Income Tax Appellate Tribunal - Nagpur
Income-Tax Officer vs B.D. Yadav And M.R. Meshram on 14 September, 1992
Equivalent citations: [1994]48ITD54(NAG)
ORDER
H.C. Shrivastava, Accountant Member
1. As all these appeals involve, more or less, common issues, they are disposed of by this common order for the sake of convenience.
I.T.A. No. 154/Nag/1988:
2. The assessee is a firm of contractors and engineers carrying on business mainly in the line of road constructions. Return showing an income of Rs. 3,87,140 was filed by the assessee on 20th of January, 1986. Along with the return, the assessee filed statement of total income, audit report under Section 44AB, balance-sheet, contract account, profit and loss account and various certificates of taxes deducted at source. The assessment was completed on 27-3-1986 after making some minor additions on the total income of Rs. 3,94,610.
3. During the course of the assessment proceedings for the assessment year 1986-87, the Assessing Officer found that the assessee had shown cash credits totalling in all Rs. 9,50,000 from 104 persons who were stated to be agriculturists in the accounting period relevant to the assessment year 1985-86. According to the Assessing Officer, enquiries were made by him and the D.C. with the villagers and it was noted that some of them had, in fact, died before the date of the claim of cash credits in their names while others were illiterates and could put only their thumb impression on the consent letters. He also noted that the consent letters were written in English which almost all of them did not know. During the examination of the accounts for the assessment year 1986-87, proceedings under Section 132(1) of the Income-tax Act, 1961, were taken against the assessee on 22-12-1986. During the said proceedings under Section 132, a statement of one Shri R.M. Thakare was recorded under Section 132(4). According to this statement, Shri Thakare merely arranged consent letters on the request of Shri Meshram. In reality, however, no such amount was said to have been passed from those so-called creditors to the assessee. Shri Thakare and Shri Lallubhai Patel (Hiranwar) and Shri Nikhare who appeared as creditors in the books also denied having advanced any money. During the search and seizure proceedings, the statement of Shri Meshram, partner, was also recorded on 22-12-1986. He was offered an opportunity to cross-examine Shri Thakare, Shri Nikhare and Shri Hiranwar. Shri Meshram did not want to avail of this opportunity. On the basis of such statement, the CIT called for the records of the assessee and examined the same. He found that the Assessing Officer had completed the assessment for assessment year 1985-86 without calling for any explanation of the assessee regarding the cash credits. He also found that the order of the Assessing Officer was passed in a routine manner and as such was erroneous insofar as the same was prejudicial to the interests of the revenue. He accordingly set aside the same on 29-12-1986.
4. During the assessment proceedings for the assessment year 1986-87, the Assessing Officer requested Shri M.G. Naik, the Income-tax Officer, Amravati, to record the statement of so-called creditors. The statements of S/ShriUmesh Thakare, Dilip Thakare, Saltkram Mankar, Purushottam Mankar, Krishna Wankhede, SanjayWankhede, Arvind Thakare, Vithalrao Govinda and Smt. Lilabai Thakare were recorded between 18-12-1986 to 30-12-1986. All the above named persons denied having advanced any loan to this assessee. It is notable that all these statements could be recorded only for the assessment year 1986-87 as on the days on which these statements were recorded, no proceedings were pending for the assessment year 1985-86. The statement of Shri M.R. Meshram, partner, was recorded on 22-12-1986 during the search and seizure proceedings. Similarly, as mentioned above, statement of Shri Nikhare and Lallubhai Patel were also recorded during the said proceedings. These facts are brought on record at this stage as on examination of the entire assessment record for the assessment year 1985-86, it seems no opportunity was given to the assessee to examine the above named persons either during the regular assessment proceedings or during the penalty proceedings.
5. On 6-1-1987, the Assessing Officer issued a letter to the assessee to make "pre-assessment scrutiny". By this letter, the Assessing Officer invited the attention of the assessee to his letter dated 14-3-1986 filed before the Assessing Officer. The letter of the Assessing Officer is at pages 32 to 34 of the paper book filed by the department. On page 33 of the paper book in the said letter, he has observed as below:
On investigation, the following facts have come to my notice:
(i) some of the creditors who had already expired, are claimed to have signed the confirmatory letters filed by Shri M.R. Meshram.
(ii) some of the creditors who are illiterate and who only put their thumb impression are claimed to have signed the confirmatory letters, surprisingly in a few cases the signature was in English;
(iii) whoever creditor who was personally examined under Section 131 had not only denied to have signed the confirmatory letters but also stated that they had no means to give any loan to anybody.
Besides the above facts, Shri M.R. Meshram, Partner had stated on 22-12-1986 in the statement made by him under Section 132(4) of the Act that he obtained the abovernentioned loan of Rs. 9,50,000 through S/Shri R.M. Thakare and L.N. Patel (Hiranwar) but declined to cross-examine these persons when such an opportunity was offered. The statement on oath made by Shri R.M. Thakare under Section 132(4) of the Act brings out the fact, that he merely arranged for the confirmatory letters but in reality no cash had passed through him from the so-called creditors to the assessee-firrn. Shri L.N. Patel (Hiranwar) had also made a similar statement.
6. It is notable that in this letter also the Assessing Officer had not pointed out as to who were the creditors, who had expired or illiterate or denied having signed confirmatory letters. This letter dated 6-1-1987 is the first letter of the Assessing Officer issued to the assessee after the order under Section 263 of the Income-tax Act was passed. However, in this letter, the following was observed:
The summing effect of the aforementioned facts and the statements of the partner and other witnesses lead to the following inferences:
(i) the confirmatory letters from the so-called 104 creditors furnished by Shri M.R. Meshram along with the list of creditors amount to false evidence fabricated with the motive to introduce unaccounted income and/or suppressed income from undisclosed source and/or disclosed source;
(ii) S/Shri R.M. Thakare, L.N. Patel (Hiranwar), M.R. Meshram, B.D. Yadav knew that the so-called confirmatory letters are nothing but false.
It is notable that though this letter was the first letter, the Assessing Officer had already drawn his inference. By this letter, the Assessing Officer allowed the assessee to inspect the books and documents relating to the said year. The order sheet entry shows the issue of letter dated 6-1-1987 and also the issue of notice under Section 271(1)(c). The assessee by his letter dated 14-1-1987, placed on page No. 31 of the departmental paper book, submitted that they had neither concealed any income nor furnished inaccurate particulars of such income. The assessee also observed as below:
Your notice does not specifically indicate the facts and the basis on which you propose to initiate the proceedings under Section 171. In fitness of things and for proper justification of the proceedings, contemplated by you, we request you not only to intimate to us the basis and facts for such action, but also the evidence in your possession by which it is going to be established.
The assessee also asked for examination of the various records in possession of the department. The Assessing Officer by his letter dated 20-1-1987, paper book page No. 30, observed as below:
You have stated in the letter under reference that all your records and books of account were seized by us. You are aware of the fact that what you had stated is not true. The files containing vouchers and other documents relating to the period from 1-4-1984 to 31-3-1985 relevant for the year 1985- 86 were in fact produced by you in compliance with the summons under Section 131 of the Act dated 15-1-1987. This would show clearly that your statement in the letter under reference that we had seized all your record is false.
It is notable that the Assessing Officer in this letter does not talk anything about the inspection of the records. A good number of books and documents were in possession of the department on that date. There is no reference to inspection of such records.
7. On 17-2-1987, the Assessing Officer wrote another letter to the assessee. In that letter, he informed the assessee that he was given an opportunity to prove the genuineness of the said cash credits, but the assessee did not furnish any information in that regard. He also invited his attention to the fact that except for photo-type consent letters in the case of each of such cash credit, he had failed to furnish full identity of the creditors by giving their complete, correct and current addresses and also by giving the permanent account No., GIR Nos. etc. In para 5 of the said letter, he has mentioned that the assessee had consciously and actively concealed the true income of the firm. He allowed the assessee another opportunity to show cause why a stiffer under Section-271 (1)(c) should not be imposed on him. He expected a reply on 25-2-1987. In para 6, the Assessing Officer again referred to "many of the persons" who were shown as creditors were examined under summons and they denied outright to have given any credit to you. They had also disowned their signatures on the so-called consent letters furnished by you in the course of assessment proceedings for the assessment year 1985-86 before my predecessor....
It proves that in order to achieve your object of tax evasion, you have not only fabricated false evidence but also introduced the names of dead persons as creditors'. It is again notable that even in this letter the Assessing Officer has not given the names and addresses of those persons who had made such statements before him.
8. In para 7 of the said letter, he has invited the attention of the assessee to the statement of Shri R.N. Thakare made on 22-12-1986 under Section 132(4). He reproduced the statement of Shri Thakare. In para 8, he has given a substance of the statement of R.G. Nikhare. In para 9, he has again given a substance of the statement of Shri L.N. Patel. It is again notable that at no given time the assessee was given the copy of the statements made by these persons. It is again seen that this letter dated 17-2-1987 was sent during the pendency of the assessment proceedings but even in this letter the assessee was not given any opportunity to cross-examine the parties. The Assessing Officer continued banking on the statement recorded under Section 132(4) of the Act on 22-12-1986. On 19-2-1987, another letter was written to the assessee regarding purchases made by the assessee below Rs. 2,500. He pointed out various discrepancies in the said letter. Another letter dated 20-2-1987 contained the details regarding various payments made under Section 40A(3) of the Act.
9. On 23-2-1987, Shri B.D. Yadav, the partner of the firm wrote a letter to the Income-tax Officer. In this letter, he mentioned that the transactions of the firm were known to Shri Meshram only and only he could explain the various transactions. On 25-2-1987, there is another letter written by the assessee. The letter reads as under:
During the course of assessment proceedings for the assessment year 1985-86, your goodself had pointed out certain defects, as mentioned in letters referred above and seeking its compliance on or before 26th February, 1987.
We are interested in completing the assessment proceedings, at the earliest and accordingly discussed all the matters with your goodself, and also with higher authorities. However, to comply with your requirements, with supporting documents and necessary evidence, we require some more time.
It is, therefore, prayed that reasonable time may be allowed to us, to comply with all your requirements.
It is notable that this letter talks about the discussion with the ITO and also with higher authorities. On 26-2-1987, the assessee wrote another letter to the ITO in which he offered the sum of Rs. 9,50,000 for the purposes of taxation. The letter is in nature of an offer and reads as under:
Dear Sir, During the course of assessment proceedings, certain queries were raised vide your letter dated 17-2-1987 regarding cash credits of Rs. 9,50,000, dated 19-2-1987 regarding cash purchase and dated 21-2-1987 regarding cash payments and accounts. The assessee has to submit as under:
Regarding cash credits of Rs. 9,50,000:
The assessee has to submit that the firm has borrowed the said loans through Shri Thakare and L.T. Patel. The parties were known to Shri Thakare and Patel only. These persons have brought the confirmation from the said parties.
Since Shri Thakare and Patel as referred in your letter, had denied that they had not given these amounts to the firm, we have no objection for getting the same to be assessed in the firm's case, to avoid further litigation, with a view to complete the assessment proceedings on agreed basis, to avoid penalty and other proceedings.
However, we shall be highly obliged if the copy of these statements are given to us, enable us to safeguard our interest in civil litigations if any.
Regarding purchases below Rs. 2,500:
The assessee had purchased the material from various parties on cash and credits. These purchases are made by supervisors and their assistants. The purchases of road material such as Bajri, Gitty, Murrum, Spall etc.. are made on spot, through various agents of suppliers. The materials are delivered at the spot by the agents through truck drivers and they keep only chits for such suppliers. The payment to these parties are made in cash, as and when desired by them. This is the general trend for purchase of such materials in the market. However, the assessee has obtained all the receipts from the said parties for such purchases.
Regarding 40A(3) Accounts:
Looking to the nature of business, the assessee has to make the payments only in cash, since most of the parties insist on cash payment only in this business. However, the assessee has made the payments by cheques only. However, in some cases, bearer cheques were issued only at the instance of the parties under unavoidable circumstances of making labour payments etc. of the parties to whom such cheques are issued.
Regarding other irregularities in accounts, the assessee has to submit that the accounts are maintained by part-time accountant who is pretty old. Since the accounts were tallied, it appears that there must be some corresponding adjustments, which are not clearly written in the accounts. The mistake pointed out by your goodself, can be explained after due verification of accounts.
However, if your goodself feels that the accounting results are not accepted, lump sum addition may be made on agreed basis.
Considering the detailed queries raised, it is very difficult to comply with, within a short period. However, the reply is given with a view to complete the assessment on agreed basis, to avoid further litigation and penalty proceedings in the matter. However, if the same is not agreed upon, we may be allowed further time to adduce necessary evidence regarding cash credits and also inspection of records to substantiate our claim regarding expenses and to clarify the accounts.
On 27-2-1987, the assessee wrote another letter to the Assessing Officer which reads as under:
We therefore pray that on agreed basis the income of the firm may be assessed as follows:
(1) Income from business:
Gross profit estimated @ 13.3 per cent on contract receipts of Rs. 1,20,27,078 Rs. 16,23,655.00 Less: Exp. claimed Rs. 8,50,000.00
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Rs. 7,73,655.00
Add: Expenses covered
under 40A(3) Rs. 2,06,477.00
Other sources unproved cash
credits Rs. 9,50,000.00
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Total Rs. 19,30,132.00
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10. It is notable that the assessee offered in all a total income of Rs. 19,30,132 for assessment year 1985-86 on 27-2-1987 in a letter which is in continuation of the letter dated 26-2-1987. The Assessing Officer has discussed the facts of the case in detail but the income that have been computed is the income which is shown by the assessee in the letter dated 27-2-1987.
11. On that very day, the Assessing Officer passed an order under Section 271(1)(c) imposing a penalty of Rs. 14,31,940.
12. The Commissioner of Income-tax (Appeals) cancelled the penalty Imposed by the Assessing Officer on the following grounds:
In short, on critical appraisal of the facts of the case, I hold:
(i) that on the facts and circumstances of the case, the Explanation 1 to Section 271(1)(c) cannot be invoked for imposition of penalty;
(ii) that the factual ingredients prescribed in the statutory definition of Section 271(1)(c) are not present in this case;
(iii) that the facts of concealment were not proved by requisite standard of proof applicable in this penalty proceedings;
(iv) that keeping in view the norms of penal imposition and the standard of proof, a finding as to concealment of income needed in a penal proceeding cannot be recorded;
(v) that the proceedings under Section 271(1)(c) was not initiated in accordance with the law;
(vi) that the surrender of income for assessment had been made under facts and circumstances which cumulatively suggests that the surrender was merely to buy peace and not as a confession of concealed income;
(vii) that in accordance of rule of fair play and property, it is fair and just that the discretion conferred for levy of penalty should be exercised in favour of the assessee in the context of the facts of the case, as facts suggest the operation of certain understanding inter se the revenue and the assessee;
(viii) that the fiction of Section 68 does not deserve to be extended to the penalty proceedings;
(ix) that the other disallowances are not made of such stuff as to be held concealed income either in terms of substantive provision of Section 271(1)(c) or Explanation 1 to the aforesaid Section;
(x) that the finding of concealment is based on no legal evidence and hence on this sort of the substratum of facts the charge of concealment of income cannot be held to have been established.
In fine, I hold that on the grounds joint and several stated above, the order imposing penalty is not in accordance with law. It is hereby cancelled. The appeal is allowed.
The Department is in appeal against the said order of the Commissioner of Income-tax (Appeals).
13. The departmental representative invited our attention to the letter dated 23-12-1986 written by the Assessing Officer to the CIT regarding the assessment for the assessment year 1985-86 completed by the Assessing Officer earlier. When the assessee's counsel objected that this letter was not utilised by the Assessing Officer for imposition of a penalty, the Departmental Representative submitted that the CIT had taken this letter into consideration. It was, therefore, submitted that the letter in question was taken into consideration by the CIT (A) and as such a copy of the same can be placed on the record without seeking any permission of introducing new evidence on record. It was submitted that this letter dated 23-12-1986 invited the attention of the CIT to the fact that the assessee had introduced a loan of Rs. 9,50,000 in 1985-86 in the names of 104 persons. He also invited the attention of the CIT to the fact that most of the creditors were from two villages of Warud Tehsil of Amravati District. His attention was invited to the stereo-typed consent letters written by the said parties. It was submitted that several letters were sent to the creditors along with the notice under Section 131. Most of the persons did not submit any reply. Our attention was also invited to the fact that then Deputy Commissioner, Shri Gadgil had gone to the villages to find out the facts in this regard. Witnesses were examined in the presence of Sarpanch and Police Patil of the villages. It was submitted that this letter merely proves that the department had made the enquiries and was not in possession of the information that the cash credits introduced by the assessee in the books of account were bogus. Our attention was invited to the fact that the period who had died in 1978 was claimed to have signed a letter in 1985-86. On the basis of the above information in possession of the department, the CIT moved to take action under Section 263. It was, therefore, submitted that right from the very beginning the department had known that the assessee had concealed the particulars of income and had furnished the inaccurate particulars. When these persons denied that they had not advanced any money to the assessee, then the onus was on the assessee to prove that such was not the case. He invited our attention to the decision of the Calcutta High Court in the case of Jyoti Prakash Mitter v. Union of India [1978] 112 ITR 378 and submitted that in view of this decision of the Calcutta High Court, though no penalty can be imposed unless and until assessment proceedings are completed, there is a lot of difference between initiation of penalty proceedings under Section 271 and the imposition of penalty thereunder. The words "in the course of any proceedings" as occurring in Section 271(1) can only indicate that initiation of penalty proceedings can be made during the pendency of any proceedings under the Act. It is also apparent from Section 271 of the Act that it does not require any notice to be served on the assessee before the initiation of such penalty proceedings. It is only the prima facie subjective satisfaction of the Income-tax Officer in the course of any proceedings under the Act which is required for initiation of a penalty proceedings under Section 271 of the Act. In the said case, while the assessment proceedings were pending and before the assessments were completed, the ITO issued a notice under Section 274, read with Section 271 of the Act for levy of penalty for having concealed the particulars of income or deliberately furnishing inaccurate particulars of such income. It was submitted that in this case also, the assessee was informed about the penalty proceedings and was served with a notice in this regard. The penalty in any case was imposed only on the completion of the assessment. It was, therefore, submitted that the action taken by the Assessing Officer in issuing notice before completion of the assessment proceedings and in imposing the penalty only after the completion of the assessment proceedings is in conformity with the law.The Departmental Representative further relied upon, in this connection, on the decision of the Supreme Court in the case of DM. Manasvi v. CIT [1972] 86 ITR557. It was submitted that the ITO had made the particular assessment after enquiry and the assessee was allowed an opportunity to explain the cash credits. The Departmental Representative proceeded to take us through the various letters from 6-1-1987 to 27-2-1987 written both by the assessee and by the department and submitted that time after time, the department allowed the assessee an opportunity to prove the genuineness of the credits and the assessee did not avail all the opportunities offered. When the assessee realised that there was no escapement, by his letter dated 22-6-1987, he offered to be assessed on certain terms on 26-2-1987. Shri M.R. Meshram, partner of the firm, was further examined on oath on 27-2-1987. The assessee submitted voluntarily letter to offer the amount for taxation. It was submitted that though the time after time, the department continued asking the assessee to prove the cash credits, the assessee continued avoiding the issue. Our attention was invited to the decision of the Allahabad High Court in the case of CIT v. Mansa Ram and Sons [ 1977] 106 ITR 307. It was submitted that reliance of the CIT (A) on this decision is misplaced. In the said case, there was a material on record to prove that there was an agreement between the department and the assessee with regard to the completion of the assessment and for non-initiation of penalty proceedings. It was submitted that there is no such material on record in this case. Therefore, reliance of the CIT (A) on this decision is not correct. In this case, he submitted that the assessee throughout trying to escape his liability. The Departmental Representative then proceeded to discuss the reliance of the CIT (A) on the decision of the Calcutta High Court in the case of CIT v.Amalendu Paul [1984] 145 ITR 439. It was submitted that in that case, the Tribunal found that the assessee offered voluntarily the cash credits for assessment in the revised return only because it was unable to prove by satisfactory evidence his claim that the amount was a loan taken from the creditor and not because he admitted the amount to be his undisclosed income and that too with a prayer that no penalty was to be levied. It was submitted that in this case, when the assessee was cornered, he agreed to be assessed. The assessee right from the beginning knew about false cash credit and as such, this case will not apply. Inviting our attention to the reliance of the CIT(A) on the decision of the Bombay High Court-in the case of Jivatlal Purtapshi v. CIT [1967] 65 ITR 261, it was submitted that in that case the department having agreed to delete the amount from the assessment and having deleted, it was, therefore, held by the Court that once the department agreed to get the amount deleted, it could not file an appeal to the Tribunal. It was submitted that the facts of this case of the Bombay High Court do not apply to the facts of this case. He also submitted that reliance of the CIT(A) on the decision of the Punjab and Haryana High Court in the case of Banta Singh Kartar Singh v. CIT [1980] 125 ITR 239 is not proper. It was submitted that this decision of the Punjab and Haryana High Court is nothing but an extension of the decision of the Bombay High Court in the case of Jivatlal Purtapshi (supra). It was submitted that in that case, the penalty was imposed on the basis of the agreement made by the assessee. Therefore, the facts of that case do not apply to the facts of this case. Inviting our attention to the nature of concealment, it was submitted that the assessee introduced the cash credits in the names of 104 persons, knowing to be false, but obtained the consent letters through one Shri Thakare who clearly stated that the letters were obtained with a view to help the assessee and the assessee who could not offer any explanation in this regard, is an assessee liable to be penalised under Section 271(1)(c). It was submitted that preponderance of probabilities clearly supports the view taken by the department that the assessee deliberately and under proper planning, attempted to introduce his own income through bogus names in the shape of cash credits. It was submitted that the department could not be saddled with impossible burden to prove that the cash credits were bogus when the department had already produced the sufficient evidence to prove that such was the case. Reliance of the CIT(A) on the decision of the Supreme Court in the case of CIT v. Mussadilal Ram Bharose [1987] 165 ITR 14, was submitted to be incorrect. It was submitted that in that case, it was held that the Tribunal's conclusion on relevant and sufficient material that the respondent had discharged its onus to prove that the difference was not owing to gross or wilful neglect or fraud. It was submitted that in this case, there is no material on record to hold that the so-called cash credits were genuine. As a matter of fact, it was submitted that non-cooperation of the assessee at all the stages and submission of evidence which are obviously false suggests that the assessee had concealed the particulars of income and the decision of the Supreme Court in the case of Mussadilal Ram Bharose [supra) will not apply. It was also submitted that reliance of the CIT(A) on the decision of the Kerala High Court in the case of CIT v. Pawan Kumar Dalmia [1987] 168 ITR 1 is not correct. It was submitted that in that case a clear finding was given that there was no material to hold that the amount of Rs. 1,50,000 was the income of the assessee. In this case, it was submitted that the very fact that the assessee ultimately surrendered the amount shows that it was his income. Regarding the decision of the Supreme Court in the case of Mahendra Mills Ltd. v. P.B. Desai, AAC11975] 99 ITR 135, it was submitted that the facts of that case have no application to the facts of this case. Inviting our attention to the decision of the ITAT, Hyderabad Bench in the case of Mahavir Transport Co. v. ITO [1987] 23 ITD 206, it was submitted that in that case, the Tribunal was of the opinion that an attempt of the department to rely upon several lorry owners who did not maintain any accounts could not lead to imposition of penalty. It was submitted that the decision of the Tribunal was on the facts of that case only.
14. The Departmental Representative proceeded to submit that the letter dated 20-2-1987 filed by the assessee voluntarily does not mention anything about the non-imposition of penalty. It was submitted that the assessee when realised that there was no escapement route available to him, agreed to be assessed on its income. Regarding the application of principle of promissory estoppel by the CIT(A), it was submitted that the letter of the assessee written on 20-2-1987 was not an authority which could give any immunity in law with regard to the penalty and prosecution. Any person who is not authorised to make any promise cannot be estopped from passing order in due exercise of his jurisdiction. The Departmental Representative then proceeded to rely upon the decision of the Delhi High Court in the case of Durga Timber Works v. CIT [1971] 79 ITR 63 and the decision of the Bombay High Court in the case of Western Automobiles (India) v. CIT [1978] 112 ITR 1048. He also relied upon the decision of the ITAT, Nagpur Bench, Nagpur in ITA No. 405/Nag/85 dated 20-6-1989 and ITA Nos. 525 to 529/Nag/86 dated 13-8-1990. He submitted that the facts of those cases are at par with the facts of this case. It was submitted that the CIT(A) should not have cancelled the penalty. The Departmental Representative, therefore, submitted that the Assessing Officer was justified in initiating the penalty proceedings during the assessment proceedings in view of the decision of the Calcutta High Court in the case of Jyoti Prakash Mitter (supra). The assessee failed to prove and produce any evidence in support of the genuineness of the cash credits and on 27-2-1987, he offered the amounts for taxation voluntarily. In respect of this voluntary offer, the Assessing Officer passed the detailed order and imposed the penalty and did not pass a routine order. It was also submitted that in 1986-87, the assessee capitalised the loans and has taken the advantage of such capitalisation. Inviting our attention to the letter on page 15 of the paper book in particular para 6, it was submitted that the assessee accepted "since the said loans were already assessed in the earlier years as the firm's income, the credits and debits of it shall be transferred to the accounts of the partner Shri M.R. Meshram who has subsequently constituted the firm and accepted the liabilities of the old firm". It was submitted that there could not be any better evidence than this to prove that the assessee not only introduced his income in the shape of cash credits but also took the advantage of capitalisation. It was, therefore, submitted that the order of the CIT(A) should be cancelled and the order of the Assessing Officer should be restored.
15. The assessee's counsel, on the other hand, proceeded to support the order of the CIT(A). Inviting our attention to the letter of the assessee dated 27-2-1987 placed on page 38 of the assessee's paper book, it was submitted that the same is in continuation with the assessee's letter dated 26-2-1987. It was submitted that the assessee had clearly mentioned as below:
We therefore pray that on agreed basis the income of the firm may be assessed as follows:
(i) Income from business:
Gross profit estimated @ 13.5 per cent on contract receipts of Rs. 20,27,078 Rs. 16,23,655.00 Less: Exp. claimed Rs. 8,50,000.00 Rs. 7,73,655.00 Add: Expenses covered under Section 40A(3) Rs. 2,06,477.00 Other sources unproved cash credits Rs. 9,50,000.00 Rs. 19,30,132:00 It was submitted that the assessee specifically mentioned the figure of Rs. 8,50,000 as expenses claimed. The assessee had also used the phrase "on agreed basis". The Assessing Officer while proceeding to pass the order not only accepted the G.P. rate estimated at 13.5 per cent on Rs. 1,20,27,078, he also allowed the assessee the deduction of Rs. 8,50,000. It was submitted that this clearly establishes that there was an agreement between the department and the assessee regarding the assessment to be completed on a particular figure. If it was not so, the Assessing Officer had never adopted those figures in his order, under Section 143(3). It was submitted that the letter submitted on 27-2-1987 supported the process and has to be taken into consideration for the purpose of imposition of the penalty. It was submitted that in the letter dated 26-2-1987 the assessee stated "since Shri Thakare and Shri Patel as referred in the letter had denied that they had given these amounts to the firm, we have no objection for getting the same to be assessed in the firm's case to avoid further litigations with a view to complete the assessment proceedings on agreed basis to avoid penalty and other proceedings. However, we shall be highly obliged if a copy of these statements are given to us to enable us to safe-guard our interests in other litigations if any". It was submitted that unless the assessee had entered into any agreement with the department, he could not have written such a letter which went uncontroverted. Inviting our attention to the last para of the said letter placed on page 37 of the paper book of the assessee, it was submitted that the assessee wanted to complete the assessment on agreed basis to avoid further litigation and penalty proceedings in the matter. In spite of this offer, the assessee further submitted "if the same is not agreed upon, we may be allowed further time to adduce necessary evidence regarding the cash credits, and also inspection of the record to substantiate our claim regarding expenses and quantifying the accounts". It was submitted that if the Assessing Officer did not enter into any agreement with the assessee. and wanted to make further enquiries then, he should have permitted the assessee to adduce necessary evidence regarding the cash credits and have also allowed the inspection of the record. It was submitted that the Assessing Officer did not give any reply in this connection to the assessee and then proceeded to complete the assessment on the basis of the letter dated 27-2-1987. Inviting our attention to the decision of the Allahabad High Court in the case of Addl. CIT v. Kishan Singh Chand [1977] 106 ITR 534, it was submitted that in that case the assessee had agreed to be assessed on higher rate of profit, the High Court, looking into the totality of the circumstances upheld the cancellation of the penalty. It was submitted that the operative part of the decision makes very interesting reading and provides sufficient material to hold that there was an agreement between the assessee and the department regarding the assessment of particular quantum.
16. In reply, the Departmental Representative submitted that in this case, the Deputy Commissioner of Income-tax had made detailed enquiries, had recorded the statements of various so-called creditors and indicated to the assessee contents of such investigations and only after making various enquiries that the department proceeded to make this assessment. It was submitted that there is no material on record to hold that the department made any promise to the assessee and it is not fair on the part of the assessee to say that the department had agreed to not to impose the penalty. Our attention was also invited to the decision of the Supreme Court in the case of CIT v. S.V. Angidi Chettiar [1962] 44 ITR 739, pp. 745.
17. We are of the opinion that in this case, the CIT(A) was justified in cancelling the penalty so imposed by the Assessing Officer for the year concerned. On going through the entire case record and after hearing both the departmental representative and the assessee's counsel, we could not find any material to hold that the department, at any stage, gave the copies of the statements recorded by it from the creditors to the assessee for cross-examination. The right of cross-examination had to be given during the assessment proceedings. When the department started the assessment proceedings after passing of the order under Section 263, then at that relevant time, it should have offered the statements for assessee's perusal and cross-examination, if any. It is the law of the land that the statements of the witnesses examined during the investigation must be supplied to the person who is accused of certain crime. It is unjust and unfair to deny such a person copies of the statements of the witnesses examined during the investigation and during the proceedings under Section 271(1)(c). The Hon'ble Supreme Court by their decision in the case of State of Punjab v. Bhagat Ram AIR 1974 SC 2335 have held that a synopsis does not satisfy the requirements of giving a reasonable opportunity of showing cause to the person against whom certain allegations are made and action proposed to be taken. Except writing letters to the assessee, the Assessing Officer, at no stage, made any attempt to forward the statements on which he was relying to complete not only the assessment but also to impose a penalty for concealment and furnishing of inaccurate particulars. The order of the CIT(A) at page 13 shows a complete sequence of events from the date of search and seizure (22-12-1986) to 16-1-1987. The assessee in his paper book has also given the details of the datewise actions taken by the department. As is already established the penalty proceedings and the assessment proceedings are different proceedings and stricter proof and evidence is required to enable the department to impose the penalty for concealment of income. It is a known fact that a penalty under Section 271(1)(c), even if imposable, can be computed only after the total income is computed. After completion of the assessment, the Assessing Officer has to indicate to the assessee those items of income which, according to it, were concealed. The assessee then gives his explanation regarding those items and makes submissions. This is a one unique case, in our experience, where the penalty was imposed on the same date on which the income was computed during the assessment proceedings. If the Assessing Officer is satisfied that there was a concealment of income, he may initiate the penalty proceedings at any stage, there cannot be any legal challenge to this Act of the Assessing Officer - Jyoti Prakash Mitter's case (supra). However, initiation of action under Section 271(1)(c) is only one stage of the penalty proceedings. A substantive hearing has to be given to the assessee to offer its explanation. After duly taking into consideration the explanation offered by the assessee, the Assessing Officer may proceed to impose the penalty for concealment. In this case, the statements of the creditors on the basis of which the department has proceeded to impose the penalty were never given to the assessee. Therefore, though the department may treat the cash credits as unexplained as per the concession given by the assessee, the department cannot proceed to impose the penalty for concealment on the basis of the said concession. We are not trying to impose any impossible burden on the department to prove its case, what we wish to observe is that if after giving a proper opportunity and not a only illusory opportunity as has been done in this case, the department comes to a conclusion that there was an act of concealment, it can always proceed to impose the penalty. In this case, nothing in this regard, has been done. Such is not the case here.
18. The letter of the assessee dated 27-2-1987 is in continuation of their earlier letters. Even in this letter a specific rate of gross profit of 13.5 per cent on contract receipts of Rs. 1,20,27,078 has been offered for taxation. Application of this rate of profit has been accepted by the department. A round figure of Rs. 8,50,000 was offered by the assessee to deduct as expenses pertaining to the profit and loss account from this gross profit. This has been accepted by the department in toto. A sum of Rs. 9,50,000 has been offered by the assessee in the letter dated 27-2-1987 as "other source not proved cash credits". This figure has also been repeated by the Assessing Officer in the body of the assessment order. The expenses of Rs. 2,06,477 were offered for taxation under Section 40A(3) and even this has been accepted by the department. A specific mention of Rs. 8,50,000 as expenses covered by the profit and loss account and the acceptance of the same by the department, in our opinion, clearly establishes that there was an agreement by the department to the assessee's offer to be assessed to tax by the letter dated 26-2-1987. Therefore, it is obvious that the department accepted the offer of the assessee dated 26-2-1987 and 27-2-1987. It is also notable that the assessee in his letter dated 26-2-1987, written to the Assessing Officer to give to it a copy of the statements given by Shri Thakare and Patel and other creditors to enable him to safeguard their interests in civil litigations, if any. We do not know whether the department ever complied with this request. This, however, shows that the assessee offered the amount in question for taxation with a view to avoid further litigation and to avoid the penalty and other proceedings. If the statements of the alleged creditors are taken out, then the department is left with no case to substantiate its claim that the assessee had concealed the particulars of income. Therefore, we are coming back again to a situation that any penalty order in the absence of such statements given to the assessee will be an order without any basis. The assessee was given a right of cross-examination at one time. That was the time when the search was taking place and statements were recorded under Section 132(4). Before a statement under Section 132(4) can be made a basis for imposition of penalty, it has to form part of the assessment proceedings for the relevant year. Such statement can be made part of the assessment proceedings only if it is actually handed over to the assessee for examination and cross-examination, if any. No such attempt was made either during the assessment proceedings or during the penalty proceedings. Therefore, we are of the opinion that in this case, the assessee negotiated an agreement with the department and offered the amount for taxation with a view to purchase peace. The department could have rejected the offer of the assessee and could have proceeded to complete the assessment accordingly. It could not find out any material to prove that the offer of the assessee was an eye-wash. There is no such material on record to hold this view. Under the circumstances, we are of the opinion that the decision in Sir Shadilal Sugar and General Mills Ltd. v. CIT [1987] 168 ITR 705 (SC), referred to above, is applicable to the facts of this case. The material on record clearly establishes that the assessee entered into an agreement with the department to offer certain amount for taxation. The department has failed to conclusively establish that such items were the items of concealment. We also find that the decision of the Madhya Pradesh High Court in the case of CIT v. Punjab Tyres [ 1986] 162 ITR 517 and the decision in the case of Bhagwanji Bhawanbhai and Co. v. CIT [1983] 141 ITR 640 (Cal.) are applicable to the facts of this case. The decision of the Hyderabad Bench of the Tribunal in the case of Mahavir Transport Co.'s case (supra) is also relevant in this regard. We, therefore, uphold the order of the CIT(A) cancelling the penalty imposed by the Assessing Officer under Section 271(1)(c).
19. In the result, the departmental appeal is dismissed.
ITA No. 155/Nag/1988:20. The facts of this case have been discussed in our order in ITANo. 154/ Nag/1988 referred to above. For the reasons stated therein, we uphold the order of the CIT(A) in this regard.
21. In the result, the departmental appeal is dismissed.
ITA No. 169 /Nag/1988:
22. This appeal has been filed by the assessee. The facts of this case have been discussed by us in our order in ITA No. 154/Nag/1988, referred to above. Since the assessee had offered to be assessed to tax on certain income and since the assessment has been completed in the light of such offer, we uphold the order of the CIT(A) dated 27-11-1987 in Appeal No. CIT(A)/813/86-87 in dismissing the appeal.
23. In the result, the assessee's appeal Is also dismissed.
24. In the result, all the appeals are dismissed.