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TMI Blog1992 (1) TMI 160X X X X Extracts X X X X X X X X Extracts X X X X ..... tails declared by the assessee were correct. Against the above background the assessee's income was estimated at Rs. 42,000 as against Rs. 18,400 declared in the revised return which resulted in an addition of Rs. 23,600. Penalty proceedings under section 271(1)(c) of the IT Act, 1961 for concealment of income or particulars thereof were initiated. Penalty notice appears to have not been complied with by the assessee. Thus a penalty of Rs. 10,214 was imposed vide order dated28-3-1985, framed under section 271(1)(c) of the Act with the following observation:--- "Under these circumstances, I am left with no alternative but to complete the penalty proceedings on basis of the material available on record. The assessee filed the return declaring total income of Rs. 18,400 and in the absence of books of accounts it was estimated at Rs. 42,000. The difference of Rs. 23,600 (42,000-18,400) is to be treated as income from undisclosed sources in respect of which the assessee has not furnished any explanation. I am satisfied that the assessee has furnished inaccurate particulars of income to the extent of Rs. 23,600 and the penalty provisions under section 271(1)(c) are attracted in this ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (1)(c) was not exigible and in this connection mention was also made of the ratio in the case of CIT v. K.L. Mangal Sain [1977] 107 ITR 598 and 681 (All.). 5. On behalf of the revenue the learned departmental representative contended that assessee's turnover shown at Rs. 25,05,970 as if maximum business was conducted during the year under consideration and it was wrong to suggest that normal business was not done during the relevant period. Reliance was also placed on the ratio in the case of CIT v. Swarup Cold Storage General Mills [1982] 136 ITR 435 (All.) and also at page 716. Mention was also made of the ratio in the case of Addl. CIT v. Bihar State Co-operative Marketing Union Ltd. [1987] 163 ITR 450 (Pat.) and another case in CIT v. Hoshiarpur Express Transport Co. Ltd. [1986] 162 ITR 393 (Punj. Har.). According to the learned departmental representative the penalty proceedings were rightly initiated and penalty was correctly imposed and confirmed. It was also mentioned that in such like situation it was not necessary to prove mens rea on the part of the assessee. 6. In reply it was submitted by the learned counsel Shri Sehgal that there was no deliberate concealment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee was the best judge of its affairs. It was for the assessee to know on the basis of the business conducted by it as to how much profit was earned. Excepting the assessee nobody else could be considered to be knowing the profit figures. Since it is a registered firm by status the assessee must have maintained accounts which were not shown to support its stand before the lower authorities. The assessee in fact kept changing its own stand as is clear from various returns filed before the lower authorities. In three different returns different incomes were shown. In the first two returns the income was shown at Rs. 40,000 and at Rs. 40,400. Subsequently the last figure was revised to Rs. 18,400. Thus according to the assessee its income for the year under consideration was of Rs. 18,400 whereas for the immediately preceding asst. year assessee itself declared income at Rs. 48,635 and for still earlier asst. year at Rs. 73,263. These are the facts existing at page 1 of the assessee's paper book. In the above circumstances it was for the assessee to satisfy itself and the revenue authorities that for the year under consideration the income earned was at Rs. 18,400. It was the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... consideration before us is as to whether the learned AAC was legally right in confirming a penalty order in the given circumstances. On behalf of the assessee reliance was placed on the ratio in the case of K.L. Mangal Sain. The learned authorised representative on behalf of the assessee took the stand that where income was estimated by the ITO resulting in some addition, penalty proceedings under section 271(1)(c) could not be initiated. That position does not find support from the ratio in the case supra. In that case the assessee was not found guilty of fraud or gross or wilful neglect whereas in the case before us the fraud or gross or wilful negligence is writ large as the assessee shifted its stand so often by reflecting the income on various occasions. The various stands taken with respect to returned income clearly indicate that the assessee was playing hide and seek game with the department. Thus, in our view, the assessee was clearly guilty of fraud or gross or wilful negligence in view of the unrebutted facts placed in the record. The burden was on the assessee to prove that what was shown in the return was correct on the basis of record. The assessee in the present case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y relevant for determining the controversy at hand. The revenue's stand in this respect is supported by the reasoning in this case. The revenue's stand is further supported by the ratio in the case of Hoshiarpur Express Transport Co. Ltd. , wherein it was held that the finding given in the assessment proceedings was good evidence though not conclusive and penalty levied on that basis was valid. This ratio clearly supports the stand taken by the revenue authorities in this case. The revenue's stand also finds further support from the ratio in the case of Swarup Cold Storage General Mills , wherein it was observed that 'the onus is on the assessee to prove that the omission to return the correct income was not due to any fraud or gross or wilful neglect on his part. The nature of proof is as in a civil suit and for the degree of proof necessary to dislodge the presumption, preponderance of probabilities of a case ought to be examined. The Explanation will apply even if the difference between the income returned and the assessed income is due to an estimate. The case laws relied upon by the assessee is from the Hon'ble Allahabad High Court. This latter judgment of the same Hon'ble H ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is. The Trading Account reveals a gross profit of Rs. 1,22,450 on sales of Rs. 25,53,970 yielding a g.p. rate of 4.7 per cent as against 5.69 per cent on sales of Rs. 18,87,316 of the last year. The reason for decline in g.p. rate is attributed to dispute amongst the partners. The assessee has produced only purchase sale books but no other books have been produced in the absence of which it is not possible to verify the correctness of the results declared. I am, therefore, inclined to estimate the income of the assessee under section 145 of the IT Act. Keeping in view the past history of the case and the fact that there was dispute amongst the partners which ultimately resulted in closure of business, I would estimate the income of the firm at Rs. 42,000 against Rs. 18,400 declared in the revised return." 3. The above findings together with the evidence are required to be appreciated on the basis of amended law effective from1-4-1976. It appears that the amended law is to some extent ignored while appreciating the facts of the case. The Explanation 1 inserted to section 271(1)(c) with effect from1-4-1976by Taxation Laws (Amendment) Act, 1975 reads as under:--- "Explanation 1: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ird Member on following question: "Whether on the facts and in the circumstances of the case, the penalty of Rs. 10,214 levied under section 271(1)(c) of the Act was required to be upheld?" 2. Hon'ble President is requested to do needful in the matter. THIRD MEMBER ORDER Ch. G. Krishnamurthy, President - This is a difference of opinion between the learned Members of Delhi Bench 'D' and the difference of opinion related to the imposition of penalty under section 271(1)(c) of the Income-tax Act, 1961. 2. The assessee, in this appeal relating to the assessment year 1976-77, is a firm of 4 partners. It appears some disputes arose between the partners as a consequence of which account books were retained by one of the partners for a long time. The other partners originally filed a return declaring nil income on28-7-1980but later on a revised return was filed on26-3-1981declaring a total income of Rs. 40,400 on estimate basis. Thereafter this revised return was again revised reducing the total income to Rs. 18,400. At the time of assessment the books of account were not produced but the purchase and sale vouchers were produced. The Income-tax Officer could not verify from th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... estimated at Rs. 40,400 on the basis of the income assessed in the past. The assessments made in the past were only the basis for estimating the income but not the books of account. The books of account were not available at any point of time. Subsequently when the assessee came in possession of the purchase and sale vouchers, he found that the turnover this year was Rs. 25,05,970 and on that basis he estimated the net profit at 0.72 per cent again based upon the previous assessments. The Income-tax Officer did not accept this net rate of profit. He very rightly said that in the absence of closed books of account, the estimate of profit could not be relied upon. He, therefore, estimated the income at Rs. 42,000 based upon the previous history. 5. Now how can it be said that when the income was arrived at on the basis of estimate the assessee was guilty of concealment of income or furnishing of inaccurate particulars thereof or was unable to substantiate the return filed. The assessee filed a trading and profit and loss account before the Income-tax Officer and the trading account filed showed a small marginal decline of gross profit from 5.69 per cent in the previous year to 4.7 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not file an appeal because of the very meagre tax involved but that does not mean that the assessee had accepted the income as correct. In a case where the total income is only Rs. 42,000 even on estimate basis, and the tax payable thereon is hardly Rs. 2,200 and perhaps no tax by the partners, the imposition of penalty for concealment of income at Rs. 10,214 is much too high to be countenanced as reasonable and fair by holding that the assessee had the desire or inclination to suppress the income. 6. Having regard to all these circumstances, I am of the opinion that the levy of penalty in this case is totally unjust and uncalled for. I agree with the view expressed by the learned Accountant Member in his order that this is not a case where the penalty has been rightly imposed. 7. There is another important point to be borne in mind the explanation offered by the assessee must be found to be false before the penal provisions of section 271(1)(c) as amended with effect from 1-4-1976 are applicable. As I have endeavoured to point out above, the falsity of the explanation was not proved or not even attempted. I, therefore, agree with the view expressed by the learned Accountant M ..... X X X X Extracts X X X X X X X X Extracts X X X X
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