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TMI Blog1979 (1) TMI 172X X X X Extracts X X X X X X X X Extracts X X X X ..... hip was at will. The terms and conditions of the said partnership were recorded in a deed of partnership inter alia provided a follows: That the company would bring additional finance in order to liquidate the present liability of the company to Batliboi & Co. Amounting to about Rs. 31/2 lakhs in respect of machinery purchased on hire purchase for which the last instalment has to be made by the end of Nov., 1964" That while the partnership is in equal shares between the parties here to the additional finance of about Rs. 3 1/2 lakhs which is being contributed by the Company, would make a material change in the proportion of the capital structure of the firm, it is agreed by all the parties, that the amount contributed by the company in excess of the contribution and assets of Mr. Elliot consisting of assets in the previous partnership and 50 per cent of the value of the goodwill of the business assessed by a firm of Chartered Accountants-appointed by all the parties with mutual consent for the purpose shall carry interest at the agreed rate of 9 per cent per annum and shall be the first charge on the share of earned profits of the Partnership of Mrs. Elliot till such time when it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the rate of percent per annum for the date of the suit till judgment and thereafter at 6 per cent per annum till payment as realisation". "That for the purpose aforesaid all accounts be taken, inquiries made, directions given and order passed as may be deemed necessary". (d) "That pending the hearing and final disposal of he suit the defendant by himself, his servants and agents be restrained by an order and injunction of this Hon'ble Court (from carrying on or continuing the business of the said partnership or from alienating, encumbering, dealing with or parting with the possession of the properties or assets of the said partnership or from utilising the same in any manner whatsoever and/or from incurring any liability in the name of the said partnership". (e) "That pending the hearing and final disposal of the suit the Court receiver or some other fit and proper person be appointed receiver of the said partnership including the factory, premises, plant, machinery motor vehicles and stock-in-trade and of the books of accounts, documents voucher and other papers with all the powers under Order XL r.1 of the Code of Civil Procedure including the power to run the said busines ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... per cent the sum of Rs. 3,706 per cent lying with the Court Receiver and the plaintiffs to pay the balance of Rs. 294 per cent to the Court Receiver". 6. In this background the assessee filed its return of income for the asst. yr. 1968-69 on 26th June, 1968, declaring loss of Rs. 30,815. The share of loss from partnership in M/s. Bombay Tool & Dye was taken at Rs. 80,000. The following calculation in respect of loss of Rs. 80,000 was furnished. Computation of 50 per cent share of loss from partner ship in Bombay Tool and Dye. Rs. 80,000 50 per cent share of loss as per the profit and loss account of Bombay Tool & Die for the period 1st Jan., 66 to the closure of the factory on 21st July, 1966 as prepared by auditors of the firm. Rs. 49,740 Expenses of Bombay Tool & Dye incurred or paid after the closure of the factory but not provided for in the books of the firm as per the 0.26 Court degree for discharge of workers liabilities. Rs. 63,274.00 For rent due to the landlord Rs. 57,732.50 Interest on loan due to the Delhi Safe Deposit Co. Ltd. Rs. 60,486.08 . 1,81,492.84 50 per cent share thereof 90,746.42 Total 1,40,486.42 Less Interest due from Bombay Tool & Dye ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e lessening of recession in the Engineering Industry a large interest in the machines of Bombay Tool & Die is being shown and it is hoped that it will be possible o sell the remaining machines shortly. The assessment was completed on 13th Oct., 1969 on a total in come of Rs. 81,441. 8. For the asst. yr. 1970-71, the return of income was filed on 29th June, 1970 declaring loss of Rs. 81,445. This return also did not included any income from M/s. Bombay Tool & Dye. The balance-sheet as on 31st Dec., 1969 disclosed a sum of Rs. 1,32,638 recoverable from Bombay Tool & Dye. Note No. 6 at page 14 of the printed balance-sheet indicated that the investment in Bombay Tool & Dye included a sum of Rs. 1,31,854.92 recoverable from the other 50 per cent partner as per the final decree of the Bombay High Court dt. 29th June, 1967 passed in favour of the company. The Director's report at page 5 of the printed balance-sheet included the following: "Since the last report, some more machines belonging to the Bombay Tool & Dye have been sold leaving a balance of about 1.55 lakhs including Lawyer's fees and other charges still to be recovered. Efforts for the sale of remaining machines are still bei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... yrs. 1968-69 and 1970-71 were also filed. In the return for the asst. yr. 1968-69, the assessee claimed loss of Rs. 98,765 comprising of:-- (a) Rs. 77,956 begin loss arising as a result of the decree passed by the Bombay High Court on 29th June, 67. This loss arrived at by reducing Rs. 8,99,535 (Machinery of the Bombay Tool & Dye by Rs. 8,33,250 Current assets Rs. 50,560 + advance deposits Rs. 15,725) from Rs. 9,77,491 (amount due by to Delhi Bombay Tool & Dye to Delhi Safe Deposit Co. Ltd. On 28th June, 1967, Rs. 6,94,976 + liabilities of the Bombay Tool & Dye passed on to the assessee: (I) Rs. 59,757 accrued loan from Dena Bank (II) Rs. 2,15,954 current liabilities, and (III) Rs. 6,801 travelling and postage etc., not included in the Decree of the Court. (b) Rs. 20,809 loss on the disposal of the Machinery.) For the Asst. yr. 1970-71, revised return was filed declaring income Rs. 64,560 which included the claim for loss of Rs. 16,884 in respect of machinery received from Bombay Tool & Dye which was sold in that year. 10. The ITO did not accept the assessee's submission that on the sale of the machinery to the extent of Rs. 8,61,233 during the asst. yrs. 1968-69, 1969-70 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation the assessee's suit could be treated as the suit by a creditor against a debtor. Thus, the assessee's plea that the machinery received from Bombay Tool & Dye became its stock, in trade was not accepted. In support of the submission that a partner making any advance or payment beyond the amount of capital he had agreed to subscribe was entitled to interest at 6 per cent per annum, reference was made to s 13(d) of the Partnership Act but this submission was not accepted by the Tribunal. The assessee had further submitted that alongwith machinery of Bombay Tool & Dye it had also been saddled with the liabilities and the same should be set off against the sale proceeds of the machinery. This contention was not accepted because the liabilities claim d could not be allowed as a deduction while determining the income from capital gains. It was further argued that the decree of Rs. 1,31,855 passed by the High Court in its favour and against John Elliot was merely a paper decree and atleast that amount should be set off against sale proceeds of the machinery. The Tribunal did not accept this contention firstly because this point was not raised before the lower authorities and secondly ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sion that (i) the dispute amount represented income and that (ii) the assessee had consciously concealed the particulars of his income or had deliberately furnished inaccurate particulars. (e) Falsity of explanation and other reasons which may justify that addition of concealed income in an assessment form only a piece of evidence for purposes of levying a penalty for concealment, but such penalty cannot be levied solely on the basis of these reasons. In order to justify the levy of penalty the Department must have cogent reasons to prove that the assessee deliberately concealed his income or furnished inaccurate particulars of income. CIT vs. Khoday Eswarsa & Sons 1972 83 ITR 369. (f) The evidence in the assessment proceedings would be relevant and admissible material in penalty proceedings. They will, however, not operate as res-judicata because of the essential difference between the two types of proceedings. All that can be said is that the onus of proof is on the Department that the degree of proof is that of a criminal prosecution and that the mere preponderance of probability will not suffice. (g) The 'Explanation' does not supersede the ratio of the Supreme Court's decis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bay firm amounting to Rs. 5,81,929 by 30th June, 1966. These loans were to carry interest of 9 per cent per annum. In para 4 at page 4 there is a further observation the legal expenditure incurred in this case was clearly for the recovery of the loan of Rs. 5,81,929 advanced to the said firm. Advancing money on interest was a part of the assessee's business." He then took us through the plaint in suit No. 381 of 1966 filed in the High Court of Judicature at Bombay and pleaded that this plaint was mainly for the recovery of money that the assessee had advanced to M/s. Bombay Tool & Dye. He then referred to the Bombay High Court Judgment dt. 29th June, 1967 whereby the partnership business, assets credits and effects including the goodwill and firm name of M/s. Bombay Tool & Dye were transferred to the assessee as a going concern. The submission, he made was that the assessee was moneylender and whatever assets were recovered from M/s. Bombay Tool & Dye became the stock in trade of the assessee and therefore no capital gains as such accrued to the assessee. He submitted that he had raised this argument before the Tribunal in ITA No. 674 to 675 of 1975-76 dt. 19th Jan., 1977, but this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income. The submission, however, was that if penalty at all was leviable, the charge could be for furnishing inaccurate particulars of income. He referred to Commentary at page 2981 by Shri Chaturavedi and Pithisaria and pleaded that the assessee was not apprised of the charge against it. In this connection he referred to the judgments in 1972 AIR 115, CIT vs. Lakhdir Lalji(4) and Padma Ram Bharali vs. CIT(5) 16. The learned Departmental Representative submitted that the penalty notices issued were not invalid. He submitted that this point was not taken up before the IAC and, therefore, the assessee should not be allowed to take it up at this stage. He then submitted that the procedure of levy of penalty in Income-tax proceedings was not similar to the procedure for framing of charges in criminal proceedings. He referred to the judgments in D.M. Manasvi vs. CIT(6) Durga Timber works vs. CIT(7), CIT vs. K.L. Bagga(8), CIT, vs. Bankey Lal Hira Lal(9) and in Appejay Steel Works Pvt. Limited vs. Inspecting Assistant CIT(10) and pleaded that the ITO had properly recorded his satisfaction and the IAC had given a due show cause notice. He particularly relied on the Delhi High Court's ju ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld be considered by the Tribunal. In the later judgment it has been explained that the Tribunal should consider the applicability of Explanation after excluding expenses disallowed and then should see whether the onus that lies on the assessee has been discharged. The Orissa High Court in K.C. Behera & Others(15) has held that after 1st April, 1964 the Explanation to s. 271(1)(C) is applicable and in Anwar Ali's case(1) will not be applicable. The Gujarat High Court in CIT vs. Drapco Electrics Corpn.(18) has also held that the Explanation is a rule of evidence and does not enact a rule of substantive law. Similar view has been taken by the Kerala High Court in 81 ITR 423 Patna High Court and in CIT vs. Patna Timber Works(Pat)(19). The judgment in CIT vs. Prafulla Kumar Mallick(11) does not help the assessee because the Orissa High Court held that the decision of the Tribunal that no penalty was to be levied was in accordance with the law as indicated in the Explanation to s. 271(1)(C). The judgment in Padma Ram Bharati vs. CIT(5) also does not help the assessee because in that case the Explanation to s. 271(1)(c) was not to be applicable because of the revised return filed by the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ary, can raise probabilities in his favour or point out circumstances which can create doubts the benefit of which can be given to him. 19. Now let us examine the facts of this case to see whether the onus that lies on the assessee to prove that it is not guilty of any fraud or gross or wilful neglect has been discharged. There is no doubt that when the assessee filed its return of income for the asst. yr. 1968-69 on 26th June, 1968 it has furnished a copy of the Court decree while the loss from M/s. Bombay Tool & Dye was claimed at Rs. 80,000. The Director's report pertaining to that year clearly indicated that some machines received from M/s. Bombay Tool & Dye were already sold, and efforts were being made for sale of the remaining machinery. The return for the asst. yr. 1969-70 was filed on 28th June, 1969 and even though no income or loss from Bombay Tool & Dye was shown, the Director's report for that year contained information that due to the lessening or recession and in the Engineering industry, larger interest in the machines form Bombay Tool & Dye were being shown and that it will be possible to sell the remaining machines shortly. The return for the asst. yr. 1970-71 wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wilful neglect on his part. These observations of the Calcutta High Court are very relevant because in the present case also the assessee has raised legal contention, whether it is ultimately accepted or rejected, that it is a money lender and what it received by the sale of machines of Bombay Tool & Dye was stock in trade and no income from capita gains was liable to be taxed. In such circumstances we must hold that the onus that lies on the assessee can be said to have been discharged. We would thus hold that no penalty is exigible in this case. 20. The learned Departmental Representative had argued that the assessee gave wrong information for the asst. yr. 1968-69, when it claimed 50 per cent loss in M/s. Bombay Tool & Dye because after the Court decree it had become full owner of the said firm. According to him the assessee could be under no mis-conception that surplus arising from sale of capital assets received from M/s. Bombay Tool & Dye would be liable to capital gain tax. He also pleated that in terms of the Judgment in CIT vs. Narang & Company(21), the onus was on the assessee. He had also referred to the judgments in Addl. CIT vs. Swatantra Confectionery Works(14), CIT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he ITO did not allow the original loss claimed at Rs. 80,000 for the Asst. yr. 1968-69, he was aware that some of the machines received from Bombay Tool & Dye were being sold. In the above paras we have already considered the question of onus and have held that onus lying on the assessee should be considered to have been discharged. We do not consider it necessary to refer to the aforesaid authorities relied either by the Assessee or Departmental Representative because they do not seem to be relevant. 21. We may also record a finding that if the Explanation to s. 271(1)(C) is not held to be applicable, no penalty would be exigible under the main provisions for sec. 271(1)(c). The onus would lie on the Revenue to prove that the assessee is guilty of concealment of income. This would be so in view of the Supreme Court's judgment in Anwar Ali's case(1). In our opinion the onus that would lie on the Revenue cannot be said to have been discharged because only the assessee's legal plea that it is not liable to any tax on capital gains has not been accepted, but that by itself would not lead to the inference that the assessee is guilty of concealment of its income. The legal contention b ..... X X X X Extracts X X X X X X X X Extracts X X X X
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