9911796707
TMI Blog1983 (12) TMI 136X X X X Extracts X X X X X X X X Extracts X X X X ..... of sales tax assessment by the sales tax authorities. The assessment for this year was completed accepting the return. 3. In the same manner for the assessment year 1973-74, a return was filed showing an income of Rs. 14,240, again estimating the income on the turnover as adopted by the sales tax authorities, and also estimates of the hulling receipts at Rs. 5,000. The assessment was completed for this year by adding a sum of Rs. 6,000 on agreed basis on the ground that the estimates adopted by the assessee were found to be inadequate. Thus, the total income was determined at about Rs. 21,500. 4. For the assessment year 1974-75, the return was filed disclosing an income of Rs. 20,770 in the same manner as in the previous year and the assessment was completed by adding a further sum of Rs. 7,906, which, as seen from the penalty order, was deleted in appeal. For this year, the turnover in rice and bran was admitted at Rs. 10,15,504 and the profit adopted thereon was 2 per cent. 5. Subsequently, during the course of the assessment proceedings for the assessment year 1976-77, it was noticed that the assessee acted as an agent of Civil Supplies Corporation in that year and had do ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ause the sum of Rs. 12,500 was offered under the head 'profits and gains of business or profession' as 'cash utilised in business offered for assessment in part' and it clearly established that the assessee had concealed the particulars of his income. The very fact that the sum of Rs. 12,000 was offered as business income in the revised return, according to the ITO, proved that the assessee concealed his income in the original assessments. Applying the rule laid down by the Madras High Court in the case of CIT v. Krishna Co. [1979] 120 ITR 144, he levied a penalty of Rs. 12,500 for the assessment year 1972-73. For similar reasons, he levied penalties of Rs. 13,000 for the assessment year 1973-74 and Rs. 20,000 for the assessment year 1974-75, which were equal to the income concealed. 7. Aggrieved by these penalties, appeals were filed before the AAC. The AAC, having regard to the facts of the case particularly the spread over of income permitted by the IAC, held that there was no clear finding that the income offered for assessment in these years by way of spread over representing the concealed income of the assessee from business for those years. The finding of the ITO that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mitted the assessee to spread the income over a period of years starting from the assessment year 1972-73. So, when income was returned for the assessment years 1972-73, 1973-74 and 1974-75 pursuant to the agreed scheme of spread over, how can it be said that there was concealment of income for those years and how that income could be said to be the concealed income of the assessee. That was only an additional income offered for the purpose of purchasing peace and no penalty could be imposed in respect of that income because that income could not be said to be concealed income. There cannot be even a deemed concealment in respect of that income. The department has to prove that even that additional income, offered for the assessment as a consequence of an agreement for spread over, still represented the concealed income. It is that finding that was lacking in this case which the AAC has pointed out and rightly cancelled the penalties. It is, therefore, not open to the learned departmental representative now to contend that the AAC was factually wrong in saying that the ITO did not give a categorical finding of concealment of income, nor was he correct in stating that the AAC had no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ers on credit and after despatch to the warehouses of Civil Supplies Corporation submitted bill and received payments from the Corporation periodically in short intervals of a week. On a realisation of the moneys, the same was disbursed to the agriculturists. The assessee had been in this trade for more than two decades and his credits worthiness was so good that village farmers who were able to get in creative price for paddy were willing to wait for a week or so. Thus, though no actual cash was paid by the assessee for purchases, he could not conclusively prove this claim and, thus, agreed for the spread over of Rs. 97,500 in five assessments from 1972-73 to 1976-77 which was the peak credit." This shows that the assessee though not actually paid cash for the purchases, he could not conclusively prove this claim and, therefore, agreed for the spread over of Rs. 97,500 in five assessments from 1972-73 to 1976-77 and earlier in the same penalty order the covering letter filed by the assessee along with the revised return was also quoted, which shows that the assessee offered the sum for assessment with a view to keep the cordiality with the department and in good faith and as per ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that there also sums were offered for assessment even though the assessee contended that the loans were genuine. The offer in that case was made for a speedy end of the assessment proceedings as in this case (the assessee mentioned in his covering letter that he was agreeing for spread over in good faith and to keep cordiality). When penalty was imposed under section 271(1)(c) and when that penalty was cancelled by the Tribunal and when the matter was taken up to the High Court at the instances of the revenue, the High Court pointed out that since the letter of the assessee did not contain any admission that the loans disclosed in the accounts were havala transaction, a finding of concealment or a finding that the cash credits represented the assessee's income could not be arrived at. The High Court laid down the rule, thus : " . . . The assessee's offer to let the peak credit be treated as taxable income only hastened the process of assessment. It did not furnish any evidence, by way of admission or otherwise, to the effect that the hundi loans were only havala transactions and represented the assessee's concealed income." Thus, a mere offer to let the peak credit to be treat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unt which represented his concealed income. The assessee having readily agreed to the inclusion of the amount as his income, the levy of penalty was justified. 15. Here, in the case before us, there was no finding given by the ITO, that his explanation was bogus as in the case of Krishna Co. before the Madras High Court, that the bankers who lent their names were bogus havala transactions. That is the very important finding of fact recorded by the ITO as a consequence of investigation made, which cornered the assessee to force himself to agree to the addition of the peak credit as its income. Here there was no such finding. The assessee offered the explanation that by reason of his standing in the market he was able to purchase paddy and rice on credit from the agriculturists, but could not prove it. The department was not able to show by any independent evidence that his explanation was bogus. Because of his inability to prove, the assessee agreed for the addition of the peak credit on a spread over basis. Therefore, the case before us is more akin to the case decided by the Madras High Court in P.M.P. Soundara Pandian Bros. case and Prakasam Readymade Stores' case and farth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... over in five assessments from 1972-73 to 1976-77 and pursuant to such agreement he filed returns for these years returning the additional amount included in the assessments ; and (5) that the additional amounts were returned as income from business with the remark 'cash utilised in the business'. The order of penalty for the years under appeal shows that such returns filed by the assessee were regularised by action taken by the ITO under section 147(a) by issue of a notice under section 148 on the ground of under assessment by reason of the assessee's failure to disclose the true income and in response to the notice the assessee has stated that the returns already filed may be taken as sufficient compliance. It is also an undisputed fact that the books of account maintained by the assessee for disclosed business were not maintained satisfactorily, as would enable deduction therefrom of true and correct income, and the profit from such business was shown by the assessee himself in the return estimating it at a percentage of the turnover. The order of the AAC under appeal adverts to the fact that the appellant had stated that the amount utilised in paddy business were out of income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n record to show that the assessee had reached any agreement with the IAC to absolve him of any penalty in regard to this settlement and the fact that actually penalty has been levied would show that evidently there has been no such agreement. In these circumstances, the AAC was clearly wrong in cancelling the penalties. I would, therefore, set aside his order and restore that of the ITO for all these years. 3. In the result, I allow the departmental appeals. REFERENCE UNDER SECTION 255(4) OF THE ACT -- As we are unable to agree on the question whether in this case penalty should or should not be imposed on the assessee under section 271(1)(c) for these three assessment years under appeal, we refer the following point of difference of opinion to the President, for reference to Third Member, under section 255(4) : "Whether, on the facts and in the circumstances of the case, the assessee is guilty of concealment of income within the meaning of section 271(1)(c), so as to be visited with penalties, as imposed ?" THIRD MEMBER ORDER Per Shri V. Balasubramanian, Vice President -- These appeals have come up for hearing before me as a Third Member to resolve the difference of opi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s as 'cash utilised in business offered for assessment in part'. As the assessment had already been completed, the ITO issued a notice under section 148 in response to which the assessee stated that the return already filed by him earlier on 16-4-1969 be taken as sufficient compliance. The ITO completed the assessment on the basis of the new income returned. Starting the penalty proceedings under section 271(1)(c) the ITO, however, rejected the claim of the assessee that there was no concealment and levied penalties of Rs. 12,500, Rs. 13,000 and Rs. 20,000 for the assessment years 1972-73, 1973-74 and 1974-75, respectively. The charge against the assessee is best summarised by quoting the following from the order of the ITO for the assessment year 1972-73 : "The facts of the case go to show that the assessee had concealed his true income for this assessment year. The very fact that the sum of Rs. 12,500 has been offered as business income in the revised return goes to show that he had concealed this income in the original assessment. Having regard to the decision of the Madras High Court in the case of CIT v. Krishna Co. [1979] 120 ITR 144 also, penalty is clearly leviable. I l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... athy [1978] 113 ITR 188 (Mad.). According to the learned departmental representative, not only was there suppression of a source and the income therefrom but also a candid admission by the assessee of the escaped income being not returned. 7. For the assessee, it is pointed out by the learned counsel that there was no concealment or suppression. The assessee was doing a regular business and the income therefrom was estimated from year to year on account of the unacceptability of the books. If at all there was a discrepancy for the assessment year 1976-77, the department after examining the details and in the light of the circumstances of the case has not charged the assessee with concealment for that year. According to the learned counsel, therefore, there was no justification for charging the assessee with concealment for an earlier year. He also referred to the manner in which the return was filed and the agreement with the income-tax authorities in pursuance to which voluntary returns were filed by the assessee. It was only after returns were filed by the assessee on his own that action was taken to regularise the assessments by issuing notice under section 148. This itself sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny income therefrom was not disclosed. 9. The assessment year during which investigations seems to have been done by the ITO about certain deposits in the bank was the assessment year 1976-77. There was a peak credit of Rs. 97,500. The assessee's explanation for this was not believed. Even if, therefore, the entire amount of Rs. 97,500 had been added as income for that year, the mere fact that the assessee's explanation for the peak credit was not believed may not have been a sufficient ground for levying penalty even for that year. Be that as it may, the ITO did not add the sum of Rs. 97,500 as income of that year even after coming to the conclusion that the explanation for the source of the peak credit is not satisfactory. What the ITO, on the contrary, did was to hold that the assessee returned certain items of income for the earlier years sensing the attempt on the part of the ITO to make an addition of Rs. 97,500. It is in this context that the ITO has held the assessee guilty of concealment by filing revised returns for the earlier years 1972-73 to 1975-76 after certain proceedings were taken by the ITO for the year 1976-77. Apart from the fact that there was no proceeding ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld be clear from the portion of his order quoted above. The ITO states that 'the very fact that the sum of Rs. 12,500 has been offered as business income in the revised return goes to show that he had concealed this income in the original assessment'. Neither factually nor as a matter of law can this statement be accepted. On a point of law the ITO has referred to the decision of the Madras High Court in the case of Krishna Co.'s. In my view, this decision does not apply to the present case at all. The facts of the present case, as pointed out above, involve assessment of three preceding years 1972-73 to 1974-75 for which no action was pending and as to which, according to the ITO, the investigations done by him for the assessment year 1976-77 were the basis. In Krishna Co.'s case the entire matter related to the same assessment year. It would not, therefore, be correct to say that the assessee should be even legally regarded as having offered as business income any amount earlier concealed. 11. I, therefore, agree with the learned Accountant Member that the penalties levied should be cancelled not only on the purely factual ground of no suppression of income for the years un ..... X X X X Extracts X X X X X X X X Extracts X X X X
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