M/S Jyoti Ltd, Baroda V. The Dy Cit (Asstt) S R-2, Baroda

ITA 3018/AHD/2002

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 5456 (ITAT-AHMEDABAD)
• Duration Of Justice: 7 year(s) 10 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-07-2010
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: D
• Next Hearing Date: 10-06-2010
• Assessment Year: misc
• Appeal Filed On: 27-09-2002
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: C K MISHRA SRDR
• Assessee Lawyers: J P SHAH SRAR
• Keywords: Income from undisclosed sources; Question of law; Reasonable cause; Difference of opinion; Corroborative evidences; Revised return; Set aside
• Section: 271(1)(c); 131; 27

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AT AHMEDABAD AHMEDABAD D BENCH BEFORE SHRI G.D. AGARWAL, VICE-PRESIDENT (AZ) AND SHRI MAHAVIR SINGH, JUDICIAL MEMBER ITA NO.3016-3019/AHD/2002 [ASSTT.YEARS: 82-83, 84-85, 85-86 & 86-87] JYOTI LTD., INDUSTRIAL AREA -VS- DY. CIT (ASS) SR- 2, BARODA BARODA PAN NO.AAACJ4909N JYOTI LTD. INDUSTRIAL AREA, -VS- JT. CIT, (AST)S.R S.2, BARODA BARODA JYOTI LTD. INDUSTRIAL AREA, -VS- DY. CIT (ASST.) S .R.2, BARODA BARODA JYOTI LTD. INDUSTRIAL AREA, -VS- JY. CIT, (ASST) S R-2, BARODA BARODA (APPELLANT) (RESPONDENT) REVENUE BY : SHRI C.K. MISHRA, SR-DR ASSESSEE BY: SHRI J.P. SHAH , SR-AR O R D E R PER MAHAVIR SINGH, JUDICIAL MEMBER:- THESE FOUR APPEALS BY ASSESSEE ARE ARISING OUT OF THE ORDER OF COMMISSIONER OF INCOME-TAX (APPEALS)-I, BARODA. THE ASSESSMENTS WERE FRAMED BY ACIT, CENTRAL CIRCLE-3, BARODA FOR THE ASSESSMENT YEARS 1982-83, 1984-85, 1985-86 & 1986- 87 RESPECTIVELY. 2. SINCE IN ALL THESE FOUR APPEALS OF THE ASSESSEE, COMMON ISSUES ARE REGARDING LEVY OF PENALTY U/S.271(1)(C) OF THE ACT ON ACCOUNT OF SALE OF SCRAP OUTSIDE THE BOOKS OF ACCOUNT AND AGENCY CO MMISSION NOT DISCLOSED, THESE ARE HEARD TOGETHER AND ARE BEING D ISPOSED OFF BY THIS ITA NO.3016-3019/AHD/2002 A.YS.82-83, 84-85 T O 86-87 JYOTI LTD. V. JT.CIT (ASST)SR-2, BARODA PAGE 2 CONSOLIDATED ORDER FOR THE SAKE OF CONVENIENCE AND BREVITY. FIRST WE WILL TAKE UP ITA NO.3018/AHD/2002 FOR THE ASSESSMENT YEAR 1985-86, WHICH IS A LEAD MATTER AND THE GROUNDS RAISED BY THE ASSESSEE IN THIS APPEAL ARE AS UNDER:- 1. THE C.I.T.(APPEALS) ERRED IN UPHOLDING THE PENA LTY OF RS.3,23,728/- IMPOSED BY THE ASSESSING OFFICER UNDER SEC. 271(1)( C) IN RESPECT OF THE AGENCY COMMISSION OF RS.2,60,568 AND SALE OF SCRAP OF RS.3,00,000/- BASED ON SOME SLIPS SUPPLIED BY THE OUTSIDER DIRECTLY TO THE DEPARTMENTAL OFFICIALS. 2. THE C.I.T. (APPEALS) ERRED IN POINTING OUT THAT THE ALLEGED SLIPS OF THE SALE OF SCRAP WERE FOUND AT THE RESIDENCE OF THE DIRECTO R. THE FACT IS THAT FABRICATED SLIPS WERE SUPPLIED TO THE DEPARTMENT DIRECTLY BY S OME ANTAGONIZED PERSON. 3. THE C.I.T. (APPEALS) ERRED IN UPHOLDING THE PENA LTY IN RESPECT OF AGENCY COMMISSION OF RS.2,60,568/-. 4. THE C.I.T.(APPEALS) FAILED TO APPRECIATE THAT TH E TRIBUNAL ITSELF HAD SENT THE QUESTION FOR THE VALIDITY OF BOTH THE ABOVE ADD ITIONS TO THE HONBLE HIGH COURT UNDER SECTION 260A, AND THEREFORE, THE BASIS ON WHICH THE ABOVE PENALTY WAS IMPOSED ITSELF WAS NOT FIRM. 3. THE BRIEF FACTS LEADING TO THE ABOVE ISSUE ARE T HAT THE ASSESSEE-COMPANY IS ENGAGED IN THE MANUFACTURING AND SALE OF ELECTRIC E QUIPMENTS, SUCH AS SWITCH GEARS, CIRCUIT BREAKERS, VARIOUS OTHER ELECTRIC EQUIPMENTS ETC. THE ASSESSEE-COMPANY ALSO UNDERTAKES CERTAIN TURNKEY PROJECTS BY ENTERING INT O TECHNICAL COLLABORATION WITH VARIOUS FOREIGN COMPANIES OF JAPAN AND GERMANY ETC. THE ASSESSEE-COMPANY FILED ORIGINAL RETURN OF INCOME ON 28-06-1985 DECLARING T OTAL INCOME AT RS.3,09,070/- FOR ASSESSMENT YEAR 1985-86 AND SUBSEQUENTLY FILED REVI SED RETURN ON 30-09-1985 REVISING THE TOTAL INCOME AT RS.3,84,030/-. SUBSEQ UENTLY, AGAIN THE RETURN WAS REVISED ON 15-03-1988, REVISING THE TOTAL INCOME AT RS.3,30,050/-. 4. FIRST WE WILL DEAL WITH THE ISSUE OF PENALTY LEV IED IN RESPECT OF ADDITION OF AGENCY COMMISSION AT RS.2,60,568/-. THE ASSESSEE-CO MPANY ENTERED INTO VARIOUS AGENCY AGREEMENTS WITH FOREIGN COMPANY OVER THE LAS T FEW YEARS UNDER WHICH IT ACTS AS AGENT IN INDIA FOR SELLING THEIR GOODS IN INDIA AND PROVIDES VARIOUS OTHER SERVICES SUCH AS COLLECT INQUIRIES, PROMOTE SALES, BID AND N EGOTIATE BUSINESS CONTRACTS, PROVIDE AFTER SALES SERVICES ETC. THE AGENCY COMMIS SION IS PAID TO THE ASSESSEE- COMPANY EITHER ON LUMP-SUM BASIS OR ON PERCENTAGE B ASIS ON TOTAL SALE EFFECTED DEPENDING UPON THE CLAUSES OF A PARTICULAR AGREEMEN T. THE ASSESSEE-COMPANY ITSELF ITA NO.3016-3019/AHD/2002 A.YS.82-83, 84-85 T O 86-87 JYOTI LTD. V. JT.CIT (ASST)SR-2, BARODA PAGE 3 FURNISHED INFORMATION THAT IT HAS ACTED AN AS AGENT IN INDIA FOR TWENTY FOREIGN COMPANIES AT ONE TIME OR OTHER FROM THE YEAR 1981-8 2 TO 1985-86. THE ASSESSEE- COMPANY DISCLOSED THE AGENCY COMMISSION RECEIVED FR OM SUCH COMPANIES IN THE YEAR UNDER CONSIDERATION AT RS.3,61,947/-. THE DEPA RTMENT OF REVENUE, MINISTRY OF FINANCE, NEW DELHI VIDE THEIR LETTER NO.F.NO.504/5/ 87-FTD DATED 04-03-1987 INFORMED THE INCOME TAX DEPARTMENT THAT THE ASSESSE E-COMPANY HAS RECEIVED A SUM OF US DOLLARS 47,242.69 ON 16-04-1985 AS AGENT COMMISSION FROM A JAPANESE COMPANY NISRHO IWAI CORPORATION, TOKIO, JAPANA AND COPIES OF THE RELEVANT DOCUMENTS WERE ALSO SENT BY THE DEPARTMENT OF REVEN UE ALONG WITH THE ABOVE INFORMATION. THE INCOME TAX DEPARTMENT IN VIEW OF T HE ABOVE INFORMATION, TAKEN UP IMMEDIATE INQUIRIES, TO FIND OUT WHETHER JYOTI LTD. HAS DECLARED SUCH COMMISSION IN ITS BOOKS OF ACCOUNT IN THE RELEVANT YEAR OR NOT, V IDE LETTER NO.CC.1/ENQ./J/85-86 DATED 02-04-1987 WRITTEN BY THE ITO, C.C.I.T. BAROD A, WHO THEN HAD JURISDICTION OVER THE CASE TO THE PRINCIPAL OFFICER, JHYOTI LTD. FOR FURNISHING THE RELEVANT DETAILS REGARDING THE ABOVE COMMISSION. THE ASSESSEE-COMPAN Y VIDE LETTER DATED 03-04- 1987 ASKED FOR FURTHER TIME TO FURNISH THE INFORMAT ION ON THE GROUND THAT THE CONCERNED PERSON IS OUT OF STATION. THEREAFTER THE DEPARTMENT ISSUED INQUIRY LETTERS AND ALSO ISSUED SUMMONS U/S.131 TO SHRI RAHUL N AMI N, MANAGING DIRECTOR OF THE ASSESSEE-COMPANY TO FURNISH THE INFORMATION REGARDI NG THE RECEIPT OF FOREIGN COMMISSION BUT ON ONE PRETEXT OR THE OTHER SHRI RAH UL N AMIN EVADED THE INQUIRY. MEANWHILE, THE COMPANY VIDE ITS LETTER DATED 07-05- 1987 REPLIED THAT NO AGENCY COMMISSION FROM NISSHO IWAI CORPORATION HAS EITHER BEEN RECEIVED OR CREDITED IN COMPANYS ACCOUNT IN SINGAPORE AND RECEIVED AN AMOU NT OF RS.5,94,996/- FROM SHRI RAHUL N AMIN ON 04-05-1987 WHICH HAS BEEN CREDITED TO THE COMPANYS ACCOUNT IN BARODA AS COMMISSION RECEIVED FROM NISRHO IWAI CORP ORATION, JAPAN BY SHRI RAHUL N AMIN. ACCORDING TO THE ASSESSING OFFICER FURTHER INQUIRIES IN THE MATTER REVEALED THAT SUCH FOREIGN COMMISSION WAS ALSO RECEIVED BY T HE COMPANY FROM TWO OTHER FOREIGN COMPANIES, NAMELY, RINGFEDER GABH, WEST GER MANY, AND TOOYO DENKI SEISO K.K. JAPAN, WHICH WAS NOT DECLARED IN THE BOO KS OF ACCOUNT BY THE INDIAN COMPANY. THIS WAS ADMITTED BY SHRI RAHUL N AMIN IN HIS STATEMENT ON OATH, FINALLY RECORDED U/S.131 ON 28-05-1987 AND DETAILS OF SUCH COMMISSION ALONG WITH DATES OF RECEIPT AS PER ADMISSION MADE BY SHRI RAHUL N AMIKN ARE GIVEN BELOW:- NAME OF THE COMPANY DATE OF RECEIPT AMOUNT RECEIVED ITA NO.3016-3019/AHD/2002 A.YS.82-83, 84-85 T O 86-87 JYOTI LTD. V. JT.CIT (ASST)SR-2, BARODA PAGE 4 TOYO DENKI SEIZO K.K. JAPAN 24.8.83 2.10.85 2.12.85 JUNE86 3,872,800 1,07,000 10,478,000 18,000,000 NESSHO IWAI CORPORATION, JAPAN 17.4.85 11,865,000 RINGFEDERE GMBH, WEST GERMANY 22.11.83 22.2.84 20.7.84 7.12.84 2.8.85 19.11.85 DM 8669.19 DM 1615.04 DM 279.55 DM 1861.70 DM1150.25 DM 2967.91 DM 10925.10 THE TOTAL AMOUNT WAS TRANSFERRED BY SHRI R.N. AMIN TO THE COMPANYS ACCOUNT IN MAY AND JUNE, 1987 AS FOLLOWS:- DATE OF LETTER AMOUNT IN INDIAN RUPEES AMOUNT IN FOREIGN CURRENCY 4.5.87 5,94,996 US $ 47,242 16.5.87 22,90,406 US $ 1,81,858 12.6.87 2,28,240 US $ 18,000 RS. 31,13,642 2,47,100 THE ASSESSING OFFICER FURTHER NOTED THAT THE ABOVE AMOUNTS REPRESENT FOREIGN COMMISSION RECEIVED FROM THESE THREE COMPANIES AS W ELL AS EXPENSES INCURRED ABROAD OUT OF COMMISSION RECEIVED AND THE TOTAL AMO UNT OF SUCH COMMISSION IN INDIAN CURRENCY IS THEREFORE RS.31,13,642/- WHICH I S THE EQUIVALENT AMOUNT OF US $ 2,47,100 AS ON THE DATE OF TRANSFER BY SHRI RAHUL N AMIN, MD OF THE ASSESSEE- COMPANY AND HE WAS KEEPING THESE IN SOME ACCOUNT OT HER THAN THE COMPANYS. FOR EXAMPLE, THE COMMISSION FROM NISSHO IWAI CORPORATIO N, JAPAN WAS DEPOSITED IN THE PERSONAL ACCOUNT OF SHRI R.P. JADEJA, A TRUSTED MAN OF SHRI RAHUL N AMIN, WHO ALSO WAS IN-CHARGE OF SINGAPORE OFFICE. HE FURTHER NOTED THAT SIMILAR AMOUNT EQUIVALENT TO JAPANESE YEN 1,80,00,000 RECEIVED FROM TOYO DENKI W AS DEPOSITED IN THE BANK ACCOUNT OF SHRI ANANT N AMIN, YOUNGER BROTHER OF SH RI RAHUL N AMIN, IN USA AND THE FACT THAT IN THE COURSE OF INQUIRIES ON THE POI NT, SHRI RAHUL AMIN TRANSFERRED A SUM OF RS.31,13,462/- FROM HIS BANK ACCOUNT AT BARO DA TO JYOTI LTD. ACCORDING TO THE ASSESSING OFFICER THE MATERIAL POINT WHICH IS CRYST AL CLEAR IS THAT SHRI RAHUL N AMIN HAD BEEN DIVERTING AND DEPOSITING COMMISSIONS EARNE D BY THE COMPANY FROM FOREIGN COMPANIES IN ACCOUNTS OF THESE PERSONS IN FOREIGN C OUNTRIES, WHERE IN THE NORMAL COURSE OF CIRCUMSTANCES, THE MONEY COULD NOT HAVE B EEN DEPOSITED. THE ASSESSING ITA NO.3016-3019/AHD/2002 A.YS.82-83, 84-85 T O 86-87 JYOTI LTD. V. JT.CIT (ASST)SR-2, BARODA PAGE 5 OFFICER FURTHER NOTED THAT MATERIAL BEFORE HIM CLEA RLY ESTABLISHES THAT SHRI RAHUL N AMIN IN HIS CAPACITY AS THE MANAGING DIRECTOR OF TH E COMPANY IN LEAGUE WITH HIS SUBORDINATES, WAS SIPHONING OUT FOREIGN EARNINGS OF THE COMPANY TO ACCOUNTS IN FOREIGN COUNTRIES OTHER THAN THE COMPANYS AND IN T HE PROCESS, THE COMMISSION WAS CONCEALED FROM THE BOOKS PROFITS OF THE INDIAN COMP ANY. IN VIEW OF THESE FACTS HE RECORDED A FINDING THAT SUCH FOREIGN EARNINGS WERE NEITHER DECLARED IN THE PERSONAL TAX RETURNS OF SHRI RAHUL N AMIN NOR WERE THEY REFL ECTED IN THE TAX RETURNS OF THE INDIAN COMPANY. 5. THE ASSESSING OFFICER FURTHER NOTED THAT AS FAR AS THE TAXABILITY OF THE AFORESAID AMOUNT IS CONCERNED, IT HAS BEEN STATED B Y THE COMPANY THAT SINCE IT IS RECEIVED IN THE YEAR 1987 BY THE COMPANY AND SAME W ILL BE SHOWN AS INCOME FOR THE RELEVANT ASSESSMENT YEAR 1988-89. IT HAS FURTHER BE EN STATED THAT AS A MATTER OF ACCOUNTING POLICY, THE COMPANYS ACCOUNT FOR COMMIS SION ON CASH BASIS, AND THEREFORE IT IS TREATED AS INCOME IN THE YEAR OF RE CEIPT, WHICH ACCORDING TO THE COMPANY IS 1987. BUT ACCORDING TO THE ASSESSING OFF ICER THIS PROPOSITION PUT FORWARD BY THE COMPANY IS TOTALLY INCORRECT AND THE AMOUNT OF COMMISSION WAS DEPOSITED BY FOREIGN COMPANIES IN FAVOUR OF THE INDIAN COMPANY O N VARIOUS DATES, BETWEEN 1983 AND 1986. THE ASSESSING OFFICER FURTHER NARRATED F ACTS THAT IN THE PRESENT CASE, AUTHORITY TO ENTER INTO AGENCY AGREEMENTS WITH FORE IGN COMPANIES WAS DULY GIVEN TO SHRI RAHUL N AMIN IN HIS CAPACITY AS THE MANAGING D IRECTOR OF THE COMPANY UNDER THE TERMS AND CONDITIONS OF HIS APPOINTMENT AS MANA GING DIRECTOR. THIS FACT IS ALSO CLEARLY ADMITTED BY SHRI RAHUL N AMIN IN HIS STATEM ENT ON OATH RECORDED U/S.131 ON 09-03-1989, WHICH HAS BEEN PLACED ON RECORD BY THE LOWER AUTHORITIES AND IT IS ALSO ADMITTED THAT SUCH AGREEMENTS ENTERED INTO BY HIM O N BEHALF OF THE COMPANY ARE NATURALLY BINDING ON THE COMPANY, HE BEING DULY AUT HORIZED TO DO SO. THUS, WHEN SHRI AMIN ENTERED INTO THE AGENCY AGREEMENTS WITH T HE FOREIGN COMPANIES BY SIGNING IN HIS CAPACITY AS THE MANAGING DIRECTOR OF THE COM PANY, THE AGREEMENT WAS IN FACT AND IN LAW ENTERED INTO BY THE COMPANY. WHEN THE CO MMISSION AMOUNTS WERE DEPOSITED IN A PARTICULAR ACCOUNT BY THE FOREIGN CO MPANIES AT THE EXPLICIT INSTRUCTIONS OF SHRI AMIN, THEY WERE RECEIVED IN FACT AND IN LAW BY THE COMPANY. THUS, THE MATTER IS CRYSTAL CLEAR THAT WHAT IS RECEIVED BY THE MANAG ING DIRECTOR OF THE COMPANY, SHRI AMIN IS IN FACT AND IN LAW RECEIVED BY THE COMPANY JYOTI LTD. AND THEREFORE THE AMOUNT SHOULD BE TREATED AS RECEIVED IN THE HANDS O F THE COMPANY ON CASH BASIS ITA NO.3016-3019/AHD/2002 A.YS.82-83, 84-85 T O 86-87 JYOTI LTD. V. JT.CIT (ASST)SR-2, BARODA PAGE 6 FROM THE YEAR 1983 TO 1986. IN VIEW OF THESE FACTS HE NOTED THAT THE COMPANY FOLLOWS CASH BASIS OF ACCOUNTING FOR COMMISSION BUT EVEN TH E COMMISSION IS CONSIDERED ON ACCRUAL BASIS, THE ABOVE INCOME HAS BEEN EARNED BY THE INDIAN COMPANY IN THE YEARS 1983 TO 1986. ACCORDING TO THE ASSESSING OFFI CER, THE QUESTION TO BE CONSIDERED IS, WHO RENDERED THE SERVICES TO EARN TH E COMMISSION, FOR THE COMMISSION CAN BE SAID TO BE EARNED ONLY WHEN CERTA IN OBLIGATION IS FULFILLED BY THE PARTY, WHICH WE CALL AS SERVICES RENDERED. THE COM MISSION WAS EARNED ON ACCRUAL BASIS AS WELL AS RECEIVED ON CASH BASIS IN THOSE YE ARS WHICH ARE RELEVANT TO A.Y.S 1985-86 TO 1987-88 IN ACCORDANCE WITH THE PREVIOUS YEARS FOLLOWED BY THE COMPANY. ASSESSMENT YEAR-WISE AMOUNTS ON THE BASIS OF THE EA RLIER CHART ARE AS FOLLOWS:- ACCOUNTING YEAR (JUNE ENDING) A.Y. COMMISSION RECEIVED IN FOREIGN CURRENCY DM YEN 1983-84 85-86 10284.23 3872800 1984-85 86-87 5811.50 11865000 1985-86 87-88 13893.01 29552000 THE ABOVE AMOUNTS HAVE TO BE CONVERTED INTO INDIA R UPEES AS PER THE TELEGRAPHIC TRANSFER BUYING RATES AS ON THE SPECIFIED DATE, WHI CH IS THE LAST DATE OF THE PREVIOUS YEAR FOLLOWED BY THE ASSESSEE UNDER THE PROVISIONS OF RULE 115 OF INCOME-TAX RULES, 1962. THE TELEGRAPHIC TRANSFER RATES FURNISHED BY THE STATE BANK OF INDIA, MAIN BRANCH, MANDVI, BARODA U/S.133(6) OF THE ACT AS ON 30-06-1984 ARE AS FOLLOWS:- FOR JAPANESE YEN RS.100 = 2085 FOR DEUTSCHE MARK, RS,100 = DM 2490 THE EQUIVALENT AMOUNT IN INDIAN RUPEES TO BE TAXED ON ACCOUNT OF FOREIGN COMMISSION IS THEREFORE WORKED OUT AS FOLLOWS:- YEN 3872800 X 100/2085 = RS.185746 DM 10284.23 X 100/24.90 = RS. 41302 TOTAL = RS.2,27,048 THE ASSESSING OFFICER IN VIEW OF THE ABOVE FACTS HE LD THAT AN AMOUNT OF RS.2,27,048 IS THEREFORE TAXED AS FOREIGN COMMISSION RECEIVED B Y THE COMPANY. IN ADDITION TO THE ORIGINAL AMOUNT OF COMMISSION INCOME, THE FRUITS OF SUCH INCOME, SUCH AS, INTEREST ACCRUED, BUSINESS PROFITS OUT OF THESE FUNDS ETC. A LSO HAVE TO BE BROUGHT TO THE COFFERS OF THE COMPANY AT THE RIGHT TIME, SUCH INCO ME COULD HAVE BEEN EARNED BY THE COMPANY. IN THE ABSENCE OF ANY OTHER DETAILS THE IN TEREST IS ESTIMATED AT US $ 3,000, ITA NO.3016-3019/AHD/2002 A.YS.82-83, 84-85 T O 86-87 JYOTI LTD. V. JT.CIT (ASST)SR-2, BARODA PAGE 7 4,000 AND 7,000 FOR THE PREVIOUS YEAR RELEVANT TO A .YS. 1985-86 TO 1987-88. THE EQUIVALENT AMOUNT IN INDIAN RUPEES IS WORKED OUT AS PER THE TELEGRAPHIC TRANSFER BUYING RATE SUPPLIED BY THE SBI AS FOLLOWS:- AMOUNT IN INDIAN RS. = AMOUNT IN US $ @ TELEGRAPHIC TRANSFER BUYING RATE FOR RS.100 = US $ 8.950 = 3000 X 100/8. 950 = RS.33,520/- ACCORDING TO THE ASSESSING OFFICER THE TOTAL AMOUNT OF INCOME TO BE TAXED IN ASSESSMENT YEAR 1985-86 ON ACCOUNT OF FOREIGN COMM ISSION IS, THEREFORE RS.2,60,568/- (RS.2,27,048/- + RS.33,520/-). 6. AGGRIEVED, THE ASSESSEE COMPANY PREFERRED AN APP EAL BEFORE CIT(A) AND HE CONFIRMED THE ACTION OF THE ASSESSING OFFICER EXACT LY ON THE SAME REASONING. THE TRIBUNAL ALSO CONFIRMED THE ADDITION. ACCORDINGLY, THE ASSESSING OFFICER STARTED PENALTY PROCEEDINGS U/S 271(1)(C) OF THE ACT, WHICH WERE INITIATED AT THE TIME OF PASSING OF ASSESSMENT ORDER AND ASSESSING OFFICER L EVIED THE PENALTY BY GIVING FOLLOWING REASONS-: THE SUBMISSION OF THE ASSESSEE AS NOTED ABOVE AND PUT FORWARD BY SHRI P.C. MEHTA AND ALSO SUBMITTED VIDE ITS LETTER DATED 15-6 -98 IS CAREFULLY GONE THROUGH. ASSESSEES FIRST CONTENTION IS NOT CORRECT , AS THE CREDIT IN THE COMPANYS ACCOUNTS WAS TAKEN ONLY AFTER THE DEPARTM ENT RAISED A QUERY ON THIS ISSUE ON 2-4-87 AND NOT BEFORE THAT. SIMILARLY, ASSESSEES CONTENTION THAT THE POINT OF DIFFERENCE BETWEEN COMPANY AND DEPARTMENT IS NARROW ABOUT THE RELEVANT YEAR TO WHICH SUCH INCOME SHOULD BE CONSIDERED, IS NOT CORRECT. DEPARTMENT HA S HELD THAT THE COMMISSION WAS RECEIVED WHEN IT WAS RECEIVED IN THE BANK ACCOUNTS OF SHRI R.N. AMIN OR SHRI R.P. JADEJA AS REPRESENTATIVE OF THE COMPANY AND NOT THE AMOUNT WAS ACTUALLY CREDITED TO COMPANYS BANK ACCO UNT LATER ON AFTER THE INQUIRY FROM DEPARTMENT WAS RECEIVED BY THE COMPANY . ASSESSEE ALSO CONTENDED THAT THERE WAS NO ACCRUAL O F COMMISSION IN EARLIER YEARS. THE RECIPIENT OF THE COMMISSION IN EARLIER Y EARS HAD NOT COMMUNICATED IN MANNER THE EXACT POSITION ABOUT THE COMMISSION. THIS CONTENTION OF THE ASSESSEE IS ALSO NOT ACCEPTABLE BECAUSE SHRI R.N. A MIN SIGNED A FALSE VERIFICATION IN THE RETURN INCOME DEPOSIT IN FULL K NOWLEDGE OF THE FACT THAT THE COMMISSION HAD BEEN DEPOSITED IN HIS BANK ACCOUNT. AS ALREADY ELABORATED IN DETAIL AS ABOVE, IT HAS BE EN FOUND THAT ALL THE MATERIALS/DOCUMENT AS WELL AS CIRCUMSTANTIAL EVIDEN CE ARE AGAINST THE ASSESSEE. THE ASSESSEE HAD DELIBERATELY KEPT ITS AG ENCY COMMISSION INCOME IN THIRD PARTY ACCOUNTS IN ABROAD AND DID NOT REFLE CT THIS COMMISSION INCOME IN ITS REGULAR BOOKS OF ACCOUNT ONLY TO SUPPRESS THE T AXABLE INCOME THUS TO EVADE INCOME-TAX. IT IS ONLY AFTER THE DETECTION BY THE DEPARTMENT BY ISSUING LETTERS, NOTICE AND CONFRONTING THE SAME THROUGH DO CUMENTARY EVIDENCES THAT ITA NO.3016-3019/AHD/2002 A.YS.82-83, 84-85 T O 86-87 JYOTI LTD. V. JT.CIT (ASST)SR-2, BARODA PAGE 8 THE ASSESSEE HAS COME UP WITH ITS CONCEALED INCOME. THUS, ON THE FACTS AND CIRCUMSTANCES OF THE CASE, IT IS HELD THAT THE ASSE SSEE HAS WILLFULLY CONCEALED ITS AGENCY COMMISSION INCOME TO THE EXTENT OF RS.2, 60,568/- FOR THE CURRENT ASSESSMENT YEAR. THEREFORE, I FIND IT FIT TO LEVY A PENALTY OF 100% ON THE TAX SOUGHT TO BE EVADED ON THIS ACCOUNT. 7. AGGRIEVED, THE ASSESSEE COMPANY PREFERRED AN APP EAL BEFORE CIT(A) AND HE ALSO CONFIRMED THE LEVY OF PENALTY BY GIVING FOLLOW ING FINDINGS IN PARA 2.9 OF HIS APPELLATE ORDER-: 2.9 AFTER GOING THROUGH THE FACTS OF THIS CASE, I AM NOT IN AGREEMENT WITH THE APPELLANT ON ALL THE POINTS MENTIONED ABOVE. FIRSTL Y, THE ASSESSING OFFICER HAS GIVEN IN DETAIL THE CIRCUMSTANCES IN WHICH THE DEPA RTMENT OF REVENUE VIDE LETTER DATED 04-03-1987 HAD ALREADY INFORMED THAT C ERTAIN COMMISSION RECEIVED ABROAD HAD NOT BEEN ACCOUNTED FOR. THE APP ELLANTS APPLICATIONS UNDER THE AMNESTY SCHEME WERE SUBSEQUENT TO THIS EV ENT. CERTAINLY THE APPELLANT DID NOT SUO MOTU AMEND ITS RETURN ON FIND ING OUT ABOUT THE COMMISSION PAYMENT. SECONDLY THE QUESTION IS NOT OF MAKING UP MIND WITHOUT SATISFACTION OF THE ASSESSING OFFICER. IF THE OFFIC ER HAS RELIED DON THE ORDER OF THE CIT(A) AND THE ITAT, IT IS MORE TO DRAW ATTENTI ON TO THE FACT THAT THE APPELLATE AUTHORITIES ARE PART OF THE RECORD OF THE ASSESSING OFFICER AND HE IS FREE TO UTILIZE THE SAME FOR COMING TO A CONCLUSION REGARDING THE PENALTY LEVIABLE. THIRDLY, HERE IT IS A QUESTION OF FACT AN D THERE IS LITTLE SCOPE FOR DIFFERENCE OF OPINION ON WHETHER PENALTY SHOULD BE LEVIED OR NOT. IT IS NOT DENIED BY THE APPELLANT THAT COMMISSION RECEIVED FO R A NUMBER OF YEARS HAD BEEN KEPT BACK IN THIRD PARTY ACCOUNTS AND WAS NOT REPATRIATED TO INDIA NOR ACCOUNTED FOR IN ITS BOOKS. ONLY WHEN THE DEPARTMEN T SERVED NOTICE, DID THE ENTIRE EXERCISE ENSUE. IT MAY BE POSSIBLE THAT THE APPELLANT MAY HAVE THOUGHT OF UTILIZING THE BENEFIT OF THE FERA AMNESTY SCHEME TO DECLARE THE AMOUNT SAFELY WHICH HAD NOT EARLIER BEEN SHOWN. HOWEVER, A S CLARIFIED BY THE FERA AUTHORITIES THIS DOES NOT ABSOLVE THE APPELLANT FRO M I.T. PROCEEDINGS. AS FAR AS THE I.T. RECORD IS CONCERNED, IT IS CLEAR THAT T HE INCOME WAS EARNED RELEVANT TO THE PERIOD UNDER CONSIDERATION, THAT IT WAS RETA INED ABROAD IN THIRD PARTY ACCOUNTS OF THE MD OR HIS TRUSTED PERSONS AND NOT E VEN SHOWN IN THE BOOKS OF ACCOUNTS. THE ASSESSEE CANNOT TAKE THE PLEA THAT IT WOULD ACCOUNT FOR IT ONLY WHEN THE COMPANY WAS INTIMATED ABOUT THESE AMOUNTS. THE COMPANY CANNOT DISTANCE ITSELF FROM THE ACTIONS OF PERSONS AUTHORI ZED TO ACT ON ITS BEHALF, AND CLAIM AMNESTY FROM ACTION AGAINST THE COMPANY ON TH E GROUND THAT THE EMPLOYEES/DIRECTORS DID NOT INFORM THE COMPANY. THE RESPONSIBILITY OF THE COMPANY TO ACCOUNT FOR PROPER INCOME IS THE RESPONS IBILITY OF ITS DIRECTORS ALSO AND THEREFORE THE ULTIMATE RESPONSIBILITY IS ON THE ENTITY WHICH HAS TO DECLARE THE INCOME. AS HAS BEEN DISCUSSED IN DETAIL IN THE ORDER OF THE CIT(A) AND OF THE ITAT, THE FACTUAL POSITION WAS CLEARLY SUCH THA T THE INCOME WAS HELD TO HAVE BEEN TAXABLE IN THE YEAR UNDER CONSIDERATION A ND TO THIS EXTENT INCOME WAS NOT DECLARED TO TAX. ITA NO.3016-3019/AHD/2002 A.YS.82-83, 84-85 T O 86-87 JYOTI LTD. V. JT.CIT (ASST)SR-2, BARODA PAGE 9 2.10 I AM ALSO UNABLE TO AGREE WITH THE APPELLANT T HAT THIS CAN BE A CASE OF DIFFERENCE OF OPINION. IN MY UNDERSTANDING, THERE C AN BE NO DIFFERENCE OF OPINION ON THE FACT THAT ALL INCOME EARNED BY THE C OMPANY HAS TO BE DECLARED TO TAX IN THE RELEVANT PREVIOUS YEAR. IF ANY DIRECT OR OR TRUSTED PERSON, FOR WHATEVER REASONS DOES NOT REMIT SOME OF THE INCOME, IT IS ALSO FOR THE COMPANY TO VERIFY AT THE TIME OF DRAWING UP OF ITS ACCOUNTS AS TO WHAT IS THE POSITION OF FUNDS OVER WHICH IT HAS NO DIRECT CONTR OL ABROAD. IT IS NOT TO BE EXPECTED THAT IN A FAMILY MANAGED CONCERN THERE WOU LD BE NO EXCHANGE REQUIREMENT FOR THE SAME. IT IS ALSO CLEAR THAT PUR POSE, BUT MORE TO AVOID FERA PROBLEMS AND WERE DECLARED ONLY WHEN THE AMNES TY SCHEME WAS EXPIRING AND THE DEPARTMENT OF REVENUE HAD ALREADY OBTAINED THE INFORMATION IS CONCERNED THE AMOUNT WHICH SHOULD HAVE BEEN DECL ARED HAS NOT BEEN SO DECLARED IN THE RELEVANT YEAR AND THE CLAIM THAT IT S DIRECTOR / EMPLOYEE DID NOT INFORM THEM OR REMIT THE AMOUNT CANNOT BE ACCEPTED. I WOULD THEREFORE HOLD THAT THIS IS A FIT CASE FOR LEVY OF PENALTY FOR CON CEALMENT OF INCOME AND THE ORDER PASSED BY THE ASSESSING OFFICER IS UPHELD ON THIS POINT. AGGRIEVED, THE ASSESSEE COMPANY CAME IN SECOND APPE AL BEFORE US. 8. WE HAVE HEARD RIVAL CONTENTIONS AND GONE THROUG H FACTS AND CIRCUMSTANCES OF THE CASE. WE HAVE ALSO GONE THROUGH CASE RECORDS AND THE CASE LAWS CITED BY BOTH SIDES. THE LD. COUNSEL FOR THE ASSESSEE SHRI. J.P. SHAH FIRST OF ALL MADE ARGUMENT THAT THE ASSESSEE-COMPANY ACTED AS AN AGEN T TO FOREIGN SUPPLIERS ASSISTING THEM FOR PROCURING THE BUSINESS IN INDIA FOR SUPPLIES AND SERVICES. THE COMMISSION RECEIVED WAS CONSISTENTLY ACCOUNTED FOR OR TAKEN CREDIT FOR, WHEN ACTUALLY RECEIVED ON CASH BASIS. THIS ARGUMENT OF T HE LD. COUNSEL IS TO BE CONSIDERED IN THE LIGHT OF THE FACTS OF THE CASE. W E FIND FROM THE FACTS OF THE CASE THAT THE ASSESSEE-COMPANY ENTERED INTO VARIOUS AGENCY AG REEMENTS WITH FOREIGN COMPANY OVER THE LAST FEW YEARS UNDER WHICH IT ACTS AS AGENT IN INDIA FOR SELLING THEIR GOODS IN INDIA AND PROVIDES VARIOUS OTHER SERVICES SUCH AS COLLECT INQUIRIES, PROMOTE SALES, BID AND NEGOTIATE BUSINESS CONTRACTS, PROVID E AFTER SALES SERVICES ETC. THE AGENCY COMMISSION IS PAID TO THE ASSESSEE-COMPANY E ITHER ON LUMP-SUM BASIS OR ON PERCENTAGE BASIS ON TOTAL SALE EFFECTED DEPENDIN G UPON THE CLAUSES OF A PARTICULAR AGREEMENT. THE ASSESSEE-COMPANY ITSELF F URNISHED INFORMATION THAT IT HAS ACTED AN AS AGENT IN INDIA FOR TWENTY FOREIGN COMPA NIES AT ONE TIME OR OTHER FROM THE YEAR 1981-82 TO 1985-86. THE ASSESSEE-COMPANY DISCL OSED THE AGENCY COMMISSION RECEIVED FROM SUCH COMPANIES IN THE YEAR UNDER CONS IDERATION AT RS.3,61,947/-. BUT AN INFORMATION RECEIVED FROM THE DEPARTMENT OF REVE NUE, MINISTRY OF FINANCE, NEW DELHI VIDE THEIR LETTER NO.F.NO.504/5/87-FTD DATED 04-03-1987 BY THE INCOME TAX ITA NO.3016-3019/AHD/2002 A.YS.82-83, 84-85 T O 86-87 JYOTI LTD. V. JT.CIT (ASST)SR-2, BARODA PAGE 10 DEPARTMENT THAT THE ASSESSEE-COMPANY HAS RECEIVED A SUM OF US DOLLARS 47,242.69 ON 16-04-1985 AS AGENT COMMISSION FROM A JAPANESE C OMPANY NISRHO IWAI CORPORATION, TOKIO, JAPANA AND COPIES OF THE RELEVA NT DOCUMENTS WERE ALSO SENT BY THE DEPARTMENT OF REVENUE ALONG WITH THE ABOVE. THE INCOME TAX DEPARTMENT IN VIEW OF THE ABOVE INFORMATION, TAKEN UP IMMEDIATE I NQUIRIES, TO FIND OUT WHETHER JYOTI LTD. HAS DECLARED SUCH COMMISSION IN ITS BOOKS OF A CCOUNT IN THE RELEVANT YEAR OR NOT, VIDE LETTER NO.CC.1/ENQ./J/85-86 DATED 02-04-1 987 WRITTEN BY THE ITO, C.C.I.T. BARODA, WHO THEN HAD JURISDICTION OVER THE CASE TO THE PRINCIPAL OFFICER, JHYOTI LTD. FOR FURNISHING THE RELEVANT DETAILS REGARDING THE A BOVE COMMISSION. THE COMPANY VIDE ITS LETTER DATED 07-05-1987 REPLIED THAT NO AG ENCY COMMISSION FROM NISSHO IWAI CORPORATION HAS EITHER BEEN RECEIVED OR CREDITED IN COMPANYS ACCOUNT IN SINGAPORE AND RECEIVED AN AMOUNT OF RS.5,94,996/- FROM SHRI R AHUL N AMIN ON 04-05-1987 WHICH HAS BEEN CREDITED TO THE COMPANYS ACCOUNT IN BARODA AS COMMISSION RECEIVED FROM NISRHO IWAI CORPORATION, JAPAN BY SHR I RAHUL N AMIN. WE FURTHER FIND THAT SUCH FOREIGN COMMISSION WAS ALSO RECEIVED BY T HE COMPANY FROM TWO OTHER FOREIGN COMPANIES, NAMELY, RINGFEDER GABH, WEST GER MANY, AND TOOYO DENKI SEISO K.K. JAPAN, WHICH WAS NOT DECLARED IN THE BOO KS OF ACCOUNT BY THE INDIAN COMPANY. THIS WAS ADMITTED BY SHRI RAHUL N AMIN IN HIS STATEMENT ON OATH, FINALLY RECORDED U/S.131 ON 28-05-1987. WE FURTHER FIND THA T THE TOTAL AMOUNT WAS TRANSFERRED BY SHRI R.N. AMIN TO THE COMPANYS ACCO UNT IN MAY AND JUNE, 1987 AS FOLLOWS:- DATE OF LETTER AMOUNT IN INDIAN RUPEES AMOUNT IN FOREIGN CURRENCY 4.5.87 5,94,996 US $ 47,242 16.5.87 22,90,406 US $ 1,81,858 12.6.87 2,28,240 US $ 18,000 RS. 31,13,642 2,47,100 WE FURTHER FIND THAT THE ASSESSEE-COMPANY RECEIVED FOREIGN COMMISSION FROM THESE THREE COMPANIES AS WELL AS EXPENSES INCURRED ABROAD OUT OF COMMISSION RECEIVED AND THE TOTAL AMOUNT OF SUCH COMMISSION IN INDIAN C URRENCY IS THEREFORE RS.31,13,642/- WHICH IS THE EQUIVALENT AMOUNT OF US $ 2,47,100 AS ON THE DATE OF TRANSFER BY SHRI RAHUL N AMIN, MD OF THE ASSESSEE-C OMPANY AND HE WAS KEEPING THESE IN SOME ACCOUNT OTHER THAN THE COMPANYS I.E. THE COMMISSION FROM NISSHO IWAI CORPORATION, JAPAN WAS DEPOSITED IN THE PERSON AL ACCOUNT OF SHRI R.P. JADEJA, A TRUSTED MAN OF SHRI RAHUL N AMIN, WHO ALSO WAS IN-C HARGE OF SINGAPORE OFFICE. WE ITA NO.3016-3019/AHD/2002 A.YS.82-83, 84-85 T O 86-87 JYOTI LTD. V. JT.CIT (ASST)SR-2, BARODA PAGE 11 FURTHER NOTED FROM THE RECORDS THAT THE AMOUNT EQUI VALENT TO JAPANESE YEN 1,80,00,000 RECEIVED FROM TOYO DENKI WAS DEPOSITED IN THE BANK ACCOUNT OF SHRI ANANT N AMIN, YOUNGER BROTHER OF SHRI RAHUL N AMIN, IN USA AND THE FACT THAT IN THE COURSE OF INQUIRIES ON THE POINT, SHRI RAHUL AMIN T RANSFERRED A SUM OF RS.31,13,462/- FROM HIS BANK ACCOUNT AT BARODA TO JYOTI LTD. BUT A S REGARDS TO TAXABILITY OF THE AFORESAID AMOUNT IS CONCERNED, IT HAS BEEN STATED B Y THE LD. COUNSEL FOR THE ASSESSEE-COMPANY THAT SINCE IT IS RECEIVED IN THE Y EAR 1987 BY THE COMPANY AND SAME WILL BE SHOWN AS INCOME FOR THE RELEVANT ASSES SMENT YEAR 1988-89 AS A MATTER OF ACCOUNTING POLICY, THE COMPANYS ACCOUNT FOR COM MISSION ON CASH BASIS, AND THEREFORE IT IS TREATED AS INCOME IN THE YEAR OF RE CEIPT, WHICH ACCORDING TO THE COMPANY IS 1987. BUT ACCORDING TO THE ASSESSING OFF ICER THIS PROPOSITION PUT FORWARD BY THE COMPANY IS TOTALLY INCORRECT AND THE AMOUNT OF COMMISSION WAS DEPOSITED BY FOREIGN COMPANIES IN FAVOUR OF THE INDIAN COMPANY O N VARIOUS DATES, BETWEEN 1983 AND 1986. WE FIND FROM THE FACTS THAT AUTHORITY TO ENTER INTO AGENCY AGREEMENTS WITH FOREIGN COMPANIES WAS DULY GIVEN TO SHRI RAHUL N AM IN IN HIS CAPACITY AS THE MANAGING DIRECTOR OF THE COMPANY UNDER THE TERMS AN D CONDITIONS OF HIS APPOINTMENT AS MANAGING DIRECTOR AND THIS FACT IS A LSO CLEARLY ADMITTED BY SHRI RAHUL N AMIN IN HIS STATEMENT ON OATH RECORDED U/S. 131 ON 09-03-1989, WHICH HAS BEEN PLACED ON RECORD BY THE LOWER AUTHORITIES AND IT IS ALSO ADMITTED THAT SUCH AGREEMENTS ENTERED INTO BY HIM ON BEHALF OF THE COM PANY ARE NATURALLY BINDING ON THE COMPANY, HE BEING DULY AUTHORIZED TO DO SO. THU S, WHEN SHRI AMIN ENTERED INTO THE AGENCY AGREEMENTS WITH THE FOREIGN COMPANIES BY SIGNING IN HIS CAPACITY AS THE MANAGING DIRECTOR OF THE COMPANY, THE AGREEMENT WAS IN FACT AND IN LAW ENTERED INTO BY THE COMPANY. WHEN THE COMMISSION AMOUNTS WE RE DEPOSITED IN A PARTICULAR ACCOUNT BY THE FOREIGN COMPANIES AT THE EXPLICIT IN STRUCTIONS OF SHRI AMIN, THEY WERE RECEIVED IN FACT AND IN LAW BY THE COMPANY. THUS, T HE MATTER IS CRYSTAL CLEAR THAT WHAT IS RECEIVED BY THE MANAGING DIRECTOR OF THE CO MPANY, SHRI AMIN IS IN FACT AND IN LAW RECEIVED BY THE COMPANY JYOTI LTD. AND THEREFOR E THE AMOUNT SHOULD BE TREATED AS RECEIVED IN THE HANDS OF THE COMPANY ON CASH BAS IS FROM THE YEAR 1983 TO 1986. IN VIEW OF THESE FACTS HE NOTED THAT THE COMPANY FO LLOWS CASH BASIS OF ACCOUNTING FOR COMMISSION BUT EVEN THE COMMISSION IS CONSIDERED ON ACCRUAL BASIS, THE ABOVE INCOME HAS BEEN EARNED BY THE INDIAN COMPANY IN THE YEARS 1983 TO 1986. WE FURTHER POSED A QUESTION, WHICH IS TO BE CONSIDERED IS AS TO WHO RENDERED THE SERVICES TO EARN THE COMMISSION, FOR THE COMMISSION CAN BE SAID TO BE EARNED ONLY ITA NO.3016-3019/AHD/2002 A.YS.82-83, 84-85 T O 86-87 JYOTI LTD. V. JT.CIT (ASST)SR-2, BARODA PAGE 12 WHEN CERTAIN OBLIGATION IS FULFILLED BY THE PARTY, WHICH WE CALL AS SERVICES RENDERED. THE COMMISSION WAS EARNED ON ACCRUAL BASIS AS WELL AS RECEIVED ON CASH BASIS IN THOSE YEARS WHICH ARE RELEVANT TO A.Y.S 1985-86 TO 1987-88 IN ACCORDANCE WITH THE PREVIOUS YEARS BY THE COMPANY. AS REGARDS TO ARGUME NT OF TAXABILITY OF THIS COMMISSION INCOME, WE ARE OF THE VIEW THAT THIS POS ITION HAS BEEN SETTLED IN QUANTUM APPEAL AND EVEN THE ASSESSEE COULD NOT SHOW THAT THERE IS A REASONABLE CAUSE OR BONA FIDE EXPLANATION FOR NOT DISCLOSING T HE COMMISSION IN THE YEAR IT WAS ACCRUED TO THE ASSESSEE-COMPANY. ACCORDINGLY, THIS ARGUMENT OF THE ASSESSEE IS REJECTED. 10. ANOTHER FACET OF ARGUMENT MADE BY THE LD. COUNS EL FOR THE ASSESSEE THAT THE ASSESSEE-COMPANY WAS NOT AWARE OF ANY COMMUNICATION WITH THE DEPARTMENT RELATING TO THE AGENCY COMMISSION AND WHEN THE COMM UNICATION WAS RECEIVED FROM THE DEPARTMENT ON 02-04-1985 BY THE COMPANY, THE MD , SHRI R.N. AMIN HAD ALREADY AVAILED THE AMNESTY SCHEME DECLARED BY CONTROLLER E XCHANGE CONTROL DEPARTMENT UNDER FERA ACT AND AS INFORMED VIDE LETTER DATED 28 -03-1987. THE EXCHANGE CONTROL DEPARTMENT GRANTED AMNESTY TO SHRI R.N. AMI N VIDE LETTER DATED 04-06-1987 THAT AMNESTY WAS GRANTED PROVIDED ALL THE FUNDS WER E REPATRIATED FROM USA CAP WITH HIS BROTHER. THE LD. COUNSEL FOR THE ASSESSEE ARGUE D THAT ONE OF THE GOVERNMENT DEPARTMENT IS GRANTING AMNESTY TO THE MD, THERE IS NO QUESTION OF ANY CONCEALMENT. THIS ARGUMENT OF LD. COUNSEL, WE HAVE TO EXAMINE VI S--VIS FACTS OF THE CASE THAT DEPARTMENT OF REVENUE, MINISTRY OF FINANCE, NEW DEL HI VIDE THEIR LETTER NO.F.NO.504/5/87-FTD DATED 04-03-1987 INFORMED THE INCOME TAX DEPARTMENT THAT THE ASSESSEE-COMPANY HAS RECEIVED A SUM OF US DOLLA RS 47,242.69 ON 16-04-1985 AS AGENT COMMISSION FROM A JAPANESE COMPANY NISRHO IWAI CORPORATION, TOKIO, JAPANA AND COPIES OF THE RELEVANT DOCUMENTS WERE AL SO SENT BY THE DEPARTMENT OF REVENUE ALONG WITH THE ABOVE INFORMATION. THE INCOM E TAX DEPARTMENT IN VIEW OF THE ABOVE INFORMATION, TAKEN UP IMMEDIATE INQUIRIES , TO FIND OUT WHETHER JYOTI LTD. HAS DECLARED SUCH COMMISSION IN ITS BOOKS OF ACCOUN T IN THE RELEVANT YEAR OR NOT, VIDE LETTER NO.CC.1/ENQ./J/85-86 DATED 02-04-1987 W RITTEN BY THE ITO, C.C.I.T. BARODA, WHO THEN HAD JURISDICTION OVER THE CASE TO THE PRINCIPAL OFFICER, JHYOTI LTD. FOR FURNISHING THE RELEVANT DETAILS REGARDING THE A BOVE COMMISSION. THE COMPANY VIDE ITS LETTER DATED 07-05-1987 REPLIED THAT NO AG ENCY COMMISSION FROM NISSHO IWAI ITA NO.3016-3019/AHD/2002 A.YS.82-83, 84-85 T O 86-87 JYOTI LTD. V. JT.CIT (ASST)SR-2, BARODA PAGE 13 CORPORATION HAS EITHER BEEN RECEIVED OR CREDITED IN COMPANYS ACCOUNT IN SINGAPORE AND RECEIVED AN AMOUNT OF RS.5,94,996/- FROM SHRI R AHUL N AMIN ON 04-05-1987 WHICH HAS BEEN CREDITED TO THE COMPANYS ACCOUNT IN BARODA AS COMMISSION RECEIVED FROM NISRHO IWAI CORPORATION, JAPAN BY SHR I RAHUL N AMIN. WE FIND THAT THE INCOME-TAX DEPARTMENT STATED INQUIRIES VIDE LETTER DATE 02-04-1987 TO ASSESSEE- COMPANY, WHO DENIED RECEIVING ANY AGENCY COMMISSION FROM NISSHO IWAI CORPORATION VIDE LETTER DATED -7-05-1987, WHEREAS A DMITTED THE RECEIPT OF COMMISSION BY SHRI R.N. AMIN MD OF THE COMPANY. THE DECLARATION FOR AMNESTY WAS MADE BEFORE THE CONTROLLER, EXCHANGE CONTROL DEPT. FERA BY SHRI R.N. AMIN ON CONDITION THAT AMNESTY WAS BEING GRANTED PROVIDED A LL THE FUNDS WERE REPATRIATED FROM US KEPT WITH HIS BROTHER AND ALSO THAT THE AMN ESTY WAS ONLY UNDER THE FERA ACT AND DID NOT ABSOLVE THE COMPANY IN ANY WAY FROM THE PROVISIONS OF THE I.T. ACT., EXCISE AND CUSTOMS ACT AND WEALTH TAX ACT. WE CANNO T AGREE WITH THE ARGUMENT OF THE LD. COUNSEL FOR THE ASSESSEE THAT THERE WAS BON A FIDE BELIEF ON THE PART OF THE ASSESSEE-COMPANY THAT AMNESTY WAS OBTAINED AND THE AMOUNT WAS DECLARED. IT IS CLEAR THAT THE FUNDS WERE RETAINED ABROAD IN THE NA ME OF RELATIVES OF THE MANAGING DIRECTOR AND WHEN THE AMNESTY SCHEME WAS BROUGHT UN DER FERA, HE DECLARED BEFORE THE EXPIRY OF THE SCHEME IN HIS NAME BUT THE REVENUE HAD ALREADY BEEN OBTAINED THE INFORMATION AND THE COMPANY CATEGORICA LLY DENIED RECEIPT OF ANY COMMISSION WHILE LETTER DATED 07-05-1987. THEREFORE WE ARE OF THE VIEW THAT THIS FACET OF ARGUMENT MADE BY LD. COUNSEL FOR THE ASSES SEE HOLDS NO GROUND. 11. THE LAST FACET OF ARGUMENT MADE BY THE LD. COUN SEL FOR THE ASSESSEE IS THAT THE ISSUE OF QUANTUM IS PENDING BEFORE HONBLE HIGH COURT IN INCOME-TAX REFERENCE NO.20 OF 2000, WHEREIN THE HONBLE HIGH COURT HAS A DMITTED THE QUESTION OF LAW AND ONCE QUESTION OF LAW IS ADMITTED BY THE HONBLE HIG H COURT, IN THE SUBJECT-MATTER OF REFERENCE, THE BONA FIDE OF THE ASSESSEE CANNOT BE DOUBTED. THE PENALTY, IN THE SUBJECT-MATTER OF REFERENCE BEFORE HONBLE HIGH COU RT, CANNOT BE LEVIED. THE LD. COUNSEL REFERRED TO THE CASE LAW OF HONBLE CALCUTT A HIGH COURT IN THE CASE OF CIT V. OFFSHORE INDIA LTD. (1994) 209 ITR 473 (CAL), WHEREIN THE HONBLE HIGH COURT HAS STATED THAT THE MATTER RELATING TO ASSESSEES CLAIM FOR SET OFF OF LOSS UNDER THE HEAD SHARE DEALING AGAINST OTHER INCOME WAS A SUBJECT- MATTER OF REFERENCE TO THE HONBLE HIGH COURT U/S.256(2) AND A QUESTION OF LAW WAS THEREFORE INVOLVED IN THAT ITA NO.3016-3019/AHD/2002 A.YS.82-83, 84-85 T O 86-87 JYOTI LTD. V. JT.CIT (ASST)SR-2, BARODA PAGE 14 CASE AND HONBLE HIGH COURT ON THIS ISSUE HAS DIREC TED THE TRIBUNAL TO REFER THE QUESTION OF LAW FOR ITS OPINION. THEREFORE, HONBLE HIGH COURT HELD THAT THE BONA FIDES OF THE ASSESSEE COULD BE DOUBTED AND HENCE THE CANC ELLED THE IMPOSITION OF PENALTY U/S.273(2)(B) OF THE ACT. WE FIND THAT THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF ITO WARD-1(3) V. MAYANK DIAMAONDS PRIVATE LTD. IN TAX APPEAL NO.645 OF 2008 VIDE ORDER DATED 21-10-2008 HAS HELD AS UNDER:- (2) HEARD LEARNED COUNSEL APPEARS FOR THE APPELLAN T AND THE RESPONDENT- ASSESSEE. THE APPEAL REQUIRES TO BE FINALLY HEARD A ND DISPOSED OF IN LIGHT OF THE CONCESSION MADE ON BEHALF OF THE RESPONDENT-ASS ESSEE. HENCE, ADMIT. FOLLOWING SUBSTANTIAL QUESTION OF LAW ARISE FOR DET ERMINATION: WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE TRIBUNAL COULD HAVE DISPOSED OF THE APPEAL SUMMARILY WITHOUT RECOR DING ANY FINDING ON MERITS OF THE CONTROVERSY BETWEEN THE PARTIES? (3) THE FACTS BRIEFLY STATED. THE ASSESSMENT YEAR I S 1997-98. ACCORDING TO THE ASSESSING OFFICER THERE WERE CERTAIN BOGUS PURC HASES AND HENCE, IN QUANTUM PROCEEDINGS ADDITION FOR THE SAME AS WELL A S ADDITION FOR GROSS PROFIT WAS MADE. THE ASSESSEE UNSUCCESSFULLY CONTESTED THE MATTER UPTO LEVEL OF TRIBUNAL. AGAINST THE ORDER OF TRIBUNAL IN QUANTUM PROCEEDINGS THE ASSESSEE MOVED THIS HIGH COURT AND TAX APPEAL NO.200 OF 2003 HAS BEEN ADMITTED BY THIS COURT. (4) CONSEQUENT TO ADDITIONS MADE PENALTY PROCEEDING S WERE INITIATED. THE ASSESSEE, AFTER UNSUCCESSFULLY CHALLENGING THE LEVY OF PENALTY BEFORE COMMISSIONER (APPEALS) CAME UP IN APPEAL BEFORE THE TRIBUNAL IN APPEAL BEARING ITA NO.879/AHD/2004. VIDE IMPUGNED ORDER DA TED 29.06.2007 THE TRIBUNAL HAS DISPOSED OF THE APPEAL BY OBSERVING AS UNDER: 6. WE ALSO FIND THAT IN THE THIRD MEMBER DECISION IN THE CASE OF RUPAM MERCANTILES LTD. VS. DCIT (91 ITD 327 (AHD) ( TH,)] IT HAS BEEN HELD THAT A PLEA OR A CLAM WHICH IS HELD BY THE HIG H COURT TO GIVE RISE TO A SUBSTANTIAL QUESTION OF LAW, CANNOT BE TREATED TO BE FRIVOLOUS OR MALA FIDE AS TO ATTRACT LEVY OF PENALTY UNDER SECTION 27 1(1) OF THE ACT. IN VIEW OF THE FACTS AND CIRCUMSTANCES OF THE CASE, IN OUR OPINION, IT IS NOT A FIT CASE FOR LEVY OF PENALTY. THE PENALTY IS ACCO RDINGLY CANCELLED. (5) THUS, IT IS APPARENT THAT ONLY ON THE COUNT THA T THE ISSUE IS DEBATABLE BECAUSE THE APPEAL OF THE RESPONDENT-ASSESSEE HAS B EEN ADMITTED BY THIS HIGH COURT IN QUANTUM PROCEEDINGS, THE TRIBUNAL HAS DISPOSED OF THE APPEAL IN PENALTY PROCEEDINGS, WITHOUT RECORDING ANY FINDI NG ON MERITS OF THE CONTROVERSY, NAMELY, WHETHER PENALTY WAS EVEN OTHER WISE EXIGIBLE ON FACTS OF THE CASE. (6) IN THE CIRCUMSTANCES, IT IS NECESSARY TO QUASH AND SET ASIDE THE IMPUGNED ORDER DATED 29.06.2007 AND RELEGATE THE PARTIES TO THE TRIBUNAL FOR RECODING A DECISION AFRESH ON MERITS OF THE CONTROVERSY, INCLU DING ALL LEGAL CONTENTIONS ITA NO.3016-3019/AHD/2002 A.YS.82-83, 84-85 T O 86-87 JYOTI LTD. V. JT.CIT (ASST)SR-2, BARODA PAGE 15 THAT MAY BE RAISED BEFORE THE TRIBUNAL. THE TRIBUNA L COMMITTED AN ERROR IN NOT RECORDING SUCH A FINDING. (7) ORDER DATED 29.06.2007 MADE BY THE TRIBUNAL IN PENALTY PROCEEDINGS IS QUASHED AND SET ASIDE AND APPEAL BEARING ITA NO.879 /AHD/2004 STANDS RESTORED TO FILE OF THE TRIBUNAL FOR RECORDING A FR ESH DECISION IN ACCORDANCE WITH LAW AFTER HEARING THE PARTIES. THE APPEAL IS A CCORDINGLY DISPOSED OF IN THE AFORESAID TERMS. WE FIND FROM THE ABOVE JUDGMENT OF THE HONBLE JURI SDICTIONAL HIGH COURT THAT MERE ADMISSION OF A SUBSTANTIAL QUESTION OF LAW BY HONB LE HIGH COURT AGAINST THE ORDER OF THE TRIBUNAL IN QUANTUM APPEAL, THE PENALTY U/S.271 (1) OF THE ACT CANNOT BE DELETED. IN ANY CASE, THE PENALTY U/S.271(1) OF TH E ACT IS TO BE DECIDED ON MERITS OF THE CASE. WE ARE OF THE VIEW THAT WHILE CONSIDERIN G AN APPEAL AGAINST AN ORDER MADE U/S.271(1) OF THE ACT, WHAT IS REQUIRED TO BE EXAMINED IS THE RECORDS, WHICH THE OFFICER IMPOSING THE PENALTY HAD BEFORE HIM AND IF THE RECORDS CAN SUSTAIN THE FINDING THAT THERE HAD BEEN CONCEALMENT, THAT WOULD BE SUFFICIENT TO SUSTAIN THE PENALTY. ACCORDINGLY, THIS FACET OF ARGUMENT OF THE LD. COUNSEL FOR THE ASSESSEE NEEDS REJECTION. 12. IN THE TOTALITY OF THE FACTS AND CIRCUMSTANCES OF THE CASE ON THIS ISSUE OF AGENCY COMMISSION, WE ARE OF THE VIEW THAT IN ABSEN CE OF THE ASSESSEE PRODUCING ANY EVIDENCE TO INDICATE THAT THEY HAD PERSUADE THE IR ISSUE OF COMMISSION WITH THE FOREIGN COMPANIES IN SPITE OF THE SAME BEING NOT RE CEIVED BY IT FOR A SUBSTANTIALLY LONG PERIOD AS COMPARED TO OTHER SUCH COMMISSIONS R ECEIVED BY IT GOES TO INDICATE THAT THE COMPANY WAS NOT DISTURBED ABOUT THE DELAY IN RECEIPT OF THE COMMISSION AND THIS ONLY POINTS TO THE FACT THAT IT KNEW THAT THE COMPANYS COMMISSION WAS ALREADY RECEIVED ON ITS BEHALF BY THE MD TO ACCEPT THAT THE COMPANY HAD NOT RAISED ANY QUERY FROM THE FOREIGN COMPANIES IN SPITE OF THERE BEING SUBSTANTIAL DELAY IN THE RECEIPT OF THE COMMISSION DUE TO IT. IN VIEW OF THE SE FACTS AND CIRCUMSTANCES, WE ARE OF THE VIEW THAT ONE SHOULD ALSO ACCEPT ITS COROLLA RY THAT IT WAS NOT SO RAISED ONLY BECAUSE THE COMPANY DID NOT CONSIDER IT NECESSARY T O RAISE SUCH QUERIES AS IT WAS AWARE THAT THE COMMISSION HAD ALREADY BEEN SAFELY R ECEIVED ON BEHALF OF THE COMPANY. IN ANY CASE THE FACT REMAINS THAT THE COMP ANY HAS NOW ACCEPTED THAT ITS MONIES WERE LYING WITH ITS MD RIGHT FROM 1983 ONWAR DS AND THEREFORE, IT WOULD BE ITA NO.3016-3019/AHD/2002 A.YS.82-83, 84-85 T O 86-87 JYOTI LTD. V. JT.CIT (ASST)SR-2, BARODA PAGE 16 ABSURD TO SAY THAT IT BECOMES THE COMPANYS MONEY O NLY IN THE YEAR WHEN IT IN FACT GOT CREDITED TO ITS ACCOUNT IN INDIA. MOREOVER, THE COMPANY HAS NOT TAKEN ANY ACTION AGAINST MD OR THE FOREIGN COMPANIES FOR PARTING WIT H THE COMPANYS MONEY AGAINST ITS WISHES. AS REGARDS TO CONSTRUCTIVE OWNERSHIP OF THE COMMISSION, IT IS RE-CREDITED IN THE COMPANYS ACCOUNT IN THE SUBSEQUENT PERIOD A FTER THE SAME HAVING BEEN ACCEPTED BY THE COMPANY, IT CANNOT BE SAID THAT IT WAS NOT THE COMPANYS MONEY WHEN RECEIVED BY SHRI R.N.AMIN, MD. THE CONDUCT OF THE COMPANY; PRIOR TO THE ACTUAL RECEIPT OF THE COMMISSION AND ITS CONDUCT AF TER ITS RECEIPT, INDICATES THAT THE COMPANY HAS NOT HOLD THE MD AS HAVING MISUSED THE C OMPANYS FUNDS AND EVEN THEREAFTER HE CONTINUED TO BE THE MD FOR FULL TERM FOR WHICH HE WAS APPOINTED. IN VIEW OF THIS THE LIABILITY FOR TAXING THE COMMISSIO N WOULD ARISE WHEN THE MD RECEIVED THE COMMISSION ON BEHALF OF THE COMPANY. SINCE THIS FALLS IN THE YEAR UNDER QUESTION THE ASSESSING OFFICER WAS FULLY JUSTIFIED IN INCLUD ING THIS AMOUNT AS INCOME OF THE YEAR. IN SUCH CIRCUMSTANCES, WE ARE OF THE VIEW THA T THE ASSESSEE HAS CONCEALED THE PARTICULARS OF INCOME BY NOT DECLARING THE AGENCY C OMMISSION IN THE YEAR OF ACCRUAL. ANOTHER REASON IS THAT THIS AGENCY COMMISSION WAS D EDUCTED BY THE DEPARTMENT PRIOR TO ITS DECLARATION AS THE ASSESSEE-COMPANY AT THE FIRST INSTANCE REFUSED TO RECOGNIZE THE COMMISSION AS INCOME WHEN CONFRONTED. THIS CLEARLY SHOWS THAT THIS IS NOT A MERE OMISSION FROM THE RETURN OF AN ITEM OF R ECEIPT IN THE RETURN OF INCOME AND THERE ARE EVIDENCES FOUND FROM THE RECORDS FROM WHI CH IT CAN BE GATHERED THAT THE OMISSION WAS ATTRIBUTABLE ON THE PART OF THE ASSESS EE NOT TO DECLARE THIS AGENCY COMMISSION INCOME. WE FIND THAT THE LOWER AUTHORITI ES HAVE MADE DETAILED INVESTIGATION AND THE SAME WAS CONFRONTED TO THE AS SESSEE WITH EVIDENCE AND MATERIAL AND IT IS FAILED TO DISLODGE THE FACTUAL P OSITION ON THE BASIS OF WHICH ADDITIONS WERE MADE. ACCORDINGLY, WE ARE OF THE FIRM OPINION THAT THE LOWER AUTHORITIES HAD SATISFIED ON EXAMINATION OF THE CUMULATIVE EFFECT O R THE ENTIRETY OF THE CIRCUMSTANCES OF THE CASE AND REASONABLE INFERENCE WAS DONE FROM SUCH MATERIAL THAT THE SUCH DISPUTED AGENCY COMMISSION ADDED REPRESENTS INCOME OF THE RELEVANT ASSESSMENT YEAR AND THE ASSESSEE HAD CONCEALED THE PARTICULARS OF INCOME IN RESPECT TO THIS. ACCORDINGLY, WE CONFIRM THE LEVY OF PENALTY U/S.271 (1) OF THE ACT ON THIS ISSUE. THE ORDERS OF THE LOWER AUTHORITIES ARE CONFIRMED. ITA NO.3016-3019/AHD/2002 A.YS.82-83, 84-85 T O 86-87 JYOTI LTD. V. JT.CIT (ASST)SR-2, BARODA PAGE 17 13 THE NEXT ISSUE IN THIS APPEAL OF ASSESSEE ON WHI CH PENALTY IS LEVIED AND CONFIRMED IS ON ACCOUNT OF UNDER-STATEMENT OF SCRAP SALE. 14. THE BRIEF FACTS LEADING TO THE ABOVE ISSUE ARE THAT DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE-COMPANY DECLARED AN AMO UNT OF RS.30,87,256/- AS SALE OF SCRAP. THE TOTAL FERROUS SCRAP SOLD DURING THE YEAR IS 11,29,263 KGS. AND NON- FERROUS SCRAP 28,142 KGSS. AS PER DETAILS FURNISHED BY THE ASSESSEE. DURING THE COURSE OF SEARCH PROCEEDINGS U/S.132 OF THE ACT DAT ED 24-09-1987 ON THE ASSESSEE- COMPANY AND ITS DIRECTOR IT WAS GATHERED FROM THE U NACCOUNTED GATE PASSES FOND FROM THE COMPANY THAT IT HAS BEEN UNDERSTATING SCRA P SALES OVER THE YEARS AND THE SUBSTANTIAL PORTION OF THE SCRAP WAS SOLD WITHOUT A CCOUNTING FOR IT IN THE BOOKS OF ACCOUNT. THE ASSESSING OFFICER NOTED THAT DURING TH E COURSE OF SEARCH PROCEEDINGS, THE GATE PASSES WERE COMPARED WITH THE INWARD REGIS TER MAINTAINED AT JYOTI LTD. HEAD OFFICE PREMISES, WHERE IT WAS REVEALED THAT TH OUGH THE DESCRIPTION, DATE, GATE PASS NUMBER, VEHICLE NUMBER ETC. TALLIED EXACTLY BU T QUANTITY OF SCRAP ENTERED IN THE REGISTER WAS MUCH LESS AS COMPARED TO THE ACTUAL QU ANTITY OF SCRAP ENTERED IN THE GATE PASSES. THERE WERE FORTY-THREE GATE PASSES IN ALL IN POSSESSION OF THE DEPARTMENT WHICH PERTAIN TO THE PERIOD FROM 16-12-1 981 TO 14-05-1983 AND THE SUMMARY OF THESE GATE PASSES WAS ANNEXED WITH THE O RDER OF THE AUTHORITIES BELOW AND FURTHER SUMMARY OF THE CORRESPONDING ENTRIES IN THE INWARD REGISTER AT HEAD OFFICE IS ALSO ANNEXED WITH THE ORDERS OF LOWER AUT HORITIES. RESULT OF THE VERIFICATION WAS SUMMARIZED AS FOLLOWS:- TOTAL QUANTITY OF SCRAP AS PER GAGE PASSES 68,786 KGS. TOTAL QUANTITY OF SCRAP AS PER INWARD REGISTER OF UNIT-I (HEAD OFFICE) 34,547 KGS UNDERSTATEMENT OF QUANTITY OF SCRAP 34,239 KGS. ACCORDING TO THE ASSESSING OFFICER THE QUANTITY ENT ERED IN THE INWARD REGISTER WAS THUS 50% OF THE ACTUAL QUANTITY OF SCRAP AS PER THE GATE PASSES. DURING THE COURSE OF HIS STATEMENT RECORDED ON OATH U/S.132(4), SHRI RAH UL N AMIN HAS UNEQUIVOCALLY ADMITTED UNDERSTATEMENT OF SCRAP SALES AND DISCLOSE D AN AMOUNT OF RS.31 LAKHS ON THIS ACCOUNT AND HIS REPLY IS GIVEN BELOW:- ON EXAMINATION OF FEW ENTRIES SHOWN TO ME IT APPEA RS THAT THERE IS SOME VARIATIONS ARE MADE BETWEEN THE FIGURES OF SCRAP SE NT FROM JYOTI SWITCHGEAR PAN GORWA. THESE FEW INSTANCES HAVE INDICATED THAT THERE IS SOME UNDERSTATEMENT OF SCRAP MATERIAL WHILE ENTERING THE SAME IN THE MATERIAL ITA NO.3016-3019/AHD/2002 A.YS.82-83, 84-85 T O 86-87 JYOTI LTD. V. JT.CIT (ASST)SR-2, BARODA PAGE 18 INWARD REGISTER. IN VIEW OF THE ABOVE DISCREPANCY, I, AS MANAGING DIRECTOR ON BEHALF OF JYOTI LTD. COMPANY, PROPOSE TO OFFER THE FOLLOWING AMOUNT FOR INCOME-TAX PURPOSE IN THE HANDS OF COMPANY UNDER PR OVISO TO EXPLANATION 5 TO SECTION 271(1)(C) OF THE INCOME-TAX ACT, 1961. I AM OFFERING THIS AMOUNT TO BUY PEACE AND TO AVOID UNNECESSARY LENGTHY LITIGATI ON: ASSESSMENT YEAR AMOUNT OFFERED FOR TAXATION 1982-83 RS. 4,00,000/- 1983-84 RS. 1,00,000/- 1984-85 RS. 5,00,000/- 1985-86 RS. 5,00,000/- 1986-87 RS. 5,00,000/- 1987-88 RS. 6,00,000/- 1988-89 RS. 5,00,000/- RS.31,00,000/- IT MAY BE MENTIONED THAT ASSTT. YEAR 1983-84 WAS OF 3 MONTHS AND AS SUCH RS.1,00,000/- IS OFFERED FOR THAT YEAR. THE ABOVE I NFORMATION IS TRUE TO THE BEST OF MY KNOWLEDGE AND BELIEF. THE STATEMENT IS GIVEN VOLUNTARILY WITHOUT ANY PRESSURE AND THREAT. SUBSEQUENTLY, DURING THE COURSE OF THE ASSESSMENT P ROCEEDINGS, IT WAS NOTICED THAT NEITHER ANY REVISED RETURNS HAVE BEEN FILED BY THE ASSESSEE IN ORDER TO INCLUDE THE AFORESAID DISCLOSED INCOME ON ACCOUNT OF SCRAP SALE S, NOR ANY TAX PAID ON IT. THE ASSESSING OFFICER FURTHER NOTED THAT THE STATEMENT WAS GIVEN BY SHRI AMIN IN HIS RESPONSIBLE CAPACITY AS THE MANAGING DIRECTOR OF TH E ASSESSEE-COMPANY, A POST WHICH HE WAS CONTINUOUSLY HOLDING FROM 1984 AND SO HE WOULD THEREFORE BE ENTIRELY CONVERSANT WITH THE MANAGEMENT AND AFFAIRS OF THE C OMPANY. ANOTHER STATEMENT OF SHRI AMIN WAS RECORDED ON OATH U/S.131 ON 09-03-198 9 DURING THE COURSE OF ASSESSMENT PROCEEDINGS FOR ASSESSMENT YEAR 1985-86 IN CONNECTION WITH THE ABOVE MATTER AND IN HIS STATEMENT, SHRI AMIN HAS NOT BEEN ABLE TO GIVE ANY SATISFACTORY REPLY TO DIRECT QUESTION PUT TO HIM ON THE SUBJECT, AND HE HAS MERELY REPEATED HIS EARLIER ARGUMENTS. WHEN ASKED ABOUT THE SLIPS/ PAPE RS FOUND DURING THE COURSE OF SEARCH AND ON THE BASIS OF WHICH HE HAD MADE THE DI SCLOSURE, HE TRIED TO EVADE THE QUESTION BY SAYING THAT HE DOES NO RECOLLECT THE DE TAILS AND THAT THE SLIPS CONTAINED ONLY CERTAIN FIGURES NOT PERTAINING TO THE COMPANY. THE FACTS DISCUSSED IN THE PRECEDING SUB-PARAGRAPHS CLEARLY ESTABLISHED THAT T HE COMPANYS RECORDS ARE INCORRECT, INCOMPLETE AND UNRELIABLE SO FAR AS THE ACCOUNTING OF SCRAP IS CONCERNED. IN OTHER WORDS, THE ACCOUNTS OF THE COMPANY, IN SO FAR AS SCRAP IS CONCERNED, ARE NEITHER CORRECT NOR COMPLETE, AND THEREFORE THE ASS ESSING OFFICER REJECTED THE ASSESSEES ACCOUNTS U/S 145(2) OF THE ACT, SO FAR A S THE ACCOUNTING OF SCRAP IS ITA NO.3016-3019/AHD/2002 A.YS.82-83, 84-85 T O 86-87 JYOTI LTD. V. JT.CIT (ASST)SR-2, BARODA PAGE 19 CONCERNED, AND ASSESS THE INCOME FROM SALE OF SCRAP AFRESH IN THE MANNER PROVIDED IN SEC.144 OF THE ACT, AFTER TAKING INTO ACCOUNT AL L RELEVANT MATERIAL WHICH HAS BEEN GATHERED. THE ASSESSING OFFICER NOTED THAT IN THE A BSENCE OF ANY OTHER DETAILS, THE ONLY COURSE AVAILABLE IS TO MAKE A FAIR AND REASONA BLE ESTIMATE OF THE UNACCOUNTED INCOME ON SALES OF SCRAP ON THE BASIS OF THE GATE P ASSES AVAILABLE WITH THE DEPARTMENT AND THE DISCREPANCY BETWEEN SUCH GATE PA SSES AND RELEVANT ENTRIES IN THE REGISTERS MAINTAINED BY THE COMPANY. AS ALREADY MENTIONED ABOVE, THE SCRAP ENTERED IN THE REGISTER WAS MERELY 50% OF THE ACTUA L SCRAP SENT OUT OF THE FACTORY GATES IN RESPECT OF SCRAP CARRYING OUT OF THE GORWA UNIT. FURTHER, ACCORDING TO THE ASSESSING OFFICER THERE IS NO REASON TO ASSUME THAT THIS PREMISE IS NOT TRUE IN RESPECT OF THE SCRAP GENERATED IN MAIN UNIT AND OTH ER UNITS OF THE COMPANY AND HE HAS TAKEN THE SAME PREMISE TO HOLD GOOD FOR FERROUS AS WELL AS NON-FERROUS SCRAP. THEREFORE, THE ASSESSING OFFICER HELD THAT IN ORDER TO CONSIDER THE ENTIRE SCRAP, THAT ENTERED ION THE OUTWARD REGISTER OF THE MAIN HEAD O FFICE UNIT WILL HAVE TO BE TAKEN AS THE BASIS, WHICH WOULD INCLUDE THE SCRAP OF GORWA U NIT AS WELL AS THE MAIN UNIT, AND THEN THE RATIO OF UNDERSTATEMENT TO THE EXTENT OF 5 0% WILL HAVE TO BE APPLIED. ACCORDINGLY. HE ESTIMATED THE SCRAP, WHICH WAS UNDE RSTATED IN THE BOOKS OF ACCOUNT TO THE FOLLOWING EXTENT:- NON-FERROUS SCRAP 28,142 KGS. FERROUS SCRAP 11,29,263 KGS TOTAL 11,57,406 KGS THE ABOVE FIGURES HAVE BEEN TAKEN BY THE ASSESSING OFFICER AS EQUAL TO THOSE ENTERED IN THE OUTWARD REGISTER OF MAIN UNIT, AS PE R DETAILS FURNISHED BY THE ASSESSEE AND APPLYING THE SAME RATES AS FOR THE ACCOUNTED PO RTION, THE UNACCOUNTED INCOME DUE TO UNDERSTATEMENT OF SCRAP, HE ESTIMATED EQUAL TO THE AMOUNT OF SALES ENTERED INTO THE BOOKS, WHICH ARE AT RS.30,87,256/-. THE IN COME ON ACCOUNT OF SALES OF SCRAP IS THEREFORE DETERMINED AT RS.61,74,512/- UNDER THE PROVISIONS OF SEC. 145(2) OF THE ACT. 15. AGGRIEVED AGAINST THE DETERMINATION OF SCRAP S ALES AT RS.61,74,512, THE ASSESSEE PREFERRED AN APPEAL BEFORE CIT(A) AND HE R ESTRICTED THE ESTIMATION OF SALES OF SCRAPES AT RS.3 LAKHS BY GIVING FOLLOWING FINDIN GS:- I HAVE CONSIDERED THE SUBMISSIONS WITH REFERENCE T O THE FINDINGS OF THE ASSESSING OFFICER. AT THE OUT-SET I WOULD AGREE WIT H THE REPRESENTATIVE THAT ITA NO.3016-3019/AHD/2002 A.YS.82-83, 84-85 T O 86-87 JYOTI LTD. V. JT.CIT (ASST)SR-2, BARODA PAGE 20 APART FROM THE ALLEGED GATE-PASSES PERTAINING TO TH E EARLIER PERIOD WHEN HE WAS NOT A M.D OF THE COMPANY; AND WITHOUT ANY CORRO BORATIVE AND SUPPORTING EVIDENCES AND FACTS, THE INVOKING OF THE PROVISIONS OF SECTION145(2) IS NOT JUSTIFIED IN THE FACTS AND CIRCUMSTANCES OF THE CAS E. IT IS ALSO TRUE THAT A DIRECTOR OF THE COMPANY MAY NOT BE FULLY CONVERSANT WITH THE DETAILS AS TO THE TYPE OF GATE PASSES USED IN THE VARIOUS UNITS OF TH E COMPANY AND SINCE THE ALLEGED GATE PASSES IN POSSESSION OF THE DEPARTMENT ARE SAID TO BE OF FRAUDULENT NATURE NOT NORMALLY USED BY THE COMPANY, REJECTION OF THE BOLAS ON THE BASIS OF DISCREPANCY NOTED AS A RESULT OF SUCH GATE PASSES CANNOT BE JUSTIFIED. THE PLEA OF THE APPELLANT THAT THE STATE MENT MADE BY SHRI H.H. PATEL, THE SENIOR MANAGER, COMMERCIAL RECORDED ON 3 OCCASI ONS AND THE STATEMENT OF SHRI Y. N. VENCHURKAR, SENIOR MANAGER, COMMERCIA L GROUP-I, AND FINALLY THE STATEMENT OF SHRI R..S. PAWAR LOOKING AFTER THE EXCISE DUTY SECTION AT THE HEAD OFFICE WERE NOT TAKEN NOTE OF THE ASSESSING OF FICER. THE REPRESENTATIVE HAS POINTED OUT THAT EVEN IN THE INTERNAL AUDIT NOT E DATED 22-6-1994 IN RESPECT OF ITS SISTER CONCERN M/S. JYOTI SWITCHGEAR LTD., T HE AUDITORS HAVE SUGGESTED TO THEM TO BRING THEIR RECORDS AND FOLLOW THE DETAILED PROCEDURE AS FOLLOWED BY JYOTI LTD. WHICH WOULD ENSURE BETTER CONTROL OVER T HE PROPERTIES LYING WITH SUB- CONTRACTORS. IN VIEW OF THIS, IT WAS POINTED OUT TH AT THE SYSTEM OF ACCOUNTING MAINTAINED BY THE APPELLANT COMPANY WAS TREATED IDE AL TO BE FOLLOWED BY OTHER GROUP OF COMPANIES AND THEREFORE WITHOUT BRIN GING OUT ANY OTHER EVIDENCE ON RECORD, THE REJECTION OF THE BOOK RESUL TS AND ESTIMATION OF THE SCRAP SALES CAN BE SAID TO BE NOTED BASED ON FACTUA L EVIDENCE AND HENCE NOT JUSTIFIED. IN VIEW THEREOF, THE ADDITION OF RS.30,8 7,256/- APPEARS TO BE UNJUSTIFIED AND EXCESSIVE. HOWEVER, AS ADMITTED BY THE APPELLANT ITSELF THAT THERE IS NO CONTROL AND/OR CHECK ON THE GENERATION OF SCRAP AND DISCREPANCY ON SUCH COUNT IS INHERENT IN THE VERY NATURE ON ACC OUNT OF THE VOLUME OF BUSINESS, SIZE AND ORGANIZATION, NO. OF UNITS AND N O. OF PERSONNEL HANDLING THE MATTER. TO COVER SUCH INHERENT LACUNA IN THE SY STEM AS SUCH IT WOULD BE IN ORDER IF A TOKEN ADDITION OF RS.3,00,000/- AS SUGGE STED BY THE APPELLANT IS MADE WHICH WOULD BE APPROXIMATELY LITTLE LESS THAN 10% OF MISCELLANEOUS INCOME ON ACCOUNT OF SALE OF SCRAP IS ADDED IT WOU LD MEET THE ENDS OF JUSTICE. IN VIEW THEREOF THE ASSESSING OFFICER IS DIRECTED T O REDUCE THE ADDITION ON THEIR SCOPE TO RS.3,00,000/- AS AGAINST THE ADDITION OF R S.30,87,256/- IN VIEW OF THE ABOVE, THE CIT(A) RESTRICTED THE ADD ITION OF SALE OF SCRAP AT RS.3 LAKH BY ESTIMATING. THE ASSESSING OFFICER STARTED PENAL TY PROCEEDINGS FOR LEVY OF PENALTY U/S.271(1)(C) OF THE ACT ON THIS ISSUE. 16. THE ASSESSING OFFICER LEVIED THE PENALTY U/S.27 1(1) OF THE ACT BY GIVING FOLLOWING FINDINGS IN HIS PENALTY ORDER:- THE ADDITION WAS MADE ON THE BASIS OF ACTUAL VERIF ICATION OF 43 GATE PASSES ONLY IN RESPECT OF SCRAP BROUGHT FROM GORWA UNITS T O UNIT-I. HOWEVER, IT DOES NOT GIVE ANY INDICATION REGARDING SCRAP NON-RATED I N UNIT-I (MAIN UNIT) AND OTHER UNITS & SOLD DIRECTLY. SIMILARLY, ALTHOUGH SH RI R.N. AMIN WAS NOT THE M.D OF ASSESSEE COMPANY DURING THE PERIOD TO WHICH THE GATE PASSES RELATE BUT HE WAS HOLDING RESPONSIBLE POST IN THE COMPANY SUCH AS MANAGER (CORPORATE ITA NO.3016-3019/AHD/2002 A.YS.82-83, 84-85 T O 86-87 JYOTI LTD. V. JT.CIT (ASST)SR-2, BARODA PAGE 21 GROUP), TECHNICAL DIRECTOR, EXECUTIVE DIRECTOR ETC. DURING THE PERIOD IN WHICH THE SAID GATE PASSES RELATE. SECONDLY, IT MUST BE NOTED THAT HAD THE GATE PASSES NOT BEEN POINTING TO THE FACT OF PRACTICE OF UNACCOUNTED SALE OF SCRAP. SHRI R.N. AMIN WOULD NOT HAVE MADE A HUGE DISCLOSUR E OF RS.31 LACS IN HIS CAPACITY AS MANAGING DIRECTOR OF THE ASSESSEE COMPA NY. EVEN SHRI VINCHARKAR (SR. MARKET MANAGER) IN CHARGE FOR FERRO US SCRAP ALSO GIVE STATEMENT THAT COMPANY DID NOT MAINTAIN ANY RECORD FOR THE SCRAP GENERATED EXCEPT THE INWARD REGISTER MAINTAINED AT FACTORY GA TE AND GATE PASSES WERE ISSUED TO DISPATCH THE SCRAP OUTSIDE THE FACTORY AN D NO CLOSING STOCK FOR SCRAP WAS AVAILABLE AS NO STOCK TAKING WAS OVER DONE. NO RECORD FOR SCRAP GENERATED AT VARIOUS UNITS WAS MAINTAINED. ASSESSEE ALSO ADMITTED TO THE FACT THAT GATE PASSES FOR SCRAP WERE DESTROYED AT THE EN D OF THE YEAR. THEREFORE, IT IS EVIDENT THAT THE ASSESSEE HAD SOLD HUGE SCRAP GE NERATED DURING THE MANUFACTURING PROCESS WHICH IS NOT FOUND TO BE RECO RDED IN ITS REGULAR BOOKS OF ACCOUNTS. THE INTENTION OF THE ASSESSEE IS SONLY TO EVADE VARIOUS TAXES DUE TO THE GOVERNMENT. THUS, CONSIDERING THE FACT OF TH E CASE, I FIND IT FIT TO IMPOSE A PENALTY EQUAL TO 100% OF THE TOTAL TAX SOU GHT TO BE EVADED, ON THIS ACCOUNT. 17. AGGRIEVED, THE ASSESSEE PREFERRED APPEAL BEFORE CIT(A) AND CIT(A) ALSO CONFIRMED THE ACTION OF THE ASSESSING OFFICER BY GI VING FOLLOWING FINDINGS IN PARA-3.4 OF HIS APPELLATE ORDER:- 3.4 ON GOING THROUGH THE ORDER OF THE CIT(A), I FI ND THAT THE OBSERVATIONS OF THE CIT(A) WERE IN THE CONTEXT OF REJECTION OF BOOK S OF ACCOUNTS U/S.145(2) ON THE BASIS THE GATE PASSES, AND NOT IN THE CONTEXT T HAT THERE WAS NO CONCEALMENT OF INCOME. IN FACT RELIANCE HAS BEEN PL ACED ON THE FACT THAT THE APPELLANT HIMSELF ADMITTED THAT THERE WAS NO CONTRO L AND CHECK ON THE GENERATION OF SCRAP AND DISCREPANCY ON SUCH ACCOUNT IS DUE TO VOLUME OF BUSINESS ETC., THEREFORE AN ADDITION OF RS.3 LACS W AS SUSTAINED AND THE ITAT HAS ALSO HELD THAT THE APPELLANT ACCEPTED THE FACT THAT IT COULD NOT COMPLETELY RULE OUT THE EARNING OF INCOME FROM SUCH SCRAP. HEN CE, AN ESTIMATE OF RS.3,00,000/- WAS JUSTIFIED. NOWHERE HAS IT BEEN ST ATED EITHER BY THE CIT(A) OR BY THE ITAT THAT FACTUALLY THERE WAS NO INCOME. ON THE CONTRARY THE EXISTENCE OF THE GATE PASSES AT THE RESIDENCE OF TH E DIRECTOR IS NOT DENIED. ATTEMPT WAS MADE TO STATE THAT THE GATE PASSES WERE NOT GENUINE BUT NO EVIDENCE WAS GIVEN TO SHOW HOW THE GATE PASSES WERE AVAILABLE AT THE RESIDENCE WITHOUT BEING RELEVANT TO THE ISSUE AT HA ND. FROM ALL THE ABOVE, IT IS CLEAR THAT THE APPELLANT WAS AWARE THAT THERE WAS S OME DISCREPANCY IN ACCOUNTING FOR INCOME GENERATED FROM SCRAP. IT IS A LSO NOT THE APPELLANTS CASES THAT SUCH INCOME WAS POCKET BY ANY OTHER PERS ONS OR EMPLOYEES. IN FACT IT IS ACCEPTED THAT THE DIFFERENCE IN INCOME W AS TO BE ADDED IN THE HANDS OF THE COMPANY ONLY. UNDER THE CIRCUMSTANCES, I HOL D THAT THE FACTS OF THE CASE SPEAK FOR THEMSELVES. FURTHER ON SIMILAR GROUN DS PENALTY HAS BEEN CONFIRMED FOR THE THREE PREVIOUS ASSESSMENT YEARS A ND HENCE THE PENALTY ON THIS POINT FOR THIS YEAR ALSO IS CONFIRMED. ITA NO.3016-3019/AHD/2002 A.YS.82-83, 84-85 T O 86-87 JYOTI LTD. V. JT.CIT (ASST)SR-2, BARODA PAGE 22 AGGRIEVED AGAINST THE ORDER OF CIT(A) CONFIRMING TH E LEVY OF PENALTY, THE ASSESSEE CAME IN SECOND APPEAL BEFORE US. 18. WE HAVE HEARD THE RIVAL CONTENTIONS AND GONE TH ROUGH THE FACTS OF THE CASE. WE FIND THAT THE ASSESSEE SUBMITTED EXPLANATION THA T THE ESTIMATION OF INCOME BY THE CIT(A) IS ONLY ON THE BASIS OF INCIDENTAL ADMINISTR ATIVE LAPSES DUE TO LARGE SCALE OF BUSINESS AS THERE IS NO CONTROL AND CHECK ON THE GE NERATION OF SCRAP AND DISCREPANCY ON SUCH ACCOUNT DUE TO VOLUME OF BUSINE SS. EVEN OTHERWISE, WE IN AGREEMENT WITH THE SUBMISSIONS OF THE LD COUNSEL FO R THE ASSESSEE THAT THE CIT(A) HAS SUSTAINED THE ADDITION ONLY ON THE POSSIBILITY OF EARNING OF SOME PROFIT ON SALE OF SCRAP AND NOT THE ENTIRE SALE PROCEED OF SCRAP AS P ROFIT. EVEN THE TRIBUNAL CONFIRMING THE ORDER OF CIT(A) HAS HELD THAT THE GATE PASSES O N THE BASIS OF WHICH ADDITION WAS MADE BY REVENUE ARE NOT FOUND TO BE FULL PROOF AND HAVE NOT BEEN PROVED TO BE GENUINE. THE TRIBUNAL RECORDED THE FINDING IN PARA-7 AS UNDER:- 7. WE HAVE HEARD THE PARTIES AND WE ARE OF THE OPI NION THAT THE ADDITION SUSTAINED BY THE CIT(A) IS JUSTIFIED. THERE IS NO D ISPUTE THAT SHRI AMIN WAS NOT A MANAGING DIRECTOR IN THE PERIOD CONCERNED AND THE SO-CALLED GATE PASSES RELIED UPON BY THE DEPARTMENT ARE NOT FULL PROOF OR HAVE NOT BEEN PROVED TO BE GENUINE. AT THE SAME TIME THERE IS NO DENIAL OF THE FACT THAT IT HAS NOT BEEN POSSIBLE FOR THE ASSESSEE TO MAINTAIN COMPLETE RECO RDS IN THIS REGARD. THERE IS NO DISPUTE THAT THE ASSESSEE MUST HAVE EARNED SO ME PROFIT ON THE SALE OF SCRAP. WE ARE THEREFORE OF THE OPINION THAT THE EST IMATE OF RS. 3 LAKHS SUSTAINED BY THE CIT(A) IS JUSTIFIED. THE SAME IS A CCORDINGLY UPHELD. WE FIND FROM THE ABOVE THAT THE ADDITION IS SUSTAIN ED JUST ON THE BASIS OF ESTIMATION AND IT IS NOT PROVED THAT THE GATE PASSES ARE GENUI NE AND THE ASSESSEE HAS CONCEALED THE INCOME ON ACCOUNT OF SALE OF SCRAP. A CCORDINGLY ON THIS ISSUE, THE PENALTY CANNOT SURVIVE. THE ORDERS OF THE LOWER AUT HORITIES ARE REVERSED AND THE PENALTY IS DELETED. 19. IN ITA NO.3016-3017/AHD/2002 FOR THE ASSESSMENT YEAR 1982-83 AND 1983- 84, THE ONLY COMMON ISSUE IS AS REGARDS TO LEVY OF PENALTY ON ACCOUNT OF SALE OF SCRAP UPHELD BY THE CIT(A). THE FACTS AND CIRCUMSTA NCES ON THIS ISSUE, IN THESE YEARS, IS EXACTLY IDENTICAL, THE FACTS DISCUSSED IN ASSESSMENT YEAR 1985-86 IN ITA NO.3018/AHD/2002 AND THE FINDINGS GIVEN IN THAT APPEAL WILL APPLY HE RE. ACCORDINGLY, IN THESE YEARS ALSO, TAKING A CONSISTENT VIEW, WE D ELETE THE PENALTY. ITA NO.3016-3019/AHD/2002 A.YS.82-83, 84-85 T O 86-87 JYOTI LTD. V. JT.CIT (ASST)SR-2, BARODA PAGE 23 20. (A) IN ITA NO.3019/AHD/2002 FOR THE ASSESSMENT YEAR 1986-87, THE FIRST ISSUE IS AS REGARDS TO LEVY OF PENALTY ON ACCOUNT OF SALE OF SCRAP UPHELD BY THE CIT(A). THE FACTS AND CIRCUMSTANCES ON THIS ISSUE, IN THIS YEAR , IS EXACTLY IDENTICAL, THE FACTS DISCUSSED IN ASSESSMENT YEAR 1985-86 IN ITA NO.3018/AHD/2002 AND THE FINDINGS GIVEN IN THAT APPEAL WILL APPLY HERE. ACCORDINGLY, IN THIS YEAR ALSO, TAKING A CONSISTENT VIEW, WE DELETE THE PENALTY. (B) THE SECOND ISSUE IN THIS APPEAL OF ASSESSEE IS AS REGARDS TO LEVY OF PENALTY ON AGENCY-COMMISSION UPHELD BY THE CIT(A). THE FACTS AND CIRCUMSTANCES ON THIS ISSUE, IN THIS YEAR, IS EXACTLY IDENTICAL, THE FACTS DISCUSSED IN ASSESSMENT YEAR 1985-86 IN ITA NO.3018/AHD/2002 AND THE FINDINGS GIVEN IN THAT APPEAL WILL APPLY HERE. ACCORDINGLY, IN THIS YEAR ALSO, TAKING A CONS ISTENT VIEW, WE CONFIRM THE LEVY OF PENALTY. 21. IN THE RESULT, ASSESSEES APPEAL IN ITA NO.3016-3017/AHD/2002 ARE ALLOWED AND ITA NO.3018-3019/AHD/2002 ARE PARTLY ALLOWED. ORDER PRONOUNCED ON THIS 30 TH DAY OF JULY,2010 SD/- SD/- ( G.D.AGARWAL ) ( MAHAVIR SINGH ) (VICE PRESIDENT) (JUDICIAL MEMBER) AHMEDABAD, DATED : 30/07/2010 *DKP COPY OF THE ORDER FORWARDED TO :- 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT(APPEALS)-I, BARODA 4. THE CIT CONCERNS. 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE. BY ORDER, /TRUE COPY/ DEPUTY / ASSTT.REGISTRAR ITAT, AHMEDABAD