Egbert Singh, Accountant Member - (1.) THIS is the appeal by the assessee challenging the order of the IAC as passed under Section 271(1)(c)/ 274(2) of the Income-tax Act, 1961 ('the Act').
(2.) The first ground of appeal concerns with the jurisdiction of the IAC. According to the assessee, the order of the IAC is erroneous and bad in law as the IAC had no jurisdiction to pass an order under Section 271(1)(c). Briefly speaking, the facts of the case are that for the assessment year 1972-73, the ITO noted in the assessment order that the assessee is being assessed in the status of a registered firm and the method of accounting was shown as mercantile. The accounting period ended on 22-3-1972 (2028 RN). The assessment was completed under Section 143(3) read with Section 144B of the Act. The ITO amongst other things, stated that "while scrutinising the trading account, he noticed shortage of 316 bags (each containing one quintal approximately) of sugar and partial shortage in few of the bags also was noticed. He required the assessee to explain the shortage. The assessee stated that the shortage was detected at the time of taking delivery from railway wagons for which claims and suits have been instituted before the appropriate authorities and there was no certainty as to the actual reimbursement of the claim vis-a-vis their value and, therefore, the same was kept aside to be credited on cash basis after the amounts were realised. The ITO did not accept the explanation of the assessee as in his view the loss which the assessee had claimed has not yet materialised. From the list and date furnished by the assessee, the ITO observed that when the whole amount was not realised from the railway authorities, suits were preferred and ultimately most of the amounts were realised and even if small loss occurred at a stage, it occurred only when the assessee finally accepted after all the possible remedies have been exhausted. According to the ITO, the amount claimed should have been brought at par with the sales and credited to the trading account. He also noted that the judgments cited on behalf of the assessee would not be applicable to the facts of the case. He also observed that the assessee has not been able to show anything in support of his proposition that the claims preferred with the railway authorities were contingent receipts and should be treated as such. The ITO further mentioned that the assessee maintained mercantile system of accounts and, therefore, the claim of the assessee that the accounts were maintained on cash system only for railway claims vis-a-vis the shortage was not acceptable. He also pointed out that the assessee has also not shown this alleged cash account from year to year and that the contention of the assessee did not find support from the earlier records. The ITO found that in 1971-72 there was neither shortage nor any receipt from the claims of earlier years were shown. He pointed out that during the assessment year 1970-71, there was a shortage of Rs. 1,07,353 which was shown as claim realised and Rs. 2,88,871 as due to be realised and both these amounts were duly credited to the trading account. Moreover, he pointed out that for the assessment year 1969-70 also, Rs. 84,250 was credited against the shortage vis-a-vis the claims. The ITO further stated that this year only the shortage of some bags was shown without any credit either for this year or for any other years. He pointed out also that no separate accounts were also available showing shortage detected, claims preferred and claims realised. He, therefore, concluded that the assessee's proposition regarding the maintaining of cash system of accounts for this claim and shortage as discussed, failed. That apart, the ITO pointed out that, on the other hand, the position in the earlier years indicated that the assessee would bring the amount claimed at par with the sales for those respective years which was not the case for the year under appeal, as per the assessee's accounts. The ITO further went on to say that the assessee contended that some of the claims were realised during the subsequent years. The ITO, however, pointed out that even verification of this statement was not possible because the assessee has not yet submitted the accounts even for the assessment year 1973-74. He observed that the assessee wanted to keep this aspect of the accounts on cash basis, whereas the assessee has charged the litigation and other expenses during the year, which was contradictory to the assessee's own claim. The ITO pointed out that it was not understood as to why the assessee was silent in respect of these accounts till the shortage was detected. Accordingly, Rs. 91,653 was added back as income of the assessee.
(3.) IN the course of assessment proceedings the ITO initiated penalty proceedings under Section 271(1)(c)/274, etc. He noted in the assessment order that proceedings under the above sections have been initiated separately. From the order of the IAC dated 14-3-1978, it is seen that the ITO referred the penalty proceedings under Section 271(1)(c) read with Section 274 to the IAC for disposal. The IAC noted in the impugned order that the show cause notice was issued by him and served on the assessee on 16-12-1977. But hearing was adjourned at the request of the assessee. When the case was fixed for hearing later on, nobody attended and there was no response from the assessee. He, therefore, proceeded to complete the proceedings on the merits of the case.;