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TMI Blog1973 (2) TMI 37X X X X Extracts X X X X X X X X Extracts X X X X ..... aking the following additions : Rs. Inflation in cotton purchases 1,00,000 Black market profits on sale of yarn not brought into account 1,00,000 The first item of addition of Rs. 1,00,000 represented Rs. (a) Inflation in the purchase price as per contract No. 103 dated 17-3-1951 24,132 (b) Cost of 100 candies of inferior quality cotton alleged to have been passed off as superior quality cotton 50,000 (c) Inflation in Karunganni cotton purchases 5,000 (d) Other items including probable bogus items according to the Income-tax Officer 25,500 The total of Rs. 1,04,132 was rounded to Rs. 1,00,000. These additions were objected to by the assessee before the Appellate Assistant Commissioner, who deleted the second item of addition of Rs. 1,00,000 representing the black market profits as also items (c) and (d) of the first item of addition. He, however, held that the addition by the Income-tax Officer of Rs. 24,132 as inflation in the purchase price in relation to contract No. 103 and of Rs. 50,000 being the cost of 100 candies of inferior quality passed off as superior quality cotton was justified. On appeal the Tribunal upheld the order of the Appellate Assistant Commissioner ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... purchased from the said U. G., Krishnaswami. One of the contracts entered into by the assessee with the said U. G. Krishnaswami on March 17, 1951, was contract No. 103 for the purchase of CO4 cotton. The price per candy shown originally in the contract was Rs. 1,451. But the said figure stood altered to Rs. 1,651. In pursuance of the said contract the assessee had purchased 76,256 lbs. of cotton, According to the Income- tax Officer by the said correction the cost of cotton in respect of contract No. 103 had been deliberately inflated from Rs. 1,451 per candy to Rs. 1,651 per candy. The assessee's case was that Rs. 1,651 per candy was really the market price as could be seen from the market reports, that the rates paid varied according to the quality of cotton actually delivered and the mere correction in the contract will not lead to the inference that the price paid had been actually inflated. The Income-tax Officer, however, did not accept the plea of the assessee and he, therefore, worked out the said inflation at Rs. 24,132. This accounted for the addition of Rs. 25,000. The Income-tax Officer also found that there has been considerable alterations in the entries made in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be accepted, it must follow that Krishnaswami Naidu must have obtained this Cambodia by means other than through the ginning he has shown which is an impossible position. There is also the close relationship of Krishnaswami Naidu with the management. We have accordingly to hold that the assessee has wangled the purchase and claimed larger outlay in Cambodia than what is warranted by the actual position. " It is under these circumstances the Income-tax Officer initiated penalty proceedings under section 28(1)(c) for deliberate concealment of income by the assessee. In his order dated February 28, 1962, the Income-tax Officer merely referred to the assessment and appellate proceedings and after setting out certain extracts from the order of the Appellate Assistant Commissioner as justifying an inference that the assessee has deliberately concealed the said two sums of Rs. 25,000 and Rs. 50,000, he actually levied a penalty of Rs. 40,000 under section 28(1)(c). An appeal was filed before the Appellate Assistant Commissioner and the only point raised by the assessee's authorised representative was as regards the quantum of penalty levied. The Appellate Assistant Commissioner di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eliberate attempt at inflation on the part of the assessee but may be due to increase in price as well as higher quality of cotton delivered. It is said that the findings given by the Tribunal sustaining the addition of the two sums in the assessments proceedings are simply contrary to the findings given in the penalty proceedings, and that in the face of the said earlier findings which are clearly relevant in relation to penalty proceedings, the penalty order was quite justified. The learned counsel for the revenue refers to the decision in Gnanambika Mills Ltd. v. Commissioner of Income-tax to show that the findings in the assessment or reassessment proceedings constituted relevant and prima facie evidence in the penalty proceedings, though such findings may not be conclusive. In that case certain additions were made to the assessable income of the assessee for the assessment year 1949-50, on the ground that there has been an under-statement of the sales of yarn. The Income-tax Officer, thereupon, purported to levy penalty for concealment of income. In the penalty proceedings it was found by all the authorities including the Tribunal that the assessee has suppressed his profits t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wise unsupportable. " We are of the view that the question whether the findings in assessment or reassessment proceedings can be used as prima facie evidence in penalty proceedings will depend upon the facts and circumstances of each case and whether such findings are based on materials and on a high degree of probability and whether the assessee had a reasonable opportunity to show that such findings are incorrect or are not supported by materials. The learned judges in that case, have clearly pointed out that the nature and scope of the enquiry and the findings arrived at in the two proceedings are not common and that though the findings in assessment proceedings, may be relevant and may even be prima facie evidence in proceedings under section 28, they are by no means conclusive in the latter proceedings. The learned counsel also refers to the decision of the Supreme Court in D. M. Manasvi v. Commissioner of Income-tax, to show that the findings given in collateral proceedings have also been taken as constituting a prima facie evidence of concealment in the penalty proceedings. In that case a firm constituted with four major partners including the assessee and three minors who ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt proceedings to establish that there has been, in fact, a concealment of income by the assessee. It is also pointed out that the Income-tax Officer merely refers to the orders relating to assessment and proceeds to levy the penalty without any fresh material to support 'a finding of deliberate concealment and that the Tribunal was justified in holding that in view of the fact that the assessee has actually paid out the inflated value for the purchase of cotton there cannot be any concealment of income by the assessee. The learned counsel for the assessee places reliance on the following decisions in support of his stand that the orders relating to assessment may not be conclusive on the question of penalty. In P. S. S. Bommanna Chettiar v. Commissioner of Income-tax, this court took the view that as the main limb of section 28(1)(c) reflects a wanton overt act on the part of the assessee in concealing the particulars of income or in the deliberate furnishing of inaccurate particulars or primary facts, penalty would be attracted only in cases of designed concealment of income and wanton avoidance of the particulars or primary facts, that it cannot be generalised that whenever an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) is that the assessee has concealed the particulars of his income or deliberately furnished inaccurate particulars of such income and the burden is on the department to establish that the receipt of the amount in dispute constitutes income of the assessee. If there is no evidence on the record except the explanation given by the assessee, which explanation has been found to be false, it does not follow that the receipt constitutes his taxable income. It would be perfectly legitimate to say that the mere fact that the explanation of the assessee is false does not necessarily give rise to the inference that the disputed amount represents income. It cannot be said that the finding given in the assessment proceedings for determining or computing the tax is conclusive. However, it is good evidence." In Commissioner of Income-tax v. Khoday Eswarsa & Sons the Supreme Court had again expressed, that penalty proceedings being penal in character the department must establish that there has been a deliberate concealment of income, that apart from the falsity of the explanation given by the assessee the department must have before it before levying penalty cogent material or evidence from wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sed of the managers of two Hindu undivided families. After the original assessments were made on the assessee for 1959-60, 1960-61 and 1961-62, proceedings were commenced by the Income-tax Officer under section 147(b) of the Income-tax Act, 1961, to reopen those assessments on the ground that the assessee had effected sales of goods to the two Hindu undivided families, that those families had earned substantial profits on the resale of those goods over and above the margin of profits earned by the assessee and that the creation of the family business was merely a subterfuge or a contrivance of the partners of the assessee to divert the profits. The reassessment proceedings were challenged and the matter ultimately came to the Supreme Court. The Supreme Court said: " But the law does not oblige a trader to make the maximum profit that he can out of his trading transactions. Income which accrues to a trader is taxable in his hands ; income which he could have, but has not earned, is not made taxable as income accrued to him. By adopting a device, if it is made to appear that income which belonged to the assessee had been earned by some other person, that income may be brought to tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he relevant time and that the price paid may be for a better quality of cotton, but the assessee was not in a position to prove the same. The Tribunal's view that the prices might have been paid for a better quality of cotton is a misdirection according to the revenue. It is said that no such plea was put forward even by the assessee and that the Tribunal is not justified in saying that the prices paid are reasonable having regard to the quality of cotton purchased. It is not possible for us to say that the Tribunal has misdirected itself in saying that the price paid for cotton by the assessee in relation to contract No. 103 is reasonable and that such a price might have been paid having regard, to the quality of the cotton purchased. We do not construe the said observation of the Tribunal as a finding that the price paid was for a better quality of cotton. What the Tribunal seems to suggest is that it is possible that the increased price of Rs. 1,650 was paid in view of the increase in price and also of the quality of cotton purchased and that the mere that that the assessee is not able to explain to the satisfaction of the revenue the corrections made at the rates mentioned in c ..... X X X X Extracts X X X X X X X X Extracts X X X X
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