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TMI Blog1991 (1) TMI 12X X X X Extracts X X X X X X X X Extracts X X X X ..... , on the facts and in the circumstances of the case, the Appellate Tribunal was right in cancelling the penalty of Rs. 35,000 levied under section 271(1)(c) in the assessee's case for the assessment year 1966-67 ? " The assessee is a firm dealing in hides and skins, mostly by way of exports. For the assessment year 1966-67, it filed a return disclosing an income of Rs. 1,98,490. While scrutinising the accounts of the assessee for the previous year ended March 31, 1966, relevant for the assessment year 1966-67, the Income-tax Officer noticed the following credits in the accounts of certain Bombay parties, vis-a-vis, the import licences obtained by the assessee: Rs. Account No. 1 L. F. 399 -S. D. Seth - Net credit balance 1,14,750 L. F. 409 -Messrs. Universal Trading Company Credit 1,18,000 ------------------ Total 2,32,750 ------------------ When the assessee was called upon to explain the aforesaid credits, it gave a note wherein it was stated that, according to an oral agreement between the assessee and S. D. Seth and Messrs. Universal Trading Company of Bombay, the profit should be paid by the Bombay parties to the assessee in the beginning itself and it was also ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... action under section 271(1)(c) of the Act should be taken. On appeal by the assessee before the Appellate Assistant Commissioner, it was not disputed that the assessee had sold the import licences contrary to the Import and Export Regulations and made profits. In the course of considering the question of assessability of Rs. 2,32,750 as income in the hands of the assessee, the Appellate Assistant Commissioner referred to the following significant circumstances : 1. the origin of the transaction between the assessee and the Bombay parties in an oral agreement entered into between the assessee and the Bombay parties which was not denied or disputed; 2. the admitted sale by the assessee of the import licences given to it under the Export Incentive Scheme contrary to the Import Regulations; 3. the agreement regarding the payment of the profit arising out of the transaction to the assessee in the beginning itself; 4. the absence of entries in the books of account showing the exact profit that arose out of the deal and also what portion of the balance in the books of the assessee in the accounts of the Bombay parties represented profits and what portion represented other dues ; 5. t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent that the Bombay parties are non-existent. Attributing to the Bombay parties so much of preoccupation with their own matters as not to respond to any of the notices issued either by the assessee or by the Department, the Tribunal took the view that the Department had failed to place enough materials to discredit the assessee's stand and that the remittance by the two Bombay parties to the assessee cannot be considered to be by way of profits to the assessee. Thus viewing the matter, the Tribunal concluded that the sums in question credited to the accounts of the Bombay parties would be in the nature of liabilities to be accounted for by the assessee and that the assessee had no legal right to retain the same by way of profits. In the result, the Tribunal deleted the addition of Rs. 2,32,750. Consistent with the deletion of the addition of Rs. 2,32,750, in the penalty appeal, the Tribunal found that there was no basis on which the levy of penalty could be sustained and cancelled the penalty. That is how the questions referred to earlier have come up before us. We may first take up the propriety of the deletion by the Tribunal of the addition of Rs. 2,32,750 made by the Income-ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Bombay parties had been debited in the account till February 28, 1974. It is quite probable that the entries in the account books had the features of a genuine transaction, especially when the parties had entered into a transaction of sale of import licences not at all favoured by law, but the point to be considered is whether, in the face of the admitted oral agreement for remittance of profits even at the inception, the remittances found credited in the books of account did not represent profits, but amounts remitted for some other purpose. That is a fact which is peculiarly within the knowledge of the assessee and, in the absence of materials to show that the remittances represented amounts placed at the disposal of the assessee to meet the requirements of the import transactions, it has necessarily to be inferred and concluded that the remittances did represent profits remitted by the Bombay parties to the assessee pursuant to the agreement relating to the sale of import licences, even at the inception. This is also further strengthened by several other circumstances. It is seen from the order of the Income-tax Officer that the assessee had made efforts to settle accounts wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent put forward by the assessee, the amounts represented only profits and not any other kind of remittance. The reason given by the Tribunal for the inaction on the part of the Bombay parties is rather curious. Preoccupation with their matters was responsible for the absence of any response by the Bombay parties to the notices issued by the assessee as well as by the Department, according to the Tribunal judged by the normal course of human conduct, when a notice is issued, as in this case by the assessee through a lawyer to settle accounts, it is difficult to accept that preoccupation prevented the persons entitled to get paid by the assessee from responding. Likewise, the total lack of response to the notice issued by the Department also cannot be put down to any preoccupation. The inaction on the part of the Bombay parties leads to the inference that they did not consider themselves as persons entitled to get back the amounts from the assessee for, otherwise, they would have immediately responded and asked for a return of the amounts lying to their credit unspent, if those amounts had really been sent for the purpose of meeting the expenses in connection with the import of goods ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rted. Thus, on a due consideration of the facts, circumstances and the available materials, we answer the first and the second questions in T. C. No. 71 of 1979 in the negative and in favour of the Revenue. We may now take up the question referred in T. C. No. 72 of 1979. The Tribunal, in the course of its order deleting the penalty imposed, referred to its order in the assessment proceedings to the effect that Rs. 2,32,750 was not the income of the assessee, to hold that the very foundation for penalty had disappeared and the levy of penalty cannot be sustained. In view of the answer returned by us on questions Nos. 1 and 2 in T. C. No. 71 of 1979, it follows that the Explanation to section 271(1)(c) of the Act would apply and having regard to the difference between the income assessed or the correct income and returned income and the failure of the assessee to offer any explanation despite the issue of notice by the Inspecting Assistant Commissioner, it follows that the case of the assessee is a fit one for levy of penalty. We, therefore, answer the question referred in T. C. No. 72 of 1979 in the negative and in favour of the Revenue. The Revenue will be entitled to its costs. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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