JANTA WINE STORE v. INCOME TAX OFFICER
[Citation -1984-LL-0630-5]

Citation 1984-LL-0630-5
Appellant Name JANTA WINE STORE
Respondent Name INCOME TAX OFFICER
Court ITAT-Delhi
Relevant Act Income-tax
Date of Order 30/06/1984
Assessment Year 1978-79
Judgment View Judgment
Keyword Tags indian made foreign liquor • presumption of concealment • admission of concealment • bona fide explanation • concealment of income • imposition of penalty • disclosure of income • suppression of sales • voluntary disclosure • excise department • unaccounted stock • concealed income • registered firm • returned income • income returned • net profit rate • stock register • staff welfare • stay petition • cold storage • share income • cash credit • sales tax • cash book
Bot Summary: The assessee is in appeal against the order dated 3-12-1983 of the learned Commissioner, whereby he confirmed the imposition of penalty against the assessee in the sum of Rs. 1,24,721 under section 271(1)(c) of the Income-tax Act, 1961. Shri S.D. Bahl, the learned counsel for the assessee, relied upon the explanations, furnished on behalf of the assessee vide its replies dated 30-11-1978, 14-12- 1980, 22-4-1981, 8-11-1983 and 21-11-1983. In other words, no penalty can be imposed simply because the assessee had agreed that certain amounts were its income ...... Referring to the provisions of section 271(1)(c), Shri Bahl, submitted that in Referring to the provisions of section 271(1)(c), Shri Bahl, submitted that in respect of the facts, material to the computation of the total income of the assessee to explanation offered by the assessee was held to be not substantiated but no presumption of concealment could be raised against the assessee as a result of the rejection of its explanation since the explanation was bona fide and all the facts relating to the same and material to the computation of its total income, had been disclosed by it. Merely because the assessee does not challenge an addition, it cannot be inferred that the assessee was guilty of concealment of income. No doubt, Bill No. 438, dated 24-3-1978 for Rs. 2,637.57 from Rakesh Chand Mahesh Chand was not entered by the assessee in ledger, But it was duly explained by the assessee that the stock represented by this bill was duly entered in the stock register and that there was a dispute between the assessee and that firm regarding the finalisation of accounts. In the reply dated 21-11-1983, it was explained by the assessee that the said purchase voucher was lying in the voucher file when it was produced before the ITO. In this connection, the assessee's reply dated 22-4-1981 is also relevant. The assessee had stated that no adverse inference may be drawn as the stock was considered for sale and that the purchases of the assessee be increased by the amount of the bill whereby the loss was to be increased.


assessee is in appeal against order dated 3-12-1983 of learned Commissioner (Appeals), whereby he confirmed imposition of penalty against assessee in sum of Rs. 1,24,721 under section 271(1)(c) of Income-tax Act, 1961 (' Act '). 2. assessee is registered firm which carries on business of ' Indian Made Foreign Liquor ' (IMFL). partners of assessee-firm are S/Shri Pramod Kumar, Ajeet Kumar, Bharat Kumar, Ashok Kumar Ahlawat, Ashok Kumar Agarwal, Jitendra Prakash and Bipendra Kumar Goel. For assessment year 1978-79 in question, assessee declared loss of Rs. 1,70,421. disclosed sales were of Rs. 7,48,654. However, assessment was completed by ITO after applying proviso to section 145(1) of Act. He estimated sales at Rs. 9 lakhs and by estimating net profit rate at 5 per cent, he completed assessment on income of Rs. 45,000. assessment was completed after obtaining directions of IAC under section 144B of Act. No appeal was filed by assessee against said assessment. Thereafter, ITO initiated penalty proceedings under section 271(1)(c). In reply to ' show cause notice ' explanation dated 21-3-1983 of assessee was that difference between assessed income and returned income did not amount to any concealment or furnishing of inaccurate particulars. However, ITO relied upon following factors, which had influenced assessment proceedings: 271(1)(c) was bona fide and all facts relating to same and material to computation of its total income had been disclosed by it, and, therefore, presumption of concealment of income had been duly rebutted. penalty could not, therefore, be sustained. 1. Bill No. 438 dated 24-3-1978 for Rs. 2,637.57 from Rakesh Chand Mahesh Chand, Meerut, was not entered in ledger. 2. Purchase and sale vouchers, cash memos, quantitative tally were not produced before ITO though cash book, ledger, stock registers and purchase vouchers were produced before IAC during section 144B proceedings. stock register produced showed that excise authority had punished assessee for not maintaining it properly. 3. ITO found that liquor was sold in glasses instead of sealed bottles. 4. Expenses claimed at Rs. 3,41,144 were not vouched. 3. additional factor which influenced ITO was that against assessment order, no appeal had been filed by assessee. ITO observed that recording of books, transactions in account books which had proved discrepancies were instances of deliberate furnishing of inaccurate particulars of income within meaning of section 271(1)(c). He also held that way books of account were maintained, proved contumacious conduct on part of assessee and that concealment of income impliedly had been done with t h e clear knowledge of assessee-firm, which was grossly and wilfully negligent in not returning correct income. In regard to non-filing of appeal, he observed that assessee had thereby accepted assessment as framed, which all more proved guilt on its part. ITO relied upon decisions in Nagin Chand Shiv Sahai v. CIT [1938] 6 ITR 534 (Lahore) CIT v. Gates Foam & Rubber Co. [1973] 91 ITR 467 (Ker.) and CIT v. India Sea Foods [1976] 105 ITR 708 (Ker.). He, therefore, held that assessee did conceal particulars of its income and had furnished inaccurate particulars of such income for which it was liable to penalty. penalty of Rs. 1,24,721 was imposed at its minimum by taking tax on amount concealed (Rs. 2,15,421) treating assessee-firm as unregistered firm. 4. In appeal, learned Commissioner (Appeals) referred to number of decisions mentioned in his order. He held that sale vouchers were not produced before ITO or IAC during course of appeal. He also observed that if they could be produced before sales tax authorities, they could, as well, have been produced before income-tax authorities. He held that there was suppression of sales and that assessee had accepted income assessed on its basis. He held that fact that books of account were not reliable and that assessee had suppressed its income, was proved by fact that share income as assessed, had been accepted by assessee. He also observed that estimate of income assessed by ITO was based on defects found in books of account of assessee and that absence of sale vouchers could not go unobserved. He also observed that serving of liquor in open glasses could not be lost sight of. He also observed that assessee had not been able to show that either turnover estimated or net profit rate applied thereto, was wrong or unreasonable. He held that where assessee accepts income assessed, which is far different from income returned, difference between income assessed and income returned is concealed income. He also observed that acceptance by assessee of assessment made, led to presumption that income assessed represented true income of assessee and that since there was wide difference between income returned and that assessed, difference could be presumed to represent concealed income of assessee. According to him, assessing officer in these circumstances did not require any further proof to hold that income in question was assessee's concealed income. Accordingly, he upheld penalty. 5. assessee, being aggrieved, has come up in appeal before us. Shri S.D. Bahl, learned counsel for assessee, relied upon explanations, furnished on behalf of assessee vide its replies dated 30-11-1978, 14-12- 1980, 22-4-1981, 8-11-1983 and 21-11-1983. He submitted that account books were produced before IAC under section 144B and vouchers could not be produced as they were with other partner, Bharat Kumar, who had taken them for being produced before sales tax authorities. He also pointed out that sales tax authorities had completed assessment on basis of sale figure returned by assessee. Referring to provisions of section 271(1)(c), he pointed out that ITO had proceeded on basis of old Explanation to section 271(1)(c) which existed prior to 1-4-1976 whereas in present case, new Explanation was applicable. Next, he pointed out that learned Commissioner (Appeals) had also considered decisions under old Explanation. So far as Bill No. 438 is concerned, he pointed out that there was dispute between assessee-firm and Rakesh Chand Mahesh Chand regarding finalisation of accounts and that notwithstanding fact that this bill was not ledgerised, it was duly entered in stock register and goods had been actually sold. He also pointed out that stock register had been duly examined by excise authorities and on 31-3-1978, no unaccounted stock of IMFL or beer was found in shop. stock register was, therefore, said to be duly maintained. In this regard, reference was also made to copies of notes of inspection, made by excise department from time to time. So far as consumption of liquor in glasses is concerned, he pointed out that assessee could not prevent customers from drinking in glasses at shop after buying sealed bottles. He pointed out that assessee had filed affidavit dated 8-11-1983 of partner Ashok Kumar to this effect but that it was not admitted in evidence by learned Commissioner (Appeals). So far as expenses are concerned, he pointed out that no specific instance of unvouched expenses had been pointed out and that expenses consisted of Rs. 3 lakhs as licence money and other fee, Rs. 6,000 by way of rent and Rs. 18,536 by way o f salary and wages. expenses were said to be rightly claimed. Lastly, he pointed out that fact that no appeal had been filed against assessment order could not operate against assessee. He also pointed out that assessee had already explained that appeal could not be filed as firm was dissolved on 31-3-1978 and because partners had to bear tax at Rs. 2,473 only. Reference was also made by him to decision of Hon'ble Patna High Court in CIT v. Binod Co. [1980] 122 ITR 832, wherein it was held that assessee's agreeing to addition of cash credit to total income, did not amount to admission of concealment of income. Reference was also made by him to decision of Hon'ble Punjab and Haryana High Court in Vishwakarma Industries v. CIT [1982] 135 ITR 652 (FB) wherein it was held that burden of discharging onus would be like one in ordinary civil proceedings. Reliance was also placed by him on following observations made by Allahabad Bench ' ' of Tribunal in case of Biland Ram Hargun Dass v. ITO [1984] 8 ITD 772: " It is well established that penalty cannot be levied merely because certain item is surrendered unless there is material on record to show that surrendered item was assessee's income. In other words, no penalty can be imposed simply because assessee had agreed that certain amounts were its income ......" Referring to provisions of section 271(1)(c), Shri Bahl, submitted that in Referring to provisions of section 271(1)(c), Shri Bahl, submitted that in respect of facts, material to computation of total income of assessee to explanation offered by assessee was held to be not substantiated but no presumption of concealment could be raised against assessee as result of rejection of its explanation since explanation was bona fide and all facts relating to same and material to computation of its total income, had been disclosed by it. 6. On other hand, Shri M.M. Bharti, learned departmental representative, placed k reliance on orders of income-tax authorities. He also relied upon following decisions---Shiv Narain Khanna v. CIT [1977] 107 ITR 542 (Punj. & Har.), Banaras Chemical Factory v. CIT [1977] 108 ITR 96 (All.), A.K. Bashu Sahib v. CIT [1977] 108 ITR 736 (Mad.), Western Automobiles (India) v. CIT [1978] 112 ITR 1048 (Bom.), CIT v. Krishna & Co. [1979] 120 ITR 144 (Mad.), Durga Dutta Chunni Lal v. CIT [1979] 120 ITR 319 (All.), Mirzapur Construction Co. v. CIT [1980] 122 ITR 828 (All.), Addl. CIT v. D.D. Lamba & Co. [1981] 128 ITR 564 (All.), CIT v. Swarup Cold Storage & General Mills [1982] 136 ITR 435 (All.) and Kikabhai Abdulali Rangawala v. CIT [1983] 144 ITR 465 (Bom.). He, therefore, argued that there was no warrant or justification for any interference with order of learned Commissioner (Appeals). 7. We have considered rival submission as also decisions referred to above. first point which requires to be emphasised is that in present case, as rightly pointed out on behalf of assessee, old Explanation to section 271(1)(c) which was omitted from 1-4-1976 could not be taken into consideration and it is only under new Explanation that matter has to be considered. This is not case in which assessee had failed to offer explanation or case in which assessee had offered explanation which was found by ITO or Commissioner (Appeals) to be false. It is case in which assessee had offered explanation, which was held to be not substantiated. It is on that basis that income was estimated and expenses were disallowed and as result thereof, for purposes of section 271(1)(c), amount of Rs. 2,15,421 was deemed to represent income of assessee in respect of which particulars had been concealed. Therefore, only question to be examined and considered with reference to Explanation 1 to section 271(1)(c) is whether explanation offered by assessee was bona fide and all facts relating to same and material to computation of its total income had been disclosed by it. Therefore, decisions referred to by income-tax authorities or relied upon on behalf of revenue, which are based upon old Explanation to section 271(1)(c) cannot assist us. 8. Though, there is no basis for assumption that some additional material should always be forthcoming for levy of penalty in addition to material on which assessment was based and very same material can form basis for assessment as well as penalty, penalty cannot be levied solely on basis of reasons given in assessment order. In other words, though findings given in assessment proceedings are relevant and have probative value, they are not conclusive. However, it is good evidence. Coupled with above factor is question of effect of not filing appeal against t h e assessment order. Merely because assessee does not challenge addition, it cannot be inferred that assessee was guilty of concealment of income. There can be number of reasons why appeal was not filed or could not be filed. If authority were needed for such proposition, it would be found in decisions of Hon'ble Patna High Court in Binod Co.'s case and in CIT v. Gwalior Metal Industries [1983] 141 ITR 274. In present case, assessee had given explanation as to why appeal could not be filed against assessment order. explanation of assessee was that appeal could not be filed as firm was dissolved on 31-3-1978 and because partners had to bear tax of Rs. 2,473 only. We are, therefore, clearly of view that fact that no appeal was filed against assessment order, could not operate against assessee. inferences drawn by income-tax authorities to contrary were, therefore, not justified. 9. So far as making of additions on estimate is concerned, normally penalty could not be levied unless it could be shown that element of concealment was positively involved. However, on principle, it cannot be said that penalty cannot be levied under section 271(1)(c) at all, in any case, in which addition is made on basis of estimate. In present case, learned Commissioner (Appeals) observed and rightly so, that assessee-firm did not make any admission or disclosure but accepted assessment made. There make any admission or disclosure but accepted assessment made. There was no voluntary disclosure of income, nor did assessee agree to inclusion of any amount in assessment. Therefore, decisions referred to on behalf of revenue in that regard, are not strictly relevant on facts. 10. We have, therefore, to examine contentions of assessee in light of proviso to Explanation 1 to section 271(1)(c) as applicable for assessment year 1978-79 in question, to which reference has already been made by us above. It is true that purchase and sale vouchers, cash memos and quantitative tally could not be produced by assessee before ITO. However, cash book, ledger, stock register and purchase vouchers were produced before IAC. assessee had explained in its reply dated 22-4- 1981 that sale vouchers were with other partner, Shri Bharat Kumar, who conducted case of assessee-firm before sales tax authorities. case of assessee was also that after first hearing which took place before ITO on 30-11-1978, partners had falled (sic) out. So far as stock register is concerned, ITO had commented that excise authorities had punished assessee for not maintaining it properly. We have gone through copy of notes of inspections recorded by excise authorities from time to time. perusal thereof shows that stock register was found to be verified. It is only in note dated 8-11-1977 that it was found that shop was found open and sales being made at 9.30 P.M. even though shop should have been closed at 8 P.M. It is at that stage also that it was noticed that two people had been sold liquor in glasses. As result of same, fine of Rs. 200 was made against assessee. However, copy of last page of stock register placed on paper book shows that it had been seen on 19-3-1978 by excise inspector and again on 31-3-1978 during surprise visit when no stock of IMFL and beer was found unsold in shop outside books. We are not sitting in appeal against assessment order, nor are we reassessing material on basis of which assessment was made by ITO and which attained finality. But these observations have to be made in order to see whether explanation offered by assessee was bona fide for purposes of levy of penalty under section 271(1)(c). In our view, aforesaid material goes i n favour of assessee. assessee had also explained that it could not prevent customers from drinking in glasses at shop after buying sealed bottles. Also relevant in this connection is fact that since assessee had not been afforded opportunity of establishing this fact, it sought to file affidavit dated 8-11-1983 before learned Commissioner (Appeals), but which was not admitted by him for reasons given in impugned order. No doubt, Bill No. 438, dated 24-3-1978 for Rs. 2,637.57 from Rakesh Chand Mahesh Chand was not entered by assessee in ledger, But it was duly explained by assessee that stock represented by this bill was duly entered in stock register and that there was dispute between assessee and that firm regarding finalisation of accounts. In reply dated 21-11-1983, it was explained by assessee that said purchase voucher was lying in voucher file when it was produced before ITO. In this connection, assessee's reply dated 22-4-1981 is also relevant. It was explained that dispute with Rakesh Chand Mahesh Chand was for rate and octroi. assessee had stated that no adverse inference may be drawn as stock was considered for sale and that purchases of assessee be increased by amount of bill whereby loss was to be increased. Also important is fact that sales, as declared by assessee, were accepted by sales tax department where assessee's partner, Shri Bharat Kumar, appeared. On basis of these facts, therefore, we are of view that explanation offered by t h e assessee was bona fide and that all facts relating to same and material to computation of its total income had been disclosed. So far as expenses of Rs. 3,41,144 are concerned, ITO had not pointed out any specific instance where expenses were not vouched. copy of trading and profit and loss account shows that Rs. 3 lakhs were paid by assessee towards licence and excise, Rs. 822.01 towards legal fee, Rs. 6,000 for rent and R s . 18,536.23 towards salary and wages, besides other expenses like miscellaneous shortage, staff welfare, telephone, packing, insurance, bad debts, sale promotion, etc. mere fact that loss could not be proved and that expenses were not held established would not operate against assessee. material on record does not show that deduction claimed or loss claimed were false. In view of same and looking to material on record and totality of facts and circumstances of case, at most, it could be said that assessee had accepted assessed income. But, it could not be said that assessee had made any admission that income was its concealed income, or that assessee had actually earned income assessed. It was first and last year of assessee's business. We are, therefore, of opinion that so far as penalty proceedings are concerned, income-tax authorities were unduly influenced by factors enumerated earlier in this order for which bona fide explanation had been tendered by assessee. Looking to totality of facts and circumstances of case, therefore, we are of view that explanation offered by assessee in terms of proviso to Explanation 1 of section 271(1)(c) was bona fide and that all facts relating to same and material to computation of its total income had been disclosed by it and, therefore, presumption of concealment of income had been duly rebutted. Therefore, it was not case in which any penalty could have been imposed or sustained against assessee. We hold accordingly. 11. appeal is allowed and penalty of Rs. 1,24,721 is cancelled. stay petition filed by assessee, having become infructuous, is dismissed. *** JANTA WINE STORE v. INCOME TAX OFFICER
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