COMMISSIONER OF INCOME-TAX VS SHREE BAJRANG TRADING AND SUPPLY COMPANY, 1992 PTD-CALCUTTA-HIGH-COURT-INDIA 1045 (1989)

Income-tax----

----Penalty--Concealment of income--Cash credits--Creditors admitting loans- Income-tax Officer not believing creditors--No other material to prove concealment--Imposition of penalty is not valid.

The assessee-firm had returned an income of Rs. 69,359 for the assessment year 1964-65. The Income-tax Officer, however, treated the cash credits standing in the names of K, H and S as the assessee's income from undisclosed sources on the ground that he was doubtful about the genuineness of the loans. These parties had stated, in response to the notices issued under section 131 of the Income Tax Act, 1961, that they had advanced loans to the assessee. Further, the Income-tax Officer disallowed the assessee's claim for deduction of Rs. 16.083 being the interest paid on the aforesaid loans and two other loans. The Income-tax Officer also imposed penalty on the assessee under section 271(1)(c) of the Indian Income Tax Act, 1961. The Tribunal cancelled the penalty. On a reference:

Held, that, apart from disbelieving the explanation of the assessee, there was no other material to prove concealment of income. The question whether there has been concealment of income is purely a question of fact. It was found that the concerned creditors had responded to the summons issued under section 131 of the Indian Income Tax Act. All of them had confirmed that they had advanced loans to the assessee. The Tribunal upheld the allowance of interest to those loan creditors. The Tribunal was, therefore, justified in cancelling the penalty.

CIT v. Anwar Ali (1970) 76 ITR 696 (SC) ref.

JUDGMENT

ART K. SENGUPTA, J: ---This reference under section 256(2) of the Income-tax Act, 1961, relates to the assessment year 1964-65.

The following question of law has been referred to this Court:

"Whether, on the facts and in the circumstances of the case, relating to the cash credits standing in the names of Sarbashree Kanhaiyalal Agarwalla, Haripada Kedia and Surajmal Ganeshram and the interest paid to these three parties and on a correct interpretation of the Explanation to section 271(1)(c) of the Income Tax Act, 1961, the Tribunal was justified in holding that no penalty could be imposed under section 271(1)(c) of the Income-tax Act, 1961, and in that view, cancelling the order of penalty made by the Inspecting Assistant Commissioner under the said section?"

The facts leading to this reference are that the assessee, as a registered firm, in its return of income for the assessment year 1964-65 had shown a total income of Rs. 69,359. The Income-tax Officer framed the assessment on a total income of Rs. 2,15,170. In doing so, the Income-tax Officer treated the cash credits amounting to Rs. 1,10,000 standing in the names of Shri Kanhaiyalal Agarwalla, Hari Prasad Kedia and Surajmal Ganeshram as the assessee's income from undisclosed sources on the ground that he was "doubtful about the genuineness of the loans" advanced by these parties for the reasons stated in his order. It may be noted that these parties had stated in response to the notices issued under section 131 of the 1961 Act, that they had advanced the loans to the assessee. Further, the Income-tax Officer disallowed the assessee's claim for deduction of Rs. 16,083 being the interest paid on the aforesaid loans as well as loans taken from Rajkumar Jain and Co. and Patni Trading Co. (P) Ltd., in the earlier years. Simultaneously, he initiated penalty proceedings under section 271(1)(c) of the 1961 Act and referred the matter to the Inspecting Assistant Commissioner as the minimum penalty imposable under that section exceeded Rs. 1,000. Thereafter, the Inspecting Assistant Commissioner, vide his order dated February 17, 1971, imposed a penalty of Rs. 26,000 under that section.

Being aggrieved by the order of the Inspecting Assistant Commissioner, the assessee went up in appeal before the Tribunal. As regards the additions made on account of cash credits, the learned representative for the assessee submitted that, on a plain reading of the order of the Income-tax Officer, it would be quite clear that he had simply disbelieved the assessee's explanation as regards the nature and source of the loans taken from the aforesaid three parties. In view of the decision of the Supreme Court in Anwar Ali's case (1970) 76 ITR 696, it was submitted on behalf of the assessee that the Income-tax authorities were not justified in invoking the provisions of section 271(1)(c) of the 1961 Act in respect of the aforesaid additions made by the Income-tax Officer and the disallowance of interest thereon. As regards the (Ajit K. Sengupta, J) v. interest payments to Rajkumar Jain and Co. and Patni Trading Co. (P) Ltd., the learned representative for the assessee invited the attention of the Tribunal to its order in the assessee's own case for the assessment year 1963-64 in I.T.A. No.4777 (Cal.) of 1973-74 wherein the assessee's claim for deduction of interest paid by these parties was accepted by the Tribunal. In this view of the matter, it was finally submitted that the order of the Inspecting Assistant Commissioner deserved to be cancelled. The learned representative for the Department relied on the order of the Inspecting Assistant Commissioner and justified his action.

The Tribunal, in its order dated December 13, 1974, allowed the appeal of the assessee as under.

"It is pertinent to note that all the aforesaid three parties had responded to the summons issued on them under section 131 of the 1961 Act. All of them had confirmed that they had advanced the loans to the assessee. However, the Income-tax Officer ignored this position and relied on certain other evidence which was collected behind the back of the assessee. In this view of the matter, we are not prepared to accede to the submissions made on behalf of the Department that the assessee had exposed itself to the provisions of section 271(l)(c) of the 1961 Act. The ratio of the aforesaid decision of the Supreme Court referred to and relied on, on behalf of the assessee clearly supports the assessee's case. In view of the decision of the Tribunal for the assessment year 1963-64, the disallowance made in respect of interest paid to Rajkumar Jain and Co. and Patni Trading Co. (P) Ltd. would not attract the provisions of section 271(1)(c) of the 1961 Act. Accordingly, we cancel the order of the Inspecting Assistant Commissioner made under that section."

The Tribunal, after considering the facts and circumstances of this case, held that no penalty is exigible in this case.

We are of the view that the Tribunal, on the facts and in the circumstances of this case, has come to a correct conclusion. Apart from the fact that the question which has been raised before us is purely a question of fact, even otherwise, on the facts, no penalty was imposable. It was found that the concerned creditors had responded to the summons issued under section 131 of the Income-tax Act, 1961. All of them had confirmed that they had advanced the loans to the assessee. The Tribunal upheld the allowance of interest to those loan creditors. The Inspecting Assistant Commissioner, in imposing the penalty, proceeded on the footing that the assessee could not explain satisfactorily the loans which were added back in the assessment. Apart from disbelieving the explanation of the assessee, there was no other material before the Inspecting Assistant Commissioner for imposing the penalty. It is true that if the Hundi loans are found not to be genuine, the Income-tax Officer would be at liberty to assess the same as undisclosed income for the assessment year under section 68 of the Income-tax Act, 1961. But it does not follow that the said income was the concealed income of the year in question. The addition in the assessment, even if it is a piece of evidence, cannot form the basis for imposition of penalty in the absence of any other material unmistakably proving the concealment. It is not a case where the loan creditors did not appear before the authorities concerned. They responded to the notice and' appeared before the Income-tax Officer and confirmed the loans. The interest on loan was allowed as revenue deduction. That being the position, the Tribunal was justified in holding that the penalty provision would not be applicable to the instant case.

For the reasons aforesaid, we answer the question in this reference in the affirmative and in favour of the assessee.

There will be no order as to costs.

M.B.A./1554/TReferance answered