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TMI Blog1973 (2) TMI 37X X X X Extracts X X X X X X X X Extracts X X X X ..... 0 (d) Other items including probable bogus items according to the Income-tax Officer 25,500 The total of Rs. 1,04,132 was rounded to Rs. 1,00,000. These additions were objected to by the assessee before the Appellate Assistant Commissioner, who deleted the second item of addition of Rs. 1,00,000 representing the black market profits as also items (c) and (d) of the first item of addition. He, however, held that the addition by the Income-tax Officer of Rs. 24,132 as inflation in the purchase price in relation to contract No. 103 and of Rs. 50,000 being the cost of 100 candies of inferior quality passed off as superior quality cotton was justified. On appeal the Tribunal upheld the order of the Appellate Assistant Commissioner holding that there has been a deliberate and wholesale manipulation by the assessee and that the assessee has wangled his purchases and claimed larger outlay in Cambodia than what is warranted by the actual position. We are not now concerned with the validity of the said assessment. The Income-tax Officer after conclusion of the said assessment proceeding initiated penalty proceedings under section 28(1)(c) of the Indian Income tax Act, 1922, and levied ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he cost of cotton in respect of contract No. 103 had been deliberately inflated from Rs. 1,451 per candy to Rs. 1,651 per candy. The assessee's case was that Rs. 1,651 per candy was really the market price as could be seen from the market reports, that the rates paid varied according to the quality of cotton actually delivered and the mere correction in the contract will not lead to the inference that the price paid had been actually inflated. The Income-tax Officer, however, did not accept the plea of the assessee and he, therefore, worked out the said inflation at Rs. 24,132. This accounted for the addition of Rs. 25,000. The Income-tax Officer also found that there has been considerable alterations in the entries made in the weighment and mixing books by which the name of Karunganni originally written has been changed to CO4 that these alterations supported the inference that the assessee had adopted some novel and ingenious device to inflate cotton purchases by purchasing inferior variety of cotton and passing them off as of superior quality, that the production of yarn was not as high as it ought to be if the assessee had used CO4 cotton as claimed, and that the violent fluctu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fficer initiated penalty proceedings under section 28(1)(c) for deliberate concealment of income by the assessee. In his order dated February 28, 1962, the Income-tax Officer merely referred to the assessment and appellate proceedings and after setting out certain extracts from the order of the Appellate Assistant Commissioner as justifying an inference that the assessee has deliberately concealed the said two sums of Rs. 25,000 and Rs. 50,000, he actually levied a penalty of Rs. 40,000 under section 28(1)(c). An appeal was filed before the Appellate Assistant Commissioner and the only point raised by the assessee's authorised representative was as regards the quantum of penalty levied. The Appellate Assistant Commissioner dismissed the appeal observing that the authorised representative had not put forward any convincing reasons showing that the levy of penalty is excessive, that there are no mitigating circumstance to interfere with the quantum of penalty levied and that a perusal of the assessment order will clearly show that the assessee had indulged in elaborate tactics to inflate the purchases. There was a further appeal to the Tribunal. Before the Tribunal it was urged o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er was quite justified. The learned counsel for the revenue refers to the decision in Gnanambika Mills Ltd. v. Commissioner of Income-tax to show that the findings in the assessment or reassessment proceedings constituted relevant and prima facie evidence in the penalty proceedings, though such findings may not be conclusive. In that case certain additions were made to the assessable income of the assessee for the assessment year 1949-50, on the ground that there has been an under-statement of the sales of yarn. The Income-tax Officer, thereupon, purported to levy penalty for concealment of income. In the penalty proceedings it was found by all the authorities including the Tribunal that the assessee has suppressed his profits to the extent of the additions made to his assessable income. The validity of the penalty order was challenged by the assessee on a reference to this court. It was contended for the assessee that section 28 being a penal provision, the burden entirely lay on the department to show that the assessee had concealed the particulars of his income or deliberately furnished inaccurate particulars of such income, that though the addition to the profits could be made ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rned judges in that case, have clearly pointed out that the nature and scope of the enquiry and the findings arrived at in the two proceedings are not common and that though the findings in assessment proceedings, may be relevant and may even be prima facie evidence in proceedings under section 28, they are by no means conclusive in the latter proceedings. The learned counsel also refers to the decision of the Supreme Court in D. M. Manasvi v. Commissioner of Income-tax, to show that the findings given in collateral proceedings have also been taken as constituting a prima facie evidence of concealment in the penalty proceedings. In that case a firm constituted with four major partners including the assessee and three minors who were his grand-children applied for registration. In those proceedings the Tribunal ultimately found : (1) that the three other major partners of the firm were dummies and the only real and effective partner was the assessee ; and (2) that the accumulated profits of the business run in the guise of the firm were taken over by the assessee for use according to his own sweet will. In his individual assessment for income-tax it was held that the business of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tton there cannot be any concealment of income by the assessee. The learned counsel for the assessee places reliance on the following decisions in support of his stand that the orders relating to assessment may not be conclusive on the question of penalty. In P. S. S. Bommanna Chettiar v. Commissioner of Income-tax, this court took the view that as the main limb of section 28(1)(c) reflects a wanton overt act on the part of the assessee in concealing the particulars of income or in the deliberate furnishing of inaccurate particulars or primary facts, penalty would be attracted only in cases of designed concealment of income and wanton avoidance of the particulars or primary facts, that it cannot be generalised that whenever and howsoever the explanation given by the assessee is found to be false and improbable, that would amount to the assessee exposing himself to the penalty leviable under section 28(1)(c) : and that it is imperative that the department should establish the assessee's guilt without requiring the assessee to prove his innocence. In that case the assessee gave an explanation in respect of certain cash credits found in his accounts. This explanation, however, did n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld be perfectly legitimate to say that the mere fact that the explanation of the assessee is false does not necessarily give rise to the inference that the disputed amount represents income. It cannot be said that the finding given in the assessment proceedings for determining or computing the tax is conclusive. However, it is good evidence." In Commissioner of Income-tax v. Khoday Eswarsa & Sons the Supreme Court had again expressed, that penalty proceedings being penal in character the department must establish that there has been a deliberate concealment of income, that apart from the falsity of the explanation given by the assessee the department must have before it before levying penalty cogent material or evidence from which it could be inferred that the assessee has consciously concealed the particulars of income or had deliberately furnished inaccurate particulars in respect of the same and that even though the original assessment proceedings for computing the tax may be a good item of evidence in the penalty proceedings, penalty cannot be levied solely on the basis of the reasons given in the original order of assessment. The above decisions of the Supreme Court clearly i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bove the margin of profits earned by the assessee and that the creation of the family business was merely a subterfuge or a contrivance of the partners of the assessee to divert the profits. The reassessment proceedings were challenged and the matter ultimately came to the Supreme Court. The Supreme Court said: " But the law does not oblige a trader to make the maximum profit that he can out of his trading transactions. Income which accrues to a trader is taxable in his hands ; income which he could have, but has not earned, is not made taxable as income accrued to him. By adopting a device, if it is made to appear that income which belonged to the assessee had been earned by some other person, that income may be brought to tax in the hands of the assessee, and if the income has escaped tax in a previous assessment, a case for commencing a proceeding for reassessment under section 147(b) may be made out. Avoidance of tax liability by so arranging commercial affairs that charge of tax is distributed is not prohibited. A taxpayer may resort to a device to divert the income before it accrues or arises to him. Effectiveness of the device depends not upon considerations of morality, bu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rchased. It is not possible for us to say that the Tribunal has misdirected itself in saying that the price paid for cotton by the assessee in relation to contract No. 103 is reasonable and that such a price might have been paid having regard, to the quality of the cotton purchased. We do not construe the said observation of the Tribunal as a finding that the price paid was for a better quality of cotton. What the Tribunal seems to suggest is that it is possible that the increased price of Rs. 1,650 was paid in view of the increase in price and also of the quality of cotton purchased and that the mere that that the assessee is not able to explain to the satisfaction of the revenue the corrections made at the rates mentioned in contract No. 103 cannot automatically be taken as an excess or inflated payment. In our view, the Tribunal is right in holding that on the facts and in the circumstances of this case where the assessee is found to have paid for the cotton purchased at the inflated rates, it is not possible to say that the assessee has deliberately concealed its income. Therefore, we have to answer the reference in the affirmative and against the revenue and it is answered acc ..... X X X X Extracts X X X X X X X X Extracts X X X X
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