TMI Blog1973 (2) TMI 42X X X X Extracts X X X X X X X X Extracts X X X X ..... profit returned worked out to 9.4 per cent. as against the gross profit rate of 10.8 per cent. in the previous year. The assessee had maintained a thari register to record the issue of yarn and art silk to weavers. The signature of the weavers to whom they had been issued had not been obtained. The assessee had also shown purchase of handloom goods to the extent of Rs. 52,070 on August 16, 1960, the last day of the accounting year representing the value of 3,700 pieces, made up of 1,320 pieces of five yards and 2,380 pieces of 6 yards. These purchases were not supported by any independent vouchers but only by the vouchers prepared by the assessee itself. These purchases were shown as credit purchases from 31 weavers all belonging to Tirunelveli District. There were no such purchases from these persons in the earlier years. The total purchases of handloom cloth up to the week preceding the close of the accounting year was only Rs. 15,717. No payment has been made to the said 31 weavers either in the accounting year or in the following year. The stock book maintained by the assessee also showed that on February 29, 1960, the sales were in excess of the stock on hand. The Income-tax O ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le and closing stock, that the assessee had not established that it had in fact made credit purchase of 3,700 units of cloth from 31 weavers and that the various circumstances pointed out by the Appellate Assistant Commissioner clearly led to the inference that the assessee did not purchase any thing from the said weavers. The Tribunal also took note of the reaction of the assessee to the suggestion of the Income-tax Officer for camping at Tirunelveli to examine the weavers on oath and the assessee's willingness to have the sum of Rs. 52,070 assessed as its income. On the question as to whether there was any shortfall in the production as pointed out by the Appellate Assistant Commissioner, the Tribunal found from the statement filed by the assessee that it had manufactured 4,78,295 yards of cloth as against the consumption of yarn and art-silk amounting to 80,400 lbs., thus giving a yardage of 5.9 yards per lb. as compared to 6.4 yards per lb. in the earlier year. The quantity of 3,700 pieces of handloom goods alleged to have been purchased from the weavers is made up as under: "2,380 units of six yards ... 16,600 yards 1,320 units of five yards ... 6,600 " If the said quan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ition on a ground different from the one given by the Income-tax Officer, and that on the facts and circumstances of this case there is no basis for making the addition to the income returned by the assessee. But we see no substance in this contention. Admittedly, the accounts relating to the business of the assessee are defective in that : (1) there is no quantitative tally for the goods produced and the yarn and art silk utilised for the manufacture ; (2) the issue of yarn to the weavers is not supported by the signatures of the weavers concerned in the thari register and the signature book maintained for cash payments does not indicate the details of the quantities issued ; (3) the credit purchases said to have been made on the last day of the accounting year were quite abnormal and improbable ; (4) the recording of the credit purchases revealed certain suspicious features in that the entries relating to those weavers who supplied cloth were entered in the middle of the ledger page ; and (5) the entries relating to the purchase of 3,700 pieces have been interpolated. Further, the assessee was not able to produce the weavers from whom the goods are alleged to have been purchased ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r partner. The Income-tax Officer found the explanation of the assessee regarding those entries to be false and assessed the amount as income from undisclosed sources. He also initiated penalty proceedings under section 28(1)(c) of the Indian Income-tax Act, 1922, and imposed a penalty. The question was whether the penalty order could be sustained. The Tribunal had held that there is no evidence to prove deliberate concealment of income so as to invoke section 28(1)(c). The Bombay High Court held that the question whether the assessee had committed an offence under section 28(1)(c) was a question of fact for the Tribunal to decide, that though it was open to the department, where the explanation of the assessee is found to be false, to treat the receipts appearing in the account books of the assessee, as income, it is not possible to infer from the falsity of the assessee's explanation that the receipt necessarily constituted an income of the assessee, that the proceedings under section 28(1)(c) being in the nature of penal proceedings the onus is on the revenue to prove that the assessee was guilty of the offence of deliberate non-disclosure and that apart from the rejection of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reiterated that penalty proceedings being penal in character, the revenue must establish that the receipt of the amount in dispute constituted income of the assessee, that apart from the falsity of the explanation given by the assessee the department must have before it cogent material or evidence from which it could be inferred that the assessee has consciously concealed the particulars of his income or has deliberately furnished inaccurate particulars in respect of the same and that 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 order of assessment. It is true, the observations in the above decisions are to the effect that from the mere fact that the explanation of the assessee was found to be false in the assessment proceedings, it would not follow that the ingredients necessary for levying a penalty are established and that for the levy of penalty there should be material to establish that the assessee had consciously concealed the particulars of his income or had deliberately furnished inaccurate particulars of the same. The q ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... duced at the assessment stage ceased to be any the less evidence at the stage of the penalty proceedings. It is true, a penalty order cannot be solely based on the reasons given in the original order of assessment. The authorities are expected to consider afresh all the materials available, either produced at the assessment stage or later in the penalty proceedings, without merely proceeding on the basis of the findings given earlier at the stage of assessment and if those materials reasonably point to the conclusion that the disputed amount represented income and that the assessee had deliberately concealed particulars of the same, the levy of penalty can be justified. In this case the Tribunal has not based its decision upholding the penalty order merely on the basis of the rejection of the assessee's explanation regarding alleged credit purchases of 3,700 pieces of cloth. The decision of the Tribunal is based on a consideration of the other circumstances which showed that 3,700 pieces of cloth should have been produced by the assessee itself. The Tribunal also referred to the fact that the assessee itself did not want an examination of the weavers from whom the goods are alleged ..... 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