Decided on October 05,1994



G.SANTHANAM, A. M. : - (1.) THIS is an appeal against the levy of penalty under s. 271(1)(c) of the IT Act, 1961. The appellant filed its return of income on 3rd July, 1981 declaring a total income of Rs. 1,42,800. In the course of the scrutiny assessment, the Assessing Officer (AO) noticed an account captioned as "India Pepper & Spices Trade Association Clearance Account". There was a credit balance of Rs. 1,42,837 in this account. The assessee clarified that during the year the appellant had entered into forwarding contracts for export of pepper to various countries including U. S. S. R. As it had to purchase pepper at higher rates than the contracted rate in order to meet the export obligations, it was explained that the appellant had made use of the hedging facilities with India Pepper & Spices Trade Association. As exports were fulfilled only somewhere in the Samvat year 2038 relevant to the asst. yr. 1983-84, the credit balance standing in the IPSTA Clearance Account of Rs. 50,117 was duly transferred to the P&L account. At the same time the assessee conceded that the speculation profits resulting from such hedging transactions required to be accounted for from year to year and accordingly filed a revised return on 15th March, 1983 including therein the credit balance of Rs. 1,42,837. The assessment was completed on the basis of the revised return. The AO initiated action under s. 271(1)(c) of the IT Act. The assessee contended that it was under a bona fide belief that the profit or loss on the hedging transactions was to be taken into account only where the export obligations were fulfilled and not before. In order to foreclose any dispute on that issue it had agreed for the assessment of the impugned amount by including the same in the revised return and therefore penalty is not exigible. The AO did not accept this version of the assessee as according to him the assessee came forward with the revised return only upon enquiry by him in the course of assessment. He further held that even if the revised return was filed voluntarily it would make no difference and it will not absolve the assessee from penalty under s. 271(1)(c) of the Act, as the assessee had not taken the profit on the hedging transactions as its income in the original return. The treatment given to the account showing the credit balance of Rs. 1,42,837 as a liability to be carried forward in the balance-sheet was with a view to reduce the tax liability and but for the enquiries made by him, the assessee would not have come forward with a proposal for inclusion of the impugned amount in the revised return. Thus, he levied penalty in a sum of Rs. 47,137. The assessee appealed.
(2.) The CIT(A) was of the view that the assessee came forward with a revised return only when his attention was drawn to the credit balance in the IPSTA Clearance Account and that too in the course of the assessment proceedings. He also noticed that the appellant did not raise any whimper that such speculation profit was properly assessable in the year in which the export contracts were fulfilled. From this he drew the inference that the appellant was aware that the speculation profit was to be offered from year to year and in-spite of such awareness, the appellant did not do so and such omission could only be the out-come of adjusting the future speculation loss against the current speculation profits. Regarding the contention of the assessee that the revised return was filed voluntarily though it had in fact offered such income in the subsequent year was also negatived by the CIT(A) following the ratio of the Kerala High Court in the case of CIT vs. Haji P. Mohammed (1981) 132 ITR 623 (Ker). Another argument of the appellant was that the penalty imposed was excessive. But then the CIT(A) held that it was reduced to 50% of the minimum penalty by the CIT under s. 273A(1)(ii) of the Act, and, therefore, he declined to interfere in the quantum of penalty imposed. Thus he sustained the levy of penalty and dismissed the appeal of the assessee. The assessee is aggrieved. Having regard to rival submissions, we cancel the levy of penalty. This is a case in which the impugned amount of Rs. 1,42,837 was found entered in the books of accounts. The amount in question was the balance standing to the credit of IPSTA Clearance account. The impugned amount was shown as a liability in the balance-sheet. The purpose of maintaining this account was to trade off any possible loss arising from the export obligations as the purchase price of pepper was higher than the contracted rates for export. The statements furnished to the authorities contained the impugned amount though it was not included as income of the assessee. Thus the existence of the account was not withheld from the authorities. In the course of the scrutiny of the account books when the AO made enquiries about the nature of the transactions, it dawned on the assessee that the impugned amount being a positive figure arising on hedging transactions was to be included in the income of the assessee on year to year basis and that prompted the assessee to come forward with a revised return. The explanation of the assessee in this connection is worth re-calling : South India Product Co. 14th Sept., 1983 P. B. No. 344, Cochin-2. The ITO, A-Ward, Mattancherry. Sir, Ref. 46-011-FT-9391/Chn-Mat-A/81/82 1. On 12th Sept., 1983 when our Advocate Sri D. A. Kamath had appeared before you in connection with the finalisation of our assessment for the asst. yr. 1981-82, he had submitted before you that the sum of Rs. 1,42,837 being the credit balance remaining in the India Pepper and Spice Trade Association Clearance Account may be included in the net taxable income. 2. This amount represents the result of the forward trading in pepper done through the India Pepper and Spice Trade Association which has been carried forward and adjustment in the profit & loss account has been made only in the subsequent years. 3. However, we are advised to file a revised return voluntarily and of our own accord for the asst. yr. 1981-82 including therein the sum of Rs. 1,42,837 being the credit balance in the IPSTA Clearance Account.
(3.) A copy of the IPSTA Clearance Account is also enclosed herewith.;

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