JUDGEMENT
M.C. Agarwal, Judicial Member -
(1.)THIS is an assessee's second appeal against the levy of penajty under Section 271(1)(c).
(2.)We have heard the learned counsel for the assessee and the learned Departmental Representative and have perused the material placed before us.
The assessee is a private limited company running a flour mill at Dehradun. The proceedings relate to assessment year 1984-85, the previous year for which ended on 31-3-84. During the said previous year the Income-tax Department on 14-7-83 conducted a search at the business and office premises of the assessee and also at the residences of Sri Praveen Kumar, a Director of the Company and Shri Hari Bhushan, a share-holder. At the residence of Sri Praveen Kumar, Director, 468 bags of 'murgidana' i.e. refraction was found, the value of which was estimated at Rs. 12,000. Refraction of 'murgidana' is a waste generated in the process of converting wheat into wheat-flour and various other products and we were informed during the hearing that it is usually sold for feeding birds and that is why it is called murgidana'. During the search operations at the residence of Shri Hari Bhushan three case books for the months of May, June and July [up 4 to 12-7-83], 1983 and 3 ledgers for the same period were found lying in the compound of the building occupied by him as a tenant. According to the revenue they contained details of the business operations of the assessee for the relevant period showing an income of Rs. 4,91,491. Those books are also said to have record of investments amounting to Rs. 7,67,382 in what is described in the assessment order as 53 accounts of debtors. On the basis of these books these two amounts have been added while computing the assessee's income.
(3.)THE assessee filed its return under Section 139 on 5-7-84 declaring the income at nil on the first page of the return, a copy of which is at pages 6 and 7 of the paper book. Against the word 'nil' in column 3 the following note was given: -
Final figure of loss will be disclosed after examination of seized books and material.
At page 2 of the return a sum of Rs. 5,14,817 was shown as brought forward loss and another sum of Rs. 76,208 was claimed as relief Under Section 80-J. THE total of these amounts at Rs. 5,91,025 was shown as gross total income in column No. 8 and 10. In compliance with notices Under Section 143 (2) and 142 (1) the assessee wrote a letter dated 20-10-1984 to the IAC (Assessment) as under :--
With reference to your notice Under Section 143 (2) and 142 (1) dated 20-9-84, it is submitted as follow: -
That the books, statements & documents relating to the above period were seized during search operation and are still in your possession.
That since the books are with you, we could not work out the income/loss also and the return was filed with the remark that income or loss will be disclosed after verification of seized material.
That we would therefore request you that the income or loss may be assessed as worked out from the seized material & the said income may be treated as disclosed.
That we further submit that we will not file any appeal for any addition made nor we will take any credit for any addition made subject to the condition that no penalty prosecution proceedings are taken. It is also prayed that time be allowed to work out the income.
During the assessment proceedings the I.A.C. (Asstt.) addressed a letter dated 5-18-85 to the assessee, a copy of which has been placed at page 33 of the paper book and the relevant paragraph reads as under: -
(b) Certain books of accounts in the shape of cash books and ledger were seized1 on 14-7-83 from the residence of Shri Hari Bhushan at Dehradun. THE Books of accounts indicate amount due from various parties as on 3-5-83 at Rs. 7,67,382. Moreover the income recorded in the aforesaid books of accounts for the month of May comes to Rs. 2,94,178 and for the month of June at Rs. 2,06,737. For the month of July i.e. 1-7-83 to 12-7-83 there is loss of Rs. 9,424. You may examine the books of accounts again on any day convenient to you and explain to me if there is any mistake in the figures worked out by me.
THE assessee sent a reply dated 12-9-85, a copy of which is at page 34 of the paper book and this reply did not advert itself to the aforesaid paragraph (b) of IAC's letter dated 5-8-85., THE I.A.C. (Asstt.) then framed an assessment assessing the income at Rs. 57,610. THE additions that are relevant for the present proceedings are as under: -
JUDGEMENT_2335_TLIT0_19890.htm
THE discussion contained in the assessment order is as under:-
Search & Seizure:
In this case a search was conducted Under Section 132 of the Income-tax Act, 1961 on 14-7-83 at the business premises as well as residence of Shri Praveen Kumar, director and Shri Hari Bhushan, a share-holder, looking after the affairs of the company. In the factory premises, there was some variation in the stock as against stock register. In this connection, explanation has been filed saying that the stock shown in stock register was as on 12-7-1983 and the result of working for 13-7-83 had not been recorded therein. THE figures for 13-7-83 duly certified by the Marketing Inspector (Milling) has been filed. In this way, the deviation of closing stock has been explained.
Residence of Shri Praveen Kumar, Director
468 bags of Murgidana (refraction) was found at the residence of Shri Praveen Kumar director of the assessee company. No satisfactory explanation could be given for the same. Keeping in view the facts of the case that the item relates to the business of the assessee company, the same is treated to belong to the assessee company. THE bags not weighed at that time. THE average weight per bag is taken at 6)5 kg. per bag and in this way, the total weight of Murgidana comes to 304 qtls. THE value of the same is estimated at Rs. 40 per qtl. and in this way the value comes to Rs. 12,000 only. Keeping in view the facts of the case, a sum of Rs. 12,000 would be added to the income of the assessee company.
Residence of Shri Hari Bhushan
Books of accounts in the shape of cash books and ledger marked B-1 to B-6 were seized from the open compound at the residence of Shri Hari Bhushan, a shareholder of the assessee company looking after the affairs of the company. THE details of the books found were as under: -
B-1 Cash book for May, 1983
B-4 Ledger of the above
B-2 Cash Book for June, 1983
B-6 Ledger of the above.
B-3 Cash book for July, 1983 (up to 12-7-1988)
B-5 Ledger of the above.
On going through the aforesaid books of accounts, it is noticed that there are investments in various names. By drawing a trial balance at the beginning of the first book, it is found that there are investment of Rs. 7,67,382. This figure is worked out by totalling 53 accounts of debtors on page 2 and page 3 of the cash book and by deducting a sum of Rs. 24,947 credited to the account of the same party showing a debit of Rs. 84,436 at page 5 of the ledger. This procedure has been adopted as the amounts shown against the creditors are not correctly recorded. A letter was served on the assessee asking them to explain as to why the aforesaid amount of Rs. 7,67,382 be not added to their income. In this connection a written reply had been filed saying that the books of accounts do not relate to the assessee company and they were not recovered from the factory premises or the residence of any director of the company. It is added that they were found outside the residence of Shri Hari Bhushan and there is no evidence to the effect that these books belonged to the assessee company. It is added that at page 4 of the ledger there is ah account with opening credit balance of Rs. 20,000 + Rs. 53,652 i.e. Rs. 73,652. THEre is another account on page 8 of the ledger showing a credit balance of Rs. 1,34,818. From the accounts, it appears that both the amounts are payable as creditors and the same should, therefore, be reduced from the amount of Rs. 7,67,382 worked out by the Department.
I have gone through the books of accounts and looking to the nature of entries do not feel satisfied about the submissions made by the learned counsel for the assessee. THE assessee's claim for deduction of Rs. 73,652 and Rs. 1,34,818 is, therefore, rejected. THE assessee has also pointed out that opening cash balance of Rs. 13,500 should be excluded. THEre is no force in the submission of the learned counsel for the assessee on this account also and this claim is also rejected.
On going through the books, referred to above, I find that the income recorded therein as under: -
JUDGEMENT_2335_TLIT0_19891.htm
A letter was served on the assessee to show cause .as to why the aforesaid income of Rs. 4,91,491 be not included in their income. THE assessee in the written reply has stated that there is no evidence that the books of accounts relate to the assessee company and moreover, books have not been recovered either from the business premises of the assessee company or the residence of any director.
Keeping in view the fact that the books were found in the open compound of the residence of Shri Hari Bhushan (a share holder) looking after the affairs of the assessee-company, the income of Rs. 7,67,382 and Rs. 4,91,491 are included in the income of the assessee company.
THE I.A.C. (assessments) initiated penalty proceedings under Section 271(1)(c) and the assessee filed a reply dated 25-4-86 and another reply dated 18-2-87 copies of which have been placed at pages 63 and 65 of the paper book. In its reply dated 25-4-86 the assessee contended that the notices under Section 271(1)(c) has been wrongly issued as no income was concealed not any inaccurate particulars have been filed. It was also stated that the return of income was duly filed without disclosing income or loss subject to verification of papers seized at the time of search. It was also stated that true particulars were disclosed and note was given in the return that the income may betaken after verification of seized material. In its reply dated 18-2-87 the assessee, reproduced the contents of its letter dated 20-10-1984 addressed to the Assessing Officer during the assessment proceedings. Copy of that letter has not been placed before us and the letter dated 18-2-87 reproduces the relevant extracts therefrom as under: -
That the books, statement & documents relating to the above period were seized during search operation & are still in your possession.
That since the books are with you, we could not work out the income/loss and the return was filed with the remark that income or loss will be disclosed after verification of seized material.
That we would therefore request you that the income or loss may be assessed as worked out from the seized materials and the said income may be treated as disclosed.
That we farther submit that we will not file any appeal for any addition made nor we will take any credit for any addition made subject to the condition that no penalty, prosecution proceedings are taken.
It was then stated in the aforesaid letter that the assessee did not conceal any particulars of its income.