TaxTMI 
TaxTMI 
1993 (9) TMI 156
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....uments and books of account were seized. No cash, jewellery or valuable articles or things were found. A letter was issued on 4-2-1982 posting the case for further hearing to 18-3-1982 together with a notice under section 142(1) of the Act. There were adjournments of the hearing also at the request of the assessee. In the meanwhile, on 18-3-1982 the assessee had filed a return purported to be a revised return showing income from other sources at Rs. 50,000 without any details. The case was finally heard on 23-3-1982 and a draft assessment order was passed. The assessee filed his objections and the Inspecting Assistant Commissioner after hearing the assessee and the Income-tax Officer issued his directions which were incorporated in the assessment order dated 6-11-1982. This is for the assessment year 1979-80. 2. For the assessment year 1980-81, the assessee had filed a return declaring income of Rs. 16,340 and notice under section 143(2) was served on the assessee. Certain details were called upon in the course of the personal hearing. In view of the search under section 132 on 29-1-1982 wherein certain books of account and documents were seized, the assessee was asked to explai....
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....; Rs. 20,580 Rs. 1,38,348 Share income of minor children from Silpi Movies. Rs. 13,333 Rs. 13,333 Addition to the income of let out property Rs. 1,505 - Notional income from dwelling Rs. 800 - ....
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....omes; that it was for the assessee to establish that the toddy business in Alwaye range did not belong to him, that the business of Archana Jewellery did not belong to the assessee; that the assessee had not contested the inclusion of the minors' income in his total income in appeal and that the assessee's argument that the charge of concealment cannot encompass incomes that are includible in the total income of the assessee is not tenable and that there was no justification for not including the property income. For these reasons the Income-tax Officer concluded that the assessee had concealed the particulars of his income inviting the provisions of section 271(1)(c) of the Act. In this view of the matter, he levied penalty of Rs. 1,10,000 for the assessment year 1979-80 and Rs. 1,70,000 for the assessment year 1980-81. 5. The assessee carried the matter in appeal. The learned CIT (Appeals) rejected the contentions of the assessee for substantially the same reasons as were adduced by the Income-tax Officer. 6. The assessee is on second appeal. 7. The arguments of Sri G. Sarangan, the learned counsel for the assessee run as follows: Penalty proceedings are different and di....
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....e recovered from the residential premises of the assessee to which the assessee had access and, therefore, he cannot disown the same. The findings in the assessment proceedings are good piece of evidence as has been held in a number of decisions as follows: (i) CIT v. Khoday Eswarsa & Sons [1972] 83 ITR 369 (SC); (ii) Banaras Textorium v. CIT [1988] 169 ITR 782 (All.); (iii) CIT v. T. Govindankutty Menon [1989] 178 ITR 509 (Ker.). The findings can be disturbed only when it is convincingly established that they are either wrong or based on no material or on incorrect appreciation of facts. This has not been done. The presumptions envisaged in section 132(4A) are legal presumptions and if it is held that such presumptions cannot be made use of either in the assessment proceedings or in the penalty proceedings, the efforts of the revenue to unearth tax evasion would remain frustrated. Therefore, the Courts should lean in favour of the revenue in the application of the presumptions to penalty proceedings. Though he cannot confirm or deny whether the slips and other documents relating to the Alwaye toddy shops were recovered from the bed-room of the assessee, still he would ....
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....nbsp; Rs. Rs. 1977-78 a/c profit. 198694.87 1978-79 a/c profit. 455219.29 1979-80 a/c profit. 201643.58 &nbs....
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....sp; 238065.66 -------------------- ------------------ 123302.17 3501....
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....nbsp; -------------------- ------------------ 525708.72 546239.15 &nb....
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.... 20,530.43 ------------------ 56,530.43 ------------------ &nbs....
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.....87) besides this, there is seen receipts of an amount of Rs. 97,729.85 as 50% sale value of Toddy implements. What have you to say about this ? A: I don't remember anything about this now." 10. Sri Abraham, for the revenue, is unable to confirm or deny whether documents numbered as 20/29 to 34 (relating to Alwaye Toddy shops) were recovered from the bed-room of the assessee or not, as he was not having the Panchnama with him. It is unfortunate that in a search and seizure case, the revenue's representative is not fed with all the documents relating to the search. There is force in the contention of Sri Sarangan that whereas in respect of recovery of some documents, as for example, item 26/37 it is stated in the course of the sworn statement itself that it was recovered from the bedroom of the assessee, there is no such indication of the exact location from where the toddy shop documents were recovered and, therefore, we told that the remarks of the authorities about their recovery in the bed-room are not supported by material on record before us. 11. From the answers to questions Nos. 30 and 31 extracted above, it will be seen that the assessee could not remember anything....
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....duced before us also indicated that M/s K. S. Chathunni, K.S. Ramakrishnan and Sri K.T. Sreedharan were the persons who had taken the auction in the impugned years. Therefore, it is surprising that these persons were not examined though their names were found in the balance-sheet (item 20/31), but some how the revenue misdirected itself and proceeded on the basis of the presumptions envisaged in section 132(4A) of the IT Act. Thus, the vital information provided in the slips was not perused or the pursuit was abandoned for reasons best known to the revenue in spite of repeated requests by the assessee as follows : In its reply dated 19-4-1982 to the draft assessment order it was argued that: "I have not done any Abkari business at Alwaye as alleged in your notice. The persons who bid the Alwaye range of toddy shops for the years referred to in your notice may be ascertained from the Excise Department. Before making any addition on the basis of the alleged piece of paper you are referring, you may please call and examine the persons who actually conducted the Alwaye range of toddy shops during the year under the excise records. I may also be given an opportunity to cross-examine ....
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....hereunder. The Records of the Excise Department clearly shows that the Abkari business at Alwaye was done by someone other than me. The department has not made any attempt to verify this fact. It is illegal to presume on the mere strength of the alleged slips that I had done Abkari business of the Alwaye Range contrary to the provisions of law. In the absence of tangible and corroborative proof particularly in view of the contrary facts evidenced by the Excise records of Alwaye range, the Department is duty bound to discharge its burden. By the mere fact that a share of income of a toddy business at Alwaye has been assessed in my hands by a fiction created by the provisions of the Act does not prove that I conducted the toddy business at Alwaye." (pages 100 & 101 of the paper book) The revenue was rest content with hauling up the assessee on the mat on the basis of the presumptions contained in section 132(4A). In our considered opinion, the presumptions contained in section 132(4) has got only limited applications and cannot be extended to penalty proceedings. Whereas section 132(4) mentions that a statement taken in the course of the search can be used in evidence in any proceedi....
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....individual assessment of the appellant, as if the other beneficiaries or parties are known and their shares are determinate. From the information found in the slip there is no specific allotment of shares individually to other parties. Therefore, the inclusion of 50% share of profit in the individual assessment of the appellant is itself open to challenge. We reject the contention of Sri Abraham that the failure to make the assessment in the status of Association of Persons was only a technical lapse or a procedural irregularity. In our considered opinion, it is neither a technical nor a procedural lapse or irregularity. The deficiency or defect goes to the root of the matter. The status in which a person is to be assessed is very material for assessment. A wrong status will result in an assessment being made against a wrong "person" as defined in the Income-tax Act. Unless an assessment is made in accordance with the "status" of the "person" - whether individual, AOP, Registered Firm, Unregistered Firm, HUF, Company etc., and unless the person responsible is shown to have concealed the income or furnished inaccurate particulars of such income, the charge of concealment cannot be u....
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....support of such inference it was pointed out that enquiries revealed that bank records showed that the bank account of Archana Jewellery was originally opened and operated by the assessee (but details for this were not given) and that his wife and other relatives had offered securities for the bank loans obtained by Archana Jewellery. Initially, the bank had granted loan on the securities of 19 persons and subsequently all the 18 persons other than the assessee had withdrawn from the guarantee leaving the assessee as the sole guarantor. Lastly, it was seen from such records that on 8-8-1978 a sum of Rs. 1,00,000 was withdrawn from the firm M/s P. K. Narayanan & Co., and given to Archana Jewellery. Therefore, the Income-tax Officer concluded that Archana Jewellery was only a benami business of the assessee in the name of Sri Chellappan Achari. This was deleted in appeal by the CIT (Appeals) and but confirmed in the revenue's appeal by the Tribunal. On the basis of the assessment, penalty was levied under section 271(1)(c) of the IT Act and this was confirmed on appeal. The assessee is on second appeal. 14. The arguments of Sri Sarangan run as follows: (1) The assessee had expl....
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....itted that nowhere in the draft assessment order there is an allegation that the bank account was initially operated by the appellant. However, in the Tribunal's order there is a mention that the bank account of Archana Jewellery was initially operated by the assessee. He wonders on what basis such a mention was made. It is for the revenue to prove that the assessee had initially operated the bank account of Archana Jewellery if it had any material with it. 15. The arguments of Sri Abraham read as follows: Slips containing the valuation of stock of gold were recovered from the bed-room of the assessee. There are monetary transactions between the assessee, his wife and Archana Jewellery. Sri Chellappan Achari was a man of straw. Loans were advanced to him only on the strength of the guarantees or securities offered by the assessee. Non-examination of Sri Sathyan is not a fatal defect as to dislodge the findings recorded in the quantum appeals. Benami Transactions (Prohibition) Act, 1988 only prohibited the remedies as between real owner and benamidar and it cannot extend to third parties like IT Department treating a transaction a benami transaction. The contentions which are rai....
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....vered from the assessee stood rebutted in evidence by the assessment made on Sri Chellappan Achari of Archana Jewellery. The CIT (Appeals) deleted the income from Archana Jewellery against which the department had appealed before the Tribunal and submitted a paper book in the quantum appeal as follows: Paper Book Index S. No. &n....
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....p; Narayanan given before the ITO 10 6. Photostat copy of the lease agreement dated 5-9-1978, marked as item 20/14 seized at the time of search 11 to 14 7. English translation of extracts from the above- mentioned agreement dated 5-9-1978  ....
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....sp; 22 14. Points to indicate that Sri A. N. Chellappan Achari is a benami of Sri P.K. Narayanan 23 & 24 The Tribunal after referring to the points made by the Income-tax Officer held as follows: "In fact the bank account of Archana Jewellery CD-14 was operated by P.K. Narayanan, the assessee. The assessee's counsel could not also satisfy us as to how and why P.K. Narayanan operated this bank account of Archana Jewellery if he had no connection with the same. To cap all these, the paper containing transactions of gold running to Rs. 18,76,628. Pagady of Rs. 6,00,000 issue of cheque of Rs. 6,11,293 was found in the bedroom of the assessee at the time of search. It is inc....
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....sp; Mr. A.N. Chellappan Achari is the proprietory of M/s. Archana Jewellery, M.G. Road, Ernakulam. The party has availed an open cash credit facility from us in the name and style of Archana Jewellery. The account is operated by Mr. A. N. Chellappan Achari, as Proprietor. The account is introduced by Mr. A.C. Mohan, Proprietor, Anupama Jewellery, Ernakulam. The limit of the open cash credit facility sanctioned is Rs. 2 lakhs which is secured by hypothecation of stock-in-trade and equitable mortgage of real estate. In 1978, when the advance was granted, it was also guaranteed by 19 persons namely: (1) Mr. P. K. Narayanan, (2) Mr. A.S. Gangadharan, (3) Mr. T.A. Premanandan, (4) Mr. K.A. Krishna Kumar, (5) Mr. P. Prakash, (6) Mr. K.K. Lokanathan, (7) Mr. P.K. Kumar, (8) Mr. K.P. Baburajan, (9) Mr. P.T. Sankaranarayanan, (10) Mr. P.D. Dinesan, (11) Mr. C.R. Gopalan, (12) Mr. P.K. Sunil, (13) Mr. K.V. Harikrishnan, (14) Mr. K.R. Pushpangadan, (15) Mr. K.P.Surendranathan, (16) Mr.Sarojini Krishnan, (17) Mr....
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....fered property as security for the said advance. The property of Mr. & Mrs. T.K. Krishnan that held as security is already released where it is approximately valued to 3.24 lakhs". (page 20 of the department's paper book - p. 147 of the assessee's paper book). In these communications from the bank, there is no mention that the Account No. CD- 14 was opened and operated by the assessee, in the name of or for and on behalf of Archana Jewellery. On the other hand, the evidence is that the loan was granted to Sri Chellappan Achari of Archana Jewellery on the security of certain people. It is only in the statement of points furnished by the departmental representative that there is a mention "that the bank account of the business was originally in the assessee's name" (page 23 - p. 18 of the paper book). However, in a communication to the Inspecting Assistant Commissioner of Income-tax, under a copy to the assessee, there is a remark at para 10(ii) that enquiries showed that the bank account of the business in the Bank of Cochin was originally opened and operated by the assessee and the temporary overdrawals were allowed in the said account against personal guarantee. Neither the Income....
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....at pages 138 to 141 of the paper book. No doubt, the lease agreement is purported to have been executed on 5-9-1978 by Sri Chellappan Achari residing with Sri P.K. Narayanan, for and on behalf of Sri P.K. Narayanan, aged 46, in favour of Sri A.G. Ramesh. The lease agreement is for the lease of property belonging to Sri Ramesh. It is on stamped paper. It was initialled or signed only by Sri Chellappan Achari. Sri Ramesh had not signed the document. Thus, it is an incomplete document which has no validity in law. From the observations of the Income-tax Officer in the assessment order, it is seen that Sri Chellappan Achari was residing elsewhere and therefore not with the assessee, but the narration in the lease deed states that he was residing with the assessee. So the contents of the document at the very beginning is contrary to facts. The assessee in the sworn statement made at the time of search, had explained that he wanted to help Sri Chellappan Achari and as Sri Ramesh would not lease out the property to him, the lease agreement was initially drafted in the manner in which it was found. This explanation was only rejected without any enquiries being made either with Sri Ramesh o....
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....e agreement and the papers containing valuation of stock, and payments etc., are not sufficient to point to the benami nature of the transactions. The payments are cheque payments of Archana Jewellery and the payees were not examined to indicate the complicity of the assessee. The books of account pertaining to Archana Jewellery were not found with the assessee. Nor the profit and loss account or balance-sheet of Archana Jewellery. The possession of papers relating to stock etc., have been properly explained by the assessee. No worthwhile enquiry was made either with Sri Sathyan or Sri Ramesh or with Sri Chellappan Achari or with the parties to whom some payments were alleged to have been made. No cheque book belonging to Archana Jewellery - unused cheque leaves or signed cheque leaves were recovered from the possession of the assessee. No unexplained cash, jewellery, valuable article or thing was seized. It is seen from the records (page 146 of the paper book) that the account with Bank of Cochin was opened with the introduction by Sri A. C. Mohan of Anupama Jewellery. It is not shown that Sri Mohan is a relative of the assessee. Nor Sri Mohan was examined. The guarantees were giv....
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....he firm M/s Silpi Movies is owning the Silpi Theatre. The firm was constituted in June 1978. The minor children Krishnadas, Krishnalal, Krishnalalji, Krishnaleela and Krishnan Unni are admitted to the benefits of the partnership firm. Sri P.K. Narayanan was representing them as their legal guardian. The minors have their own independent source of funds. Hence he has not included any income from this business in this return. The theatre was taken over by this firm by the end of October 1978'." In the course of assessment, a copy of the partnership deed of Silpi Movies was filed by the assessee. The Income-tax Officer noticed that the assessee's five minor children were admitted to the benefits of partnership and each one of them was entitled to 1/9th share in the profit. Initially in the draft assessment order, the Income-tax Officer had estimated the income of the firm itself at Rs. 24,000 as the assessee's own business since the assessee had not filed the profit and loss account or any statement showing the income on the basis of the books. The estimate was made at 12% of the collections recorded in the books. The successor income-tax Officer took only the proportionate share o....
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....n order to that effect, or treating such unregistered firm as a registered firm under section 183(b) of the Act, again, we emphasise by passing an order to that effect. The ITO has not followed either course of action, but has simply included the proportionate share of the minors' income from the estimated income of the firm. This is a serious flaw in the assessment. Therefore, the inclusion of the minors' income in the hands of the assessee has no legal legs to stand upon, unless it is preceded by the assessment of the firm, as a registered firm or as an unregistered firm treated as registered firm. Sri Abraham wants us to infer that the ITO had treated the firm as registered firm under section 183(b) of the Income-tax Act and had proceeded to include the minors' income in the hands of the appellant. Such an inference is not possible because to confer the status of registration on a firm, which is otherwise to be treated as an unregistered firm, there should be a finding that to do so is advantageous to the revenue and such a finding can be reached only after considering the tax effect on all partners and in the absence of such a finding, no such inference can be drawn. Therefore,....
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.... ------------------ Rs. 89.019 &nbs....
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.... the assessee does not have anything left with him from the declared and assessed income before the Department for meeting his personal and household expenses, not to speak of any investments in movable or immovable properties. 5. Thus, it is evident that the assessee had not available source of income for investment of Rs. 60,000 alleged to have been made from 1975-76 to 1979-80. Since the assessee has no accounts to rely upon the investments spread over from 1975-76 to 1978-79 and in view of the fact that the valuer was also unable to give details of the date on which the construction started and when it was completed, I would be justified in adding the entire investment in the residence as income of the previous year and assessing under section 69 of the Income-tax Act. But to extremely fair to the assessee I propose to consider the investments pertaining to the previous year ended 31-3-1979 as mentioned in valuer's report alone for this assessment year and in fixing that value the assessee's representative has notraised any objection. The point that was stressed by the assessee's representative is that the investment of Rs. 20,000 shown in the wealth tax return for 1979-80 s....
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....r determining the actual investment. Anyhow the total investment as estimated by the valuer is Rs. 41,719 and deducting Rs. 20,000 as investment admitted by the assessee the deficiency is only Rs. 21,719. It is not necessary to go into the details of earlier years' income returned or savings as the wealth increase for the period ended 31-3-1979 after, giving credit to the investment of Rs. 20,000 is only about Rs. 8,000 and it shows that addition in wealth by way of investment is set off by additional liabilities. In that view addition under investment in buildings, even if necessary, has to be restricted to Rs. 21,719." (pages 29 & 30 of the paper book) From the assessee's letter it is seen that the assessee did not object to the valuer's report as it was misplaced pursuant to a search. However, after recording his objection to the method of valuation done after three years of completion of construction etc., he had, in fact, agreed for the proposed addition of Rs. 21,719. Thus, it is a case of agreed addition and in terms of the decision of the Supreme Court in the case of Sir Shadilal Sugar & General Mills Ltd. and another v. CIT reported in 168 ITR 705 no penalty is leviable on....
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....ere was no explanation for the investment. Nor is it a case that the explanation was found to be false. It cannot be said that the assessee is a man of straw. This is a case of an assessee having different sources of income on his own as well as the income from the firm. The income of his wife and minor children are also included in the hands of the assessee under the provisions of the Income-tax Act. From the assessment records it is seen that he is being assessed from the assessment year 1967-68 onwards and that he was also doing prawn business for which no accounts were maintained. He was also said to be not having personal accounts, but was having control over the firm of M/s. P.K. Narayanan and Company as well. From the draft assessment order it is also seen that the income for the assessment years 1976-77 to 1979-80 amounted to Rs. 83,636. Except the deposit of Rs. 20,000 with Parur Central Bank, all other deposits are in small sums. Therefore, it is reasonable to hold in the preponderance of probabilities that the assessee could have effected these deposits out of his own funds, the funds of the firm under his control, funds of his wife and children. In such background, we h....
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....onal value of the self-occupied property was only accidental and unintentional and, therefore, penalty for the non-inclusion of the notional value in a very small sum of Rs. 800 would be highly harsh and unjustifiable. In the assessment year 1980-81 no penalty was levied in this respect of this amount. Therefore, he pleaded that the levy of penalty on the income from the let out property and self-occupied property be cancelled. 32. Sri Abraham for the revenue objected that the assessee has not filed any ground of appeal before the Tribunal and, therefore, the Tribunal should not interfere. On merits he relied on the orders of the authorities. 33. In the light of the decision of the Kerala High Court in the case of CIT v. Kerala State Co-operative Marketing Federation Ltd. [1992] 193 ITR 624, the Tribunal is empowered to permit the appellant to urge any ground not set forth in the memorandum of appeal. It has the jurisdiction to permit the appellant to raise any ground which has not been raised before the assessing authority or the CIT (Appeals). Even those pleas which were not before the CIT (Appeals) can be entertained by the Tribunal. As this is a case of penalty involving ....