Kerala H.C : Whether, on the facts and in the circumstances of the case, the Tribunal was legally correct in holding that the penalty of Rs. 3,32,800 levied under s. 271(1)(c) is sustainable ?

High Court Of Kerala

Anand Liquors vs. CIT

Section 271(1)(c), Expln.1

Asst. Year 1980-81

V.V. Kamat & P.A. Mohammed, JJ.

IT Ref. No. 69 of 1992

20th August, 1996

Counsel Appeared

V.M. Kurian, for the Applicant : P.K.R. Menon, for the Respondent

V.V. KAMAT, J.:

The following three questions expect our answer :

“1. Whether, on the facts and in the circumstances of the case, the Tribunal was legally correct in holding that the penalty of Rs. 3,32,800 levied under s. 271(1)(c) is sustainable ?

Whether, on the facts and in the circumstances of the case, the Tribunal was correct in holding that the assessee has not offered any explanation and has not disclosed all the materials relating to the computation of his total income before the ITO to make the case fall under the Explanation to proviso 1 of s. 271(1)(c) ?

Whether, on the facts and in the circumstances of the case, penalty levied under s. 271(1)(c) relying on the assessment proceedings and without considering the material afresh is sustainable in law ?”

2. At the outset it would be necessary to consider the statutory requirements of s. 271(1)(c) of the Act and then to see, again, the statutory requirements of Expln. 1 thereto. The satisfaction of the ITO is necessary that the assessee has concealed the particulars of his income or furnished inaccurate particulars of such income. Concealment and inaccuracy as regards particulars are the statutory requirements. Once these statutory requirements are available, then the ITO gets power to direct that the assessee shall pay by way of penalty the amount determined. The method of determination of this amount of penalty with reference to cl. (c) of s. 271(1) is available in sub-cl. (iii) of the said section. We are not really concerned with regard to the method of determination in this proceedings.

3. Explanation 1 refers to two situations and these two situations enact deeming provisions in regard thereto. The first situation is available under cl. (A) to Expln. 1. The said clause is reproduced hereunder : (A) such person fails to offer an explanation or offers an explanation which is found by the ITO or the AAC to be false, or” Another situation is also available in cl. (B) which is also necessary to be reproduced and it is as follows : “(B) such person offers an explanation which he is not able to substantiate,” Naturally the plain statutory language of these two clauses gets referable to two separate and independent situations. The first cl. (A) contemplates failure to offer an explanation or offer of an explanation which is found to be false. At the other end, the second situation covered by cl. (B) relates to a position that the assessee is not able to substantiate, the explanation offered by him. Thus it is quite clear that the two situations are independent and separate.

4. Initial consequence is provided in the language of Expln. 1 itself creating what is known as “deeming situations”. It would be necessary to reproduce the necessary remaining part of Expln. 1 as it is and it is as follows : “then, the amount added or disallowed in computing the total income of such person as a result thereof shall, for the purpose of cl. (c) of this sub-section, be deemed to represent the income in respect of which particulars have been concealed.” It would thus be seen that the amount added or disallowed in the above process of computation is deemed to represent the income in respect of which particulars have been concealed. In other words, the addition of the amount or otherwise disallowance of the amount in the computation of the total income would assume a deemed character of concealment by reason of Expln. 1. Therefore, the statutory requirement of s.

271(1)(c) requiring satisfaction of the ITO as regards concealment gets understood in the light of the above deeming situations. In the process of computation of total income if the ITO makes an addition to the amount or in the other process disallows some amount in the process of computation, the two events or occasions would have to be deemed to represent the character of concealment in regard thereto.

5. It is in the context of dealing with the second situation covered by cl. (B) referred to above, specific proviso is enacted to Expln. 1. The proviso is again necessary to be reproduced in the context and it is as follows : “Provided that nothing contained in this Explanation shall apply to a case referred to in cl. (B) in respect of any amount added or disallowed as a result of the rejection of any explanation offered by such person, if such explanation is bona fide and all the facts relating to the same and material to the computation of his total income have been disclosed by him.” The statutory provisions of the said proviso, referable to the deeming situation in cl. (B) requires consideration of the explanation offered by the assessee on condition that such explanation is bona fide with a further requirement that all the facts relating to the same and material to the computation of his total income have been disclosed by him.

6. Therefore, the statutory requirements of liability under s. 271(1)(c) would necessitate consideration of the two situations. The factual matrix should provide the necessary satisfaction of the ITO to decide as to whether there is failure to offer an explanation or, in the alternative, the explanation offered is false. If the material on record enables to provide the necessary matrix for the satisfaction of the officer with regard to these alternative aspects, the situation would obviously be governed by cl. (A) of Expln. 1. However, if the officer is unable to reach conclusion that the explanation is false, still he has to consider the second situation governed by cl. (B) of Expln.1. This would be a situation where the assessee offers an explanation but fails to substantiate it. It is in this situation where the officer reaches a factual conclusion that there is an explanation, but there is no material in support to substantiate the said explanation, the proviso comes for its interaction. The above contents of the proviso require a further situation to enable the officer to reach a conclusion that the explanation is bona fide and further that all the facts and materials relating to the process of computation of the total income have been disclosed by the assessee. Therefore in a situation where there is explanation, the officer has to consider whether such an explanation is substantiated. He has also further to consider the bona fides of the explanation in question and in addition thereto, a further satisfaction that all the facts relating to the explanation and material to the computation of the total income have been disclosed by the assessee by placing them on record before the officer.

7. These statutory requirements, although plain from their bare reading, the apex Court in Addl. CIT vs. Jeevanlal Sah (1994) 117 CTR (SC) 130 : (1994) 205 ITR 244 (SC) had an occasion to consider in the light of earlier decisions and necessary change in regard thereto by the Finance Act, 1964. The Explanation to s. 271(1)(c), it is declared, creates a presumption of law. The apex Court has held that even after the amendment of 1964 penalty proceedings continue to be penal proceedings, and the question whether the assessee has concealed the particulars of his income continues to remain a question of fact. However, it is no longer necessary for the Department to establish that there was conscious concealment of particulars of income and a deliberate failure to furnish accurate particulars.

8. The factual matrix and the travel of the proceedings would require mention for the ultimate purpose.

9. The assessee is concerned with the asst. yr. 1980-81 in regard to which the accounting period ended on 31st March, 1980. He is an abkari contractor and filed a return showing a loss of Rs. 5,910. Action was taken under s. 143(2) of the IT Act, 1961, which resulted in the appearance of the assessee and production of whatever books of accounts that were available. The examination of the materials produced revealed total sales turnover of Rs. 46,20,860. The account books were in bad shape displaying many defects. The expenses were debited under different heads such as commission, transporting expenses, etc., and were not found supported by necessary contemporaneous vouchers. A sum of Rs. 2,18,079 was shown debited as commission on sales. In addition, the expenditure under the head `salary’ amounted to Rs. 51,705. The assessee did not furnish the names and addressesf sales agents or commission agents, neither the names of the employees to whom salaries were paid. The ITO found that the licensee of arrack shops, as per Abkari Rules, alone could be authorised to sell arrack and appointment of commission agents could not be understood and justified. It was revealed that the so-called commission agents are shown to have been paid commission at Rs. 2 per litre of arrack sold. The officer found that this could not be explained.

10. The particulars of the salaries also were not furnished by the assessee. Therefore, an opportunity was given to the assessee through his representative to produce all the necessary materials to justify and explain all the expenses debited in the P&L a/c, more particularly the expenses under the heads commission, salary and transporting referable to an amount of Rs. 2,69,000.

11. The cash book ending on 31st March, 1980 also came under scrutiny to find a large amount of Rs. 5,54,200 as cash credits. it would be proper to give the list of these 18 persons with reference to the amounts of cash credits shown in the name of the partners of the assessee. The list is as hereunder : 1. P.N. Ayyappan Nair 79,000 2. M.A. Anilkumar 15,000 3. Mallika Devi 15,000 4. Raman Nair 20,000 5. Joseph Tomy 29,500 6. Joseph Devasaykutty 25,000 7. Devassy Pappachan 15,000 8. Devaky Amma 15,000 9. Devasay Kunjappan 32,500 10. Vareed Johny 26,000 11. Poulose 40,400 12. Joji 56,800 13. Geochan 23,000 14. N.K. Balakrishnan 25,500 15. N.K. Rajan 33,000 16. M. Raghavan 33,000 17. Mathai 48,500 18. Sreekumari 18,500 . Total 5,54,200

12. The officer found that the peak credits in this account amounted to Rs. 4,39,700 as introduced in the accounts to enable the firm to make kist payments on the various due dates. The assessee was requested to explain these credits with supporting evidence. The proceedings are seen to have been adjourned from 14th Dec., 1982 upto 28th Dec., 1982 for production of details of expenses and explanation for the credits in the personal accounts of partners referred to above. The officer found no response on 28th Dec., 1982, nor a request for adjournment also. However, on 17th Jan., 1983 the assessee’s representative prayed for a short adjournment obviously not doing anything from 14th Dec., 1982 upto 17th Jan., 1983. Even then the proceedings were adjourned upto 28th Jan., 1983. No details were furnished leaving no alternative to the officer to proceed on the basis that the assessee has no explanation at all to be furnished in respect of the credits and expenses pointed out above.

13. As required by the provisions of the Act the officer proceeding in this manner considered the situation and by the order dt. 31st Jan., 1983, acting under s. 144B of the Act, prepared the draft order for its submission to the IAC.

14. On merits of the situation, the officer found that the assessee-firm had drawn 1,51,460 litres of arrack for sale as against 1,31,260 litres purchased in the preceding accounting year. There was an opening stock of 148 litres. Considering the situation to the effect that the bottles were found each by 15 to 20% short of the liquid, he reached the conclusion that due to short filling 25,724 litres were separated and in regard thereto at the average selling rate of Rs. 30 per litre, calculated . . Rs. the suppression at Rs. 7,71,720. He also referred to the significant introduction of cash credits to the tune of Rs. 5,54,200. He found that there is every reason to believe that this suppressed sale proceeds of arrack were invented and introduced in the books as cash credits in the name of partners, and also was used by the firm for discharging liabilities or incurring expenses. With the assistance of the assessee’s representative the officer also took into consideration the amount of Rs. 48,829 claimed as payment of interest in regard to the delay in the payment of kist amount and rejected the same as not admissible as it is a penal levy. The officer estimated the income at Rs. 4,54,815 on the basis of total sales. The draft order ultimately completed the assessment as proposed at Rs. 4,98,648 specifying proposed initiation of separate penalty proceedings under the IT Act, 1961. The assessee placed his explanation or rather objections to the proposed assessment order, a copy of which is at annexure B to the compilation before us. It is placed that the arrangement of commission agency system would not be against the rules. It is also pleaded that the licensee would be answerable to the Department. With regard to the amount of Rs. 2,69,784, the following extract is found as an explanation. It is as follows : “Considering the nature and volume of business, it can be seen that total payments under salary and commission of Rs. 2,69,784 is only reasonable. The practice of paying remuneration with reference to the quantum of sales is followed by other abkari contractors also. We are submitting herewith full details of payment of salary and commission.” It would be found from reading the said explanation in the objections that it could hardly be considered as an explanation worth its name. The nature and volume of business, the practice of paying remuneration and its continuance by other abkari contractors could hardly be considered as an explanation with reference to the huge amount of Rs. 2,69,784.

18. The other aspect of the explanation relates to the transport activity. It is as follows “The claim under transporting is only Rs. 25,211. We had to take our requirement of 1,51,460 litres of arrack from depots at Alwaye, Palghat and Thiruvalla and it had to be delivered at the various shops and sub-shops every month in hired jeeps and lorries.” It would be at once clear that the explanation is of a general nature and could have been substantiated by reference to the contemporaneous record in regard thereto. Even with regard to short-filling by 15 to 20%, the pointer is either at the door steps of the manufacturers or with regard to the absence of any complaint by the customers. Reading the objections we have not been left without a feeling that even at the threshold of the proceedings there was no attempt to offer any explanation worth the name in any sense of the term. This is placed on record on 21st Feb., 1983.

It is thereafter the proceedings are on the track of penalty notice under s. 271(1)(c) of the Act, for the purpose of relevance, even though in pursuance of the draft assessment order, the ITO, after complying with all the statutory formalities, passed the assessment order dt. 11th July, 1983 (Annexure D).

Before dealing with the assessment order passed by the ITO, as stated above, to continue the trend of the attitude of the assessee, it would be proper to refer to the reply of the assessee to the notice under s. 271(1)(c). It is dt. 8th Nov., 1983 (Annexure M). The following extract from the reply would display the continuance of the casual attitude of the assessee in not even making an attempt to tender which could be called as explanation in any sense of the term. What is replied is as follows : “The defects have been explained by us in our reply to the draft assessment under s. 144B. The details of commission paid with the address of the persons to whom payment was made, details of salary payment and expenses incurred under transporting were furnished and the credits were explained during the course of the proceedings under s. 144B. The IAC issued summons to few of the partners in the course of hearing on the draft assessment. On account of the then difficulties in providing evidence, it was submitted before the IAC that we were not in a position to adduce further evidence in support of our objections. In the above circumstances we agreed for completing the assessment in terms of the draft assessment under the firm belief and understanding that penalty would not be levied on us for the year 1980-81.”

The situation would have to be specially appreciated in the context of the reply reproduced hereinbefore because the assessment order would require reference in the above context to focus the attitude of the assessee in a situation, trying to take advantage of a genuine candid letter sought to be used as a weapon of convenience thereafter in the penalty proceedings.

21. As stated earlier, in pursuance of the approval, the ITO proceeded to pass the assessment order (Annexure D). In the course of examination of accounts a deposit of Rs. 9,22,800 was noticed as security towards kist amount and in regard thereto a claim of Rs. 43,833 towards interest, referring to the submission that the said amount should get its adjustment. As per the draft assessment order the assessee’s income from arrack business was determined at Rs. 4,54,815. The officer has observed that as a result of this estimate, separate addition is not being made on account of unexplained cash credits in the name of partners referred to above. The officer has also observed that objections are carefully examined, the assessee is heard through their representative and the order is passed after the approval of the draft assessment order by the IAC. In fact, the necessary part from the order of approval is also reproduced in the assessment order. The said order is dt. 1st July, 1983, referable to the letter C. No. 308(59)/82-83 dt. 4th July, 1983. It would be necessary to point out from the said reproduction that even by the IAC, the assessee was asked to substantiate confirmatory letters noticing that they were issued prior to the passing of the assessment order. The IAC, in order to verify the authenticity of the credit entries, demanded the details in regard thereto. In the context there is a reference to a letter dt. 13th May, 1983 on behalf of Sri P.N. Ayyappan Nair and this is in the context of the attempt of the IAC to examine the theory of confirmatory letters himself. In the order the contents of the letter dt. 13th May, 1983 have been specified with a record that nothing more is to be submitted as no further evidence is available in regard thereto. The IAC has further recorded that the firm was also issued with a summons under s. 131 of the IT Act, 1961 giving another opportunity to produce the various details. The assessee through his representative was requested to attend on 2nd July, 1983. What took place is also a part of the above question, referred to in the assessment order. It needs to be reproduced

hereinbelow for its necessary and desirable emphasis. It is as follows : “On that date they stated that they are agreeable to the proposed additions. They have now produced a letter dt. 4th July, 1983 in which they stated that they are not in a position to substantiate their objections against the draft assessment order. They also agreed for completing the assessment with the additions proposed.”

We are emphasising this aspect because, as already observed, much is sought to be made with regard to the contents of the letter dt. 6th July, 1983.

The IAC has already observed the necessary reaction and the same is reproduced in the assessment order and we have highlighted the aspects hereinbefore. Now it would be necessary to consider the text of this letter dt. 4th Jul 1983 (Annexure C). We have already emphasised the occasion for the assessee to have thought of placing the letter on record. Obviously it was at a stage when the authorities wanted to have a probe into the so-called confirmatory letters. It is also necessary to be submitted that although in the objections (Annexure B) it is stated that full details of the payment of salary and commission are submitted, the letter itself does not make any mention of it by way of an enclosure or annexure to the same. Apart therefrom, it is also necessary to mention that the material had not been made available to us. In the light of the above situation, the contents of the letter dt. 4th July, 1983 would require consideration of the intrinsic material contained therein. It is as follows : “In the light of the discussion which we had in the matter, we may humbly submit that we are not in a position now to substantiate our objections filed against the Draft Assessment Order. We, therefore, agree for completing the assessment with the addition proposed. Penalty may not be levied.”

It would be at once seen, if considered in the light of the situation in which the assessee was placed, requiring a probe into the confirmation letters, the authorities requiring satisfaction in regard thereto. The assessee had adopted an attitude of folding hands and bended knees. After making his position of inability to substantiate objections filed against the draft assessment order unequivocally recording completion of the assessment with the assessment proposed, the assessee, as the last straw on the camel’s back, makes a request by an independent last sentence “penalty may not be levied”. The situation under which the letter gets on record, the real purpose of the request would be vital and it would show that the assessee has placed his inability to substantiate objections to the draft assessment order as has been agreed, conceded and closed the chapter with a request that the assessment be completed with the addition proposed. It is in this situation it would be necessary to follow up the further course of the proceedings.

24. The order under s. 271(1)(c) of the Act is at Annexure I. The order itself places on record two reasons in regard thereto in the factual matrix itself. They are as follows : (1). It was found on examination of accounts that the expenses debited under various heads were not supported by any vouchers. (2). The expenses debited under the heads commission, salary and transporting were only a few of such items not supported by vouchers.

We have already referred to the contents of the reply dt. 8th Nov., 1983. The ITO has recorded the conclusion that the assessee himself has admitted that he was not in a position to substantiate their objection against the draft assessment order and they also agreed for completing the assessment with the addition proposed by the ITO. It must be emphasised that as far as the order of the ITO in the proceeding under s. 271(1)(c) of the Act is concerned, the officer has observed that as far as the explanation given by the assessee in the letter dt. 8th Nov., 1983 is only to be rejected as irrelevant and immaterial. It is also observed specifically that no assurance regarding levy of penalty was given in any way to the assessee by the Department. We have already considered the contents of the letter dt. 4th July, 1983 in the context of the situation in regard to which in the penalty proceedings an attempt was made to rely on the contents thereof for its being used as a weapon to urge the alleged understanding. The penalty proceedings travelled further before the CIT(A), Ernakulam and by the order dt. 23rd Jan., 1985, the appeal came to be allowed. We will have to consider the reasoning of the appellate authority in regard to the above aspects. A grievance is made before the first appellate authority with regard to the credits to contend that they were supported by confirmation letters obtained even before the date of completion of assessment and in fact had been adverted to by the IAC himself in the course of the order under s. 144B of the Act. It was further submitted that the assessee agreed to the assessment proposed because at the relevant time there was a difficulty of producing the creditors before the IT authorities. It is urged that the confirmatory letters could have be substantiated with valid proof for the source of those persons to support the credits. The appellate authority considered those letters.

Before the appellate authority, on the strength of the contents of the letter dt. 4th July, 1983, an argument was made that there was an understanding spelt out from the contents of the said letter that no penalty would be levied on the alleged concealment of income. Reliance was placed on some reported decisions referring to the situations of spelling out an understanding in the context of factual material in regard thereto.

It was also submitted before the appellate authority that the scope of the proceeding under s. 271(1)(c) would be required to be taken into consideration and in the process the fact that assessment has been made on the basis of estimation would assume considerable importance. It was submitted that the assessment itself is a product of the failure of the assessee to offer an explanation or false explanation or unsubstantiated explanation and in that event alone the penalty could be attracted under Expln. 1 to s. 271(1)(c). It was urged that whatever was possible was disclosed. The wide gap between the income returned and the income assessed is the result in viewing the situation with a closed mind.The first aspect with regard to the confirmation letters has been considered by the appellate authority in paragraph

9. We have considered the reasoning and found ourselves difficult to agree with it; firstly, the appellate authority has taken up the amount of Sri Ayyappan Nair stating that he has to account for a credit of Rs. 46,000 in his own name and Rs. 15,000 in the name of his son Sri Anilkumar. We find that this is factually incorrect. The amount of credit shown as against Sri Ayyappan Nair is Rs. 79,000 and not Rs. 46,000. Additionally, the appellate authority has ignored that it is this Sri Ayyappan Nair who has placed on record the communication dt. 13th May, 1983 stating that he has no material to place on record. We have already considered the circumstances taken into consideration by the IAC specifying under which Sri Ayyappan Nair has placed this communication on record. The reasoning in regard thereto is more than vulnerable. The appellate authority has considered the other three amounts of Rs. 40,400, Rs. 56,000 and Rs. 23,000 as investment of Sri Ouseph Poulose and his two sons accepting the explanation that the amount has come out of two overdraft accounts he had with the Union Bank of India, Koovappady. We find that the authority has specifically made attempts to give reasonable particulars and we have referred to the said material in details. The two overdrafts that are sought to be accepted by the appellate authority have no connecting material and it appears to us that they are sought to be connected on the basis of speculative reasoning in regard thereto.

The next item taken into consideration is the credit of Rs. 48,500 accepted by the appellate authority as being only in the nature of re-investment. Reading the reasoning we find that much is desired in the context and the appellate authority should not have allowed itself to be a victim of speculative reasoning in regard thereto. This is more so when there is grant of every opportunity more than reasonable for the assessee and the persons concerned with the cash credits to satisfy the authority. In our judgment, in the absence of any material in regard to which the ITO had taken legitimate steps to bring the material on record, the consideration by the first appellate authority does not become acceptable. This is especially in the background of the material on record that when the ITO proceeded to probe deeper into the matter, the matter was put an end to as it is submitted to end the agony by the assessee himself by closing the situation and dropping the curtain.

With regard to the contention as regards the understanding, the aspect is taken up for consideration in paragraph

12 of the appellate order. Having gone through the reasoning, we find that the material on record which we have examined and considered in extenso earlier, does not spell out any kind of agreement as such, much less an understanding in any sense of the term. The assessee, it is clear from the record, had no material. The authority had given him an opportunity as is clear from the record and not only the letter dt. 13th May, 1983, but also the letter dt. 4th July, 1983 provide ample satisfaction that the assessee decided to admit the position and the factual matrix is such that the assessee could not have any other alternative.

The letter is more than clear that prayer for non-initiation of the penalty was separate and independent. In fact, the following observation would show that the first appellate authority was aware of the requirement of the situation. It is as follows : “The letter dt. 4th July, 1983 is a fair indication that the agreement must have been prompted by an understanding in the matter of penalty if not an agreement as such.” We feel that it is too much to imply eithean agreement or an understanding from the facts and circumstances of the situation. Thereafter the appellate authority has considered the question of the remaining amount of Rs. 43,833. It is in this manner the appeal was allowed feeling it unnecessary the imposition of penalty under s. 271(1)(c) of the Act.

32. In the further travel the proceedings came before the Tribunal, Cochin Bench as the second appellate authority. The Tribunal considered the question and with regard to the aspects referred to hereinbefore has considered the matter afresh. With regard to the letter dt. 4th July, 1983, the Tribunal found it difficult to infer an understanding between the assessee and the ITO that no penalty would be imposed, precisely in this connection, after referring to the contents of the letter, the Tribunal has observed as follows : “The assessee has no case that there is such understanding between the assessee and the ITO. The letter dt. 4th July, 1983 was addressed to IAC. So it is held that there was no understanding between the assessee and the ITO that no penalty would be imposed.”

33. With regard to the confirmatory letters the Tribunal observed that the assessee had filed only confirmation letters. The Tribunal has considered observations of the first appellate authority in paragraphs 8 and 9 to find contradictory observations in regard thereto. The Tribunal has also considered the requirements of s. 271(1)(c) of the Act. In this connection at the end of paragraph 8 the Tribunal has observed as follows : “The fact that there are certain credits standing in the name of 18 partners of the assessee-firm is admitted. It was further admitted that the assessee is not in a position to prove the objections raised to the draft assessment order passed under s. 144B. Before the ITO the assessee has not offered any explanation and has not disclosed all the materials relating to the computation of his total income.” It would thus appear that the Tribunal has considered these aspects and in addition thereto the Tribunal has also considered the letter of Sri P.N. Ayyappan Nair dt. 18th May, 1983 and ultimately observed as follows : “From this letter, it reveals that there was no understanding between the assessee and the ITO that no penalty would be levied. In the letter dt. 4th July, 1983 addressed to the IAC also the assessee stated that they were not in a position to substantiate their objections against the draft assessment order. Hence, the case of the assessee that the assessee had agreed to the addition on the understanding that he would not impose any penalty on the understanding between the assessee and the ITO falls to the ground.”

34. We have considered the reasoning of the Tribunal. We have also considered the question as to whether from the contents of the letter dt. 4th July, 1983, it could be said that there was any semblance of an understanding much less the agreement. We have pointed out the various situations and circumstances spelling out the occasions and the needs to place the two letters on record. We have also considered in detail hereinbefore the statutory requirements.

35. Although the learned counsel for the assessee strenuously urged that all aspects are not taken into consideration, keeping in mind the special feature of the penalty proceedings, we have also given our anxious thought. We find that from the word `go’ the assessee was far away from fairness and reasonableness. When the total turnover was Rs. 55 lakhs and odd, there was a return showing loss and that too on the basis of showing cash credits in regard to which there was no material enough to raise proper legal inferences. This made the authorities helpless and that is because of non-cooperation of the assessee in the process of assessment. The authority has placed it on record with reference to the dates and events. The material on record also shows that an advantage is sought to be taken of the letter dt. 4th July, 1983 which was given in the different context and for different purpose to spell out that it is in the nature of an understanding or an agreement. It is pertinent to note that the letter is addressed to the higher authority—the IAC. This aspect also has been taken into consideration by the Tribunal in reaching the conclusion that there was no question of any understanding as sought to be made. When the stage was not such and the occasion was entirely different as observed by us on the examination of the material. We further find that this is a case where there was no explanation whatsoever. This is after considering the so-called explanations tendered on record. The material on record further shows that even the feeble attempt to place on record the so-called explanation, it will have to be termed as `false explanation’. It is then clear that the situation will be governed by cl. (A) of Expln. 1, the proviso having nothing to do with the same. In this situation the deeming provision of Expln. 1 would also operate to conclude that the income has been concealed by the assessee. In this situation the order of the Tribunal gets endorsement from us.

36. For the above reasons we answer all the questions affirmatively—in favour of the Revenue and against the assessee.

[Citation : 232 ITR 35]

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