TMI Blog1994 (5) TMI 53X X X X Extracts X X X X X X X X Extracts X X X X ..... the returns were accepted under s. 143(1); on16th Dec., 1986for asst. yr. 1986-87 an on21st Oct., 1987for asst. yr. 1987-88. 2.1 Subsequently the Assessing Officer (AO) issued notice under s. 143(2) for both the assessment years on8th March, 1988. The AO noted that in both the years totals of the assets and liabilities side of the Balance-sheets did not tally. When the assessee produced its books of accounts, the same were impounded by the AO under s. 131(3) of the Act. On examination of the books of accounts it transpired that the balance as detailed in the Balance Sheets, however, tallied with those appearing in the books of accounts. On being asked the assessee found itself unable to reconcile the difference. Consequently the difference continued to exist both in the books of accounts for the two years and in the two relevant balance-sheets. Therefore the assessments originally framed under s. 143(1) or the Act were enhanced by the amount of difference so discovered. It is noteworthy that in the asst. yr. 1986-87 the assets exceeded the liabilities by Rs. 1,65,610. The income for this assessment year was computed on23rd March, 1988at Rs. 2,25,000 as against the same assessed u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee. It was broadly submitted that there was no conduct contumacious on the part of the assessee. The AO however, took the view that the assessee had tried to perpetrate fraud by reporting wrong totals on the liability side for asst. yr. 1986-87 of the balance-sheet, which had remained unreconciled inspite of opportunity given. He noted that the total on the liability side should have been Rs. 6,13,229 as against Rs. 7,78,839 shown, there thus being an excess of assets over liabilities to the extent of Rs. 1,65,610. For asst. yr. 1987-88, the AO took a similar view when he noted that the aggregate total on the liability side of the balance-sheet should have been Rs. 7,97,364 which the assessee had shown the total at Rs. 8,12,902 resulting in an excess of assets over liabilities by Rs. 15,538. Subsequently, it was however found that difference existed in the account of four parties to the extent of Rs. 2,65,898. The explanation, thus, rendered by the assessee stood rejected and the AO levied a penalty of Rs. 36,170 for asst. yr. 1986-87 and a penalty of Rs. 63,829 for asst. yr. 1987-88. Since these orders were based on the status of the assessee being taken as RF, the same were a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any hesitation produced its books of accounts. According to Shri Sampat even then the assessee was not aware that there were difference in the balance-sheets an as and when such errors were pointed out by the AO during the course of assessment proceedings, the assessee without any hesitation accepted the differences for being assessed as its income. Shri Sampath submitted that the conduct of the assessee had all along been transparent and open without any trace of having committed any conscious act of concealment or for that matter having furnished inaccurate particulars of income while submitting the statement of accounts with the original returns. He submitted that when difference was pointed out for asst. yr. 1987-88 also, it was readily accepted and while agreeing to an enhancement of assessment the assessee prayed for pardon. Shri Sampath submitted that only reason which prevailed with the AO in taking the view that assessee's case would not fall within the ratio of Hon'ble Supreme Court in the case of Hindustan Steel Ltd. vs. State of Orissa (1972) 83 ITR 26 (SC), was that the decision was rendered under the Sales-tax Act. He submitted that such an impression is erroneous. H ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... finding given in the assessment proceedings and have brought no material on record or evidence to establish the charge of concealment. He submitted that the concealment ought to be established beyond reasonable doubt and also that the concealed income should represent the income of the assessee. The learned authorised representative referred to the order of Bombay Bench of the Tribunal, in the case of 9th ITO vs. V.R. Bendre Co. (1990) 34 ITD 480 (Bom) where it had been held that s. 271(1)(c) is applicable where it is proved that the assessee has concealed the particular income or furnished inaccurate particulars of such income. Penalty proceedings are distinct and different from assessment proceedings. Findings in the assessment proceedings are not conclusive but are relevant. The entire material available should be considered afresh by the authorities before imposing penalty. He further referred to the judgment of Calcutta High Court in the case of CIT vs. Sardar Iqbal Singh (1990) 84 CTR (Cal) 270 : (1991) 190 ITR 51 (Cal) and submitted that the mere fact that there is error in totalling of balance-sheets would not by itself lead to conclusion that the assessee is liable to p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rrender, has been held to be justified as in the case of Tribhuvandas Bhimji Zaveri vs. Union of India Ors. (1993) 115 CTR (SC) 411 : (1993) 204 ITR 368 (SC), Nand Lal Kanhiya Lal vs. CIT (1993) 115 CTR (Guj) 309 : (1994) 205 ITR 360 (Guj), CIT vs. La-medica (1992) 105 CTR (Del) 181 : (1992) 198 ITR 327 (Del) and (1993) 202 ITR 80 (Suppl.) (Sic). The learned Departmental Representative submitted that the assessee had misplaced the trust reposed by the Revenue in framing assessment under s. 143(1) and, therefore, was rightly penalised. 7. In reply, the learned authorised representative for the assessee, Shri Sampath submitted that the cases cited by the learned Departmental Representative pertained to law as existed on the statute prior to1st April, 1976, the same pertaining to 80:20 of Expln. clause and as such were inapplicable to the facts involved in the two appeals. He submitted that it is on the basis of Explan.-1 to s. 271(1)(c) the levy of penalty is to be judged. 8. We have heard the learned representatives at length and have also gone through the case laws cited before us. We have also gone through the orders levying penalty and the order of the learned CIT(A). That ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eturns. The relevant facts and circumstances cannot be altogether brushed aside without looking into the conduct of the assessee. In the absence of any material to the contrary the explanation of the assessee that it depended on its accountant for the compilation of its accounts and in turn got misled by him cannot be brushed aside. Rejection of such an explanation in the circumstances would be arbitrary, more so when no material has been brought on record by the Revenue that partners are capable of preparing the books of accounts independently and the explanation tendered was merely a ruse to cover up errors committed by them. 9. It is also seen that it is not the assessee only which got away with mistakes in totalling in the balance-sheets but the AO overlooked such mistakes when he accepted the balance-sheets while framing assessments under s. 143(1). Mistakes were already there on record. Interestingly, for asst. yr. 1987-88 the assessment framed under s. 143(3) was also found erroneous and prejudicial to the interest of the Revenue by the learned CIT when he noted that debit balances in four accounts aggregating to Rs. 2,65,898 were not taken into account by the AO. 10. We ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the learned authorised representative for the assessee is right in saying that there is no material on record to suggest that with reference to any set or material required for the computation of total income the assessee failed to offer any explanation. There is no evidence on record by which the Revenue can be said to have established that the explanation rendered by the assessee has been shown to be false. As a matter of fact there is no finding to this effect either. The assessee has substantiated its explanation to the extent possible by stating the ignorance of the partners of the accounting complexities and intricacies and of their having employed an accountant to do the needful who apparently played false. The explanation so tendered by the assessee appears to be bona fide and is clearly covered by Expln. 1 to s. 271(1)(c) and the Revenue has not established conduct contumacious gross or wilful neglect or fraud on the part of the assessee. The mistakes leading to enhancement of income appear to be unintentional. On a consideration of relevant facts and circumstances we are of the view that the penalties levied are not justified. 12. In this view of the matter we refrain ..... X X X X Extracts X X X X X X X X Extracts X X X X
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