1998 (8) TMI 607 - HC - Income Tax

Penalty under s.271(1)(c) upheld for concealed income via bogus purchases, sales and stock manipulation; s.292B saves form defects

HC held penalty under s.271(1)(c) justified for the assessment year 1971-72, finding the assessee concealed or furnished inaccurate particulars of income ... Imposition of penalty u/s 271(1)(c) - concealed the particulars of his income or furnished inaccurate particulars of such income - purchase and sale of ball bearings, mill stores, etc., on retail basis - bogus purchases and non-recording of purchases either in sales or stock - discrepancies by way of manipulation of stocks, omission of sales, inflation of purchases, making out of bogus bills, etc - HELD THAT:- In the present case, there are clear findings of the Income-tax Officer as noted above, that in respect of the year 1971-72, the assessee had not entered all sales and purchases in the books of account, that bogus purchases were shown, that there were serious discrepancies in the stock book, that excess sales were shown while the purchases were not shown and further that in order to reduce the income earned, the assessee had resorted to claim for bogus purchases and nonrecording of purchases either in sales or stock. In face of all these findings, it can never be said that the assessment was made on the basis of an estimate without there being on the record enough material to show that any particular entries in the books of account were false or incorrect or any particular items of purchases or sales were omitted to be discharged in the books of account. Therefore, the decision in S. P. Bhatt’s case [1991 (7) TMI 56 - GUJARAT HIGH COURT] cannot be invoked by the assessee and it can never be said that the burden which lay on the assessee was discharged so as to rebut the presumption arising under the Explanation that the assessee had concealed the particulars of income or furnished inaccurate particulars of income. We, therefore, do not find any error committed by the Tribunal when it holds that the levy of penalty on the assessee in respect of the assessment year 1971-72 was fully justified. There is no question of any delegation of power to the Income-tax Officer because no discretion whatsoever was left to the Income-tax Officer, who had only to issue a demand notice as required by section 156 of the Act, which, inter alia, lays down that when any penalty is payable in consequence of an order passed under the Act, the Income-tax Officer shall serve upon the assessee a notice of demand in the prescribed form specifying the sum so payable. Rule 15 of the rules framed under the Act, prescribes the necessary form in this regard and as per that Form No. 7, the concerned person was to be informed, all the details of such penalty determined to be payable by him. The assessee has not produced any such notice of demand, though its learned counsel fairly stated that such notice was received pursuant to the penalty orders and the amounts have been paid up. It will be noted from item No. 9 of Form No. 7 that the particulars of the amount due as a result of the order of the Appellate Assistant Commissioner of Income-tax/Inspecting Assistant Commissioner/Commissioner of Income-tax, were to be mentioned. Therefore, the Income-tax Officer was only required to issue the demand notice pursuant to the minimum penalty which was required to be paid by the assessee as a result of the order made in the penalty proceedings by the Inspecting Assistant Commissioner. We are not prepared to read this order so as to mean that the Inspecting Assistant Commissioner did not himself impose the penalty and left it to the Income-tax Officer to impose the same. Even if the order is not happily worded as observed by the Tribunal, it is clear enough to indicate that the penalty is in fact imposed by the Inspecting Assistant Commissioner under this order and all that he has done is that he directed the Income-tax Officer to issue demand notice in respect thereof. We may only note that as provided by section 292B of the Act which was inserted with effect from October 1, 1975, i.e., prior to the passing of the order by the Inspecting Assistant Commissioner on September 22, 1980, no assessment or other proceedings made in pursuance of the provisions of the Act shall be invalid or deemed to be invalid merely by reason of any mistake, defect or omission in such assessment or other proceedings which is in substance and effect in conformity with or according to the intent and purpose of the Act. In our view, there is hardly any defect in the issuance of the order and it should be read, as clearly it is, as an order imposing penalty in respect of which demand notice was required to be issued by the Income-tax Officer and nothing else. In view of what we have said hereinabove, we hold that the Tribunal has not committed any error as sought to be contended on behalf of the assessee and, therefore, all the questions which have been referred to the court and are reproduced above, are answered in the affirmative, against the assessee and in favour of the Revenue. The reference is disposed of accordingly with no order as to costs. Issues Involved:1. Levy of penalty in respect of additions for the assessment year 1970-71.2. Justification of penalty u/s 271(1)(c) for the assessment year 1971-72.3. Concealment of income and furnishing inaccurate particulars of income u/s 271(1)(c) for both assessment years.4. Validity of directions issued by the Inspecting Assistant Commissioner to the Income-tax Officer for imposing penalty.Summary of Judgment:Issue 1: Levy of Penalty for Assessment Year 1970-71The Tribunal upheld the levy of penalty on the addition of Rs. 6,396 for bogus cash purchases without proof and Rs. 37,535 for understatement of closing stock. The Income-tax Officer found discrepancies in the stock book, including manipulation of stocks and omission of sales. The Tribunal restored the addition of Rs. 37,535, noting that the purchases were not traceable in the closing stock or sales, leading to the conclusion that the goods were sold outside the books. The penalty proceedings were initiated on this basis, and the Tribunal held that the penalty was justified.Issue 2: Justification of Penalty u/s 271(1)(c) for Assessment Year 1971-72The Tribunal upheld the penalty of Rs. 1,16,754 imposed by the Inspecting Assistant Commissioner. The Income-tax Officer found serious discrepancies in the stock book, bogus purchases, and non-recording of purchases in sales or stock. The Tribunal noted that the addition was based on specific defects and manipulations in the accounts, not merely on estimation. The assessee failed to rebut the presumption of concealment under the Explanation to section 271(1)(c), and the penalty was deemed justified.Issue 3: Concealment of Income and Furnishing Inaccurate Particulars of Income u/s 271(1)(c)The Tribunal found that the assessee had concealed particulars of income and furnished inaccurate particulars of income for both assessment years. For 1970-71, the concealment was due to the understatement of closing stock and inflation of purchases. For 1971-72, the concealment was due to bogus purchases and non-recording of purchases. The Tribunal held that the penalty was justified in both cases.Issue 4: Validity of Directions Issued by the Inspecting Assistant CommissionerThe Tribunal held that the Inspecting Assistant Commissioner's orders directing the Income-tax Officer to levy penalty were valid. The orders were interpreted as imposing penalties and directing the Income-tax Officer to issue demand notices. The Tribunal found no delegation of power to the Income-tax Officer, and the penalties were imposed by the Inspecting Assistant Commissioner as required by law.Conclusion:The Tribunal's decisions were upheld, and all questions were answered in the affirmative, against the assessee and in favor of the Revenue. The penalties imposed for both assessment years were deemed justified, and the directions issued by the Inspecting Assistant Commissioner were valid.