COMMISSIONER OF INCOME-TAX VS NAVNITLAL POCHALAL
1997 P T D 1221
[213 ITR 69]
[Gujarat High Court (India)
Before Susanta Chatterji and Rajesh Balia, JJ
COMMISSIONER OF INCOME-TAX
Versus
NAVNITLAL POCHALAL
Income-tax Reference No.41 of 1982, decided on 07/09/1994.
Income-tax---
----Penalty---Concealment of income---Burden of proof---Dispute regarding source of investment in machinery in assessment proceedings ---Assessee agreeing to inclusion of certain amount in his assessment---Revenue not discharging the burden of proving that the amount represented concealed income of the relevant accounting year---Penalty could not be imposed-- Indian Income Tax Act, 1961, S. 271(1)(c).
During the relevant accounting year, the assessee had installed machinery in his business at a cost of Rs.2,32,500. The contention of the assessee was that the assessee had obtained a loan of Rs.2,30,000 from the Gujarat State Financial Corporation in order to purchase this machinery. The Income-tax Officer summoned G and certain statements were recorded. The assessee, however, did, not avail,of the opportunity of cross-examining the persons whose statements were recorded. However, the matter was settled before the Inspecting Assistant Commissioner and a sum of Rs.40,000 was taken as income from the undisclosed sources. The Income-tax Officer thereafter made the assessment afresh on the basis of the settlement and included therein a sum of Rs.40,000 on account of "income from undisclosed sources" and proceedings for levy of penalty were initiated. The matter went up to the Tribunal. The Tribunal specifically found that in the present case simply because the assessee agreed that he should be taxed on the amount of Rs.40,000 which was spent by him from outside the books and the source of which he could not explain, it did not follow that the amount of Rs.40,000 was the undisclosed income of the assessee in the assessment year 1970-71. It deleted the penalty. On a reference:
Held, that the admission of the assessee that he had no proper explanation for the amount of Rs.40,000 did not ipso facto absolve the Revenue of its burden of proving that the amount of Rs.40,000 was the income of the assessee for the year 1970-71 and/or there was any fraud or negligence on his part to invoke the penalty proceedings. The Tribunal was justified in deleting the penalty.
CIT v. Vinaychand Harilal (1979) 120 ITR 752 (Guj.) rel.
CIT (Addl.) v. Chandravilas Hotel (1987) 165 ITR 300 (Guj.) and CIT v. Indian Molasses Co. P. Ltd. (1970) 78 ITR 474 (SC) ref.
B.J. Shelat instructed by Messrs R.P. Bhatt & Co. for the Commissioner.
JUDGMENT
SUSANTA CHATTERJI, J.---The Income-tax Appellate Tribunal, Ahmedabad Bench 'B' (hereinafter referred to as "the Tribunal"), has referred the following questions for the opinion of the High Court in compliance with the directions of this Court:
"(1) Whether, on the facts and in the circumstances of the case, the Appellate Tribunal has been right in law in holding that no penalty under section 27(1)(c) and/or Explanation thereto is justified?
(2) Whether, on the facts and in the circumstances of the case, the Appellate Tribunal has been right in law in holding that the assessee could not be said to have failed to return to correct income or had filed inaccurate particulars thereof, visiting him with penalty under section 271(1)(c) read with the Explanation thereto?
(3) Whether, in view of the clear facts on record and the admission of the assessee to an addition of Rs.40,000 as concealed income of the year, the Appellate Tribunal was justified in not sustaining the penalty under section 271(1)(c) and/or under the Explanation thereto?"
Upon a perusal of the materials on record, we find that the assessee was assessed in the status of individual. During the relevant previous year, the assessee installed the machinery in his own business at a cost of Rs.2,32,500. The machinery, according to the assessee, was purchased from a concern, namely, Simplex Industrial Corporation, and the bill dated May 1, 1969, was said to have been issued by one Mr. D.H. Gajjar, proprietor of the said Simplex Industrial Corporation. The contention of the assessee was that the assessee had obtained a loan of Rs.2,30,000 from the Gujarat State Financial Corporation in order to purchase this machinery. The Income-tax Officer summoned Mr. Gajjar and certain statements were recorded. The assessee, however, did not avail of the opportunity of cross-examining the persons whose statements were recorded. However, the matter was settled before the Inspecting Assistant Commissioner and a sum of Rs.40,000 was taken as an amount from undisclosed sources. The Income-tax Officer thereafter made the assessment afresh on the basis of the settlement and included therein a sum of Rs.40,000 on account of "income from undisclosed sources" and proceedings for levy of penalty were initiated. The matter went up to the Tribunal and the Tribunal accepted the submissions made on behalf of the assessee that it was not open to the Inspecting Assistant Commissioner to rely on the facts stated in the original assessment order because that assessment order was set aside. The Tribunal also accepted the submission made on behalf of the assessee that merely because the assessee did not choose to summon those who had given evidence against the assessee before the Income-tax Officer for cross-examination before the assessment order was made, the Inspecting Assistant Commissioner should not have relied on the evidence without giving an opportunity to the assessee to cross-examine the witnesses in penalty proceedings. The Tribunal specifically found that in the present case simply because the assessee agreed that he should be taxed on the amount of Rs.40,000 which was spent by him from outside the books and the source of which he could not explain, it did not follow that the amount of Rs.40,000 was the undisclosed income of the assessee in the assessment year 1970-71. Relying on the judgment in the case of CIT v. Vinaychand Harilal (1979) 120 ITR 752 (Guj.), the Tribunal decided that no penalty under section 271(1)(c) or the Explanation thereto is justified.
Mr. Shelat, the learned advocate for the applicant, has, however, tried to convince us that there is no proper analysis of the facts in the present case. By the admission made by the assessee there is no escape for him from the ultimate penalty proceedings. Our attention has been drawn to the decision in the case of Additional C.I.T. v. Chandravilas Hotel (1987) 165 ITR 300 (Guj.). In the said case, it was found that the Tribunal had not examined the question whether the income returned by the assessee was bona fide or proper. The facts and circumstances which weighed with the Inspecting Assistant Commissioner had not been properly appreciated and considered by the Tribunal. The addition made to the total income of the assessee of account of the book results disclosed by the assessee not being amenable to verification was not the sole ground or basis on which penalty was levied by the Inspecting Assistant Commissioner. The past history of the assessee's persistence in maintaining the books of account in the same manner though they were found unreliable was one of the factors which had gone into consideration in levying penalty and this factor had been completely overlooked by the Tribunal in setting aside the order of the Inspecting Assistant Commissioner and cancelling the penalty imposed by him. In the absence of a clear finding by the Tribunal, the question whether the levy of penalty was valid could not be answered. This Court, observed, inter alia, that each case has to be considered according to the facts and circumstances of the case. Discussing the facts of the case in depth, this Court, in view of the decision of the Supreme Court in the case of Indian Molasses Co. P. Ltd. (1970) 78 ITR 474, declined to answer the question, It is made clear that it would be open to the Tribunal to dispose of the appeal under section 260(1) of the Act.
In the instant case, the facts are completely otherwise. In the present case, there is a clear finding by the Tribunal that no materials are on record to prove that the amount of Rs.40,000 was the income of the assessee for the year 1970-71 and/or there was any fraud or negligence on his part to invoke the penalty proceedings. The onus lies upon the authority concerned to prove the fact is clearly absent. The Tribunal, on the facts and circumstances, has rightly relied upon the decision rendered in CIT v. Vinaychand Harilal (1979) 120 ITR 752 (Guj.), wherein it has been held that on the admission of the assessee to the extent that the amount is not properly as lying in his hand of other sources does not ipso facto absolve the onus of proving the same as the income of the same year in penalty proceedings: Considering all the aspects of the case, we accordingly answer question No.1 in the affirmative, against the Revenue and in favour of the assessee and, consequently, questions Nos.2 and 3 are to be construed as having been answered in favour of the assessee. This reference is accordingly disposed of with no order as to costs.
M. B. A./1148/FC Order accordingly.