Income Tax Appellate Tribunal - Allahabad
Omrao Industrial Corpn. (P.) Ltd. vs Income-Tax Officer on 31 December, 1986
Equivalent citations: [1987]20ITD739(ALL)
ORDER
Egbert Singh, Accountant Member
1. The first appeal is by the asses-see and the second one is by the revenue. These are directed against the common order of the Commissioner (Appeals), by which he has partly sustained the penalty imposed by the ITO under Section 271(1)(c) of the Income-tax Act, 1961 ('the Act'). The ITO imposed a penalty of Rs. 5,23,427 which was reduced by the Commissioner (Appeals) by his separate order to Rs. 22,620. The assessee's appeal is against the above retention of part of the penalty imposed, while the appeal by the revenue is against the deletion of Rs. 5,00.807, being the balance of the amount imposed. The facts of the case and the background are identical. Accordingly, we consolidate the appeals for disposal by this common order.
2. At the first instance, we shall take up the appeal by the assessee in which it is submitted that the Commissioner (Appeals) erred in sustaining the penalty imposed to the above extent as the Commissioner (Appeals) has misdirected himself in holding that the assessee claimed expenses which were of personal nature which amounted to fraud, gross or wilful neglect in furnishing the return of income. It is also the contention of the assessee that merely on the fact that the assessee's explanation was not found satisfactory, it cannot be held that the assessee had concealed part of the income for penalty purpose and that without any positive evidence bringing home the penalty to the assessee, the Commissioner (Appeals) has partly sustained the order of the ITO. It is also the appeal by the assessee that existence of mens rea or guilty intention has not been shown or established by the authorities below. It is submitted that the Commissioner (Appeals) has thereby violated the principles of natural justice as the penalty imposed in such item was not valid and proper on the facts and in the circumstances of the case. It is submitted by the assessee's learned Counsel that actually there was no justification for the Commissioner (Appeals) for changing the figures of the various items of disallowances which fact alone would go to show that the penalty was wrongly sustained by him.
3. Briefly speaking in the penalty order, the ITO mentioned that the asses-see filed a return showing loss of Rs. 9,89,905, which was completed by the ITO under Section 143(3) of the Act, on the total income of Rs. 6,72,863 on 29-3-1975. Return showing loss was filed on 21-2-1973. The ITO invoked the provision of the Explanation to Section 271(1)(c). Notice was issued to the assessee and the case was referred to the IAC concerned, as the minimum penalty imposable exceeded Rs. 25,000. He pointed out that the assessment order was the subject matter before the AAC as well as before the Tribunal and, therefore, the proceedings were kept in abeyance till the final disposal of the appeal by the Tribunal, which copy was received on 14-8-1980. He completed the penalty order within the limitation period.
4. Before passing the order, the ITO gave repeated opportunity to the assessee to show cause why penalty should not be imposed under Section 271(1)(c), but there was no compliance, and no written explanation was filed. In the circumstances, the ITO concluded that the assessee had nothing to say and it was clearly at default and that in the absence of the assessee's reply, he had no option but to decide the proceedings on merits and on the facts of the case.
5. He pointed out that after taking into account the relief allowed by the Tribunal, the loss was reduced to Rs. 4,66,478. He pointed out that the assessed income has been determined at such negative figure, i.e., Rs. 4,66,478 (loss), whereas the assessee returned a loss of Rs. 9,89,905 and after deducting the assessed loss, the balance of the loss came to Rs. 5,23,427, which the ITO treated to be representing the concealed income of the assessee. He referred to the requirements of Explanation to Section 271(1)(c). As mentioned above, the assessee did not file any explanation or did not comply with the show-cause notice issued by the ITO. He, therefore, held that the assessee's failure to return correct income was due to fraud, gross or wilful neglect on the part of the assessee and has concealed the particulars of his income to the extent of Rs. 5,23,427. He imposed minimum penalty and directed the assessee to pay the same accordingly. The order was passed after obtaining prior approval of the IAC concerned, whose order was stated to be dated 15-12-1980.
6. The assessee filed appeal before the Commissioner (Appeals), who heard the assessee's learned Counsel as well as the ITO concerned, who appeared on behalf of the department. Before the Commissioner (Appeals) the assessee filed a written explanation, copy of which was sent by him to the ITO for his comment, which was received and copy of which again was sent to the assessee. The Commissioner (Appeals) heard both the sides at length. The assessee's learned Counsel contended that the computation of penalty was absolutely incorrect as the ITO has taken into account the loss shown in the return at Rs. 9,89,905 whereas the total loss of Rs. 4,66,478 being the income assessed. It was, however, pointed out that in ascertaining 20 per cent difference for the purpose of the Explanation, the loss of the earlier years brought forward should not be taken into account. It was clarified that the loss of Rs. 9,89,905 included the loss shown for the year at Rs. 1,62,255. It was urged that the ITO went wrong in taking into account the loss brought forward from the earlier years for the purpose of the present proceedings. The Commissioner (Appeals) agreed with the assessee on this point. He, therefore, considered that for the penalty for the present year under consideration, the amount of Rs. 1,62,255 only which was the returned loss for the year, should be taken into account.
7. He pointed out that the ITO has taken the loss at Rs. 4,66,478 which was stated to be wrong as the figure included earlier years' loss also. He found that after giving effect to the order of the AAC, the income was reduced to Rs. 1,27,378 and after giving effect to the Tribunal's order, the income came down to Rs. 79,764, as against the loss returned for the year under consideration at Rs. 1,62,255. He considered the provisions of the Explanation to Section 271(1)(c). On the facts of the case, he considered that the figures which have to be taken into account for penalty purpose for the year under consideration should be in respect of their returned loss at Rs. 1,62,255 and income assessed at Rs. 79,764, which would mean an addition of Rs. 2,42,019. He pointed out that the items of the additions sustained by the Tribunal were relating to groundnut and khali account for Rs. 1,67,195, soap account for Rs. 54,120, out of general expenses Rs. 29,669, and out of travelling account Rs. 3,904. These totalled to Rs. 2,54,888. The small difference was due to certain adjustment in the depreciation account. The Commissioner (Appeals) was of the view that Section 271(1)(c), therefore, have to be considered in respect of Rs. 2,54,888 only, and the ITO was wrong in not excluding the earlier years' losses.
8. Before the Commissioner (Appeals), o n behalf of the revenue, it was contended that the assessee failed to comply with the show-cause notice in spite of repeated opportunities given to it, and, therefore, the assessee should not be allowed to adduce any evidence at the appellate stage against the levy of penalty, which stand was resisted by the assessee's learned Counsel, as according to him, the assessee did file application on 24-10-1980 for adjournment as the director was busy and that, even before this in the original proceeding before the IAC, the assessee filed a letter dated 5-8-1977 and explained why penalty should not be imposed. It was, therefore, argued that even if the ITO did not get a proper reply from the assessee, he has still to pass an order which would show what were the various additions sustained by the appellate authorities and that why the ITO considered that the assessee had committed fraud, etc., in respect of those items of additions sustained. It was urged that no new evidence was produced and all the additions have been thoroughly discussed in the assessment order and in the order of the appellate authorities. The Commissioner (Appeals) found that no entries have been made in the order sheet for the year to show that the ITO had fixed the hearing of penalty on 24-10-1980 and whether anybody appeared on that date. He also observed that even the ITO's covering letter sending the matter to the IAC for approval was not on record and in the circumstances it was not possible to verify whether the assessee had applied for adjournment or not. The Commissioner (Appeals) considered the facts of the case and the development after the assessment and he was of the view that the provisions of the Explanation to Section 27I(1)(c) clearly were applicable, and, therefore, the onus was on the assessee to prove that there was no fraud, gross or wilful neglect on the part of the assessee in not furnishing correct return of its income. In this connection, reference was made to a number of decisions of the Hon'ble Allahabad High Court in which the scope of the Explanation had been considered, as in Rukmani Bahu v. Addl. CIT [1979] 116 ITR 468, etc. The decision of the Hon'ble Supreme Court in Addl. CIT. v. Swastik Mineral Corpn. [1979] 118 ITR 583 was also considered.
9. The Commissioner (Appeals) went on to consider the addition in respect of Rs. 1,67,195, relating to the addition in the groundnut and khali account, which fact and details were dealt with in the assessment order as well as the order of the appellate authorities. Briefly speaking, the assessee was producing groundnut oil and khali by solvent extraction plant of its own. He pointed out that the ITO, noted that the yield of oil was at 36.6 per cent as against 37 per cent of the earlier year. The yield of oil extracted by processing khali was 5.9 per cent. The ITO noticed that there were lot of cuttings and erasures and additions in the production register in respect of quantities of dana and he, therefore, did not accept the production figures furnished in the accounts. According to the ITO, the suppressed production of oil came to 674 quintals for which Rs. 3,06,670 were added. Similarly he came to the conclusion that there were suppressing of production of khali of 157 quintals. for which Rs. 72,433 were added. For khali the addition on account of suppressed addition was Rs. 22,640. Thus, the total addition came to Rs. 4,01,745. On appeal by the assessee, the appellate authorities reduced the addition to Rs. 1,67,195. The contention of the assessee before the Commissioner (Appeals) was that the sustained addition was on estimate and it has all along been the case of estimate till the stage of the Tribunal. Extract of the order of the Tribunal dated 21-7-1980 (para 16) was reproduced in the impugned order, which is necessary to be reproduced here also :
In view of this, we feel that the authorities below are justified in discarding the said register as not reflecting full and true record of the assesee's production of groundnut seed from groundnut and thus resorting to making the best judgment estimate of the assessee's production. Once the finding is reached that the assessee's production of dana cannot be accepted at its face value on account of the various defects pointed out in the production register of the assessee by the authorities below and which have been upheld by us, no option is left to us but to estimate the assessee's production.
10. It was argued on behalf of the assessee that the yield percentage cannot, in the circumstances of the case be uniform, depending on a number of variable factors. It was stated that the assessee had shown that during the year most of the groundnut was purchased from Hardoi and Lakhimpur Kheri Districts and the quality of groundnut obtained from these areas was inferior, which resulted in lower production as compared to the earlier years. The assessee relied on certificate of oil expert and other association as placed before the Commissioner (Appeals).
11. In respect of the addition, it was contended that mem rea and mala fide intention cannot be attributed and, therefore, in respect of such items, no penal action could be taken. It was also urged that the addition was sustained by rejecting the books of account and applying provisions to Section 145(2) of the Act, as held by the Tribunal in para 30 of the said order. It was stated by the Tribunal in that order that the numerous mistakes and discrepancies pointed out by the ITO in the assessee's production register, had not been denied by the assessee and that such mistake would, however, merely justify resort to Section 145(2) and making a best judgment assessment. It was, therefore, urged that the addition no doubt was sustained by resorting to estimates after applying the said proviso. The assessee's learned Counsel went on further to argue that in the circumstances there was no scope for consideration of imposing penalty as done by the ITO. It was urged that mere suspicion alone would not warrant penalty as the preponderance of probabilities would be sufficient to prove a negative fact. According to the assessee, there was no failure to return the correct income which would amount to fraud or gross or wilful neglect and, therefore, the onus that lay on the assessee should be deemed to have been discharged particularly when there was nothing to suggest that the assessee with a guilty intention avoided lawful revenue. It was urged that the element of mens rea has to be established by the revenue. Reference was made to the different decisions as in CIT v. Babu Ram Ajit Prasad [1977] 106 ITR 818 (All.), Addl. CIT v. Horilal Kunj Behari Lal [1977] 106 ITR 720 (All.), CIT v. Harnam Singh & Co. [1977] 106 ITR 532 (All.), CIT v. K.L. Mangal Sain [1977] 107 ITR 598 (All.), Addl. CIT v. Chatur Singh Taragi [1978] 111 ITR 849 (All.), Addl. CIT v. Smt. V. Kanakammal [1979] 118 ITR 94 (Mad.) and CIT v. Gopal Vastralaya [1980] 122 ITR 527 (Pat.).
12. The Commissioner (Appeals) considered the facts of the case and the ratio of the decisions relied on by the assessee. According to the assessee, the ITO had not shown any fraud or gross or wilful neglect and that the assessee had discharged the onus of proof that there was no fraud or gross or wilful neglect on the part of the assessee, and that the addition was made merely on estimate. It was submitted that even if there was a defect in the accounts, penalty was not justified unless positive evidence was proved. It was also contended that in the past also, the assessee maintained accounts in the same manner and there was no charge of suppressing sales or inflation of expenses. It was pointed out that there was nothing to show that the assessee had really earned income outside the accounts. It was stated further that the production register was subject to scrutiny of the different authorities concerned and even if some mistakes occurred in the accounts, the same would not mean that the assessee was guilty of fraud or gross or wilful neglect as alleged. It was, therefore, submitted that the penalty may be deleted entirely.
13. On behalf of the revenue, it was urged that before the ITO, the assessee had failed to show cause in response to the show-cause notice issued under Section 271(1)(c) and in fact there was no compliance. The department was also relying on the decisions of different High Courts, to stress that the penalty on the facts of the case was correctly levied. The assessee concerned submitted a written explanation which was considered by the Commissioner (Appeals). It was stressed that there were numerous cuttings and overwritings in the register and additions on both sides of page 26 of the production register. It was also pointed out that subsidiary records on which entries or alterations were made, had not been produced before the ITO and, therefore, the manipulations noticed by the ITO stand proved. Reference was made to the observation of the Tribunal in the quantum appeal at para 16 of the said order, in which it has been mentioned that the production register which has been commented upon by the ITO and the AAC, was also produced before the Tribunal and after going through the same, the Tribunal agreed with the view of the AAC in holding that such register cannot be regarded as verifiable and reliable record of the assessee's day-to-day production. It was noted that there were numerous overwritings, etc., and the assessee did not produce the record of original entry, on the basis of which corrections were made. It was pointed out that the Tribunal noted that the authorities below were justified in discarding the production register as not reflecting full and true record of the assessee's production of groundnut seeds from ground-nut and thus resorting to making the best judgment estimate of the assessee's production. It was, therefore, urged on behalf of the department that since the assessee did not offer any explanation whatsoever in respect of various discrepancies the ITO has correctly imposed the penalty, relying on the decisions as in Addl. CIT v. Swatantra Confectionery Works [1976] 104 ITR 291 (All.), Addl. CIT v. Brij Nandan Prasad Deen Dayal [1979] 119 ITR 959 (All.), Yelavarti Gopalakrishnaiah v. CIT [1968] 67 ITR 184 (AP), CIT v. Laxmi Auto Stores [1977] 106 ITR 626 (Ori.), CIT v. Gyan Prakash [1979] 116 ITR 513 (All.), Addl. CIT v. Ram Prakash [1980] 121 ITR 774 (All.), CIT v. Kedar Nath Ram Nath [1977] 106 ITR 172 (All.), F.C. Agarwal v. CIT [1976] 102 ITR 408 (Gauhati) and Chhotalal & Co. (Esso) v. CIT [1976] 104 ITR 500 (Guj.). It was urged, therefore, that the penalty may be sustained in full.
14- The Commissioner (Appeals) considered all the authorities cited before him and the ratio of the various decisions. The Commissioner (Appeals) went through the observations of the ITO and his findings as given in the assessment order as well as in the orders of the appellate authorities on different points and he observed that though the additions have been prompted by various difficulties pointed out in the production register, the additions have been entirely on estimate of production at different levels rather than a positive finding of suppression anywhere. He also observed that there was no doubt that the various overwritings, cuttings and erasures in the production register and the absence of subsidiary records had strengthened the case of the revenue for sustenance of such additions to the groundnut and khali account. But he was of the view that nowhere it has been shown that there was a positive finding of suppression or production because if that was so, then only additions relating to such suppression or production would have been sustained. As pointed out earlier, he noted that the addition was substantially reduced by the appellate authorities and that too on estimate basis. It was stated also that the Appellate Tribunal accepted the yield of oil at a certain percentage after making certain adjustment, which fact would go to show that in the ultimate analysis the additions have been sustained on account of low yield and supported by discrepancies in the accounts, and there was a case of rejection of accounts which have not been properly maintained. It was stated before the Commissioner (Appeals) that there had been clerical mistakes in the records by the staff, which would not, however, mean that there was fraud or gross or wilful neglect on the part of the assessee, as the accounts were audited and no serious defects were pointed out by the audit, more so, when the accounts were scrutinised by the excise department.
15. The Commissioner (Appeals) considered the various submissions made before him and he found that the contentions of the assessee was valid. He referred to the decisions cited before him in which it was held that the department had not established that additions made would represent the assessee's real income--Babu Ram Ajit Prasad's case (supra). He also referred to other decisions as in Horilai Kunj Behari Lal's case (supra) and Harnam Singh & Co.'s case (supra). He also considered other decisions as discussed by him in the impugned order, before inferring that even if the accounts were not properly maintained and the additions were made to the trading result, would not constitute fraud or gross or wilful neglect, unless it can be shown that the assessee had an income which was not accounted for. According to the Commissioner (Appeals) although the assessee's accounts have been found to have not been properly maintained as there were over writings, cuttings and erasures, still the additions to the trading accounts have been maintained on estimate and there was nothing to show that the assessee had earned some real income which he had not accounted for and which would certainly have made the assessee-company guilty of fraud or gross or wilful neglect. He pointed out that if the department in this case has been able to show some suppressed sales or purchases outside the books, the decisions would have been different entirely. He was, therefore, of the opinion that even if the additions were sustained in the groundnut and khali account it cannot be said that there had been any concealment of income or furnishing of inaccurate particulars of income and the assessee has, therefore, discharged the onus cast on it under Section 271(1)(c). According to the Commissioner (Appeals) the assessee has been able to show that its accounts have been kept in the regular manner and that the overwritings, cuttings, etc., could have been done by the staff from day-to-day and that the accounts have been maintained in the same manner as in the past and that the trading results shown by it had been rejected merely on the basis of low yield and estimated additions have been made at various levels. He found that the explanation of the assessee was reasonable beyond doubt and was in the realm of preponderance of probabilities and, therefore, the assessee has discharged the onus, and once the onus had been discharged, the burden has shifted to the revenue to prove that there was any fraud or gross or wilful neglect on the part of the assessee, which he found to be lacking in this case.
16. The Commissioner (Appeals) also considered the various decisions relied on by the ITO before him. He went through the ratio of those decisions, but he found that none of them supported the view that where account books were rejected and income was estimated, penalty would be leviable. He, therefore, concluded that the deletion of Rs. 1,67,195 sustained in the groundnut and khali account by the Tribunal would not tantamount to any fraud or gross or wilful neglect on the part of the assessee. He found that the decisions relied on by the assessee support the case of the assessee fully. He, therefore, directed that no penalty would be leviable on this addition.
17. The revenue has come up in respect of the above deletion. The addition of Rs. 54,120 had not been sustained in soap account. Similar contentions were raised in respect of this account also on behalf of both the sides.
18. The Commissioner (Appeals) considered the matter afresh, and noted that the addition in soap account was more on consideration of technical details and certain assumptions resorted to by the ITO, the learned AAC as well as by the Tribunal rather than on bringing out any suppression of real income. The Commissioner (Appeals) reproduced part of the assessment order, in the appellate order. He also reproduced the conclusion of the AAC as welt as of the Tribunal at para 46 and para 47 of the impugned order. He noted that of course the additions were prompted by the discrepancies in the accounts, but that very fact that the estimates of suppressed production varied at the level of the ITO and before the Tribunal, made the matter clear that the additions have been sustained on mere estimate and not based on finding of actual suppression supported by any unaccounted sale of stock. On similar reasons, he found that the addition of Rs. 54,120 in soap account cannot be sustained. The revenue has filed appeal in respect of this point also.
19. The Commissioner (Appeals) also took into consideration the other additions made on account of disallowances in respect of various expenses which were considered to be of personal in nature as well as the disallowances sustained by the Tribunal. The Commissioner (Appeals) went through the facts of the case and the findings of the ITO as well as of the appellate authorities in quantum appeal and was of the view that if it was found that the assessee has claimed certain expenses which were in the nature of personal expenses, such claim would clearly tantamount to fraud or gross or wilful neglect on the part of the assessee and, therefore, the Explanation to Section 271(1)(c) would be applicable. He dealt with the disallowances of Rs. 29,669, which included Rs. 12,049 on account of base expenses, Rs. 5,620 on account of general expenses, Rs. 5,000 on account of car expenses and Rs. 7,000 on account of store account. In the travelling expenses, Rs. 3,904 also had been disallowed. The AAC held that part of the expenses were for the directors and accordingly sustained portion of the disallowance of Rs. 12,049 and the Tribunal endorsed that finding. The Commissioner (Appeals), however, pointed out that the AAC in the quantum appeal had not stated as to how much was the expenses for the directors and, therefore, the Commissioner (Appeals) estimated the same at Rs. 5,000 for which the Commissioner (Appeals) considered that the expenditure was not a bona fide claim for the assessee's business purposes and, therefore, to that extent only penalty would be leviable. He noted that the assessee had not been able to show any reasonable explanation or any preponderance of probabilities as to why this expenditure was claimed as business expenditure when it was clearly for the directors' personal expenses.
20. Similarly in respect of the general expenses, car expenses, disallowances out of stock account, the Commissioner (Appeals) was of the view that the assessee had failed to discharge the onus cast by the Explanation to Section 271(1)(c) and, therefore, penalty would be attracted in respect of such items.
21. In respect of the travelling expenses, the Commissioner (Appeals) noted that the appellate authorities confirmed the additions which, however, show that the disallowance was for the reason that there were no vouchers and the purpose of the journeys was not known. He had, therefore, held that no penalty was leviable in respect of these items. Accordingly, the Commissioner (Appeals) sustained the penalty relating to those similar items as mentioned above and deleted the penalty relating to groundnut and khali account and soap account. Hence, the appeal by the revenue against the deletion and the appeal by the assessee against the retention of part of the penalty. As noted above, the facts of the case and the points involved are identical.
22. We shall take up the appeal by the assessee at the first instance. It was submitted by the assessee's learned Counsel that there was no justification for the Commissioner (Appeals) to sustain the penalty even to the above extent as, in fact, there was no fraud or gross or wilful neglect on the part of the assessee as to file the return showing amount which was below the assessed amount even after giving effect to the appellate orders. It is urged that the assessee did claim expenses specifically, but which were held to be in the nature of personal expenses, but on that fact alone it cannot be argued that there was fraud or gross or wilful neglect on the part of the assessee, particularly when the Commissioner (Appeals) failed to acknowledge and appreciate that merely on the fact that explanation of the assessee was not accepted, the assessee cannot be held to have concealed particulars of income. It is urged also that there was no positive evidence to establish the guilt of the assessee but the penalty was wrongly sustained by the Commissioner (Appeals), specially without showing existence of mens rea or guilty intention on the part of the assessee. According to the assessee's learned counsel, the action of the Commissioner (Appeals) was erroneous and contrary to the principles of natural justice. It is also urged that as pointed out earlier, the assessee has filed a loss return of substantial amount, including the loss of earlier years brought forward and that after giving effect to the appellate orders, the amount of such loss was reduced. It is contended that it was not the case of concealing any income when, in fact, there was a huge loss even after excluding the loss brought forward for the earlier years, from consideration. It is submitted also that in respect of those 4 items amounting to Rs. 22,620 which were made under different heads, the ITO himself did not initiate penalty proceedings specifically, which fact would prove that the ITO was not fully satisfy that such disallowances did not represent concealed income or expenses for the purpose of Explanation to Section 271(1)(c). It is also urged that there was no justification for the imposition of penalty and even otherwise the penalty was excessive and arbitrary.
23. At the time of arguments, the learned Counsel for the assessee also submitted that the ITO who initiated the penalty proceedings, referred the matter to the concerned IAC as per the provisions of Section 274(2) of the Act, which was subsequently amended. It is urged, therefore, that the ITO once correctly referred the matter to the IAC, would not get back that jurisdiction so as to empower him to pass the penalty order as done in the instant case. It is pointed out that relevant changes in the section have been brought out with effect from 1-4-1976. It is stressed before us that in the return the assessee has shown loss and such loss was reduced as per order of the appellate authorities and in such circumstances no penalty was called for. In this connection, the assessee's learned counsel referred to the decision in the case of CIT v. Vegetable Products Ltd. [1973] 88 ITR 192 (SC), in order to stress the claim that if there were two possible interpretations, the view that was favourable to the assessee should be adopted. In this context, it is urged that the Commissioner (Appeals) has referred to the relevant observations and findings of the Appellate Tribunal in the quantum appeal in which according to the assessee's learned Counsel, the addition was made on estimate, at every level right from the ITO stage till the stage of the Tribunal and, therefore, the disallowances could not be treated as the basis for the imposition of the penalty, on the facts of the case. It is also urged that in the present case the returned loss was there and the assessed loss was at the reduced loss and in such a situation penalty was called for as there is a significance of the word 'income', i.e., 'coming in' which is conceptually contradictory to 'loss'. Reference is made to the decision of the Hon'ble Madhya Pradesh High Court in CIT v. Jaora Oil Mill [1981] 129 ITR 423. Reference is also made to the decision in Addl. CIT v. Murugan Timber Depot [1978] 113 ITR 99 (Mad.) in which a similar situation was dealt with. It is the assessee's case that on the loss there would be no tax and, therefore, no penalty could be imposed. It is vehemently urged that even if the provision of the Explanation was applied, no penalty was called for as tax would be nil and such penalty cannot be imposed on a negative income.
24. It is vehemently urged that expenses disallowed and partly sustained by the appellate authorities cannot be treated as the basis for imposition of penalty as, in fact, that was not the case of the ITO for initiating the penalty proceedings. In this connection, reference is also made to the decision of the Hon'ble Gujarat High Court in CIT v. Lakhdhir Lalji [1972] 85 ITR 77, in order to stress the claim of the assessee that in present case the ITO had referred the matter to the IAC and after reference the ITO did not get back the jurisdiction to impose the penalty and was as such without legal jurisdiction and, therefore, the penalty on that score may be quashed. It is submitted further that even" the observation of the Commissioner (Appeals) in the penalty order did not find support from the findings of the Tribunal in the quantum appeal and, therefore, the conclusion of the Commissioner (Appeals) was not justified, keeping in view the fact that in the past similar additions were made on account of similar expenses which had not been considered as concealed income of the assessee on account of basa kharach, motor car expenses, etc. It is submitted, therefore, that in the present case for the year under consideration there was no justification for the change of the approach. Similar stress is made on the fact that the disallowances which were considered by the Commissioner (Appeals) as concealed income for the present purpose were only made on estimates. It is urged that the claim may have been made wrongly but that would not justify imposition of penalty. The assessee's learned Counsel refers to the various pages of the paper book in order to stress his point. In short, it is urged that the penalty in respect of these disallowances as per order of the Commissioner (Appeals) in the penalty appeal, cannot be sustained.
25. On the other hand, the learned departmental representative supports the order of the Commissioner (Appeals). It is submitted that in the first instance there was no dispute that the ITO had initially and legally initiated the penalty proceedings which were referred to the concerned IAC and the penalty was imposed after observing the legal requirements and as such the order of the Commissioner (Appeals) in respect of the penalty order required to be sustained. Reference is made to the decision of the Hon'ble Allahabad High Court in the case of CIT v. Om Sons 1978 Tax LR 922. It may be pointed out here that the assessee's learned Counsel has referred to the decision of the Tribunal, Chandigarh Bench, in the case of Sudha Pharmaceutical (P.) Ltd., dated 30-7-1983, copy of which has been placed in our file in order to stress the case of the assessee that penalty was wrongly imposed on the facts of the case, when there was no tax payable. The learned departmental representative submits that the facts of the present case are distinguishable as the accounting year followed by the assessee and the date of filing the return were different. He refers to the decision in CIT v. India Sea Foods [1976] 105 ITR 708 (Ker.), in which it was stated that the amount on which penalty was leviable was on the figure which was finally assessed and it will also apply in the case where the assessee had suffered a loss. It is stressed on behalf of the revenue that on the facts of the present case, there was indisputably a difference of the returned income and the assessed income and, therefore, the application of the Explanation was properly sustained by the Commissioner (Appeals). It is urged, therefore, that even in respect of the disallowances, the Commissioner (Appeals) has given a clear finding that the assessee had failed to show that the claims on different grounds was not due to any fraud, gross or wilful neglect on the part of the assessee. He refers to the decision of the Hon'ble Punjab and Haryana High Court in Kedar Nath Sartwal Dass v. CIT [1978] 111 ITR 440 in order to stress that penalty would be justified even on the basis of finding that the claim of loss was false. Reference is also made to two other decisions in Durga Dutta Chunni Lal v. CIT [1919] 120 ITR 319 (All.) and Kedar Nath Ram Nath's case (supra). It is stressed that the disallowances were the expenses which were not for the business purpose and that was why estimate of such expenses had to be resorted to by the Tribunal, and the fact remains that all the authorities have agreed that such expense was falsely claimed by the assessee. He also refers to the decision of the Hon'ble Allahabad High Court in the case of Addl. CIT v. D.D. Lamba & Co. [1981] 128 ITR 564, in order to stress that the burden is on the assessee to show that the income returned was on the basis of book kept and that the addition was made on the basis of estimate, which resulted in the addition but the assessee has yet to show that the failure to return the correct income did not arise due to fraud, gross or wilful neglect on the part of the assessee, which in the instant case, the assessee had failed to discharge. It is also submitted that the disallowances had been sustained even by the Appellate Tribunal in the quantum appeal and, therefore, the application of the proviso to Section 271(1)(c) cannot be challenged.
26. We have heard both the sides at length and we have gone through the orders of the authorities below for our consideration. It is seen that the ITO did make disallowances in respect of the various items of expenses claimed by the assessee to have been incurred for the purpose of his business, which were found by the ITO as well as by the appellate authorities to be not so. Of course, the ITO disallowed a higher amount while the appellate authorities reduced such disallowances as discussed briefly in the earlier paragraphs. We have gone through the various authorities cited by both the sides for our consideration. In our opinion, the fact that the addition was made on estimate, would not be sufficient to say that the provisions of the Explanation were not attracted. In fact, in the instant case, it has been found before the ITO that no response was made and no show cause was shown by the assessee when called upon to show cause by the ITO under Section 271(1)(c). In our opinion, non-submission of any explanation before the ITO would by itself justify imposition of penalty. It is seen that before the Commissioner (Appeals) the assessee did furnish explanation in respect of various disallowances as discussed by us in the preceding paragraphs and as recorded by the Commissioner (Appeals) in the impugned order. It is seen, however, that all the authorities below as well as the Tribunal retained part of the disallowanses of such expenses. True estimate was resorted to in determining such disallowances. But the fact remains that the returned income and the assessed income even considering the disallowances only, was very much there. The burden was on the assessee as per requirements of the provisions of the said Explanation. After considering the findings of the authorities in the quantum appeal as well as in the impugned order of the Commissioner (Appeals) and after taking into consideration the submissions of both the sides, we find that the assessee has not discharged the burden of proof that the returned income was not correctly made, which resulted in the difference between the assessed income and the returned income as such. In the circumstances, we are of the view that the Commissioner (Appeals) was justified in coming to this conclusion as far as the items relating to disallowances, etc., were concerned. We find no justification to interfere with this part of the order, which we hereby sustain.
27. We shall now come to the appeal by the revenue being IT Appeal No. 361 (All.) of 1982. As indicated earlier, the facts and the background of the case are the same. But the department has brought this appeal against the deletion of the part of the penalty relating to the claim that the assessee did conceal the income in the groundnut, khali account and soap account. It is submitted that initially it has to be considered whether all the columns of the return have been correctly and properly filled up by the assessee in order to ascertain whether there was any difference of the returned income and the assessed income. The learned departmental representative highlights the point that the assessee has claimed a higher amount of losses which were inclusive of loss brought forward from earlier years and there was no basis for the Commissioner (Appeals) for changing the figures adopted for the present purpose. Reference is made to the decision in Kedar Nath Sanwal Dass's case (supra) in order to stress the claim that there was a finding in the assessment proceedings and appellate proceedings that the claim made by the assessee was false and on that basis alone the materials were sufficient for imposition of penalty. Reference is made to another decision in Rajpal Automobiles v. CIT [1979] 116 ITR 436, decided by the Hon'ble Allahabad High Court, in which one item of income was not shown in the return and no explanation was offered and that the claim that the omission was due to the assessee's illiteracy was not accepted. It is pointed out that in the present case also the assessee did not furnish any explanation to the ITO when called upon to do so and, therefore, there was no presumption that the ITO acted on surmises only. It is stressed that when no explanation was furnished to the ITO, how can the assessee now come and claim that there was no concealment of income or there was no fraud or gross or wilful neglect on the part of the assessee when penalty had to be imposed by the ITO and at that stage. It is submitted that it was not the burden of the ITO to establish that there was guilt of the assessee in this respect. Reference is made to the decision in Hanutram Ramprasad v. CIT [1978] 112 ITR 187 (Guj.). Reference is also made to another decision of the Hon'ble Allahabad High Court in the case of D.D. Lamba & Co. (supra), in which the burden cast on the assessee so far as the Explanation to Section 271(1)(c) is concerned, was dealt with. It is urged that in the instant case the Tribunal in the quantum appeal had given a finding that the entire claim of the assessee cannot be conceded to. Certain observations and findings of the Tribunal in the quantum appeal have been referred repeatedly, as noted by the Commissioner (Appeals) in the impugned order. It is urged that those findings of the Tribunal are conclusive findings of fact that the accounts of the assessee did not reflect the correct income and in particular the production register did not record certain transactions which were held by the ITO earlier to be transactions outside the books of account. It is, therefore, urged that it would be a different preposition to say that accounts had been rejected under Section 145 and even then the assessee would still have a burden cast on him, to discharge. It is urged that in the present case there were reasons recorded by the ITO and as substantially sustained by the Tribunal, that there were transactions on the basis of which additional income of the assessee had to be computed and added. It is urged in the circumstances and the facts of the case supported by the findings in quantum appeals till it was disposed of by the Tribunal would do to show and establish that the penalty imposed by the ITO was justified beyond doubt. Reference is made to the different paragraphs of the order of the authorities, given in the quantum appeal, copies of which have been filed before us. Thus, it is urged that the Commissioner (Appeals) was palpably wrong in cancelling the penalty even after considering the additions made on account of groundnut, khali and soap account. Reference is made to the decision as in V. Subramonia Iyer v. CIT [1978] 113 ITR 685 (Ker.).
28. The learned departmental representative highlights the findings made by the ITO in the assessment order that there was a suppression of sale and other transactions which was not recorded in the books of account, which brought out the addition and which was conclusively sustained by the Tribunal though there was some relief. It is urged, therefore, that these facts would speak for itself and, therefore, the Commissioner (Appeals) made a mistake of fact and law in cancelling the penalty relatable to groundnut oil, khali and soap account. It is submitted, therefore, that taking the totality of the facts and in the circumstances of the case, keeping in view the decisions cited, and the submissions made before us, this part of the order of the Commissioner (Appeals) requires to be reversed and the appeal by the revenue may be allowed.
29. The learned Counsel for the assessee, however, supports the order of the Commissioner (Appeals) so far as the deletion of the penalty amount relating to khali, groundnut oil, soap account, is concerned. It is urged that even before the ITO no explanation was filed, the appellate authorities would have to consider the assessee's explanation in order to ascertain whether penalty would lie. Reference is made to the decision of the Hon'ble Kerala High Court in V. Subramonia Iyer's case (supra). According to the learned counsef, prior approval of the IAC concerned should have been obtained and there was no finding on that score. Reference is made to the comment of Palkhivala, Vol. I, 2810 (sic), etc., in order to stress another fact that the income was returned at a loss and was so assessed at a lessor figure and no tax was payable, therefore, no penalty would be attracted. According to the assessee, the Explanation to the above section was not attracted at all as the return was a loss and the appellate authorities in their turn, allowed certain relief and after excluding losses of earlier years, there was only a small difference, if at all. It is urged that there was no positive income at all so as to constitute a basis for the imposition of the penalty. It is urged that only the income alleged to have been concealed could for the argument sake, be considered for the purpose of penalty, as was the view of the Hon'ble Madhya Pradesh High Court in the case of Jaora Oil Mill (supra). The assessee's learned Counsel stresses the inapplicability of the provision of the Explanation. He repeatedly refers to the decisions of the first appellate authority in the quantum appeal as well as in the penalty appeal to highlight the claims of the assessee. It is a different matter if the explanation of the assessee was not found satisfactory, but on the fact alone, penalty could not be imposed.
30. It is also stressed by the assessee's learned Counsel that a finding in the assessment order is a finding by itself and in the quantum proceedings, additions in such ground may be sustained. But it is urged that it is a different matter for the purpose of penalty. It is stressed again that even the Tribunal in the quantum appeal had resorted to estimates as far as the production of oil, soap, etc., was concerned. He also draws our attention to the certificate regarding production, as per copy placed at page 10 of the paper book to stress the claim that production of these products cannot remain consistent throughout the years as factors may vary. It is the assessee's case that the assessee has discharged the onus cast on him as there was a preponderance of probability that the failure to file correct income was not due to fraud or gross or wilful neglect on the part of the assessee and the Commissioner (Appeals) has already come to the conclusion that the Explanation was not applicable. It is urged that the penalty was imposed on hypothetical basis without giving a finding that there was income which the assessee had earned, but had failed or had deliberately kept outside the books of account. It is submitted that it is not sufficient for the department to rely on the findings made in quantum appeal. It is urged that on the facts and in the circumstances of the case and in view of the findings of the Tribunal in quantum appeal as well as in the finding of the Commissioner (Appeals) in the penalty appeal impugned before us, the appeal by the revenue may be dismissed.
31. We have gone through the detailed facts of the case as noted in the orders of the authorities below as well as in the quantum appeal and the findings of the different authorities given therein. We have also gone through the different case laws cited before us by both the sides. We have also taken into account the contentions of both the sides for our careful perusal. At this stage, we have to refer again the portions of the Tribunal's decision in the quantum appeal as referred to in the impugned order as well as in the contentions by both the sides. At the outset, it has to be taken note of the fact that before the ITO the assessee has not furnished any explanation or shown cause when called upon to do so by the ITO in course of the penalty proceedings. In our opinion, the ITO was justified in proceeding with the case and come to his conclusion. Of course, before the Commissioner (Appeals), the assessee made various submissions and contentions which were duly considered by the Commissioner (Appeals). So before us also we have to take stock of all these circumstances. In the assessment order, the ITO has pointed out to the production register, which according to him, was effected by the assessee outside the books of account, which facts were noted by the Tribunal as well. The Appellate Tribunal at para 16 of the quantum appeal amongst other things observed that it had also perused the production register referred to by the authorities below and after considering the said register, the Tribunal was one with the AAC in stating that the said register cannot be regarded as a verifiable and a reliable record of the assessee's day-to-day production as there were erasures, overwritings, cuttings and as the ITO had pointed out that the assessee did not produce record of original entry on the basis of which various cuttings, etc., might have been done by the assessee from time to time. The Tribunal concluded that the authorities below were justified in disregarding the production register as not reflecting full and true record of the assessee's production of oil from groundnut and, thus, a best judgment estimate of production, had to be made. It is also seen that the assessee did furnish explanation which the Tribunal found to be too general and vague to be of much help, more particularly when actual purchases made by the assessee were subject to laboratory analysis, while considering the claim of the assessee that there was a poor crop during the year.
32. Amongst other things, the Tribunal also considered the central excise register, but the Tribunal observed that such register cannot be relied upon for giving the total picture of the assessee's production for part of the input was not recorded therein. The Tribunal dealt at length the various facts and figures of the purchases of raw materials, production, etc., in respect of khali account, oil account as well as soap account and came to the conclusion as it was done by it in the order referred to earlier.
33. The ITO noted in the penalty order that there was concealment of income by the assessee for which penalty was called for. The Commissioner (Appeals) considered the various decisions cited before him in coming to the conclusion that the assessee has discharged the onus cast by Explanation to Section 271(1)(c) in respect of these accounts, that there was no fraud or gross or wilful neglect on the part of the assessee. According to the Commissioner (Appeals), once the onus was discharged, the onus shifts to the revenue to prove that there was fraud on the part of the assessee to conceal the income, etc. The Commissioner (Appeals) at para 31 of his impugned order amongst other things noted that the ITO referred to the non-production of subsidiary records, so that the real nature of these alterations could be seen. The Commissioner (Appeals) went through the various orders and according to him, though the additions sustained have been prompted by various difficulties pointed out in the production register, the additions so sustained have been entirely on estimates of production of different levels rather than on a positive finding of suppression of production any where. In our opinion, this observation of the Commissioner (Appeals) is not sustainable, as the Tribunal in the quantum appeal did not act as alleged. The Tribunal did consider the facts and figures in the quantum appeal before coming to the conclusion that even the excise register cannot be relied upon for giving a total picture of the assessee's production, for part of the input is not recorded therein (para 18 middle as well as at page 15 top) of the order of the Tribunal referred to earlier. It is seen, further that the Tribunal considered the analysis in respect of the claim of the assessee regarding the extent of the driage, shortage, etc. Apart from that, the Tribunal took note of the fact that the assessee, as pointed out by the ITO, used fillers for manufacturing of soap as a result of which the weight of soap should have been increased considerably. That apart, we feel obliged to refer to para 36 of the order of the Tribunal which was given after the different submissions of the parties, were considered. It was noted that the estimate regarding production of soap was to be the best of judgment and after due consideration of the technology aspects or manufacturing of soap. It was specifically noted by it that one significant thing was absence of any denial by the assessee in respect of the everment made by the ITO that in order to manufacture soap, soap caustic soda solution of 36°BE was the ideal solution. The consumption of caustic soda was also dealt with by the Tribunal before coming to the factual conclusion that one-fifth of production of soap was not reflected in the books of account of the assessee. It was observed that it was open to the assessee to show that certain unit of caustic soda had gone wasted, and no such attempt had been made to dislodge the inference and finding of the ITO in this respect.
34. Thus, in view of the various facts brought out by the Tribunal in the order, it would be uncharitable on the part of the Commissioner (Appeals) in the impugned order, to say that even in the quantum appeal, the Tribunal has resorted to estimates on the basis of which, penalty cannot be imposed. A close reading of the order of the Tribunal referred to, would not support such inference drawn by the Commissioner (Appeals). In fact, it is seen that the additions on various amounts have not been made as the accounts of the assessee had to be rejected outright. But it is seen that the additions had to be made as the register or books of accounts claimed to have been maintained, did not record production as found and noted by the Tribunal in the quantum appeal.
35. In view of the provisions of Explanation, the initial burden is cast on the assessee to show that there was no gross, fraud or wilful neglect on the part of the assessee. We have gone through the various submissions and other papers placed before us for our consideration as well as the various decisions relied on by both the sides. We find that in view of the specific and factual findings given by the Tribunal, that the assessee in the penalty proceedings had not discharged the burden of proof cast on it and, therefore, the Commissioner (Appeals) went wrong in inferring and concluding that the assessee had discharged the burden cast by the above provision and, therefore, the burden of proof had shifted to the revenue to show that there was fraud or gross or wilful neglect on the part of the assessee. In this connection, we may refer to the decision in CIT v. Anantharam Veerasingaiah & Co. [1975] 99 ITR 544 (AP) in which it has been held that intangible addition was made for which the explanation of the assessee had to be considered before taking any adverse inference. Thus, in the present case, we have to consider various aspects as discussed by us in the preceding paragraphs. At this stage, it may be pointed out that the assessment year involved was 1972-73 and the assessee filed the return on 21-2-1973 and the assessment was completed on 29-3-1975. The contention of the assessee was that the ITO who imposed the penalty had no jurisdiction in view of the change of law in this respect and, therefore, once a reference was made to the IAC, the ITO did not get back the jurisdiction so as to impose the penalty in the present case. In a similar situation, in the case of CIT v. Balabhai & Co. [1980] 122 ITR 301 (Guj.), it was held that the IAC retained jurisdiction to deal with the penalty proceedings in accordance with the law which was prevalent at the time when the proceedings were initiated. Similar was the view of the various High Courts. But on this point, we have to refer other decisions of our Hon'ble Allahabad High Court. At this stage, we may refer to the decision of the Hon'ble Allahabad High Court in the case of CIT v. Ram Lal Vohra [1981] 129 ITR 473, in which it was held that after the amendment of Section 274(2) with effect from 1-4-1971, it was the ITO who had jurisdiction to impose the penalty and not the IAC. We would also refer to another decision given by the Hon'ble High Court in the case of CIT v. Smt. Raj Rani Devi [1979] 116 ITR 358 (All.), in which it was held that in a similar situation in view of the amendment of the said section, the IAC had no such jurisdiction on the date when the penalty order was passed. In the case of Om Sons (supra) (as relied on by the learned departmental representative), the Hon'ble Allahabad High Court has held that it is committed to the view that the Court or the Tribunal deciding a matter must not only be possessed of jurisdiction initially but must also be clothed with the power to decide the matter when the final order is made. In that decided case, the ITO initiated proceedings and referred the matter to the IAC, who imposed the penalty on 29-11-1971. But meanwhile Section 274(2) was amended with effect from 1-4-1971. It was held that the IAC did not have jurisdiction to impose a penalty in such matter. It was held that on the date when the penalty order was passed, the jurisdiction of the IAC to do so, had been taken away. The Hon'ble Karnataka High Court in the case of Addl. CIT v. M.Y. Chandragi [1981] 128 ITR 256 has taken the same view.
36. On the facts and in the circumstances of the case and on the materials available, we find that the ITO who passed the penalty order had at the time of passing the said penalty the jurisdiction to do so, although at the time when the penalty proceedings were initiated, the matter was referred to the concerned IAC as the minimum imposable penalty exceeded Rs. 25,000 as per the requirement of the section as it then was. The ITO in the penalty order has specifically mentioned that the penalty order in question was passed by him with the prior approval of the IAC concerned dated 15-12-1980. The order of the penalty was passed on 22-12-1980. It is not disputed before us that as on 22-12-1980, the ITO did not have jurisdiction to pass the penalty order. Keeping in view the decisions and the directions of the Hon'ble Allahabad High Court, as stated above, we are of the opinion that the ITO in the present case had jurisdiction to pass a penalty order.
37. We have discussed at length the various contentions made by both the sides. The ITO initiated the penalty proceedings, as according to him, there was a book difference of the assessed income and the returned income. The assessee contended that in the return a loss was shown and that loss was assessed at a lesser figure even after giving effect to the order of the Tribunal. The assessee, therefore, claimed that in such a situation when the tax payable was also nil as there was no positive income, no penalty on a negative income could have been imposed. In this connection, we may refer to a decision in CIT v. India Sea Foods [1976] 105 ITR 708 (Ker.), relied on by the revenue, in which it was held that penalty would also be attracted not only to a positive figure of income but would also apply to the case where the assessee had suffered loss. Similar is the view of the Hon'ble Supreme Court in the case of CIT v. J.H. Gotla [1985] 156 ITR 323. Thus, this contention of the assessee also cannot be accepted, as the facts of the case discussed at various paragraphs, would show. Of course, the assessee is entitled to lead any evidence or place further materials for fresh consideration. Before us, the assessee reiterates and emphasises similar contentions and submissions made in course of the quantum proceedings as well as made in the penalty matters before the Commissioner (Appeals), which we have taken to our careful consideration. We find no fresh material or fact to come to the conclusion that the assessee has discharged the onus cast on it by the provisions of Explanation to Section 271(1)(c). In our opinion, it was not a mere rejection of the assessee's explanation or it was not a case of disbelieving the submissions made by the assessee in view of the final findings of fact by the Tribunal in the quantum appeal, as discussed in different parts of this order. In the circumstances, therefore, we find that the order of the Commissioner (Appeals) in respect of this point has to be reversed, which we hereby do. Reference may also be made to the decision of the Hon'ble Allahabad High Court in the case of CIT v. M. Habibullah [1982] 136 ITR 716. At the time of argument, the learned departmental representative stresses the point that the assessee has shown and claimed a higher amount of loss which was found to be false and quantum of the returned income was very much more than adopted by the Commissioner (Appeals) vis-a-vis the assessed income for the purpose of Section 27I(1)(c). The learned Counsel for the assessee, however, points out that the returned loss included loss brought forward from earlier years, whereas the loss returned for this year as noted by the Commissioner (Appeals) in the impugned order. It is submitted on behalf of the assessee that the Commissioner (Appeals) was correct in his approach so far as this aspect is concerned. On behalf of the assessee, however, it is urged that the assessee has filed the returned loss on proper verification and declaration and, therefore, the sanctity in the statement of the columns and, in fact, each of the columns would have to be taken cognizance of. We have given our careful consideration in this point also. It may be true that in the return the assessee has claimed higher amount of loss which was inclusive of the brought forward loss. But for the purpose of Section 271(1)(c), penalty is imposable in respect of any income (or loss) which has been concealed would not be taken into account and for the purpose of the Explanation to the above section, the disallowances or trading additions relating to this year only would have to be taken into account. It has not been shown before us that the assessee included the amount of loss which was not allowed to be set off or added to the current year's loss. In our opinion, since each year is to be considered independently for the purpose of income-tax, the loss brought forward and included by the assessee in the return would have for the present purpose be excluded in order to ascertain what was the returned loss of the assessee relatable to the year under consideration, which in the present case the Commissioner (Appeals) had shown at Rs. 1,62,255 [para 3 of the Commissioner (Appeals)'s order]. In Kedar Nath Sanwal bass's case (supra) it was held on the facts of the case that the finding in the assessment proceedings was that losses were falsely claimed by the assessee to set off the profits, which finding was sufficient to hold that there was a scheme on the part of the assessee to defeat the revenue without any further finding. Thus, in our opinion, portion of the returned loss relatable only to the current year's loss in the instant case, would be relevant for the purpose presented before us. Hence, this contention of the revenue cannot be accepted.
38. As expressed by us above, in the instant case, the various additions and disallowances were not made merely on the basis of surmise or after rejecting the assessee's explanation to be inaccurate or false. The Tribunal in the quantum appeal found that there were specific transactions which were not recorded in the books of account. We are of the opinion that the onus cast on the assessee in view of the Explanation to the above section, has not been discharged and, therefore, the Commissioner (Appeals) went wrong in coming to the different conclusion and in holding that the burden has shifted to the revenue to prove that there was any fraud, gross or wilful neglect on the part of the assessee (para 33).
39. Having regard to the entirety of the facts and circumstances of the case and after we have taken into account the various decisions and after we have carefully considered the submissions made by both the sides, we are of the opinion that the Commissioner (Appeals) went wrong is deleting the penalty relating to the additions in regard to groundnut, khali and soap account. Thus, this part of the order of the Commissioner (Appeals) is reversed. Since the ITO had imposed on a different amount based on the quantum of loss as discussed above, we direct him to re-calculate the penalty on the basis of direction and observation given by us in this order, along with the amount of penalty retained by the Commissioner (Appeals) relatable to the disallowances of expenses, etc., as dealt with by us in the assessee's appeal.
40. In the result, the appeal by the assessee is dismissed and the appeal by the revenue is allowed.