TMI Blog1993 (1) TMI 69X X X X Extracts X X X X X X X X Extracts X X X X ..... " The assessee is a registered firm doing business in cotton and cotton seeds. During the relevant accounting year, i.e., Samvat year 2023, (November 13, 1966, to November 2, 1967), the assessee paid a sum of Rs. 21,685 to its employee R. P. Shah as profit earned by him from transactions in cotton done by the assessee on his behalf. This amount of Rs. 21,685 was claimed as a deduction from the total income of the assessee. The Income-tax Officer disallowed that claim and treated the said amount as income of the assessee and levied tax thereon. While passing the assessment order, the Income-tax Officer also passed an order for issuing notice under section 274. Against the assessment order, the assessee preferred an appeal to the Appel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... missioner, the assessee filed an appeal to the Tribunal. Before the Tribunal, it was contended on behalf of the assessee that the claim for deduction of Rs. 21,685 was disallowed only because it could not be established that it was the assessee's income but that would not justify imposing a penalty without any material to show that the assessee intended to conceal the said income with a view to avoid payment of tax. It was also submitted that the Inspecting Assistant Commissioner committed an error of law in holding that in proceedings under section 271(1)(c), mens rea is not required to be established. The Tribunal accepted the contention raised on behalf of the assessee that mens rea was required to be established, but refused to set asid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s in R. P. Shah's account. (5) R. P. Shah had not paid the tax even though he had filed return of his income showing this amount of Rs. 21,685. As R. P. Shah did not have any licence to deal in cotton, obviously, the assessee could not have made the corresponding entries in its books of account which would have put the assessee in a difficult situation and that would have provided sufficient material for prosecuting the assessee for abetting R. P. Shah in the business of dealing in cotton without licence. Therefore, the absence of entries should not have weighed with the Tribunal in holding that the explanation given by the assessee was a false explanation. The explanation given by the assessee was quite consistent with the fact that R. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ficer who had assessed the assessee. It appears that R. P. Shah had filed the return in time and he was assessed either at the same time when the assessee was assessed or at some time before that. That becomes clear from the fact that in the reply to the show-cause notice issued under section 271 on February 16, 1972, the assessee had come out with the defence that R. P. Shah had filed his return and paid tax on the said income. In the second reply filed by the assessee on September 19, 1973, the account number of R. P. Shah was also disclosed and it was also disclosed, before which the Income-tax Officer, the return was filed. It is now an Admitted position that assessment of R. P. Shah in respect of that income was not a protective assess ..... X X X X Extracts X X X X X X X X Extracts X X X X
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