1973 (2) TMI 37 - HC - Income Tax

Penalty - whether the findings given by the authorities in the assessment proceedings are conclusive in the matter of levy of penalty - Tribunal is right in holding that on the facts and in the circumstances of this case where the assessee is found to have paid for the cotton purchased at the inflated rates it is not possible to say that the assessee has deliberately concealed its income - findings in assessment proceedings were not sufficient to levy penalty

Summary

Issues Involved:
1. Inflation in cotton purchases.
2. Black market profits on sale of yarn.
3. Penalty proceedings under section 28(1)(c) of the Indian Income-tax Act, 1922.

Detailed Analysis:

1. Inflation in Cotton Purchases:
The assessee, a public limited company, had inflated its cotton purchase prices. The Income-tax Officer (ITO) added Rs. 1,00,000 to the assessee's income, which included Rs. 24,132 for inflation in the purchase price as per contract No. 103, Rs. 50,000 for the cost of 100 candies of inferior quality cotton passed off as superior quality, and other minor items. The Appellate Assistant Commissioner (AAC) deleted some additions but upheld the Rs. 24,132 and Rs. 50,000 additions. The Tribunal also upheld this decision, noting deliberate manipulation by the assessee.

2. Black Market Profits on Sale of Yarn:
The ITO added Rs. 1,00,000 for black market profits not accounted for. The AAC deleted this addition, and the Tribunal upheld the AAC's decision. This issue was resolved in favor of the assessee and is not further contested in this judgment.

3. Penalty Proceedings under Section 28(1)(c):
After the assessment, the ITO initiated penalty proceedings under section 28(1)(c) for alleged concealment of income, imposing a penalty of Rs. 40,000. The AAC upheld the penalty, stating the assessee indulged in tactics to inflate purchases. However, the Tribunal canceled the penalty, finding that the assessee had actually paid the inflated prices and did not conceal income.

Relevant Findings and Reasoning:

- Assessment Findings: The ITO found deliberate inflation in cotton purchase prices and added Rs. 1,00,000 to the income. The AAC upheld Rs. 24,132 and Rs. 50,000 additions, citing manipulation in records and collusion between the assessee and the cotton supplier.

- Penalty Proceedings: The ITO levied a penalty based on the assessment findings. The AAC upheld the penalty, but the Tribunal found that the assessee had paid the inflated prices, which went to the managing agent's private advantage, and thus did not conceal income.

- Legal Precedents and Arguments:
- Relevance of Assessment Findings: The revenue argued that findings in assessment proceedings are prima facie evidence in penalty proceedings. However, the court noted that while such findings are relevant, they are not conclusive.
- Burden of Proof: The court reiterated that the burden of proof in penalty proceedings lies on the department to establish deliberate concealment of income.
- Case Law: The court referenced several cases, including Gnanambika Mills Ltd. v. Commissioner of Income-tax and D. M. Manasvi v. Commissioner of Income-tax, to illustrate that findings in assessment proceedings can be relevant but are not conclusive in penalty proceedings.

Conclusion:
The court concluded that the Tribunal was correct in canceling the penalty, as the assessee had actually paid the inflated prices, and there was no deliberate concealment of income. The revenue's appeal was dismissed, and the question was answered in favor of the assessee. The revenue was ordered to pay the costs of the assessee, with counsel's fee set at Rs. 250.