TMI Blog1992 (7) TMI 99X X X X Extracts X X X X X X X X Extracts X X X X ..... of accounts maintained by the assessee for these years and which according to the ITO revealed substantial concealment of income. During the course of scrutiny there was settlement effected by the CIT for these years according to which the income was determined at Rs. 53,890, Rs. 95,253, Rs. 1,25,262 and Rs. 1,12,583 respectively for the assessment years 1977-78 to 1980-81. At this juncture it is necessary to mention that prior to reassessment proceedings the original assessments were completed on a total income of Rs. 13,185, Rs. 35,390. Rs. 48,958 and Rs. 47,583. After finalising the reassessment the ITO initiated penalty proceedings and after observing the due process of law and considering the objection raised by the assessee he rejected the explanation offered by the assessee as unsatisfactory and levied penalties for concealment of income as detailed in the penalty orders. In short the case of the ITO was that the kachha and pacca books of accounts seized at the time of search revealed substantial concealment of income and there was great discrepancy found in those two sets of accounts. The assessee also agreed to the total income determined by the CIT at the time of settlem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ement. Therefore, the CIT(A) concluded that there was nothing on record to prove that such addition represented concealed income of the appellant and there was wilful negligence or attempt on the part of the assessee to conceal the income. According to the CIT(A) the addition made in the reassessment was obviously not on account of deliberate concealment but on account of inability of assessee to produce accounts actually incurred and therefore it was necessary for the ITO to have brought some positive evidence to prove that there was deliberate concealment on the part of the assessee and the assessee was in possession of or had some source of concealed income. Since the ITO failed to do so the penalty imposed by him were not justified. Therefore, he cancelled the penalties levied for assessment years 1979-80 and 1980-81. 3. At the time of hearing the learned DR filed a copy of the settlement effected by the CIT (Inv.) Gujarat, Ahmedabad as seen from the order sheet extract dated 29-6-1983. In fact the AAC has reproduced the settlement in his appellate order. However, it is necessary to again mention certain salient features of the settlement order passed by the CIT which has bea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of search so as to scrutinise whether there are any omission of receipts or inflation of expenses in the pacca books of accounts vis-a-vis the kachha books of accounts maintained by the assessee. The case was adjourned for two days so as to enable the DR to produce the relevant books of accounts seized. When the matter came up for bearing the learned DR was unable to produce books of accounts on the ground that there has been succession of officers and the books of accounts could not be located for production for perusal. Therefore, we proceed to dispose of the appeals on the basis of record and the submissions of the parties. We have again asked both the parties to confirm whether there were material differences between the kachha books and the pacca books including the receipts paid for general expenses and expenditure incurred for procuring films. Both the parties are informed that there were no differences. 6. After careful consideration of the record we came to the conclusion that there was no difference between the kachha books and the pacca books maintained by the assessee except to the extent of receipts being reduced in the pacca books which represented the expenditure ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erence between the original income assessed and the revised income assessed in the reassessment arose not on account of furnishing of inaccurate particulars of income or concealment of income but inability to establish the claim of expenditure incurred for procuring the films, without which obviously the assessee could not have earned so much of profits. It is obvious that in case of exhibitors the cost of films procured is allowed as a deduction at 100% in the year of acquisition of the films and specific rules are prescribed therefor. In respect of feature films deduction of cost of production of feature film is allowed in accordance with rule 9A of the IT Rules to the producers. Rule 9B provides deduction in respect of expenditure on acquisition of distribution rights of feature film. Therefore, the statute itself allows the cost of production of film or acquisition of film in respect of producers and exhibitors. The expenditure involved in this case which has not been proved by the assessee actually represented the cost of the films procured by the assessee and in case the assessee was able to obtain the vouchers the assessee could have obtained deduction of 100% being the cost ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... w and in the facts and circumstances of the case. Explanation (1) to section 271(1) contains a deeming provision according to which amount added or disallowed in computing total income shall be deemed to represent the income in respect of which particulars have been concealed. No doubt the fact that the assessment order contains a finding that the disputed amount represents income constitutes good evidence in penalty proceeding but the finding in the assessment proceeding cannot be regarded as a conclusive for the purposes of the penalty proceeding. Before a penalty can be imposed the entirety of the circumstances must be taken into account and must point to the conclusion that the disputed amount represents income and that the assessee has consciously concealed particulars of his income or deliberately furnished inaccurate particulars. The mere falsity of explanation given by the assessee is insufficient without there being, in addition, cogent material or evidence from which the necessary conclusion attracting a penalty can be drawn. The Supreme Court in the case of CIT v. Khoday Eswarsa Sons [1972] 83 ITR 369 on page 376 observed as follows :-- " It is clear that the penalty ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Court in the case of Sir Shadilal Sugar General Mills Ltd. v. CIT [1987] 168 ITR 705 considered similar facts in that case and observed at page 713 of the judgment that from agreeing to additions, it does not follow that the amount agreed to be added was concealed income. There may be a hundred and one reasons for such admission. 8. From the aforesaid judgments it is clear that penalty cannot be levied solely on the basis of reason given in the order of assessment and there should be further materials to support the finding of concealment of income or furnishing of inaccurate particulars of income. It is obvious that the ITO has not brought on record any other material or given findings to establish the guilt or charge of concealment or furnishing of inaccurate particulars of income. 9. In case the penalties levied by the ITO were to be considered under Explanation to section 271(1)(c) then the facts of the case clearly show that the ITO has merely rejected the explanation offered by the assessee. He has also not established that the explanation offered by the assessee was false. On the other hand the explanation offered by the assessee is bona fide and all the facts relating ..... X X X X Extracts X X X X X X X X Extracts X X X X
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