Universal Book Stall vs Income-Tax Officer.
1990 Latest Caselaw 103 Del

ORDER

Per Shri M. A. Bakshi, J. M. - The appeal filed by the assessed is directed against the order of the CIT (A)-XI, New Delhi and the issue relates to levy of penalty under section 27(1) (c) of Rs. 52,741. The appellant is a registered firm carrying on the wholesale and retail business in the books and stationery with its head office at Kanpur and a branch at Delhi. The assessment has been made under section 144. Application under section 146 was rejected by the ITO. During the course of reassessment proceedings the assessed was required to compile a list of sundry creditors and debtors in the control account and was called upon to produce details of opening stock, production stock and closing stock, etc. The assessed did not produce documents mentioned in para 2 of the assessment order for default of which assessment was again completed under section 144.

2. During the course of examination of books of accounts the assessing officer prepared a list of sundry creditors and sundry debtors. The totals of sundry creditors and sundry debtors did not tally with the figures given in the balance sheet by the assessed. The difference was accordingly worked out at Rs. 1,03,658. On an appeal to the CIT (A) the assessed explained that assessed had a very large number of personal accounts and for facility of accounting transactions in the accounts of various parties for a particular period were totalled together and transferred to the control account in the general ledger. The difference in the balance sheet could be on account of mistake in posting or mistakes in totals. The Assessing Officer impounded the books of accounts of the assessed and added a sum of Rs. 1,03,658 as income from undisclosed sources. The CIT (A) reduced the addition to Rs. 52,741 on the ground that the difference at the beginning of the year was also to be taken into account in working out the difference to the year in appeal. This order of the CIT (A) was confirmed by the ITAT.

3. The Assessing Officer having initiated penalty proceedings for concealment of income imposed penalty of Rs. 71,384 with respect to two specific items of additions, namely Rs. 52,471 on account of difference in the Balance Sheet and a separate addition of Rs. 14,255 on account of royalty claim. The CIT (A) has deleted the penalty on account of royalty but has sustained the levy of the same in regard to the addition of Rs. 52,741. The learned counsel for the assessed Shri Harnam Shankar, Advocate appeared on behalf of the assessed. When the learned counsel contended that the difference worked out by the ITO, has no relevance to the trading account and the difference worked out by the ITO, has no relevance to the trading account and the difference can be reconciled if impounded books of accounts kept for about eleven years by the assessing officer are provided to him on 9th August 88, the following order was passed by the Bench :

"There is difference between the figures shown in the balance sheet under the head Control Debtors Account and the details given therefore as per the ledgers maintained. The difference is treated as income concealed by a process of working. But now the question arises as to whether the difference can have any relevance to the Trading Account which was finally accepted. Unless the difference is related to the Trading Account in some way a conclusion of concealment of income cannot be reached. The Authorised Representative said that the books of account of the A were impounded for over 11 years, and if books are made available he would attempt to reconcile and show that it is unrelated to Trading Account. The Departmental Representative agreed to make available the books of account."

4. On 22nd February, 1989 the assesseds counsel filed an application informing the Bench that the cash book and journal have not been made available to him and accordingly requested for adjournment. On 31st August 89 the assessed filed another application informing the Bench that cash book and journal have not been made available for reconciliation.

5. The matter was finally fixed for hearing for 15th January, 1990. When the matter came up for hearing before the Bench on 15th January, 1990, we were informed that the cash book and journal impounded by the assessing officer have not been released in the absence of which reconciliation could not be made. We decided to proceed on merits and accordingly heard the learned counsel for the assessed, Shri Harnam Shankar as well as the learned Departmental Representative Shri Rajiv Bakshi.

6. The learned counsel for the assessed, Shri Harnam Shankar contended that the authorities below were wrong in not accepting the explanation of the assessed that there has been no attempt on the part of the assessed to conceal the income or furnish inaccurate particulars of income. The learned counsel further pointed out that the cash book which was impounded by the department has neither been released in favor of the assessed not made available to the assessed for reconciliation. In this connection he referred to the receipt issued by the Income-tax Officer, Central Circle-V, Kanpur which reads as under :

"Receipt from Sri A. K. Chawala, M/s. Universal Book Stall, The Mall, Kanpur following books and documents relevant for assessment year 1971-72 for investigation. They have been impounded by me u/s. 131 after recording necessary reasons therefore separately.

1. Cash Book (one)

2. Ledger (one)

3. Journal (one)

4. Suppliers Ledger (one)

5. Journal book vouchers file (one)

6. Two files containing Bank statements

7. Purchase invoices in Twenty Nine bundles (which are mostly duplicate or photostat copies)."

7. Some of the books of accounts have been released on 15th March, 1977 and the receipt has been placed before us. It is evident from the receipt issued that cash book has not been released in favor of the assessed. The learned counsel accordingly contended that the penalty imposed by the assessing officer cannot be sustained as the impounded books on the basis of which the assessed could defend his case have not been released or made available to the assessed for reconciliation. Moreover, the explanation of the assessed that the difference in the sundry debtors and sundry creditors as per controlled account ledger and as per the list prepared by the assessing officer could be on account of genuine mistakes of posting or/and totals cannot be brushed aside arbitrarily. The learned counsel heavily relied on the decisions of the Rajasthan High Court in the case of CIT v. Chaturbhuj Bhanwarlal [1987] 166 ITR 659/31 Taxman 363 wherein penalty imposed on account of difference in the accretion to the assesseds capital account was cancelled on the ground that there was no fraud or willful neglect on the part of the assessed.

8. The learned counsel further contended that there is no positive evidence to lead to the conclusion that there has been concealment of income by the assessed. In such circumstances, all the circumstances positive and negative are to be taken into consideration and the matter to be decided on the basis of probabilities. The learned counsel contended that it is not improbable that there would be a genuine mistake of totals or mistakes in postings made by the assessed. There has been no fraud or gross or willful neglect on the part of the assessed. In such circumstances, penalty u/s. 271(1) (c) is unsustainable. The learned counsel has filed a copy of appellate order for the assessment year 1973-74 in the assesseds own case in I. T. A. No. 497(Del) /86 to show that on reconciliation of accounts a negligible difference was determined at Rs. 2936 for that year. The learned counsel contended that the books of accounts were available and that though considerable time was required reconciliation was possible. Since, the cash book has not been made available by the Department, there is no justification for upholding the penalty. It was accordingly urged that the penalty imposed may be cancelled.

9. The learned Departmental Representative, Shri Rajiv Bakshi contended that there has been a concealment of income for which penalty is sustainable particularly when the difference has been detected from year to year which suggests that the assessed is a habitual defaulter. The learned Departmental Representative has further relied upon the orders of the assessing officer as well as that of the C. I. T. (A) and has urged that the penalty imposed may be upheld.

10. We have given our careful consideration to the rival contentions. The cash book impounded by the assessing officer has not been made available to the assessed despite a direction by the Tribunal. In these circumstances, the contention of the learned counsel for the assessed that the difference as worked out by the assessing officer could be reconciled cannot be brushed aside. For the assessment year 1973-74 the assessed was able to reconcile the difference but for negligible amount of Rs. 2936 is a factor which cannot be ignored in such circumstances. It is nobodys case that purchases and sales are not recorded in the books of account or these are not reflected in the trading account. The system of accounting maintained by the assessed is not unknown to the principles of accountancy adopted by the assessed. The possibility of there being mistakes in totals or mistakes in postings cannot be ruled out. There is no positive material available on record to show that the assessed had concealed the income or furnished inaccurate particulars of income. Looking to the aforesaid facts and circumstances, we are of the view, that preponderance of probabilities are in favor of the assessed which go to show that there was not fraud or gross or willful neglect on the part of the assessed is not returning the true income. In such circumstances penalty u/s. 271(1) (c) is unsustainable. The same is accordingly cancelled.

11. In the result, the appeal of the assessed is allowed.