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2017 (10) TMI 381

out, hence, question of the Commissioner taking an alternate possible view does not arise. The Assessing Officer cannot be said to have taken a plausible view, as envisaged in law, and the view taken by the Commissioner to be an alternative one. Finding of the Commissioner that the order is erroneous is not on account of his mere disagreement with the view taken by the Assessing Officer. Any inquiry, without application of mind, is nonest. The given facts warranted the Assessing Officer to have conducted complete and proper inquiry and only thereafter, assessed the income so declared by the Assessee. He ought to have considered that the Assessee had sought to revise the return by declaring an income 1872% higher than what was originally returned and that too after action for scrutinizing the return was initiated. All transactions of sale of agricultural produce were in cash. Income declared was (a) disproportionately high only with respect to the relevant year and never in the preceding or succeeding years, (b) investment of huge amount of ₹ 3.8 crore was carried out by the Assessee himself, be from whatever source and there was no reference thereof in the original return. As .....

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(hereinafter referred to as the Tribunal), affirming the order dated 18.3.2014 (Annexure A-2), passed by the Commissioner of Income Tax (hereinafter referred to as the Commissioner), who set aside the order dated 28.3.2013 (Annexure A-4) (Page-276), passed by the Assessing Officer, in accepting the Revised Return filed by the Assessee. 2. Parties agreed for admission of the appeal on the following Substantial Questions of Law, which we are called upon to decide: i) Whether on the facts and in the circumstances of the case, the Tribunal erred in law in upholding the validity of the revisionary order dated 18.03.2014 passed under section 263 of the Act? ii) Whether on the facts and in the circumstances of the case, the impugned order of the Tribunal dated 8.12.2016 admitting and considering the additional evidences in gross violation of the procedure laid down in ITAT Rules and in violation of principles of natural justice and fair play, is illegal and bad in law? 3. The facts, leading to the filing of the instant appeal are as under. 4. The Assessee is regularly assessed to income tax. On 19.7.2010, Assessee filed a Return, declaring net taxable income, for the Financial Year 2009- .....

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15.06.2008 is a false and fabricated document which was prepared later by the assessee as an afterthought. 15. In view of the above, I treat the income (which has been declared as additional agricultural income in the revised return) of ₹ 2,65,82,500/- as income earned from undisclosed sources and add this amount u/s 68 of the Income Tax Act 1961 to the taxable income of the assessee. 16. Further, keeping in view the discussions as above, I am satisfied that the assessee has furnished inaccurate particulars of his income amounting of ₹ 2,65,82,550/- and has suppressed his taxable income by ₹ 2,65,92,550/- therefore, penalty proceedings u/s 271(1)(c) of the Income Tax Act, 1961 are being initiated separately. 17. With above remarks the taxable income of the assessee is computed as under: (All figures in INR) Taxable income as declared by the assessee. Rs.44,67,584/- Add Income from undisclosed sourced as discussed para 15 Rs.2,65,92,550/- Taxable Income Rs.3,10,60,134/- Agriculture income is assessed at ₹ 15,00,000/- as per original return filed on 29.07.2010. (Emphasis supplied) 11. It is a matter of record that now such order of assessment is pending adjudi .....

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ous but there is some enquiry by the assessing officer, then the CIT cannot remit the matter to the assessing officer but he should decide it himself. Remit is permissible only in a case of no enquiry. Proposition III: The Appellate Tribunal (ITAT) was obliged to examine the correctness of the exercise of jurisdiction by the CIT under section 263 of the Act; in such a case rule permitting filing of additional evidence does not apply. In the present case, ITAT erred in permitting the additional evidence while examining the correctness of jurisdiction of the CIT under section 263 of the Act. Proposition IV: Without prejudice to proposition III, the ITAT erred in permitting new and additional evidence because it was: (a) in gross violation of Rule 29 of the ITAT Rules; (b) without passing a separate speaking order allowing the additional evidence; (c) without granting opportunity to the appellant to rebut the additional evidence or to cross-examine the person making ex-parte statements. 16. In support, reliance is sought on the following decisions rendered by different Courts of the land: (1) Malabar Industrial Co. Ltd. v. Commissioner of Income Tax, Kerala State, (2000) 2 SCC 718; (2 .....

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erprises v. Assistant Commissioner of Income Tax, (2014) 5 SCC 139 and (12) Commissioner of Income Tax, Mumbai v. Amitabh Bachhan, (2016) 11 SCC 748. 20. We shall first deal with the preliminary objections. 21. With vehemence, Mr. Kuthiala, learned Senior Counsel, has highlighted the conduct of the Assessee, who, according to the Revenue, has not only tried to procrastinate the proceedings of assessment but suppressed, misled and mis-stated true facts. Also, an endeavour is made to resort to multiple proceedings and remedies, with a view to confuse the issue and abuse the process of law. Our attention is invited to the fact that in the present appeal, Assessee failed to disclose that against the order of remand dated 18.3.2014, though an appeal was filed but no application seeking stay of the order passed by the Commissioner was filed. For more than one and a half years, hearing of the appeal was allowed to be delayed. In the meanwhile, a fresh order pursuant to remand was passed, against which also an appeal was preferred. Though the appellant could have sought stay of the proceedings but deliberately chose not to do so, for he was forum hunting. By taking a calculated risk, in fa .....

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on consideration, if the order passed by the Assessing Officer is found to be erroneous, insofar as it is prejudicial to the interest of Revenue, may, after giving the Assessee an opportunity of hearing and making or causing to make such inquiry, as may be deemed necessary, pass any order, enhancing or modifying the assessment or cancelling the assessment and directing a fresh assessment. 33. Clause (b) of sub-section (1) of Section 263 of the Act itself defines record to mean that record shall include and be deemed always to have included all records relating to any proceeding under the Act available at the time of examination by the Principal Commissioner or Commissioner. 34. Further remedy is by way of an appeal to the Tribunal (Sections 253/254) and thereafter an appeal, on a substantial question of law, to the High Court under the provisions of Section 260A of the Act. Certain Facts 35. It is a matter of record that in relation to three Assessment Years, i.e. 2008, 2009 and 2011, the Assessee and his family members made investments in the policies of Life Insurance Corporation (LIC) worth ₹ 6.18 crores. It is also an undisputed fact that in the relevant year (2009-10), A .....

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han (such amount is more than ₹ 1 crore); and (b) information with respect to assessment proceedings of the Agent was sought for verification from his Assessing Officers. 39. Thus, finding the Assessee to have established that the agriculture income disclosed in the revised return of income pertains to the sale proceeds of horticulture and the same to have been invested by the Agent in LIC policies in the names of members of the HUF, as per the terms and conditions of the M.O.U , the Assessing Officer accepted the revised return. 40. One additional important fact. Between the date of filing of Revised Return (2.3.2012) and passing of the assessment order (28.3.2013), certain directions were issued by a Superior Officer, i.e. Additional Commissioner, on 1.2.2013 and 7.2.2013, in the capacity of a Supervisory Officer. Also, on 25.10.2012, notices were issued to the Assessee, seeking clarifications. 41. Let us examine what weighed with the Commissioner in finding the Assessing Officer not to have made effective inquiry or the mistake and the omission that of the Assessee in the original return to be not bonafide, in setting aside the order of assessment. 42. The Commissioner fou .....

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stant case, Assessee did file his return, under Section 139 of the Act. However, only when notice under Section 143(2) was issued, he filed a revised return, in exercise of his right under sub-section (5) of Section 139, which came to be assessed, under Section 143(3) of the Act. 48. The Assessee was satisfied with such assessment and as such did not take recourse to remedies provided under the Act. 49. But however, in exercise of his revisional jurisdiction, the Commissioner initiated proceedings for revising such order. In his wisdom, Commissioner found the order passed by the Assessing Officer to be erroneous , for it being prejudicial to the interests of Revenue . He did not find the Assessee to have revised his return on the basis of discovery or omission or any wrong statement therein . 50. Hence, we are concerned with the meaning of expressions erroneous ; prejudicial to the interests of Revenue ; discovery ; or omission . 51. At this juncture, we may also observe that we are also concerned with the power of the Tribunal. Is it circumscribed to be the one exercised by the Commissioner, restricting it to the record so available at the time of examination or is it that the Tri .....

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be outside the pale of section 139(5) of the Act, and it would not be a revised return as contemplated by the Act. Once this position is reached the question of considering the revised return for the purposes of penalty would hardly arise, for, in the eye of law, there would be no revised return as contemplated by Section 139(5). Such a revised return cannot supplant the original return and, for the purposes of penalty, it will be only the original return that will have to be looked into. [Emphasis supplied] 54. This view stands reiterated in Commissioner of Income Tax, Delhi (Central) vs. S. Sucha Singh Anand, (1984) 149 ITR 143 (Delhi) (Two-Judge Bench). In fact in Sunanda Ram Deka (Two-Judge Bench) (supra), the Court observed that In our opinion, the further requirement is that this omission or wrong statement in the original return must be due to a bona fide inadvertence or mistake on the part of the assessee. 55. In Radhey Shyam (supra), the Allahabad High Court, has held that non-disclosure of correct income, due to gross or willful negligence on the part of the Assessee would not entitle him to file revised returns, requiring assessment in accordance with law. 56. In Commis .....

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unity from exercise of any revisional jurisdiction, which the Commissioner can exercise in the amplitude of his statutory powers. 60. Mr. Chidambaram, learned Senior Counsel, invites our attention to the decision rendered by the High Court of Bombay in Gabriel India Ltd. (supra), wherein the Court held the term erroneous to mean deviating from law. We lay emphasis on portions extracted hereunder: … … … According to the definition, erroneous means involving error deviating from the law . Erroneous assessment refers to an assessment that deviates from the law and is, therefore, invalid, and is a defect that is jurisdictional in its nature, and does not refer to the judgment of the Assessing Officer in fixing the amount of valuation of the property. Similarly, erroneous judgment means one rendered according to course and practice of court, but contrary to law, upon mistaken view of law, or upon erroneous application of legal principles . From the aforesaid definition it is clear that an order cannot be termed as erroneous unless it is not in accordance with law. If an Income-tax Officer acting in accordance with law makes a certain assessment, the same cannot be b .....

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evenue. The Commissioner can call for and examine the record and by giving an opportunity of hearing make such inquiry as is deemed necessary. The Court, by taking into account the decision referred to by the Bombay High Court in Gabriel India Ltd. (supra), observed, erroneous to mean an order which is not in accordance with law. There must be material to show that the tax which was exigible has not been imposed and expression prejudicial to the interests of the Revenue to mean the orders of assessment under challenge being not in accordance with law, in consequence whereof the lawful revenue due to the State has not been realized and cannot be realized. It also reiterated the difference between lack of inquiry and inadequate inquiry . 62. In fact in subsequent decision the very same High Court (Delhi) in Commissioner of Income Tax vs. Ashok Logani, (2012) 347 ITR 22 (Delhi) (Two-Judge Bench) reiterated the view taken by the High Court of Gujarat in CIT vs. Smt. Minalben S. Parikh, (1995) 215 ITR 81 (Guj), as under:- The words prejudicial to the interests of the Revenue has not been defined. However, giving the ordinary meaning to the words used in the statute, they must mean that .....

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ry type of mistake or error committed by the Assessing Officer. What is prejudicial to the interests of Revenue is to be understood in its ordinary meaning, for it is of wide import/amplitude and not confined to loss of tax. Every loss of revenue cannot be treated as prejudicial to the interests of revenue. It clarified that when an Assessing Officer adopts one of the courses permissible in law, which has resulted in loss of revenue or where two views are possible, then difference of opinion cannot be treated as erroneous or prejudicial to the interests of Revenue, unless view taken by the Assessing Officer is unsustainable in law. The Court reiterated that where a sum not earned by a person is assessed as income in his hands on his so offering, the order passed by the Assessing Officer accepting the same as such will be erroneous and prejudicial to the interests of Revenue . The principle stands further reiterated in Commissioner of Income Tax (Central) Ludhiana v. Max India Limited, (2007) 15 SCC 401. 65. Mr. Chidambaram also invites our attention to the decision of Delhi High Court in Sunbeam Auto Ltd. (supra), wherein a distinction is cast between lack of inquiry and inadequate .....

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essee filed a revised return. While assessing the same, notices under Section 142(1) and 143(2) were issued to the Assessee, to which he responded by placing on record Memorandum of Understanding (MoU) dated 15.6.2008, appointing his Agent to manage the orchard. Accounts came to be settled in September, 2011. Whereafter, Assessee filed the revised return. To verify correctness of the transaction, Agent appeared and produced on record (a) his income tax return for the relevant year, (b) copies of bills, and (c) copies of vouchers with regard to sale proceeds. Additionally, information from the Officer, assessing the return of the Agent was called, which revealed that a sum of ₹ 2,65,92,500/- was payable to the assessee as agricultural income. Based on the said material, Assessing Officer carried out assessment, accepting the income declared in the revised return from agricultural sources to be ₹ 2,80,92,500/-, in place of ₹ 15,00,000/- as declared in the original return. 70. In this backdrop, can it be said that the Assessing Officer conducted any inquiry, as envisaged in law. In our considered view, no . On first brush, it appears that the Assessing Officer did co .....

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of three years was legally tenable or not, was not examined. Whether it was due to bonafide inadvertence or mistake, which fact never came to be disclosed in the original return was also not examined. 75. In fact, contradiction about the source of income, emanating from the order of the Assessing Officer, is writ large. On one hand, investment is accepted to have been made from the agricultural income and the money borrowed in the relevant year, whereas, on the other hand, it is sought to be justified as an agricultural income with respect to Assessment Years 2009-10 and 2010-11. 76. At this juncture, it be also observed that the Assessing Officer failed to take note of the fact that in the original return, even though there is reference of investment in LIC, but there is no disclosure of (a) the investments in question, (b) the fact that the Assessee had entered into an MoU with third party for management of the orchard, (c) there was income from the orchard, (d) agent invested the amount in LIC, (e) Assessee had been adopting the mercantile system of accounting and as such there was no settlement of accounts. All this, despite the Assessee having categorically disclosed therein, .....

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al agricultural income being invested in LIC policies, (b) there were huge investments of more than ₹ 3.84 crore in the relevant year, as compared to originally declared income of ₹ 15 lakhs, (c) there was mis-match in the agricultural income and investments made, (d) in the aforesaid backdrop, plea of the assessee adopting mercantile system of accounting was factually incorrect and legally untenable, (e) there was non-compliance of directions issued under Section 144A, (f) assessment was carried out without conducting essential inquiry (Page- 230), as directed under Section 144A, (g) assessment was completed in casual and routine manner, (h) hence, it is a case of no inquiry (Page-232) and the order passed by the Assessing Officer to be erroneous as well as prejudicial to the interests of the Revenue (Page- 237). Mercantile System of Accounting 82. It cannot be said that the Commissioner erred in appreciating that the system for accounting adopted by the Assessee was on mercantile basis. The issue with regard to accounting of such system is no longer res integra. 83. The Apex Court (four-Judge Bench) in Keshav Mills Ltd. v. Income-tax, Bombay, AIR 1953 SC 187, has expl .....

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income and source of investment in LIC policy. He has not applied his mind to check whether there can be any possibility or availability of such a huge agriculture income. The A.O. has failed to make proper enquiries in this case and has not applied his mind in the right perspective. This is the case where no relevant enquiries have been carried out. In absence of requisite evidences/proof/ explanation regarding the source of huge investment in LIC policies etc. it can t be held as being invested out of agriculture income. In view of the above circumstances, action of the A.O. in passing assessment order u/s 143(3) on the basis of invalid revised return as well as by accepting ht agriculture income declared by the assessee without any documentary evidences is erroneous as well as prejudicial to the interest of revenue. Even during the proceedings u/s 263, the assessee has not given any material evidence to prove his contention that the investment in LIC policies are from the agriculture income earned from Shrikhand Orchard. 87. It is true that the Commissioner has loosely used certain expressions, with regard to the manner in which inquiry was conducted by the Assessing Officer, bu .....

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proceedings within the meaning of Sections 193 and 228 and for the purpose of Section 196 of the Indian Penal Code (45 of 1860). It is also deemed to be a Civil Court for all the purposes of Section 195 and Chapter XXXV of the Code of Criminal Procedure, 1898 (5 of 1898) corresponding to Section 195 and Chapter XXVI of the Code of Criminal Procedure, 1973 (2 of 1974). 92. The Apex Court in Hukumchand Mills Ltd. v. Commissioner of Income-Tax, Central, Bombay, (1967) 63 ITR 232 : AIR 1967 SC 455 (Three-Judge Bench), has held that the power of the Tribunal cannot be circumscribed or controlled by the Rules (Income Tax) which are merely procedural in character. It stands followed in Assam Travels Shipping Service, Dibrugarh (supra). 93. In Income-Tax Officer, Cannanore v. M.K. Mohammed Kunhi, (1969) 71 ITR 815, the Apex Court (three-Judge Bench), has held that: It is well known that an Income tax Appellate Tribunal is not a court but it exercises judicial powers. The Tribunal's powers in dealing with appeals are of the widest amplitude and have in some cases been held similar to and identical with the powers of an appellate court under the Civil Procedure Code: see Commissioner of .....

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er of the tribunal in dealing with the appeals is thus expressed in the widest possible terms. The purpose of the assessment proceedings before the taxing authorities is to assess correctly the tax liability of an assessee in accordance with law. If, for example, as a result of a judicial decision given while the appeal is pending before the tribunal, it is found that a nontaxable item is taxed or a permissible deduction is denied, we do not see any reason why the assessee should be prevented from raising that question before the tribunal for the first time, so long as the relevant facts are on record in respect of that item. We do not see any reason to restrict the power of the tribunal under Section 254 only to decide the grounds which arise from the order of the Commissioner of income Tax (Appeals). Both the assessee as well as the Department have a right to file an appeal/cross-objections before the tribunal. We fail to see why the tribunal should be prevented from considering questions of law arising in assessment proceedings although not raised earlier. 5. In the case of Jute Corpn. of India Ltd. v. CIT, (1991) Supp(2) SCC 744, this court, while dealing with the powers of the .....

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ssue of law can be raised before the Tribunal. The decision does not in any way relate to the power of the assessing officer to entertain a claim for deduction otherwise than by filing a revised return……. 97. Applying these principles we proceed on merits. 98. Perusal of the order passed by the Tribunal reveals that for more than 1½ year, matter was adjourned for one reason or the other. In November, 2016, Revenue filed written submissions, enclosing therewith certain documents, when the appeal was adjourned. Though the authorized representative of the Assessee objected to the filing of written submissions by the Revenue at such a late stage , yet it sought time for filing rebuttal thereto, which request was accepted and the matter adjourned for 29.11.2016, on which date, learned counsel appearing for the Assessee objected to the documents being taken on record and accepted for consideration of the appeal. Overruling such objection, Tribunal accepted the documents, as additional evidence and considered the same for deciding the appeal. 99. It is in this backdrop, we proceed to discuss as to whether action of the Tribunal in accepting the documents, as additiona .....

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is found that the party intending to lead evidence before the Tribunal for the first time was prevented by sufficient cause to lead such an evidence and that this evidence would have material bearing on the issue which needs to be decided by the Tribunal and ends of justice demand admission of such an evidence, the Tribunal can pass an order to that effect. 14. ………The true test in this behalf, as laid down by the Courts, is whether the Appellate Court is able to pronounce judgment on the materials before it without taking into consideration the additional evidence sought to be adduced. The legitimate occasion, therefore, for exercise of discretion under this rule is not before the Appellate Court hears and examines the case before it, but arises when on examining the evidence as it stands, some inherent lacuna or defect becomes apparent to the Appellate Court coming in its way to pronounce judgment, the expression 'to enable it to pronounce judgment' can be invoked. Reference is not to pronounce any judgment or judgment in a particular way, but is to pronounce its judgment satisfactory to the mind of Court delivering it…………. .....

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thereof, may be relevant evidence. The only inhibition is that it cannot be pressed into service without supplying a copy thereof to the assessee so as to enable him to controvert, if he disputes the correctness of the contents thereof, if need be, by calling the maker for examination tendering his oral evidence. Both the Revenue as well as the assessee have adduced oral and documentary evidence. The statements recorded under section 161, Criminal Procedure Code, of the two prize winners (viz., M. Sriramulu and Shankaraiah), Sri Malakondaiah (District Collector) and Diwakar Setty were supplied, they were examined and cross-examined at length. How far the statements under section 161, Criminal Procedure Code, or evidence can be relied on or accepted or inference to be drawn therefrom in support or against the conclusion of concealment, are matters exclusively for the primary authority and the appellate forum, as factfinding authorities. Therefore, the procedure adopted by the Appellate Tribunal is one of statutory compliance of section 274(1) but not "filling up gaps in the sense of a criminal trial." The Act itself makes a distinction in using the phraseology in the rele .....

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first part of the order (Pages-78 to 93) and as such do not find any infirmity with the same. Appeal on merits was adjudicated in the second part of the order. It cannot be said that principles of natural justice stand violated. 113. Much reliance is placed on Andaman Timber Industries (supra), to highlight the point of lack of opportunity for cross-examining the witnesses. We do not find the decision to be applicable, for in the instant case statement was that of the Agent of the Assessee, in fact on whose return the Assessee seeks reliance upon. 114. The Tribunal has extensively dealt with the issue of (a) acts of the Assessee in filing the revised return to be not bonafide, for he was already in the know of income and as such omission or wrong statement in the original return cannot be said to be a discovery of fact, for such action was neither bonafide nor genuine (Page-93), (b) the Assessing Officer did not comply with the directions that of the Additional Commissioner of Income Tax, issued under Section 144A (Pages 104 to 111), (c) Assessing Officer did not conduct the inquiry, verifying the genuineness of agriculture income which prima facie was found to be false in view of .....

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facts and circumstances, we hold the Tribunal to have correctly affirmed the order passed by the Commissioner. Also, it cannot be said that the Tribunal erred in accepting the additional evidence placed on record by the Revenue. It also cannot be said that the Tribunal committed any material irregularity and violated any procedure and such action is illegal or bad in law. In fact, we find principles of natural justice and fair play to have been adhered to and fully complied with. 119. We reiterate that sub-section (1) of Section 263 confers sufficient powers upon the Commissioner to decide all issues of law, after recording its satisfaction that the order passed by the Assessing Officer is erroneous and prejudicial to the interest of the Revenue. The power is wide enough to take in its sweep the action of modifying, cancelling or directing fresh assessment, particularly when it is a case of no inquiry . We are of the considered view that no inquiry, as envisaged in law, was carried out, hence, question of the Commissioner taking an alternate possible view does not arise. The Assessing Officer cannot be said to have taken a plausible view, as envisaged in law, and the view taken by .....

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