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TMI Blog1984 (1) TMI 3X X X X Extracts X X X X X X X X Extracts X X X X ..... 1961, for the assessment year 1966-67 ? (2) Whether the Appellate Tribunal had valid material to hold that the assessee had not deliberately furnished inaccurate particulars of his income ?" The circumstances under which the aforesaid questions arise are as under. The assessee is a registered firm. For the assessment year 1964-65, the assessee returned an income of Rs. 66,073 and the accounts in support thereof were produced and scrutinised. The Income-tax Officer noticed that in the accounts there were credits aggregating to Rs. 80,000 in the names of four parties. Interest payment was also claimed to have been made to those four parties. An analysis of the accounts showing the credits and adjustments of interest is as under : Rs. Rs. 1. T. Mari Chettiar 19-3-1963 Credit 15,000 12-4-1963 Credit 5,000 28-8-1963 Interest adjusted 1,020 ---------------- 21,020 2. P. Krishnaraju 24-2-1963 Credit 14,000 24-3-1963 Credit 5,000 28-8-1963 Interest adjusted 1,122 ---------------- 20,122 3. T. Nagarajan 10-3-1963 Credit 16,000 10-4-1963 Credit 5,000 28-8-1963 Interest adjusted 1,126 ---------------- 22,126 4. Vasudev Bathich ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee was informed about this and the assessee explained that the creditors might have gone out on routine business tours. Thereupon, one Velayutham, the person in charge of the premises bearing Door No. 89, Melapudur Road, where the creditors were supposed to be carrying business was enquired and he stated that that premises had been let out by him to one Subramaniam who carried on maligai business and that nobody else was in the premises. The Income-tax Officer caused local enquiries also to be made and found that no cloth shop run by the creditors ever existed in the premises at No. 89, Melapudur Road, Trichy. Enquiries were also made from the Postal Department and that revealed that the summons sent earlier by the Income-tax Officer on January 21, 1966, were delivered to the three creditors only on their being identified by the owner of the premises, Velayutham. Velayutham had stated that he had known one Mr. Doraiswamy of M/s. N. C. Rajagopal Co. who had informed him that if registered letters were received addressed to Door No. 89, Melapudur Road, Trichy, Doraiswamy was to be contacted, that he accordingly contacted him and subsequently the three parties were produced a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he aforesaid parties were held to be fabricated, the Income-tax Officer disallowed the interest payments. Even in respect of this assessment year, the Income-tax Officer directed initiation of action under sections 271(1)(a) and 271(1)(c) of the Act. Aggrieved by this, the assessee preferred an appeal to the Appellate Assistant Commissioner contending that the interest payments ought not to have been disallowed. That was not accepted by the Appellate Assistant Commissioner who upheld the disallowance of the interest payment totalling to Rs. 9,590. Meanwhile, the Inspecting Assistant Commissioner initiated penalty proceedings under section 271(1)(c) of the Act. In response to the show-cause notice, the assessee submitted that two of the creditors had admitted the transactions, that evidence in the form of promissory notes, etc., had been produced and, therefore, no case for penalty had been made out. It was also urged that as the Revenue had not established that the credits represented concealed income of the assessee, penalty cannot be levied and that the assessee by producing the promissory notes, receipts, confirmatory letters, etc., had discharged the onus cast on the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he credits were fictitious or that the claim for the allowance of interest was fictitious or there was any gross or wilful negligence or fraud on the part of the assessee in not having shown the aforesaid amounts as its income in the returns. In that view, the Tribunal deleted the levy of penalty. The Revenue has, therefore, come up before this court in these references on the questions set out earlier. The learned counsel for the Revenue strenuously contended that having regard to the facts and circumstances of the case and the fabrication of the accounts and the other materials by the assessee, the assessee had rendered itself liable for levy of penalty, under section 271(1)(c) of the Act, in that the assessee had concealed particulars of income and produced account books and other materials false to its knowledge and had furnished inaccurate particulars. In addition, reliance was placed on the Explanation to section 271(1)(c) which was in force during the assessment years in question to contend that the presumption that the assessee had concealed particulars of income or furnished inaccurate particulars had not been in any manner rebutted by the assessee and, therefore, the de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er has very clearly and categorically found on a consideration of all the materials and other related aspects that the credits have been falsely introduced in the account books of the assessee, that the creditors did not have any ostensible means of livelihood and that the device was only a plan to defraud the Revenue. Indeed, the Income-tax Officer has even gone to the extent of saying that offences punishable under sections 192 and 193, of the Indian Penal Code, have been committed by the assessee. In other words, the evidence for the initiation of penalty proceedings had been piled thick in that order against the assessee. We are aware that for purposes of penalty proceedings, the assessment order is not conclusive evidence, though it may be good evidence. Even so, on the facts and in the circumstances to which we would refer presently, it is manifest that the conclusion of the Tribunal is in the teeth of the materials and cannot be arrived at by any authority well instructed in law. On the materials available, the following inferences and conclusions, in our view, are irresistible: ( 1 ) The furnishing of the trade names of the creditors initially was after inventing thos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itted that the confirmatory letter was given to the assessee as they wanted it in a printed letter-head and the letter-head was printed at Salem. The confirmatory letters are stated to contain a reference to the page number of the accounts of the creditors where the assessee's transactions can be found. In relation to one of the creditors, Nagarajan, he frankly confessed that only a note book was maintained and that had not been preserved and that he was keeping the amounts in cash. The assessment orders, no doubt, describe these creditors as hawkers, but as pointed out earlier, there is no doubt that the so-called creditors have been caught hold of for the purpose of making it appear that they had assessable income. Even assuming so, the assessment orders do not establish the capacity of these creditors to advance the amounts claimed by them to have been so done. We are unable to share the view of the Tribunal that the mere fact that no regular business was carried on at No. 89, Melapudur Road, Trichy, would not militate against the plea of the assessee that those persons who were in existence and advanced amounts to the assessee were not people without means. As pointed out earli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and inaccurate. Therefore, looked at from any point of view, we are satisfied that section 271(1)(c) of the Act is attracted. We now proceed to consider the applicability of the Explanation. With reference to the assessment year 1964-65, it is seen from the very explanation offered by the assessee as reflected in the order of the Inspecting Assistant Commissioner of Income-tax that the assessee had taken up the position that the onus cast on it by the Explanation had been discharged by the production of promissory notes, receipts and confirmatory letters. This is, therefore, a case where the Explanation to section 271(1)(c) of the Act had been invoked and understood by the assessee to have been so invoked and also attempted to be answered by the assessee. To such a situation, we are of the view that the decision in CIT v. A. C Paul [1983] 142 ITR 811 (Mad) is inapplicable, as that dealt with a case where the explanation had not been invoked at all. In this case, the return was filed by the assessee on the basis of the account books, the entries in which and the other materials in support whereof had all been found to be fabricated by the assessing authority. It is also not in di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Explanation to section 271(1)(c) of the Act. We also hold that there were no materials on the basis of which it could be hold that the assessee had not deliberately furnished inaccurate particulars of its income. We, therefore, answer questions Nos. 1 and for the assessment year 1964-65 in the negative and in favour of the Revenue. Regarding the assessment year 1966-67, it does not appear that the Explanation had been invoked by the Revenue in the course of the proceedings for levy of penalty. However, we had found earlier that there has been concealment and furnishing of inaccurate particulars of income by resorting to bogus credit entries in the account books. That would suffice to attract s. 271(1)(c) of the Act without any need to invoke the Explanation. For that year also, the Tribunal was not in order in cancelling the penalty without any materials. We, therefore, answer questions Nos. 1 and 2 for the assessment year 1966-67 in the negative and in favour of the Revenue. Inasmuch as before the Tribunal one of the creditors had been accepted to be a genuine creditor, effect will be given to such recognition in the course of the penalty proceedings. The Revenue will be enti ..... 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