9911796707
TMI Blog1993 (9) TMI 156X X X X Extracts X X X X X X X X Extracts X X X X ..... cash, jewellery or valuable articles or things were found. A letter was issued on 4-2-1982 posting the case for further hearing to 18-3-1982 together with a notice under section 142(1) of the Act. There were adjournments of the hearing also at the request of the assessee. In the meanwhile, on 18-3-1982 the assessee had filed a return purported to be a revised return showing income from other sources at Rs. 50,000 without any details. The case was finally heard on 23-3-1982 and a draft assessment order was passed. The assessee filed his objections and the Inspecting Assistant Commissioner after hearing the assessee and the Income-tax Officer issued his directions which were incorporated in the assessment order dated 6-11-1982. This is for the assessment year 1979-80. 2. For the assessment year 1980-81, the assessee had filed a return declaring income of Rs. 16,340 and notice under section 143(2) was served on the assessee. Certain details were called upon in the course of the personal hearing. In view of the search under section 132 on 29-1-1982 wherein certain books of account and documents were seized, the assessee was asked to explain the transactions as noticed in the books o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r children were admitted to the benefits of partnership did not have any taxable income; and the forms prescribed under the IT Act did not provide for columns for inclusion of minors' income. There was an accidental omission to include the notional income on the dwelling house (self-occupied) and that the assessee did not receive any higher income in respect of the property let out than what was admitted. Thus, the assessee contended that penalty under section 271(1)(c) was not attracted in his case. 4. The Income-tax Officer overruled the objections of the assessee stating that the Tribunal had confirmed the additions in respect of all the impugned incomes; that it was for the assessee to establish that the toddy business in Alwaye range did not belong to him, that the business of Archana Jewellery did not belong to the assessee; that the assessee had not contested the inclusion of the minors' income in his total income in appeal and that the assessee's argument that the charge of concealment cannot encompass incomes that are includible in the total income of the assessee is not tenable and that there was no justification for not including the property income. For these reasons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... slip, he submitted, that on the basis of the information found in the slip, the assessment, if at all it is to be made, should have been done in the status of Association of Persons and penalty proceedings should have been initiated on that footing. This has not been done. Therefore, there is no basis at all for levy of penalty in this case. 8. The arguments of Sri C. Abraham, the learned senior departmental representative run as follows: The assessee had not adduced any evidence either in the assessment proceedings or in the penalty proceedings to disprove the information regarding the share of profit in the Alwaye range toddy shops. The slips were recovered from the residential premises of the assessee to which the assessee had access and, therefore, he cannot disown the same. The findings in the assessment proceedings are good piece of evidence as has been held in a number of decisions as follows: (i) CIT v. Khoday Eswarsa Sons [1972] 83 ITR 369 (SC); (ii) Banaras Textorium v. CIT [1988] 169 ITR 782 (All.); (iii) CIT v. T. Govindankutty Menon [1989] 178 ITR 509 (Ker.). The findings can be disturbed only when it is convincingly established that they are either wrong ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -80 a/c profit. 201643.58 -------------------- 855557.74 50% profit 427778.87 Sri P.K. Narayanan a/c. 1977-78 a/c 123302.17 1978-79 a/c 112105.76 1979-80 a/c 238065.66 -------------------- ------------------ 123302.17 350171.42 -------------------- ------------------ Balance 226869.25 To cost of shop equipments 319369 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aid records in the record marked 20/29 against your accounts, it has been mentioned as receipts of 3 years profit as Alwaye Toddy Shop (1977-78 to 1979-80) 50% receipts (Rs. 4,27,778.87) besides this, there is seen receipts of an amount of Rs. 97,729.85 as 50% sale value of Toddy implements. What have you to say about this ? A: I don't remember anything about this now." 10. Sri Abraham, for the revenue, is unable to confirm or deny whether documents numbered as 20/29 to 34 (relating to Alwaye Toddy shops) were recovered from the bed-room of the assessee or not, as he was not having the Panchnama with him. It is unfortunate that in a search and seizure case, the revenue's representative is not fed with all the documents relating to the search. There is force in the contention of Sri Sarangan that whereas in respect of recovery of some documents, as for example, item 26/37 it is stated in the course of the sworn statement itself that it was recovered from the bedroom of the assessee, there is no such indication of the exact location from where the toddy shop documents were recovered and, therefore, we told that the remarks of the authorities about their recovery in the bed-room a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... venue knew that the assessee entered the auction only on 6-3-1980 (thereby referring to the accounting year 1980-81 relevant to assessment year 1981-82). The certificate now produced before us also indicated that M/s K. S. Chathunni, K.S. Ramakrishnan and Sri K.T. Sreedharan were the persons who had taken the auction in the impugned years. Therefore, it is surprising that these persons were not examined though their names were found in the balance-sheet (item 20/31), but some how the revenue misdirected itself and proceeded on the basis of the presumptions envisaged in section 132(4A) of the IT Act. Thus, the vital information provided in the slips was not perused or the pursuit was abandoned for reasons best known to the revenue in spite of repeated requests by the assessee as follows : In its reply dated 19-4-1982 to the draft assessment order it was argued that: "I have not done any Abkari business at Alwaye as alleged in your notice. The persons who bid the Alwaye range of toddy shops for the years referred to in your notice may be ascertained from the Excise Department. Before making any addition on the basis of the alleged piece of paper you are referring, you may please ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s which can be done freely by any person. It can be done only in accordance with the conditions and restrictions laid down under the provisions of Abkari Act and rules made thereunder. The Records of the Excise Department clearly shows that the Abkari business at Alwaye was done by someone other than me. The department has not made any attempt to verify this fact. It is illegal to presume on the mere strength of the alleged slips that I had done Abkari business of the Alwaye Range contrary to the provisions of law. In the absence of tangible and corroborative proof particularly in view of the contrary facts evidenced by the Excise records of Alwaye range, the Department is duty bound to discharge its burden. By the mere fact that a share of income of a toddy business at Alwaye has been assessed in my hands by a fiction created by the provisions of the Act does not prove that I conducted the toddy business at Alwaye." (pages 100 101 of the paper book) The revenue was rest content with hauling up the assessee on the mat on the basis of the presumptions contained in section 132(4A). In our considered opinion, the presumptions contained in section 132(4) has got only limited applicat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the assessment should have proceeded only on the basis of Association of Persons. This has not been done. What was done was to include 50% of the share of profit in the individual assessment of the appellant, as if the other beneficiaries or parties are known and their shares are determinate. From the information found in the slip there is no specific allotment of shares individually to other parties. Therefore, the inclusion of 50% share of profit in the individual assessment of the appellant is itself open to challenge. We reject the contention of Sri Abraham that the failure to make the assessment in the status of Association of Persons was only a technical lapse or a procedural irregularity. In our considered opinion, it is neither a technical nor a procedural lapse or irregularity. The deficiency or defect goes to the root of the matter. The status in which a person is to be assessed is very material for assessment. A wrong status will result in an assessment being made against a wrong "person" as defined in the Income-tax Act. Unless an assessment is made in accordance with the "status" of the "person" - whether individual, AOP, Registered Firm, Unregistered Firm, HUF, Comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erse inference that Sri Chellappan Achari was a man of straw and had no capacity to contribute any capital for doing gold business in the name of Archana Jewellery. In support of such inference it was pointed out that enquiries revealed that bank records showed that the bank account of Archana Jewellery was originally opened and operated by the assessee (but details for this were not given) and that his wife and other relatives had offered securities for the bank loans obtained by Archana Jewellery. Initially, the bank had granted loan on the securities of 19 persons and subsequently all the 18 persons other than the assessee had withdrawn from the guarantee leaving the assessee as the sole guarantor. Lastly, it was seen from such records that on 8-8-1978 a sum of Rs. 1,00,000 was withdrawn from the firm M/s P. K. Narayanan Co., and given to Archana Jewellery. Therefore, the Income-tax Officer concluded that Archana Jewellery was only a benami business of the assessee in the name of Sri Chellappan Achari. This was deleted in appeal by the CIT (Appeals) and but confirmed in the revenue's appeal by the Tribunal. On the basis of the assessment, penalty was levied under section 271(1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hellappan Achari was initially operated by the assessee is an erroneous statement as would be evident from the certificate furnished by the banker. Sri Sarangan submitted that nowhere in the draft assessment order there is an allegation that the bank account was initially operated by the appellant. However, in the Tribunal's order there is a mention that the bank account of Archana Jewellery was initially operated by the assessee. He wonders on what basis such a mention was made. It is for the revenue to prove that the assessee had initially operated the bank account of Archana Jewellery if it had any material with it. 15. The arguments of Sri Abraham read as follows: Slips containing the valuation of stock of gold were recovered from the bed-room of the assessee. There are monetary transactions between the assessee, his wife and Archana Jewellery. Sri Chellappan Achari was a man of straw. Loans were advanced to him only on the strength of the guarantees or securities offered by the assessee. Non-examination of Sri Sathyan is not a fatal defect as to dislodge the findings recorded in the quantum appeals. Benami Transactions (Prohibition) Act, 1988 only prohibited the remedies as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the revenue under section 132(4A) of the IT Act in respect of the papers containing the stock details and payments pertaining to Archana Jewellery recovered from the assessee stood rebutted in evidence by the assessment made on Sri Chellappan Achari of Archana Jewellery. The CIT (Appeals) deleted the income from Archana Jewellery against which the department had appealed before the Tribunal and submitted a paper book in the quantum appeal as follows: Paper Book Index S. No. Particulars Page No. 1. Photostat copy of document seized (marked as items 20/29 20/30 from the residence of Sri P.K. Narayanan during search under section 132 1 to 6 2. English translation of material seized and marked as item 20/29 7 3. Extracts from ITO's letter date 10-2-1983 to the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... search. It is inconceivable as to how this paper found its way to the bed room of the assessee if the assessee was not in any way connected with the business of Archana Jewellery. In our opinion, the ITO had brought out sufficient materials and convincing reasons in coming to the conclusion that the assessee is the real owner of the business of Archana Jewellery and that A.N. Chellappan is only a name-lender." Sri Sarangan vehemently contends that the observations of the Tribunal that Sri P.K. Narayanan had, in fact, opened and operated the bank account of Archana Jewellery viz., CD-14 was based only on the submission of the learned departmental representative before the Tribunal and the learned departmental representative had not placed any material before the Tribunal to warrant such a finding as will be evident from the papers filed before it in the quantum appeal by the learned departmental representative (page 125 of the paper book). 18. We have carefully considered this submission. The assessee in the paper book furnished before us has included a copy of the paper book furnished by the revenue before the Tribunal in the quantum appeal, the index of which is contained in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (page 19, 146) From a photostat copy of another letter dated 20-8-1982 from Bank of Cochin Ltd., to the Income-tax Officer, Special Circle, Cochin-16, it is seen that the Bank by way of clarification, had stated that "In 1978 when the advance was granted, it was secured by equitable mortgage of real estate in addition to the guarantee of 19 persons as mentioned in our previous letter. Mr. K. Krishnan, Mrs. Sarojini Krishnan, Thazhathaveetil, Kattoor P.O., Trichur Dt. and Mr. P.K. Narayanan, Polakulath, Edappally are the three persons, who offered property as security for the said advance. The property of Mr. Mrs. T.K. Krishnan that held as security is already released where it is approximately valued to 3.24 lakhs". (page 20 of the department's paper book - p. 147 of the assessee's paper book). In these communications from the bank, there is no mention that the Account No. CD- 14 was opened and operated by the assessee, in the name of or for and on behalf of Archana Jewellery. On the other hand, the evidence is that the loan was granted to Sri Chellappan Achari of Archana Jewellery on the security of certain people. It is only in the statement of points furnished by the depart ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . We, therefore, hold that no mileage can be made out of the findings of the Tribunal in the quantum proceedings as regards the opening and operation of the bank account No. CD-14 by the assessee insofar as penalty proceedings are concerned. There is force in the contention of Sri Sarangan that there is failure of natural justice on this Count. 19. The other circumstance pointed out by the Income-tax Officer and accepted by the Tribunal in the quantum appeal is the recovery of the unsigned lease agreement, a copy of which has been furnished at pages 138 to 141 of the paper book. No doubt, the lease agreement is purported to have been executed on 5-9-1978 by Sri Chellappan Achari residing with Sri P.K. Narayanan, for and on behalf of Sri P.K. Narayanan, aged 46, in favour of Sri A.G. Ramesh. The lease agreement is for the lease of property belonging to Sri Ramesh. It is on stamped paper. It was initialled or signed only by Sri Chellappan Achari. Sri Ramesh had not signed the document. Thus, it is an incomplete document which has no validity in law. From the observations of the Income-tax Officer in the assessment order, it is seen that Sri Chellappan Achari was residing elsewhere ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... learned Income-tax Officer dealing with the case of the assessee, had come to a totally different conclusion on the basis of the same material that were before the officer having jurisdiction over Sri Chellappan Achari. The only additional materials that were not before the officer assessing Sri Chellappan Achari are: (i) slips containing the details of Valuation of stock and certain payments; (ii) the incomplete lease agreements; and (iii) the securities or guarantees given by the assessee. The first two materials viz., the lease agreement and the papers containing valuation of stock, and payments etc., are not sufficient to point to the benami nature of the transactions. The payments are cheque payments of Archana Jewellery and the payees were not examined to indicate the complicity of the assessee. The books of account pertaining to Archana Jewellery were not found with the assessee. Nor the profit and loss account or balance-sheet of Archana Jewellery. The possession of papers relating to stock etc., have been properly explained by the assessee. No worthwhile enquiry was made either with Sri Sathyan or Sri Ramesh or with Sri Chellappan Achari or with the parties to who ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Silpi' Theatre, Kodungaloor. At the time of search at the residence of the assessee on 29-1-1982, the Income-tax Department had found account books relating to Silpi Theatre, Kodungaloor. As per this office letter dated 4-3-1982, the assessee was asked to furnish the profit and loss account and balance sheet of this business for the period from 1-4-1978 to 31-3-1979 and asked to state why the income from this business was not shown in the return filed. The assessee's representative appeared and also filed a written reply as under: The firm M/s Silpi Movies is owning the Silpi Theatre. The firm was constituted in June 1978. The minor children Krishnadas, Krishnalal, Krishnalalji, Krishnaleela and Krishnan Unni are admitted to the benefits of the partnership firm. Sri P.K. Narayanan was representing them as their legal guardian. The minors have their own independent source of funds. Hence he has not included any income from this business in this return. The theatre was taken over by this firm by the end of October 1978'." In the course of assessment, a copy of the partnership deed of Silpi Movies was filed by the assessee. The Income-tax Officer noticed that the assessee's five m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 00 made in the draft order is fair and hence no modification to this is necessary. The share of five minor children of the assessee In this would be Rs. 13,333 and this is includible in his total income." 24. We uphold the contention of Sri Sarangan that once it is found to be a firm and the firm had not applied for registration and had not filed return of income, the proper course would be not only to estimate its income, as has been done by the Income-tax Officer, but also to treat the firm as an unregistered firm by passing an order to that effect, or treating such unregistered firm as a registered firm under section 183(b) of the Act, again, we emphasise by passing an order to that effect. The ITO has not followed either course of action, but has simply included the proportionate share of the minors' income from the estimated income of the firm. This is a serious flaw in the assessment. Therefore, the inclusion of the minors' income in the hands of the assessee has no legal legs to stand upon, unless it is preceded by the assessment of the firm, as a registered firm or as an unregistered firm treated as registered firm. Sri Abraham wants us to infer that the ITO had treated t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ------------------ Rs. 89.019 ------------------ The assessee had appealed against such addition, but the CIT (Appeals) held that the assessee had not disputed the quantum of Rs. 89,019 determined by the Income-tax Officer, but what he wanted was that it should be treated as coming from the addition to the business income, if any, sustained. In other words, the assessee had wanted only telescoping of this addition into any other addition that may be sustained. This plea was rejected by the CIT (Appeals). In the appeal before the Tribunal similar plea was taken and the Tribunal accepted the contention of the assessee that in view of their sustaining an addition of Rs. 1,12,105, no separate addition was called for under the head other sources. Thus, the addition was deleted. Therefore, this addition was not considered in quantifying the amount of penalty. Now that we have cancelled the levy of penalty in respect of the income from toddy shop business in Alwaye range, income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tax return for 1979-80 should be given credit in the valuation made by the valuer. For reasons discussed in para (3) and (4) mentioned above, I hold that the assessee had no accumulated savings from his business or agricultural income up to 1979-80. So, the entire investments made during the year ended 31-3-1979 as shown by valuer is to be treated as the unexplained investments of the assessee of this year and assess it under section 69 of the Income-tax Act. So, for the year ended 31-3-1979, the sum of Rs. 41,719 alone is considered as mentioned in para (2) above, and assessed under section 69 of the Income-tax Act as the deemed income of the assessee of this year." (page 4 of the paper book) The assessee in his reply to the draft assessment order dated 19-4-1982 stated as follows : "The assessee did not construct a new building at Idappally as stated by you in paragraph one of your draft assessment order. The assessee only made some improvements, to the alleged building which stood in the name of the assessee's wife in the plot belonging to her. The improvement works were started during the year 1974-75 and what was stated in the wealth-tax statement for the wealth-tax assessm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o penalty is leviable on the same. 28. There was a deposit of Rs. 20,000 in Parur Central Bank on 6-5-1978. On that date there was only a drawing of Rs. 2,000 from the firm of M/s. P.K. Narayanan Co. It was explained by the assessee that the balance of Rs. 18,000 came from cash in his hands. The Income-tax Officer also noticed deposits in bank account No. 5804/1 with Bank of Cochin on different dates amounting to Rs. 28,500 and noticed that they were not disclosed in the wealth-tax return. He also noticed deposits in bank account No. 88 with South Indian Bank, Palarivattom, on various dates from 8-9-1978 to 31-3-1979 amounting to Rs. 20,800. He held that these amounts were not properly explained and, therefore, he proposed an addition of Rs. 67,300 under the head other sources in the draft assessment order. The assessee in his reply to the draft assessment order stated as follows:--- "Credit in Parur Central Bank, Ernakulam on 6-5-1978: The remittance to the bank account on 6-5-1978, as already stated, is met by withdrawing Rs. 2,000 from M/s. P.K. Narayanan Company, cash temporarily diverted from prawn fishing business, wherein an income of Rs. 15,000 is returned and the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uch background, we hold that there is no case for levy of penalty. 30. Sri Sarangan for the assessee contended that the levy of penalty for the omission to show the income from house property was unjustified. He submitted that the income from house property was admitted by the assessee only in a sum of Rs. 720 as in the preceding year, but the Income-tax Officer estimated the gross rental income at Rs. 16,080 and after allowing 1/6th for repairs determined the income from the let out property at Rs. 13,400. Since the residential house was constructed only for three months in an year, he estimated the annual letting value at Rs. 800 and determined the income at Rs. 14,200. These were his proposals in the draft assessment order for 1979-80. The assessee objected to the proposal as follows: "It is surprising to note, that you have taken the rent paid by the firm, P.K. Narayanan Company to all its shops as the rent paid to me. I own only 2 sheds bearing door Nos. 16 in Ward No. III and 1911 in Ward No. XL. Only these two sheds were let out by me during the relevant period to M/s. P.K. Narayanan Company, Abkari Contractors, Ernakulam, and the net income received from these sheds ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alty involving mens rea, leading to dire consequences, and as sufficient materials are already on record, we overrule the objection of Sri Abraham and proceed to consider the plea raised by Sri Sarangan. In this case, penalty was levied only for one of the two assessment years in respect of the income on the let out property and the notional income in relation to the self-occupied property. The assessee has admitted Rs. 720 as income from the let out property. This income was proposed to be determined at Rs. 13,400, but later on reduced to Rs. 2,700 on agreed basis. The income from this very same property for the succeeding assessment year was finally determined only at Rs. 720 as admitted by the assessee. In the circumstance, as it is an agreed addition no penalty is leviable on the addition in the light of the decision of the Supreme Court cited supra. 34. Regarding the notional income on the self-occupied property it is seen that the construction of the house was completed only at the fag end of the year. The omission to include the notional value would appear to be accidental. Even the Income-tax Officer has taken the notional income only for a period of three months at a fig ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
