Sri.harisankar v. Menon

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE MR. JUSTICE C.N.RAMACHANDRAN NAIR & THE HONOURABLE MR. JUSTICE T.R.RAMACHANDRAN NAIR MONDAY, THE 21ST JANUARY 2008 / 1ST MAGHA 1929 ITA.No. 83 of 2001() -------------------- AGAINST THE ORDER IN ITA.472/1993 of I.T.A.TRIBUNAL,COCHIN BENCH .................... APPELLANT : ----------------- THE COMMISSIONER OF INCOME TAX,COCHIN. BY ADV. SRI.P.K.R.MENON(SR.),SR.COUNSEL FOR IT SRI.GEORGE K. GEORGE, SC FOR IT RESPONDENTS: ------------- M/S.GURUVIJAYA KURI CO. LTD., TRICHUR. BY ADV. SRI.ARIKKAT VIJAYAN MENON SRI.HARISANKAR V. MENON SMT.MEERA V.MENON THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 21/01/2008, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: C.N.RAMACHANDRAN NAIR & T.R.RAMACHANDRAN NAIR, JJ.-------------------------I.T.A. No. 83 of 2001 --------------------------------- Dated, this the 21[st] day of January, 2008 J U D G M E N T C.N.Ramachandran Nair This is an appeal filed by the revenue under Section 260A ofthe Income Tax Act challenging the order of the Income TaxAppellate Tribunal confirming cancellation of penalty levied underSection 271 (1)(c) of the IT Act. Respondent assessee is a privatelimited company deriving income from chitty business. During theverification of accounts in the course of assessment for theassessment year 1990-91, the Assessing Officer noticed anoutstanding credit balance of Rs.4,55,863/-, shown as liability inthe balance sheet for curies that were terminated during 1977 to1983. The Assessing Officer was of the opinion that the creditbalance represents the auction discounts, which were foregone bydefaulting subscribers and therefore there was no subsisting liabilityfor payment of these amounts to the said subscribers. Therefore,the Assessing Officer found that these amounts were the income ofthe year, which was carried over as liability by the assessee in thebalance sheet. Even though specific notice was issued askingassessee to explain the nature of liability shown in the accounts, the assessee did not offer any explanation but just stated that theamount represents liability. Even though, the amount was offeredfor assessment and assessee remitted the tax, assessee reservedthe right to file appeal against the assessment. The AssessmentOrder produced as Annexure A got confirmed by two level appellateauthorities including the Tribunal. The assessee admittedlyaccepted the Tribunal’s order confirming the assessment. 2.Since assessee did not offer any explanation about thecredit shown in the balance sheet as liability, the Assessing Officerlevied penalty under Section 271 (1) (c) of the IT Act. In theappeal filed by the assessee against the penalty order, the firstappellate authority cancelled the penalty against which 2[nd] appealfiled by the Department was unsuccessful. The Tribunal’s order in2[nd] appeal is under challenge in this appeal filed under Section 260Aof the IT Act. Even though four questions are raised for decision byus as arising from Tribunal’s order, we find in substance the onlyquestion that arises from Tribunal’s order is whether the Tribunal inthe absence of any bonfide explanation offered or established bythe assessee was justified in casting burden of proof on the revenueto prove concealment and to cancel the penalty on the ground thatthe Assessing Officer has not established the nature of concealedincome assessed by him in respect of which penalty is levied. 3.The undisputed fact in the case is that the assessee, whohas been engaged in chitty business, showed a credit balance ofRs.4,55,863/- in the balance sheet in respect of kuries terminatedduring 1977 to 1983. During the accounting year relevant for theassessment year 1990-91, the assessee from the same accounttransferred an amount of Rs.2,41,328/- to the profit & loss accountand offered the same to tax. However, the balance forRs.4,55,863/- was still retained as credit balance in the liability sideof the balance sheet. In the course of assessment, the AssessingOfficer requested explanation from the assessee but the assesseedescribed that the amount was business liability but offered nodetails. The Assessing Officer was of the view that having regard tothe nature of business, the amount of auction discounts foregone bysubscribers on account of their default in payment of instalments isthe income of the assessee as already found in the assessment.The additions made in the assessment is sustained in two round ofappeals and assessee has accepted the same. Since explanationwas not bonafide, penalty was levied. However, the appeal wasdecided by the Tribunal relying upon the decision of the Tribunal inthe case of M/s.Trichur Kuri Syndicate Ltd, where the entries in theaccounts represented excess payment actually made bysubscribers. As in assessment, in penalty proceedings also, assessee did not offer any explanation for the credit entries shownin the balance sheet. Therefore, the Assessing Officer found thatthere is concealed income by virtue of explanation 1 to Section271(1)(c). Since assessee failed to give any bonafide explanationfor the show cause notice, the Assessing Officer by virtue ofExplanation 1 contained in Section 271(1)(c) levied penalty forconcealment of income. The first appeal filed by the assessee isallowed following the order of the Tribunal in another Kury case. 4.Learned standing counsel appearing for the revenuecontended that explanation (1) to Section 271(1)(c) is clearlyapplicable in this case because assessee admittedly did not offerany explanation except by stating that the credits in the balancesheet represent liabilities. On the appellant side the decision of theSupreme Court in K.P.MadhusudhananVs. Commissioner ofIncome Tax, reported in 251 ITR 99, the decisions of this Court inDeputy Commissioner of Income Tax Vs. K.Suresh Kumar ,reported in 253 ITR 640 and in Income Tax Officer Vs.C.D.Joseph (Late),reported in 266 ITR 609 are relied on.Learned counsel appearing for the assessee contended that eventhough assessee did not offer any explanation, the assessee offeredthe amount as income and as per the assessment remitted the tax,though assessment was under contest. It is not a case where the assessee did not offer any explanation but assessee explained thecredit shown in the balance sheet as liability to subscribers of Kurithough assessee could not prove the same. He further contendedthat the assessee has offered to pay the tax and in fact remitted thetax on assessment though the assessment was contested inappeals. According to learned counsel for respondent, no penaltycan be levied if explanation offered is bonafide and the bonafides ofwhich is evident from payment of tax without further contest afterTribunal decided the appeal. assessee did not offer any explanation but assessee explained thecredit shown in the balance sheet as liability to subscribers of Kurithough assessee could not prove the same. He further contendedthat the assessee has offered to pay the tax and in fact remitted thetax on assessment though the assessment was contested inappeals. According to learned counsel for respondent, no penaltycan be levied if explanation offered is bonafide and the bonafides ofwhich is evident from payment of tax without further contest afterTribunal decided the appeal. 5.We are unable to uphold the order of the Tribunal for thereason that the Tribunal has wrongly cast the burden on thedepartment to prove the entry in assessee’s accounts. Explanation1 to Section 271 (1)(c) says that if the assessee fails to offer anyexplanation in respect of any factual material for the computation ofits total income or if the explanation offered is found to be notbonafide, it will be presumed that the amount added or disallowedin computing the total income of the assessee as a result thereofshall be the income in respect of which assessee has concealedparticulars as already stated. This is a case where the additionsproposed or credit shown in the balance sheet as liability pertainingto kuries terminated during 1977 to 1983. It was for the assesseeto explain how the entries represent liability for the assessee. Even though Tribunal has already accepted this position in assessmentappeal, Tribunal cancelled the penalty for the reason that theAssessing Officer failed to explain the nature of concealed income.We are of the view that the Tribunal wrongly cast the burden on theDepartment and against the statutory provision. Only the assesseecan explain the entries in the balance sheet and in the absence ofany explanation, the Assessing Officer is free to draw reasonableinference. Having regard to the nature of business, there is nothingwrong in Assessing Officer treating the income as auction discountforegone by defaulter-subscribers. In fact on this specific queryraised by the Assessing Officer in the course of assessment, theassessee kept silent. Besides this, the assessee itself transferredpart of the amount credited under the liability side towards incomeand offered tax in the year also. Therefore, there is virtualadmission by the assessee that at least part of the amount shownas liability represents income. No claim by subscribers ismaintainable under law as the chitties, to which credits pertain wereterminated nearly 6 to 16 years prior to the relevant accountingperiod. Therefore, we do not find any bonafides in assesseeretaining the amount in the liability side of the balance sheet. Theassessee was very much aware that the credit shown in the balancesheet does not represent liability that assessee itself was conveniently transferring amounts to profit and loss account.Therefore, we find that explanation offered by assessee is not onlynot proved but was made without any bonafides. We are,therefore, of the view that the Tribunal’s order casting burdenwrongly on Department is against the statutory provisions. We,therefore, decide the question above stated in favour of the revenueand against the assessee and consequently allow the appeal bycanceling the order of the Tribunal and restoring the penalty order.There is no scope for interference with the quantum of penaltylevied because the penalty levied is minimum amount payableunder the Act. (C.N.RAMACHANDRAN NAIR, JUDGE) (T.R.RAMACHANDRAN NAIR, JUDGE)