AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
1992 (9) TMI 156
X X X X Extracts X X X X
X X X X Extracts X X X X
....agriculturists in the accounting period relevant to the assessment year 1985-86. According to the Assessing Officer, enquiries were made by him and the D.C. with the villagers and it was noted that some of them had, in fact, died before the date of the claim of cash credits in their names while others were illiterates and could put only their thumb impression on the consent letters. He also noted that the consent letters were written in English which almost all of them did not know. During the examination of the accounts for the assessment year 1986-87, proceedings under section 132(1) of the Income-tax Act, 1961, were taken against the assessee on 22-12-1986. During the said proceedings under section 132, a statement of one Shri R.M. Thakare was recorded under section 132(4). According to this statement, Shri Thakare merely arranged consent letters on the request of Shri Meshram. In reality, however, no such amount was said to have been passed from those so-called creditors to the assessee. Shri Thakare and Shri Lallubhai Patel (Hiranwar) and Shri Nikhare who appeared as creditors in the books also denied having advanced any money. During the search and seizure proceedings, the st....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... below: "On investigation, the following facts have come to my notice: (i) some of the creditors who had already expired, are claimed to have signed the confirmatory letters filed by Shri M.R. Meshram. (ii) some of the creditors who are illiterate and who only put their thumb impression are claimed to have signed the confirmatory letters, surprisingly in a few cases the signature was in English; (iii) whoever creditor who was personally examined under section 131 had not only denied to have signed the confirmatory letters but also stated that they had no means to give any loan to anybody. Besides the above facts, Shri M.R. Meshram, Partner had stated on 22-12-1986 in the statement made by him under section 132(4) of the Act that he obtained the abovementioned loan of Rs. 9,50,000 through S/Shri R.M. Thakare and L.N. Patel (Hiranwar) but declined to cross examine these persons when such an opportunity was offered. The statement on oath made by Shri R.M. Thakare under section 132(4) of the Act brings out the fact that he merely arranged for the confirmatory letters but in reality no cash had passed through him from the so-called creditors to the assessee-firm. Shri L.N. Patel (H....
X X X X Extracts X X X X
X X X X Extracts X X X X
....and other documents relating to the period from 1-4-1984 to 31-3-1985 relevant for the year 1985-86 were in fact produced by you in compliance with the summons under section 131 of the Act dated 15-1-1987. This would show clearly that your statement in the letter under reference that we had seized all your record is false." It is notable that the Assessing Officer in this letter does not talk anything about the inspection of the records. A good number of books and documents were in possession of the department on that date. There is no reference to inspection of such records. 7. On 17-2-1987, the Assessing Officer wrote another letter to the assessee. In that letter, he informed the assessee that he was given an opportunity to prove the genuineness of the said cash credits, but the assessee did not furnish any information in that regard. He also invited his attention to the fact that except for photo-type consent letters in the case of each of such cash credit. he had failed to furnish full identity of the creditors by giving their complete, correct and current addresses and also by giving the permanent account No., GIR Nos. etc. In para 5 of the said letter, he has mentioned tha....
X X X X Extracts X X X X
X X X X Extracts X X X X
....roceedings for the assessment year 1985-86, your goodself had pointed out certain defects, as mentioned in letters referred above and seeking its compliance on or before 26th February, 1987. We are interested in completing the assessment proceedings, at the earliest and accordingly discussed all the matters with your goodself, and also with higher authorities. However, to comply with your requirements, with supporting documents and necessary evidence, we require some more time. It is, therefore, prayed that reasonable time may be allowed to us, to comply with all your requirements." It is notable that this letter talks about the discussion with the ITO and also with higher authorities. On 26-2-1987, the assessee wrote another letter to the ITO in which he offered the sum of Rs. 9,50,000 for the purposes of taxation. The letter is in nature of an offer and reads as under: "Dear Sir, During the course of assessment proceedings, certain queries were raised vide your letter dated 17-2-1987 regarding cash credits of Rs. 9,50,000, dated 19-2-1987 regarding cash purchase and dated 21-2-1987 regarding cash payments and accounts. The assessee has to submit as under: Regarding cash cre....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s raised, it is very difficult to comply with, within a short period. However, the reply is given with a view to complete the assessment on agreed basis, to avoid further litigation and penalty proceedings in the matter. However, if the same is not agreed upon, we may be allowed further time to adduce necessary evidence regarding cash credits and also inspection of records to substantiate our claim regarding expenses and to clarify the accounts." On 27-2-1987, the assessee wrote another letter to the Assessing Officer which reads as under: "We therefore pray that on agreed basis the income of the firm may be assessed as follows: (1) Income from business: Gross profit estimated @ 13.3 per cent on contract receipts of Rs. 1,20,27,078 Rs. 16,23,655.00 &nbs....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ontinuation of the letter dated 26-2-1987. The Assessing Officer has discussed the facts of the case in detail but the income that have been computed is the income which is shown by the assessee in the letter dated 27-2-1987. 11. On that very day, the Assessing Officer passed an order under section 271(1)(c) imposing a penalty of Rs. 14,31,940. 12. The Commissioner of Income-tax (Appeals) cancelled the penalty imposed by the Assessing Officer on the following grounds: "In short, on critical appraisal of the facts of the case, I hold: (i) that on the facts and circumstances of the case, the Explanation 1 to section 271(1)(c) cannot be invoked for imposition of penalty; (ii) that the factual ingredients prescribed in the statutory definition of section 271(1)(c) are not present in this case; (iii) that the facts of concealment were not proved by requisite standard of proof applicable in this penalty proceedings; (iv) that keeping in view the norms of penal imposition and the standard of proof, a finding as to concealment of income needed in a penal proceeding cannot be recorded; (v) that the proceedings under section 271(1)(c) was not initiated in accordance with the law; (v....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ubmitted that several letters were sent to the creditors along with the notice under section 131. Most of the persons did not submit any reply. Our attention was also invited to the fact that then Deputy Commissioner, Shri Gadgil had gone to the villages to find out the facts in this regard. Witnesses were examined in the presence of Sarpanch and Police Patil of the villages. It was submitted that this letter merely proves that the department had made the enquiries and was not in possession of the information that the cash credits introduced by the assessee in the books of account were bogus. Our attention was invited to the fact that the period who had died in 1978 was claimed to have signed a letter in 1985-86. On the basis of the above information in possession of the department, the CIT moved to take action under section 263. It was, therefore, submitted that right from the very beginning the department had known that the assessee had concealed the particulars of income and had furnished the inaccurate particulars. When these persons denied that they had not advanced any money to the assessee, then the onus was on the assessee to prove that such was not the case. He invited our....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ssee did not avail all the opportunities offered. When the assessee realised that there was no escapement, by his letter dated 22-6-1987, he offered to be assessed on certain terms on 26-2-1987. Shri M.R. Meshram, partner of the firm, was further examined on oath on 27-2-1987. The assessee submitted voluntarily letter to offer the amount for taxation. It was submitted that though the time after time, the department continued asking the assessee to prove the cash credits, the assessee continued avoiding the issue. Our attention was invited to the decision of the Allahabad High Court in the case of CIT v. Mansa Ram & Sons [1977] 106 ITR 307. It was submitted that reliance of the CIT (A) on this decision is misplaced. In the said case, there was a material on record to prove that there was an agreement between the department and the assessee with regard to the completion of the assessment and for non-initiation of penalty proceedings. It was submitted that there is no such material on record in this case. Therefore, reliance of the CIT (A) on this decision is not correct. In this case, he submitted that the assessee throughout trying to escape his liability. The Departmental Represent....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ely and under proper planning, attempted to introduce his own income through bogus names in the shape of cash credits. It was submitted that the department could not be saddled with impossible burden to prove that the cash credits were bogus when the department had already produced the sufficient evidence to prove that such was the case. Reliance of the CIT(A) on the decision of the Supreme Court in the case of CIT v. Mussadilal Ram Bharose [1987] 165 ITR 14, was submitted to be incorrect. It was submitted that in that case, it was held that the Tribunal's conclusion on relevant and sufficient material that the respondent had discharged its onus to prove that the difference was not owing to gross or wilful neglect or fraud. It was submitted that in this case, there is no material on record to hold that the so-called cash credits were genuine. As a matter of fact, it was submitted that non-cooperation of the assessee at all the stages and submission of evidence which are obviously false suggests that the assessee had concealed the particulars of income and the decision of the Supreme Court in the case of Mussadilal Ram Bharose will not apply. It was also submitted that reliance of t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ssing Officer was justified in initiating the penalty proceedings during the assessment proceedings in view of the decision of the Calcutta High Court in the case of Jyoti Prakash Mitter. The assessee failed to prove and produce any evidence in support of the genuineness of the cash credits and on 27-2-1987, he offered the amounts for taxation voluntarily. In respect of this voluntary offer, the Assessing Officer passed the detailed order and imposed the penalty and did not pass a routine order. It was also submitted that in 1986-87, the assessee capitalised the loans and has taken the advantage of such capitalisation. Inviting our attention to the letter on page 15 of the paper book in particular para 6, it was submitted that the assessee accepted "since the said loans were already assessed in the earlier years as the firm's income, the credits and debits of it shall be transferred to the accounts of the partner Shri M.R. Meshram who has subsequently constituted the firm and accepted the liabilities of the old firm". It was submitted that there could not be any better evidence than this to prove that the assessee not only introduced his income in the shape of cash credits but also....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... ---------------- Total Rs. 19,30,132.00" ---------------- It was submitted that the assessee specifically mentioned the figure of Rs. 8,50,000 as expenses claimed. The assessee had also used the phrase "on agreed basis". The Assessing Officer while proceeding to pass the order not only accepted the G.P. rate estimated at 13.5 per cent on Rs. 1,20,27,078, he also allowed the assessee the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....sessee had agreed to be assessed on higher rate of profit, the High Court, looking into the totality of the circumstances upheld the cancellation of the penalty. It was submitted that the operative part of the decision makes very interesting reading and provides sufficient material to hold that there was an agreement between the assessee and the department regarding the assessment of particular quantum. 16. In reply, the Departmental Representative submitted that in this case, the Deputy Commissioner of Income-tax had made detailed enquiries, had recorded the statements of various so-called creditors and indicated to the assessee contents of such investigations and only after making various enquiries that the department proceeded to make this assessment. It was submitted that there is no material on record to hold that the department made any promise to the assessee and it is not fair on the part of the assessee to say that the department had agreed to not to impose the penalty. Our attention was also invited to the decision of the Supreme Court in the case of CIT v. S.V. Angidi Chettiar [1962] 44 ITR 739, pp. 745. 17. We are of the opinion that in this case, the CIT(A) was justi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....garding those items and makes submissions. This is a one unique case, in our experience, where the penalty was imposed on the same date on which the income was computed during the assessment proceedings. If the Assessing Officer is satisfied that there was a concealment of income, he may initiate the penalty proceedings at any stage, there cannot be any legal challenge to this Act of the Assessing Officer - Jyoti Prakash Mitter's case. However, initiation of action under section 271(1)(c) is only one stage of the penalty proceedings. A substantive hearing has to be given to the assessee to offer its explanation. After duly taking into consideration the explanation offered by the assessee, the Assessing Officer may proceed to impose the penalty for concealment. In this case, the statements of the creditors on the basis of which the department has proceeded to impose the penalty were never given to the assessee. Therefore, though the department may treat the cash credits as unexplained as per the concession given by the assessee, the department cannot proceed to impose the penalty for concealment on the basis of the said concession. We are not trying to impose any impossible burden o....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the absence of such statements given to the assessee will be an order without any basis. The assessee was given a right of cross-examination at one time. That was the time when the search was taking place and statements were recorded under section 132(4). Before a statement under section 132(4) can be made a basis for imposition of penalty, it has to form part of the assessment proceedings for the relevant year. Such statement can be made part of the assessment proceedings only if it is actually handed over to the assessee for examination and cross-examination, if any. No such attempt was made either during the assessment proceedings or during the penalty proceedings. Therefore, we are of the opinion that in this case, the assessee negotiated an agreement with the department and offered the amount for taxation with a view to purchase peace. The department could have rejected the offer of the assessee and could have proceeded to complete the assessment accordingly. It could not find out any material to prove that the offer of the assessee was an eye-wash. There is no such material on record to hold this view. Under the circumstances, we are of the opinion that the decision in Sir S....