TMI Blog1995 (10) TMI 80X X X X Extracts X X X X X X X X Extracts X X X X ..... e been dissolved with effect from 1-5-1985. For the assessment year 1985-86 in question there were three accountants (Munims) in the said firm, namely, S/Shri Nemichand Sharma, Satya Narain Sharma and Rikhabmal Nahar. Out of these Shri Rikhabmal Nahar, who was said to be the main Munim died two days after the Dewali, 1985. For the assessment year in question, on gross receipts of Rs. 51,56,471, the assessee declared a net profit of Rs. 4,93,945 giving a rate of 9.5% as against 10% applied in the preceding assessment year 1984-85. The ITO noticed that as against the total payment/receipts of Rs. 51,56,471, the assessee had claimed Rs. 10,27,621 as wages which came to roughly 1/5th. The labour expenses had been claimed on the basis of muster rolls for the period 14-5-1983 to 28-2-1984. The ITO issued notices under section 143(2)/142(1) requiring the assessee to produce evidence in support of the return filed and to produce the books of account on 16-4-1986. On the said date the books of account were produced before the ITO and taking the view that they were faked, they were impounded under section 131. The books so impounded also included the muster rolls of labourers. The ITO notice ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urers as mentioned above was taken by the ITO to prove that the wage bills had been considerably inflated and fictitious names of wage earners added and also false disbursement shown and claimed. He held that the account books did not reflect the correct state of affairs and that muster rolls and vouchers and payments included forged entries and that expenditure had been inflated. He observed that the assessee had not given any cogent explanation for the falsification of accounts. The ITO also observed that the scrutiny of accounts showed that under the head " Advertisement Expenses ", " Travelling Expenses ", " Transportation Expenses ", " Donations " had either been inflated or no vouchers were available at all. On 5-1-1987 the assessee's counsel Shri S.L. Choudhary attended before the ITO and gave the following letter :---- " Before the Income-tax Officer, A - Ward, Jodhpur. In the matter of M/s. Parasmal Parekh Co. Assessment year 1985-86. Sir, Without prejudice to any penal action, the assessee agrees to an addition of Rs. One lakh to the declared income just to purchase peace and to avoid harassment in procrastinated litigation and subject to the averment that suc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Rs. 1 lakh it went up to 11.5%. He drew our attention to page 67 of the paper book wherein a few comparable cases have been given and the rate applied varied from 8% to 10.5%. The declared results were, therefore, just, fair and reasonable according to him. The next contention was that the assessee maintained regular and proper books of account and were subjected to audit under section 44AB of the Act. The labour payments also, which formed the main basis for the impugned addition, were not more than the standard percentage. The accounts were being looked after by three accountants and that the partners were under a bona fide belief that they have been properly and correctly maintained by its employees. The department had failed to prove positively any inflation of expenses and that the assessee agreed for the addition merely to purchase peace and avoid unending litigation. The letter dated 5-1-1987 from the assessee, he said, bore testimony to this. As regards the report of the finger-print expert, it was submitted that it was quite customary that a person would receive payment on behalf of other workers. Therefore, the similarity did not prove that the labour payments were infl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ter this nine-month grilling, he stated, the assessee felt itself cornered and seeing that now there was no escape, ultimately surrendered Rs. 1 lakh. While accepting the surrender, there is no evidence to indicate that the Assessing Officer agreed not to levy any penalty. The Assessing Officer had undertaken quite an exercise to prove that the assessee's claim was fake and hence there was no question of his agreeing not to initiate penalty proceedings. Further, the assessee has not challenged that the muster roll is manipulated and since one of the accountants Shri Nahar has died, the assessee has tried to take advantage of the situation by putting the blame on him and by not producing a diary maintained by him in this respect. When the accounts are audited, they do lend credibility, but that does not mean that they are not open to scrutiny by the Assessing Officer as collusion by the assessee with the auditor cannot be altogether ruled out. The fact that the firm has since been wound up does not exonerate the assessee from penalty proceedings and it reflects on the conduct of the assessee that in spite of surrendering, it went in appeal up to the Tribunal stage to challenge the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndergone a sea-change insofar as that the burden of proving concealment has gradually shifted on the assessee of proving non-concealment. However, the basic observation of the Supreme Court, that before penalty can be imposed, the entirety of circumstances must reasonably point to the conclusion that the disputed amount represented income and that the assessee consciously concealed the particulars thereof or deliberately furnished inaccurate particulars, still hold good. Thus in the instant case also, by virtue of Explanation 1 to section 271(1)(c) of the Act, though presumptions are raised against the assessee, those are rebuttable presumptions. And in the process of rebuttal, if the explanation of the assessee is not accepted or is found to be false, that itself will not constitute sufficient material to attract penal provisions. The entirety of circumstances must point to the conclusion of concealment as stated earlier, before a penalty can be imposed. This principle has been enunciated by their Lordships of the Calcutta High Court in the case of Bhauramal Manickchand. 12. That brings us to the question as to how the presumptions raised against the assessee can be rebutted and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... against 1096 applied in the preceding assessment year 1984-85. He had entertained a doubt regarding the genuineness of the assessee's account books consisting of Cash Book, Ledger, vouchers which were suspected to be faked and cooked up. The ITO was also doubting the following expenses which had been claimed by the assessee :--- Rs. Diesel 1,03,037 Transportation 1,26,000 Soil carrying expenses 2,50,006 Donation 19,265 Wages 10,27,621 So far as the wages are concerned, doubts had arisen in the mind of the ITO on account of thumb impressions of same person repeated at a number of places on the muster rolls for the period from 14-5-1983 to 28-2-1984. In this background the ITO issued notices under section 143(2)/143(1) requiring the assessee to produce evidence in support of the return and to produce the books of account on 16-4-1986. On the said date when books of account were produced, they were impounded by taking the view that they were faked. Thereafter the report dated 23-7-1986 of the Director, Finger Print Bureau, Calcutta showed that 32 finger prints were of one person, 17 of another person and that 9 finger prints were not clear enough for comparison. On 30-9 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he main Munim and that the thumb impressions were not affixed in his own presence. The partner Shri Kewalchand Jain was again examined on 3-12-1986 and he confirmed the fact that it did happen that at the time of payment one labourer received payment for other labourers also. He also stated that there was never any complaint from any one labourer that he did not get the wages and that thumb impressions were affixed by the labourers who received the payments actually. On 4-12-1986 the assessee's other partner Shri Sanwalram was examined and he was asked since he was familiar with the contract work, whether it was customary in this type of work that only one man received payment for other labourers also and he replied in the affirmative. As mentioned earlier, the ITO had required the assessee vide notice dated 9-10-1986 to produce some of the labourers (whose names we have mentioned in para 2 of this order) and the reply dated 15-10-1986 of the assessee was that it was unable to produce those labourers since the execution of the work had been suspended and the labourers had migrated to other sites of work, they being casual and migratory. It is from the non-production of the labourer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mal rate of 10% in comparable cases. The second was that certain expenses, in the opinion of the Assessing Officer, were inflated and the third was the allegation of the wages bill being fake insofar as that only three persons received the payment as against 58 names shown in the muster roll. As regards the net profit rate and the expenses on travelling, transportation, advertisement, donation, etc., while agreeing with the concession of Rs. 1 lakh made by the assessee, the Assessing Officer expressed his satisfaction that this addition would raise the net profit rate to 11.51% and he accordingly framed the assessment order. Thus so far as these two factors are concerned, which form part of the impugned addition, nowhere concealment is established. The addition, whatever part may be attributed to these factors, is mainly to take care of the possible leakages. But the Assessing Officer has not been able to establish any conscious concealment by the assessee on account of these two factors. Thus, addition may be sustained as it was agreed to by the assessee but there is nothing on record to suggest concealment or an attempt to evade tax by furnishing inaccurate particulars. The Ass ..... X X X X Extracts X X X X X X X X Extracts X X X X
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