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TMI Blog1976 (5) TMI 29X X X X Extracts X X X X X X X X Extracts X X X X ..... hitty than what has been disclosed; the chitty business and generated a large amount of cash which should have been invested yielding income; that the extra income was invested in plantations the purchase considerations for which were understated and generally there had been concealment of income by the assessee firm for all these earlier years. The investigating officer had also access to a part of the genuine day book maintained for the year 1966 and a register of the same year which revealed to him a lot of the activities of the assessee. This last even, the availability of the genuine book, was in July 1969. 4. On 10th Sept., 1969, the assessee came up with a disclosure petition addressed to the CIT in which they explained the modus operandi of the chitty business, as run by them. They explained how the large amount of cash generated was utilized in advances from the books from the books of the banking dept. To quote from the petition; "In these chitties there were huge amounts collected by us but which had to be of the chitties………In the year 1966, when we bifurcated the chitty and banking business, we were in the early stages of the assessment for the year 63-64 where the I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t from the sister concern, the bankers. This was worked out in this way. Interest on chitty balances 8,239 Interest on self prized items shown as paid to subscribers 90,411 Interest on loans advanced out of chitty funds 53,831 . 1,52,841 10. There was a covering letter accompanying the return. The letter was common for both the chitty and banking firms. Re : 53,831 : "Representing own moneys have been stated in the settlement petition to be of the order of Rs. 5,90,450. As this represents own moneys from the chitty firm credited as fixed deposits in the banking books the interest paid by the banking firm has to naturally go to the credit of the chitty firm. These adjustments also are made in the profit and loss account of the chitty firm, at the same time allowing the entire expenditure as the payments to Chitty firm in banking books. The interest calculated is Rs. 53,831". Re : Rs. 80,190 : "In the settlement proposal submitted before the CIT, the assessee has stated that as on the date of filing the settlement proposals the total advances outside the books by way of pronote, gold loan, cheques etc. would be to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... TO and they were examined with reference to the statements prepared by them showing the non genuine deposits in the bank's books and the interest thereon. they gave the figures of advances outside the books at Rs. 11,47,200, the non-genuine deposits at Rs. 15,27,850 as on 31st Dec., 1968 and the interest thereon at Rs. 77,558 on bogus short term deposits and Rs. 58,978 on FDs. Full details of the statements furnished at that time showed the interest position as follows :— Interest on F.D. made in 68 15,533 -do-short-term-do- 14,422 Carried forward F.D. 53,136 -do-Short-term deposit 43,444 Due but not paid Short term 16,272 F.D. 13,888 . 1,56,795 13. There were further discussions between the assessee on the one hand and the ITO and the CIT on the other about the settlement petition and the quantum of additions for each year. On 29th March, 1971, the assessee wrote to the CIT in which certain proposals were embodied. For the year 69-70 the addition would be Rs. 1,56,797, being the interest on bogus deposits. There was also an admission of penalty on this amount. But this was not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itted themselves to a penalty of Rs. 2,33,687. If this is conclusive against the assessee, them, there is nothing to be further adjudicated and the order has to be confirmed. So, we have to consider, how far the agreement is a conclusive evidence. Now, if the IAC had passed the orders after the proceedings had got bared by limitation, it appears to us that it would be open for the assessee to object to the order on that ground. The agreement would not invalidate such order. Again, if the officer had no jurisdiction at all, the order can be challenged. The principle that governs would be that the penalty order should be otherwise a valid order. If there were any irregularity, say the assessee not being heard or proper opportunity not given, the order could be unenforceable. 18. That the penalty levied should be according to law is clear. The law also requires that the Department should bring in sufficient evidence to prove concealment. If the evidence is insufficient the penalty order can be cancelled. The agreement to penalty is the evidence on which the Department relies and proves concealment. 19. Now levy of penalty for concealment of income is by an order passed by the IA ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee has shown both the sources. They had recorded an income of Rs. 80,190 on gold DPN and Rs. 53,831 interest from bogus deposits in the sister concern. 22. So, the charge can be the extent of income from these two sources. After a careful appraisal of the facts of the case we are of opinion that there is not a shred of evidence for this. We would take up the gold DPN loans first. As early as on 26th Sept., 1969 Sri. Thomas, partner has admitted before the ITO about this source. He also stated that he was unable to quantify it. It found a place in the settlement petition. It found a place in the return and an income of Rs. 80,190 was admitted therefrom. The capital involved in this was not precisely known at this stage. In the covering letter for the return the capital was shown at Rs. 8,91,000. Obviously the reparation of statement showing the total investment takes some time in the absence of books being maintained and contemporary papers not being available. In reply to the ITO's query the Chartered Accountant had given a statement on 21st Oct., 1970 showing the extent of capital to be Rs. 11,47,200. This is as a note to explain the settlement proposal. This figure has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... they have shown the existence of fictitious deposits. In the return filed, they estimated such deposits income at Rs. 53,831. This was by means of a journal entry in the books of both the assessee firm and the sister concern wherein lay these deposits. This formed part of Rs. 1,52,481 interest due from the sister concern, as per the assessee's P L a/c. Sub-sequently the assessee had prepared a statement of interest on bogus deposits and it totalled Rs. 1,56,797. This is the sum total of six statements giving the short term fixed deposit interest, in respect of deposits made in 1968, carried forward from earlier years and interest paid off during 1968. It is not the Department's case that such interest on bogus deposit was Rs. 1,56.797 plus Rs. 53,831. Total itself was Rs. 1,56,797. In the settlement this amount of Rs. 1,56,797 was also added to the income as per P L a/c. This is obviously wrong because Rs. 53,831 it part of Rs. 1,56,797 and has already been shown. What should have been added was the excess of Rs. 1,56,797 over Rs. 53,831. This had led to double addition. In any case, the income would be reduced by this figure and consequently the penalty also by the same figure ..... X X X X Extracts X X X X X X X X Extracts X X X X
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