9911796707
TMI Blog1985 (1) TMI 25X X X X Extracts X X X X X X X X Extracts X X X X ..... disclosed sources for the said assessment year and half of the said amount, i.e., Rs. 88,703, being the assessee's half share, was assessed in his hands. Penalty proceedings were initiated under s. 271(1)(c) of the Act in the course of the assessment proceedings in respect of the said unexplained investment. In appeal against the quantum assessment, the said addition was reduced by Rs. 17,500 and a sum of Rs. 71,203 was taken as the unexplained investment of the assessee. It was contended before the ITO that penalty should not be imposed when the addition has been made on the basis of estimate only and the statements regarding the cost of construction by the assessee were not proved to be incorrect. The contention was not accepted by the ITO who, therefore, with the previous approval of the Inspecting Assistant Commissioner, passed an order imposing a penalty of Rs. 48,115 which was the amount of tax sought to be evaded. On appeal, the Commissioner of Income-tax (Appeals) also rejected the contention of the assessee and confirmed the order of penalty. The assessee went on appeal before the Tribunal. It was contended by the assessee before the Tribunal that the cost of constructio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ase, the Tribunal was right in holding that the decision in CIT v. Bhuramal Manik Chand [1981] 130 ITR 129 (Cal) and CIT v. Apsara Talkies [1985] 155 ITR 303 (Mad) relied on by the appellant was of no help to the assessee in view of the decision in Rahmat Development & Engineering Corporation v. CIT [1981] 130 ITR 602 ? (2) Whether the Tribunal's finding that the said decision in Rahmat Development & Engineering Corporation v. CIT [1981] 130 ITR 602, was given in almost similar circumstances is correct having regard to the facts recorded in the judgment as reported therein ? (3) Whether, the Tribunal's finding that the assessee had not produced any material to show that the failure to return the income assessed did not arise from any fraud or gross or wilful neglect on his part is justified by the facts and the circumstances of the case ? (4) Whether, on the facts and in the circumstances of the case, the Tribunal was right in upholding the levy of penalty under section 271(1)(c) of the Act in the instant case ? " It is contended by Mr. R. N. Dutt, learned advocate for the assessee, that the ITO initiated penalty proceedings for additions in assessment being the difference in i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ilding at Rs. 23,58,500. The ITO added the difference between the two amounts in different years under s. 69 and initiated penalty proceedings. The proceedings were referred to the IAC who observed that there had been gross and wilful neglect to disclose the correct expenditure and imposed penalty. In the quantum appeal, the Tribunal reduced the estimate of the cost of construction to Rs. 20,57,756 but upheld the order of penalty in its entirety. This court observed (p. 609): " Section 69 deals with unexplained investment and provides that where in any financial year immediately preceeding the assessment year, the assessee had made investments which are not recorded in the books of account, if any, maintained by him for any source of income and the assessee offers no explanation about the nature and source of the investments or the explanation offered by him is not, in the opinion of the ITO, satisfactory, the value of the investment may be deemed to be the income of the assessee of such financial year. Therefore, the effect of s. 69 is that if there is an unexplained investment or unentered investment, then the value of such investment would be deemed to have been earned by the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee. Therefore, once it was deemed to be the income of the assessee, the observations of the Supreme Court in the case of CIT v. Anwar Ali [1970] 76 ITR 696 (SC) referred to hereinbefore, could not be of much assistance to the assessee because it was no longer open to say that the inference of rejection of the assessee's explanation did not give rise to the fact that the disputed amount did not represent the income. The inference follows as the deeming provision makes such unexplained investment as the income of the assessee by the fiction of law and unless we boggle our imagination, against which the Supreme Court has repeatedly warned us, we must treat this unexplained investment as the income of the assessee for the year in question. " In Rupabani Theatres P. Ltd. [1981] 130 ITR 747 (Cal), the assessee had shown certain cash credits aggregating to Rs. 26,000 in the names of four ladies alleged to be related to one of the directors of the assessee-company. The ITO did not accept the explanation offered with regard to these cash credits and consequently disallowed the interest claimed thereon. The returned income became less than 80% of the assessed income as a result of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd we need not detain ourselves with the facts of that case. There, most of the decisions that we have referred to hereinbefore, have been considered and we came to the conclusion that in that case, as the unexplained investments had to be deemed to be the income of the assessee for the year by virtue of the attraction of s. 69 and in the background of the other facts found both for that assessment year and subsequent assessment years, the revenue had discharged the onus of proof that was on it even after the coming into operation of the Explanation to s. 271(1)(c) of the Act." In Rupabani Theatres [1981] 130 ITR 747, this court was concerned with the scope of s. 68 read with the Explanation to s. 271(1)(c) and not with s. 69 and the reference to s. 69 in the judgment in Rupabani Theatres quoted above is an obvious mistake. In the case of CIT v. Bhuramal Manikchand [1981] 130 ITR 129, which was also relied on by the assessee before the Tribunal, penalty was sought to be imposed on the income added under s. 68 of the Act. It was held there that the provisions of s. 68 of the Act, under which cash credits found in the accounts are treated as income of the previous year in which the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mining the investment involved in the construction of the building indicated as to how the cost of construction shown by the assessee's valuer is unreal. The valuation of the assessee's valuer is based on under-pricing of the materials. The Departmental valuer has taken into consideration CPWD Schedule of 1972 and escalation in price of cement, steel, physical progress and other facts and figures. The assessee could not produce the particulars and evidence regarding the investment. The assessee's valuer did not make any independent estimate of the investment on the basis of the prevailing market rates but only took the cost of materials from vouchers produced by the assessee. His estimate was a reproduction of the value of investment given by the assessee. The valuer of the petitioner omitted a large number of items and the rates of materials taken by the said valuer were also found to be very low in comparison with the prevailing market rates. The rates adopted for different items of works in the construction were also found abnormally low. Where the assessee fails to produce the particulars and evidence as required to show the value of investment, the cost of construction has to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n approved valuer. The WTO accepted the return and completed the assessments for all the said years. Later, when the assessee filed return for the assessment year 1971-72, valuing the ornaments and jewellery at much higher figure in comparison to the valuations of the years 1969-70 and 1970-71, the WTO suspected that the valuation disclosed by the assessee for the assessment years 1969-70 and 1970-71 were low and since certain audit objections were raised in respect of the assessments of those years, the WTO, on directions from higher authorities, directed the assessee to get the jewellery revalued and also issued notices asking them to explain the difference in valuation. The assessee explained that they had based the valuation on the report of the approved valuer and had also indicated the increase or decrease in the items whenever it took place while the returns were filed. They also alleged that there was a steep rise in price in selected jewellery in the year 1971 and in that respect, they furnished the certificate of the approved valuers. The WTO rejected the explanation of the assessee and issued notices to them under s. 17 of the W.T. Act, 1957, for reopening the assessment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ibunal took the view that penalty could not be imposed unless mens rea was established and even if the Explanation to s. 271(1)(c) were applicable, concealment had to be established and, hence, cancelled the penalty order. On a reference, the Patna High Court upheld the view taken by the Tribunal. The Patna High Court was concerned with a case where additions were made to the trading account and certain additions were also made as income from undisclosed sources to the book results shown by the assessee. It was not a case of addition under s. 69. There was no material to hold that the additions made were the income of the assessee. In that case, the penalty was not sustained not because the additions were made on estimate but on the ground that mens rea was not established. On the contrary, in the case of Addl. CIT v. Lakshmi Industries and Cold Storage Co. Ltd. [1984] 146 ITR 492, the Allahabad High Court held that even where additions have been made to the returned income on the basis of an estimate, the Explanation is attracted and penalty is leviable, unless the assessee proves that failure to return the correct income was not due to fraud or any gross or wilful neglect on his ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion to s. 271(1)(c) of the Act enjoins that in case there is statutory difference between the total income returned by the assessee and the income assessed, the assessee shall, unless he proves that the failure to return the correct income did not arise from fraud or gross or wilful neglect on his part, be deemed to have concealed the particulars of his income or furnished inaccurate particulars of such income. The entirety of the circumstances must lead to the conclusion that the conduct of the assessee is such that there was fraud or gross or wilful neglect in not returning the correct income. The assessee did not dispute that there was a difference between the estimated value of the cost of construction and the recorded cost in the assessee's books of account. The assessee was asked to reconcile the said difference in the cost of construction. The assessee sought to give an explanation but that explanation was not accepted. Unless the assessee had given the source of the investment and explained the difference between the cost of investment as disclosed by the assessee or estimated by his valuer and the cost as estimated by the Departmental Valuer, the amount of such differenc ..... X X X X Extracts X X X X X X X X Extracts X X X X
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