1. The assessee is in appeal against the order dated 3-12-1983 of the learned Commissioner (Appeals), whereby he confirmed the imposition of penalty against the assessee in the sum of Rs. 1,24,721 under Section 271(1)(c) of the Income-tax Act, 1961 ('the Act').
2. The assessee is a registered firm which carries on the business of 'Indian Made Foreign Liquor' (IMFL). The partners of the assessee-firrn are S/Shri Pramod Kumar, Ajeet Kumar, Bharat Kumar, Ashok Kumar Ahlawat, Ashok Kumar Agarwal, Jitendra Prakash and Bipendra Kumar Goel.
For the assessment year 1978-79 in question, the assessee declared a loss of Rs. 1,70,421. The disclosed sales were of Rs. 7,48,654.
However, assessment was completed by the ITO after applying the proviso to Section 145(1) of the Act. He estimated the sales at Rs. 9 lakhs and by estimating the net profit rate at 5 per cent, he completed the assessment on an income of Rs. 45,000. The assessment was completed after obtaining the directions of the IAC under Section 144B of the Act. No appeal was filed by the assessee against the said assessment.
Thereafter, the ITO initiated penalty proceedings under Section 271(1)(c). In reply to the 'show cause notice' the explanation dated 21-3-1983 of the assessee was that the difference between the assessed income and the returned income did not amount to any concealment or furnishing of inaccurate particulars. However, the ITO relied upon the following factors, which had influenced the assessment proceedings : 271(1)(c) was bona fide and all the facts relating to the same and material to the computation of its total income had been disclosed by it, and, therefore, the presumption of concealment of income had been duly rebutted. The penalty could not, therefore, be sustained.
1. Bill No. 438 dated 24-3-1978 for Rs. 2,637.57 from Rakesh Chand Mahesh Chand, Meerut, was not entered in the ledger.
2. Purchase and sale vouchers, cash memos, quantitative tally were not produced before the ITO though cash book, ledger, stock registers and purchase vouchers were produced before the IAC during Section 144B proceedings. The stock register produced showed that the excise authority had punished the assessee for not maintaining it properly.
3. The ITO found that liquor was sold in glasses instead of sealed bottles.
3. An additional factor which influenced the ITO was that against the assessment order, no appeal had been filed by the assessee. The ITO observed that the recording of books, transactions in the account books which had proved discrepancies were instances of deliberate furnishing of inaccurate particulars of income within the meaning of Section 271(1)(c). He also held that the way the books of account were maintained, proved the contumacious conduct on the part of the assessee and that concealment of income impliedly had been done with the clear knowledge of the assessee-firm, which was grossly and wilfully negligent in not returning the correct income. In regard to non-filing of the appeal, he observed that the assessee had thereby accepted the assessment as framed, which all the more proved the guilt on its part.
The ITO relied upon the decisions in Nagin Chand Shiv Sahai v. CIT [1938] 6 ITR 534 (Lahore) CIT v. Gates Foam & Rubber Co. [1973] 91 ITR 467 (Ker.) and CIT v. India Sea Foods [1976] 105 ITR 708 (Ker.). He, therefore, held that the assessee did conceal the particulars of its income and had furnished inaccurate particulars of such income for which it was liable to penalty. The penalty of Rs. 1,24,721 was imposed at its minimum by taking the tax on the amount concealed (Rs. 2,15,421) treating the assessee-firm as an unregistered firm.
4. In appeal, the learned Commissioner (Appeals) referred to a number of decisions mentioned in his order. He held that sale vouchers were not produced before the ITO or the IAC during the course of the appeal.
He also observed that if they could be produced before the sales tax authorities, they could, as well, have been produced before the income-tax authorities. He held that there was suppression of sales and that the assessee had accepted the income assessed on its basis. He held that the fact that the books of account were not reliable and that the assessee had suppressed its income, was proved by the fact that the share income as assessed, had been accepted by the assessee. He also observed that the estimate of income assessed by the ITO was based on defects found in the books of account of the assessee and that the absence of sale vouchers could not go unobserved. He also observed that serving of liquor in open glasses could not be lost sight of. He also observed that the assessee had not been able to show that either the turnover estimated or the net profit rate applied thereto, was wrong or unreasonable. He held that where an assessee accepts income assessed, which is far different from the income returned, the difference between the income assessed and the income returned is concealed income. He also observed that the acceptance by the assessee of the assessment made, led to the presumption that the income assessed represented the true income of the assessee and that since there was a wide difference between the income returned and that assessed, the difference could be presumed to represent the concealed income of the assessee. According to him, the assessing officer in these circumstances did not require any further proof to hold that the income in question was the assessee's concealed income. Accordingly, he upheld the penalty.
5. The assessee, being aggrieved, has come up in appeal before us. Shri S.D. Bahl, the learned counsel for the assessee, relied upon the explanations, furnished on behalf of the assessee vide its replies dated 30-11-1978, 14-12-1980, 22-4-1981, 8-11-1983 and 21-11-1983. He submitted that the account books were produced before the IAC under Section 144B and vouchers could not be produced as they were with the other partner, Bharat Kumar, who had taken them for being produced before the sales tax authorities. He also pointed out that the sales tax authorities had completed the assessment on the basis of the sale figure returned by the assessee. Referring to the provisions of Section 271(1)(c), he pointed out that the ITO had proceeded on the basis of the old Explanation to Section 271(1) (c) which existed prior to 1-4-1976 whereas in the present case, the new Explanation was applicable. Next, he pointed out that the learned Commissioner (Appeals) had also considered decisions under the old Explanation. So far as Bill No. 438 is concerned, he pointed out that there was a dispute between the assessee-firm and Rakesh Chand Mahesh Chand regarding the finalisation of accounts and that notwithstanding the fact that this bill was not ledgerised, it was duly entered in the stock register and the goods had been actually sold. He also pointed out that the stock register had been duly examined by the excise authorities and on 31-3-1978, no unaccounted stock of IMFL or beer was found in the shop. The stock register was, therefore, said to be duly maintained. In this regard, reference was also made to the copies of the notes of inspection, made by the excise department from time to time. So far as the consumption of liquor in glasses is concerned, he pointed out that the asses-see could not prevent customers from drinking in glasses at the shop after buying sealed bottles. He pointed out that the assessee had filed an affidavit dated 8-11-1983 of the partner Ashok Kumar to this effect but that it was not admitted in evidence by the learned Commissioner (Appeals). So far as the expenses are concerned, he pointed out that no specific instance of unvouched expenses had been pointed out and that the expenses consisted of Rs. 3 lakhs as licence money and other fee, Rs. 6,000 by way of rent and Rs. 18,536 by way of salary and wages. The expenses were said to be rightly claimed. Lastly, he pointed out that the fact that no appeal had been filed against the assessment order could not operate against the assessee. He also pointed out that the assessee had already explained that appeal could not be filed as the firm was dissolved on 31-3-1978 and because the partners had to bear tax at Rs. 2,473 only. Reference was also made by him to the decision of the Hon'ble Patna High Court in CIT v. Binod Co. [1980] 122 ITR 832, wherein it was held that the assessee's agreeing to addition of cash credit to the total income, did not amount to admission of concealment of income. Reference was also made by him to the decision of the Hon'ble Punjab and Haryana High Court in Vishwakarma Industries v. CIT [1982] 135 ITR 652 (FB) wherein it was held that the burden of discharging the onus would be like the one in the ordinary civil proceedings. Reliance was also placed by him on the following observations made by the Allahabad Bench 'A' of the Tribunal in the case of Biland Ram Hargun Dass v. ITO [1984] 8 ITD 772 : It is well established that penalty cannot be levied merely because a certain item is surrendered unless there is material on record to show that the surrendered item was the assessee's income. In other words, no penalty can be imposed simply because the assessee had agreed that certain amounts were its income.
Referring to the provisions of Section 271(1)(c), Shri Bahl, submitted that in respect of the facts, material to the computation of the total income of the assessee to explanation offered by the assessee was held to be not substantiated but no presumption of concealment could be raised against the assessee as a result of the rejection of its explanation since the explanation was bona fide and all the facts relating to the same and material to the computation of its total income, had been disclosed by it.
6. On the other hand, Shri M.M. Bharti, the learned departmental representative, placed strong reliance on the orders of the income-tax authorities. He also relied upon the following decisions-Shiv Narain Khanna v. CIT [1977] 107 ITR 542 (Punj. & Har.), Banaras Chemical Factory v. CIT [1977] 108 ITR 96 (All.), A.K. Bashu Sahib v. CIT [1977] 108 ITR 736 (Mad.), Western Automobiles (India) v. CIT [1978] 112 ITR 1048 (Bom.), CIT v. Krishna & Co. [1979] 120 ITR 144 (Mad.), Durga Dutta Chunni Lal v. CIT [1979] 120 ITR 319 (All), Mirzapur Construction Co. v. CIT [1980] 122 ITR 828 (All.), AddI. CIT v. D.D.Lamba& Co.
[1981] 128 ITR 564 (All.), CIT v. Swamp Cold Storage & General Mills [1982] 136 ITR 435 (All.) and Kikabhai Abdulali Rangawala v. CIT [1983] 144 ITR 465 (Bom.). He, therefore, argued that there was no warrant or justification for any interference with the order of the learned Commissioner (Appeals).
7. We have considered the rival submission as also the decisions referred to above. The first point which requires to be emphasised is that in the present case, as rightly pointed out on behalf of the assessee, the old Explanation to Section 271(1)(c) which was omitted from 1-4-1976 could not be taken into consideration and it is only under the new Explanation that the matter has to be considered. This is not a case in which the assessee had failed to offer an explanation or a case in which the assessee had offered an explanation which was found by the ITO or the Commissioner (Appeals) to be false. It is a case in which the assessee had offered an explanation, which was held to be not substantiated. It is on that basis that the income was estimated and expenses were disallowed and as a result thereof, for the purposes of Section 271(1)(c), the amount of Rs. 2,15,421 was deemed to represent the income of the assessee in respect of which the particulars had been concealed. Therefore, the only question to be examined and considered with reference to Explanation 1 to Section 271(1)(c) is whether the explanation offered by the assessee was bona fide and all the facts relating to the same and material to the computation of its total income had been disclosed by it. Therefore, the decisions referred to by the income-tax authorities or relied upon on behalf of the revenue, which are based upon the old Explanation to Section 271(1)(c) cannot assist us.
8. Though, there is no basis for the assumption that some additional material should always be forthcoming for the levy of penalty in addition to the material on which the assessment was based and the very same material can form the basis for the assessment as well as the penalty, penalty cannot be levied solely on the basis of the reasons given in the assessment order. In other words, though the findings given in the assessment proceedings are relevant and have probative value, they are not conclusive. However, it is good evidence. Coupled with the above factor is the question of effect of not filing appeal against the assessment order. Merely because the assessee does not challenge an addition, it cannot be inferred that the assessee was guilty of concealment of income. There can be a number of reasons why an appeal was not filed or could not be filed. If authority were needed for such a proposition, it would be found in the decisions of the Hon'ble Patna High Court in Binod Co.'s case (supra) and in CIT v.Gwalior Metal Industries [1983] 141 ITR 274. In the present case, the assessee had given an explanation as to why an appeal could not be filed against the assessment order. The explanation of the assessee was that the appeal could not be filed as the firm was dissolved on 31-3-1978 and because the partners had to bear a tax of Rs. 2,473 only.
We are, therefore, clearly of the view that the fact that no appeal was filed against the assessment order, could not operate against the assessee. The inferences drawn by the income-tax authorities to the contrary were, therefore, not justified.
9. So far as the making of the additions on estimate is concerned, normally penalty could not be levied unless it could be shown that an element of concealment was positively involved. However, on principle, it cannot be said that penalty cannot be levied under Section 271(1)(c) at all, in any case, in which addition is made on the basis of estimate. In the present case, the learned Commissioner (Appeals) observed and rightly so, that the assessee-firm did not make any admission or disclosure but accepted the assessment made. There was no voluntary disclosure of income, nor did the assessee agree to the inclusion of any amount in the assessment. Therefore, the decisions referred to on behalf of the revenue in that regard, are not strictly relevant on facts.
10. We have, therefore, to examine the contentions of the assessee in the light of the proviso to Explanation 1 to Section 271(1)(c) as applicable for the assessment year 1978-79 in question, to which reference has already been made by us above. It is true that purchase and sale vouchers, cash memos and the quantitative tally could not be produced by the assessee before the ITO. However, the cash book, ledger, stock register and purchase vouchers were produced before the IAC. The assessee had explained in its reply dated 22-4-1981 that the sale vouchers were with the other partner, Shri Bharat Kumar, who conducted the case of the assessee-firm before the sales tax authorities. The case of the assessee was also that after the first hearing which took place before the ITO on 30-11-1978, the partners had failed (sic) out. So far as the stock register is concerned, the ITO had commented that the excise authorities had punished the assessee for not maintaining it properly. We have gone through the copy of the notes of inspections recorded by the excise authorities from time to time. A perusal thereof shows that the stock register was found to be verified.
It is only in the note dated 8-11-1977 that it was found that the shop was found open and sales being made at 9.30 P.M. even though the shop should have been closed at 8 P.M. It is at that stage also that it was noticed that two people had been sold liquor in glasses. As a result of the same, a fine of Rs. 200 was made against the assessee. However, the copy of the last page of the stock register placed on the paper book shows that it had been seen on 19-3-1978 by the excise inspector and again on 31-3-1978 during a surprise visit when no stock of IMFL and beer was found unsold in the shop outside the books. We are not sitting in appeal against the assessment order, nor are we reassessing the material on the basis of which assessment was made by the ITO and which attained finality. But these observations have to be made in order to see whether the explanation offered by the assessee was bona fide for the purposes of the levy of penalty under Section 271(1)(c). In our view, the aforesaid material goes in favour of the assessee. The assessee had also explained that it could not prevent customers from drinking in glasses at the shop after buying sealed bottles. Also relevant in this connection is the fact that since the assessee had not been afforded an opportunity of establishing this fact, it sought to file an affidavit dated 8-11-1983 before the learned Commissioner (Appeals), but which was not admitted by him for reasons given in the impugned order. No doubt, Bill No. 438, dated 24-3-1978 for Rs. 2,637.57 from Rakesh Chand Mahesh Chand was not entered by the assessee in ledger. But it was duly explained by the assessee that the stock represented by this bill was duly entered in the stock register and that there was a dispute between the assessee and that firm regarding the finalisation of accounts. In the reply dated 21-11-1983, it was explained by the assessee that the said purchase voucher was lying in the voucher file when it was produced before the ITO. In this connection, the assessee's reply dated 22-4-1981 is also relevant. It was explained that the dispute with Rakesh Chand Mahesh Chand was for rate and octroi. The assessee had stated that no adverse inference may be drawn as the stock was considered for sale and that the purchases of the assessee be increased by the amount of the bill whereby the loss was to be increased. Also important is the fact that the sales, as declared by the assessee, were accepted by the sales tax department where the assessee's partner, Shri Bharat Kumar, appeared. On the basis of these facts, therefore, we are of the view that the explanation offered by the assessee was bona fide and that all the facts relating to the same and material to the computation of its total income had been disclos-sed. So far as the expenses of Rs. 3,41,144 are concerned, the ITO had not pointed out any specific instance where the expenses were not vouched. The copy of the trading and profit and loss account shows that Rs. 3 lakhs were paid by the assessee towards licence and excise, Rs. 822.01 towards legal fee, Rs. 6,000 for rent and Rs. 18,536.23 towards salary and wages, besides other expenses like miscellaneous shortage, staff welfare, telephone, packing, insurance, bad debts, sale promotion, etc. The mere fact that the loss could not be proved and that the expenses were not held established would not operate against the assessee. The material on the record does not show that the deduction claimed or the loss claimed were false. In view of the same and looking to the material on the record and the totality of the facts and circumstances of the case, at the most, it could be said that the assessee had accepted the assessed income. But, it could not be said that the assessee had made any admission that the income was its concealed income, or that the assessee had actually earned the income assessed. It was the first and the last year of the assessee's business. We are, therefore, of the opinion that so far as the penalty proceedings are concerned, the income-tax authorities were unduly influenced by the factors enumerated earlier in this order for which bona fide explanation had been tendered by the assessee. Looking to the totality of the facts and circumstances of the case, therefore, we are of the view that the explanation offered by the assessee in terms of the proviso to Explanation 1 of Section 271 (1)(c) was bona fide and that all the facts relating to the same and material to the computation of its total income had been disclosed by it and, therefore, the presumption of concealment of income had been duly rebutted. Therefore, it was not a case in which any penalty could have been imposed or sustained against the assessee. We hold accordingly.
11. The appeal is allowed and the penalty of Rs. 1,24,721 is cancelled.
The stay petition filed by the assessee, having become infructuous, is dismissed.