2000-(158)-CTR -0323 -MAD



Tax Case No. 944 of 1984, decided on July 1, 1998.


Smt. Chitra Venkataraman, for the Applicant : None, for the Respondent



The Revenue has come up with this reference seeking to sustain the penalty of Rs. 4,35,850 imposed by the IAC on the assessee on the ground that the assessee had concealed income to that extent in its assessment for the asst. yr. 1965-66.

2. Three questions have been referred at the instance of the Revenue. They are :

“1. Whether, on the facts and in the circumstances of the case, having regard to the provisions of Expln. to section 271(1) (c) of the Act as it stood at the relevant time, the Tribunal was right in canceling the penalty of Rs. 4,35,850 under section 271(1) (c) of the IT Act, 1961, for the asst. yr. 1966-67 ?

2. Whether the Tribunal’s finding that the assessee had not concealed its income and not committed gross or wilful neglect is based on valid and relevant materials and is sustainable in law ?

3. Whether the Tribunal was right in holding that the IAC had no jurisdiction to levy penalty on 26th August, 1976, in the assessee’s case even though the penalty proceedings were initiated and referred to the IAC before 1st April, 1976 ?”

3. The third question can be disposed of first as the legal position has been authoritatively settled by the apex Court in the case of CIT vs. Smt. R. Sharadamma (1996) 133 CTR (SC) 136 : (1996) 219 ITR 671 (SC) : TC 49R.1194 wherein the Court held that the IAC who was seized of the matter did not lose seisin thereof on account of the deletion of sub-section (2) of section 274 by the Taxation Laws (Amendment) Act, 1975, w.e.f. 1st April, 1976, and that he did not lose the jurisdiction to continue with the proceedings pending before him on 31st March, 1976.

4. In this case, the proceedings before the IAC having commenced prior to 1st April, 1976, the Tribunal was in error in holding that he had no jurisdiction after the Amendment Act came into force. The third question is, therefore, answered in favour of the Revenue and against the assessee.

5. That answer, however, does not and cannot result in upholding the levy of penalty. The Tribunal has in its elaborate order considered all relevant factors and recorded a definite finding that there was no fraud or wilful neglect on the part of the assessee warranting imposition of penalty.

6. The material facts of the case as stated by the Tribunal in its order are that the assessee earned income by transferring certain import entitlements through another firm namely, M/s Maeximpo which had been paid substantial amounts for having negotiated the transactions, by way of commission. Two of the partners of the assessee-firm are partners of the firm, M/s Maeximpo along with the relatives of certain other partners. When the assessee’s return of income was considered by the ITO, he took the view that the firm M/s Maeximpo was only a dummy, the object of which was to divert the income of the assessee and that the firm had not rendered any services warranting any payment made to it. On appeal, appellate authority reversed the order of the ITO, and on further appeal, the Tribunal upheld the additions made to the income returned by the assessee not on the ground that the other firm M/s Maeximpo was a dummy and it has been set up to divert the income of the assessee, but on the ground that the induction of the intermediary was not warranted on commercial considerations and the entire income including the amounts shown as having been received by M/s Maeximpo should be assessed in the hands of the assessee.

7. After the Tribunal passed that order, penalty proceedings were initiated and the IAC imposed penalty in the sum stated in the earlier part of this order. The penalty so levied has been set aside by the Tribunal.

8. Learned counsel for the Revenue contended that the Tribunal has acted inconsistently after upholding the additions made in its earlier order. According to the counsel, the Tribunal ought to have sustained the imposition of penalty. This criticism, in our opinion, is unjustified as a reading of the order discloses that the Tribunal has considered every aspect of the matter including its own earlier order. The Tribunal has noticed the act that the firm M/s Maeximpo was a registered firm, that it did exist, that it had rendered some services and that the additions made to the assessee’s income by the Tribunal by its earlier order was only on the basis that the payments made to the other firm could not be required to be justified on commercial transactions. The Tribunal has thereafter considered the question as to whether the additions so made would warrant the conclusion that the assessee was guilty of fraud or wilful neglect. The Tribunal has, after examining the facts, held that the induction of the other firm as an intermediary was not with the object of creating a devise to conceal profits actually received by the assessee. The Tribunal has pointed out that the additions made by its earlier order was only on the ground whether the expenditure claimed to have been incurred had been laid out for the purpose of assessee’s business or not. Mere disallowance of that expenditure, treating it as a part of the income as held by the Tribunal, did not amount to fraud in the absence of any other evidence. The penalty that was imposed by the IAC was solely on the basis of the earlier order of the Tribunal without any other material being available in the records examined by him.

9. It has been held by the Supreme Court in the case of Sir Shadilal Sugar & General Mills Ltd. vs. CIT (1987) 64 CTR (SC) 199 : (1987) 168 ITR 705 (SC) that every addition to the income of an assessee does not warrant such addition being treated as concealment of income. As observed by the apex Court.

‘There may be a hundred and one reasons for such admission, i.e., when the assessee realises the true position, and does not dispute certain disallowances, but that does not absolve the Revenue from proving the mens rea of quasi criminal offence.”

A finding of fraud is a serious matter in any context against any person and should not be lightly recorded in the absence of proper evidence in support of that finding. The mere fact that certain amounts claimed by the assessee had been disallowed and treated as income does not necessarily lead to the conclusion that the assessee was guilty of fraud or wilful neglect. The fact that the Expln. to section 271(1) (c) required the assessee to show that there was no fraud or wilful neglect does not in anyway enable the Revenue to contend that there is a presumption of fraud or neglect without adducing any evidence, whatever to substantiate such assertion.

10. We do not find any error in the order of the Tribunal requiring our interference insofar as questions 1 and 2 are concerned. Those two questions are answered in favour of the assessee and against the Revenue.

11. As the assessee is unrepresented, we do not make any order as to costs.

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