ORDER
G. Santhanam, Accountant Member
1. This is an appeal against the levy of penalty under Section 271 (1)(c) of the Income-tax Act, 1961, relating to the assessment year 1977-78.
2. The assessee is a wholesale ration dealer and lorry owner. Apart from the proprietary business, be derived income from the firm of M/s. J. Paul Mundackal as a partner. The Income-tax Officer noticed certain amounts in the cash book which were not correctly posted to the ledger. The sum total of such errors came to Rs. 5,50,000 being seven instances which are extracted in the order of the first appellate authority. Further a sum of Rs. 58,444 was credited in the cash book on 21-9-1976 without any sale or rationed articles and that was also treated as concealed income. The additions made by the Income-tax Officer were accepted by the assessee and no appeal was filed against the said order. Thus the assessment had become final. During the course of assessment proceedings, the Income-tax Officer had initiated action under Section 271(1)(c) of the I.T. Act, 1961 and accordingly levied a penalty of Rs. 3,88,860. The assessee carried the matter in appeal before the CIT (Appeals). The contentions of the assessee before the first appellate authority were that the assessee had agreed for the additions on the understanding that no penalty would be levied in his case and without prejudice to such contention, if at all, penalty is leviable it should be limited to a sum of Rs. 14,000 only being the peak credit for the assessment year 1977-78 worked out as follows:-
Accounting year Assessment Peak ended year credit 31-3-1972 1972-73 Rs. 1,25,000 31-3-1973 1973-74 Rs. 4,91,000 31-3-1974 1974-75 Rs. 80,000 31-3-1975 1975-76 Rs. 5,41,000 31-3-1976 1976-77 Rs. 4,91,000 31-3-1977 1977-78 Rs. 5,56,000
The CIT (Appeals) held that in view of the Explanation 1 to Section 271(1)(c) any addition made in computing the total income of a person as a result of non-furnishing of an explanation or on rejection of an explanation offered by the assessee, will be deemed to represent the income in respect of which particulars have been concealed and in view of that Explanation penalty was rightly levied. As regards the alternative contention of the assessee that if at all penalty is leviable it has to be on a smaller sum of concealment worked out on the basis of the peak credit, the CIT (Appeals) held that it was not the stand of the assessee at any stage of the assessment proceedings nor can it be said that the amount belonged to earlier assessment years and again in view of the deeming provisions contained in Explanation 1 to Section 271(1)(c) the charge of concealment stood established. Thus, the levy of penalty was sustained. The assessee is on further appeal.
3. We have heard rival submissions and perused the records. The fact that the assessee has agreed for the additions is not disputed. The circumstances in which the assessee had agreed for the additions are well set out in the assessee’s two letters dated 15-12-1979 and it would be worthwhile to reproduce the same:-
Sir,
Ref: 46-003-PY-3323/ALY-A/77-78-Your letter dated 23-11-79.
1: With reference to your letter, I beg to submit as under.
2. It is stated in your letter that on a perusal of my books of account, it is seen that 1 have introduced in my Cash Book for the account year ended 31-3-1977, cash credits in a clandestine manner as mentioned in your notice and on this basis it is stated that money to the tune of not less than Rs. 5.5 lakhs has been introduced in the books of accounts.
3. I beg to submit that the sum of Rs. 5,50,000 pointed out by you is cash introduced in the books of accounts. However, this amount represents money which had been taken by me by way of loan from various parties as well as from constituents who have business dealing with me. There were also some amounts left with me which was also available for introduction by way of cash into the books as and when funds became necessary for business purpose.
4. At this distance of time, however, I am not in a position to adduce any proper evidence in support of the sources of these amounts to the extent of Rs. 5.5 lakhs mentioned by you in your letter.
5. In view of this, I submit that I have no objection to your including the sum of Rs. 5,50,000 in the taxable income for the assessment years 1977-78 and subjecting the same to tax.
6. You have also pointed out an entry relating to a sum of Rs. 58,443-93 on21-9-1976. I submit that the sum of Rs. 58,443-93 represents also proceeds of goods which was received as advance on 21 -9-1976 and which amount has been credited directly to the goods account by way of sale proceeds. The said sum represents the sale proceeds relating to the following bills.
Date Description Amount
22-9-1976 I Zone Bill No. 18746 Rs. 628.43
22-9-1976 II Zone Bill No. 29 Rs. 6,252.00
22-9-1976 I Zone Bill No. 18747
to 18761 Rs. 41,723.75
22-9-1976 II Zone Bill No. 30 to 34 Rs. 9,839.75
I submit that the sum of Rs. 58,443-93 credited in the Cash Book on 21-9-1976 is not my own money but the sale proceeds received in advance in respect of sale effect on 22-9-1976 and 23-9-1976 as explained above.
7. In view of the submissions made by me, I request you to kindly finalised my assessment for 1977-78 by including therein the sum of Rs. 5,50,000 referred to earlier and also by not including the sum of Rs. 58,443-93 as proposed in your notice.
8.1 also pray that in view of the co-operation shown by me in the matter of f inalisation of my assessment for 1977-78, you may be pleased to kindly refrain from initiating any penal proceedings against me either under Section 271 or under Section 273 and I also pray that no interest be levied against me under any of the provisions of the Income-tax Act, 1961.
9. If any further clarification is required, I am prepared to furnish the same.
Thanking you.
Sir,
Ref: 46-003-PY-3323/ALY-A/77-78-Your letter dated 23-11-79 and my reply dated 15-12-1979.
1. Further to my reply dated 15-12-1979 to your letter above, I beg to submit as under.
2.1 submit that in view of the circumstances relating to the credit of Rs. 58,443-93 being the amount credit in the Cash Book on 21-9-1976, I have no objection to your including the said amount also in arriving at my taxable income for the assessment year 1977-78.
3. However, in view of the circumstances explained by me in paragraph 6 of my letter dated 15-12-1979 and also in view of the co-operation shown by me in the matter of finalisation of my assessment for 1977-78, you may be pleased to kindly refrain from initiating any penal proceedings against me in respect of the sum of Rs. 58,443-93 also apart from the sum of Rs. 5,50,000 mentioned in the letter dated 15-12-1979 either under Section 271 or under Section 273 and I also pray that no interest be levied against me under any of the provisions of the Income-tax Act, 1961.
Thanking you,
Yours faithfully,
Sd/
(V. Rajasekharan Nair)
From the above two letters it is evident that the assessee had some explanation for the sum of Rs. 5,50,000 suchmoneys have come by way of loans from various parties as well as from the constituents who had business dealings with the assessee and that there were also some amounts left with him in the past for introduction. As for the sum of Rs. 58,444 it was explained that this was advance money received towards the sale proceeds. Thus there was some explanation with regard to both these sums. However, it would appear that the assessee was anxious to purchase peace with the revenue by agreeing for the additions. This anxiety on the part of the assessee is writ large on the face of the two letters. It is also not in dispute that the assessee had extended co-operation in the matter of finalisation of the assessment. Para 8 of his letter dated 15-12-1979 and also para 3 of his letter of even date would clearly show that the assessee has agreed for the additions on the understanding on his part that there would not be any penal action against him. True to his words, the assessee had not appealed against the additions made. Such being the case, it is rather difficult for us to say that the additions made in the assessment are not agreed additions. It is not as if that the assessee did not offer any explanation for the sum of Rs. 5,50,000 credited in the cash book for the year ended 31 -3-1971 or for the sum of Rs. 58,444. The explanation was there, but the veracity of the explanation was not tested perhaps in view of the conduct of the assessee for having agreed to the additions in the assessment. He had also accepted the additions agreed to by him without preferring any appeal on the additions. In such circumstances, we feel that penalty is not leviable and we draw support for our conclusion in the decision of the Supreme Court in the case of Sir Shadilal Sugar & General Mills Ltd. v. CIT [1987] 168 ITR 7051.
4. Even otherwise, it is axiomatic that penalty is leviable only if there is no explanation or the explanation given is proved to be false or remains unsubstantiated. In the case of the assessee, there was an explanation to the effect that he had collections from the constituents and moneys left over with him in the past and that explained the discrepancy between the entries in the cash book and the ledger. Neither the Assessing Officer nor the first appellate authority has tested the veracity of the explanation in the penalty proceedings. Thus, the falsity of the explanation has not been established. The statement of peak credits furnished by the assessee is in accord with the explanation and suggest the existence of a rolling fund over the years, sometimes increasing and sometimes decreasing and if regard is had to this feature of the explanation, it can be held that the peak credit statements supported the stand of the assessee to a larger extent. Pushed further, the quantum of concealment, if any, worked out on the basis of the peak credit statements can be only of the order of Rs. 14,000 and there would be no justification for the levy of penalty on the sum of Rs. 6,08,444 as has been done.
5. Sri C. Abraham, the learned senior departmental representative vehemently contended that if the credits found in the previous year relevant to the impugned assessment year are accepted as an offshoot of such credits in the preceding years, the department will be left with no remedy at all as it has not reopened the assessments for the preceding years. Its difficulties are understandable. But we have no power to order initiation of reassessment proceedings in regard to earlier years. Incidentally, we may observe that the assessee himself has altered the Income-tax Officer by his admissions and explanations that he had moneys left over with him in the past and mistakes had occurred in his books of account. If the Assessing Officer did not choose to reopen the assessment on the basis of such admissions, all that we can say is that the difficulties faced by the revenue are only at its own invitation. It may be that the Income-tax Officer did not proceed to initiate reassessment proceedings as the assessee had agreed for the assessment of the entire amount in the year under appeal. This agreement was on the condition that no penalty proceedings would be initiated against him as is evident from the letters of the assessee dated 15-12-1979 and subsequent letters. Thus, both the assessee and the Assessing Officer have acted on an understanding of the situation and, therefore, there cannot be any levy of penalty on an agreed assessment. For all these reasons, we cancel the penalty levied.
6. In the result, the appeal is allowed.