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TMI Blog1990 (7) TMI 141X X X X Extracts X X X X X X X X Extracts X X X X ..... book, seized article No. 3, in the relevant assessment order, from the possession of the assessee. On comparative study of the entries made in the said book with the account books maintained by the assessee it transpired that the assessee had not entered some of the purchases in the regular books maintained by it. The Sales-tax Officer made certain additions for the purpose of levy of sale-tax which the assessee firm challenged before the higher authorities. 4. The assessee-firm filed its return of income for the year under consideration on 28th May, 1974 showing its income at 'nil'. No account books had been submitted along with the return but in the statement of income filed along with the return the assessee had appended the following note in part III of the return : "PART III Sales-tax Department has on estimated basis increased purchases, sales details whereof are as shown herewith. Appeal has been filed in the Tribunal against such estimate. This fact is voluntarily mentioned here suo moto so that no penalty is levied holding that there is any concealment. The sales-tax liability may be deducted from any addition that may be made in this connection dated 25-5-1974. S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... had concealed the particular of income/furnished inaccurate particulars of its income to the extent of Rs. 55,417. He, therefore, initiated penalty proceedings u/s. 271(1)(c) of the Act and called upon the assessee to explain as to why penalty should not be levied upon it. By its reply dated 19-3-1979 the assessee mainly submitted that it had disclosed all the relevant facts relating to unaccounted for investment in the purchases and the suppressed sales in Part III of the return. It was submitted that the assessee had on its own given all the relevant details of its income in all bona fide and good faith and had also co-operated with the department during the course of assessment proceedings in the matter of computation of its income. It was further submitted that additions to the income had been made at the assessment proceedings mainly on the basis of the orders passed by the sales-tax authorities and no independent enquiries had been made by the ITO. Moreover the figures of unaccounted for purchases had remained fluctuated at different stages of proceedings either before the sales-tax authorities or before the authorities under the Act and that additions to the returned income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... observed that the very basis for the penalty proceedings against assessee initiated by the ITO had disappeared when the AAC held that there was no suppression of income by the assessee. These are not the facts obtaining in the instant case. Herein it has not been urged that the ITO had issued the notice u/s. 274 of the Act on a footing which was not adopted for the levy of penalty finally, Moreover additions to the total income of the assessee had been made at the assessment proceedings on account of unaccounted for investments in purchases and suppressed sales. It was on that basis that the addition made had been considered to be the concealed income of the assessee. The ITO had issued notice on the ground of concealment of the particulars of income/furnishing inaccurate particulars of income. It is thus evident that the ITO had levied the penalty on the same basis upon which he had commenced the penalty proceedings. 10. It was next urged by Mr. Patel that additions to the returned income of the assessee had been made on account of deemed income u/s. 69 of the Act. He submitted that penalty u/s. 271(1)(c) should not be levied in respect of amount which is included to the total ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he total income of the assessee on account of the book result disclosed by the assessee not being amenable to verification was not the sole ground or basis on which penalty was levied by the IAC. In that case the High Court further observed that the past history of the assessee's persistence in maintaining the books of account in the same manner though they were found unreliable was one of the factors which had gone into consideration in levying penalty. This case, therefore, comes to support the view that penalty under section 271(1)(c) may be levied even to cases of best judgment assessment where the books of account are rejected and the income of the assessee is estimated by application of section 145(2) of the Act. 14. The view expressed by the Gujarat High Court in the case of Chandravilas Hotel seems to have been favourably explained by the Supreme Court in the case of Chuharmal v. CIT [1988] 172 ITR 250/38 Taxman 190. In that case the customs authorities had seized a large number of wrist watches of foreign make from the bed room of the assessee and the assessee had failed to make any statement in respect thereto. The investment made in the purchase of wrist watches was co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... view of the fact that making purchases of groundnut seeds and selling groundnut oil had not been disputed by the assessee and in fact the assessee had agreed to making additions to its total income during the course of assessment proceedings, no independent enquiries were required to be conducted in the penalty proceedings. At the same time Mr. Bolia asserted that in the instant case independent enquiries had been conducted and, therefore, the levy of penalty cannot be cancelled on that ground. 19. In our opinion, the argument that no independent enquiry had been conducted by the ITO before levying penalty is not acceptable. Equally, we do not accept the proposition that in the facts and circumstances of the case since the assessee had agreed to the making of certain additions to its total income no independent enquiry before imposing penalty under section 271(1)(c) was required to be made. The orders passed by the sales-tax authorities as also the orders passed by the income-tax authorities in the course of assessment proceedings simply made relevant evidence in the penalty proceedings. Before levying penalty under section 271(1)(c) the ITO was fully justified in taking those p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the facts of the case do not merit the levy of any penalty under section 271(1)(c). This argument of Mr. Patel was opposed to by Mr. Bolia with the submissions that the explanation to section 271(1)(c) applies to the case and once the said explanation applies to the facts of a given case, it becomes for the assessee to prove that the concealed income had not resulted from any fraud, gross or wilful neglect on the part of the assessee. According to Mr. Bolia the assessee in this case had miserably failed to discharge the burden that had been placed by the explanation upon it. In this behalf Mr. Bolia heavily relied upon the cases of Banaras Taxtorium v. CIT [1988] 169 ITR 782/36 Taxman 79 (All.) ; CIT v. M.N. Chatterjee [1988] 170 ITR 87 (Pat.) ; Chuharmal, CIT v. T.K. Manicka Gounder [1989] 178 ITR 274/43 Taxman 208 (Mad.) and CIT v. Rohtak Distt. Transport Co-operative Ltd. [1989] 179 ITR 556/45 Taxman 346 (Punj. Har.) 22. In reply Mr. Patel again reiterated that not only the initial burden to prove the guilt of an assessee under section 271(1)(c) remains on revenue, which the revenue had failed to discharge in this case, but also that the assessee had fully discharged the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the case of CIT v. H. Abdul Bakshi Bros. [1986] 160 ITR 94 (FB). The Patna High Court had also expressed a similar view in its Full Bench decision in the case of CIT v. Nathulal Agarwala Sons [1985] 153 ITR 292/22 Taxman 199. The views expressed by these High Courts in their full bench decisions have fallen for consideration of the Supreme Court in the case of CIT v. Mussadilal Ram Bharose [1987] 165 ITR 14 where it was held that where the total income returned by the assessee is less than 80% of the total income assessed, the explanation to section 271(1)(c) of the IT Act, 1961 shifts the burden to the assessee to show that the difference was not owing to fraud or gross or wilful neglect on his part. This onus is rebuttable. If, in an appropriate case, the Tribunal or the fact finding, body is satisfied on relevant and cogent material on record and draws an inference thereupon that the assessee was not guilty of gross or wilful neglect or fraud, then, in such a case, the assessee cannot come within the mischief of the section and suffer penalty. The same view was reiterated by the Supreme Court in its later decision in the case of Chuharmal. The decision of the Madras High C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... It is gathered from the assessment order that along with the return, the account books had not been filed by the assessee. Therefore, the ITO had to call for the account books from the sales-tax department. The question arises whether the note appended by the assessee in the statement of income filed along with the return of income may be considered as explaining that the concealed income had not resulted from any fraud or gross or wilful neglect on the part of the assessee. 27. It may be recalled that the account books had been seized by the sales-tax department in raid held on 17-2-1973. The return had been filed on 28-5-1974. The offence contemplated by section 271(1)(c) may be said to have been committed by the assessee when he conceals the particulars of his income or furnishes inaccrurate particulars of such income while filing his return under the Act. It is true that the intention of concealing the particulars of his income is exhibited by an assessee when he does not enter correct purchases or sales in his account books. In our opinion such an intention or conduct of an assessee at the time of writing his books may be punishable under section 276-C but not under section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the prayer that it would not be proceeded against for levy of any penalty. All these facts must be read as disclosure of the relevant particulars of assessee's income in the facts and circumstances of this case. Mr. Patel invited our attention to the relevant part of the return wherein an assessee has been assured immunity from penalty under section 271(1)(c) provided he mentions the full particulars of any income which he may consider not liable to tax in his hands. The case of the assessee in the instant case was, in our opinion, on better footing. Herein the assessee had itself submitted that additions may be made on the basis of facts found by the sales-tax authorities with regard to its purchases and sales and that due deduction for sales-tax liability be given to it. The only objection that Part III of the return was not meant for such a purpose hardly carries weight with us. In the matter of penal liabilities the substance and not the form should dictate decisions. 29. To sum up, after having considered the facts of the instant case and the material brought on our record, we are clearly of the opinion that the assessee had satisfactorily proved that the concealed income ha ..... X X X X Extracts X X X X X X X X Extracts X X X X
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