TMI Blog1996 (7) TMI 167X X X X Extracts X X X X X X X X Extracts X X X X ..... Co., and was selling the goods of that concern on consignment basis. The returns of income for all the three years were filed by the assessee voluntarily and summary assessments for the earlier two years were also made under section 143(1) by accepting the returns. 3. A survey was conducted by the Income-tax Department in the business premises of the assessee on 6-12-1988. A number of books maintained by the assessee were impounded as a sequel to the survey. The Assessing Officer found out that the assessee was maintaining a single cash book and also bank account in respect of both his personal trading activities and also the consignment business in respect of the goods belonging to M/s. Hindal Co. He also found out that whereas the sale proceeds of the aforesaid agency business were being credited to the said bank account and payments were also being made to M/s. Hindal Co., out of the aforesaid combined cash book and bank account, at the same time again, the assessee was not showing the stock of the consignment goods and also the amounts in respect of sundry debtors of the agency business in the balance sheets of his business. Accordingly, the Assessing Officer is supposed to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cords with him do not contain the said revised balance sheets and even the forwarding letter under which such balance sheets are supposed to have been filed. 5. We are thus, put to a very piquant situation. The order-sheet entries clearly show the presence of assessee on both the dates, viz., 16-1-1989 and 23-1-1989. At the sane time again, there is no trace of the so-called revised balance sheets and also the forwarding letter in the assessment records of the Assessing Officer. We are, thus, unable to believe the versions of either of the sides, viz., the assessee's version that he did not appear on either of the dates and the departmental version that the assessee actually filed the revised balance sheets on 23-1-1989. 6. In making the additions for all the three years, the Assessing Officer mostly utilised the alleged sworn deposition of the assessee dated 16-1-1989. In addition to the same, he is also found to have made enquiries from M/s. Hindal Co., about the credit balance of the assessee as on the closing date for assessment year 1988-89. In fact, the Assessing Officer asked for the detailed account of the assessee in the books of M/s. Hindal Co., for the year 1987. It ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ad also been taken into consideration. 8. In the first appeal, although the CIT(A) confirmed the levy of penalty with regard to the discrepancies in the accounts with M/s. Hindal Co., and M/s. Jindal, at the same time again, she directed that penalty need not be levied in respect of these two items of Rs. 12,000 and Rs. 50,416. Hence, these two items are not within the purview of our present discussion. 9. For assessment year 1987-88, the Assessing Officer found out in respect of the personal trading activity of the assessee that as on the last day of the said accounting year, i.e., 31-12-1986, stock of 1,298-80 kgs. of goods valued at Rs. 47,400 was shown, whereas on 1-1-1987, i.e., the first day of the previous year for the assessment year 1988-89, in the stock register, opening stock was shown at 4,215 kgs. The assessee tried to come out with some explanation to which we shall revert at a later stage. The Assessing Officer considered that the actual stock of the goods as on the closing date for this year should be 4,215 kgs. He valued the same at pro rata basis as Rs. 1,06,536. This amount was added to the net profit of the trading concern as disclosed in the relevant P L ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shown in the balance sheet filed by the assessee by the figure of Rs. 1,53,936 as considered by him to be the closing balance for assessment year 1987-88. He also took into consideration the amounts of consignment closing stock and also the closing balances of the sundry debtors in respect of agency business. The Assessing Officer furthermore found out that the assessee had floated a new proprietary concern named M/s. Bright Aluminium Company on 15-3-1987. The initial investment of Rs. 40,000 made in the said proprietary concern as on 15-3-1987 was found by the Assessing Officer to be not accounted for. Accordingly, he added back this amount of Rs. 40,000 to the income of the assessee from his other proprietary concern, viz., M/s.Best Aluminium Fabricators by considering the amount as having come from the concern. Thereafter, the Assessing Officer recast the balance sheet of the assessee for this year also by making all the aforesaid changes. On the basis of the said recast balance sheet, he arrived at the figure of Rs. 10,88,746 to be the amount of accretion to the capital during this year. The said amount was added to the total income of the assessee for this year and penalty ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gued that even if such opportunity might not have been allowed, the defect in the matter can be cured by allowing a fresh opportunity to the assessee even now, without cancelling the penalty orders altogether. Reliance has been placed in this connection on the judgment of the Andhra Pradesh High Court in the case of Thakur V. Hari Prasad v. CIT [1987] 167 ITR 603/32 Taxman 196 in which it has been decided that a defect of this nature can be cured even by the Tribunal by allowing a fresh opportunity to the assessee at the stage of the appellate proceeding before it. Further reliances have also been placed on the orders of the Supreme Court in the case of Guduthur Bros. v. ITO [1960] 40 ITR 298 and of the Andhra Pradesh High Court in the case of Addl. CIT v. Boina Suranna [1980] 124 ITR 328 in which cases, it has been decided that penalty orders need not be cancelled in such circumstances but that the matters may be set aside to the Assessing Officer for passing fresh orders after meeting the legal requirement of allowing the assessee an opportunity of being heard. The learned DR has also placed reliance on the judgment of the Bombay High Court in the case of CIT v. Smt. Kaushalya [1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 16-1-1989 is also found to have been signed by the assessee on all the pages. It is, therefore, very difficult to accept the contention of the assessee that he did not give this particular deposition. Whether however, the deposition was given by him totally voluntarily and with proper understanding of the things alleged to have been stated by him, is of course a different question. We will discuss this particular issue when we come to the relevant position. As regards the question of filing of the revised balance sheets, we have already noticed that the said balance sheets do not appear on the records of the Assessing Officer. We, therefore, cannot accept the departmental contention that the assessee himself filed the revised balance sheets. On the other hand, a reading of the assessment orders for all these years would tend to show that the Assessing Officer himself prepared the balance sheets on the basis of certain considerations and proceeded to make additions on the basis of the said balance sheets. Finally therefore, so far as this particular issue is concerned, we hold that the admissions made by the assessee in the deposition dated 16-1-1989 are his own, although there ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed the recast balance sheets by himself, this particular agreement is also of no significance at all. With regard to the discrepancies in the closing balances of the accounts of the assessee with M/s. Hindal Co. and M/s. Jindal, we find that the assessee had agreed that the balances as shown in his books were not correct. However, it also appears at the same time that the assessee meant that reconciliations could be made between the balances as per his books and those of the other parties. It does not appear that meant that the differences between the balances shown in his own books and those shown in the books of the other parties would have to be added back automatically. Taking an overall view of the matter, we feel that the assessee does not seem to have admitted any concealment on his part. Whether he agreed to the additions or not, is also a controversial matter. It is correct that the assessee did not prefer to go in appeals against the additions made in the assessment orders. Shri Pradeep says in this connection that because of the agonised mental condition of the assessee at that time, he was not in a mood to take any prospective action in any direction and that is the rea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts for taxation without admitting that they had concealed such amounts in the returns already filed by them. In most of such cases again, the amounts were not even admitted by the assessees to form their income during the relevant year. For the sake of ending protracted litigation or to buy peace with the Department only such admissions were made. It is not necessary for us to deal with each of the above decisions separately, and to take guidance therefrom. It would suffice if we refer to and take into account the judgment of the highest Court that is Supreme Court as finding place in the case of Sir Shadilal Sugar General Mills Ltd. In this particular case, the Supreme Court noted that the assessee had only accepted certain amounts as taxable; it had not been accepted by the assessee that it had deliberately furnished inaccurate particulars or concealed any income. Finally, the Supreme Court remarked as follow : " From the assessee agreeing to additions to his income, it does not follow that the amount agreed to be added was concealed income. There may be a hundred and one reasons for such admission, i.e., when the assessee realises the true position, it does not dispute certa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ccounts of the assessee in the books of M/s. Hindal Co., for those two years to substantiate the allegation made by the Assessing Officer in the assessment orders for those two years about the discrepancies. Of course, the figure of opening stock for the year 1987 might have been used by the Assessing Officer to determine the discrepancy in respect of the closing balance for the year 1986. In fact, the assessment order for assessment year 1987-88 shows the same, i.e., that the Assessing Officer took into consideration the opening balance of Rs. 2,57,018-79 as on 1-1-1987 as finding place in the copy of account of the assessee in the books of M/s. Hindal Co., for the year 1987, to allege of the difference between the closing balances as on 31-12-1986. By referring to this particular copy of account of the assessee in the books of M/s. Hindal Co., for the year 1987, Shri Pradeep has brought our notice to the fact that although the first entry shows the opening balance of Rs. 2,57,018-79, there are a number of other entries pertaining to the earlier year finding place in the same account which should also go to affect the position of opening balance, inasmuch as these entries also rel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd the said additions were accepted by the assessee without any demur, there is no case for arriving at a definite conclusion that the assessee had actually concealed the particulars of his income in the process. This also seems to be the position with regard to the alleged discrepancy in the accounts of M/s. Jindal. It is not known wherefrom the Assessing Officer got the figure of closing balance of M/s. Jindal as on 31-12-1985. On the other hand, a perusal of the assessment order for assessment year 1986-87 shows that in the balance sheet of the assessee as on 31-12-1985, the credit balance of M/s. Jindal was shown as Rs. 7,93,152. Thereafter, a payment of Rs. 1,55,538 was made by the assessee to M/s. Jindal on 25-1-1986. The Assessing Officer jumped on the conclusion that by making this payment, the assessee got free from the entire credit balance and hence, this amount of Rs. 1,55,538 actually represented the credit balance as on 31-12-1985. The Assessing Officer stated that the later payments related to goods received later to this date without verifying the facts at all. The learned counsel for the assessee has very strongly argued before us that actually the credit balance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... corrections. On the other hand, he felt that as on those two dates, viz., 18-7-1986 and 1-8-1986, the assessee would be having negative stock as per the original recordings and that is the reason why the corrections were made. The Assessing Officer thus made adjustment on account of purchases considered by him as having been made outside the books on those dates and carried forward to the closing stock without being sold throughout the year. This is the reason why the closing stock for assessment year 1987-88 and also the opening stock for the next year were considered by the Assessing Officer at enhanced figures. Shri Pradeep has strongly argued in this connection that the rectifications were made merely to place on record the dates of actual receipt of the goods whereas the original entries had been made on the basis of the dates of the bills/payments, etc. He has furthermore argued without admitting the allegation of the Assessing Officer that even if there had been unaccounted purchases during the year, for increasing the closing stock notionally on that account, it would be necessary also to allow expenses on purchases made outside the books separately. He thus argues that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Officer came to the conclusion that the assessee should have included the closing stock of consignment goods as well as the amounts of sundry debtors in respect of that business in his balance sheet. The learned counsel for the assessee has, however, strongly contended that the balance sheet shows only the results of the assessee's personal trading business and does not, in any way, take into account the transactions relating to the agency business. He has referred to the list of books of account impounded by the Department to show that for the purpose of getting at the results of the agency business, the assessee relies on a host of other books maintained by him like day book, book relating to M/s. Hindal Co. (consignment account) and consignment stock account, etc. It is stated that that is why the transactions pertaining to the agency business, viz., consignment goods which are not of the nature of cash transactions, are never entered in the regular books of the assessee. It is thus claimed that when the assessee receives goods from the consignor or sells the same to different parties on credit basis, no entry is made in the regular books of the assessee. It has furthermore bee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons like sundry debtors' accounts and closing stock of agency business should also be brought to the personal books of the assessee and in his personal balance sheet. If the contention of the Assessing Officer in this regard be correct, in that case, it would have been required of the assessee to have included the entire amount of sales of consignment goods (even goods sold on credit) on the liability side with the balance sheet. At the same time again, the assessee would also be required to give credit to the consignor in respect of the entire stock of the goods received from it whether sold or unsold. Such is certainly not the case. The Assessing Officer has recast the balance sheet by including the closing stock of consignment goods and the sundry debtors in a completely one-sided manner, without balancing the same by taking into consideration the credit balance of the consignor which would have come up in the process by way of inclusion of the value of entire goods consigned to the assessee. The additions in this regard by way of so-called accretion to the capital in the recast balance sheets have been made by the Assessing Officer purely out of ignorance of accounting principl ..... X X X X Extracts X X X X X X X X Extracts X X X X
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