ORDER
CH. G. KRISHNAMURTHY, PRESIDENT :
This is an appeal filed against the imposition of penalty of Rs. 2,00,890 under S. 271(1)(c) of the IT Act, 1961 and confirmed by the Commissioner(A) on appeal.
2. The assessed, a firm, dealing in gum filed for the year under appeal a return disclosing an income of Rs. 71,850. The assessment was, however, completed on a total income of Rs. 11,27,429, which was finally reduced on appeal to Rs. 3,90,205. The difference between the income returned and assessed and finally determined arose on account of an addition of Rs. 1,50,000 made in the following circumstances.
The assessed is a firm trading in, as we mentioned earlier, gum, dry fruits, heeng and jera both at Bombay and Delhi. During the course of assessment proceedings, it was noticed by the ITO that there were some sales of gum without sufficient stocks on hand. In the course of scrutiny it was found that there was opening balance of Rs. 2,670 kg. of gum on 1st July, 1982 but the assessed sold 971 kg. on 2nd July, 1982 and 456 kg. on 9th July, 1982. Further a quantity of 4,000 kg. was transferred to compound heeng Account taking the aggregate of these items to 5,427 kg. The assessed had purchases 4,171 kg. of gum on 10th July, 1982. Thus, when the stocks available on 10th July, 1982 were compared with the stocks sold or transferred to the Heeng Account, they were found in excess as disclosed by the above figure. The purchase made on 10th July, 1982 of 4,171 kg. was kept aside for the purpose of finding out whether there was sufficient stock available for sale and transfer amounting to 5,427 kg. when the opening balance available was only 2,670 kg. So the difference between the opening balance and the aggregate of 5,427 kg. revealed an excess sale of 3,000 kg. of gum over and above the opening stock and that was considered to be the stock available outside the books of account. Its value was estimated at Rs. 70,000. Then another point noticed by the ITO was that the purchases of Rs. 88,115 were shown for Rs. 1 lac and that sale proceed of Rs. 1,00,000 were not accounted for in the books. Thus, an addition of Rs. 1,70,000 was made to cover up both the items mentioned above. These additions were reduced on appeal by the Commissioner(A) to Rs. 1,50,000. As the assessed was not maintaining any day to day account of gum, on appeal the Tribunal confirmed this addition of Rs. 1,50,000. In addition to the above addition, the ITO noticed certain cash transfers from its Delhi Office to Bombay. These cash transfers took place on the following dates of the amounts mentioned against each :
29th Sep., 1982
Rs. 50,000
14th Feb., 1983
Rs. 55,000
23rd Feb., 1983
Rs. 50,000
In an enquiry as to the mode and the manner of the transfers of this cash from Delhi to Bombay, it was found that this cash was sent through the medium of persons but the traveling expenses were nowhere debited in the books of accounts. From this an inference was drawn that the sum though said to have been sent to Bombay was not sent to Bombay Office and the corresponding credits shown in the Bombay Office books must have come out of the undisclosed income of the assessed. The explanation of the assessed that this money was sent to Bombay through Mrs. Vasudev and one Shri Krishan Chand was not accepted because the assessed was not able to produce either of them before the ITO for his examination. This amount was added by the ITO as income of the assessed from undisclosed sources and this addition was confirmed both by the Commissioner(A) as well as the Tribunal. The confirmation of these additions by the Tribunal was regarded as establishing the fact of concealment of income by the assessed and therefore penalty proceedings, which were already initiated earlier, were continued and eventually a penalty of Rs. 2,00,890 was imposed. We are not now concerned here as to how this penalty was calculated expect to state that this penalty was worked out as if it is equal to 100% of the tax sought to be evaded.
3. In a further appeal against this penalty before the Commissioner(A), that officer confirmed the levy of penalty as called for and justified. Hence, the present appeal before us.
4. How the penalty imposed, as we have explained, was on two counts; one is discrepancy in the stock account and other the addition of cash credits as if they came out of the undisclosed income of the assessed. Without going into the merits of the case, which weighed with the Tribunal in confirming the addition, we have independently gone into the evidence and the material available for the Department and found that there is very little justification for treating those addition as income from undisclosed sources or concealed income in any sense of the term. So far as the discrepancy in the gum account is concerned, as we have explained above, the ITO compared the opening stock of the gum with the subsequent sales and transfers deliberately or otherwise ignoring the subsequent purchase made. The purchase was made on 10th July, 1982 and the receipt of the goods was available with the assessed. We have so far not been shown any evidence or circumstances leading to the conclusion that this purchase was not made and the stocks involved in that purchase were not received by the assessed and were not available with the assessed for being dealt with either for sale or for transfer. There is complete stocks tally and all the purchases made including the opening stock were fully accounted for in the sales and the closing stock. There was no deficiency in the gum account except delay in the entry made in the account books. There may be a little discrepancy in making the entries in the stock register from the purchase register as and when the purchase and sale had taken place. Normally in a business, one is expected to make the entries then and there and not wait for any future date for making the entries or delay for making of the entries. That may lead to suspicion but one has to see the practical aspect. Normally in business stocks are received first and then bills and then payments are made. Sometimes bills are received first and stocks later and sometimes payments are made first and both the bills and the stocks are received very late. All this depend upon the exigencies of business and the mutual confidence that the traders have in each other. As long as stock tally is there and as long as there a purchase made, merely because of a delay in making the entries it is unsafe to draw the inference that the sales were made without there being stocks. It thus seems to us that there was no discrepancy in the stocks warranting a conclusion that there was sale of gum without enough of stocks as disclosed by the books to support the view that the difference in the stock had necessarily come out of unaccounted for stocks lying outside the account books. To us it appeared everything was accounted for in the books and if the delay in making the entries was borne in mind, the occasion for making the addition would not have arisen.
5. In so far as the addition of Rs. 1,00,000 was concerned, we are unable to appreciate how a purchase made and entered in the books and when later sold was not or could not have been brought into the books. It is absolutely unlikely. If such a thing would have happened, there would have been a wide variation in the stock tally. As there is no discrepancy in the stock tally, the inference that the purchases made and entered in the account books were sold and the sale proceeds were not brought in the accounts is not capable of being countenanced. The reasons given by the ITO in support of this addition of Rs. 1 lac are also very queer and are difficult to follow. The ITO mentioned in his order :
“The second point, which is established is that on 31st July, 1982 the assessed sold the new consignment received again outside the books of account, so far as that was never accounted for additional stock either in closing stock or by subsequent sale. That means that purchase of Rs. 88,113 have been sold for approximately Rs. 1,00,000 and not accounted for.”
It is difficult to follow what the ITO meant by saving that the consignment purchased on 31st July, 1982 for Rs. 88,113 was sold outside the books of account for Rs. 1 lac. It is not the case of the Revenue that this purchase was not entered in the books of account. But it is conceded that the purchase was entered in the books of account. When the purchase was entered in the books of account along with quantity, then the quantity must be accounted for in the sale and closing stock. When the quantity of the sale was recorded in the books, the corresponding value must have been brought into the books of account otherwise the books would not tally in so far as the stock is concerned. Thus this addition appears to be based upon a total misappreciation of the entries made in the accounts and purely conjectural. In any case this addition is not a proof of concealment of income by the assessed in any sense of the term.
6. Now we go to the other addition made on account of cash credits. What is to be seen in so far as this addition is concerned, is whether on the dates when the cash was shown to have been withdrawn from Delhi books to be sent to Bombay, there was enough cash balance in Delhi office books and secondly whether the cash was really withdrawn and thirdly whether the cash was needed for business purpose in Bombay and lastly whether the credit taken for the cash was after the dates of withdrawal from Delhi. Now if the answers to all these questions are in the affirmative, then the source for the credits in the Bombay books is the withdrawal in Delhi books. It is not the case of the Revenue that the cash withdrawn from Delhi books was spent for purpose other than for being sent to Bombay and that this money was not available to the assessed to be sent to Bombay. In the case of the first debit in Delhi, we have verified from the books of accounts and found that the credits in Bombay were all on dates subsequent to the dates of withdrawal from Delhi Office. Therefore, the source for the credits in Bombay office is fully explained. Thus, this addition, through sustained by the Tribunal, could not be said to be concealment of income of the assessed in the sense that money had come out of undisclosed sources of the assesses. The explanation offered by the assessed was not shown to be fictitious unreliable but it was only disbelieved. Merely for the reason that the traveling expenses were not debited in the books of account, the fact that money was withdrawn for being sent to Bombay cannot be ignored. What is more the narration in the cash book clearly showed that these withdrawals were made exclusively for the purpose of being sent to Bombay office. The narration given in the cash book was the primary evidence, being the entry made in the prime books of entry, namely, the cash book. Therefore, it is difficult, in fact unsafe also, to treat this addition though confirmed by the Tribunal, as the concealed income of the assessed within the meaning of S. 271(1)(c) and the Explanation added thereto. Here it appears to us to be a misjudgment made by the Department obsessed by the feeling that the lack of entry for traveling expenditure would, as a matter of course, lead to the conclusion that the money was not available for being sent to Bombay and that the money introduced in the Bombay books had come out of some undisclosed sources. Thus, none of the additions made by the Department justify the conclusion that the assessed was guilty of concealment of income or furnishing of inaccurate particulars in respect of those additions. The conclusion drawn by the authorities below does not appear to us to be justified, warranted and sound. We therefore accept the assesseds appeal and delete the penalty.
7. In the result, the appeal is allowed.