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TMI Blog1982 (3) TMI 83X X X X Extracts X X X X X X X X Extracts X X X X ..... 1. Unexplained investment to effect the excess purchase 61,298 2. Income from undisclosed sources 16,469 3. Cash purchase without any proof 9,987 4. Unexplained purchase by wrong debit 30,532 5. Under statement of closing stock 37,535 6. Value of closing stock against which there are no purchase or opening stock 11,954 7. Unexplained purchase on estimation 5,000 1,72,775 The ITO also initiated action for imposition of penalty u/s 271(1)(c) of the Act and referred the matter to the IAC for further imposition of penalty. 3. In the meantime the assessee went in appeal before the Appellate Asstt. Commr. (hereinafter referred to as 'AAC') who for the detailed reasons recorded in his order dt. 2nd Feb, 1974 upheld the addition of Rs.16,469 (item No.2) and Rs. 6,396 out of addition of Rs. 9987 (item No.3) and deleted other additions. 4. On further appeal before the Tribunal both by the assessee as well as by revenue the Tribunal in its order dt. 7th Mar, 1980 upheld the two additions as sustained by the AAC as aforesaid and res ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and sustained by the Tribunal and a sum of Rs. 15,000 estimated as profit by the Tribunal. So far as these items are concerned relying on the order of the Tribunal the IAC held that the levy of penalty of this amount was justified. The IAC, therefore, concluded that in view of various discrepancies, eraser, omissions, manipulations and want of supporting evidence relating to various items the assessee's would clearly fall within the mischief of penal proceedings. He, therefore, imposed a penalty of Rs. 75,400 so far as the asst. yr. 1970-71 was concerned. 6. So far as asst. yr. 1971-72 is concerned the ITO found on detailed enquiries that there were serious discrepancies in the stock book, purchases, etc. After detailed enquiries the ITO found firstly that the assessee had not entered all sales and purchases in books of accounts. Secondly excess sales were shown and the purchases were not shown. Thirdly, in order to reduce the income earned the assessee has resorted to (a) claim for bogus purchases, (b) non-recording of purchase, either in sales or stock and fourthly, to adjust the GP and quantity account and to bring incertain undisclosed stocks as excess stocoks were shown in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (Guj) and CIT, Mysore vs. Jewels Paradise (1975) 101 ITR 265 (Kar) levy of penalty was not justified. As regards addition of Rs. 6,396 Shri Shah submitted that the assessee's explanation was merely rejected and therefore falsity of explanation could not be visited with a penal consequences. As regards the last item viz. Rs. 52,535 Shri Shah submitted that in regard to the sum of Rs. 15,000 added by the Tribunal on its own was concerned since the said amount did not form the basis of satisfaction of the ITO. The levy of penalty atleast on a sum of Rs. 15,000 was not justified. As regards the balance item of Rs. 37,535 again the case was of falsity of explanation and nothing more. In regard to his first mentioned submission Shri Shah referred to the decision of the Gujarat High Court in CIT vs. Lakhdhir Lalji (1972) 85 ITR 77 (Guj). Shri Shah then pointed out that on similar facts in subsequent years the penalties have been dropped. 10. So far as asst. yr. 1971-72 is concerned Shri Shah's submission was that though the ITO had found certain specific items he had not made the addition in respect of those items. In other words according to Shri Shah the ITO having found certain spec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reduce its taxable income then even if an estimate of GP was made based on such addition it would certainly be liable to penalty and would be covered atleast by the Explanation on the ground of gross and wilful neglect if not under substantive provisions. Shri Mittal then pointed out that this was a clear case not only of gross neglect by not maintaining the proper records but a case of fraud where an attempt was systmatically made to inflate purchases to temper with the valuation of stock supression of sales and a systematic devise adopted to reduce substantially higher GP earned by the assessee. The cases of this type are rare and far between and such cases, Shri Mittal argued, deserve imposition of penalty. 12. We have carefully considered the rival submissions. We first proceed to deal with the question relating to imposition of penalty for the asst. yr. 1970-71. So far as this assessment year is concerned the penalty sought to be levied in respect of the income said to have been concealed in relation to the items indicated hereunder: 1)Addition on account of income from undisclosed sources Rs. 16,469 (2)Cash purchases without proof Rs. 6,396 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lanation was that he had returned the goods to the suppliers but this explanation did not find favour with the revenue authorities as also with the Tribunal. Secondly it is noticed that there is absolutely no indication as to the date when the said purchases were said to have been made. The case therefore, is clearly one of falsity of explanation on the part of the assessee and in view of the decisions in cases of CIT vs. Anwar Ali, (1970) 76 ITR 696 (SC) and CIT vs. Khoday Eswarsa Sons 1972 CTR (SC) 295 : (1972) 83 ITR 369 (SC) the mere fact that the explanation of the assessee in the assessment proceedings was rejected is no ground for levying penalty against the assessee in connection with that particular assessment year. Therefore on the facts it is difficult to hold that the revenue has conclusively proved that the amount in question related to the previous year under consideration. Though we may add that the revenue was justified in making the addition on the ground which it did. All the same the assessee's case in our view is not covered either by the substantive provisions of s.271(1)(c) or the Explanation, in light of the decision of the Gujarat High Court cited supra. W ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not traceable in sales of closing stock. The addition therefore relates to the purchases debited in the books which has found its place in the stock book but the assessee had not recorded the sales resulting from the said item. This item, therefore, clearly represents understatement of sales as well as the consequential profit is not subjected to penalty for the resons set out earlier the levy of penalty on a sum of Rs.37,535 on the facts would be clearly justified. We accordingly uphold the same. 16. Now we turn to the appeal relating to asst. yr. 1971-72. As pointed out earlier the ITO after a detailed enquiry found that there were (a) bogus purchases, (b) purchases not reflected in sales or closing stock. (c) cash purchases as well as unacacounted for purchases which in all totalled upto Rs.1,92,538. He made an addition of Rs.3 lakhs by estimating GP on a turnover of Rs.6 lakhs.It is important to remember that the basis of GP addition was the specific discrepancy pointed out by him as stated above. The ITO came to the conclusion that the real profits could not be ascertained from the books due to the above discrepancy. In appeal before the AAC and thereafter before the Tribu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hich rests on the prosecution in a criminal case where the prosecution has to establish the guilt of the accused beyond reasonable doubt nor is it of the same nature as the burden which lies upon the revenue in establishing that the assessee has concealed the particulars of his income or furnished inaccurate particulars of such income. It is a burden akin to that in a civil case where the determination is made upon preponderance of probabilities. It is also not necessary that any positive material should be produced by the assessee in order to discharge this burden which rests upon him. The assessee may claim to have discharged the burden by relying on the material which is on record in the penalty proceedings, irrespective of whether it is produced by him or by the revenue. If it can be said on a preponderance of probabilities that the failure to return the total assessed income has not arisen on account of any fraud or any gross or wilful neglect on the part of the assessee, the legal fiction enacted in the Explanation cannot arise and the revenue must fail in its attempt to impose penalty upon the assessee. In the instant case, that finding reached by the Tribunal that there ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee's case and would not fall even under the Explanation. However there is another category of cases where the assessee maintains books of accounts and the accounts so maintained are found to be false or incorrect. Thus if the assessee maintains books of account he is under an obligation to see that the accounts showed in the books of accounts are correct. There would clearly be neglect on the part of the assessee if he maintains accounts which are false or incorrect and on basis of such false or incorrect accounts he returns income which is not found to be the correct income. To put it differently the case where the assessee maintains the accounts and on facts itis found that the accounts maintained are false or incorrect thereby the income returned is lower or the correct income is not disclosed such an Act on part of the assessee would amount to gross or wilful neglect. Thus if the ITO finds that any particular entry or entries in the books of accounts were not genuine or any particular items of purchase or sales were omitted to be entered in the books of accounts then the assessee's case would clearly fall within mischief of the Explanation. With this test in mind let us ..... X X X X Extracts X X X X X X X X Extracts X X X X
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