SHIV NARAYAN SHIVHARE VS COMMISSIONER OF INCOME-TAX, 1998 PTD-MADHYA-PRADESH-HIGH-COURT-INDIA 1668 (1995)

Income-tax---

----Reference---Penalty---Concealment of income---Finding that assessee had failed to discharge burden of proving that there had seen no concealment of a particular income---Finding of fact---Finding that no penalty could be imposed in respect of income which had been disclosed---Finding of fact-- No question of law arises---Indian Income Tax Act, 1961, Ss. 256 & 271(1)(c).

The assessee was an individual. He had derived income as a partner in five firms. He claimed deduction to the extent of 40 per cent. on account of appointment of one, P, for supervision work with regard to his share of profits from one of the firms. The sub-partnership as alleged by the assessee was not proved to be genuine. There was nothing by way of any documentary evidence to show that any nature of work was done by P on behalf of the assessee. P was examined and he had admitted that there was no evidence in this regard. As such, it was found that there was some concealment of income and penalty was imposed. The assessee also claimed deduction regarding payment of interest. The provisions of section 271(1)(c) of the Income Tax Act, 1961, were considered by the Tribunal and it was found that no penalty was leviable with regard to the interest claimed as deduction. It was also found that the claim of the assessee was not described as a false one. On an application to direct reference of questions at the instance of the assessee and the Department:

Held, dismissing the application, (i) that the finding with regard to the sub-partnership that the assessee failed to discharge the burden on him under the provisions of section 271(1)(c) of the Act was a question purely based on facts and no legal question arose from it;

CIT v. Sethi Textiles (1992) 198 ITR 222 (MP) fol.

(ii) that the finding regarding the interest payment that there was no concealment of income on the part of the assessee was justified. In this particular case only pure questions of facts were involved and, therefore, under section 256(2) no order could be passed for making the reference to the High Court.

CIT v. Mussadilal Ram Bharose (1987) 165 ITR 14 (SC); CIT v. K.R. Sadayappan (1990) 185 ITR 49 (SC) and Brij Mohan v. CIT (1979) 120 ITR 1 (SC) fol.

CIT v. Anwar Ali (1970) 76 ITR 696 (SC); CIT v. Dilip Kumar Bhusari (1992) 195 ITR 902 (MP) and CIT v. Ratanlal Mishrilal (1983) 143 ITR 929 (MP) ref.

P.N. Gupta for the Assessee.

R.D. Jain for the Commissioner.

JUDGMENT

A.S. TRIPATHI, J. ---These two cases arise out of the order, dated October 31, 1986, passed in Reference Application No.499/(Del) of 1986 by the Income-tax Appellate Tribunal, "B" Branch, New Delhi, whereby the two cross appeals, namely, I.T.A. No.966/(Del) of 1984 and I.T.A. No.2677/(Del) of 1984 and cross-objections No. 146 of 1984, relating to the assessment year 1975-76 were dismissed. These two petitions have been presented under section 256(2) of the Income Tax Act, 1961, in respect of the assessment year 1975-76. Both these cases are being disposed of by this common order and Miscellaneous Civil Case No. 135 of 1987 shall be the leading case.

In Miscellaneous Civil Case No. 135 of 1987, the petitioner/assessee, Shiv Narain Shivhare, prays that the Income-tax Appellate Tribunal did not mention the points raised and refused to refer the questions of law which were necessary to be decided in this case. The following two questions of law are framed by the petitioner in this case:

"(i)Whether, on the facts and in the circumstances of the case, the Tribunal was correct in law in sustaining penalty of Rs.58,870 under section 271(1)(c)?

(ii)Whether, on the facts and in the circumstances of the case, the Tribunal was correct in law in holding that the assessee has not discharged the onus that lay on him under the Explanation to section 271(1)(c) when he had pointed out probabilities in his favour?"

The petitioner urged that he had already disclosed the independent derived income from partnership of five firms to Rs.75,000 as income from undisclosed sources. Out of his share, he had paid 40 per cent. of the income to one Phool Chand, who was appointed to supervise the work of the firms. The point was not considered by the learned Tribunal in respect of the fact that an agreement to that effect was executed on March 29, 1975. The learned Tribunal and the Income-tax Officer did not allow the deduction of 40 per cent. of the share of the income of the petitioner. The petitioner had moved the Income-tax Appellate Tribunal, Delhi, to frame questions of law for referring the same to the High Court, which has been refused; hence, this petition has been moved.

In the cross-petition, namely, miscellaneous Civil Case No.96 of 1988, presented by the Commissioner of Income-tax, Bhopal, it has been urged that the petitioner's application under section 256(1) of the Income Tax Act, 1961, was wrongly rejected by the Income-tax Appellate Tribunal, New Delhi. The following legal questions were involved in this case and they are to be referred to the High Court for opinion:

"(i)Whether, on the facts and in the circumstances of the case, the Tribunal having held that the Explanation to section 271(1)(c) as it stood prior to its amendment by the Taxation Laws (Amendment) Act, 1975, is applicable is justified in law in holding that penalty under section 2711 l)(c) is leviable only with reference to the concealment actually detected?

(ii)Whether, in the facts and in the circumstances of the case, the Appellate Tribunal having held that Explanation to section 271(1)(c) is applicable could exclude certain income from calculation of quantum of penalty, when Explanation to section 271(1)(c) as it stood prior to its amendment by the Taxation Laws (Amendment) Act, 1975, did not provide for such exclusion?

(iii)Whether, on the basis of law as it .stood prior to its amendment by the Taxation Laws (Amendment) Act, 1975, the quantum of penalty imposeable under section 271(1)(c) read with the Explanation thereto is correctly computed by the Income-tax Appellate Tribunal?"

It was urged by the petitioner/ Department in this case that the assessee, Shiv Narain Shivhare, was a liquor contractor. No account books were produced. He had not disclosed the cash in hand amounting to Rs.75,000. The assessee had declared the income of Rs.89,866 only. The claim of the assessee for deduction of 40 per cent. of the income for supervision work of one Phool Chand, in pursuance of the agreement, dated March 29. 1975, was uncalled for

Penalty proceedings under section 271(1)(c) of the Income-tax Act were initiated against the assessee. The assessee was found to have committed wilful default and the Income-tax Officer ordered the penalty of Rs.2,25,000 to be levied on the assessee. The assessee preferred an appeal which was partly allowed, vide order, dated February 2, 1984, and the penalty was reduced to the minimum leviable on 40 per cent. share of Phool Chand Shivhare taxed in the hands of the assessee. The rest of the penalty was set aside. The Income-tax Appellate Tribunal had earlier rejected the application of the assessee for referring the legal questions to the High Court. The provisions of section 271(1)(c) of the Income-tax Act were fully applicable to the facts of the case and the aforesaid legal questions ought to have been referred. With this prayer the petition was presented.

The assessee had disputed these facts and the parties had filed necessary documents and addressed the Court on the relevant points. The main question in these two cases was that, as to whether the aforesaid legal questions trained by both the parties were to be referred to the High Court for necessary findings or the Income-tax Appellate Tribunal was justified in rejecting their contentions and refusing to allow the questions to be referred to the High Court.

We have heard learned counsel for the petitioner/assessee, Shri P.N. Gupta, and learned counsel appearing for the non-petitioner/Department, Shri R.D. Jain, and perused the record.

The legal questions referred to above were considered by the Income-tax Appellate Tribunal and they were not found fit to be referred to the High Court for findings. The order, dated October 31, 1986, passed by the Tribunal has found that no legal questions arise in these cases for making reference to the High Court. The present two cases were filed before this Court against the said order for directing the Tribunal to make a reference of the legal questions as set out above.

The facts as referred to above reveal that the assessee was an individual. He has derived the income for the relevant year as partner in five firms. The return filed by the assessee apart from disclosing the income also from house property and shares of profits from the firms, the income disclosed was Rs.75,000 for that year. The assessee had claimed deduction to the extent of 40 per cent. This was on account of appointment of one Phool Chand for supervision of the work done by him on behalf of the assessee with regard to share of profits from one of the firms. The alleged agreement, dated March 29, 1975, was filed in evidence. On this point, the Income-tax Officer and the learned Tribunal had rejected this claim of the assessee that there was any appointment of Phool Chand for supervision work on behalf of the assessee.

The assessee was not found to have maintained any account books. He had simply prepared a balance-sheet on the basis of physical verification of the stock.

The sub-partnership as alleged by the assessee with Phool Chand was not proved to be genuine. Cogent reasons have been given for the same. The alleged partnership was said to have been executed on March 29, 1975, which itself was to expire only after two days. Phool Chand was supposed to maintain books of account, but nothing was brought on record. There was nothing by way of any documentary evidence to show that any nature of work was done by Phool Chand on behalf of the assessee. Phool Chand was examined and he had admitted that there was no such evidence in this regard. He also admitted that there was no evidence worth the name which could be produced before the authorities. The assessee himself was found to be a young man of 42 years of age and was doing the business at the same place. The sub-partnership was, therefore, correctly found to be fake and there was no question of deduction of 40 per cent. for any work alleged to have been done by Phool Chand. We do not find any reason to interfere with the findings of the learned Tribunal on this point.

The other deduction claimed by the assessee was regarding payment of interest of Rs.98,971. The Income-tax Officer had found that for the preceding year, such claim was allowed only to the extent of Rs.13,521. For the relevant year fresh loans were only to the extent of Rs.72,000. The interest on these loans was nine per cent. and worked out to only Rs.6,480. The total interest which could be allowed was Rs.20,000 for that year. The Income-tax Officer and the Tribunal were justified in allowing the interest only to the extent of Rs.20,000. The other findings regarding utilisation of borrowed funds, maintenance of books of account and the balance-sheet were, in view of the papers produced before the authorities and in view of those documents, deduction of interest was properly calculated.

A penalty of Rs.2,25,000 was imposed upon the assessee in accordance with the provisions of section 271(1)(c) of the Income Tax Act. That was contested in appeal. In appeal, this point was considered in detail and the appellate Court found that no penalty was leviable with regard to the interest claimed as deduction. The assessee had disclosed all the details as regards the payment of interest to various parties. It was even indicated in the corresponding loans. It was not found that any false expenditure was claimed by the assessee. It was held that even if a part of the interest claimed was to be disallowed by following a different formula, it would not follow that such disallowance would bring the case within the mischief of section 271(1-)(c) of the Act.

The learned Tribunal had considered this position and found that there was no question of any levy of penalty on the sum of Rs.75;000 which was disclosed as income by the assessee voluntarily in his return. There was also no penalty prescribed under -law for not disclosing the alleged source of income. The contentions of the Revenue that the penalty should have been imposed by the Appellate Tribunal was rightly rejected, The provisions of section 271(1)(c) of the Act were thoroughly considered and it was found that no penalty was leviable with regard to the interest claimed as deduction, It was also found that the claim of the assessee was not described as false one. It was further found that the assessee had not maintained regular books of account and the interest claimed was in pursuance of a particular formula In appeal it was found that it was simply a matter of a different approach being adopted to arrive at the amount to be allowed as deduction on the basis of fair probabilities. Such matter did not come within the purview of section 271(1)(c) of the Income-tax Act, to impose enhanced penalty. Reference was made to the case of CIT v. Ratanalal Mishrilal (1983) 143 ITR 929 (MP) in respect of penalty to be imposed. Reference was also made to the case of CIT v. Anwar Ali (1970) 76 ITR 696 (SC) which clearly applies to the facts of the present case, that in spite of the Explanation added to the section referred to above, it could not be found that the assessee had concealed any income rather he had voluntarily disclosed the same and, therefore, penalty could not be enhanced.

As regards Rs.75,000 referred to above, it was found that the assessee had disclosed it in the return itself and no penalty was leviable on the same.

The learned Tribunal had found that the sub-partnership of Phool Chand was not genuine and on that point even in the penalty proceedings, the assessee could not bring any fresh evidence on that point. The assessee had merely relied upon whatever was stated by him in the return. As such, it was found that there was no concealment of income and, therefore, no breach of section 271 was found. In view of this finding, no substantial legal question arose to be referred to the High Court.

Reference was made to f the case of CIT v. Dilip Kumar Bhusari (1992) 195 ITR 902 (MP) in which it was held that when there was addition of unexplained investment in the property and penalty deleted by the Tribunal, after recording findings of fact and there being no concealment of income by the assessee and no perversity in the order passed, therefore, in such a case no question of law arises.

In this particular case only pure questions of fact were involved and therefore, under section 256(2) no order could be passed for making the reference to the High Court in respect of the questions referred to above, which was the view of this Court in CIT v. Sethi Textiles (1992) 198 ITR 222. '

1t has also been pointed out that the finding of the Tribunal that the assessee failed to discharge the burden on him under the provisions of section 271(1)(c) was a question purely based on facts and no legal question has arisen from the same. Therefore, the same could not be referred for decision.

In this case, therefore, we find that there was no concealment of income on the part of the assessee and in view of the facts of the case no legal question arises for reference to the High Court and the order passed by the learned Tribunal is fully justified. This view finds support from the cases reported as CIT v. Mussadilal Ram Bharose (1987) 165 ITR 14 (SC); CIT v K.R. Sadayappan (1990) 185 ITR 49 (SC) and Brij Mohan v. CIT (1979) 120 ITR I (SC).

Thus, we do not find any merit in the two petitions in the aforesaid two miscellaneous cases, and both are dismissed.

Let a copy of this order be placed in the record of Miscellaneous Civil Case No.96 of 1988 which shall govern the disposal of that case as well.

M.B.A./1423/FCPetition dismissed.