Satish Chandra, J. - (1.) MESSRS U.P. Tannery Company Private Limited, Kanpur, the assessee, carries on the business of tanning raw hides. For the assessment year 1952-53 the Income-tax Officer levied a penalty of Rs. 44,741 under Section 28(1)(c) of the Indian Income-tax Act, 1922, for default of the assessee in furnishing accurate particulars of income in its original return. The penalty was imposed on account of two items, one of Rs. 1,10,088 and the other of Rs. 4,96,868. The finding was that the assessee had deliberately concealed the particulars of its income in respect of these two items. On appeal, the Appellate Assistant Commissioner held that the explanation of the assessee for non-inclusion of the items of Rs. 1,10,088 was plausible and believable. He, therefore, deleted the penalty in relation to this item. With regard to the other item, namely, of Rs. 4,96,868 he confirmed the finding of the Income-tax Officer that the assessee had been guilty of deliberately furnishing incorrect particulars of its income and as such he imposed a penalty of Rs. 37,500 in relation to it. Both sides went up in appeal to the Tribunal. The Tribunal discussed the matter in detail with regard to the item of Rs. 4,96,868. It gave its finding with regard to the method of accountancy adopted by the assessee. Most of the observations made by the Tribunal are applicable to the item of Rs. 1,10,088 as well. The Tribunal held that: (1) The past record of the assessee was clean; (2) There was no motive behind not disclosing true profits deliberately; (3) The assessee was in the bona fide belief that the profits in question should be transferred to the profit and loss account from the personal account of the customer only in the year 1956 ; (4) The department had not been able to establish unequivocally concealment or furnishing of inaccurate particulars of income on the part of the assessee ; (5) The omission was caused because of the complicated system of accounting ; (6) The assessee offered for taxation the said profits as soon as it was pointed out to it by the company's auditors ; (7) From the statements giving details of purchases and sales furnished by the assessee it was not possible for the Income-tax Officer to find out the said omission; and (8) The report of the auditors on the balance-sheet as on 31st March, 1952, also supported the case of the assessee.
(2.) AT the instance of the Commissioner of Income-tax the Tribunal has referred the following question of law for the opinion of this court: "Whether, on the facts and in the circumstances of the case, the finding of the Income-tax Appellate Tribunal is in accordance with law that no penalty is called for under Section 28(1)(c) of the Indian Income-tax Act, 1922, in respect of the items of Rs. 1,10,088 and Rs. 4,96,868 ?" It is true that the Tribunal has not discussed separately the item of Rs. 1,10,088 but the above-mentioned findings are equally applicable to this item as well. They are more or less in affirmation of the finding of the Appellate Assistant Commissioner in regard to the item of Rs. 1,10,088. Having heard learned counsel, we are satisfied that the Tribunal, on the findings reached by it, was justified in affirming the deletion of penalty on the item of Rs. 1,10,088. The case with regard to the item of Rs. 4,96,868, however, stands on a different footing. The method of accountancy adopted by the assessee in regard to sales on consignment basis was that when the goods were sent on consignment basis by the assessee to its customers abroad, provisional bills were made and the amounts were debited in the personal account of the customer with corresponding credit to the sales account. The customer was required to sell the goods abroad and to remit the entire sale proceeds to the assessee which were credited as and when received, to the personal account of the customer. Such entries in regard to the consignment of goods continued to be made till the entire goods were sold and a final account was rendered by the customer. After the entire goods have been sold and the accounts of the customers finalised the credit balance in the personal account of the customers was transferred to the profit and loss account of the company. According to the assessee-company the profits were liable to be included in the return of income in the year in which the transfer was made from the personal account of the customers to the profit and loss account of the company. According to the finding of the Tribunal this system of accountancy led the assessee to returning the said sum of Rs. 1 lakh and odd in the subsequent assessment year, namely, 1952-53. Having been advised that this item is really assessable in the year in question the company filed a revised return on its own.
(3.) BUT the position with regard to the item of Rs. 4,96,868 was very different. It appears that the entire sale proceeds had been received by the assessee-company in the year 1952-53 but the balance was not transferred to the profit and loss account. This state of affairs continued in the years 1952-53 to 1955-56, although no fresh amount was received by the assessee. It was for the first time in 1956 that the company's auditors pointed out that the sum of Rs. 4,96,868 was liable to be taxed during the assessment year 1952-53 and in pursuance thereof the company filed a revised return surrendering the said amount for taxation during the assessment year 1952-53. The Appellate Assistant Commissioner had found that the company filed the revised return only after it felt that the Income-tax Officer had discovered an omission of this amount in its original return on an inspection of the whole record. The Tribunal upset this finding on the view that it was not possible for the Income-tax Officer to find out the said omission because the said omission could not be detected from the details of the various items of trading and profit and loss account but only from a comparison of the balance-sheet of a number of years. The Tribunal observed that there was nothing on record to show that the Income-tax Officer compared the balance-sheet of the year under consideration with the balance-sheets for earlier years and found that this balance was being carried forward from year to year in the account of the said customer at London. In this connection, our attention was invited by the learned counsel appearing for the department to the finding of the Appellate Assistant Commissioner. It appears that while scrutinising the accounts of the assessee the Income-tax Officer made the following note on the back of the cover of the balance-sheet: "Detailed lists of advances from customers to be obtained. It is suspected that constant balances in some accounts have been carried forward representing suppression of sales as was found in Indian National Tannery, a sister concern, under similar circumstances." ;