TaxTMI 
TaxTMI 
1987 (5) TMI 85
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....see firm did not own any lorries of its own. They arrange lorries for transport on brokerage, commission or on contract basis. The assessee firm used to maintain regular books of account. It had taken a contract to provide transportation to M/s KCP Ltd. Vuyyur, of Krishna District as well as Jeypore Sugar Ltd. Chagallu of West Godavari Dist., for transportation of sugar from their factories to Visakhapatnam port, for purposes of export of sugar to foreign countries. The State Trading Corporation of India fixed the rates of Rs. 16.80 and Rs. 14.40 per bag as reasonable rates for transportation of sugar from Vuyyur and Chagallu respectively to Visakhapatnam Port. As against those rates the assessee firm was appointed as transport agent by M/s KCP Ltd. and M/s Jeypore Sugars Ltd. on Payment of Rs. 10.80 per bag for the accounting year relevant to assessment year 1975-76 and Rs. 11.50 per bag for the accounting year relevant to assessment years 1976-77 to 1979-80. The corresponding rate at which the assessee firm was appointed as their transport agent was Rs. 9.75 per bag. A number of allegations were made against the management of both the abovesaid sugar companies alleging that their....
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....nt with a request to take a reasonable view of the circumstances and for recommending to agreed assessments. On request by the department the CIT(A) before whom the appeals were filed for assessment year 1977-78 to 1979-80 were set aside and. the Income-tax Officer was directed to make the assessments afresh and according to law after examining the evidence regarding inflation of expenditure which may now be produced. The order of the CIT(A), Hyderabad, dated 26-10-1982 was provided at pages 46-48 of the First paper book filed by the assessee. After the CIT(A) thus disposed of the appeals for assessment years 1977-78 to 1979-80, the Income-tax Officer framed assessments for each of the five assessment years under consideration on 19-5-1983, copies of which were provided at pages 32 to 45 of the First paper book filed on behalf of the assessee. 5. While completing the assessments dated 19-5-1983 notices for levying penalties were issued under s. 274 read with section 271 for concealment of income. Before the completion of assessments dated 19-5-1983 a written representation was made by the assessee firm to the CIT, Central, Karnataka, inter alia, alleging that the net receipts fr....
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.... Inspector about half a dozen lorry owners gave their statements as to the hire charges they received from the assessee firm. All of them have stated that they have not received that much of amount as has been claimed by the assessee firm. Thereupon the Income-tax Officer afforded opportunity to the assessee firm to cross-examine these individual lorry owners but the assessee firm did not choose to cross-examine any of them. He held that the conduct of the assessee clearly shows that it had deliberate knowledge about the factum of inflation of hire charges and it had only tried to see that the quantum of such inflation is fixed at an advantageous figure and with this view only, the assessee firm approached the CIT, Central, for settlement and finally accepted the solutions suggested by him. Ultimately, the CIT, Central, after going through the submissions made by the assessee firm and the material on record directed that a sum of Rs. 50 per lorry per trip may be added as inflation of hire charges. From this it was concluded that inflation of hire charges had been proved beyond a show of doubt. The Income-tax Officer further held that if really the assessee had not inflated the expe....
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.... Officer, a highly inflated debit as genuine, will constitute furnishing of inaccurate particulars of its income and the said conduct attracted s. 271(1)(c). As against the confirmed penalties the assessee firm came up in further appeal before this Tribunal and thus the matter stands for our consideration. 7. We have heard Sri CVK Prasad, learned counsel for the assessee and Sri N. Santhanam, learned departmental representative. It is submitted by Sri Prasad that the STC paid Rs. 16.20 per bag towards transportation charges from Vuyyur to Visakhapatnam. The contract is between STC on the one hand and KCP Ltd. on the other. From Chagallu to Vizag the STC paid Rs. 14.40 per bag. However, the KCP Ltd. in its turn paid the assessee firm only Rs. 11.50 per bag for transporting sugar bags from Vuyyur to Vizag and Rs. 9.75 per bag for transporting sugar bags from Chagallu to Vizag. When the STC itself was considering payment of Rs. 16.80 per bag from Vuyyur to Vizag and Rs. 14.40 from Chagallu to Vizag as reasonable how can it be said that payment of Rs. 11.20 per bag and Rs. 9.50 per bag towards transportation charges from Vuyyur and Chagallu, respectively to Vizag unreasonable, exces....
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....d at the port. He further stated in the accounting year relevant to assessment year 1975-76 the rate paid by the KCP Ltd. to the assessee firm was Rs. 10.80 per bag, whereas freight charges paid by the assessee firm to the hired lorries were Rs. 10.50 per bag and whereas in the accounting year relevant to assessment year 1976-77 to 1979-80 the rate paid by M/s KCP Ltd. to the assessee was Rs. 11.50 per bag as against the rate paid by the assessee firm to the hired lorries towards freight charges was Rs. 11.20 per bag. In all 9,674 trucks were engaged and 8,80,786 bags of sugar transported from M/s KCP Ltd. Vuyyur to Visakhapatnam. So also, according to the contract entered into with M/s Jeypore Sugar Co. Ltd. Chagallu for the accounting years relevant to assessment years 1975-76 to 1978-79 the assessee firm was paid Rs. 9.75 per bag whereas in its turn the assessee firm paid Rs. 9.50 per bag for the accounting years relevant to assessment years 1975-76 and 1976-77 and Rs. 9.25 per bag for the accounting years relevant to assessment years 1977-78 and 1978-79. For the accounting years relevant to assessment years 1975-76 to 1978-79 the total trips made from Chagallu to Vizag were 387....
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....t to have been paid under these contracts, the payment should have been considered as genuine. The Income-tax Officer very much relied upon depositions recorded from five or six lorry owners. All except one have no books of account. Even the one lorry owner who claims to have maintained the books of account entries in his books cannot be relied upon as the assessment was completed in his case, only under s. 143(1). Further lorry owners never used to come for payment of balance freight. On receipt of intimation from the factories the assessee firm used to send empty lorries to the factory site for loading and export and those lorries used to be loaded with stocks and despatch memos used to be prepared by the assessee firm in respect of each lorry load containing particulars of consignor, consignee, total freight, advance freight paid and the balance freight payable. On these despatch memos signature of lorry driver used to be obtained. At the destination point after the goods were unloaded and delivered to the clearing and forwarding agents, M/s Parry & Co. Ltd. and their sub-contractors M/s Rao and Reddy they used to give the ' goods received note ' to the driver. Whosoever produce....
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....tracted above which was in the statute book from 1-4-1964 to 31-3-1976 was considered fully and exhaustively. In that case the question was whether after the insertion of the Explanation the ratio of the Supreme Court decisions in CIT v. Anwar Ali [1970] 76 ITR 696, and CIT v. Khoday Eswarsa & Sons [1972] 83 ITR 369, where it is held that penalty proceedings are penal in character, that the onus is on the department to show that a particular receipt or amount is of revenue nature that where there is no positive evidence of concealment no penalty is imposable were still good law or not. Their Lordships held in unequivocal terms that even after the Explanation adverted to above the legal position that is applicable to the penalty proceedings as enunciated by the Supreme Court in the above two cases does not materially alter. In Anwar Ali's case the Hon'ble Supreme Court approved the view taken by the Bombay High Court in CIT v. Gokuldas Harivallabhdas [1958] 34 ITR 98. It is stated in that case that the proceedings under s. 28 of the IIT Act, 1922, are all of penal nature and the burden is on the department to prove that a particular amount is a revenue receipt. The mere fact that th....
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....as concealed the income or furnished inaccurate particulars of such income. The assessee need not adduce specific evidence in this regard as to absolve himself from which being hold that he has failed to return the total assessed income on account of any fraud or gross or willful neglect on his part. He can certainly take advantage of the material available on record and substantiate his stand in this regard. Where there is no material other than the falsity of the explanation relating to the addition of income in the assessment proceedings it cannot be said that the revenue had discharged its onus to establish that the assessee has concealed particulars of his income or furnished inaccurate particulars of such income. Ultimately, they held that the levy of penalty can be justified only on proof of two factors : (1) there must be sufficient material to conclude that the disputed amount really represents the assessee's income apart from the false explanation or inability of the assessee to satisfactorily prove that it is not income and (2) there was conscious concealment or conscious furnishing of inaccurate particulars of his income. 9. The question whether Burugupalli China Kri....
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....ross or willful neglect on his part. This onus is rebuttable. If, in an appropriate case the Tribunal or the fact finding body is satisfied on relevant or cogent material on record and draws an inference that the assessee is not guilty of gross or willful neglect or fraud then in such a case, the assessee cannot come within the mischief of the section and suffer penalty. The burden placed upon the assessee is not discharged, by any fantastic explanation nor is it a law that any or every explanation by the assessee must be accepted. It must be an explanation acceptable to the fact finding body." 11. The learned departmental representative while advancing able and thought-provoking arguments strongly defended the orders of the lower authorities and tried to convince us that the ratio of the Andhra Pradesh High Court in Burugupalli China Krishnamurthy's case is no longer good law and he cited Addl. CIT v. Lakshmi Industries & Cold Storage Co. Ltd. [1984] 146 ITR 492 (All.) where it is held that even where the additions have been made to the returned income on the basis of an estimate, the explanation is attracted and penalty is leviable. The learned departmental representative argu....
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....significance of the omission of word ' deliberately ' from the wording of s. 271(1)(c) and insertion of explanation which is in vogue from 1-4-1964 to 31-3-1976. The Full Bench held that the omission of the word ' deliberately ' from the wording of s. 271(1)(c) and inserting the Explanation thereto by Finance Act, 1964, was to bring about a change in existing law. Consequently, the ratio of Anwar Ali's case which had considered the earlier provisions of s. 28(1)(c) of Indian Income-tax Act, 1922, is no longer attracted to the situation. The logical import of the explanation is to shift the burden of proof from revenue to the shoulders of the assessee. The explanation raises three rebuttable presumptions : (i) that the amount assessed is the correct income ; (ii) that the failure of the assessee to return the correct income was due to concealment of the particulars of his income and (iii) that such failure of the assessee was due to furnishing inaccurate particulars of such income. The onus to prove for rebutting the presumptions lies squarely on the assessee. However, the burden can be discharged as in civil cases by preponderance of evidence. Equally it may not be inflexibly neces....
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....ative also brought to our notice the decision of the Andhra Pradesh High Court in CIT v. Angara Satyam [1959] 37 ITR 230, and Mathura Prasad Agarwal v. CIT [1977] 108 ITR 370 (SC), and argued that even in the reassessment proceedings the assessee can be penalised for concealment of income in the return submitted in the original proceedings. He also argued that the revenue need not do anything accept to rely upon the findings given in the assessment proceedings. He also cited before us CIT v. E.V. Rajan [1985] 151 ITR 189 (Mad.) and submitted that the facts of that case are nearer to the facts of the present case. In that case also the primary book on which the concealment was detected was an Anamat book. However, the addition was made on an estimate basis. Held, the penalty based on the said estimate is valid. He argued that there is no agreement between the assesses and the department that the department is not going to start penal proceedings against the assessee. The department never gave an impression that they would not levy penalty. He had cited before us Banta Singh Kartar Singh v. CIT [1980] 125 ITR 239 (Punj. & Har.) at page 241 and argued that in order to substantiate the....
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.... have now come to the conclusion that it is worthwhile examining the lorry owners and drivers whose names are listed in the draft assessment orders at para 6.5 of the assessment order for 1979-80 and therefore they requested that an opportunity to cross-examine them may be given and they expressed their preparedness to pay necessary battas for summoning those people. However, the department did not concede the request of the assessee. Sri Prasad further submitted that a reading of the letter dated 9-3-1983 addressed by the CIT, Central, Karnataka, to Income-tax Officer, Central Circle, Vijayawada, would reveal that he had accepted the explanation offered on behalf of the assessee firm totally and in all respects. The addition was made only according to the directions of the CIT, Central. The learned CIT, Central, did not touch upon any pieces of evidence disclosing concealment. It is argued that when addition was made on agreed basis no penalty can be levied and for that proposition he relied on CIT v. Mansa Ram & Sons [1977] 106 ITR 307 (All.). When the addition was made to the total income on the assessee agreeing to the same and when no independent evidence was available to esta....
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....nto account. However, the assessee paid lorry hire on the basis of number of bags loaded in the lorry employed for transporting. In determining the actual freight rates reliance was placed mainly on the oral evidence gathered from lorry owners who plied their lorries for transporting sugar for the assessee firm from Vuyyur and Chagallu to Vizag. 16. Now let us examine the evidence of these lorry owners. It is significant that out of several lorry owners examined only one Sri Jalluri Pullaiah maintained account books. Others did not maintain any account books and they have stated only from their memory. The statements obtained from lorry owners by the Inspector were provided at pages 110 to 121 of the first paper book and the sworn statements recorded from 8 lorry owners were provided at pages 89 to 105 of the first paper book, and sworn statements recorded from Sri J. Pullaiah besides being a proprietor of a lorry is also a partner in a firm called M/s. Kiran Lorry Transport. He is an income-tax assessee and maintains books of account. He owns two lorries bearing APB 9028 personally and AAK 7387 owned by his firm. He deposed that on 1-3-1977 transport charges paid by the assesse....
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....en obtained on a blank memo. Again one T. Venkat Rathaiah also admitted that the signature of his lorry driver was taken on blank paper without filling in the details. Secondly, none of the lorry owners examined preserved their trip sheets except one K. Seetharamaiah. S/Shri L.S. Anjaneyulu and L. Nageswara Rao were two drivers who were engaged by him during those days. It is significant that the Income-tax Officer had seized trip sheet book from this witness maintained for the period from 12-12-1975 to 3-2-1977. It would have disclosed what was the charged freight for transporting the goods. However, this important piece of evidence was not produced by the department though admittedly it was in its possession. It is also significant that none of the lorry owners claimed to have received freight charges directly from the assessee firm. It is therefore claimed that their drivers used to get the money from the assessee firm. None of the drivers were examined. It is not the case of the revenue that the drivers who were employed and who have transported the goods during the relevant period were not available or their whereabouts are not known. In fact they are best persons to be examin....
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....s stated that that is not a comparable case, inasmuch as the quantity transported by the said factory to Visakhapatnam port is a very small quantity and the number of lorries used to be less. In our opinion, the assesses was able to establish from the evidence which is already on record that the so called comparable cases are not comparable at all and that the evidence recorded from the lorry owners did not carry any weight and did not establish concealment by the assessee at all. As far as J. Pullaiah is concerned he may be interested to see that he is assessed for lesser income than what he derived and there is every possibility for short crediting the amounts received towards freight charges. As regards other lorry owners they did not maintain any account books whatsoever. 17. At page 57 of the second paper book filed on behalf of the assessee which is part of the objections filed by the assessee for the draft assessment orders for assessment year 1979-80 the following is stated : But however we have now come to the conclusion that it is worthwhile examining these owners and drivers whose names are listed in the draft assessment order at para 5.5. We therefore request you ....
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....ice under s. 148 the assessee firm returned an amount of Rs. 97,890 on 16-8-1979 as its income for assessment year 1975-76. The inflationary freight charges added to the returned income were Rs. 1,43,400 and the total income assessed was Rs. 2,41,290. If the inflationary freight charges were taken out while computing the correct income then the difference between the returned income and the assessed income would not be less than 80% and therefore the case does not fall or was governed by the Explanation to s. 271(1)(c). 19. The question whether there is conscious concealment on the part of the assessee for assessment year 1975-76 would be considered along with the said contention of the learned departmental representative for the other four assessment years also. As far as facts are concerned whatever we hold for assessment year 1975-76 equally applies to the other four assessment years with which we are concerned in these appeals. As far as the legal position is concerned we may mention that penalty proceedings are in the nature of penal proceedings, that the ratio of the Anwar Ali's case and Khoday Eswarsa & Sons' case already referred to supra still holds good, the burden lie....