1992 (9) TMI 156 - AT - Income Tax

Summary

Issues Involved:
1. Validity of cash credits claimed by the assessee.
2. Assessment of unaccounted income.
3. Imposition of penalty under section 271(1)(c) for concealment of income.
4. Procedural fairness and right to cross-examination.
5. Agreement between the assessee and the department regarding assessment.

Issue-wise Detailed Analysis:

1. Validity of Cash Credits Claimed by the Assessee:
The assessee, a firm of contractors and engineers, claimed cash credits totaling Rs. 9,50,000 from 104 persons, purportedly agriculturists. The Assessing Officer (AO) found discrepancies, noting that some creditors had died before the claimed dates, others were illiterate yet had signed in English, and many denied providing loans. Statements from key individuals like Shri R.M. Thakare and Shri Lallubhai Patel indicated that no actual cash was passed, and confirmatory letters were fabricated.

2. Assessment of Unaccounted Income:
The AO, after detailed scrutiny and recording statements, concluded that the cash credits were bogus and treated them as unaccounted income. The assessee, in a letter dated 26-2-1987, offered the amount for taxation to avoid further litigation and penalty, which was accepted by the AO. The total income was assessed at Rs. 19,30,132, including the disputed cash credits.

3. Imposition of Penalty under Section 271(1)(c):
The AO imposed a penalty of Rs. 14,31,940 under section 271(1)(c) for concealment of income. The Commissioner of Income-tax (Appeals) [CIT(A)] canceled the penalty, stating that:
- Explanation 1 to section 271(1)(c) was not applicable.
- The factual ingredients for imposing the penalty were absent.
- The concealment was not proved to the requisite standard of proof.
- The surrender of income was to buy peace, not an admission of concealed income.
- The penalty proceedings were not initiated lawfully.
- The fiction of section 68 should not extend to penalty proceedings.

4. Procedural Fairness and Right to Cross-examination:
The CIT(A) emphasized the lack of procedural fairness, noting that the assessee was not given copies of statements from creditors for cross-examination, which is a legal right. The AO's reliance on statements recorded during search proceedings without providing them to the assessee was deemed unjust.

5. Agreement Between the Assessee and the Department Regarding Assessment:
The assessee's letters dated 26-2-1987 and 27-2-1987 indicated an agreement with the department to settle the assessment on agreed terms to avoid further litigation and penalties. The AO's acceptance of specific figures proposed by the assessee in the assessment order corroborated this agreement, suggesting that the assessment was completed based on mutual understanding.

Conclusion:
The Tribunal upheld the CIT(A)'s decision to cancel the penalty, agreeing that the procedural lapses and the agreement between the assessee and the department justified the cancellation. The departmental appeals were dismissed, affirming that the penalty imposition was not in accordance with the law and lacked the necessary procedural fairness.