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TMI Blog1972 (8) TMI 22X X X X Extracts X X X X X X X X Extracts X X X X ..... 34,480. The profit and loss account submitted by the firm disclosed, among other items debited, payment of commission of an amount of Rs. 39,121 to another firm by name "Koolfoam Agencies", referred to hereunder as the agent-firm. The assessment was completed on the basis that the payment of the aforesaid commission was genuine. When the agent-firm in its turn filed its income-tax return and claimed registration, the Income-tax Officer enquired in greater detail about its affairs. It was detected that the only partners of the agent-firm were the children of Mrs. Achamma Sebastian, the managing partner of the assessee-firm, of whom only two were adults. The Income-tax Officer felt that the agent-firm was spurious and that it was formed only ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a bogus firm, he levied a penalty of Rs. 10,000 which was far below the maximum penalty leviable under the law. The assessee filed an appeal before the Income-tax Appellate Tribunal. The Tribunal cancelled the penalty levied by the I.A.C. ; and the grounds relied on in support of its conclusion as summarised in paragraph 12 of the statement of the case are as follows : " The Tribunal held that there were no materials to show that the payment to Koolfoam Agencies was bogus and merely because the assessee agreed to the inclusion of the income of that firm in its own total income, the inference that it represented the concealed income of the assessee cannot be drawn. According to the Tribunal, as the assessee had shown this commission payme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l income (hereinafter in this Explanation referred to as the correct income) as assessed under section 143 or section 144 or section 147 (reduced by the expenditure incurred bona fide by him for the purpose of making or earning any income included in the total income but which has been disallowed as a deduction), such person shall, unless he proves that the failure to return the correct income did not arise from any fraud or any gross or wilful neglect on his part, be deemed to have concealed the particulars of his income or furnished inaccurate particulars of such income for the purposes of clause (c) of this subsection." The learned counsel appearing for the revenue contended that the Explanation to section 271(1)(c) applies to the insta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ited in the profit and loss account for the relevant period an amount of Rs. 39,120 as commission paid to the agent-firm. When the accounts of the agent-firm was examined the Income-tax Officer detected that in the accounts of that firm the disputed amount was shown as debt due and that the debtor was none other than the assessee-firm. There was thus no payment by the assessee and no receipt by the agent-firm of any commission. In the absence of the debit of the commission in the profit and loss account of the assessee- firm, that amount also would have formed part of its assessable income and hence returnable at the very outset. As correctly inferred by the I.A.C. it was only after the Income-tax Officer proved to the hilt that the agent-f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt-firm did not do any work for the assessee and that actually there was no payment of any commission by the assessee to the agent-firm. It cannot be held that such a conclusion was not warranted by the facts of the case. According to the Tribunal, as the assessee had shown the commission payment in the statement of accounts filed before the Income-tax Officer, it has not kept anything back from the Income-tax Officer. We are unable to subscribe to the view that non-disclosure alone can constitute concealment of income for the purposes of section 271(1)(c) of the Act. Explanation 2 of section 147 enjoins that production before the Income-tax Officer of account books or other evidence from which material evidence could with due diligence ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sons given by the Income-tax Officer for coming to the conclusion that no commission payment had really been made to the agent-firm and that the alleged payments were bogus were of little significance to the point in issue, is hardly acceptable. If the alleged payment was untrue, the amount so debited will have to be deleted and when the balance is struck afresh, the income will stand augmented to that extent. As already pointed out, real income can be suppressed by spurious items of expenditure or deductions and to attract section 271(1)(c) it is sufficient that the assessee had furnished inaccurate particulars of his income. The setting up of a bogus firm and the subsequent agreement of the assessee to assess the alleged income of such a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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