9911796707
TMI Blog1992 (6) TMI 61X X X X Extracts X X X X X X X X Extracts X X X X ..... in November, 1975, an IAC at Bombay called for the account books of the assessee relating to the asst. yrs. 1973-74 to 1976-77 for verification of certain transactions with Steel Marketing Co. of India, Bombay and those books after doing away with the examination, on their return journey to Delhi, were lost in transit. Thus, the books of accounts were not available even during the search and the assessments were made on the basis of the material available in the search drawing inferences from the data available. 4. For the assessment year under appeal, the assessee returned an income of Rs. 4,58,737 and the same was assessed on a figure of Rs. 28,11,737 under s. 144 of the IT Act but this assessment was reopened and again a fresh assessment was made under s. 144 on a total income of Rs. 41,31,080 on 28th March, 1979. This assessment also was set aside and another assessment was made and in that assessment two major additions were made by the IAC (Asst.) one in respect of the sum of Rs. 5,23,655 on account of suppressed sales and another addition of Rs. 1,05,230 on account of value of scrap. 5. On appeal, the CIT(A) reduced the addition of Rs. 5,23,655 to Rs. 3,41,397 on accoun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty of equal amount was imposed. In reply to the show cause notice issued by the ITO requiring the assessee to show cause as to why a penalty for concealment of income should not be imposed, the assessee furnished the following reasons for the consideration of the ITO: (i) The returned income was supported by duly audited statement of accounts, meaning thereby that there could be no concealment of income. (ii) That the complete stock tally right from the stage of the opening stock to the closing stock was filed with the Department which was not questioned in any year and was accepted in toto, meaning thereby that when the stock particulars tallied, there could not be any suppression of sales as alleged by the Department. (iii) Upto asst. yr. 1972-73 and thereafter from the asst. yr. 1978-79 onwards, the book results were accepted, meaning thereby that the modus operandi and the method of maintenance of accounts remained the same. The question of suppression of sales singling out this particular assessment year could not be justifiably drawn. (iv) That while giving comparative position of gross profit from year to year, there was no discrepancy nor any violent fluctuations so ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot only the assessee had concealed the sales but also claimed bogus and fictitious deductions on account of target commission, discount and representative commissions which the Tribunal declined to allow for want of proof. The CIT(A) held that the claim for the deduction of these commissions was deliberately made with a view to reduce the income and, therefore, it was a clear case of furnishing of inaccurate particulars of income, apart from concealment of income. 9. At this stage an argument was addressed before the CIT(A) that in any case since the additions were made on estimate basis, no penalty should be levied. But the Commissioner repelled this argument by pointing out that the addition made and sustained by the Tribunal was by no means an addition made on the basis of estimate but by working out the suppressed sales in a methodical and scientific manner. Besides there was also an admission on the part of the assessee that he had unaccounted for sales, though that amount varied with the amount estimated by the Department. That apart there was a finding of the Tribunal that the assessee had claimed expenditure which were not incurred by him and, therefore, fictitious. Thus, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hallans, packing slips and invoices found in the search, the learned Chartered Accountant submitted that the weight given in the delivery challan was different from the weight mentioned in the goods receipt register maintained in the transport company. From this no inference can be drawn that the assessee had been manipulating its stock unless the weights are found to be irreconcilable. Now that the weights were reconciled and a full quantity tally was furnished, no adverse inference on the basis of this discrepancy could be drawn against the assessee. There were no cash sales at all nor were there any sales inDelhiState. All the sales were made through the banks, through railway receipts, etc., by proper documentation. There was no such thing as proof of any bank or railway receipt so as to give rise to a suppressed sale. There was an item of Rs. 15,46,966 in the advance supplies account which amount was regarded as suppressed sales. This amount represented the advance moneys received from the dealers and drafts through sales representatives. At the end of the year all such amount credited to this account was transferred to the trading account, to the debit of the purchases accoun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt of some deficiency in manufacture. By making a special reference to the method as to how the unaccounted for sales were accounted for by the assessee and by filing a statement at page 93 in the paper book, it was submitted that from the total quantity of the goods available, the goods sold to State Transport Corporations and Defence Departments was deducted and the balance was taken as quantity of the goods available for sale in the market. Here the rub comes according to the learned Chartered Accountant. This quantity of the goods available for sale in the market was deemed to have been sold at the average selling rate of Rs. 3,506 per ton and thus the turnover of Rs. 1,02,34,014 was arrived at. From the turnover thus arrived at, the turnover shown as per books was deducted and the balance was regarded as unaccounted for sales. The assessee had no option except to work out the unaccounted for sales on the method directed by the Department. Though it is defective and speculative in the sense that the turnover was arrived at as if the entire stock available for sale in the market was sold at the same rate of Rs. 3,506 per ton. It is this area where the estimate had taken place an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the year 1973-74 whereby the addition of Rs. 5,23,655 was restored. We have also gone through the penalty order, the orders of the Tribunal for subsequent years and also the order of the Tribunal for the asst. yr. 1976- 77 whereby the penalty of Rs. 25 lacs was cancelled. In our opinion, this case does not seem to be a case where the assessee can rightly be punished with the guilt of concealment of income or furnishing of inaccurate particulars. It is to be remembered that the return was filed on the basis of the audited accounts and the books of accounts were not available to produce in support of the return filed. Unless the books of accounts maintained by the assessee which was the evidence in support of the return filed by the assessee, are available, it may difficult to record a finding that the assessee had concealed income or furnished inaccurate particulars of income. It is no doubt true that s. 271(1)(c) does not make any distinction between an assessee who maintained books of accounts and concealed income and an assessee who had not maintained any accounts and concealed income. Such a discrimination is not discernible from the language of s. 271(1)(c). Sec. 271(1)(c) says ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cause certain discrepancies were found in subsidiary records, are we justified in assuming that these discrepancies were also available in the account books and were unexplainable so as to suggest that the books of accounts also contained particulars of concealment of income. This inference cannot perhaps be drawn while dealing with the levy of penalty for concealment of income which are quasi criminal proceedings. That apart the assessee had offered explanation for these discrepancies and reconciled the quantity particulars. Reconciliation of the quantity particulars is a major step to show that quantity-wise the opening stock and purchases were fully accounted for in the sales and closing stock. This also shows that there could not be any leakage or suppression of sales or unaccounted for stocks remaining outside the accounts. This also goes a long way to show the reliability and authenticity of the accounts maintained. More than half the battle is won when quantity particulars are reconciled. 17. Now the question is whether the turnover shown is real or manipulated or suppressed. Now for this purpose, we have got to go to the method by which the suppressed turnover was arrived ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the assessee was indulging in suppression of turnover. 19. Thirdly, about the question of deductions claimed on account of commissions, again when we go to the orders of the CIT(A) and the Tribunal, we find that it was based upon assumptions that there would not be any possibility for the payment of commission. The claims were disallowed, particularly the Tribunal observed that the credit of Rs. 15,46,966 to the advance supply account must be net of commission. There was no evidence to arrive at this conclusion. Moreover when the credit in the advance supply account was regarded as advances received from the suppliers, how can that amount be taken as net of sales, net of commission. This, therefore, is a wrong premises, though may be valid for the purpose of assessment but not valid for the purpose of arriving at a finding that the assessee was guilty of concealment of income by claiming fictitious expenditure. The authorities below did not show that no commission was at all payable. Some commission was allowed. The allowance of commission was also made in the past and also in the subsequent years. Therefore, the claim made for the allowances of commissions cannot be said to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the Tribunal and the High Court had rightly rejected the Department's applications for a reference. The Tribunal's conclusion on relevant and sufficient material that the respondent had discharged its onus to prove that the difference was not owing to gross or wilful neglect or fraud, was a conclusion of fact and no question of law arose. The Tribunal had borne in mind the relevant principles of law and had also judged the facts on record. This was not a case where there was no evidence nor a case where no reasonable person could have accepted the explanation of the respondent." The Supreme Court held in this case that: "Where the total income returned by the assessee is less than 80% of the total income as assessed, the Expln. to s. 271(1)(c) of the IT Act, 1961, shifts the burden to the assessee to show that the difference was not owing to fraud or gross or wilful neglect on his part. This onus is rebuttable. If, in an appropriate case, the Tribunal or the fact finding body is satisfied on relevant and cogent material on record and draws an inference thereupon that the assessee was not guilty of gross or wilful neglect or fraud, then, in such a case, the assessee cannot com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on which is attracted in this case was the Explanation inserted by the Finance Act, 1964 w.e.f.1st April, 1965and under that Explanation, the burden of disproving the presumption of concealment was thrown on the taxpayer. It is in this context the decision of the Supreme Court becomes relevant, as it interpreted the law as obtaining in the year relevant to the year under appeal. We have not found any fraud or gross or wilful neglect on the part of the assessee except difference of opinions in arriving at the estimate of income. 22. We have now tried to analyse the basis for the addition and how it was based on pure estimates and not on realities. The estimates are supposed to be taken as realities by the Explanation added w.e.f.1st April, 1976. Even then there should be no explanation offered by the assessee or the explanation offered must be found to be false. Here is a case where there was an explanation offered for each one of the discrepancies found by the searching party in the subsidiary records but the explanation offered was not found to be false except that different interpretations were drawn to justify the addition made in the assessment. Having regard to the facts of ..... 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