COMMISSIONER OF INCOME TAX Vs. VENKATESWARA TEXTILES

JUDGEMENT

(1.) THE assessee is a firm carrying on business in the manufacture and sale of handloom cloth in India and abroad. For the assessment year 1964-65 (for the previous year ending April 12, 1964), it filed a return on Juanuary 16, 1965, disclosng an income of Rs. 58,574. Not being satisfied with the correctness of the return, certain investigations were started by the Department. On March 9, 1966, the assessee filed a petition before the Commissioner of Income-tax under s. 271(4A) of the I.T. Act, 1961 (hereinafter referred to as "the Act"), admitting that the entries in its account books did not show the real state of affairs, but reiterating that the income during the period relevant for the assessment year 1964-65 was Rs. 58,600. By his order dated March 28, 1969, the ITO found that the assessee had trafficked in the liences granted to it for importing art-silk yarn at a premium but had made entries in its books of account as art-silk yarn was imported and in the manufature of silk cloth and the silk cloth so manufactured was also sold and estimating the income derived by the assessee by the sale of the licences after allowing a discount of 50 per cent., determined the total income at Rs. 4,02,279. Action for the envy of penalty under s. 271(1)(c) of the Act was also intiated for the alleged concealment of income and the matter was referred to the IAC, as the minimum penalty imposable xceedeed Rs. 1,000. Aggrieved by the asessment, the assessee preferred an appeal contending that the import licences obtained by it had been sold at rates 15 per cent. to 20 per cent. lesser than the Bombay market rates, that the estimate of the ITO of the income got by the sale of the licences was execessive and that the allowance of 50 per cent. discount on the value of the licence was meagre. However, by its letter addresed on December 28, 1970 to the AAC, the assessee agreed to the disposal of the appeal after allowing 25 per cent. of the export invoice value towards the loss in the cost of goods exported and 25 per cent. of the export invoice towards repatriation loss in repatriation of the export bills and further undertook not to prefer an appeal to the Tribunal. Acting on this, the AAC, by his order dated February 24, 1971, gave the assessee further relief to the tune of Rs. 2,46,178, as a result of which the total income of the assessee was reduced to Rs. 1,56,102.

(2.) IN relation to the penalty proceedings initiated, the IAC isued a notice to the assessee calling upon it to show cause why penalty should not be levied for the alleged concealment of income. IN its reply dated February 20, 1971, the assessee stated that the assessment had been made rejecting the proof filed in respect of export loss, expenses on repatri ation and commission paid to the local agent if the foreign firm for arranging export activities and further that the firm's inability to show the income assessed, in the return filed, wasnot due to gross or wilful negligence or fraud, as the firm could never foresee such a huge assessment. After referring to the filing of the petition under s. 271(4A) of the Act and the pendency of ther appeal against the order of assessment, the assessee prayed that the penalty proceeding should be dropped. The IAC did not accept the explanation offered by the assessee, but found that it had admitted having cooked up its books to camouflage its trasnsactions and that the assessee had not disclosed the particulars relating to the sale of the licences, viz., the persons to whom the licences were sold, the rates, the manner in which and the persons form whom the foreign exchange was purchased, etc., and, therefore, the assessee had deliberately furnished inaccurate particulars of income and further that the assessee had also not discharged the burden cast on it by virtue of the Explanation to s. 271(1)(c) of the Act. Satisfied that the case was a fit one for the levy of penalty of Rs. 20,000. Aggrieved by this, the assessee preferred an appeal to the Tribunal. The Tribunal noticed that the assessee had admitted in its petition dated March 9, 1966, under s. 271(4A) of the Act, to the Commissioner that its books of account were not reliable and that it han made incorrect entries and had also sold the import licences outright. Despite this, the Tribunal was of the view that the subsequent conduct of the assessee in having furnished certain particulars called for by the Department, has to be taken into account and that the assessee had also disclosed voluntarily the full particulars in its petition dated March 9, 1966, before the Commissioner and, therefore, the principle in CIT v. Ramdas Pharmacy would apply. Ultimately, the Tribunal concluded that the charges of concealment of income by the assessee cannot be sustained and, in that view, the appeal was allowed and the levy of penalty was cancelled.

(3.) WE may now refer briefly to the decisions relied on by the learned counsel for the Revenue. CIT v. Ramdas Pharmacy , was concerned with the question whether a true disclosure of income made in the revised return filed before the completion of the assessment may be taken into account in deciding the liability of the assessee for penalty under s. 28(1)(c) of the Indian I.T. Act, 1922. In that case, it was pointed out that all the facts and circumstances commencing with the filing of the original return and ending with the assessment may be taken as relevant for considering the liability of the assessee for penalty under s. 28(1)(c) and that the assessee had satisfactorily explained the omission or the non-disclosure of certain amounts in a revised return filed before the completion of the assessment and, therefore, there cannot be any deliberate concealment of income. The Tribunal in the course of its order has relied on this decision. The Tribunal was fully aware that no revised return was filed by the assessee in the present case. Besides, as stated earlier, the contents of the petition filed by the assessee under s. 271(4A) of the Act clearly established that there was no full or complete disclosure and that the assessee was guilty of having furnished in the return inaccurate particulars of its income based on entries in the books of account admitted by the assessee not to reflect the correct position. To such a situation, the decision relied on by the Tribunal can have no application whatever. WE, therefore, hold that the Tribunal was in error in having applied the decision in CIT v. Ramdas Pharmacy .