and perused the relevant material on record. the discussion made in the context of penalty imposed under section 271(1)(a)(supra) would equally apply to this penalty as well.since the income as per the assessee's version was below taxable limit, there was no question of furnishing a statement of advance tax. the subsequent additions made by estimating income at a higher level and reductions allowed in the appellate proceedings go to justify the reasonable cause for non-imposition of penalty. i, therefore, order for the deletion of this penalty.7. in the result, the appeal of the assessee is allowed. penalty under section 271 (1)(c) 8. the facts of this penalty are emanating from the discussion made in appeal against penalty under section 271(1)(a). the ao imposed penalty on the basis of the order passed by the tribunal in quantum proceedings, which was confirmed in the first appeal.9. having heard the rival submissions and perused the relevant material on record, it is observed that the income from gadai and interest was enhanced by the ao on his estimate. there is no dearth of the judicial precedents holding that penalty is not sustainable where income is estimated. the hon'ble punjab and haryana high court in the case of hari copal singh v. cit has held that when income is determined on estimate, no penalty under section 271(1)(c) can be imposed. similar view has been expressed in the case of cit v. subhash trading company and cit v. dhillon rice mills . insofar as the addition of rs. 16,250 on account of debtors is concerned, it is noticed that similar addition made in the succeeding assessment year came to be deleted by the tribunal in assessee's own case for the asst. yrs. 1987-88, 1988-89 and 1989-90, the order for which is available at p. 23 onwards of the paper book.the relevant discussion is contained in para 6 onwards. it is further observed that the debtors were duly reflected by the assessee in his balance sheet and the addition was made by not considering the recycling and rotation of funds. in my considered opinion, even though the addition was confirmed but the same is not sufficient for imposition of penalty, because it does neither amount to concealment of income nor furnishing of inaccurate particulars of income. in order to bring a case within the ambit of penalty under section 271(1)(c), the mere sustenance of addition is not sufficient. the additions which are based on estimates or disallowances, etc. or which do not conclusively show that the assessee had not concealed his income or furnished inaccurate particulars of income, cannot constitute the basis for imposition of penalty under section 271(1)(c). in my considered opinion, the learned cit(a) was not justified in confirming this penalty. i order for the'deletion of this penalty.

Judgment:
1. These three appeals by the assessee relating to asst. yr. 1985-86 emanate from the orders passed by the learned CIT(A) on 22nd Sept., 2005 confirming the penalties imposed by the AO under Sections 271(1)(a), 273(1)(b) and 271(1)(c). Since common issues are raised in all these appeals, I am, therefore, proceeding to dispose them off by this consolidated order for the sake of convenience.

2. Briefly stated, the assessee, an individual, derived income from Gadai of gold and silver ornaments along with interest income. The return for asst. yr. 1985-86 was not filed. It was only pursuant to action under Section 132 that notice under Section 148 was issued and accordingly return was filed on 7th June, 1993. The AO observed that there was a delay of 93 months in filing the return. On being called upon to explain the reasons for not filing the return, it was explained that his income was far below the taxable income and, as such, no return was required to be filed under Section 139(1). Explaining further, it was stated that the assesses had furnished his return declaring income of Rs. 11,500, which was much below the taxable limit of Rs. 15,000 at the relevant time. Not convinced, the AO imposed penalty of Rs. 40,948 under Section 271(1)(a) on the assessed tax. No relief was allowed in the first appeal.

3. I have heard both the sides and perused the relevant material on record. It is observed that the assessee filed his return declaring income of Rs. 11,500 pursuant to notice under Section 148, which was admittedly belated by 93 months. The AO completed the assessment at Rs. 96,332 by estimating the Gadai income at Rs. 30,000 as against Rs. 9,000 declared by the assessee and estimating interest income of Rs. 50,082 as against Rs. 24,000 declared by the assessee. No deduction was allowed for the expenses of Rs. 21,500 claimed by the assessee. The first appeal of the assessee against the assessment order failed to bring any relief. However, the Tribunal modified the assessment by reducing the estimate of Gadai income and interest income. On the question of deduction of expenses, the matter was restored to the file of the AO, who, in the fresh proceedings, allowed deduction of Rs. 14,000. These facts indicate that the opinion of the assessee about his income, which was projected through the return of income, was that his income was below taxable income. The AO though completed assessment at higher figure but the basic premise of such assessment was the estimation of income at a higher level from the one declared by the assessee. Such estimated of the AO was considerably reduced in the further proceedings. The mere fact that income from job work and interest income has been estimated by the AO on a higher side cannot form basis for imposition of penalty under Section 271(1)(a). The Hon'ble jurisdictional High Court in the case of CIT v. R.K. Golecha has held that the impression of the assessee about his income being below taxable limit constitutes a reasonable cause for non-furnishing of the return of income. Similar view has been expressed by the Hon'ble Allahabad High Court in the case of CIT v. Chander Prakash holding that "the bona fide belief of the assessee that his income was below taxable limit was a reasonable cause for delay in furnishing the returns and the mere fact that he agreed to a settlement with the IT authorities would not necessarily militate against his bona fide belief". These decisions are authority for the proposition that the impression of the assessee about his income being below taxable limit constitutes a reasonable cause for non-furnishing of the return in time and hence, the penalty cannot be imposed. In my considered opinion, the learned CIT(A) was not justified in upholding the penalty order.

4. In the result, the appeal of the assessee is allowed. Penalty under Section 273(1)(b) 5. The AO imposed penalty of Rs. 1,651 under Section 273(1)(b) for failure of the assessee to furnish statement of advance tax, which came to be confirmed in the first appeal.

6. I have heard both the sides and perused the relevant material on record. The discussion made in the context of penalty imposed under Section 271(1)(a)(supra) would equally apply to this penalty as well.

Since the income as per the assessee's version was below taxable limit, there was no question of furnishing a statement of advance tax. The subsequent additions made by estimating income at a higher level and reductions allowed in the appellate proceedings go to justify the reasonable cause for non-imposition of penalty. I, therefore, order for the deletion of this penalty.

7. In the result, the appeal of the assessee is allowed. Penalty under Section 271 (1)(c) 8. The facts of this penalty are emanating from the discussion made in appeal against penalty under Section 271(1)(a). The AO imposed penalty on the basis of the order passed by the Tribunal in quantum proceedings, which was confirmed in the first appeal.

9. Having heard the rival submissions and perused the relevant material on record, it is observed that the income from Gadai and interest was enhanced by the AO on his estimate. There is no dearth of the judicial precedents holding that penalty is not sustainable where income is estimated. The Hon'ble Punjab and Haryana High Court in the case of Hari Copal Singh v. CIT has held that when income is determined on estimate, no penalty under Section 271(1)(c) can be imposed. Similar view has been expressed in the case of CIT v. Subhash Trading Company and CIT v. Dhillon Rice Mills . Insofar as the addition of Rs. 16,250 on account of debtors is concerned, it is noticed that similar addition made in the succeeding assessment year came to be deleted by the Tribunal in assessee's own case for the asst. yrs. 1987-88, 1988-89 and 1989-90, the order for which is available at p. 23 onwards of the paper book.

The relevant discussion is contained in para 6 onwards. It is further observed that the debtors were duly reflected by the assessee in his balance sheet and the addition was made by not considering the recycling and rotation of funds. In my considered opinion, even though the addition was confirmed but the same is not sufficient for imposition of penalty, because it does neither amount to concealment of income nor furnishing of inaccurate particulars of income. In order to bring a case within the ambit of penalty under Section 271(1)(c), the mere sustenance of addition is not sufficient. The additions which are based on estimates or disallowances, etc. or which do not conclusively show that the assessee had not concealed his income or furnished inaccurate particulars of income, cannot constitute the basis for imposition of penalty under Section 271(1)(c). In my considered opinion, the learned CIT(A) was not justified in confirming this penalty. I order for the'deletion of this penalty.