TaxTMI 
TaxTMI 
1991 (8) TMI 136
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.... s. 143(3). In all these assessments there was considerable variation between the income admitted or originally assessed and the income that was finally determined. The figures given in the following Tables are relevant: TABLE "A" (Asst. yr. 1981-82) Item Income Income as per order of CIT(A) . Returned Assessed . . . Rs. Rs. Rs. . Property - - - . Premier Theatre - - - . Murugan Trading Co. - - - . Income from contract 52,200 3,13,356 by estimating 15 per cent on total contract by the cost of materials supplied. 1,00,000 (Departmental appeal dismissed by the Tribunal) National Tyres - - - . M.G. Ice - - - . Royal Bakery - - - . Table "B" (Asst. yr. 1981-82) Item Income admitted in reassessment Income determined by. . . ITO CIT(A) Tribunal . . Rs. Rs. Rs. Property - 250 250 250 Premier - 15,333 15,333 15,333 Murugan Trading Co. - 68,579 68,579 Set aside but sustained in fresh assessment Tea business 6000 16,117 16,117 16,117 Cont....
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....67 4. It may be mentioned that against the original assessments made for the asst. yrs. 1981-82 and 1982-83 it was the Department which went on appeal to the Tribunal but the same was dismissed as infructuous because by the time the matter came up before the Tribunal the reassessments proceedings have begun. Even in the case of reassessment, on certain additions sustained by the CIT(A) the Tribunal had set aside the same and directed fresh consideration and upon such fresh consideration the amounts included in the reassessment in respect of those items were confirmed. Suitable narration is given in respect of such items in the Table shown above. 5. The ITO had initiated penalty proceedings in the course of original assessments for the asst. yrs. 1981-82 and 1982-83. However, no penalty was levied as the quantum appeals were pending before the appellate authorities. In the meantime there was a search in the premises of the assessee and the reassessment proceedings were started. In the course of the reassessment proceedings for the asst. yrs. 1981-82 and 1982-83 the ITO initiated penalty proceedings as follows: "Penalty proceedings under s. 271(1)(a), 273(1)(b) and 271(1)(c)....
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....d deliberately concealed the income in the original assessment proceedings. Such being the case, the ITO basing his impression of concealment on the strength of the original assessment and importing that knowledge into the reassessment order purported to initiate penalty proceedings in reassessment. This would show that the ITO had not applied his mind to the facts of the case. In other words, the ITO has not reached the satisfaction so necessary for initiating penalty proceedings in the reassessment. His satisfaction depended on his previous satisfaction in respect of the original assessment proceedings. If it could be shown that in the original assessment proceedings te charge of concealment would not lie against the assessee, it can be argued that the charge of concealment in the reassessment proceedings must necessarily fall to the ground as the satisfaction of the ITO is intermingled with his previous satisfaction in the original assessment proceedings. Elaborating Shri Nair submitted that, as the only difference between the admitted income and the assessed in the original assessment was due to higher estimate on which the assessee had obtained substantial relief from the firs....
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.... pointed out certain errors in the computation of the ITO in the remand report. He had also pointed out certain receipts which were found credited in the seized cash book on 4th April, 1981 should properly belong to the succeeding assessment year and not to the asst. yr. 1981-82. However, in order to purchase peace the assessee agreed to be assessed at a figure of Rs. 1,95,000 and it was at that figure the CIT(A) determined the income from contract business. In the face of such fluctuating figures and in the light of the agreement on the part of the assessee, the charge of concealment cannot be held against the assessee. He also relied on the decision of the Supreme Court in Sir Shadilal Sugar & General Mills Ltd. & Anr. vs. CIT (1987) 64 CTR (SC) 199 : (1987) 168 ITR 705 (SC). 9. The assessee had reported a loss of Rs. 6,000 in tea business and the ITO had determined the income at Rs. 16,117. The ITO found certain discrepancies in the closing stock from the seized records and on that basis he made an addition of Rs. 16,117. Because the assessee did not maintain stock register it could not explain the difference in the stock to the satisfaction of the ITO. Therefore, the levy of....
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....aws) (Ker) 17 : (1989) 180 ITR 503 and C.T. Mohanan vs. C. Yesoda (1990) 185 ITR 31 (Ker). Therefore, the charge of concealment cannot be held against the assessee. 12. The next addition was in respect of income from Premier Theatre. It was really a case of joint venture in which for a period of 9 months there was a total profit of Rs. 17,249 spread over two assessment years. The ITO took the view that the assessee should have similar profits and estimated the same on a pro rata basis at Rs. 15,333. There is no warrant for such an estimate. The omission to show the income was bona fide as the assessee had really suffered loss. 13. The ITO noticed discrepancy between the entries in the books of M.G. Ice Products and the entries in the books of the assessee which were seized and the discrepancy was determined in a sum of Rs. 21,574. The same was treated as undisclosed income. The Tribunal had deleted the addition and, therefore, no penalty is leviable. 14. The last item of addition for the asst. yr. 1981-82 is the income from Regal Bakery. The income was determined at Rs. 11,923 but the same was set aside by the Tribunal. The Tribunal set aside the addition on the ground tha....
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....s the property of the Government and if the assessee had sold such cement, in law he is accountable to the authorities for the sale proceeds of such cement. The assessee's position is that of a trustee and if the trustee has committed misfeasance or breach of trust, he is always accountable to the beneficiary. In law it cannot be held that the profit estimated by the Revenue really belonged to the assessee. If, on the other hand, it is so held, the matching liability to pay to the Government should be recognised. The assessee might have accepted addition in this behalf ultimately when the Tribunal decided the issue against the assessee but that does not mean the income really belonged to the assessee. The charge of concealment must fail. Alternatively he contended that even assuming that the profit estimated on the sale of cement belonged to the assessee and, therefore, assessable in his hands, the cost of such cement was not allowed as a deduction. It is not as if the assessee had acquired cement without any cost to it. The cost of the cement supplied by he Government to the assessee for the execution of the contract work has suffered deduction from the bills presented by the asse....
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....e income of the assessee that was concealed. Regarding M.G. Ice Product the addition was sustained in this case on the ground that there waqs intermingling of funds and the capital had come from the assessee. Shri Nair submitted that even if the capital had been given by the assessee it does not mean that it is assessee's business. It is not unusal because the business was intended to be that of this son. It is not unusal for a father to look after the business of his son and that would not clothe him with the ownership of the business. If the Department takes the view that it is a benami business then under the provisions of the Benami Transactions (Prohibition) Act, 1988, the same cannot be viewed as assessee's business and, therefore, the charge of concealment should fail. It is Mr. Nair's submission that though the addition might be justified penalty proceedings are separate and distinct and the onus is on the Revenue to prove that the assessee had deliberately concealed the income. The Department has not discharged the onus and, therefore, there was no justification for levy of penalty for any of the impugned years. 17. Shri C. Abraham, the learned Senior Departmental Repre....
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.... under s. 147(a) of the IT Act. When the assessments were completed by him making substantial additions to the income of the assessee, the belief which he originally entertained was found to be in order. In the circumstances even if the ITO has just remarked to the effect that action under s. 271(1)(c) is being initiated separately, it would be enough for valid initiation. Such being the case, merely because the ITO had referred to the earlier proceedings initiated by him on the earlier occasion it cannot be held that he has not validly initiated the proceedings in respect of the reassessment proceedings. 20. Shri Abraham further contended that even in the original assessments there were wide variations between the incomes admitted and the incomes assessed. In the reassessments it was found that the assessee had not disclosed either in his return of income or in the course of the original assessment certain sources of income such as tea business, National Tyres, M.G. Ice Products, T.A. & D.A., Murugan Cash Credits, Premier Theatre and the profit derived on the sale of cement. Therefore, the levy of penalty was justified. 21. Shri Abraham referring to the contentions of the as....
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....ted 50 per cent deduction. Moreover, the assessee has not paid anything towards the cost of the cement which was clandestinely sold. Even if the cost of the materials which included the cement was recovered from the assessee, it was all taken care of either in the accounts or when the estimate was made. Further, the assessee has not placed any material as to the cost of the cement sold surreptitiously. Therefore, the plea of the assessee should not be allowed. 24. Addressing himself to the other additions made in the reassessments which became final, Shri Abraham took us through the relevant passages of the order of the authorities and submitted that it has been found that the assessee had earned the income and the source of such income having not been disclosed by the assessee to the ITO the levy of penalty on such items was justified. 25. Turning to the argument of the assessee that in view of the provisions of the Benami Transaction (Prohibition) Act, 1988, the income from National Tyres, Royal Bakery and M.G. Ice Products should not have been assessed in the hands of the assessee and therefore, should not be considered as having been concealed by the assessee, Shri Abraha....
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....iterating that the levy of penalty was justified did not dispute the circumstances in which the legal representatives are placed. 29. Thus we heard rival submissions and perused the records. The first point to be resolved is whether the penalty proceedings for the impugned assessment years were validly initiated or not. There was a search in the residential premises and the business premises of the assessee. As a result of the search, certain documents were seized. On a scrutiny of the documents, the ITO had reason to believe that income had escaped assessments for the asst. yrs. 1981-82 and 1982-83. The assessments were reopened under s. 147(a) to rope in the escaped income. Thus, when the reassessment proceedings were started, the ITO had a prima facie belief that there was escapement of income. He determined the income of the assessee in the reassessments at a figure which was higher than those admitted either in the original return of income or as originally assessed for the asst. yrs. 1981-82 and 1982-83. Certain sources of income which were not found in the original assessments have found their way in the reassessments. Thus, there has been suppression of the sources of in....
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....is context that the ITO had stated that the proceedings which have been initiated were equally applicable to the reassessments also. From this it can be reasonably inferred that the ITO had intended to continue the proceedings from at the stage where he had left. In other words, the satisfaction of the ITO that the case of the assessee called for levy of penalty is implicit though not manifest in the impugned observation. For these reasons we reject contention of the learned counsel for the assessee that penalty proceedings were not validly initiated. Much of the controversy could have been avoided had the ITO expressed himself in no unmistakable terms as he has done for the asst. yr. 1984-85 when he observed "penalty proceedings under ss. 271(1)(a), 273(1)(b) and 271(1)(c) have been initiated separately". The way in which the ITO has expressed his intention to proceed against the assessee under s. 271(1)(c) though gives rise to an untoward controversy for the asst. yrs. 1981-82 and 1982-83, for the asst. yr. 1984-85 Shri Nair's argument that the penalty proceedings were not validly initiated is not based on any material and is rejected straightaway. 30. The next point at disput....
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.... C.P. Antony (1985) 49 CTR (Ker) 149 (FB) : (1985) 155 ITR 467 (Ker)(FB). Their Lordships held as follows: "If an assessee who was bound to disclose his real total income in the return filed by him under s. 139 of the IT Act, 1961, fails to do so, the offence of concealment or furnishing of inaccurate particulars with respect to his income in that return, becomes complete. It might be that where the ITO invokes the provision under s. 147(a) and issues a notice under s. 148 of the Act, the assessee may submit a revised return, which might be the same as the assessee filed in the first instance. It could also be that revised return makes a partial or full disclosure of the income concealed at the time when he filed the first return under s. 139. However, the penalty proceedings have to be completed in accordance with the provisions of s. 271 as it stood at the time when the assessee filed the first return under s. 139." 32. The first contention of Shri Nair to which the Department objects is that no penalty is leviable. In the reassessment the income was determined on agreed basis only. In the revised assessment, where the income was computed on the basis of the seized books, i....
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.... Rs. 1,60,000 as originally assessed and added to it the same proceeds of 7,000 bags of cement on the basis of material found during the course of search. Besides, there were certain miscellaneous additions to the cement business in a sum of Rs. 15,182. On appeal, the Tribunal gave 50 per cent deduction on Rs. 6,19,300 being the sale proceeds of cement clandestinely sold by the assessee. Thus, the income came to be determined at Rs. 4,84,833. The ITO levied penalty on a sum of Rs. 7,09,332. This was ascertained as follows: . Rs. Income as per reassessment 7,94,483 Less: Income originally returned 78,348 . 7,16,135 Less: Interest originally returned under other sources, but assessed under the head contracts in the reassessment 6,803 Amount of concealment 7,09,332 Though penalty was levied by the ITO on this amount, considering the relief granted in the second appeal in a sum of Rs. 3,09,650, the concealment has to be quantified at Rs. 3,99,682 as against Rs. 7,09,332 adopted by the ITO. There is no substance in the contention of Shri Nair that the assessee has not concealed the income from contract business. But for the proceedings under s. 132....
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.... the local cement dealers or in certain instances utilised from his own personal and domestic purposes, without taking the cement to the work site at all. In such cases of sales in the black, the assessee has not accounted the unloading charges for cement, as there are evidently incurred by the clandestine buyers. Nowhere in these accounts or daily statements can be found any indication of the assessee having incurred any expenditure for local purposes of cement for the contract works. As the information regarding the aforesaid secret sale of PWD cement by the assessee is a fresh information, the fact of such sale having never been previously disclosed by the assessee to the Department, such sales not being a normal or lawful incident of the business of execution of PWD Contract, the fact of the assessee having received income from such sales, has not been taken into account by the departmental authorities in estimating his income from the contracts for this year at Rs. 1,60,000. Necessarily, therefore, the entire amount of the proceeds of such sale constituted the extra income the assessee received from this business." Thus it will be seen that the ITO has held that part of the....
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....la Manorama highlighting Malpractices done by the contractors in collusion with PWD Engineers. Again he states "When the assessee's own accounts, the genuineness of which he does not question, show that the assessee did sell in black a good portion of PWD cement, it is unnecessary, and against common logic to investigate the matter with the concerned Executive Engineers, in collusion with whom the assessee naturally sold the cement". Thus, the ITO also accepts and assumes that there is collusion with the Engineers. It cannot be otherwise. It should be very difficult to convince one that years together an assessee was able to siphon off extra cement by lorry loads and sell it in the market without the connivance, collusion and co-operation of PWD authorities. It is not a few bags of cement here and there which had been sold which could be without the knowledge of the Engineers. Quite substantial number of bags have been sold and the sale proceeds had been taken more than Rs. 6 lakhs for 1982-83 and nearly Rs. 2 lakhs for 1984-85. Therefore, we cannot rule out the claim for deduction of such payment. Such payments are necessary out goes from sale proceeds of cement. The ITO's objecti....
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....ibunal in the quantum proceedings, a further deduction of 30 per cent on the sale proceeds of cement. Thus, we modify the order of the CIT(A) and sustain the levy of penalty on the concealment of income from cement. 37. Asst. yr. 1984-85: This is not a case of reassessment. The ITO accepted the net profit shown in the accounts from cement. To this, he added the sale proceeds of cement not disclosed to the Department. The arguments that were advanced for the earlier assessment years were reiterated before us on both sides. We uphold the charge of concealment. We reject Shri Nair's plea to reduce the quantum of addition by the cost of the impugned cement. This is because the cost of the cement was already allowed as a deduction when the ITO accepted the profit shown as per accounts. Thus, the facts of the case for this year so far as the cost element is concerned, are different from the facts found in the asst. yr. 1982-83. Hence no further deduction is allowed. However, we notice that the ITO had included the sum of Rs. 12,240 being the cost of cement used for own purpose in the income of the assessee. The same had been deleted by the Tribunal in its order dt. 4th April, 1989.....
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....ss: There was variation between the amount disclosed by the assessee and the amount finally determined. During the search statement showing the correct profit earned for the impinged year was found in the possession of the assessee. As a result, the additions were made and sustained in appeal. 42. We have heard rival submissions. From the facts of the case it would be evident that the assessee had not disclosed the real profit earned by him from this business. The charge of concealment is upheld. The levy of penalty is confirmed. 43. Income from Premier Theatre: The assessee did not disclose any income from this business. It appears to be the joint venture between the assessee and Shri K. Madhavan Pillai. Seized file D-4, showed the share of profit of Shri Madhavan Pillai for the period from 30th July, 1980 to 30th April, 1981 at Rs. 17,249. The ITO assessed this amount for the asst. yrs. 1981-82 and 1982-83. The addition was confirmed. Shri Nair submitted that the ITO had only assumed that there was income from this venture and, therefore, no penalty is leviable. 44. In our considered opinion there is no such assumption on the part of the ITO. He had only drawn the right ....
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....the business really belonged to Shri Balakrishnan or that the business is the benami business of the assessee. The provisions of s. 4 of the Benami Transactions (Prohibition) Act, 1988 would not apply as this is a simple case of sham transaction and the suppression of the source of income. The levy of penalty is upheld. 47. Income from Royal Bakery: The assessee did not disclose any income from the business known as Royal Bakery. In the course of search, the assessee had admitted that the business belonged to him. Subsequently he has stated that it really belonged to Smt. Thankamma, his aunt and that he is running it on her behalf. The Tribunal in the facts of the case held that "it appears to us that the Department has not established fully that the assessee is the owner of the business and at the request of the parties it is referred back to the ITO". In the consequential proceedings, the assessee had filed an affidavit from Mrs. Thankamma affirming that the business belonged to her. However, she was not produced before the ITO on the plea that she was a very old lady, etc. A photostat copy of the certificate issued by the Tahsildar, Karunagappally dt. 6th July, 1981 to the ef....
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....e the addition. The Tribunal felt that the secret books of the assessee are not intended for scrutiny by the Department, but are meant for the information of the assessee only and, therefore, the entries found in the seized books should reveal the real state of affairs, nor it could be assumed that the assessee had not accounted for his share income in the secret books. In this view of the matter it deleted the addition. Since the substratum of the matter is gone in the quantum appeal, no penalty is leviable on the same for the asst. yr. 1981-82. However, for the asst. yrs. 1982-83 and 1984-85 the Tribunal sustained the addition in a sum of Rs. 13,468 and Rs. 1,14,567 respectively. 50. Shri Nair contends that the business really belonged to the assessee's son and because of the close relationship it was done in the premises of the assessee. From this, it could not be inferred that the business belonged to the assessee. The credits found in the books were either treated as income of the assessee straightaway or as unexplained cash credits assessable as the income of the assessee. Whatever might have happened in the quantum proceedings it is for the Revenue to discharge the onus t....
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....nsaction and, therefore, the defence that the provisions of the Benami Transactions (Prohibition) Act would apply cannot be availed of. The profits were rightly assessed in his hands and the assessee having failed to disclose the income should face the consequences for the same. The levy of penalty is confirmed. 52. Murugan Cash Credits : The assessee is a partner in the firm M/s Murugan Trading Co., doing abkari business. He did not admit any income therefrom. There were credits in the seized books in the name of the partnership firm. The ITO made an addition of Rs. 68,579, Rs. 38,090 and Rs. 4,74,171 respectively for the asst. yrs. 1981-82, 1982-83 and 1984-85. These additions came up for consideration before the Tribunal for the impugned years. 53. The Tribunal in its order dt. 4th Oct., 1988 took notice of the fact that Murugan Trading Co., had declared huge profits under the Amnesty Scheme amounting to Rs. 70.5 lakhs for the asst. yr. 1985-86 and Rs. 20 lakhs for the asst. yr. 1986-87. There was also a plea before the Tribunal that the partners of the firm must be examined again. It was also submitted before the Tribunal that Shri Balakrishnan, the managing partner of Mu....
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....ect of the amounts added to the income of the assessee under the caption Murugan Cash Credits. Even after the additions were set aside by the Tribunal, the position remained the same. The Department has not brought on record any material to show that the entries in the books of the firm are correct and complete and it is only the assessee's books that suffered from defects. It should be understood that the credits were noticed not from the books intended for the scrutiny of the Department, but only from the seized records which are intended primarily for private purposes and not for public scrutiny. The Tribunal has disapproved the presumption made by the ITO that the entries in the books of the firm are correct and the entries in the assessee's books must be wrong. The learned ITO has not brought on record anything to show that his presumption was based on facts. He was only relying on the statements made by the managing partner of the firm in which he had simply reiterated his earlier stand which came up for consideration before the Tribunal. Thus, we hold that the case of the Department has not improved even after the restoration of the issues to the ITO. Merely because a certai....