TMI Blog2005 (12) TMI 224X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee filed details of month-wise purchases (direct) sales and production vide letter dated 23-12-1991. The same were scrutinized by the Assessing Officer. On scrutiny the Assessing Officer found that the g.p. rate for eleven months' period ending on 28-2-1990 was 30 per cent approximately whereas the g.p. rate for the whole year was only 14.05 per cent as declared by the assessee. Despite specific direction the assessee could not explain the g.p. rate applied by him nor could furnish full particulars of trading nor submitted monthly reconciliation of trading. Hence, the Assessing Officer asked the assessee to furnish quantitative details of books purchased (direct), published, sold, sales returns and the books left in the closing. However, the assessee again failed and could not satisfy the Assessing Officer. The assessee also could not substantiate the quantitative details with the help of vouchers/bills and ultimately vide letter dated 24-3-1993 submitted that due to gross negligence on the part of his accountant the accounts could not be properly maintained. Through this letter he offered additional amount of Rs. 3 lakhs for taxation in the trading resulted on account of his ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iled by these two concerns. After thorough investigation it was found that the entries of debit were wrongly made by the assessee. Shri "Salauddin being admitted that under pressure and under instructions of Shri J.L. Kumar, the proprietor of M/s. Anmol Publications, he confirmed the balance of Rs. 1,75,750 in the account of M/s. Anmol Publication without referring to his books of account. He also made the following statement: "I do hereby declare that the balance in the account of M/s. Anmol Publication as on 31-3-1990 was Rs. 27,246 only out of which Rs. 26,000 was received on 5-4-1990 by cheque as per my bank statement submitted with you today." 4.6 So far as the other concern, namely, S.U. Book Binding House is concerned, statement of Shri Salauddin was recorded and even Smt. Hamid-ul-Nisha confirmed that the statement of her husband was correct. According to his statement the bills which were shown by M/s. Anmol Publication were issued to other parties and not to M/s. Anmol Publication. He also confirmed that the photocopies of bills shown to him on behalf of M/s. Anmol Publications were bogus and were not prepared by any person in his touch. 4.7 On the basis of the abov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Book Binding House Rs. 1,75,750 M/s. G.K. Fine Art Press Rs. 67,611 ------------- Total amount of difference Rs. 4,50,679" ------------- 4.9 In view of the above letter the Assessing Officer made addition and also made the following observations in the assessment order: "Although in his reply, the assessee has surrendered the amounts of following three credit balances but the surrender cannot be said to be voluntary because the non-genuineness of these amounts had already been detected by the Department and proved beyond doubt by the evidence collected from witnesses as discussed in above paras, penalty proceedings under section 271(1)(c) are therefore initiated against the assessee:- M/s. K.R. Book Binding House Rs. 1,87,318 M/s. S.U. Book Binding House Rs. 1,75,750 M/s. G.K. Fine Art Press Rs. 87,611 ------------ Total Rs. 4,50,679 ------------ The above credit balances of Rs. 1,87,318 in the name of M/s. K.R. Book Binding House, Rs. 1,75,750 in the name of M/s. S.U. Book Binding Hou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rther submitted that addition of Rs. 3 lakhs was made on the basis of surrender of the assessee, which surrender was made conditional and the Assessing Officer could not really found the concealment of this amount by the assessee. 7. We have carefully considered the entire material on record and the rival submissions. So far as the addition of R. 3 lakhs is concerned, on perusal of the assessment order and the penalty order we find that this addition is based mainly on the surrender of Rs. 3 lakhs made by the assessee. The issue raised by the Assessing Officer was about the g.p. rate. It may be pointed out that in earlier year the assessee had disclosed g.p. rate of 7.98 per cent. The Assessing Officer required the assessee to furnish monthwise details of purchase, sale and publication etc. The assessee plainly admitted that due to inexperienced accountant, proper details could not be maintained. The assessee definitely submitted the monthwise tally and other quantitative details but the Assessing Officer could not be satisfied and ultimately the assessee made a surrender of Rs. 3 lakhs. It may be pointed out that Assessing Officer himself had not found any particular and positiv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gave opportunity to the assessee and asked him to furnish complete copy of books of account of the two parties but the assessee failed to do so and in the last the Assessing Officer invoked his powers and summoned the parties under section 131 of the Income-tax Act. As pointed out earlier Shri Salauddin appeared and he firstly supported the assessee but subsequently on further examination he was led to reveal the true position categorically stating that the photocopies of the bill Nos. 77, 78, 79, 80 and 89 filed by the assessee were not issued by his firm and he has nothing to do with these bills. The Assessing Officer also checked the returns filed by M/s. K.R. Book Binding House and found that in the computation the debit or credit against the assessee was not shown. Similar statement was made by Shri Salauddin on behalf of his wife and he denied the bills. On the other hand, he disclosed that the bills at Nos. 671,672,673,661 and 662 were issued in the name of different parties and not in the name of Shri J.L. Kumar, proprietor of M/s. Anmol Publication. Thus, as per the statement of Shri Salauddin it was clearly established that fake bills were got prepared by the assessee in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of account identified by the Inspectors. In response, to the summons Shri Salauddin along with his accountant appeared and produced the books of account. He also filed power of attorney on behalf of his wife who was a pardanashin lady. The Assessing Officer placed before him the photocopies of the bills filed by the assessee on 16-2-1993. Shri Salauddin on seeing the photocopies emphatically stated that none of these bills were issued from his bill book or from the bill book of his wife who was proprietor of M/s. S.U. Book Binding House. He also showed counter foils of the bills actually received by them in respect bills issued to M/s. Anmol Publications. It was specifically pointed out that bills bearing serial numbers shown by the assessee were actually issued to some other different parties for whom also binding work was done. 7.6 The Assessing Officer recorded the statement of Shri Salauddin on 11-3-1993. The relevant portion of this statement is as under: "Q. What was the reason of your confirming the debit balance in the account of M/s. Anmol Publication as on 31-3-1990 at Rs. 2,75,750 as per your balance confirmation certificate dated 1-2-1993 as well as the confirmatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rs. 2,189.25 Jaipur 80. Not M/s. Discovery Publishing Rs. 16,302.50 written House, Delhi 89. -do- M/s. Eastern Book House, Rs. 1,000 Delhi --------------------------------------------------------- My statement referred to above can be verified from my ledger for the relevant period and the bill books produced herewith for your verification. It is confirmed that the photocopies of the bill Nos. 77, 78, 79, 80 and 89 filed with you by M/s. Anmol Publication were not issued by my firm and I have nothing to do with those bills. I am willing to file with you the confirmation of my above named parties to the extent possible in this short period. I assure you of my full co-operation with the Department at any point of time for the verification of these bills. Q. Whether the bill Nos. 77, 78, 79, 80 and 89, filed by M/s. Anmol Publications, were shown to you on 2-3-1993 and are being shown now, were prepared by Mr. Mujibur Rehman, Mr. Ashok Kumar or any other person known to you and state who had signed those bills? A. I had shown my original sale bill-books to you and it is not clear that the above bills were no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, New Delhi 672 -do- -do- Rs. 696 673 -do- -do- Rs. 1,170 ---------------------------------------------------- From the above details you will appreciate that the photocopies of the bills shown to me are bogus and have not been made by any person in our touch. I will try to collect the original copy of my sale bill from my customers to whom the above invoices have been issued. Q. Do you understand the implications of the replies given by you today in your statement and you have any pressure to give this statement? Do you understand as to what has been written in this statement? A. My Chartered Accountant Sh. Rakesh Mahajan and my Accountant Sh. Ashok Kumar have explained to me very clearly the questions and replies thereto as recorded in my above statement. I do hereby declare that this statement is given by me on behalf of my wife Mrs. Hamid-ul-Nisa and was without any pressure from any side. The implications of the statement have also been explained to me." 7.8 The Assessing Officer also contacted Smt. Hamid-ul-Nisa and read out the statement of her husband to her, who acknowledge ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uthorities unserved and the inspector deputed by the Assessing Officer also reported that none of parties were existing at the given addresses. Though the results of such enquires were duly confronted to the assessee, but he made no efforts either during the course of assessment proceedings or during the penalty proceedings to prove his bona fide. No doubt both assessment proceedings and penalty proceedings are separate proceedings but the material gathered during the course of assessment proceedings is quite relevant for deciding the issue of penalty under section 271(1)(c). Even during the course of penalty proceedings the assessee had not made any effort to lead any evidence than what was adduced before the various authorities during the quantum appeals. In the light of evidence already collected by the Assessing Officer, which also remained uncontroverted by the assessee till date, no further material was required to be produced by the Assessing Officer to prove the charge of concealment against the assessee. The assessee had only raised a technical objection that the Assessing Officer had not recorded a finding whether penalty was initiated for concealment of income or for fur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reference, the Hon'ble Kerala High Court set aside the order of the Tribunal and remanded the matter back to it by observing as under: "Held, that it is settled position in law that there cannot be estoppel against a statute. It is for the Department to consider the explanation offered by the assessee in respect of an amount, which was offered to be taxed. It is not automatic that whenever an amount has been offered by the assessee, penalty is not to be levied. Therefore, in the penal proceedings which conceptually differ from assessment proceedings, the assessee can file an explanation justifying its action in not including a particular item of income in its return, though it may have offered the amount not be taxed subsequently. If such an explanation is offered, the Department has to examine its acceptability and record a finding as to whether the explanation is acceptable or not. Only if the explanation is not found acceptable, the question of penalty will arise. In other words, the explanation of the assessee has to be considered on the merits. The Tribunal has not kept this aspect in view." 7.15 In the case of K.P. Madhusudhanan v. CIT [2001] 251 ITR 99 (SC), the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... who has recorded the arguments of the assessee in verbatim, has not bothered to go through the penalty order and has not properly appreciated the same. In our considered opinion, the learned CIT(A) has not correctly appreciated the gravity of matter and the circumstances under which the charge of concealment was proved by the Assessing Officer beyond any shadow of doubt. Hence, we are unable to accord our approval to the findings of learned CIT(A). 7.17 On the basis of above discussion, it is established beyond any scintilla of doubt that the assessee deliberately furnished incorrect and inaccurate particulars and it was only on account of extra pains taken by the Assessing Officer in making thorough investigation that malicious design of the assessee could be detected. The assessee did not disclose truth till last and even made a prayer for cross-examination of the witnesses examined by the Assessing Officer and it was only in the last that he had to give up his stand and did not press the prayer for cross-examination and being fully cornered, he had no other way but to surrender the amount of Rs. 4,50,679. Thus, it could not be said that the assessee voluntarily surrendered the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not show that the payment of the aforesaid amounts has been made to these parties. The computerized ledger, however, contained narration of payment and the fact remained that in the ledger itself the amounts were reflected as payable. The ledger thus itself did not conclusively reveal that the payment had been made and that is how the amount was shown as payable in the aforesaid three accounts. The Assessing Officer did not doubt the correctness of the cash book but the accounts stood rejected merely on the basis of entries contained in the ledger account which was a mistake committed by the accountant in giving such narration of payment due to in-built programming of the computer. Such a mistake could not be said as intentional nor a conscious act of the assessee. In fact the assessee had incurred liability for expenses incurred on account of book binding charges and claimed the same as expenses in the trading account. These expenses were duly supported by the bills issued by all the three aforesaid parties and confirmation thereto from the respective parties had also been brought on record by the assessee. The Assessing Officer himself had taken into account the claim of these e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sued in the name of some other parties without mentioning any date against such bills. The Assessing Officer did not verify the authenticity and correctness of such bills. These bills which the creditor produced did not even bear the addresses of the parties on whom such bills are stated to have been drawn. The Assessing Officer did not make any enquiry from any of such party so as to satisfy himself about the correctness of the bills produced by the creditor. In his statement on earlier occasion on 2-3-1993 the creditor had categorically admitted that payment almost in all the cases on binding charges has been received by cheque. The bank account of these two suppliers were also not verified to find out the correctness of the statement now being made wherein the said two suppliers denied of issuance of bills to the assessee for job work leading to the credit appearing in appellant's books. The appellant is getting regular service of job work done for book binding from these two parties and his business is largely dependent on services from these parties. In order to avoid loss of reputation and loss of business the assessee merely agreed to surrender the aforesaid amount of credit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome. The admission cannot be attributed to intention. There was no element of mens rea on concealment inheritently carries with it the element of mens rea. In the present case in appeal, there was no such intention. Penalty therefore was not exigible. This view finds support from the Apex Court judgment in K.C. Builders v. Asstt. CIT [2004] 265 ITR 562. Reference can also be made to the Hon'ble Madhya Pradesh High Court in the case of CIT v. Beta Nepthol Ltd. [2005] 272 ITR 323 held that when assessee is surrendering disputed items and paying taxes thereon, there is no concealment of income and hence penalty under section 271(1)(c) cannot be imposed. Reliability of third party account has not been proved beyond doubt before holding that the assessee has falsified his accounts. The assessee's explanation through letter dated 15th September, 1993 placed on paper book pages 8-10 also indicates that the facts were not disproved or found wrong. Likewise another supplier M/s. G.K. Fine Art Press who have appeared before the assessing authority had also admitted of issuance of bills for the book binding work done for the assessee. He has also admitted all the payments having been received ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd merely" because the assessee had agreed to surrender the income did not give jurisdiction to the Assessing Officer to come to the conclusion that there was concealment of income on his part. The findings given in assessment proceedings would be relevant and admissible material in penalty proceedings, but those findings cannot operate as res judicata because the consideration that arise in penalty proceedings are different from those in assessment proceedings. It is also an admitted position that in all cases the standard of proof for imposition of penalty is different from that on which the quantum addition of an income can be sustained. This has been so held by the Hon'ble Allahabad High Court in CIT v. Garg Engg. Co. [1999] 235 ITR 451. The circumstances of the case at hand do not give reasonable and positive conclusion that the amount in question represents the assessee's income and the Apex Court in the case of CIT v. Khoday Eswarsa Sons [1972] 83 ITR 369,376 and also in the case of Anantharam Veerasinghaiah Co. v. CIT [1980] 123 ITR 457 has ruled that a penalty cannot be levied solely on the basis of reason given in the order of assessment. Having considered the entire ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the assessee was asked to furnish quantitative tally of books purchased (direct), published, sold, sales returns and in the closing stock. The aforesaid detail asked for could not be furnished as proper books of account were not maintained due to the fact that Accountant of the assessee was new and inexperienced in the line of maintaining of accounts. The appellant, accordingly offered to surrender Rs. 3 lakhs for failure to furnish complete quantitative tally of books purchased, sold, returned or in the stock. The Assessing Officer further found that assessee had shown Rs. 4,50,679 towards amount paid/payable on account of binding and printing as per following details: -------------------------------------------------- Name Amount payable -------------------------------------------------- 1. M/s. S.U. Book Binding House Rs. 1,75,750 2. M/s. K.R. Book Binding House Rs. 1,87,318 3. M/s. G.K. Fine Art Press Rs. 87,611 -------------------------------------------------- The amount was shown to have been paid to first two parties on 31-3-1990 but the same was not reflected in the cash book. When confronted with thi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at no amount was due to him as shown by the assessee. 6. The assessee, while surrendering amount in question, had stated as under: "17. That, for the reasons stated in the preceding paragraphs and in the interest of avoidance of any litigation on matters where assessee was himself at default, for the mistake of his own, it was thought expedient to avoid any confrontation by way of prolonged litigation and following two amounts are being voluntarily surrendered for being added to the taxable income of the said year, with a humble submission that assessee, whose innocence is unquestionable beyond any doubt, shall be kept immuned from all kinds of penalty/prosecution proceedings as far as possible, the assessee after lot of hardships, and keeping in vogue the provisions of the Act shall be prepared to bear the brunt of heavy interest on the tax due on these amounts. (i) An amount of Rs. 4,50,679 (Rupees four lacs fifty thousand six hundred and seventy nine) on account of following credits standing/recorded in the books of a/c where assessee could not substantiate on the differences in his own books and books of a/c of the said parties namely: Amount of difference observed. i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ded by the Assessing Officer in the impugned order of penalty. It is also recorded that assessee was allowed inspection of entire record, seized with the Assessing Officer, to make submissions. 8. It was submitted on behalf of the assessee that surrender of amount in question was voluntarily made with an understanding that he shall be immuned from the penalty proceedings and that levy of penalty shall be gross betrayal of trust and understanding. The assessee also challenged the claim of the Assessing Officer that concealed part of income was detected by the Department. The assessee reiterated that amount was surrendered and full cooperation of highest order was shown in offering the amount for addition and departmental act of initiating penalty proceedings was an act of distrust shown to the assessee, who had innocently offered the amount on the condition that he would be kept immuned from the penalty. The assessee further claimed that revenue had not been able to prove any mala fide intention on the part of the assessee to conceal income. 9. In its reply dated 15-9-1993, the assessee sought to highlight that expenses were met by him through cheque only. Therefore, onus was on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as due to M/s. G.K. Fine Art Press, who had confirmed the balance vide their letter dated 20-1-1993 without complete statement of account. Subsequently, their Prop, was summoned but books were not produced nor appearance was made inspite of service of summons. Shri Sharad Kohli, Chartered Accountant had appeared on 23-3-1993 and produced copy of account of assessee in books of M/s. G.K. Fine Art Press which showed that balance as on 31-3-1990 was nil against Rs. 87,611 claimed by the assessee. The assessee was confronted with above evidence and on 24-3-1993 the assessee waived his right of examination of witness and surrendered Rs. 4,50,679 for taxation as his income for assessment year 1990-91. The assessee was now taking a summersault to contend that surrender was voluntarily made to buy peace of mind and in the spirit of cooperation. The Assessing Officer further, in his own style, held that non-surrender of amount would not have made any difference as relevant facts were even other detected. Accordingly, Assessing Officer held that so called claim of voluntary surrender in the spirit of cooperation was only intended to camouflage concealment detected by the Assessing Officer. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt in the cited case had relied upon decision of Apex Court in the case of CIT v. Anwar Ali [1970] 76 ITR 696. In respect of addition of Rs. 3 lakhs, the assessee pointed out that assessee in his various letters had explained to the Assessing Officer the nature of business of the assessee and pointed out that books sold on approval basis are liable to be returned even after one year's time and, therefore, maximum sale returns were shown towards the close of the year, when traders try to square up their accounts. The assessee has clearly explained to the Assessing Officer that surrender of Rs. 3 lakhs was made on the suggestion of the Assessing Officer with understanding that no penal provision would be invoked against the assessee. The assessee once again placed reliance on the decision of Apex Court in the case of Anwar Ali. It was further contended that like in the case of Anwar Ali, the onus by the revenue was not discharged and it was not established that added amount was concealed income or income in respect of which assessee had deliberately furnished inaccurate particulars of income. 13. The assessee further challenged observations of Assessing Officer in para 5.2 of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... However, learned Assessing Officer had himself used the word "surrender" against both the sums added and not "addition" in the computation part of assessment order where amounts have been added. Reference was invited to the computation portion of the order. There was thus a contradiction in the approach of the Assessing Officer as on one hand he wanted to prove that he had detected p the added amount of income while on the other hand he has clearly accepted that amounts were surrendered. The assessee contended that principles of natural justice and equity were clearly violated in this case. It was emphasized that offer of surrender was a conditional and offer could not be accepted without condition, otherwise the Assessing Officer was duty bound to establish that amount added was income of the assessee. Above assertions were made with greater force in respect of addition of Rs. 3 lakhs added to the income of the assessee. In respect of other addition of Rs. 4,50,679 comprising of three amounts i.e. Rs. 1,75,750, Rs. 1,87,318 Rs. 87,611, the assessee submitted that surrender was made as adduced by the Assessing Officer otherwise nobody on earth would be prepared to accept a p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... opportunity to prove its case. Reliance in this connection was placed on the decision of Krishan Lal Shiv Chand Rai v. CIT [1973] 88 ITR 293 (Punj. Har.) wherein it has been stated that a party is entitled to prove that an admission made previously by him was not correct and true. So the assessee was denied an opportunity to show that surrender was wrong and was made solely to avoid botheration. 16. The assessee also emphasized that penalty proceedings were distinct from assessment proceedings. The onus, in penalty proceedings, was on the Department to positively prove and show, with reference to material on record, that besides the fact of surrender, the amount added was undisclosed income of the assessee. Imposition of penalty, merely on surrender was unjustified. The assessee placed further reliance on the decision in the case of CIT v. Amalendu Paul [1984] 145 ITR 439 (Cal.) wherein penalty was levied on account of some income admitted in the revised return but the Tribunal and High Court on further proceedings held that admission made by the assessee was conditional and could not be relied upon for imposing penalty. The penalty imposed was cancelled. 17. After consideri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... her the assessment was completed on 26-3-1993 as it is seen from the assessment order. The appellant has paid part of tax liability of Rs. 2,00,000 on 31-3-1993. This also shows that appellant was sure about non-initiation of penalty proceeding. 6. The Assessing Officer while imposing penalty has observed that there is nothing on record to show any understanding accorded to the appellant that he shall be kept immuned from penalty proceedings under section 271(1)(c). To that extent the Assessing Officer is correct but in such situation there cannot be any written understanding and have to go by circumstantial evidences and facts of the case leading to surrender of the amount to be included in the total income. 7. Various decisions of various High Courts on which the appellant has placed reliance do support the case of the appellant. After considering all these decisions and facts of the case it appears that the surrender of the assessee by its letter dated 24-3-1993 was conditional and there must have been some sort of understanding between the Assessing Officer and the assessee for non-initiation of penalty proceedings under section 271(1)(c) between the period when the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ha, proprietor of M/s. S.U. Book Binding House. The Assessing Officer also referred to subsequent statement made by Sh. Salauddin wherein he had stated that balance in account of M/s. Anmol Publications as on 31-3-1990 was only Rs. 27,246 out of which Rs. 26,000 were paid by cheque on 5-4-1990. No balance was confirmed in account of the assessee in the books of M/s. S.U. Book Binding House. Statement of Shri Salauddin has been analysed by the learned Judicial Member at page 3, paras 4.6 and 4.7 of his order. He also reproduced letter dated 24-3-1993 of the assessee after the assessee had waived his right to cross examine Shri Salauddin etc. and had surrendered Rs. 4,50,679 representing three amounts in question. The relevant observation of the Assessing Officer have also been reproduced and analysed. The learned Judicial Member also referred to the penalty order of Assessing Officer imposing penalty of Rs. 4,10,600 under section 271(1)(c) of the Income-tax Act. 20. Thereafter the learned Judicial Member analysed the impugned order of CIT (Appeals) and arguments of the parties. 21. The operative portion of the proposed order starts with para 7 where he confirmed order of CIT (Ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o concerns. In paras 7.4 and 7.6, the learned Judicial Member has highlighted as to how Shri Salauddin had explained his earlier statement dated 2-3-1993 in subsequent statement dated 11-3-1993 with reference to entries in his books of account. In para 7.5, the learned Judicial Member has highlighted how books of account of M/s. S.U. Book Binding House, in respect of entries in books of assessee, were verified. He has also noted the details c of bills issued by Shri Salauddin in the name of different parties, other than M/s. Anmol Publications as a proprietary concern and also by his wife as proprietor of M/s. S.U. Book Binding House. Relevant portion of the statement have been reproduced and analysed by the learned Judicial Member. In paras 7.9 and 7.10, the learned Judicial Member has observed as under: "7.9 In view of the thorough interrogation and on closer and deeper scrutiny of the books of account of the assessee as well as of M/s. K.R. Book Binding and M/s. S.U. Book Binding House, it was proved to the hilt that the assessee had forged entries in his books of account and deliberately showed incorrect particulars in the return of income filed by him. 7.10 The Assessing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as not correctly appreciated the gravity of matter and the circumstances under which the charge of concealment was proved by the Assessing Officer beyond any shadow of doubt. Hence, we are unable to accord our approval to the findings of learned CIT (Appeals). 7.17 On the basis of above discussion, it is established beyond any scintilla of doubt that the assessee deliberately furnished incorrect and inaccurate particulars and it was only on account of extra pains taken by the Assessing Officer in making thorough investigation that malicious design of the assessee could be detected. The assessee did not disclose truth till last and even made a prayer for cross-examination of the witnesses examined by the Assessing Officer and it was only in the last that he had to give up his stand and did not press the prayer for cross-examination and being fully cornered, he had no other way but to surrender the amount of Rs. 4,50,679. Thus, it could not be said that the assessee voluntarily surrendered the amount. In fact, it was on account of very effective measures taken by the Assessing Officer that in the last the assessee virtually felt the guilt on his part. The Assessing Officer had dete ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e during his appearance before the Assessing Officer on 2-3-1993. Shri Salauddin had confirmed bills issued by him and his wife and further confirmed that in almost all cases payments have been received by cheque. Signatures on bills were also verified and accepted as correct. Thereafter a survey under section 133A was carried at the premises of concerns owned by Shri Salauddin and his wife and books of account of above concerns were identified and summons were issued for production of books of account and bills on 11-3-1993. On the specified date, Shri Salauddin produced bills for binding work only. The Assessing Officer has not recorded that books were identified under section 133A produced by the supplier. Shri Salauddin did state that certain bills with similar number claimed to have been issued to the assessee were in fact issued to other persons but dates of such bills are not given. The Assessing Officer further failed to verify authenticity and correctness of such bills. No addresses of the parties mentioned in the bills are available. The Assessing Officer failed to make any enquiry from the parties mentioned in the bill so as to satisfy himself about the correctness of bi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... due on assessment. This also shows that there was an element of assurance on the part of the Assessing Officer that no penalty would be initiated and on that account assessee agreed to the addition. Therefore, on facts it could not follow that assessee concealed its income. There was no element of mens rea in the concealment and, therefore, no penalty was exigible. The learned Accountant Member derived support from the decision of Apex Court in the case of K.C. Builders v. Asstt. CIT [2004] 265 ITR 562 as also from the decision of Madhya Pradesh High Court in the case of CIT v. Beta Nepthol Ltd [2005] 272 ITR 323 wherein it is held that surrendered disputed item on which tax is paid cannot be taken as concealment of income and no penalty is exigible in such a case. The learned Accountant Member, further observed that assessee's explanation through letter dated 15-9-1993 also indicate that facts stated by the assessee were neither disproved nor found wrong. In respect of amount shown as due to M/s. G.K. Fine Art Press, the learned Accountant Member made similar observations and held that assessee's claim based on genuine bills from suppliers stood duly acknowledged and accepted by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Asstt. CIT 124 ITR 15 (SC). Cancellation of penalty by the Ld CIT(A) is therefore, upheld. 4. In the result, the appeal stands dismissed." 27. On account of above difference, the matter has been referred to me. The learned Departmental Representative supported the proposed order of the Judicial Member. He emphasized that assessee had first shown in the computerized ledger disputed amounts as paid to the third parties. When after examination of cash book, it was found that payments were not shown as made, the assessee changed the stand and threw the blame on the Accountant for making wrong entries. The revised stand was that bills were received and payments were outstanding. On deep investigation and on examination of proprietors of M/s. K.R. Book Binding House and M/s. S.U. Book Binding House, it was proved beyond doubt that balances shown as outstanding were not correct. This was confirmed as per statement on oath of Shri Salauddin as well as by his wife proprietor of M/s. S.U. Book Binding House. The assessee thereafter was given opportunity to cross examine Shri Salauddin and other evidence on record but that right was waived and amount in question was surrendered g as inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... made in the above circumstances was conditional and, therefore, revenue authorities were not justified in imposing penalty on the assessee. The following circumstances have further not been appreciated by the Assessing Officer while imposing penalty under section 271(1)(c) of the Income-tax Act: (1) That credit entries were confirmed by parties. (2) That Shri Salauddin accepted that payment from the assessee was received in cheque. He also confirmed correctness of bills. (3) That the Assessing Officer did not care to verify bank accounts of creditors to know that statement dated 11-3-1993 was correct. (4) Shri Salauddin did not answer the question whether bills relied upon by the appellant have been issued by him and his wife and prepared by one Shri Mujibur Rehman. (5) That bills allegedly issued to other parties and claimed by the assessee did not bear any date nor Assessing Officer verified their authenticity. (6) That no attempt was made to reconcile balances due to M/s. K.R. Book Binding House admitted by Shri Mujibur Rehman at Rs. 27,246 and claimed at Rs. 1,75,750 by the assessee. (7) That bill of M/s. G.K. Fine Art Press was not only confirmed by the party as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aboured hard and collected sufficient material to show that affairs of the assessee were not above board. As far as entries in the books were concerned, those were admitted to be wrong and incorrect and justification for this is lapse on the part of the Accountant employed for writing books. The burden to maintain proper books of account is on the assessee and the same can hardly be taken to be discharged on above plea. Having regard to all the circumstances, I am of view that assessee has failed to establish its plea that surrender was made on account of understanding between the assessee and the Assessing Officer not to invoke penal provision if disputed amount is surrendered for assessment. The finding recorded by the learned CIT (Appeals) to the above effect is liable to be set aside. 31. The question of levy of penalty has to be examined with reference to statutory provision, applicable in assessment year 1990-91. The main provision of sub-section 271(1)(c) read with Explanation 1 were as under: "271(1) If the Assessing Officer or the Deputy Commissioner (Appeals) or the Commissioner (Appeals) in the course of any proceedings under this Act, is satisfied that any person- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4,50,679 (Rupees four lakhs fifty thousand six hundred and seventy nine) on account of following credits standing/recorded in the books of account where assessee could not substantiate on the differences in his own books and books of account of the said parties namely:- Amount of difference observed (i) M/s K.R. Book Binding House Rs. 1,87,318 (ii) M/s S.U. Book Binding House Rs. 1,75,750 (iii) M/s. G.K. Fine Art Press Rs. 87,611 -------------- Total amount of difference Rs. 4,50,679" -------------- So the assessee has admitted that he has not been able to establish its claim and, therefore, conditions of Explanation 1 are satisfied. Having regard to settled position under the law, I may say at the very outset that the learned Accountant Member was not justified in putting the burden of proof on the revenue to disprove the case set up by the assessee. He went to the extent of saying that revenue authorities should have examined the bank accounts of the creditors, to see whether the payment was made through cheque or not. Likewise according to the learned Accountant Member ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d in respect of Rs. 87,611 shown as payable to M/s. G.K. Fine Art Press. There is no mistake relating to aforesaid amount as far as entries in computerized ledger or cash book are concerned. The party also confirmed the balance as per copy of account placed on record. Shri G.K. Wason, proprietor of M/s. G.K. Fine Art Press was summoned by the Assessing Officer and his statement was recorded on oath and even in above statement, the account was confirmed subject to minor discrepancies. The Assessing Officer on examination of record of G.K. Fine Art Press found that amount in dispute was not shown as receivable. Thereafter summons were issued for re-examination of Mr. Wason. Shri Wason evaded these summons and even when on third or fourth attempt, summons were served on him, he failed to appear before the Assessing Officer and sent a fresh copy of account of assessee through his Chartered Accountant Shri Sharad Kohli on 23-3-1993. There was no statement to support above account nor books of account were produced for examination or for cross examination of the assessee. There is no doubt that assessee had surrendered this amount also while surrendering total amount of Rs. 4,50,679 but ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... und that above claim was not correct as payment was not recorded in the cash book. (iii) The assessee then took somersault and claimed that amounts were not paid but were payable in respect of binding charges and amounts were paid in the next financial year through cheques. The assessee claimed that mistake was committed by his Accountant who was new and inexperienced in preparation of accounts. (iv) The Assessing Officer, thereafter summoned Shri Salauddin, proprietor of M/s. S.U. Book Binding House and husband of proprietor of M/s. K.R. Book Binding House. Shri Salauddin initially confirmed the account. (v) The revenue authorities then carried survey at the premises of above two creditors and found that entries made in the books of account of concerns did not show the balances receivable from the assessee. Accordingly, Shri Salauddin was re-summoned with relevant books of account. 36. In the second statement taken on 11-3-1993, Shri Salauddin stated that amount as claimed by the assessee to be payable to the two concerns, was incorrect. He also stated on oath that bills claimed to have been issued by concerns to the assessee in respect of binding charges, were in fact iss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot been disproved, as claim of payment through cheque was not verified nor verification from parties in whose name bills were issued, was carried by the Assessing Officer. In my considered opinion, before relying upon second statement of Shri Salauddin and evidence produced by him against the assessee, the Assessing Officer had allowed a chance to the assessee to cross examine the witness. It is settled proposition that cross examination as a weapon is allowed to a party to shake the veracity of statement and material being used against the party. If above opportunity is not utilized, an adverse inference is liable to be drawn. Courts have authoritatively held that party cross examining the witness must put its entire case to the witness in the cross examination so that entire position is got clarified. In the present case, the assessee by waiving his right to cross examination, accepted that he had no intention to challenge statement and evidence produced by Shri Salauddin. The assessee further did not produce any material to show that outstanding payments were cleared through cheques. In the next accounting year (after 31-3-1990), the books of account for the period starting 1-4- ..... X X X X Extracts X X X X X X X X Extracts X X X X
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