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TMI Blog1980 (10) TMI 101X X X X Extracts X X X X X X X X Extracts X X X X ..... in respect of chitty business i.e., they did not have a separate cash book, ledger or journal in respect of chitty business. They have, however, registers which have to be statutorily maintained in respect of each chitty. There were ledger folios for the payments and receipts made by each subscriber. In the books of accounts of the banking firm, the chitty business had a ledger account. Moneys taken from the chitty business and paid out of the chitty business were entered in this ledger. 4. Investigations made by the Department revealed that the income from the chitty business had not been properly disclosed to the Department. As a result of further investigations and discussions a settlement had taken place between the original firm and the Department. 5. The assessee-firm i.e., the Chitty Fund became a separate assessable entity from 1967. Even after this they were not maintaining books of accounts in the sense there was no cash book or ledger. The unaccounted profits which had been generated from the chitty fund when the business of chitty and banking were with the original firm continued to be lent or advanced to various persons. These persons were given the advances aga ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . It would have been more advantageous for us to include this income in the Chitty Fund. But where there is a banking business to take care of advances we felt it incorrect to include in a firm which had no business of advancing and which is not concerned with it". The ITO, however, expressed his opinion that since the funds were generated by chitty business this income is also includible in the Chitty Fund firm only. 9. For the asst. yrs. 1973-74 to 1975-76, the position continued to be the same. These amounts were originally returned by the banking firm but the ITO was of opinion that it should be properly assessable in the Chitty Fund assessment. The assessee did not dispute this finding and the additions made became final. The ITO initiated penalty proceedings for concealment of income and referred the matter to the AAC for all the three years. 10. The IAC, by his order dt, 22nd Nov., 1978 imposed penalties equal to the interest amount which was assessed in the assessee's hands and which was shown in the returns of the banking firm. His case that this amounted to concealment rested on the finding of the ITO in his assessment orders and which have been reproduced by him ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er the income belongs to the assessee or to the banking firm. There can be no case of concealment in any case. 13. Shri Joseph Mathew, for the Department, after taking us through the backgound of the case submitted that only in the year 1972-73 the income was shown in the banking business. That was because there was a tax advantage. The banking business had shown a loss for that year and this income could be set off against the loss. Once the assessee has chosen to show it as the income of the banking business he had to continue to show it in the subsequent years also in the same fashion. Thus the motive of evading tax is clear. He further submitted that the funds were generated by the chitty business and, therefore, the further accretion to the income also belongs to the chitty business. He had also relied on the further findings of the IAC. 14. We are of opinion that the Department has no material to show that there is concealment for these three years. It is common ground that the banking firm is a sister concern. All the partners of the banking firm are partners in the chitty fund. The banking firm has shown this income in their returns. The question was only as to whethe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Department has no case that the interests received by Muthootu Bankers on advances for which these amounts are security, are also incomes of the assessee. 16. The third piece of evidence is the absence of entries in the books of the banking firm. Shir Mathew was at pains to show that if the banking business had advanced these loans it would find a place in the cash book and the ledger folios. The absence of such entries is a piece of evidence to show that they did not belong to the banking business. We do not agree. If we recall these amounts were generated by the concealed business activities of the predecessor firm. These were never brought into the books of accounts. Later, settlement negotiations were going on with the Department and a settlement was arrived at on 21st May, 1971. Consequently it would not be possible to bring these amounts in the books of accounts straightaway. This would partly explain why there are no entries in the books of the banking firm. Apart from this the absence of entries is not conclusive to show that the income does not belong to the person. Therefore, the reasons given by the Department to hold that these interest incomes belong to the Chitty ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g extra to be added because the Chitty Fund carries on only the business of conducting chitties an getting the Commission. However in respect of extra subscribers that have been enrolled, other incidental charges realised etc., and addition of Rs. 40,000 has been made. 4. As far as M/s. M. George Bros., Bankers are concerned the position is as under : The Bankers have received from the chitty account a sum of Rs. 6,81,350 during the year as per the books of M. George Bros., Bankers, whereas the available funds would be reduction in Malayalam D.P.N. etc. being outside advances net and also the interest received of Rs. 2,69,200 under Malayalam D.P.N. Mortgage Loans, cheque discounting which would come to a net availability of Rs. 5,73,302. Thus the deficit therein would be Rs. 1,08,048. This has been rounded off to Rs. 1,10,000 and including as business income of M/s. M. George Bros., Bankers, in the computation. This covering letter makes clear of the assessee's position. They were returning the impugned income interest in the Banking firm. They had stated clearly, as the underlined part of para 3 shows, that chitty fund carried on only business of conducting chitties and ge ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... into its profit and loss account and subsequently on the formation of the new company, the amounts were transferred to it. The assessee placed all these materials before the IT authorities. The income from the estate was added and a penalty was sought to be levied. The Madras High Court held that the assessee had placed all the available materials and there was no concealment of income. At page 503 they observed: "The word "conceal" implies something more than mere failure to disclosed and it pertains to an affirmative action likely to prevent or intended to prevent knowledge of a fact and refers to some advantage to the concealing party or disadvantage to some interested party from whom the fact is withheld. Webster in his Dictionary gives the meaning for the word "Conceal" as "hide, withdraw from observation or to cover to keep from sight." Secrecy is an essential ingredient of the act of concealment. To constitute 'concealment", it must appear that the statement or act of the person was calculated and designed to prevent discovery of the act with which he is charged. His act must be misleading, false or deceptive." 22. We might also refer to the aspect of tax liabilities. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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