THE COMMISSIONER OF INCOMETAX, KOCHI vs. M/S.GURUVIYAJA KURI CO. LTD. TRICHUR

Since assessee did not offer any explanation about the credit shown in the balance sheet as liability, the Assessing Officer levied penalty under Section 271 (1) (c) of the IT Act. In the appeal filed by the assessee against the penalty order, the first appellate authority cancelled the penalty against which 2nd appeal filed by the Department was unsuccessful. The Tribunal’s order in 2nd appeal is under challenge in this appeal filed under Section 260A of the IT Act. Even though four questions are raised for decision by us as arising from Tribunal’s order, we find in substance the only question that arises from Tribunal’s order is whether the Tribunal in the absence of any bonfide explanation offered or established by the assessee was justified in casting burden of proof on the revenue to prove concealment and to cancel the penalty on the ground that the Assessing Officer has not established the nature of concealed income assessed by him in respect of which penalty is levied.

The undisputed fact in the case is that the assessee, who has been engaged in chitty business, showed a credit balance of Rs.4,55,863/- in the balance sheet in respect of kuries terminated during 1977 to 1983. During the accounting year relevant for the assessment year 1990-91, the assessee from the same account transferred an amount of Rs.2,41,328/- to the profit & loss account and offered the same to tax. However, the balance for Rs.4,55,863/- was still retained as credit balance in the liability side of the balance sheet. In the course of assessment, the Assessing Officer requested explanation from the assessee but the assessee described that the amount was business liability but offered no details. The Assessing Officer was of the view that having regard to the nature of business, the amount of auction discounts foregone by subscribers on account of their default in payment of instalments is the income of the assessee as already found in the assessment. The additions made in the assessment is sustained in two round of appeals and assessee has accepted the same. Since explanation was not bonafide, penalty was levied. However, the appeal was decided by the Tribunal relying upon the decision of the Tribunal in the case of M/s.Trichur Kuri Syndicate Ltd, where the entries in the accounts represented excess payment actually made by subscribers. As in assessment, in penalty proceedings also, -4- though assessment was under contest. It is not a case where the -5- assessee did not offer any explanation but assessee explained the credit shown in the balance sheet as liability to subscribers of Kuri though assessee could not prove the same. He further contended that the assessee has offered to pay the tax and in fact remitted the tax on assessment though the assessment was contested in appeals. According to learned counsel for respondent, no penalty can be levied if explanation offered is bonafide and the bonafides of which is evident from payment of tax without further contest after Tribunal decided the appeal.

We are unable to uphold the order of the Tribunal for the reason that the Tribunal has wrongly cast the burden on the department to prove the entry in assessee’s accounts. Explanation 1 to Section 271 (1)(c) says that if the assessee fails to offer any explanation in respect of any factual material for the computation of its total income or if the explanation offered is found to be not bonafide, it will be presumed that the amount added or disallowed in computing the total income of the assessee as a result thereof shall be the income in respect of which assessee has concealed particulars as already stated. This is a case where the additions proposed or credit shown in the balance sheet as liability pertaining to kuries terminated during 1977 to 1983. It was for the assessee to explain how the entries represent liability for the assessee. Even -6- though Tribunal has already accepted this position in assessment appeal, Tribunal cancelled the penalty for the reason that the Assessing Officer failed to explain the nature of concealed income. We are of the view that the Tribunal wrongly cast the burden on the Department and against the statutory provision. Only the assessee can explain the entries in the balance sheet and in the absence of any explanation, the Assessing Officer is free to draw reasonable inference. Having regard to the nature of business, there is nothing wrong in Assessing Officer treating the income as auction discount foregone by defaulter-subscribers. In fact on this specific query raised by the Assessing Officer in the course of assessment, the assessee kept silent. Besides this, the assessee itself transferred part of the amount credited under the liability side towards income and offered tax in the year also. Therefore, there is virtual admission by the assessee that at least part of the amount shown as liability represents income. No claim by subscribers is maintainable under law as the chitties, to which credits pertain were terminated nearly 6 to 16 years prior to the relevant accounting period. Therefore, we do not find any bonafides in assessee retaining the amount in the liability side of the balance sheet. The assessee was very much aware that the credit shown in the balance sheet does not represent liability that assessee itself was -7- conveniently transferring amounts to profit and loss account. Therefore, we find that explanation offered by assessee is not only not proved but was made without any bonafides. We are, therefore, of the view that the Tribunal’s order casting burden wrongly on Department is against the statutory provisions. We, therefore, decide the question above stated in favour of the revenue and against the assessee and consequently allow the appeal by canceling the order of the Tribunal and restoring the penalty order. There is no scope for interference with the quantum of penalty levied because the penalty levied is minimum amount payable under the Act. (C.N.RAMACHANDRAN NAIR, JUDGE) (T.R.RAMACHANDRAN NAIR, JUDGE) jg