INCOME TAX OFFICER v. PAHARPUR COOLING TOWERS PVT. LTD
[Citation -1986-LL-0325-6]

Citation 1986-LL-0325-6
Appellant Name INCOME TAX OFFICER
Respondent Name PAHARPUR COOLING TOWERS PVT. LTD.
Court ITAT
Relevant Act Income-tax
Date of Order 25/03/1986
Assessment Year 1978-79
Judgment View Judgment
Keyword Tags opportunity of being heard • estimate of advance tax • settlement commission • concealment of income • imposition of penalty • business activity • reason to believe • revised estimate • positive income • returned income • income returned • current income • tax purpose • tea estate • mens rea
Bot Summary: 22nd March, 1984 which was considered by the ITO He mentioned that the assessee submitted that a search was conducted by the Department on 27th Oct., 1976 and the books of accounts upto 27th Oct., 1976 were seized and were released only on 19th June, 1980 It was also submitted that the assessee filed a settlement petition before the Settlement Commission on 24th June, 1977 and the staff of the assessee were busy in preparing the settlement case and there was also labour unrest It was therefore contended that the estimate was filed on honest attempt and the same should be taken as correct and fair. The assessee took up the matter before the CIT(A) who noted that on 15th Dec., 1977 the assessee filed an estimate according to which the advance tax payable was Rs. 51,55,500 and the tax was paid in full. Departmental representative in saying that the accounting year of the assessee for the present purpose, ended 31st Oct., 1977, whereas an estimate was filed on 15th Dec., 1977, i.e. 1 1/2 months after the close of the accounts and it cannot be said that even in such a situation, the assessee could not form a fair idea of his current income. Counsel, the assessee's books were to be audited and on 1st Nov., 1976, i.e. at the opening day of the year under consideration, there was no opening balances of the different items brought forward from earlier years and in such a situation, the assessee was unable to form an idea of the current year's income for the purpose of advance tax. In the above cited case of Anwar Ali amongst other things and on the facts of the at case, it was held that offence under s.28(1)(c)of the IT Act, 1922 was for concealment of income and whether the assessee had concealed the particulars or his income or deliberately furnished inaccurate particulars thereof and the burden is on the Department to establish that receipt of the amount in dispute constitutes income of the assessee. From the facts and materials available in the present case and having regard to the various submissions made by both the sides, we could not find any indication or basis for us to say that the assessee was uncertain that it was possible for the assessee to ascertain the probable income even after the close of accounting year to enable the assessee to file the estimate for the purpose of advance-tax payment. If the contention of the assessee that due to the effect of the raid, or the fact that the assessee and the employees were busy in the settlement matters, it has not been shown as on what basis the assessee then has filed the said estimate on 15th Dec., 1977 as mentioned in the preceding paragraph, it was not the case of the assessee that there was a certain spurt in the business at the fag end of the year.


EGBERT SINGH A.M.: appeal is by Revenue which is directed against order of Commissioner of ITO (Appeals) (CIT(A) for short) under s. 273 (a) of Act, with out appreciating accurate facts of case. It is also appeal by Revenue that order by CIT(A) may be cancelled and that of ITO may be restored. ITO in his order under s. 273 (3) dt. 26th March, 1984 noted that under s. 201 notice was issued to assessee on 25th May, 1977demanding payment o f advance tax of Rs. 36,08,768 on basis of total income of Rs. 64,75,860 of last completed assessment for asst. yr. 1975-76. He noted that assessee filed estimate on 15th Dec., 1977 showing estimated income of Rs. 82 lakhs He noticed that estimated income filed by assessee for advance tax purpose was much lower than income returned and income assessed Accordingly, he initiated proceedings and issued notice under s. 273(3). He gave assessee opportunity of being heard assessee filed explanation dt. 22nd March, 1984 which was considered by ITO He mentioned that assessee submitted that search was conducted by Department on 27th Oct., 1976 and books of accounts upto 27th Oct., 1976 were seized and were released only on 19th June, 1980 It was also submitted that assessee filed settlement petition before Settlement Commission on 24th June, 1977 and staff of assessee were busy in preparing settlement case and there was also labour unrest It was therefore contended that estimate was filed on honest attempt and same should be taken as correct and fair. ITO pointed out that previous year of assessee for asst. yr. 1978-79 ended on 31st Oct., 1977 and books of accounts of relevant period were not seized by Department by Department at time of search which was conducted earlier i.e. on was filed on 27th Oct., 1976 He pointed out that estimate was filed on 15th Dec., 1977 i.e. 1 months after closing of previous year relevant to year under consideration. He therefore concluded that there was no reason at all for filing low estimate than what has been declared in return when income became known to assessee. He therefore, found assessee explanation to be not acceptable. He worked out penalty under s. 273(A) at Rs. 1,90,000 which he imposed by this order after making adjustment as noted in penalty order itself. assessee took up matter before CIT(A) who noted that on 15th Dec., 1977 assessee filed estimate according to which advance tax payable was Rs. 51,55,500 and tax was paid in full. He also noted that in due course assessee filed return of income for year under consideration disclosing income of Rs.1,35,66,110 and assessment was completed on Rs.1,44,00,100 In appeal before him, assessee s counsel narrated facts of case and retreated arguments which were made earlier before ITO In particular attention of CIT(A) was drawn to fact that unsettled conditions which were prevailing in wake of raid made it impossible for assessee to estimate current income with greater provision accuracy. It was submitted that estimate filed on 15th Dec., 1977 was honest one. It was also pleaded that proceedings under s. 273(a) being penalty in nature means rea must be proved me relying on decision of Hon ble Supreme Court of India in case of CIT vs. Anwar Ali (1970) 76 ITR 696 (SC) assessee pleaded that penalty may be deleted CIT(A) looked into facts of case and notice under s. 273 contemplates levy of penalty in cases where assessee has furnished estimate of advance tax which it knew or had reason to believe to be untrue. He indicated that section requires ITO to bring on record material to show that assessee filed estimate knowing fully well that same was untrue and this would mean that mere factum of existence of difference between estimate filed by assessee and return filed by him will not suffice to invoke provisions of s. 273. CIT(A) was of opinion that more was needed and that was material to reveal state of mind of assessee. He noted that in present case ITO has not brought on record any such material at all and he has imposed penalty merely on difference between income estimated and income returned. That apart, he mentioned that unsettled condition that followed in wake of raid was one of material circumstances which must be taken into account and that while deciding whether this was fit case for levy of penalty, it was well settled that if certain default has occurred owing to circumstances beyond control of assessee no penalty and that exigible. He, therefore, cancelled penalty. Hence, this appeal by Revenue. It is urged by ld. departmental representative that CIT(A) erred on facts and in law in cancelling penalty inspite of facts which have been brought out by order of ITO and on basis of materials on record. points noted by ITO, are stressed by ld. departmental representative in saying that accounting year of assessee for present purpose, ended 31st Oct., 1977, whereas estimate was filed on 15th Dec., 1977, i.e. 1 1/2 months after close of accounts and, therefore, it cannot be said that even in such situation, assessee could not form fair idea of his current income. It is also argued that CIT(A) has placed so much importance on event of raid and its after effect. It is submitted that raid took place on 27th Oct., 1976 and that is before start of previous year relevant to year under consideration. It is urged that there was huge gap of time between these different events. It is also pointed out that settlement before Settlement Commission was made on 24th June, 1977, i.e. before end of previous year, i.e., 31st Oct., 1977. It is argued that there was no bar for assessee to file revised estimate within time prescribed as soon as as was aware that income as estimated for advance tax purpose was much less than that current income anticipated. It is urged, therefore, that in circumstances of case, penalty imposed by ITO had wrongly been cancelled by CIT(A). ld. counsel for assessee, on other hand, supports order of CIT(A) stating that on facts of case, demand made by ITO under s. 210 was not proper or regular as same was based on assessment for asst. yr. 1975-76, whereas last assessment was made for asst. yr. 1972-73. assessee's ld. counsel refers to paper book in which photostat copy of said notice is places, in order to emphasise this point. It is submitted that ITO has based demand on last assessed income as stated, on incorrect facts. That apart, it is urged that Settlement Commission but order was obtained only on 1st March, 1979. petition before Settlement Commission was stated to have been filed on 24th June, 1977. It is argued that there was also tax deduction at source to extent of 1977. It is argued that there was also tax deduction at source to extent of about Rs. 11 lakhs and if same was taken into account, difference of tax assessed for purpose of present section, would be quite within reasonable limit and it would be seen that imposition of penalty would be improper and illegal. According to assessee's ld. counsel, assessee's books were to be audited and on 1st Nov., 1976, i.e. at opening day of year under consideration, there was no opening balances of different items brought forward from earlier years and in such situation, assessee was unable to form idea of current year's income for purpose of advance tax. submissions made before authorities below are repeated before us also to effect that staff of assessee were busy with settlement matter which followed raid conducted by department. In this connection, assessee's ld. counsel submits that in similar situation in case of directors of assessee-company, imposition of penalty under s. 140A(3)was held to be not sustainable by Tribunal, in its order in WTA Nos. 605,610,612(Cal)/84 dt. 18th Dec., 1985. It is argued that effect of raid and subsequent filing of settlement petition had actually kept assessee and staff busy and under such similar circumstances, present assessee also having suffered same disadvantage should not have been penalised by ITO under s. 273 as mentioned earlier. Copy of Tribunal's orders relied upon is placed in our file along with assessee's letter dt. 22nd March, 1984 filed before ITO at time of show cause notice. It is also urged that it was only on 19th June, 1980 that books of accounts were returned. In circumstances, it is vehemently urged by assessee's ld. Counsel that in such situation, it cannot be said that assessee deliberately filed worn estimate of income for advice-tax purpose. It is also stated that legal issue had not been considered by CIT(A) as penalty was deleted on basis of merits of case and as such, assessee is at disadvantageous position. In this connection it urged that first notice of ITO was invalid. Hence, same was illegal and in such premises, all subsequent actions, orders etc. were illegal. Reference is made to decision as reported in case of Babulal Newar vs. CIT & Ors.(1978) 112 ITR 399 (Cal) as decided by Hon'ble Calcutta High Court, in which on facts of that case, it was held that estimate filed beyond time was not valid estimate and hence interest under s. 215 was not chargeable. Reference is also made to another decision of Hon'ble High Court in case of Bibhuti Bhusan Roy vs. ITO (1978) 112 ITR 84(Cal) in which on facts of that case, it was noted that when order under s. 210 and subsequent notice were not signed by ITO there was no valid order under s. 210 and there was accordingly no obligation on part of assessee to file estimate of advance-tax and no liability to interest under s. 217(1)(a). It is argued vehemently that facts and in circumstances of case, order of penalty was rightly cancelled by CIT(A) whose order requires to be sustained. We have heard both sides and have gone through orders of authorities below along with other papers placed before us for our consideration. assessee's ld. counsel has submitted that CIT(A) has not considered legal issue in mater as he has deleted penalty on merits of case and, therefore, assessee is now at disadvantageous position. But it is seen that he assessee has not filed any appeal or cross objections, if assessee considered that present order of CIT(A) had placed assessee in disadvantageous position. That apart, correctness of notice or basis of computation as sought to be made before us, cannot be said to have arisen out of order of CIT(A) impugned before us. From photostat copy of notice of ITO in Form No. 28 along with enclosure thereto however, it is seen that Rs. 64,75,860 was taken by ITO as base being total income on basis of which tax under s. 140A has been paid being that for asst. yr. 1975-76. But contention of assessee's ld. counsel was that basis was wrongly made by ITO adopting last assessed income for asst. yr. 1975-76, for purpose of raising demand under s. 210. This contention apparently was not correct as pointed out above. Thus, point raised by assessee at this stage in circumstance of case cannot be said to have arisen out of order of CIT(A) and issue would involve investigation of facts and basic materials have to be brought on record, which point was not dealt with by authorities below. From copy of assessee's letter dt. 22nd March, 1984 in reply to show cause notice issued by ITO, such contention has not been raised that demand under s. 210 was made on wrong basis or otherwise. We have gone through that letter for our consideration. We find that nowhere this issue raised by assessee's ld. counsel before us has been even agitated before ITO. In circumstances, we cannot entertain this part of contention made on behalf of assessee. assessee in its letter to ITO has mentioned points noted in penalty order i.e. account books were seized and were released on 19th June, 1980 and detail of business upto asst. yr. 1977-78 could not be perused and, therefore, assessee was not in position to assess probable income for asst. yr. 1978-79 for purpose of advance-tax. assessee also has stated that staff were busy in preparing details for settlement case and there was some labour unrest in factory for which management was also busy in tackling situation. case of assessee is that, in circumstances, honest attempt was made to file correct and fair estimate of Rs. 82 lakhs on 15th Dec., 1977 at which point of time, company knew it and had reason to believe to be true. assessee refers to certain decision as referred in that letter. Firstly, it relied on decision as reported in P. Arunachala Mudaliar vs. CIT (1963) 50 ITR 36(Mad) in which on facts of that case, it was held that assessee had made honest and fair estimate for payment of advance-tax at time when he made estimate and subsequent sudden spurt in business would not go against assessee. assessee placed reliance also in case as reported in Jaipur Metals & Electrical Ltd. vs. CIT (1974) 97 ITR 721 (Raj) in which on facts of that case, it was held that knowledge or reason to believe that estimate was untrue must be contemporaneous with furnishing of estimate and that it was not intention of law to penalise for filing honest estimate even if it turned out to be incorrect due to some unexpected income later. assessee also relies further on decision in case as reported in Addl. CIT vs. Bipan Lal Kuthiala(1975) 98 ITR 343(P&H) in which amongst other things on facts of that decided case, it was held that ss. 271 and 273 are in pari materia and as such, ratio enunciated in CIT vs. Anwar Ali(1979)76 ITR 696(SC) fully applies to imposition of penalty under s. 273 and burden of proving that estimate of advance-tax submitted by assessee was false to his knowledge was believed by him to be inaccurate is on IT Department. In above cited case of Anwar Ali amongst other things and on facts of at case, it was held that offence under s.28(1)(c)of IT Act, 1922 was for concealment of income and whether assessee had concealed particulars or his income or deliberately furnished inaccurate particulars thereof and burden is on Department to establish that receipt of amount in dispute constitutes income of assessee. It was also held that if there is no evidence except explanation given by assessee which has been found to be false it does not follow that to receipt constitutes his taxable income. We have gone through different submissions made before us and decisions relied on by assessee. We are of opinion that ratio relied on by assessee, i.e. P. Arunachala Mudaliar vs. CIT (1963)50 ITR 36 made would not be applicable as facts of present case were distinguishable inasmuch as in present case it is not case of assessee that there was sudden spurt in business activity and business income of assessee which gave rise to higher income other than one estimated by assessee at Rs. 80 lakhs on 15th Dec., 1977. Similarly, ratio in decision in case of Anwar Ali (supra), will not be applicable to facts of case as i n instant case, it was not mere rejection of assessee s explanation before ITO imposed penalty under s. 273(a). In fact, ITO has pointed out those facts which we have narrated earlier to show that estimate was filed on 15th Dec., 1977 i.e. 1 1/2 months after closing of accounts for year in question. That apart, raid took place on 27th Oct., 1976, i.e., about year before. case of ITO is that in circumstances, there was no reason at all for filing of low estimate than what was declared in return when income became known to assessee. In our opinion, ITO has referred to returned income to indicate extent of incorrectness of estimate filed by assessee on 15th Dec., 1977. first return for year under consideration was filed on 15th Nov., 1978 with income of Rs. 1,38,24,510. second return was filed on 13th Dec., 1978 showing same income. Thereafter another return was filed on 25th Sept., 1980 with income of Rs. 1,35,66,110 and assessment was completed on Rs.14,38,074 which was rectified under s. 154 at Rs.1,444,00,100. Thus, in our opinion, ITO has not merely rejected explanation of assessee but he has mentioned those materials and evidence to show that there was no reason at all for filing low estimate by assessee on 15th Dec, 1977. In such situation, in our opinion, ratio in decision of Anwar Ali's case would not be applicable to facts of case. In fact, in case relied on by assessee in Jaipur Metals & Electrical Ltd. vs. CIT (1974) 97 ITR (Raj), Hon'ble Rajasthan High Court has held that knowledge or reason to believe that estimate is untrue must be contemporaneous with furnishing of estimate and that it was intention of law if estimate was submitted honestly which turned out to be incorrect due to some unexpected income, assessee should be penalised. As mentioned earlier, it is not case of assessee before us that more income was earned during year after filing of estimate and that sudden spurt of income came suddenly later on. Of course, this could not have been case of assessee as estimate was filed on 15th Dec., 1977, i.e. after close of according year itself, as mentioned earlier. It is also not case of assessee that nature of business was so uncertain that it was not possible to predict trading results correctly at any point of time and as such, it was not possible to estimate such income for whole year correctly. In similar situation in case of United Asian Traders Ltd. vs. CIT (1970) 77 ITR 711 (Cal), Hon'ble High Court held that Tribunal was right in coming to conclusion that ITO had materials to be satisfied that estimates made by assessee for which assessee had reasons to believe that such estimate was untrue. facts of that case were that assessee filed estimate of advance-tax and tax payable was nil. Return was filed later on disclosing positive income and assessment was made at higher income. For following year notice of demand of advance-tax was made and assessee filed estimate at nil and advance-tax payable at nil. income returned for subsequent year was also as in preceding year. ITO imposed penalty under old IT Act, 1922, which was sustained by Tribunal. From facts and materials available in present case and having regard to various submissions made by both sides, we could not find any indication or basis for us to say that assessee was uncertain that it was possible for assessee to ascertain probable income even after close of accounting year to enable assessee to file estimate for purpose of advance-tax payment. assessee has pointed out earlier that he had filed estimate on 15th Dec., 1977 showing estimated income for Rs. 82 lakhs. If contention of assessee that due to effect of raid, or fact that assessee and employees were busy in settlement matters, it has not been shown as on what basis assessee then has filed said estimate on 15th Dec., 1977 as mentioned in preceding paragraph, it was not case of assessee that there was certain spurt in business at fag end of year. assessee also contended that since books of accounts for earlier year were seized, it had no idea about opening balances of different accounts. Even in such situation, we could not find any reasonable cause or justification to say that probable or estimated income for purpose of advance-tax, could not be made and that too even after close of accounting year itself. Again, as pointed out earlier, raid took place several months before date of filing of estimate by assessee . In case of H.H. Maharani Sharmisthabai Holkar vs. Addl. CIT (1980) 19 CTR (MP) 301: (1981) 129 ITR 13 (MP) Hon'ble Madhya Pradesh High Court on facts of case, inter alia, has held that penalty under s. 273(C) was valid which was imposed by ITO on ground that assessee has not shown reasonable cause for failure to furnish estimate of advance-tax payable by her in accordance with provisions of s. 212(3A). Appellate Tribunal in that case came to conclusion that it was for assessee to show reasonable cause and element of mens rea was not required to be taken into consideration. Tribunal sustained penalty which was affirmed by Hon'ble High Court. assessee has not shown before us what were contemporaneous materials or details on basis of which estimate was filed on 15th Dec., 1977 at Rs. 82 lakhs although such facts lay within special knowledge of assessee. assessee has not placed any material to show that estimate filed by it was honest attempt and same was bona fide. On other hand, ITO has indicated in order that assessee has filed estimate on 15th Dec., 1977, i.e. after close of accounting year at Rs. 82 lakhs where as on basis of such same accounts income was returned by assessee at much figure, i.e. Rs. 1,35,66,110 which was assessed by ITO at Rs. 1,44, 00,100. ITO referred to quantum of returned income obviously to show that extent of estimate made by assessee which it knew or had reasons to believe to be untrue. We are of opinion that CIT(A) was not justified in this context to say that ITO has imposed penalty merely on factum of difference of estimated income and returned income or assessed income. This approach of CIT(A) is wrong on fact of case. In similar situation in case of Jalannagar Tea Estate (P) Ltd. vs. CIT (1981) 21 CTR (Gau) 43: (1981) 133 ITR 95 (Gau), Hon'ble Gauhati High Court sustained similar penalty. It was noted in that Gauhati case that assessee who makes estimate of advance-tax is to make honest estimate on basis of materials available on date of estimate and assessee has to satisfy ITO that he had reasonable belief in making estimate. It was also mentioned that where there was wide disparity between estimate and t h e finally assessed income, failure to show justification by state of accounts on date of estimate bears eloquent testimony to contumacious conduct on part of assessee. It was held that in deciding question as to what was state of mind of assessee when it filed estimate originally, entire circumstances of case had to be taken into consideration and that existence of wide disparity between estimated income and income assessed though such disparity did not necessarily by itself lead to inference that assessee knew or had reason to believe that estimate was false, was one of several factors on basis of which finding was to be arrived at on crucial point. On fact of that case, it was held that previous conduct of assessee on fact of case, was also unimpeachable piece of evidence relevant under s.8 of Indian Evidence Act as to mens rea of assessee. As repeatedly mentioned earlier, assessee filed estimate on 15th Dec., 1977. But settlement petition before Settlement Commission was stated to have been fuelled on 24th June, 1977, i.e. more than five months earlier before filing of estimate. In such situation, when data required for filing of settlement petition having been processed by assessee, it could not be said that after five months or so, assessee was not yet in position to estimate income for purpose of advance-tax, as filed by him on 15th Dec., 1977, according to which estimate income was only at Rs. 82 lakhs. These facts do not indicate or lead to any inference that estimate filed by assessee on 15 Dec., 1977 was honest attempt to show fair estimate for purpose of advance-tax, as far present proceedings were concerned. That, apart, at time of hearing it is stated that in similar circumstance in case of Mahendra Swarup & Sons (HUF) etc., in wealth-tax Appeals Nos. 605 (Cal)/84 & 610(Cal)/84, Tribunal have agreed with contention of those assessee who are connected with present assessee-company that they could not make payment on self- assessment of tax before furnishing of returns. In those cases it was contended by Revenue that there was no sufficient cause for assessee not to pay tax within time allowed. assessee submitted that because of raid in office of company as well as in residence of directors, books of accounts were seized and thereafter settlement petition was filed which as result, affairs of company was in state of disarray. It was held by Tribunal in ht assessment case that assessee was prevented by sufficient cause from paying self- assessment tax before filing of returns and hence, it was not considered to be fit case for imposition of penalty under WT Act. present assessee's contention is that same cause and reasons would also be relevant for consideration introspect of proceedings under s. 273(a) presently before us. In our opinion, as discussed above, we find no material or fact to say that assessee also failed to file estimate of advance-tax due to after-effect of raid. On contrary, estimate was filled by assessee at Rs. 82 lakhs on raid. On contrary, estimate was filled by assessee at Rs. 82 lakhs on 15th Dec., 1977. Having regard to totality of facts and circumstances of case and keeping in view decisions cited before us as well as decisions noted by us above, we find on facts and materials relevant in this case that ITO has brought materials and facts on record to show that assessee has not shown any reasonable cause for holding that estimate was filed by assessee which it knew or had reasons to believe to be true. On other hand assessee has not furnished any detail or material or basis on which estimate of Rs. 82 lakhs was filed on 15th Dec., 1977. assessee pleaded that due to those prevailing circumstances assessee and staff concerned w e r e affected by raid and were busy with settlement matters. But in preparing settlement petition, same materials would have been needed for estimating income of current year as well as for above year. Thus, in circumstances of case, we are of opinion that penalty was validly imposed by ITO and CIT(A) erred in cancelling sain penalty on reasons recorded by him in impugned order . we, therefore, reverse order of CIT(A) and restore that of ITO. In result, appeal by Revenue is allowed. *** INCOME TAX OFFICER v. PAHARPUR COOLING TOWERS PVT. LTD.
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