COMMISSIONER OF INCOME-TAX VS K.P. VAROO
1999 P T D 3188
[229 I T R 667]
[Kerala High Court (India)]
Before V. V. Kamat and P.A. Mohammed. JJ
COMMISSIONER OF INCOME-TAX
Versus
K.P. VAROO
Income-tax References Nos.35 and 36 of 1990, decided on 05/07/1996.
Income-tax---
----Income from undisclosed sources---Penalty---Concealment of income-- Firm---Partner---Voluntary disclosure by firm---Explanation of partner that amount given as a gift by him was from amount voluntarily disclosed by firm accepted by Tribunal---Amount of gift not assessable as income in his hands---Cancellation of penalty justified---Indian Income Tax Act, 1961, S.271(1)(c).
The assessee who was a partner 'in a firm had filed a return showing income of Rs.1,85,805 for the assessment year 1967-68. In the course of the assessment proceedings, it was revealed that the assessee had given an amount of Rs.50,000 to his son-in-law. The amount of Rs.50,000 was not traceable in the accounts of the firm in which the assessee was a partner. The Income-tax Officer added this amount of Rs.50,000 and since no explanation was offered, proceedings for levy of penalty were also simultaneously initiated and penalty was levied. It was contended before the Tribunal that when the statutory appeal was pending, the firm had applied to the Central Board of Direct Taxes for settlement of the situation, inter alia, contending that this amount of Rs.50,000 was included in the amount declared under the scheme of voluntary disclosure of income and wealth. The Tribunal remitted the matter to the appellate authority. The Appellate Assistant Commissioner considered the material, especially the copy of the voluntary disclosure petition which disclosed that the firm had unaccounted profits to the extent of Rs. one crore in the assessment years prior to and including the assessment year 1959-60. The Appellate Assistant Commissioner held that the amount of Rs.50,000 was not covered by the voluntary disclosure. However, the Tribunal found the explanation offered by the assessee satisfactory and acceptable. It cancelled the penalty. On a reference:
Held, that the Tribunal had considered the facts and accepted the explanation of the assessee. This was a question of fact. The Tribunal was justified in deleting the addition of Rs.50.000 The Tribunal was also right in cancelling the penalty levied under section 27-1(1)(c) of the Income Tax Act, 1961. -
Kishori Lal Makundi Lal, In re: (1941) 9 ITR 193 (All.) ref.
P.K.R. Nair and N.R.K: Nair for the Commissioner.
C. Kochunni Nair, M.A. Firoze and Dale P. Kurian for the Assessee.
JUDGMENT
V.V. KAMAT, J.---With regard to the assessment year 1967-68 these are the two references, one (I.T.R. No.35 of 1990) arising out of the assessment proceedings and the other (I.T.R. No.36 of 1990), arising from penalty proceedings initiated under section 271(1)(c) of the Income Tax Act, 1961.
In both these references, the assessee, Sri. K.P. Varoo, Calicut, is non est. Efforts in the direction of bringing the heirs and legal representatives have not been successful. Even learned counsel for the original assessee has not been able to do anything in the situation. We are expected to answer the questions and, for the purpose of answering them on the basis of the provisions of the Code of Civil Procedure (Order 22, Rule 10-A, Civil Procedure Code), as the appearance of learned counsel for the assessee continues, we have heard him on the merits. In the light of the decision of the Allahabad High Court in Kishori Lal Makhundi Lal, In re; (1941) 9 ITR 193, and other decisions in connection therewith, we proceed to answer the questions as the mere death of an assessee would not preclude this Court from answering the question, even if the reference is at his instance and with no difficulty if the reference is at the instance of the Revenue. The questions expecting our answer are as follows:
"(1) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in deleting the addition of Rs.50,000 made by the Income-tax Officer?
(2) Whether, on the facts and in the circumstances of the case, the Tribunal was right. in law cancelling the penalty of Rs.50,000 levied under .section 271(1)(c)? "
With regard to the assessment year in question, the assessee was concerned as a partner of the firm Popular Automobiles, and had filed a return showing income at Rs.1,85,805.
In the course of the assessment proceedings, it was revealed that the assessee had given an amount of Rs.50,000 to his son-in-law, Dr. George Mathew, a few days before the marriage as dowry. This amount of Rs.50,000 was not traceable in the accounts of the firm in. which the assessee was a partner. He was asked to explain and, in support of the explanation, the assessee stated that he received the amount from his elder brother, Sri K.P. Paul, in cash, and he was the managing partner of Popular Automobiles. Additionally, 'a letter, dated March 1.1, 1972, of Sri K.P. Paul confirming this payment in June, 1986, was relied upon with an addition that the said sum came out of the intangible additions of the firm up to and inclusive of the assessment year. 1959-60.
This was not accepted by the Income-tax Officer. He observed that the intangible additions would have shown on the statement of the closing stock and inadequate drawings of the partners and then the situation would have been available for being given to the assessee, to regard to which there is no material. The Income-tax Officer added this amount of Rs.50,000 and since no explanation was offered, the proceedings for levy of penalty were also simultaneously initiated. This was by an order, dated March 16,.1972.
The, appeal before the Appellate Assistant Commissioner was unsuccessful and the matter came up before the Income-tax Appellate Tribunal on the first occasion.
It was contended before the Tribunal that when the statutory appeal was pending, the firm had applied to the Central Board of Direct Taxes for, settlement of the situation, inter alia, contending that this amount of Rs.50,000 was included in the amount declared under the scheme of Voluntary Disclosure of Income and Wealth. At this time, the Tribunal also had seisin of the penalty proceedings. Therefore, the tribunal by the order, dated March 12, 1976, remitted the matters to the appellate authority for consideration of the situation.
The Appellate Assistant Commissioner considered the material, especially a copy of the voluntary disclosure petition and observed that what was placed before the Board was the amount represented by "investments, stocks, hundi and other credits, partners' withdrawals for inflation of purchases". The appellate authority thus, concluded that this amount of Rs.50,000 could not be taken to have been included in the settlement proceedings before the Board.
In this way, the proceedings came up before the Tribunal again.
The Tribunal has considered the situation and has found that the voluntary disclosure made on December 29, 1975, to the extent of Rs.l crore could not lead to the conclusion that the sum of Rs.50,000 had not been brought to tax in the assessment of the firm in any of the assessment years.
The Tribunal considered the question from yet another angle and that was on the basis of examination of the contention of the assessee. The contention of the assessee was that the amount came out of the intangible additions which had been made to the income of the firm in the assessment years prior to and including the assessment year 1959-60.
In paragraph 14 of the order of the Tribunal, the Tribunal observes that the amount related to unaccounted profits made by the firm of which he was a partner. The Tribunal in considering this aspect has drawn valuable assistance front the fact that the evidence afforded by the voluntary disclosure made by the firm shows that firm did. have at least one crore rupees of unaccounted profits, a situation staring in the face of the record. The Tribunal reached the factual conclusion regarding the probabilities of the situation by observing "the probabilities, therefore, are that the said sum of Rs.50,000 had come out of such unaccounted profits". The Tribunal found the explanation offered by the assessee satisfactory and acceptable.
The contention of the assessee of the effect that the amount represented accumulated unaccounted profits up to the assessment year 1959-60 has been considered probable by the last fact-finding authority. We also feel that there is no reason to see any other probability. Statutorily anything that took place prior to the assessment year 1959-60 is a situation beyond repair, and that too by the Department in any manner. The factual matrix amply places on record that the questions are questions of fact in regard to which the reasoning of the Tribunal is found satisfactory by us.
For the above reason, we answer the two questions in the affirmative, against the Revenue and in favour of the assessee.
A copy of this judgment under the seal of the Court and the signature of the Registrar shall be forwarded to the Income-tax Appellate Tribunal, Cochin Bench, as required by law.
M.B.A./3068/FC Reference answered.