1990 (10) TMI 129 - AT - Income Tax

Assessing Officer, Assessment Proceedings, Deduction In Respect, Levy Of Penalty, Natural Justice, Penalty Proceedings

Summary

Issues Involved:
1. Levy of penalty under Section 271(1)(c) of the Income Tax Act.
2. Alleged concealment of income and furnishing inaccurate particulars.
3. Violation of principles of natural justice.
4. Admissibility of evidence produced for the first time before the appellate authority.
5. Use of materials collected behind the back of the assessee.

Issue-Wise Detailed Analysis:

1. Levy of Penalty under Section 271(1)(c) of the Income Tax Act:
The appeal concerns the levy of penalty under Section 271(1)(c) of the IT Act. The assessee, a public limited company engaged in the manufacture and sale of beer, was penalized for the assessment year 1985-86. The assessing officer disallowed a sum of Rs. 9,98,200 claimed under 'Machinery and electrical repairs' on the grounds that the expenditure was not genuine and was instead a capital expenditure on a new pasteurizing plant.

2. Alleged Concealment of Income and Furnishing Inaccurate Particulars:
The assessing officer found discrepancies in the assessee's claim of repairs based on the records of Elgi Equipments Ltd. The 16 bills produced by the assessee did not match Elgi Equipments' ledger, indicating a trade balance of only Rs. 5,583.20 as opposed to Rs. 9,98,200 claimed by the assessee. Elgi Equipments confirmed that the 16 bills were only estimates and no actual repair work was undertaken. Instead, a new pasteurizing unit was supplied, and the actual expenditure occurred after the relevant accounting year.

3. Violation of Principles of Natural Justice:
The assessee argued that the assessment was carried out in violation of the principles of natural justice. Statements of witnesses and documents were scrutinized without providing the assessee an opportunity to cross-examine the witnesses or peruse the records. The Tribunal noted that the deposition made by Mr. Amuthalingam before the assessing officer was consistent with earlier correspondence shown to the Chief Executive of the assessee. However, the Tribunal found that the assessee was not given copies of the sworn statements and other documents, which constituted a failure to comply with the principles of natural justice.

4. Admissibility of Evidence Produced for the First Time Before the Appellate Authority:
The CIT(A) declined to admit evidence produced for the first time by the assessee, stating that it was not presented during the initial assessment. The Tribunal observed that the CIT(A)'s lapse in not admitting the evidence was venial and did not go to the root of the matter. However, the Tribunal also noted that the failure to provide copies of sworn statements and other documents to the assessee affected the fairness of the proceedings.

5. Use of Materials Collected Behind the Back of the Assessee:
The assessing officer relied on materials collected behind the back of the assessee in both the assessment and penalty proceedings. The Tribunal emphasized that penalty proceedings are distinct from assessment proceedings and require that all evidence used against the assessee be disclosed to allow for a fair defense. The Tribunal found that the assessing officer's failure to provide the assessee with copies of statements and documents collected from Elgi Equipments Ltd. constituted a breach of natural justice.

Conclusion:
The Tribunal quashed the levy of penalty under Section 271(1)(c) on the grounds of failure to comply with the principles of natural justice. The Tribunal held that the assessee was not given a fair opportunity to defend itself against the evidence collected behind its back, which was used in both the assessment and penalty proceedings. The Tribunal emphasized the importance of adhering to the principles of natural justice, as any violation strikes at the root of the matter and renders the proceedings void.