JUDGEMENT
Per Shri R.N.Puri, Accountant Member - In this appeal filed by the assessee, imposition of penalty of Rs. 1,75,120 under the provisions of section 271(1) (c) of the Income-tax Act, 1961 in respect of the assessment year 1977-78 has been challenged. -
(1.)
(2.)The assessee is a HUF. It had filed a return of income for the assessment year 1977-78 on 29-9-1977 declaring a net loss of Rs. 12,272. In this return, it had shown income derived from the business of commission agency for cotton and its share of profit or share of loss from certain partnership firms. The accounting period relevant to the assessment year under consideration viz., 1977-78, was the year ended 22-10-1976. A search had been conducted by the Income-tax Department at the premises of the assessee on 16-7-1976. During the course of this search, certain account books in respect of business which had not been disclosed to the department, were seized. Some of such account books pertained to the assessment year under consideration. From the scrutiny of the account books for the year under consideration, which had been seized during the course of the search, it was found that the assessee had done trading in ground-nut seeds and oil. The various entries made in the seized accounts had shown that the assessee had suffered a loss of Rs. 1,09,011 in the trading trisections in ground-nut seeds and oil. The ITO also noticed that there were certain entries in the cash book in code letters which showed availability of funds. It has been pointed out by the ITO that these entries were noted under the Kannada letter "SHI" and English letter "T". The peak amount of the various entries made under the Kannada letter "SHI" and English letter "T" came to Rs. 4,73,363 as on 2-6-1976. The transactions noted in these seized accounts had not found place in the books of account produced by the assessee for income-tax purposes. The assessee was provided by the ITO with various opportunities to explain the nature of the transactions recorded in the seized books of account. The assessee failed to furnish any explanation in respect thereof and the assessee gave evasive replies. The assessee filed a reply before the ITO on 3-3-1980 stating : "Hare again I may mention, that I was not present at the time of search. I returned to Kottur only at 12 in the night after the search operations were completed. I used to be away from Kottur on business tour and in my absence the clerks used to manage all the business in which one or the other member of the family was interested. The clerks used to maintain some sort of notes of all their doings in my absence. The notings under various dates appears to be such notes. The notes on various dates including on 14-6-1976, are not cash book entries or prepared from any other record. They appear to be the cumulative record of all the transactions - (first part : sales etc., and second part : cash balances of all the business). It is also not clear at what time of the day it is prepared. At any rate Rs. 4,13,206 on 14-6-1976 is neither the cash balance nor show the availability of funds. Since the transactions of all the business are mixed up it is not possible to clearly show the break-up of Rs. 4,13,206 at this length of time. This is only a total of all transactions over a period as the figure is a progressive one. This is not my investment." Since no satisfactory explanation was furnished by the assessee, the ITO came to the conclusion that the peak amount of Rs. 4,73,363 appearing in the cash book under the code names of "SHI" and "T" on various dates was to be added as the income of the assessee. The ITO accepted the contention of the assessee that the loss of Rs. 1,00,911 incurred in the various trading transactions in ground-nut seeds and oil as entered in the seized books should be allowed. In his draft order of assessment, the ITO hence proposed an addition of Rs. 3,72,452 (the peak amount of Rs. 4,73,363 as reduced by Rs. 1,00,911) to be made.
The IAC, after hearing the assessee, gave the following direction under Sec. 144B (4) : "..... After discussion, the assessees representative agreed that a round sum of Rs. 3 lakhs may be assessed as the unexplained credits in the hands of the assessee. This is with a view to avoid any long drawn litigations which may not be of benefit to either side. Shri M. D. Srinivasa Rao has also assured that the tax liability arising out of this assessment would be paid off expeditiously. In such circumstances, the ITO is directed to assess a sum of Rs. 3 lakhs only as income from undisclosed sources. The draft assessment order may be modified accordingly and the assessment completed." Thereupon, the ITO completed the assessment, making an addition of Rs. 3 lakhs as directed by the IAC. It is in respect of this addition that the impugned penalty of Rs. 1,75,120 for concealment of income under section 271(1) (c) had been levied by the ITO by his order dated 14-2-1983.
(3.)BEING aggrieved by the imposition of penalty by the ITO, the assessee went up in appeal before the CIT (A). The CIT (A) confirmed the levy of penalty. The assessee has now come up in further appeal before us. The contention of the assessee is that in the facts of the case, it could not be said that the assessee has concealed the particulars of its income or furnished inaccurate particulars of such income and, hence, it was not justified to impose penalty under sec. 271(1) (c).
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