Commissioner Of Income-Tax v. Handloom Emporium

Rajes Kumar, J.:— The Income-tax Appellate Tribunal has referred the following question of law under section 256(2) of the Income-tax Act, 1961 (hereinafter referred to as “the Act”), for the assessment year 1981-82 for opinion to this court:

“1. Whether the Tribunal was justified in cancelling the penalty under section 271(1)(c) especially when the revised return was filed after the search operation when loose papers recovered indicated unrecorded transactions and unrecorded unexplained investment?”

2. The brief facts of the case are as follows:

3. The assessee/opposite party (hereinafter referred to as “the assessee”) was a partnership firm and was carrying on the business of purchase and sales of cloth and was also carrying on the business of money lending.

4. The assessee filed a return of income on July 27, 1981, showing loss of Rs. 3,660 and thereafter, a search was conducted at the business premises on September 23, 1981, and also residential premises of the partner of the firm under section 132 and during the course of search, certain loose purchas were found, in which, transactions relating to sales were found entered which were not found recorded in the books of account. In the loose paper, total entries towards debit side was at Rs. 90,411 and on a credit side at Rs. 31,659. The assessee filed a revised return on August 10, 1982, showing an income of Rs. 2,360. In the revised return, entries made in the loose purchas at Rs. 90,411 has been treated as the sale and on which profit at Rs. 6,012 has been calculated and accordingly as against the loss, income at Rs. 2,360 was shown. The assessment order was completed on a total income at Rs. 1,20,070 inclusive of Rs. 90,411 and Rs. 31,659 being unrecorded sales as well as income from undisclosed sources respectively. The aforesaid addition was confirmed by the Commissioner of Income-tax (Appeals). The Tribunal, however, in second appeal deleted the addition of Rs. 31,659 and has confirmed the addition of Rs. 90,411. The assessing authority levied penalty under section 271(1)(c) at Rs. 58,944 being minimum penalty imposable. The Commissioner of Income-tax (Appeals) allowed the appeal in part and deleted the penalty leviable on the amount of Rs. 31,659 which was deleted by the Tribunal but has sustained the penalty at Rs. 37,320 on the amount of Rs. 90,411 treating it as a concealed income. The assesses filed appeal before the Tribunal. The Tribunal allowed the appeal and deleted the entire penalty. The Tribunal held as follows:

“We have perused the entire material placed before us and we find that, even though in the quantum assessment the addition was sustained by the Tribunal, ingredients of section 271(1)(c) are not present in this case. The very fact that the assessee filed voluntary return disclosing profit on sales found on the loose papers showed the intention of the assessee and it establish the conduct of the assessee. This was specially so because even notice under section 148 has not been issued by the Department. There could be one hundred and one reasons for including the profit on sales found on the loose papers. There is also force in the contention that the loose papers have been recovered from the room of Shri Sita Ram who was neither a partner of the firm nor connected with the assessee. There was no query made regarding the loose papers from any person. Therefore, apart from the inference of the Department, there was no establishment of the guilt of concealment (SHRING GRAHIKAYA) (identifying the cow by showing the horn). Lastly, we do recognize the difference between the quantum proceedings and the penalty proceedings. Simply because the addition was confirmed in the quantum proceedings, the same will not per se establish the charge of concealment. In the view we have taken above, we find that the penalty levied with reference to the sales on loose papers was not justified and the same is cancelled. The cases relied on by the learned Departmental Representative are slightly distinguishable in the case before us and, therefore, they have not been individually discussed and distinguished.

In the end, the appeal is allowed.”

5. Heard Sri A.N Mahajan, learned standing counsel appearing on behalf of the Revenue. No one appears on behalf of the assessee.

6. Learned standing counsel submitted that the present is a clear case of concealment. He submitted that the entries in loose purchas have been admitted relating to the concealed sales of the assessee's business and in the revised return, profit out of the said sales has been disclosed. He submitted that the revised return was not voluntary and in good faith and when at the time of search, loose purchas were found, in which the entries relating to the sales were recorded, which were not found entered into the books of account, the assessee filed revised return showing profit thereon. He further submitted that even the entire amount at Rs. 90,411 has not been shown as the income. He submitted that the Tribunal has wrongly recorded the finding that that the assessee filed voluntary return disclosing profit on sales found on the loose papers showed the intention of the assessee and it established the conduct of the assessee. He submitted that the Tribunal has deleted the penalty on an irrelevant consideration and recording wrong findings.

7. We have perused the order of the Tribunal and the authorities below. In our opinion, the order of the Tribunal deleting the penalty is based on irrelevant consideration and on wrong facts. The findings of the Tribunal are perverse and without any basis. In the present case, income shown in the revised return was not voluntary. When the assessee was caught and during the course of search, loose purchas were found, in which, entries relating to the sales were found which not recorded in the books of account. The assessee treated the entries of Rs. 90,411 relating to sales and has shown profit at Rs. 6,012 at the rate of 6.55 per cent. Therefore, the Tribunal has erred in observing that the assessee filed voluntary return disclosing profit on sales. The assessee has not offered any explanation as to why sales recorded in the loose purchas were not entered in the books of account and income relating thereto has not been disclosed in the return. On the facts and circumstances of the case, present is a clear case of concealment. If search would not have been made and loose purchas had not been detected, the income would have escaped assessment. In our opinion, on the facts of the case, the assessee deliberately concealed the sales of cloth, therefore, was liable for penalty. For the reasons stated, penalty levied by the first appellate authority is restored.

8. For the reasons stated above, we answer the question referred to us in the negative, i.e, in favour of the Revenue and against the assessee. However, there shall be no order as to costs.