Judgment:
The present appeal is directed by the assessee against the order of Commissioner (Appeals) dated 17-3-1989, confirming the levy of penalty amounting to Rs. 23,886 under section 271(1)(c) of the Income Tax Act for concealing the income by the assessee.
Before we adjudicate the correctness of the decision of the Commissioner (Appeals) a brief but quick glance at the connected facts is essential which we narrate and record as under.
The assessee is a partnership firm and filed its return of income on 28-6-1982, declaring a taxable income of Rs. 22,240 which was subsequently revised on 23-3-1985. There were search operations under section 132 of the Act on 13-3-1981, and the cash book, ledger, purchase and expenses register and sale register were seized. All other registers such as stock register, in award register, wages and salary registers as well as purchase and sale vouchers, and expenses vouchers were not seized as perhaps they were not found during the course of search operations. After the search the assessing officer took up the assessees case for finalisation and during the course of scrutiny and enquiry of purchase register as well as cash book, the assessing officer noticed that the assessee made purchases of raw materials on different dates from the below given dealers on credit basis In addition to the above-mentioned credit purchases the assessee also made cash purchases from the above-mentioned five firms plus another firm by the name of Decent Textile Stores. The details of the cash purchases are extracted below : The assessing officer impounded all purchase bills delivery memos and payment receipt under section 131 of the Act. Thus, the total cash and credit purchases were to the tune of Rs. 77,943.45 from the above-mentioned dealers. The assessee filed account copies of the above dealers from its account before the assessing officer. The assessing officer issued two letters dated 25-9-1985, and 29-10-1985, requiring the assessee to file certain account copies from the account books of the above dealers and also to furnish the present postal addresses of the above dealers and further to furnish the names and addresses of the above dealers and concerned proprietors/partners of those concerns. The assessing officer further directed the assessee to request the above-mentioned dealers to be present before him on 3-11-1985, for further verification and examination of total purchase made by the assessee.
The assessee through its letter dated 11-11-1985, informed the assessing officer that the above mentioned six parties were not traceable and therefore, expressed its inability to produce them before the assessing officer for further enquiry and as desired by him. The assessee in the said letter also expressed its inability to furnish the names and addresses of the proprietors/partners of the said concerns but intimated that the addresses of the said concerns are given on the invoices which have been impounded by him. The assessee further stated in the said letter that it received raw materials purchased from the above mentioned six parties and the same were entered in the stock register and were also consumed and therefore, the assessing officer was not justified in drawing a presumption or conclusion that the purchases were bogus or not genuine. After the receipt all of the said letter from the assessee the assessing officer issued letter dated 7-8-1995 to all the above-mentioned six dealers at the addresses mentioned on the purchase bills through registered post A.D. asking them to file copy of account of the assessee firm from their account books and also to furnish certain further information in terms of the provisions of section 133(6) of the Act but all the registered letters sent by the assessing officer to the said six parties were returned by the postal authority with the endorsement/remark that those parties were not available at the addresses mentioned therein. Subsequently, the assessing officer made enquiries with the Chief Inspector, Shops and Establishments, Municipal Corporation of Ahmedabad to ascertain from his records if those six parties were in existence during the period from 1-4-1980, to 31-3-1982, and to obtain their complete addresses but to the utter surprise of the assessing officer the Chief Inspector, Shops and Establishments informed the assessing officer that no such dealers were registered before him and even on that day they were not available. Thus, this effort of the assessing officer also did not lead to positive results. The assessing officer pursued the matter further and wrote a letter to the chairman of the Gajarawala Co-operative. Housing Society Ltd. Paldi, Ahmedabad, and find out the whereabouts of one of the dealers viz. M/s Hemant Textile Suppliers, the address of which was of the said society and as given on the purchase bills. The secretary of the said society informed the assessing officer that no such dealer was occupant or tenant in any building of the co-operative housing society. After completing these private enquiries the assessing officer issued a letter dated 21-1-1986, to the assessee, the relevant portion of which we extract below : "6. On scrutiny of these bills, delivery memos and the receipts issued by the dealers for payments, it is noticed that all the credit bills except four issued by these dealers are typed one. Some of these dealers have used different typewriters for issuing the bills and receipts. This fact, therefore, indicates that these dealers are big dealers. Again the transactions made with them exceed Rs. 10,000 in four cases and Rs. 20,000 in one case and, therefore, they cannot be said to be small dealers who could not be traced." On probing further into the matter particularly, the bills, delivery memos and payment receipts, the assessing officer noticed the following discrepancies which have also been recorded in the assessment order : On the further scrutiny of the bills, delivery memos and payment receipts, following discrepancies have been noticed : "(1) Cash memo No. 108 of Hemant Textile Suppliers for Rs. 2252.50 is dated 6-2-1981, whereas the payment for this cash memo his been debited in your cash book on 16-2-1981.
(2) Cash memo No. 246 dated 10-6-1981 of Pradip Traders is for Rs. 529.90, whereas the same has been debited in your cash book at Rs. 529 only.
(3) Goods purchased under cash memo No. 246, dated 10-6-1981 of Pradip Traders have not been entered in the inward register as well as stock register.
(4) Cash memo No. 108, dated 18-2-1981, of Oriental Mill Stores for Rs. 1,930 has not been debited in the cash book, instead of cash memo No.68 of the same date for the same amount has been debited.
(5) Cash memo No. 191, dated 10-2-1981, of Vardhman Mill Gin Stores for Rs. 1,550 has not been debited on 10-2-1981 but is found to have been debited in the cash book on 16-2-1981.
(6) Cash memo No. 45, dated 21-2-1981, of Atlas Agencies for Rs. 2,250 has not been debited at all in the cash books.
(7) At para 49 of the cash book, an amount of Rs. 2,250 towards Bill No. 35, dated 4-2-1981 of Atlas Agencies has been debited, but no such bill/cash memo has been produced." The assessing officer elicited clarification from the assessee in respect of the abovementioned discrepancies.
On scrutiny of the stock register by the assessing officer, he found that the entries therein were not made on day-to-day basis but were made periodically every fortnight. He therefore, was unable to verify the day-to-day consumption of the raw materials purchased by the assessee. On a random test-check of the said register/ledger the assessing officer found that steel wire brush and sulphuric acid purchased under cash memo No. 246, dated 10-6-1981 from Pradip Traders was not entered into the ledger on pp 31 and 21 respectively. The assessing officer further noticed that the para 4 of the stock ledger goods purchased on 10-11-1980, from Oriental Mill Stores were entered after the entries for the goods purchased on 1-11-1980, and 28-11-1980.
The assessing officer therefore, informed the assessee that the stock ledger was not properly maintained and, therefore, such reliance cannot be placed on it.
During the course of assessment proceedings the assessing officer also verified the inward registrar in respect of the goods purchased during the previous year relevant to the assessment year 1982-83 and he noticed large number of discrepancies which were pointed out in Annexure-A to the assessment order. The assessing officer further observed in the following manner to the various discrepancies : (2) Though the goods have been received earlier, the entries thereof are found to have been made after the entries regarding the goods received on subsequent dates.
(3) Most of the purchase bills of the above dealers have been entered in the inward register giving additional serial numbers marked A like 390A, 381A, 617A, 401A, etc." The assessing officer therefore, informed the assessee that the inward register maintained for purchase of goods is not properly and regularly maintained and is not a contemporaneous record and therefore, cannot be relied upon.
While scrutinising the purchase register which was marked as Annexure-4 with serial number 29 of the seized material the assessing officer found the below given discrepancies : "(1) Purchase bills are not entered serially and datewise. Or pp 10 and 11 purchases of October, 1980 have been entered. However, the entries regarding purchases of October are not made datewise. Purchases dated 1-10-1980 and 3-10-1980 are entered after the purchases made on 7, 8 and 10-10-1980. Again purchases made in the month of July, August and September, 1980 have also been entered in October, 1980.
(2) On pp 13 and 14, purchases for the month of November, 1980 have been entered. Purchase bill, dated 1-11-1980 has been entered after the purchases bills, dated 3-11-1980 and 8-11-1980 and 13-11-1980. Purchase bill dated 10-11-1980 of Hemant Textile Supplies has been entered as the last entry in para 13 below the entry for purchases dated 26-11-1980.
(3) Similarly, purchases made from Atlas Agencies and Oriental Mills Stores on 13-11-1980 and 16-11-1980 have been entered after the entries for the purchases dated 28-11-1980 and 29-11-1980 at para 14.
(4) At pp 16 and 17 entries regarding purchases for December, 1980 have been entered. Entries regarding purchases are not made datewise.
The assessing officer, therefore, observed and informed the assessee that the purchase register was also not maintained properly in regular course and was not a contemporaneous document/evidence and the entries therein were not made on day-to-day basis as such the said purchase register was also unreliable.
The assessing officer informed the assessee about the result of his enquiry and verification and proposed to add a sum of Rs. 77,943.75 to the returned income for the reason that the purchases were bogus and non-genuine and the assessee, therefore, inflated the purchases account and thereby reduced its taxable profits. The assessing officer invited objections from the assessee and gave seven days time.
The assessee replied to the show cause notice through letter, dated 5-2-1986 resisting the proposed addition of Rs. 77,943.75, contending inter alia, that it had made purchases from those six parties and the materials were also received and consumed also. It was the case of the assessee before the assessing officer that merely because the purchases (sic) were not found at the addresses given in the purchase bills or they were not traceable on account of the private enquiries made by the assessing officer that the said sum of Rs. 77,943.75 cannot be considered as concealed income of the assessee and added to the returned income on the ground that the assessee inflated the purchases.
The assessing officer was not satisfied with the explanation given by the assessee and added the same to the returned income along with the other additions.
It is further, pertinent to mention that three other allied/sister concerns of the assessee also made purchases from the above-mentioned six parties which came to be known through search and seizure operations on the said firms also under section 132 of the Act. The assessing officer also noticed that in respect of one of the dealers viz. M/s Oriental Mill Stores the sister-concern of the assessee M/s Jaycon Industries has made purchases upto 23-5-1983, and therefore, he was of the opinion that the assessees explanation was not at all satisfactory or convincing. The assessing officer has given very cogent and valid reasons for making this addition of Rs. 77,943.75 in paras 17 to 20 of the assessment order and at the same time initiated penalty proceedings under section 271(1)(c) for concealment of income in respect of that amount.
The assessing officer on scrutiny of the stock register noticed that the assessee manufactured 37,000 droppins of 146 x 11 x 0.4 mm. size during the year as per production challans No. 8 and 9 dated 16-3-1981 and 24-3-1981 respectively. As against this, 10,000 droppins were sold as per bill Nos. 18 and 19, dated 16-3-1981 and 24-3-1981 respectively leaving a balance of Rs. 27,000 droppins in the closing stock. However, in the stock register no closing stock was shown but the total of sale was stated to be 37,000 droppins. Since the closing stock did not reflect this quantity the assessing officer came to the conclusion that 27,000 droppins were sold away clandestinely unrecorded in account books during the year and the explanation was called from the assessee for making addition to the extent of Rs. 5,940 towards unaccounted sale of 27,000 droppins. The assessing officer not being satisfied with the explanation added the said sum of Rs. 5,940 to the returned income. The entire issue relating to this addition has been discussed by the assessing officer in para 24 pp 14 and 15 of the assessment order. The assessing officer also initiated penalty proceedings under section 271(1)(c) in respect of the said addition of Rs. 5,940.
Not being satisfied with these two additions of Rs. 77,944.75 and Rs. 5,940 first appeal was preferred before the Commissioner (Appeals) who confirmed the abovementioned two additions made by the assessing officer. Thereafter, the assessee preferred second appeal before this Tribunal being ITA No. 1194/Ahd/1987. This Tribunal while relying on the detailed reasons given in order dated 9-2-1990, in the appeal of M/s Continental Engineering Industries (P) Ltd., Ahmedabad (sister concern of the assessee) being ITA No. 126/Ahd/1986 and C.O. No.160/Ahd/1986 for the assessment year 1982-83 as per order dated 7-5-1993 directed the assessing officer to restrict the addition to the extent of Rs. 40,000 only. While giving this direction this Tribunal was of the opinion that the separate addition of Rs. 5,940 towards unaccounted sale of 27,000 droppin was not necessary. This relief to the assessee was given by this Tribunal in quantum appeal in view of the confession made by the assessees authorised representative that the above-mentioned six parties were bogus, that is to say, not genuine and that they were neither traceable nor identifiable and therefore, the purchase invoices in their names debited in the account books of the assessee were not genuine. This is recorded by this Tribunal in the said order, dated 7-5-1993.
While the appeal was pending before this Tribunal the assessing officer took up the penalty proceedings initiated under section 271(1)(c) of the Act during the course of finalisation of assessment proceedings as we have narrated and recorded elsewhere above. The assessees explanation to the charge made against it by the assessing officer was found unsatisfactory and the assessing officer, therefore, levied penalty of Rs. 23,886 for concealment of income under section 271(1)(c) as per order dated 25th/30-3-1988. The assessee was therefore, aggrieved for levy of penalty and, therefore, appealed to the Commissioner (Appeals), for cancellation of the same but the Commissioner (Appeals) did not agree with submission made before him by the assessees authorised representative and confirmed the penalty levied by the assessing officer under section 271(1)(c) of the Act. The present appeal thus arises from out of the said order of the Commissioner (Appeals) confirming the levy of penalty.
The representatives of both the sides who appeared before us in this appeal were heard at great length.
From the flawless facts enumerated by us above it is transparent that revenue has a cast iron case and the assessing officer has done a very commendable job in unravelling the well laid out and systematic scheme of the assessee in concealing its income through bogus purchases alleged to have been made from six different parties in a sum of Rs. 39,525.25 on credit basis and Rs. 38,418.50 on cash basis. The assessing officer in order to find out the truth of the purchase transactions stated to be with the above-mentioned six different parties sent registered letters and which were returned by the postal authorities as those dealers were not available or found at the addresses given which were taken by the assessing officer from the purchase bills. The assessing officer having failed through postal authorities also made an attempt by verifying it with the Chief Inspector, Shops and Establishments, Municipal Corporation of Ahmedabad from where also he did not get any concrete information or evidence about the existence of the alleged six parties/dealers nor any information regarding their business activities. Going deep further into the case the assessing officer also addressed a letter to the Gujarawala Cooperative. Housing Society, Paldi, to find out about the existence of one of the dealers viz. M/s. Hemant Textile Suppliers. The assessing officer got nothing but disappointment, as the secretary of the said society informed that no such dealer ever occupied any portion in the societys building or carried on any business activity from there. The purchase invoices also did not contain state or central sales-tax registration number. All private enquiries made by the assessing officer through his best efforts revealed only one thing that none out of the six traders ever existed at the addresses contained in the purchase bills nor could he get any clue, hint or iota of evidence that those dealers ever carried on any business activity from those addresses much less business in the material purchased by the assessee-firm. Thus, the obvious conclusion which could be drawn by any prudent and reasonable man will be that no such dealers or traders ever existed or rather they were ghosts or paper creations. The assessee-firm, when confronted by the assessing officer on several occasions in respect of the results found by his private enquiries, did nothing positive except repeatedly asserting that the parties were genuine and since the material was received as per the entries recorded in the inward and stock registers it went to prove that the purchases were genuine and the belief of the assessing officer about the purchases being sham, bogus or non-genuine was not correct. The failure of the assessee to give the names and addresses of the proprietors/partners of those dealers also goes to support the case of the assessing officer that the purchase recorded in the books and registers were nothing but bogus and sham resulting in inflation of the purchases and reduction of profits. To put colour and ring of truth and genuineness to the purchase transactions the assessee heavily but unsuccessfully relied upon the entries in the subsidiary registers and ventured to prove his case by stating that the materials were also consumed.
The assessee besides making self-serving statements and emphatic assertions about the purchases being genuine has not led any shred or iota of evidence which could establish that the purchases were genuine and not bogus. Mere purchase bills cannot prove assessees case.
Something more is required and that is lacking in this case.
If we read the assessment order as a whole prudently in a proper perspective with reasonableness we find that the assessing officer has very nicely and cogently discredited and belied the assessee and has further neatly established by cogent enquiry that the purchases from the alleged six dealers were bogus and sham or rather to put in a straightforward and simple manner that no purchases were ever made by the assessee-firm but the same were camouflaged by incorporating false and dubious entries in the subsidiary registers. Such evidence cannot inspire any confidence in the mind of any prudent or reasonable man and, therefore, no credence or weightage can be given in the course of any judicial or quasi-judicial proceedings of the present nature. The assessing officer has further established that the register evidencing the so-called receipt of purchase material were not contemporaneously maintained in the regular course of business and, therefore, cannot be relied upon for deciding the fate of the assessee-firm in respect of the charge of concealment of income in terms of the provisions of section 271(1)(c) of the Act. We are in full agreement with the assessing officer that the entries in its accounts and registers are impeachable and cannot satisfactorily go to prove receipt of material from the alleged six parties.
Even in quantum appeal before this Tribunal for the year under appeal there has been clear confession and admission by the assessees authorised representative that the purchases were bogus, that is to say, non-genuine and the parties were neither traceable nor identifiable. The assessee wants to exonerate itself from the clutches and rigour of the penal provisions of section 271(1)(c) of the Act on the ground that the materials were received and consumed. This is the only defence the assessee has but very weak as per law. Well as stated by us above, the assessee in order to give a colour of genuineness to the alleged bogus purchases made false and dubious entries in its accounts and other connected subsidiary register and we reiterate that by such entries the assessee cannot establish about the genuineness of the purchases.
One more thing gets established by the admission of the assessee on account of bogus purchases and the sellers not being traceable and identifiable that it gave false credits to the accounts of five different parties from whom alleged credit purchases were made and also fabricated, engineered and brought into existence false and bogus delivery challans, goods receipt memos, cash paid receipts, etc. To that extent it means that even the accounts were fabricated by incorporation of false entries of transaction that never took place.
Not only this assessee, but the other three allied and sister concerns of the assessee-firm mentioned by the assessing officer in p. 16 on para 11 of the assessment order have indulged in similar dubious and bogus purchases from very same six parties from whom the assessee is stated to have made purchases. The cumulative effect from the facts of this case and that of the allied/sister concerns of the assessee clearly go to establish about the common well-planned, well-designed and systematic scheme of all those assessees in defrauding the revenue through evasion of taxes by concealing the true taxable income from assessment in the guise of bogus purchases.
We cannot let off the assessee from the teeth of section 271(1)(c) of the Act for the simple reason that this Tribunal in assessees quantum appeal has reduced the addition to Rs. 40,000 taking aid of section 145(2) of the Act. The lenient and liberal view taken by this Tribunal in assessees quantum appeal by giving partial relief cannot be construed that the default, charge or guilt of the assessee-firm has been condoned or waived. This Tribunal by giving relief to the assessee has only given a concession to the assessee in relation to the assessment of income and payment of taxes owing to the addition and confession made by the assessees authorised representative at the time of hearing of the main appeal that the purchases from the alleged six parties were bogus and further admission that those six parties were neither identifiable nor traceable at the addresses given in the purchase bills. This in fact strengthens assessing officers case.
The assessee, in our view, also cannot get any support from the decision of the Supreme Court in the case of Hindustan Steel Ltd. v.State of Orissa (1971) 83 ITR 26 (SC) because the breach and default committed by the assessee-firm is neither technical nor venial. On the contrary the assessees conduct right from the very beginning as facts and records revealed has been contumacious and it has been caught, so to say, red-handed being involved in manipulating its accounts and registers by showing bogus purchases and evading payment of legitimate taxes due on its true taxable income as per the provisions of income-tax law. No further elaboration or discussion is required in view of plethora of decisions of the Apex Court and various High Courts that it is the deliberateness, contumacious and dishonest conduct, guilty-mind mens rea on the part of an assessee in filing false return that attract the penal provisions of any statute. It is cardinal principle of criminal as well as quasi-criminal proceedings that bona fide, genuine, accidental and honest mistakes can save any person from the clutches, teeth and rigours of penal provisions of any enactment.
The two notable landmark judgments of the Apex Court, one in the case of Hindustan Steel Ltd. v. State of Orissa (supra) and the other in the case of Cement Marketing Co. of India Ltd. v. Asstt. CST (1980) 124 ITR 15 (SC) clearly lay down what we have stated above.
The refusal of the assessees authorised representative during the course of hearing of this appeal to go back to the assessing officer and re-establish the genuineness of the alleged purchases by producing the concerned proprietors/partners of those firms leaves no doubt regarding the charge of concealment made out by the assessing officer against the assessee-firm. In fact, the assessees authorised representative has been quite fair enough in admitting before us also in this appeal that the assessees case has to be decided on the premise that the purchases were bogus and the settlers were neither identifiable nor traceable but bearing in mind, that the materials were received and consumed as per the entries found recorded in the subsidiary registers. We cannot attach much credence or value to the entries incorporated and found recorded in the inward and stock registers as both those registers were not seized on the search day and the assessee had every chance and opportunity to manipulate those registers, in any manner befitting and benefiting to it. These registers we reiterate not being contemporaneously maintained in the regular course of business have to be rejected, as has rightly been done by the assessing officer during the course of assessment proceedings as well as during the course of penal proceeding under section 271(1)(c) of the Act.
Penalty also cannot be cancelled as contended by the assessees authorised representative that the satisfaction of the assessing officer was that the assessee concealed its income by making bogus purchases and inflating its purchases accounts to the extent of Rs. 77,944 and by a further sum of Rs. 5,940 from unaccounted sales of 27,000 droppins and these two additions in second appeal before this Tribunal were not sustained in totality and entirety but came to be limited to Rs. 40,000. Thus, according to the assessees authorised representative on the strength of the relief given by this Tribunal in quantum appeal the satisfaction reached by the assessing officer during the course of assessment proceedings got extinguished and vanished and, therefore, levy of penalty under section 271(1)(c) was wholly unwarranted and unjustified. On the contrary, the relief given by this Tribunal can be looked from a different angle also. It can also be construed that by sustaining the addition to the extent of Rs. 40,000 by this Tribunal the revenues case got more strengthened and fortified and the satisfaction neither got reduced, diluted, extinguished or vanished.
To hold, as argued by the assessees authorised representative that an assessee becomes immune from panel section under section 271(1)(c) on the ground of partial relief, say, even of Rs. 100, obtained in appeal proceedings would not only amount to wiping out or rendering the said penal provisions otiose and dead but will also give an incentive, impetus and encouragement to clever and unscrupulous assessees to conceal income and evade with impunity payment of legitimate taxes. We, therefore, cannot do so.
We would like to record here that but for the search operations on the assessee-firm and its allied concerns and but for the diligent efforts of the assessing officer in conducting a deep and thorough investigation and enquiry unravelling the whole mystery of bogus purchases the assessee would have succeeded in its carefully well-designed and well-planned scheme of reducing its true taxable profits and ultimately evading payment of legitimate taxes due on such income.
The impeccable facts, the assessees contumacious conduct, the fabricated and false evidence relied and used by the assessee in assessment proceedings were crying and shouting loud that the assessee is guilty of concealment and should be penalised under section 271(1)(c) of the Act and the assessing officer heard the cries and shouts and rightly acted and justifiably levied the penalty under section 271(1)(c).
In our view, the assessee has thus failed to prove its innocence. We, therefore, without slightest hesitation uphold the charge levelled against the assessee-firm for concealing its true income and for being visited with maximum penalty under the provisions of section 271(1)(c).
Looking at the facts of the case and the gravity of the charge and offence made out, the levy of maximum penalty is warranted and any leniency as pleaded by the assessees authorised representative on these facts would be travesty of justice and a mockery of Justice Dispensation System". However, we give one direction to the assessing officer to recalculate the maximum penalty on the basis of tax payable pursuant to order passed giving effect to this Tribunals order in assessee quantum appeal.
I have carefully gone through the decision proposed by the learned J.M.and have also discussed the matter with him. After giving my thoughtful consideration to the proposed decision by the learned J.M. I find myself unable to agree with the view proposed by him. I, therefore, proceed to state the reasons for taking a separate view and will also state a few facts which are necessary for proper disposal of this appeal.
The facts and reasons mentioned in the assessment order have been elaborately discussed and extracts therefrom have been quoted at various places in the order proposed by the learned J.M. However, it would be appropriate to reproduce the relevant extracts from paras 21 and 24 of the assessment order in which the satisfaction as to initiation of penalty proceedings under section 271(1)(c) has been recorded by the assessing officer : The assessee has, therefore, inflated its purchases by recording such bogus purchases, which in fact have not been made at all in its books of accounts with the only intention to reduce the profits for the year.
Such purchases amounting to Rs. 77,944 as per details given in paras 3 and 5 above are, therefore, disallowed. The assessee has thus concealed its income of Rs. 77,944. Penalty proceedings under section 271(1)(c) are, therefore, initiated separately.
In the absence of any positive evidence to support its claim that only 3,000 pieces were manufactured on 24-3-1981, it was to be held that what is stated in the production challen is correct. Accordingly, the assessee has not accounted for the sale of remaining 27,000 droppins.
The assessee has sold other droppins of this size at Rs. 220 per thousand as per bills, dated 16-3-1981 and 24-3-1981. The sale proceeds of 27,000 droppins at the above rate will be Rs. 5,940 which are not accounted for and hence added to the total income of the assessee.
Penalty proceedings under section 271(1)(c) for concealment of income are initiated separately." The assessment order was passed on 14-3-1986. The Commissioner (Appeals) decided the quantum appeal vide order dated 13-2-1987, confirming the assessment order made by the Income Tax Officer. The Income Tax Officer levied penalty under section 273(1)(b) as well as penalty under section 271(1)(c) vide the separate orders dated 29-3-1988. The Commissioner (Appeals) confirmed the penalty levied under section 273(1)(b) vide order, dated 10-2-1989. He also confirmed the penalty levied under section 271(1)(c) vide his order, dated 17-3-1989. The quantum appeal filed by the assessee against the order of the Commissioner (Appeals) was decided by the Tribunal vide order, dated 9-5-1993, in ITA No. 1194/Ahd/1987. The order passed by the Commissioner (Appeals) confirming the aforesaid penalties were thus passed prior to the decision of the Tribunal in the quantum appeal for the year under consideration.
The appeals submitted by the assessee against both the penalty orders for the year under consideration were fixed together for hearing on 27-7-1994. The penalty levied under section 273(1)(b) has been cancelled and assessees appeal has been allowed by the Tribunal vide order dated 28-7-1994 in ITA No. 1163/Ahd/1989, in which both of us were parties. The order prepared by the learned J.M. proposing to confirm the penalty of Rs. 23,886 levied under section 271(1)(c) has been sent to me on 30-9-1994.
The learned J.M. has extensively relied upon the observations and findings given in the assessment order, order passed by the Commissioner (Appeals) in the quantum appeal and orders of the lower authorities passed in relation to penalty under section 271(1)(c) in his proposed decision. With great respect I am of the considered opinion that the various observations made by the learned J.M. and the conclusion derived by him in the proposed order are not in conformity or in consonance with the appellate order passed by the Tribunal in the quantum appeal where I was a party. It would be worthwhile to reproduce extract from the proposed decision to clarify this point.
" ..... ..... ...... The assessing officer has given very cogent and valid reasons for making this addition of Rs. 77,948.75 in paras 17 to 20 of the assessment order and at the same time initiated penalty proceedings under section 271(1)(c) for concealment of income in respect of that amount." .... ... ........ This relief to the assessee was given by this Tribunal in quantum appeal in view of the confession made by the assessees authorised representative that the above-mentioned six parties were bogus, that is to say, not genuine and that they were neither traceable nor identifiable and, therefore, the purchase invoices in their names debited in the account books of the assessee were not genuine." ".... ..... .......... that revenue has a cast iron case and the assessing officer has done a very commendable job in unravelling the well laid out and systematic scheme of the assessee in concealing its income through bogus purchases alleged to have been made from six different parties in a sum of Rs. 39,525.25 on credit basis and Rs. 38,418.50 on cash basis." "If we read the assessment order as a whole prudently in a proper perspective with reasonableness we find that the assessing officer has very nicely and cogently discredited and belied the assessee and has further neatly established by cogent enquiry that the purchases from the alleged six dealers were bogus and sham or rather to put in a straight forward and simple manner that no purchases were ever made by the assessee-firm but the same were camouflaged by incorporating false and dubious entries in the subsidiary registers. Such evidence cannot inspire any confidence in the mind of any prudent or reasonable man and, therefore, no evidence or weightage can be given in the course of any judicial or quasi-judicial proceedings of the present nature.
....... .......... ........ .......... We are in agreement with the assessing officer that the entries in its accounts and registers are impeachable and cannot satisfactorily go to prove receipt of material from the alleged six parties." "We cannot let off the assessee from the teeth of section 271(1)(c) of the Act for the simple reason that this Tribunal, in assessees quantum appeal, has reduced the addition to Rs. 40,000 taking all of section 145(2) of the Act. The lenient and liberal view taken by this Tribunal in assessees quantum appeal by giving partial relief cannot be construed that the default, charge or guilt of the assessee-firm has been condoned or waived. This Tribunal by giving relief to the assessee has only given a concession to the assessee in relation to the assessment of income ............. .............. ................
............" It will be worthwhile to reproduce the findings given by the Tribunal in the quantum appeal vide its order, dated 7-5-1993 : "Para 3. We have carefully considered the submissions made by the learned representatives. In view of the elaborate reasons given in the assessment order, and in the order of the Commissioner (Appeals), and in view of the conclusion made by the learned counsel, we hold that the above-named six parties are not genuine parties. They are neither traceable nor identifiable and the purchase invoices in their names debited in the books of account of the assessee are not genuine.
However, the contention of the assessee that material has been received deserves favourable consideration in view of the details and fact contained in the documents submitted in the compilation. We also upheld the action of the revenue authorities in holding that book results cannot be accepted and the provisions of section 145(2) would be applicable in a case like this. However, we agree with the assessees contention that the entire amount of purchase price cannot be added as deduction for a reasonable price in respect of the material really received by the assessee will have to be granted. In a case where provisions of section 145(2) are admittedly applicable, the only proper course would be to make a reasonable estimation." The Tribunal, in the quantum appeal, after taking into consideration all the relevant facts, material and evidence and the decision in the case of Continental Engineering (P) Ltd. in ITA No. 1266/Ahd/1986, arrived at the conclusion that it would be just and proper to direct the Income Tax Officer to restrict the addition to Rs. 40,000 as against the addition of Rs. 77,944 made by him and confirmed by the Commissioner (Appeals). The Tribunal further observed in para 5 of the order that since the lump sum addition of Rs. 40,000 has been directed to be made in the declared trading results, no separate addition of Rs. 5,940 would be justified and the same should be treated as covered by the said lump sum addition of Rs. 40,000. It was admitted by the learned representatives of both the parties that facts relating to the additions made in the present case are identical as in the case of Jaycon Industries (ITA No. 1265/Ahd/1986) and in the case of Continental Engineering Industries (P) Ltd. (ITA No. 1266/Ahd/1986) for this very year, namely, assessment year 1982-83. The Tribunal in para 6 of the order in the quantum appeal observed that they concurred with the elaborate reasons and conclusions derived in the case of Continental Engineering Industries (P) Ltd. (supra).
The reference application submitted by the Commissioner, Gujarat-I, Ahmedabad against the order passed by the Tribunal in the quantum appeal has been rejected by the Tribunal vide order, dated 13-9-1993 in R.A. No. 408/Ahd/1993 (in which also both of us were parties). It will also be relevant to reproduce the extract from the said order. In para 2 of the said order, the Tribunal observed as under : "2. .... .... .... The Tribunal, after considering the entire evidence and material existing on records came to the conclusion that the six parties from whom purchases were shown to have been made are not genuine parties. They are neither traceable nor identifiable and the purchase invoices in their names debited in the books of account of the assessee are not genuine. The Tribunal, therefore, upheld the action of the revenue authorities in holding that the book results cannot be accepted and the provisions of section 145(2) could be applicable in a case like this. However, in a case where provisions of section 145(2) are applicable, the only proper course would be to make a reasonable estimation of profits. The Tribunal further observed that on a proper appreciation of the entire facts and evidence existing on records, the entire amount of purchase price so disallowed by the revenue authorities cannot be added as income as the material in question was really received by the assessee. Hence deduction in respect of a reasonable price in respect of the material really received by the assessee will have to be granted for making a reasonable estimation of profit. After taking into consideration the comparative position of G.P. rate disclosed by the assessee in various earlier years, the Tribunal arrived at the conclusion that it would be just and proper to direct the assessing officer to make a lump sum addition of Rs. 40,000 as against the disallowance of the entire amount of purchase price of Rs. 77,944 made by the Income Tax Officer and confirmed by the Commissioner (Appeals). " The Tribunal in the quantum appeal has arrived at a clear finding of fact that the six parties in question are not genuine parties, they are neither traceable nor identifiable and the purchase involves in their names debited in the books of account of the assessee are not genuine.
But simultaneously the other finding of fact, which is vital and significant, is that the material has really been received and the assessee is entitled to get a deduction for a reasonable price in respect of the material really received by it. In view of such findings the Tribunal in the quantum appeal, came to the conclusion that in a situation like this the provisions of section 145(2) would be applicable and the only proper course would be to make a reasonable estimation of profit. The Tribunal, after considering all the relevant facts, material and circumstances directed that a lump sum addition of Rs. 40,000 should be made in the declared trading results in substitution of the additions of Rs. 77,944 and Rs. 5,940 made by the assessing officer, in the light of findings of fact given by the Tribunal in the quantum appeal, the various observations made by the learned J.M. including that purchases are bogus or that the material in question was not received, with great respect, is not a correct reading of the order passed by the Tribunal in the quantum appeal.
The assessing officer recorded the satisfaction under section 271(1)(c) and levied the penalty under the aforesaid provisions on the ground that the purchase of Rs. 77,943 represented bogus purchases as the six suppliers in question are not genuine parties and as no such purchase was in fact made by the assessee. Apart from this, he also took into consideration the addition of Rs. 5,940 made on account of sale of droppins. The Commissioner (Appeals) confirmed the order passed by the assessing officer on the same footings. The orders passed by the assessing officer and the Commissioner (Appeals) confirming the said penalty under section 271(1)(c) were passed at an anterior point of time i.e., much prior to the decision of the Tribunal in the quantum appeal. The Tribunal in the quantum appeal has given a categorical and definite finding that in view of the entire relevant material, facts and circumstances, the reality of the receipt of the material in question cannot be doubted and that fact that material has in fact been received has been accepted. It is true that the Tribunal did confirm the finding given by the lower authorities that the six parties whose sale invoices were produced by the assessee to support the purchases in question were not genuine parties and they were not identifiable and the purchase invoices in their names were not genuine. But the non-existence of the six parties in question and the non-genuineness of the purchase invoices by itself could not lead to the automatic conclusion that this fact would result in concealment of income as contemplated in section 271(1)(c), particularly when a finding of fact has been given in the quantum appeal that material in fact has already been received.
Once the finding of fact has been given by the Tribunal in the quantum appeal that material in question has really been received, the only question which survives thereafter is whether the rate of purchase or purchase price shown in the said ficticious invoices is reasonable or inflated one. Out of the addition of Rs. 40,000 sustained by the Tribunal only that part which is attributable to inflation of purchase price, if any, can be regarded as having its root or nexus with the transactions shown in the names of six bogus parties, in relation to which addition was made by the Income Tax Officer as the balance amount of addition sustained by the Tribunal is quantum appeal would be like any other estimated/lump sum addition made in the declared gross profit by invoking to provisions of section 145(2). The amount as may be determined due to inflation of purchase price, if any, shown in the questioned invoices of the six bogus parties, will then have to be considered in the light of nature of penalty proceedings being quasi-criminal in nature and it will also have to be decided as to whether the version of the assessee that due to non-availability of such material with the authorised dealers, it had to purchase the said goods from open market can give a note of plausibility and/or preponderance of probabilities. The other important aspect which will need serious consideration after the decision of the Tribunal in the quantum appeal is whether penalty can still be levied on such altered nature of addition partly sustained by the Tribunal.
I am, therefore, of the considered opinion that a result of the order passed by the Tribunal in the quantum appeal not only that a reduction of a substantial amount has been granted out of the additions made by the assessing officer but the order of the Tribunal in the quantum appeal has substantially altered the nature and complexion of the addition in question. The departmental authorities did not have before them the order of the Tribunal in the quantum appeal at the time when they decided the penalty matter in question. The nature, content and the quantum of the addition in question has assumed a different complexion and, therefore, I am strongly of the view that the matter relating to leviability or non-leviability of the penalty in question requires fresh consideration in the light of the findings of fact given by the Tribunal in the quantum appeal. I, therefore, consider it just, proper and appropriate to set aside the orders of the lower authorities and restore the matter back to the assessing officer for deciding the matter afresh in accordance with the provisions of law after providing reasonable opportunity to the assessee.
In the result, the appeal is treated as allowed for statistical purposes.
A difference of opinion having arisen between us, the two members who heard the appeal originally, we state the point of difference as under : "Whether, on the facts and in the circumstances of the case, the penalty levied under section 271(1)(c) should be sustained or the matter should be restored back to the assessing officer".
Submitted for further necessary action by the Honble President, Income Tax Appellate Tribunal.
This matter has been referred to me by the Honble President under section 255(4) of the Income Tax Act for resolving the difference which arose between the learned A.M. and the learned J.M. relating to disposal of appeal. The following question referred precisely reflect the controversy : "Whether, on the facts and in the circumstances of the case, the penalty levied under section 271(1)(c) should be sustained or the matter should be restored back to the assessing officer?" The facts of the case briefly stated are that the assessing officer on examination of assessment record of the assessee for the relevant assessment year 1982-83, held that purchases to the tune of Rs. 77,944 shown in the names of six parties referred to at pp 2, 3 and 6 of the assessment order were bogus as these parties were not traceable as per the addresses given by the assessee or shown in the purchase memos. The assessing officer put his case in the show-cause notice, dated 21-1-1986, to the assessee asking it to explain why purchases to the tune of Rs. 77,943 should not be disallowed. The assessing officer also gave various circumstances why purchases were being treated as bogus.
In reply dated 5-2-1986, to the above notice, the assessee stated that purchases were made from six dealers and purchased goods were duly entered into the stock register regularly maintained and utilised for production. The assessee further claimed that if parties are not available at the given addresses, it does not, follow that purchases are not genuine. The assessing officer after reasoned order disallowed the purchases as bogus. He also initiated penalty proceedings under section 271(1)(c) of the Income Tax Act in respect of above disallowance.
The assessee filed an appeal against the above disallowance but remained unsuccessful. The matter was thereafter carried in appeal before the Tribunal. At the time of hearing before the Tribunal, the assessee accepted that six parties referred to by the assessing officer were neither traceable nor identifiable. The Tribunal approved the finding that purchases were not genuine. However, the Tribunal held that goods reflected in purchase were received and utilised in the manufacture. The Tribunal accepted that the alternative argument of the assessee deserved a favourable consideration and observed as under : "In view of the details and facts contained in the documents submitted in the compilation. We also uphold the action of the revenue authorities in holding that book results cannot be accepted and the provisions of section 145(2) would be applicable in a case like this.
However, we agree with the assessees contention that the entire amount of purchase price cannot be added as deduction for a reasonable price in respect of the material really received by the assessee will have to be granted. In a case where provisions of section 145(2) are admittedly applicable, the only proper course would be to make a reasonable estimation ....................." For computing relief allowable to the assessee, the Tribunal took into account the G.P. rate disclosed by the assessee in different years on manufacture of articles as also plating charges received by the assessee. The learned counsel for the assessee had given working of addition of Rs. 28,734 which could at least be made in the hands of the assessee with reference to gross profit rate disclosed. After considering the relevant facts, the Tribunal was of the view that instead of Rs. 83,885 (Rs. 77,944 + Rs. 5,940) it would be just and fair to restrict the disallowance to Rs. 40,000. The above addition was sustained by the Tribunal vide order dated 7-5-1993.
In the meanwhile and before the quantum appeal could be taken up and decided by the Tribunal, the assessing officer took up penalty proceedings under section 271(1)(c) of the Income Tax Act and imposed penalty of Rs. 28,886 under the said section for claiming deduction of Rs. 77,944 for bogus purchases. The levy having been confirmed by the Appellate Assistant Commissioner, the assessee challenged the levy further in appeal before Tribunal B Bench, Ahmedabad in ITA No.1665/Ahd/1989. After hearing the parties, the learned J.M. proposed an order confirming the levy. He considered the scrutiny of bills carried on by the assessing officer to find the bogus purchases. The other enquiries made by the assessing officer are also referred to in detail by the learned J.M. It has been highlighted that assessee vide his letter, dated 11-11-1985, had informed the assessing officer that above-mentioned six parties were not traceable and expressed its inability to produce them before the assessing officer. The observations of the assessing officer are quoted and reproduced at different places in the proposed order. The learned J.M. upheld the levy with the following remarks : "22. We cannot let off the assessee from the teeth of section 271(1)(c) of the Act for the simple reason that this Tribunal in assessees quantum appeal has reduced the addition to Rs. 40,000 taking aid of section 145(2) of the Act, The lenient and liberal view taken by this Tribunal in assessees quantum appeal by giving partial relief cannot be construed that the default, charge or guilt of the assessee-firm has been condoned or waived. This Tribunal by giving relief to the assessee has only given a concession to the assessee in relation to the assessment of income and payment of taxes owing to the admission and confession made by the assessees authorised representative at the time of hearing of the main appeal that the purchase from the alleged six parties were bogus and a further admission that those six parties were neither identifiable nor traceable at the addresses given in the purchase bills. This in fact strengthens assessing officers case.
23. The assessee, in our view, also cannot get any support from the decision of the Supreme Court in the case of Hindustan Steel Ltd. v.State or Orissa (1972) 83 ITR 26 (SC) because the breach and default committed by the assessee-firm is neither technical nor venial. On the contrary the assessees conduct right from the very beginning as facts and records revealed has been contumacious and it has been caught, so to say, red-handed being involved in manipulating its accounts and registers by showing bogus purchases and evading payment of legitimate taxes due on its true taxable income as per the provisions of Income Tax law. No further elaboration or discussion is required in view of plethora of decisions of the apex court and various High Courts that it is the deliberateness, contumacious and dishonest conduct, guilty mindmens reaon the part of an assessee in filing false return that attract the penal provisions of any statute. It is cardinal principle of criminal as well as quasi-criminal proceedings, that bona fide, genuine, accidental and honest mistakes can save any person from the clutches, teeth and rigours of penal provisions of any enactment. The two notable landmark judgments of the Apex Court, one in the case of Hindustan Steel Ltd. v. State of Orissa (supra) and the other in the case of Cement Marketing Co. of India Ltd. v. Asstt. CST (1980) 124 ITR 15 (SC) clearly lay down what we have stated above.
24. The refusal of the assessees authorised representative during the course of hearing of this appeal to go back to the assessing officer and reestablish the genuineness of the alleged purchases by producing the concerned proprietors/partners of those firms leaves no doubt regarding the charge of concealment made out by the assessing officer against the assessee-firm. In fact, the assessees authorised representative has been quite fair enough in admitting before us also in this appeal that the assessees case has to be decided on the premise that the purchases were bogus and the sellers were neither identifiable nor traceable but bearing in mind, that the materials were received and consumed as per the entries found recorded in the subsidiary registers.
We cannot attach much credence or value of the entries incorporated and found recorded in the inward and stock registers as both these registers were not seized on the search day and the assessee had every chance and opportunity to manipulate those registers in any manner befitting and benefiting to it. These registers were we reiterate not being contemporaneously maintained in the regular course of business have to be rejected, as has rightly been done by the assessing officer during the course of assessment proceedings as well as during the course of penal proceedings under section 271(1)(c) of the Act.
25. Penalty also cannot be cancelled as contended by the assessees authorised representative that the satisfaction of the assessing officer was that the assessee concealed its income by making bogus purchases and inflating its purchases accounts to the extent of Rs. 77,944 and by the further sum of Rs. 5,940 from unaccounted sales of 27,000 droppins and these two additions in second appeal before this Tribunal were not sustained in totality and entirely but came to be limited to Rs. 40,000. Thus, according to the assessees authorised representative on the strength of the relief given by this Tribunal in quantum appeal the satisfaction by the assessing officer during the course of assessment proceedings got extinguished and vanished and, therefore, levy of penalty under section 271(1)(c) was wholly unwarranted and unjustified. On the contrary, the relief given by this Tribunal can be looked from a different angle also. It can also be construed that by sustaining the addition to the extent of Rs. 40,000 by this Tribunal the revenues case got more strengthened and fortified and the satisfaction neither got reduced, diluted, extinguished or vanished.
26. To hold, as argued by the assessees authorised representative, that an assessee becomes immune from penal action under section 271(1)(c) on the ground of partial relief, say, even of Rs. 100, obtained in appeal proceedings would not only amount to wiping out or rendering the said penal provisions otiose and dead but will also give an incentive, impetus and encouragement to clever and unscrupulous assessees to conceal income and evade with impunity payment of legimate taxes. We, therefore, cannot do so." The learned A.M. did not agree with the above view. He, in his dissenting order extensively quoted from the proposed order of learned J.M. The learned A.M. also thought it fit to quote the following para from the order of the Tribunal in the quantum appeal : "Para 3. We have carefully considered the submissions made by the learned representatives. In view of the elaborate reasons given in the assessment order and in the order of the Commissioner (Appeals) and in view of the concession made by the learned counsel, we hold that the above-named six parties are not genuine parties. They are neither traceable nor identifiable and the purchase invoices in their names debited in the books of accounts of the assessee are not genuine.
However, the contention of the assessee that material has been received deserves favourable consideration in view of the details and facts contained in the documents submitted in the compilation. We also uphold the action of the revenue authorities in holding that book results cannot be accepted and the provisions of section 145(2) would be applicable in a case like this. However, we agree with the assessees contention that the entire amount of purchase price cannot be added as deduction for a reasonable price in respect of the material really received by the assessee will have to be granted. In a case where provisions of section 145(2) are admittedly applicable, the only proper course would be to make a reasonable estimation.
He also noted that reference sought by the revenue against the aforesaid order being R.A. No. 400/Ahd/1993 was dismissed by the same Bench vide order dated 13-9-1993. A portion of aforementioned order is also extracted by the learned A.M. in his proposed order.
The learned A.M. further observed that in the quantum appeal, the Tribunal arrived at a clear finding of fact that six parties in question are not genuine parties, they are neither traceable nor identifiable and the purchase invoices in their names debited in the books of accounts of the assessee are not genuine. But simultaneously, the Tribunal recorded that material purchased was really received and assessee is entitled to get a deduction for reasonable price in respect of material really received by it. Though provisions of section 145(2) were held to be applicable, the addition to be made was reduced from Rs. 77,945 and Rs. 5,940 (Rs. 83,885) to lump sum amount of Rs. 40,000.
In the light of material referred to in his order, the learned A.M.observed, with great respect, that finding of learned J.M. was not based on correct reading of quantum order. The learned A.M. further observed that assessing officer recorded satisfaction under section 271(1)(c) of the Income Tax Act on the ground that purchases of value of Rs. 77,943 were bogus. Apart from this, the Income Tax Officer took into consideration the addition of Rs. 5,940 made on account of sale of droppins. The learned Commissioner (Appeals) confirmed the order passed by the assessing officer on the same footing. These orders were passed much prior to the decision of the Tribunal in quantum appeal. The Tribunal in quantum appeal has given a categorical and definite finding that in view of entire material facts and circumstances relating to the receipt of the material in question cannot be doubted and the fact that material has in fact been received has been accepted. Although the Tribunal maintained the non-existence of six parties in question, as alleged seller, but from above in could not automatically follow that assessee had concealed income as contemplated in section 271(1)(c) of the Income Tax Act. The learned A.M. further observed that having regard to the finding in the quantum appeal that material in question has really been received, the only question which survives thereafter was whether the rate of purchase or purchase price shown in the said fictitious invoices is reasonable or inflated one. Out of addition of Rs. 40,000 sustained by the Tribunal only that part which is attributable to inflation of purchase price, if any, could be regarded as having its root or nexus with the transaction shown in name of six bogus parties in relation to which addition was made by the assessing officer and the balance amount of addition sustained by the Tribunal in the quantum appeal would be like any other estimated/lump sum addition made in the declared gross profit by invoking the provisions of section 145(2) of the Income Tax Act. It has also to be kept in mind that penalty proceedings are quasi-criminal in nature and matter is to be determined on preponderance of probabilities. The other aspect which will need serious consideration after the decision of the Tribunal in quantum appeal is whether penalty can still be levied on such altered nature of addition sustained by the Tribunal. In the light of above discussion, the learned A.M. in the proposed order thought it fit, just, proper and appropriate to set aside the orders of lower authorities and restore the matter back to the assessing officer for deciding the question afresh in accordance with law after providing reasonable opportunity of being heard to the assessee. In the above background, the difference between the Honble Members has been referred to me.
I have heard both the parties. The learned counsel for the assessee supported the proposed order of learned A.M. He emphasised that it was a simple case of rejection of book version under section 145(2) of the Income Tax Act and estimate of income. On such estimated income, no penalty under section 271(1)(c) of the Income Tax Act could be levied.
At any rate, the matter has been remanded by the learned A.M. and is to be examined by the assessing officer in accordance with law. There is no scope to interfere with the order proposed by the learned A.M.The learned Departmental Representative supported the proposed order of the learned J.M.I have given careful thought to the rival submissions of the parties, examined the proposed orders of my learned brothers and other facts available on record. As is well settled, my jurisdiction is limited and I have to agree with the conclusion of one of the brothers and cannot take an independent view so that majority decision is available.
The facts of the case have been elaborately stated by the two brothers and are not in dispute. Before giving my reasons for agreeing with one of the learned brothers, I would like to state at the very outset, certain legal propositions which are well settled as far as penalty proceedings are concerned. These proceedings are quite distinct from the assessment proceedings and addition made in assessment cannot be taken as conclusive evidence for imposing penalty under section 271(1)(c) of the Income Tax Act though it is a good evidence. It was held by the Honble Supreme Court as early as in 1970 in the case of CIT v. Anwar Ali (1968) 76 ITR 696 (SC). Their Lordships further observed "it cannot be said that the finding given in the assessment proceedings for determining or computing tax is conclusive. However, it is good evidence". Even if the assessee did not challenge or concede the addition made in assessment proceedings, he can still challenge that no case for levy of penalty is established. This can be shown with reference to the existing evidence and it is not mandatory requirement of any provision that assessee should lead fresh evidence to get out of the clutches of penalty proceedings. I have made these observations to repel any misgiving or misimpression that may arise with regard to the addition sustained in the quantum proceedings. Such an impression can arise on account of extensive quotations from the order of Tribunal in the quantum proceedings on which the learned Members have relied in the proposed orders now before me. Again, it is to be borne in mind that in penalty proceedings one cannot make out a case totally different from one made in assessment proceedings. In other words, levy of penalty cannot be justified on the basis of finding recorded by the appellate authorities if those findings are based on facts different from one on which satisfaction was recorded by the assessing officer for purposes of levy of penalty. Therefore, in all cases, it is imperative before levying penalty to see whether the basis on which penalty proceedings were initiated has been altered or modifies by the appellate authorities. If original basis is altogether altered, the penalty proceedings originally initiated have to be dropped. Whether facts found are altered or not is a question of fact depending upon circumstances of a given case.
In this case, as is evident from quotations extensively quoted earlier, the Tribunal in the quantum appeal, accepted the fact that goods claimed to be purchased by the assessee from six parties were received by the assessee and utilised in the production. The Tribunal estimated the cost of goods received and reduced the addition to Rs, 40,000. In the light of the above finding, it is not permissible in the penalty proceedings to reject inward and stock registers and hold them as manipulative and thereby hold that goods were not received by the assessee and could not be used in the manufacture. In spite of non-availability of six parties, the assessee was entitled to show that goods were received and, therefore, their cost has to be allowed as a deduction. The Tribunal partly accepted the case and allowed relief to the assessee. The finding recorded in the quantum proceedings could not be reversed or modified in the penalty proceedings to the disadvantage of the assessee. The question of addition is no more there, rather the question faced is whether the added amount is "concealed income" or income in respect of which the assessee furnished "inaccurate particulars", that question is different from the question raised in assessment proceedings and so is the nature of penalty proceedings. The burden to prove concealment is also on the revenue. The assessee can also show that added amount is not assessees income.
It has come on record that penalty in the present case was imposed by the assessing officer and upheld by learned Commissioner (Appeals) much before the quantum appeal was taken up by the Tribunal. The Tribunal also reduced the addition to Rs. 40,000 and accepted that goods were received by the assessee and reasonable price in respect of material received by the assessee will have to be granted. Thus, the original finding of the revenue authorities that assessee claimed fictitious deduction in respect of purchases from six parties was not in existence. In the light of the above finding of the Tribunal, it became imperative for the assessing officer to reconsider the question whether penalty under section 271(1)(c) of the Income Tax Act could at all be imposed having regard to the fact that its finding stood modified. I entirely agree with the learned A.M. that penalty would be justified only if it is found on record that Rs. 40,000 sustained by the Tribunal represented inflated price of purchase of goods utilised in production.
This has to be established by the revenue through preponderance of evidence. Merely because above addition has been sustained is not sufficient to justify the levy of penalty. The assessee can also argue that addition has been sustained purely on estimated basis and there is no material on record to show that price of goods was inflated. All these questions are required to be examined in accordance with law.
Therefore, setting aside of penalty order is fully justified on facts and in the circumstances of the case. In the light of the above decision, I fully agree with the view of the learned A.M. His order of remand for reconsideration of issue is fully justified. The matter will now go to the regular Bench which heard the appeal for passing an order as per the majority view.
In conformity with the opinion of the Honble Vice-President, dated 17-1-2001, we restore the matter relating to leviability or non-leviability of penalty in question to the file of the assessing officer. He is directed to decide the matter afresh in the light of findings of fact given by the Tribunal in the quantum appeal of the assessee and in accordance with law.