LATE SHRI.C.D.JOSEPH vs. COMMISSIONER OF INCOME TAX,

The facts in brief are thus: Chemmannur Jewellery, Thrissur is a proprietorship run by the assessee. He filed a return declaring a loss of Rs.1,27,600/-for the assessment year 1989-1990. On completion of the assessment under Section 143(1)(a) of the Act, it was revealed that the real profit from the business was understated. During the course of the proceedings by the Assessing Officer (AO), the assessee offered Rs.16 lakhs as the net assessable business income after all admissible deductions, so as to cover -3- the low margin of profit and the profit on sale of ornaments outside the accounts, which was accepted by the assessing authority vide Annexure-A dated 24.3.1992. 3. Vide Annexure-B order dated 28.9.1992, minimum penalty of Rs.9,05,373/- was imposed on the assessee under Section 271(1)(c) of the Act. The assessee preferred an appeal before the Commissioner of Income Tax (Appeals) which was allowed and the penalty cancelled vide order dated 9.1.1995 at Annexure-C.

Aggrieved by this, the Department preferred an appeal before the Tribunal. But that appeal was dismissed vide order dated 27.10.1998 produced as Annexure-D. The Department came up with appeal before this Court and this Court vide judgment dated 27.11.2002 at Annexure-E in ITA No.8/1999, remanded the matter to the Tribunal for re-consideration, directing Explanation I to Section 271(1)(c) of the Act, to be taken into account.

On re-consideration by the Tribunal, the penalty imposed by the assessing authority was confirmed vide order dated 30.6.2003 at Annexure-F.

The following substantial questions of law arise for consideration:- “(i) Whether on the facts and circumstances of the case, and in the light of the provisions of Section 271(1)(c) of the Income Tax Act the Hon'ble Tribunal was right in law in confirming the penalty against the assessee? (ii)

The learned Counsel appearing for the assessee submits that the Commissioner was approached by the assessee by filing a petition under Section 273A of the Act, as can be seen from the order of the assessing authority at Annexure-A, para 7, stating thus: "In the course of assessment proceedings, the assessee has submitted a petition before the Commissioner of Income Tax under Section 273A of the Act, wherein he is offering an amount of Rs.15 lakhs as net assessable business income after all admissible deductions, so as to cover the low margin of profit and the profit on sale of ornaments outside the accounts. He has further made an offer of another sum of Rs.1 lakh by withdrawing the claim of Kuri loss, which was claimed -6- on a pro-rata basis before the termination of the chits and other minor inadmissible items of expenses." The argument of the learned counsel for the assessee is that in view of the offer made by the assessee before the Commissioner of Income Tax under Section 273A of the Act, the Assessing Officer (AO) was convinced and stated that "The sum of Rs.16 lakhs offered as above is accepted as it reasonably covers the purchase inflation and profit on sale of ornaments outside the accounts and other inadmissible claims in the accounts." In view of this statement in the assessment order, the assessee would claim that Section 273A would apply and nullify the effect of penalty.

The relevant portion of Section 273A(1) with the Explanation reads as thus: “273A. Power to reduce or waive penalty, etc., in certain cases- xxx xxx xxx Explanation - For the purposes of this sub- section, a person shall be deemed to have made full and true disclosure of his income or of the particulars relating thereto in any case where the excess of income assessed over the income returned is of such a nature as not to attract the provisions of Section 270A or clause (c) of sub-section (1) of section -7- 271.” According to the learned Counsel for the assessee, it is a voluntary disclosure made by the assessee prior to the assessment by the AO and having made full and true disclosure of the particulars, the penalty provision under Section 271(1)(c) would not be attracted. Per contra, the learned Senior Counsel for Government of India (Taxes) submits that Section 273A is not attracted in cases where penalty has been imposed under Section 271(1)(c).

It is pertinent to note that waiver or reduction of amount of penalty imposed under clause (iii) of sub-Section (1) of Section 271, is as per Section 273A(1)(ii)(b) & (c). Sub-clause (ii) of Section 273A(1) speaks of reduction or waiver of penalty imposed or imposable on a person under Section 271(1)(iii) only if both clauses (b) & (c) are satisfied. That is, the assessee should have made a full and true, voluntary disclosure of the concealed income or the inaccurate particulars furnished, before detection by the Assessing Officer; in good faith [Clause (b)]. The assessee also, in a case coming under -8- Clause (b), ought to have co-operated in any enquiry relating to the assessment of his income and has either paid or made satisfactory arrangements to pay the tax or interest under the Act [clause (c)]. That apart, a reading of the Explanation extracted above would also indicate that a person is deemed to have made a full and true disclosure only if the excess income assessed over the income returned does not attract clause (c) of sub-Section (1) of Section 271. 10. In the present case at the earlier instance on the very same issue the Department was before this Court challenging the order of the Tribunal, confirming the order of the first appellate authority, deleting the penalty imposed on the ground of the assessee having made a full and true disclosure prior to the assessment being completed and before any fool proof case having been set up by the A.O of concealment. This Court remanded the matter finding that the Tribunal had not considered the effect of Explanation I to Section 271(1).

The Tribunal extracted Explanation 1(B) of Section 271(1)(c) and in that background dealt with the -9- facts of the case as directed by the High Court. It was found that the loss return was processed initially and a refund determined, subsequent to which scrutiny was taken up. Extensive enquiries were made with the assessee when no disclosure was made. The A.O found inflation of purchase and suppression of sales, which were objected to by the assessee. On the first issue the rate of Gross Profit was found to be low based on the industry average as also the anomalies reflected in the purchase bills of old ornaments. The assessee was found to have not maintained the register under the Gold Control Act properly; for reason of non-recording of the net weight after wastage. On suppression it was noticed that the assessee having not accounted the net weight in purchases of old gold, was showing the sale on the differential weight; without taking into account the wastage on purchase and sale; a prevalent practice in the business. The assessee was found to have not offered any satisfactory explanation.

Only on the assessee being confronted with such queries the assessee approached the Commissioner under Section 273A. Even before the Commissioner, there -10- was no disclosure of the particulars of concealment or the actual income concealed. The assessee, to purchase peace, offered a lump sum for addition, which was also accepted by the AO as a reasonable amount. The assessee

The Tribunal laid emphasis on the fact that the assessee had not offered any explanation before the A.O and while the assessment on these queries were pending, the Commissioner was approached under Section 273A. We are also of the opinion that the attempt of the assessee was to preempt the AO from finding that the explanation offered is not satisfactory. Significant also is the fact that the assessee; lending credence to the queries raised by the A.O, offered 16 lakhs as income, out of which 15 lakhs was to cover up the low gross profit and suppression of sales. A further amount of one lakh was offered to cover up the other inadmissible heads. The A.O accepted the amounts -11- offered, not on account of satisfaction of the explanation offered, but on the amounts offered being commensurate to the suppression detected. Hence, there is no explanation offered by the assessee, bringing the issue squarely under Explanation I(A) of Section 271(1). There is also no disclosure of all the facts and materials relating to the suppression resulting in concealment of income and a mere lump sum addition was offered. This attracts Section 271(1)(C) of the I.T. Act and there is no escape from it. On the above reasoning the argument of the learned counsel for the assessee is not appealing to us. The mere fact that the AO wrote a letter to the Commissioner, taken up as a ground for review before the Tribunal, is also not acceptable for the purpose of waiver of penalty. Reduction of penalty is not possible because what is imposed is minimum of the penalty. We find no reason for interference with the findings of the Tribunal and the AO in imposing the penalty because here is a case where the assessee had at the first instance declared a loss and only consequent to the proceedings being initiated by the -12- AO, did he come with a revelation of additional income which would undoubtedly attract the provisions of Section 271(1)(c) of the Act. The questions of law are, therefore, answered in favour of the Revenue and against the assessee. The appeal stands dismissed. No costs. K.VINOD CHANDRAN JUDGE ASHOK MENON JUDGE jg -13-