9911796707
TMI Blog1989 (2) TMI 141X X X X Extracts X X X X X X X X Extracts X X X X ..... wheat-flour and various other products and we were informed during the hearing that it is usually sold for feeding birds and that is why it is called 'murgidana'. During the search operations at the residence of Shri Hari Bhushan three case books for the months of May, June and July [up to 12-7-83], 1983 and 3 ledgers for the same period were found lying in the compound of the building occupied by him as a tenant. According to the revenue they contained details of the business operations of the assessee for the relevant period showing an income of Rs. 4,91,491. Those books are also said to have record of investments amounting to Rs. 7,67,382 in what is described in the assessment order as 53 accounts of debtors. On the basis of these books these two amounts have been added while computing the assessee's income. 4. The assessee filed its return under section 139 on 5-7-84 declaring the income at nil on the first page of the return, a copy of which is at pages 6 and 7 of the paper book. Against the word 'nil' in column 3 the following note was given : " Final figure of loss will be disclosed after examination of seized books and material. " At page 2 of the return a sum of Rs. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ash credits, investment as discussed above Rs. 7,67,382 2. Unexplained income as discussed above Rs. 4,91,491 3. Value of 'murgidana' as discussed above Rs. 0,12,000 The discussion contained in the assessment order is as under : --- " Search & Seizure : In this case a search was conducted u/s 132 of the Income-tax Act, 1961 on 14-7-83 at the business premises as well as residence of Shri Praveen Kumar, director and Shri Hari Bhushan, a share-holder, looking after the affairs of the company. In the factory premises, there was some variation in the stock as against stock register. In this connection, explanation has been filed saying that the stock shown in stock register was as on 12-7-1983 and the result of working for 13-7-83 had not been recorded therein. The figures for 13-7-83 duly certified by the Marketing Inspector (Milling) has been filed. In this way, the deviation of closing stock has been explained. Residence of Shri Praveen Kumar, Director 468 bags of Murgidana (refraction) was found at the residence of Shri Praveen Kumar director of the assessee company. No satisfactory explanation could be given for the same. Keeping in view the facts of the case that the item r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... educed from the amount of Rs. 7,67,382 worked out by the Department. I have gone through the books of accounts and looking to the nature of entries do not feel satisfied about the submissions made by the learned counsel for the assessee. The assessee's claim for deduction of Rs. 73,652 and Rs. 1,34,818 is, therefore, rejected. The assessee has also pointed out that opening cash balance of Rs. 13,500 should be excluded. There is no force in the submission of the learned counsel for the assessee on this account also and this claim is also rejected. On going through the books, referred to above, I find that the income recorded therein as under : --- May, 1988 Rs. 2,94,178.00 June, 1983 Rs. 2,06,737.00 -------------------------- Rs. 5,00,915.00 Less : Loss for June, 1983 Rs. 9,424.00 --------------------------- Balance income Rs. 4,91,491.00 A letter was served on the assessee to show cause as to why the aforesaid income of Rs. 4,91,491 be not included in their income. The assessee in the written reply has stated that there is no evidence that the books of accounts relate to the assessee company and moreover, books have not been recovered either from the business premises of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the income in the return and that the assessee company had been caught and cornered by the seizure of books of accounts regarding suppressed production of Ata, Maida, Suji etc. He also observed that the note given in the return did not absolve the assessee from liability of concealment and that the assessee's conduct in suppressing the quantum of manufacture from the regular books of accounts was mala fide. He, therefore, levied a penalty of Rs. 17,07,540 which is double the amount of income alleged to have been concealed. The concealed income was calculated at Rs. 13,51,193 which consisted of the aforesaid three additions and a subsequent addition of Rs. 84,320 made to the assessee's income in pursuance to an order under section 263 passed by the C.I.T. 6. The assessee did not file any appeal against the quantum assessment but challenged the levy of penalty in an appeal before the C.I.T (A). It was contended before him that the additions made on the basis of recovery of certain books from the residence of Hari Bhushan and the recovery of certain bags of murgidana from the residence of Praveen Kumar, Director, could not properly be made as the said articles did not belong to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... epartment or that the assessee could conceal and the fact that the assessee filed only what may be called a provisional return would show that the assessee had no intention either to conceal any particulars or to furnish any inaccurate particulars or even to avoid the assessment of correct income by any misrepresentation whatsoever. Therefore, no concealment was established against the assessee and the penalty was unjustified. It was also contended that no penalty can be levied on the basis of an addition of Rs. 84,320 which has not been made by the I.A.C. (Assessment) during the assessment proceedings but was made on the directions of the C.I.T who did not direct the levy of penalty on this count. It was also contended that the assessee's books of account showed a loss of Rs. 3,52,009 which has been accepted by the I.A.C. (Assessments) as correct for proceedings to the determination of income and to that extent adjustment has to be allowed in the calculation of tax sought to be avoided. Lastly it was contended that reliefs admissible to the assessee u/s 80HH and 80-I have also to be taken into account for calculating the assessee's income and consequently the tax allegedly sought ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uch explanation is bona fide and that all the facts relating to the same and material to the computation of his total income have been disclosed by him) then, the amount added or disallowed in computing the total income of such person as a result thereof shall, for the purposes of clause (c) of this sub-section, be deemed to represent the income in respect of which particulars have been concealed. " 10. Penalty u/s 271(1)(c) is leviable if a person has concealed the particulars of his income or has furnished inaccurate particulars of such income. Under the provisions of the aforesaid explanation presumption has to be raised to the effect that the amounts added or disallowed in computing the total income of the assessee represent the income in respect of which particulars have been concealed. This presumption would be permissible only if either of the two conditions mentioned in clauses (A) and (B) is fulfilled. The presumption may be raised against a person who fails to offer an explanation or offers an explanation which is found by the I.T.O. to be false. A presumption may also be raised if the assessee offers an explanation which he is not able to substantiate and fails to prov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee's income. 12. A company, as is very well known, is an artificial person, having its own existence separate and distinct from its share holders. The books were found from the residence of Sri Hari Bhushan, a share holder. Admittedly they were not found from any room in the occupation of Sri Hari Bhushan but they were found lying in a bag in the compound of the House. Neither the I.A.C. (assessment) has stated any fact in the assessment order nor has the learned Departmental Representative produced any material before us to show that the books found lying in the compound of the residence of Sri Hari Bhushan were in the " possession or control " of Sri Hari Bhushan or of the company (the assessee) within the meaning of section 132(4A). Sri Hari Bhushan was examined before the search as well as after the search. A copy of his statement before the search is at page 1, of the paper book in which there is no reference to these books. The copy of the statement recorded after the search is at pages 2 to 4 of the paper book. This is a statement recorded on oath. The books did not bear the name of any person to whom they may be said to belong and in a question put to Sri Hari B ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Such proof in our view is lurking in this case. 13. Similar is the fate of 468 bags of refraction found from the residence of Sri Praveen Kumar. The I.A.C. (assessment) does not even appear to have asked the assessee to show cause why those goods be not treated to be belonging to the assessee and added to its closing stock or why the value thereof be not added to its sales etc. etc. Praveen Kumar does not appear to have been examined and there is nothing to show, what he stated with regard to this circumstance, if he was examined about it. In Shyama Charan Saxena v. CIT [1984] 145 ITR 689 the Hon'ble Allahabad High Court has held that where a house was purchased in the names of minor grandsons of assessee, the burden of proof to prove that the assessee was the real owner of the property was on the revenue. The Hon'ble High Court held that to prove the benami character of a transaction, the burden is on the person who alleges it. The same analogy will apply to the present case, where the books and the property have not been found in the possession or control of the assessee. 14. As already stated the revenue's entire support is on the alleged admissions of the assessee. In its l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he books or the material or conceded that they represented assessee's income. 15. The fact that the assessee did not file any appeal against the assessment order does not amount to an admission of the charge of concealment. An admission has to be specific and mere failure to take remedial action cannot take the form of an admission particularly when as already stated there was according to the averments in the assessment order, a clear denial by the assessee that the books and the material did not belong to it. 16. The above discussion would show that the assessee's explanation before the assessing officer was that the books and the material did not belong to it and consequently any income reflected therefrom also did not belong to the assessee. This was the explanation offered by the assessee and the facts narrated above clearly show that this explanation stood substantiated from the very circumstances of the case i.e. that the books and material were not found in possession or control of the assessee. Therefore, the assessee's case was excepted from the provisions of Explanation I to section 271(1)(c) and the presumption created thereby could not be raised against the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erein certain transactions relating to its business would show that the assessee concealed the particulars of its income. That contention is not legally sound. When the assessee was preparing the so called duplicate book, it was merely making preparation for future concealment and preparation to conceal is not punishable under the Income-tax Act. When the books were written or were seized there was no legal obligation on the assessee to reveal anything to the Department, and, therefore, there cannot be any concealment at that stage. The obligation to reveal arises only when a return of income is filed or when the assessment proceedings are on. Failure to reveal at that time only would amount to concealment and penalty at that stage the assessee, if it is assumed that the books and the material belonged to the assessee and the assessee accepted this position, abandoned its previous plan, if any, to conceal and accepted that the income as determinable from the aforesaid material may be treated as disclosed. The books were already in possession of the Department and there was nothing to be disclosed. So was the quantity or refraction in the knowledge of the Department and the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... esent case, the addition of Rs. 84,320 would have to be ignored. 19. The next contention of the learned counsel was that the assessee's profit and loss account showed a loss of Rs. 3,52,009 which has not been disturbed and which is the basis of the determination of income by the I.A.C. (Assessments). According to him in the return filed by the assessee, the income or loss was shown at nil and, therefore, loss to the extent of Rs. 3,52,009 was impliedly adjusted by the assessee against the alleged concealed income and to that extent there was no concealment. The learned Departmental Representative, on the other hand, contended that according to the note given at page 1 of the return (reproduced above), the assessee wanted to disclose only a loss and, therefore, it cannot be said that the assessee had given up the loss. We are in agreement with the argument raised by the learned Departmental Representative. Though the income/loss was described as 'nil' in the return but the note written on the return clearly indicated that it was not the final figure and, therefore, it cannot be said that the loss computed in the profit and loss account had been given up. This contention in our view ..... X X X X Extracts X X X X X X X X Extracts X X X X
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