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TMI Blog1994 (2) TMI 124X X X X Extracts X X X X X X X X Extracts X X X X ..... ed to while making assessment, or a difference of opinion. Therefore, it did not constitute concealed income. The ITO was not satisfied with the reasoning given by the assessee and he held that notwithstanding the Tribunal's finding, there was ample evidence to hold that the assessee deliberately concealed its income. Among the material seized during the search was a diary maintained personally by the managing partner of the assessee-firm, G.Padma Rao, which according to the ITO clearly shows the sale of plots at prices ranging from Rs. 5 to Rs. 10 per sq. yd. whereas the assessee had admitted the rates of Rs. 3, 4 or 5 per Sq. yd. He further observed that the Tribunal found 65 such instances in the diary, and observed that in respect of other sales also, the assessee must have sold at similar higher prices. He also observed that the instances noted in the diary were examined by the assessee's counsel in the course of hearing before the Tribunal, but he could not deny the same. When Shri Padma Rao, managing partner of the assessee-firm was examined on oath, he vaguely claimed that the entries in the diary were partly for the purpose of impressing customers with a high sale price so ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stries (Pvt.) Ltd. (1988) 171 ITR 681 (All) and the Supreme Court decision in Cement Marketing Co. of India Ltd. vs. Asstt. CST (1980) 124 ITR 15 (SC), levy of penalty for estimate made is not tenable. He further submitted that the basis for the levy of penalty for the understated sales was the personal diary of Sri G. Padma Rao, and the said diary contained in all, entries for 159 plots, out of which entries for 65 plots were different from the entries in the books of accounts and which showed an enhanced collection of Rs. 75,786. He, therefore, submitted that out of 1375 plots sold, entries for 1310 plots were found to be genuine. In any case, he submitted that the diary related to the personal business of Shri G. Padma Rao. As stated by him in his sworn statement dt. 2nd July, 1982 taken at the time of raid, he earned an income of Rs. 20,000 from the sale of plots. He also wrote a letter dt. 10th Aug., 1982 to the ITO requesting him to allow him to note down the particulars contained in the diary for filing his individual return, and then offering the said sum of Rs. 20,000 for taxation as his individual income, which was accepted by the Department. He also referred to the sworn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he submitted that the estimated additions also attract penalty, in view of the decisions of the Patna High Court in CIT vs. Warasat Hussain (1988) 67 CTR (Pat) 75 : (1988) 171 ITR 405 (Pat) of the Allahabad High Court in CIT vs. Swarup Cold Storage & General Mills (1982) 29 CTR (All) 273 : (1982) 136 ITR 435 (All) of the Madras High Court in Rathnam & Co. vs. IAC (1980) 14 CTR (Mad) 310 : (1980) 124 ITR 376 (Mad) and in Addl.CIT vs. E. Bhoopathy (1978) 113 ITR 188 (Mad). He, therefore, submitted that the penalty levied was in accordance with law, and no interference is called for. 7. We have heard the parties and considered the rival submissions. Assessee's accounting year was from 1st Oct., 1981 to 30th Sept., 1982. A search and seizure operation took place during the course of accounting year on 2nd July, 1982. Proper books of the account were not available on the date of search and, hence, entire material available was seized and kept in the custody of the Department, even when the assessment was completed. Assessee prepared the accounts with the help of the seized material and filed the return. To that returned income, additions have been made by the ITO, and some of them were ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... epartment, Secunderabad, requesting the latter on allow him inspection to note some entries from the seized diary. The said letter reads as follows: "Dear Sir, Sub: I have to note some entries from the my diary-Requests On 2nd July, 1982 you had conducted the search of my residential house and during the course of such search, your goodself in seizure operations have taken my diary. It contains some entries regarding my business entries. Hence, I request you to kindly allow me to take note of those entries in which diary (sic) contains only." (c) Returns of income filed by Shri Padma Rao for the asst. yr. 1982-83 on 31st Aug., 1992 and 1983-84 on 30th June, 1986, wherein the income of Rs. 12,000 and Rs. 8,000 aggregating to Rs. 20,000 has been declared by him as his individual income. Assessment for asst. yr. 1981-82 was even completed on 29th March, 1985, which was a date even prior to the filing of the return by the firm on 6th May, 1985. The computation of the said sum of Rs. 20,000 is as follows: "The computation of the net profit of Rs. 20,000 returned by Shri G.Padma Rao is as under: . . Rs. Net excess receipts . 75,786 Less : Expenses: . . Discounts allowed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the sale of these plots amounting to Rs. 20,000 has been admitted by me in my return of income. Q. Can you identify the persons to whom commission was paid in respect of the plots noted in this diary? A. I have noted some names on the top of pages in the diary itself indicating the person through whom the purchaser was introduced. Obviously, the commission payment was made through such persons whom I can identify. I should also mention that my activity in paying commission to these persons and also deducting commission on my own account on the sale of these plots was not within the knowledge of the other partner". As to why the claim was not made for the expenses before the Tribunal or the matter was not explained in those proceedings, the aforesaid statement of the managing partner reads as follows: Q. At pages 10 and 11 of their order dt. 23rd Sept., 1987 in ITA No. 988/Hyd/87 the Tribunal have observed that on the basis of the entries in this diary and 65 instancesof sale extracted from this diary it was obvious that the firm has sold plots at higher rate ranging from Rs. 5 to Rs. 10 whereas the admitted price was Rs. 3 to Rs. 5. The Tribunal also observed that the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4 : (1987) 165 ITR 14 (SC) of the Andhra Pradesh High Court in Addl. CIT vs. B.C. Krishnamurthy (1979) 12 CTR (AP) 250 : (1980) 121 ITR 326 (AP) and in the case of CIT vs. H. Abdul Bakshi & Bros. (1986) 58 CTR (AP) 13 : (1986) 160 ITR 94 (AP) apply to the facts of this case and they are all in favour of the assessee. Assessee could not, therefore, be charged for concealment of income or furnishing inaccurate particulars thereof under the main provisions of s. 271(1)(c). 10. Let us now examine whether the case of the assessee could be considered in the light of provisions of Expln. 1 existing at the relevant time. The said explanation reads as under: "Where in respect of any facts material to the computation of the total income of any person under this Act: (A) such person fails to offer an explanation or offers an explanation which is found by the Assessing Officer or the Dy. CIT(A) or the CIT(A) to be false, or (B) such person offers an explanation which he is not able to substantiate and fails to prove that such 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ase, it may be stated that the general observations of the CIT(A) that "Even granting that the other additions sustained by the Hon'ble Tribunal are in the nature of routine disallowances, the argument that these additions should be excluded for calculating the penalty is untenable" and that "the tax which would have been avoided is to be found by deducting from the tax actually assessed the tax which would have been assessed had the return been accepted", are not in accordance with provisions of Expln. 4 to s. 271(1)(c). The said Explanation reads as under: "Explanation 4: For the purposes of cl. (iii) of this sub-section the expression "the amount of tax sought to be evaded."-- (a) in any case where the amount of income in respect of which particulars have been concealed or inaccurate particulars have been furnished exceeds the total income assessed, means the tax that would have been chargeable on the income in respect of which particulars have been concealed or inaccurate particulars have been furnished had such income been the total income; (b) in any case to which Expln. 3 applies, means the tax on the total income assessed; (c) in any other case, means the difference bet ..... X X X X Extracts X X X X X X X X Extracts X X X X
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