1992 (9) TMI 163 - AT - Income Tax

Summary

Issues Involved:
1. Cash Credits
2. Assessment Proceedings
3. Penalty under Section 271(1)(c)
4. Cross-examination and Evidence
5. Agreement between Assessee and Department

Detailed Analysis:

1. Cash Credits:
The primary issue revolves around the cash credits totaling Rs. 9,50,000 shown by the assessee from 104 persons, purportedly agriculturists. The Assessing Officer (AO) found discrepancies, noting that some creditors had died before the claimed dates, while others were illiterate and could only provide thumb impressions on consent letters written in English. Statements from some individuals, including Shri R.M. Thakare, Shri Lallubhai Patel, and Shri Nikhare, revealed that no actual loans were advanced to the assessee. The AO concluded that the confirmatory letters were fabricated to introduce unaccounted income.

2. Assessment Proceedings:
The assessment for the year 1985-86 was completed without proper verification of the cash credits. The Commissioner of Income Tax (CIT) found the assessment order erroneous and prejudicial to the interests of the Revenue, thus setting it aside. During the reassessment, the AO issued multiple letters to the assessee, pointing out the discrepancies and requesting explanations. The assessee, in response, offered the sum of Rs. 9,50,000 for taxation to avoid further litigation and penalty.

3. Penalty under Section 271(1)(c):
The AO imposed a penalty of Rs. 14,31,940 under Section 271(1)(c) for concealment of income. The CIT(A) canceled the penalty, stating that the factual ingredients required for imposing the penalty were not present. The CIT(A) emphasized that the surrender of income by the assessee was to buy peace and not an admission of concealed income. The Tribunal upheld the CIT(A)'s decision, noting that the penalty proceedings and assessment proceedings are distinct, and stricter proof is required for imposing a penalty.

4. Cross-examination and Evidence:
The Tribunal found that the assessee was not given an opportunity to cross-examine the witnesses whose statements were used against him. The law mandates that statements of witnesses examined during investigations must be supplied to the accused for cross-examination. The AO's failure to provide these statements to the assessee during the assessment and penalty proceedings was a significant procedural lapse.

5. Agreement between Assessee and Department:
The assessee's letters dated 26th and 27th February 1987 indicated an agreement with the Department to complete the assessment on an agreed basis to avoid further litigation and penalty. The AO accepted the gross profit rate, expenses, and cash credits as offered by the assessee, suggesting an implicit agreement. The Tribunal concluded that the Department accepted the assessee's offer to avoid further disputes, and thus, the penalty for concealment could not be justified.

Conclusion:
The Tribunal dismissed the Department's appeals and upheld the CIT(A)'s orders, canceling the penalties imposed under Section 271(1)(c). The Tribunal emphasized the importance of procedural fairness, including the right to cross-examination and the necessity of clear evidence for imposing penalties. The Tribunal also recognized the implicit agreement between the assessee and the Department to settle the assessment amicably, further justifying the cancellation of the penalties.