1989-VIL-96-ITAT-DEL

Equivalent Citation: ITD 031, 238,

Income Tax Appellate Tribunal DELHI

Date: 28.02.1989

DOON VALLEY ROLLER FLOUR MILLS (PRIVATE) LIMITED.

Vs

INSPECTING ASSISTANT COMMISSIONER.

BENCH

Member(s)  : J. KATHURIA., M. C. AGARWAL.

JUDGMENT

Per M.C. Agarwal, JM---This is an assessee's second appeal against the levy of penalty 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.

3. 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 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.

4. 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 u/s 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 u/s 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 u/s 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 5-8-85 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 seized 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 : ---

1. Un-explained cash credits, investment as discussed above Rs. 7,67,382

2. Unexplained income as discussed above Rs. 4,91,491

3. Value of 'murgidana' as discussed above Rs. 0,12,000

The discussion contained in the assessment order is as under : ---

" Search & Seizure :

In this case a search was conducted u/s 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 65 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 an 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 : ---

May, 1988 Rs. 2,94,178.00

June, 1983 Rs. 2,06,737.00

--------------------------

Rs. 5,00,915.00

Less : Loss for June, 1983 Rs. 9,424.00

---------------------------

Balance income Rs. 4,91,491.00

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 nor 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 be taken 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 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 was then stated in the aforesaid letter that the assessee did not conceal any particulars of its income.

5. The I.A.C. (Assessments) has reproduced the assessee's reply dated 18-2-87 in the penalty order itself and he observed that in its reply the assessee does not explain at all its conduct in not giving correct particulars of the income in the return and that the assessee company had been caught and cornered by the seizure of books of accounts regarding suppressed production of Ata, Maida, Suji etc. He also observed that the note given in the return did not absolve the assessee from liability of concealment and that the assessee's conduct in suppressing the quantum of manufacture from the regular books of accounts was mala fide. He, therefore, levied a penalty of Rs. 17,07,540 which is double the amount of income alleged to have been concealed. The concealed income was calculated at Rs. 13,51,193 which consisted of the aforesaid three additions and a subsequent addition of Rs. 84,320 made to the assessee's income in pursuance to an order under section 263 passed by the C.I.T.

6. The assessee did not file any appeal against the quantum assessment but challenged the levy of penalty in an appeal before the C.I.T (A). It was contended before him that the additions made on the basis of recovery of certain books from the residence of Hari Bhushan and the recovery of certain bags of murgidana from the residence of Praveen Kumar, Director, could not properly be made as the said articles did not belong to the assessee nor were they recovered from the possession of the present assessee and, therefore, no penalty could be levied on that basis. Some other contentions were also raised. The assessee, however, could not convince the learned C.I.T (A) and was successful only to the extent that the penalty was reduced to Rs. 8,53,770, which was 100% of the tax sought to be evaded. The assessee is now in appeal before us.

7. The learned counsel for the assessee contended that the penalty is based on additions made to the assessee's income on the basis of books found at the compound of a shareholder and of some goods found at the residence of a Director and that the additions are unjustified because neither the books nor the material belonged to the assessee and there was not even an iota of evidence to establish assessee's connection with them. He pointed out that the assessee never accepted that the aforesaid things belonged to the assessee or that on the basis of the same any addition could be made to the assessee's income. He further contended that the mere fact that the assessee did not challenge the additions in an appeal against the assessment order did not authorise the assessing officer to levy a penalty without discharging the burden of proof that the assessee actually earned the income as reflected in the additions and without showing that the assessee concealed the particulars of his income. According to the learned counsel since neither the books seized from the house of Sri Hari Bhushan nor the goods seized from the house of Sri Praveen Kumar belonged to the assessee, the assessee was under no obligation to furnish any particulars about them to the assessing officer. In the alternative it was contended that even if it is taken that the assessee accepted that the goods as well as the account books belonged to the assessee and that the assessee conceded to the assessments made on that basis even then the assessee cannot be held guilty of having concealed the particulars of his income or having furnished inaccurate particulars thereof. He built up his argument by showing that the said material had come to the revenue's possession before the close of the accounting period and was in possession of the revenue even when the assessee filed its return. Therefore, according to the learned counsel for the assessee, there was nothing that could be furnished to the department or that the assessee could conceal and the fact that the assessee filed only what may be called a provisional return would show that the assessee had no intention either to conceal any particulars or to furnish any inaccurate particulars or even to avoid the assessment of correct income by any misrepresentation whatsoever. Therefore, no concealment was established against the assessee and the penalty was unjustified. It was also contended that no penalty can be levied on the basis of an addition of Rs. 84,320 which has not been made by the I.A.C. (Assessment) during the assessment proceedings but was made on the directions of the C.I.T who did not direct the levy of penalty on this count. It was also contended that the assessee's books of account showed a loss of Rs. 3,52,009 which has been accepted by the I.A.C. (Assessments) as correct for proceedings to the determination of income and to that extent adjustment has to be allowed in the calculation of tax sought to be avoided. Lastly it was contended that reliefs admissible to the assessee u/s 80HH and 80-I have also to be taken into account for calculating the assessee's income and consequently the tax allegedly sought to be avoided.

8. The learned Departmental Representative on the other hand supported the orders of the authorities below. His main reliance was on the assessee's letter in which it was stated that the income may be calculated on the basis of the seized material. It was contended that it is a case in which the assessee accepted that income as disclosed by the account books found at the residence of Shri Hari Bhushan and the material found at the residence of Sri Praveen Kumar belonged to the assessee and since this was not shown in the regular books of account maintained by the assessee, concealment is apparent from the facts of the case. He also pressed into service the fact that the assessee did not challenge the quantum assessment by way of appeal and urged that this clearly indicated that the additions that were made were actually in respect of assessee's income. Regarding the addition of Rs. 84,320 made under orders of the C.I.T. the learned Departmental Representative contended that the penalty could validly be imposed by the I.A.C. (Assessments). The learned Departmental Representative disputed the assessee's contention that an allowance was admissible to the assessee in respect of loss shown in the profit and loss account which was not claimed as such in the return of income. Regarding the reliefs admissible to the assessee u/s 80HH and 80-I, it was contended that according to the accounts maintained by the assessee there was only a loss and no relief was, therefore, admissible. The income arising by way of additions was only deemed income and hence no relief was admissible in respect thereof.

9. As is evident the income declared by the assessee in its return was nil while the income assessed as per the assessment order dated 27-3-86 was Rs. 57,610 and after four rectifications u/s 154 the income as assessed vide the last order dated 18-3-88 stands at Rs. 2,85,850. The Explanations I to section 271(1)(c) reads as under : ---

" Explanation I : Where in respect of any facts material to the computation of the total income of any person under this Act :--

(A) such person fails to offer an explanation or offers an explanation which is found by the Income-tax Officer or the Appellate Assistant Commissioner or the Commissioner (Appeals) to be false, or

(B) such person offers an explanation which he is not able to substantiate (and fails to prove that such explanation is bona fide and that all the facts relating to the same and material to the computation of his total income have been disclosed by him) then, the amount added or disallowed in computing the total income of such person as a result thereof shall, for the purposes of clause (c) of this sub-section, be deemed to represent the income in respect of which particulars have been concealed. "

10. Penalty u/s 271(1)(c) is leviable if a person has concealed the particulars of his income or has furnished inaccurate particulars of such income. Under the provisions of the aforesaid explanation presumption has to be raised to the effect that the amounts added or disallowed in computing the total income of the assessee represent the income in respect of which particulars have been concealed. This presumption would be permissible only if either of the two conditions mentioned in clauses (A) and (B) is fulfilled. The presumption may be raised against a person who fails to offer an explanation or offers an explanation which is found by the I.T.O. to be false. A presumption may also be raised if the assessee offers an explanation which he is not able to substantiate and fails to prove that such an explanation is bona fide and that all the facts relating to the same and material to the computation of his total income have been disclosed by him. In the case before us we have to see how far this explanation helps the assessee or the revenue.

11. As already stated, the additions are made on the basis of certain books found from the compound of Sri Hari Bhushan who is a shareholder of the assessee and on the basis of recovery of certain bags of refractions from the house of one Praveen Kumar, a Director. The assessee's explanation with regard to these things is narrated by the I.A.C. (Asstt.) in the assessment order itself, relevant extracts of which have been reproduced above. Regarding the 'murgidana' the I.A.C. (Asstt.) has stated that no satisfactory explanation could be given for the same. He does not state what was the assessee's explanation and whether the assessee was ever required to explain why the value of goods found at the residence of Sri Praveen Kumar be not added to the assessee's income. Regarding the books of accounts, it is stated by the I.A.C. (Assessment) himself that the assessee filed written reply saying that the books of accounts do not relate to the assessee-company. In another sentence in the same paragraph the I.A.C. (Assessment) himself says that the assessee contended that there is no evidence to the effect that these books belong to the assessee company. Thus with regard to the books of accounts, there was clear denial on the part of the assessee that they belonged to it and consequently an assertion that no addition could be made on the basis of the books to the assessee's income. At page 33 of the paper book a copy of letter dated 5-8-85 issued by the assessing officer to the assessee requiring certain explanations. This letter is totally silent about the bags of murgidana and did not state that any addition was proposed to the assessee's income on that account nor did it require the assessee to explain why the addition be not made. As regards the books of accounts found at the residence of Sri Hari Bhushan, we have already reproduced above clause (b) of the said letter. A perusal thereof would show that in respect of the books also though some calculations were mentioned, the I.A.C. (assessment) did not assert that the books belonged to the assessee or that he proposes to make any additions on that basis to the assessee's income.

12. A company, as is very well known, is an artificial person, having its own existence separate and distinct from its share holders. The books were found from the residence of Sri Hari Bhushan, a share holder. Admittedly they were not found from any room in the occupation of Sri Hari Bhushan but they were found lying in a bag in the compound of the House. Neither the I.A.C. (assessment) has stated any fact in the assessment order nor has the learned Departmental Representative produced any material before us to show that the books found lying in the compound of the residence of Sri Hari Bhushan were in the " possession or control " of Sri Hari Bhushan or of the company (the assessee) within the meaning of section 132(4A). Sri Hari Bhushan was examined before the search as well as after the search. A copy of his statement before the search is at page 1, of the paper book in which there is no reference to these books. The copy of the statement recorded after the search is at pages 2 to 4 of the paper book. This is a statement recorded on oath. The books did not bear the name of any person to whom they may be said to belong and in a question put to Sri Hari Bhushan, the authorised officer was not himself sure and put to Sri Hari Bhushan that it appeared that the books belonged to Doon Valley Flour Mills. Hari Bhushan stated that he did not know to whom the books belonged. In answer to another question he stated that the company's books are kept at the office of its mill and are written by a regular employee Anil Kumar. He also stated that he does not look after any affairs of the company. This statement is found at page 4 of the paper book. In another question it was again put to Sri Hari Bhushan that a perusal of the books showed that they belonged to the Doon Valley Flour Mills and he was asked to explain how the bag and the books therein and some other papers reached his compound. He denied any knowledge thereof and he also said that the books were not recovered in his presence. There is thus a clear denial on oath by Hari Bhushan of the suggestion that the books belonged to the present assessee. The assessing officer or the persons connected with the search operations do not appear to have examined any other person or to have gathered any evidence to link the books with the present assessee. No Director or official of the assessee company appears to have been questioned about the books and there is nothing to indicate that those books are written in the handwriting of Hari Bhushan or some director or accountant of the assessee. Even if Hari Bhushan had admitted the possession of the aforesaid books, evidence to link them with the assessee was necessary, whether it was gathered from Hari Bhushan himself or from some other source. The mere fact that Hari Bhushan was one of the share holders was not sufficient to link the books with the assessee and to burden the assessee with the effect of the contents thereof. Although the I.A.C. (Assessments) has in the assessment order twice stated that Hari Bhushan was looking after the affairs of the company, he has not cited any evidence for that conclusion, although in the sworn statement of Hari Bhushan referred to above there is clear evidence to the contrary. The mere fact that in the books found from the compound of Sri Hari Bhushan there are some entries which may indicate that they relate to business similar to that of the assessee, that would be sufficient only to raise a suspicion and positive evidence was required to convert that suspicion into acceptable proof. Such proof in our view is lurking in this case.

13. Similar is the fate of 468 bags of refraction found from the residence of Sri Praveen Kumar. The I.A.C. (assessment) does not even appear to have asked the assessee to show cause why those goods be not treated to be belonging to the assessee and added to its closing stock or why the value thereof be not added to its sales etc. etc. Praveen Kumar does not appear to have been examined and there is nothing to show, what he stated with regard to this circumstance, if he was examined about it. In Shyama Charan Saxena v. CIT [1984] 145 ITR 689 the Hon'ble Allahabad High Court has held that where a house was purchased in the names of minor grandsons of assessee, the burden of proof to prove that the assessee was the real owner of the property was on the revenue. The Hon'ble High Court held that to prove the benami character of a transaction, the burden is on the person who alleges it. The same analogy will apply to the present case, where the books and the property have not been found in the possession or control of the assessee.

14. As already stated the revenue's entire support is on the alleged admissions of the assessee. In its letter dated 20-10-84 a copy of which is at page 32 of the paper book, the assessee stated that the books, statements and documents relating to the period, assessment year 1984-85, were seized during the search operations and were still in possession of the Department. The letter then stated that since the books are with the department, the assessee 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 the seized material. The letter then requested the assessing officer that the income or loss may be assessed as worked out from the seized material and the said income may be treated as disclosed. Admittedly a search was conducted at the factory and head office premises of the assessee and certain books of accounts etc. were seized therefrom. When the assessee says that the income or loss may be assessed from the seized material, it is not permissible in law to assume that the assessee is referring to the material seized from the residences of Sri Praveen Kumar and Sri Hari Bhushan as well. This letter can reasonably be read to relate only to the materials seized from the possession and control of the assessee. If the assessee was willing to treat the books and the bags of refraction as its own property, it was necessary to record that admission specifically either in the order sheet or to get the same from the assessee in specific and unambiguous term in a letter duly signed by the assessee's director and counsel. Patently the assessee never made such admission and was not even willing to make such admission. This is clear from the fact that in reply to the assessing officer's letter dated 5-8-85 (copy at page 33) the assessee in its reply dated 12-9-85 (copy at page 34, of the paper book) skipped from making any reference to clause (b) of the Assessing Officer's letter. We have reproduced the said clause in extenso above. Firstly in the said clause the assessing officer merely gave some calculations and did not even propose to make an addition on that basis and then the assessee did not specifically comment on this clause. Probably the assessee saw through the uselessness of clause (b) which is couched in such perfunctory manner that if neither sought nor required any reply from the assessee. Thus it cannot be said that the assessee in any manner admitted the ownership of the books or the material or conceded that they represented assessee's income.

15. The fact that the assessee did not file any appeal against the assessment order does not amount to an admission of the charge of concealment. An admission has to be specific and mere failure to take remedial action cannot take the form of an admission particularly when as already stated there was according to the averments in the assessment order, a clear denial by the assessee that the books and the material did not belong to it.

16. The above discussion would show that the assessee's explanation before the assessing officer was that the books and the material did not belong to it and consequently any income reflected therefrom also did not belong to the assessee. This was the explanation offered by the assessee and the facts narrated above clearly show that this explanation stood substantiated from the very circumstances of the case i.e. that the books and material were not found in possession or control of the assessee. Therefore, the assessee's case was excepted from the provisions of Explanation I to section 271(1)(c) and the presumption created thereby could not be raised against the assessee inspite of the fact that certain additions have been made to the assessee's income and the assessee did not challenge the same, the burden was, therefore, on the revenue in the assessment proceedings to prove that the assessee did earn income reflected in the additions and also in the penalty proceedings to show that the assessee concealed the particulars of its income. This burden in our view has not been discharged.

17. As already stated the alternative argument of the learned counsel for the assessee was that in case it is considered that the assessee accepted the ownership of the books and the material even then the charge of concealment is not made out against the assessee. This argument in our view has considerable force. As is evident the search took place before the close of the accounting period. The assessee then filed its return of income on the 5th of July, declaring nil income on the ground that in the absence of books of accounts income/loss could not be correctly determined. Admittedly when the return was filed the books were in possession of the Department and, therefore, the assessee's difficulty was genuine and fit. The IAC (Asstt.) did not require the assessee to inspect the seized material and then to file a return showing what according to the assessee is its correct income or loss. Then the letter dated 20-10-1984 (page 32 of the paper book) also shows that even at that time the books were in possession of the Department. Here again the assessee repeated that in the absence of books the income or loss could not be correctly determined. It authorises the assessing officer to determine the income on the basis of the seized material and stated clearly that the said income may be treated as disclosed. Although the assessee was not bound to make any such statement but merely out of sheer timidity and anxiety to be at peace, it stated that it will not file any appeal for any addition made. The assessee has stood by its commitment and did not file any appeal, although if an appeal were filed the additions could not in our view have been sustained on the state of record as it was and as it continues to be. In such circumstances we do not find how the assessee can be said to have concealed that particulars of its income or filed inaccurate particulars. It could be said that the fact that it maintained duplicate set of account books recording therein certain transactions relating to its business would show that the assessee concealed the particulars of its income. That contention is not legally sound. When the assessee was preparing the so called duplicate book, it was merely making preparation for future concealment and preparation to conceal is not punishable under the Income-tax Act. When the books were written or were seized there was no legal obligation on the assessee to reveal anything to the Department, and, therefore, there cannot be any concealment at that stage. The obligation to reveal arises only when a return of income is filed or when the assessment proceedings are on. Failure to reveal at that time only would amount to concealment and penalty at that stage the assessee, if it is assumed that the books and the material belonged to the assessee and the assessee accepted this position, abandoned its previous plan, if any, to conceal and accepted that the income as determinable from the aforesaid material may be treated as disclosed. The books were already in possession of the Department and there was nothing to be disclosed. So was the quantity or refraction in the knowledge of the Department and the assessee could not disclose it in any better manner. We, therefore, are of the view that from both the angles no case of concealment or of furnishing inaccurate particulars of income is made out against the assessee and no penalty was, therefore, leviable on it.

18. As already stated one of the contentions raised on behalf of the assessee and controverted by the learned Departmental Representative was that penalty is not leviable with reference to the amount added in pursuance to an order u/s 263 made by the C.I.T. According to the learned counsel for the assessee, penalty can be levied only on the basis of the satisfaction of the assessing officer. According to him under section 271(1)(c) the C.I.T. has no power to initiate any action for the levy of penalty and the assessing officer has no power to levy penalty on the basis of additions made by the appellate or the revisional officers. He placed reliance on CIT v. Ananda Bazar Patrika (P.) Ltd. [1979] 116 ITR 416 (Cal.). In that case the I.T.O had assessed a certain sum as income from other sources and initiated penalty proceedings on that basis. On appeal the A.A.C. held that there was no income from other sources but that the amount was concealed business income of the assessee and the A.A.C. also enhanced the business income of the assessee on other evidence. The Hon'ble Calcutta High Court held that it was no longer open to the I.T.O. to proceed to impose penalty on the assessee on the basis of the findings of the A.A.C. In CIT v. Dwarka Prasad Subhash Chandra [1974] 94 ITR 154 (All.), it was held that the I.A.C. cannot levy penalty on the basis of concealed income discovered by the Appellate Assistant Commissioner. For the levy of penalty under section 271(1)(c) the I.T.O. has to arrive at the required satisfaction in the course of any proceedings under the Act. The learned Departmental Representative contended that the words " any proceedings " would mean proceedings before the C.I.T. u/s 263. In our view in proceedings u/s 263 it is only the Commissioner, who can arrive at the satisfaction that the assessee concealed the particulars of his income or furnished inaccurate particulars of such income. The I.T.O. can have satisfaction only in respect of proceedings taken before him and this is what has been held in the two rulings referred to above. We, therefore, hold that in case penalty is leviable in the present case, the addition of Rs. 84,320 would have to be ignored.

19. The next contention of the learned counsel was that the assessee's profit and loss account showed a loss of Rs. 3,52,009 which has not been disturbed and which is the basis of the determination of income by the I.A.C. (Assessments). According to him in the return filed by the assessee, the income or loss was shown at nil and, therefore, loss to the extent of Rs. 3,52,009 was impliedly adjusted by the assessee against the alleged concealed income and to that extent there was no concealment. The learned Departmental Representative, on the other hand, contended that according to the note given at page 1 of the return (reproduced above), the assessee wanted to disclose only a loss and, therefore, it cannot be said that the assessee had given up the loss. We are in agreement with the argument raised by the learned Departmental Representative. Though the income/loss was described as 'nil' in the return but the note written on the return clearly indicated that it was not the final figure and, therefore, it cannot be said that the loss computed in the profit and loss account had been given up. This contention in our view, has no force and is rejected.

20. The last contention raised on behalf of the assessee was that any relief granted to the assessee u/s 80HH and 80-I, would have to be taken into account in computing the tax sought to be avoided. This controversy relates to the addition of Rs. 7,67,382 made by the I.A.C.(Assessments) on account of some investments in various names. The assessment order has not given the facts in detail nor has the learned Departmental Representative placed before us any material to clarify the situation. By order dated 20-2-87 passed u/s 154 the I.A.C.(Assessments) did not allow any relief u/s 80-I of the Act on the ground that the amount of Rs. 7,67,382 was only deemed income of the assessee u/s 68 and not income from an industrial undertaking. However, in a subsequent order dated 18-3-88 again passed u/s 154 relief u/s 80-I has been granted at Rs. 95,284 treating the aforesaid amount also as a part of the assessee's income from the industrial undertaking of flour mill. Therefore, in the calculation of penalty while determining the amount of tax sought to be avoided the relief u/s 80-I granted to the assessee in the quantum assessment has to be adjusted. As regards the assessee's claim u/s 80HH no such relief has been granted in the quantum assessment and there is nothing before us to show that the assessee fulfils the pre-conditions for the grant of relief u/s 80HH. Therefore, this contention cannot be taken into account for determining the quantum of penalty.

21. No other point was raised from either side before us.

22. In the result the assessee's appeal is allowed and the penalty in question is cancelled.

 

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