COMMISSIONER OF INCOME-TAX VS SRI VENKATESWARA TIMBER DEPOT
1999 P T D 3346
[230 I T R 675]
[Andhra Pradesh High Court (India)]
Before Syed Shah Mohammed Quadri and Y. V. Narayana, JJ
COMMISSIONER OF INCOME-TAX
Versus
SRI VENKATESWARA TIMBER DEPOT
Income-tax Case No. 135 of 1990, decided on 22/01/1996.
Income-tax ---
--Penalty---Concealment of income---Tribunal upholding addition in assessment proceedings---In penalty proceedings Tribunal limiting penalty in respect of addition to only two items---Tribunal recording finding that it is not possible to say that assessee unable to substantiate its contention-- Commissioner (Appeals) finding that no evidence before Department to prove that credits represented concealed income---Tribunal declining to refer questions---Justified---Indian Income Tax Act, 1961, Ss.256(1), (2) & 271(1)(c).
The assessee-firm carried on business in timber and bamboo. The Income-tax Officer found that there were certain cash credits in the books of the assessee amounting to Rs.1,21,000 and interest of Rs.8,131. The Income-tax Officer added a sum of Rs.2,11,246 as the income of the assessee. But on appeal the amount was reduced to Rs.1,74,350. It was further reduced to Rs.1,50,000 by the Tribunal. The Income-tax Officer initiated penalty proceedings and came to the conclusion that the credits represented the assessee's concealed income and levied a penalty of Rs.99,430. The Commissioner (Appeals), on appeal, set aside the order of the Income-tax Officer imposing penalty. On further appeal, the Tribunal sustained the penalty in respect of two credit amounts of Rs.25,000 each and interest of Rs.1,350. Aggrieved by the order of the Tribunal, the Commissioner filed an application under section 256(1) of the Income Tax Act, 1961, which was rejected by the Tribunal. On an application filed by the Revenue under section 256(2), it contended that once the addition had been upheld by the Tribunal in the assessment proceedings, to the penalty proceedings the Tribunal was not justified in limiting the penalty to only two items of Rs.25,000 each:
Held, that from a perusal of clause (B) of Explanation 1 and the proviso thereto of section 271(1) of the Act, it is evident that if the explanation offered by any person has not been substantiated by him, the items of cash credit added or disallowed in computing the total income shall be deemed to, represent the income in respect of which particulars have been concealed for purposes of clause (c) of the subsection (1) of section 271. The proviso which controls clause (B) says that the provisions of clause (B) shall not apply to a case when the amount added or disallowed is as a result of rejection of any explanation offered by such person provided the satisfied two requirements. viz, (i) that the explanation is bona fide, and (ii) that he has disclosed all the facts relating to the same and which are material to the computation of his total income. It was only when clause (B) was attracted; viz., where a person had offered an explanation and he had not been able to substantiate that explanation that further enquiry into the presence of the requirements of the proviso had to be made, But if in a given case, as in the instant case the Tribunal expressed the opinion that no finding that the assessee had not been able to substantiate the explanation, could be recorded, the amount added or disallowed could not be deemed to represent the income in respect of which particulars had been concealed for purposes of clause (c) of subsection (1) section 271. In such a situation there was no need to look to the requirements of the said proviso to the Explanation. The Tribunal recorded the finding that it was also not possible to say that the assessee was unable to substantiate its contention. The Tribunal had also adverted to the findings of the Commissioner (Appeals) that there was no evidence before the Department to prove that the credits represented the concealed income of the assessee, which was accepted by the Commissioner. Therefore, the Tribunal did not commit any illegality in declining to refer the questions.
S.R. Ashok for the Commissioner.
Y. Ratnakar for the Assessee.
JUDGMENT
SYED SHAH MOHAMMED QUADRI, J.---This income-tax case arises out of the penalty proceedings. The Commissioner of Income-tax, Visakhapatnam, filed this income-tax case under section 256(2) of the Income Tax Act, 1961 (for short "the Act") praying this Court to direct the Income-talc Appellate Tribunal to state, the case and refer the following as questions of law".
"(1) Whether, on the facts -and in the circumstances of the case and in law the Appellate Tribunal was correct in holding that the provisions of Explanation 1 to section 271(1)(c) do not apply disregarding its earlier finding that the credits have not been satisfactorily explained?
(2) Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was justified in law in holding that telescoping of cash credits into the gross profit addition would not lead to the conclusion that there was concealment of income?
(3) Whether, on the facts and in the circumstances of the case and in law the Appellate Tribunal was justified in limiting the levy of penalty under section 271(1)(c) with reference only to two cash credits aggregating to Rs.25,000 when the Tribunal by its order in I.T.As. Nos.797 and 798/Hyd of 1981, dated October 21, 1982, allowed at the request of the assessee the telescoping of the entire amount of Rs.1,21,000 of cash credits into the gross profit addition?"
The respondent herein is the assessee. It is a firm having five partners carrying on business in timber and bamboo. There were certain cash credits in the books of account amounting to Rs.1,21,000 and interest of Rs.8,131. The Income-tax Officer added a sum of Rs.2,11,246 as the income. But, on appeal the amount was reduced to Rs.1,74,350. It was further reduced to Rs.1,50,000 by the Tribunal on further appeal. The Assessing Authority initiated penalty proceedings and after enquiry concluded that the credits represented the assessee's concealed income and levied the penalty of Rs.99,430. That order of the Income-tax Officer was set aside by the Commissioner (Appeals) on appeal. On further appeal to the Tribunal, it sustained two credit amounts of Rs.25,000 each and interest of Rs.1,350. Having been aggrieved by the said order, the Commissioner of Income-tax filed an application under section 256(1) of the Act to refer the above said questions as questions of law. That application having been rejected the present application is preferred by the Commissioner of Income-tax.
Mr. S. R. Ashok, learned standing counsel for the Department, vehemently contended that once the addition had been upheld in the assessment proceedings, in the penalty proceedings the Tribunal was not justified in limiting the addition to only two items of Rs.25,000 each.
The short question that arises for consideration is whether the order of the Tribunal suffers from any illegality?
The present proceedings relate to the assessment year 1976-77. With effect from April 1, 1976, section 271 has been amended and a proviso is added to Explanation 1. It would be apt to read Explanation 1 here, which is as follows:
"Explanation 1---Where in respect of any facts material' to the computation of the total income of any person under this Act,---
(a) such person fails to offer an explanation or offers an explanation which is found by the Income-tax Officer or the Appellate Assistant Commissioner to be false, or
(b) such person offers an Explanation which he is not able to substantiate,
then, the amount added or disallowed in computing total income of such person as a result thereof shall, for the purposes of clause (c) of .this subsection, be deemed to represent the income in respect of which particulars have been concealed:
Provided that nothing contained in this Explanation shall apply to a case referred to in clause (B) in respect of any amount added or disallowed as a result of the rejection of any Explanation offered by such person, if, such explanation is bona fide and all the facts relating to the same and material to the computation of his total income have been disclosed by him. "
From a perusal of clause (B) of the Explanation and the proviso thereto, it is evident that if the Explanation offered by any person has not been substantiated by him, the items of cash credit, added or disallowed in computing the total income, shall be deemed to represent the income in respect of which particulars have been concealed for purposes of clause (c) of section 271 of the Act. It may be pointed out that the proviso which controls clause (B) says that the provisions of clause (B) shall not apply to a case when the amount added or disallowed as a result of rejection of any Explanation offered by such person provided he satisfied two requirements, viz., (i) that the Explanation is bona fide, and (ii) that he has disclosed all the facts relating to the same and which are material to the computation of his total income. It is only when clause (B) is attracted, viz., where a person has offered an Explanation and he has not been able to substantiate that Explanation that further enquiry into the presence of the requirements of the proviso has to be made. But if in a given case as in this case, the Tribunal expresses the opinion that no finding that the assessee has not been able to substantiate the explanation, can be recorded, the amount added or disallowed cannot be deemed to represent the income in respect of which particulars have been concealed for purposes of clause (c) of section 271 of the Act. In such a situation, there is no need to look to the requirements of the said proviso to the Explanation.
In the instant case the Tribunal recorded the following finding, viz.---
....It is also not possible to say that the assessee is unable to substantiate its contention."
The Tribunal has also adverted to the findings of the Commissioner (Appeals) that there was no evidence before the Department to prove that the credits represent concealed income, which was accepted by the Commissioner. On these facts, in our view, the Tribunal has committed no illegality in declining to refer the questions abovenoted. We find no merit in the I.T.C. It is accordingly dismissed. No costs.
M.B.A./3119/FC Case dismissed.