COMMISSIONER OF. INCOME-TAX VS GARG ENGINEERING CO, 2000 PTD-ALLAHABAD-HIGH-COURT-INDIA 2227 (1997)

Income-tax---

----Reference---Question of law---Penalty---Concealment of income---Is essentially a question of fact---Appellate Tribunal---Is final fact-finding Authority---Tribunal has power to record its own findings on appreciation of evidence---Standard of proof for imposition of penalty is different from that on which addition of income on quantum side could be sustained ---Assessee firm obtaining loans from a financing firm and paying interest---Interest paid disallowed due to close relationship between partners of assessee-firm and financing firm---Allegation that partners withdrawing money from their capital accounts in assessee-firm and transferring amounts to financing firm---Financing firm in turn advancing loans on interest to assessee firm--Tribunal finding that financing firm was genuine independent firm-- Transfer of funds reflected not merely through book entry but passed through Bank account also---Findings of Tribunal not perverse as relevant facts properly evaluated and no wrong conclusion drawn by it---Findings of Tribunal were findings of fact---No question of law arose for reference-- Indian Income Tax Act, 1961, Ss.256(2) & 271(1)(c).

The standard of proof for imposition of penalty is different from that on which an addition of an income on the quantum side could be sustained. Where a case set up by the assessee in a given case is found plausible and there could legitimately be two opinions about it, the fact that the Tribunal has accepted one version in preference to the other, does not make out a case for penalty, nor could the guilt of concealment of income be said to have been established.

The assessee-firm claimed deduction of Rs.63,993 in computing its income for the assessment year 1982-83 as interest paid to a financing firm. The deduction claimed was not allowed by the Income-tax Officer and the amount was added back to the income of the assessee. The addition of the amount was upheld on the quantum side. While completing the assessment proceedings, the Income-tax Officer simultaneously initiated penalty proceedings under section 271(1)(c) of the Income Tax Act, 1961, on the ground that the assessee had concealed its income or had furnished the inaccurate particulars of such income, on the ground that there was close relationship between the partners of the assessee-firm and the financing firm from whom loans were obtained on interest, that the partners of the assessee firm withdrew money from their respective capital accounts with the funk and transferred or deposited the same in the financing firm (loaner) which in turn invested those amounts with the assessee-firm and that the interest paid to the financing firm was not a permissible deduction in view of section 40(b) of the Act, being the amount of interest paid to a partner of a firm. In accordance with the above finding, penalty of Rs.38,100 was imposed by the Income-tax Officer under section 271(1)(c) after obtaining the, approval of the Inspecting Assistant Commissioner. The Commissioner (Appeals) confirmed the order of the Income-tax Officer imposing penalty. On second appeal, the Tribunal cancelled the penalty on the grounds that the withdrawal of funds from the assessee-firm and transfer of the same to the financing firm was not in the nature of manipulation of accounts, that the financing firm to which, the funds were transferred was a genuine independent firm and that this by itself could not be considered to mean that false particulars of income had been filed or that the concealment of income had been effected, especially because the transfer of funds was reflected not merely through the book entries but was passed through bank account also. On a reference:

Held, that the Tribunal had discussed the entire material and the circumstances of the case and thereafter had recorded its finding considering the totality of the circumstances. Therefore, the Tribunal did not misdirect itself in any manner in appreciating the material that was before it nor did it omit to consider the relevant factors germane to the imposition of penalty for concealment under section 271(I)(c) of the Act. The findings of-the Tribunal were findings of fact and no question of law arose for reference.

JUDGMENT

R.K. GULATI, J.---This is an application under section 256(2) of the Income Tax Act, 1961, filed at the instance of the Commissioner of Income-tax, Lucknow. The applicant has submitted that two questions set out in this application are questions of law arising out of the order of the Income-tax Appellate Tribunal and, therefore, a direction be issued to the Income-tax Appellate Tribunal to refer those questions for the opinion of this Court. The questions are as under:

"(1) Whether, on the facts and in the circumstances of the case, the Tribunal was legally correct in cancelling the penalty of Rs.38,100 imposed under section 271(1)(c) of the Income Tax Act, 1961?

(2) Whether on the facts and in the circumstances of the case, the decision of the Income-tax Appellate Tribunal is perverse inasmuch as the relevant facts have not been properly evaluated and wrong conclusion is drawn?"

We have heard reamed standing counsel for the Income-tax Department in support of this application, and are of the opinion that the order of the Income-tax Appellate Tribunal is concluded by findings of fact and does not give rise to any question of law.

The Tribunal has in categorical terms held that the ingredients of section 271(l)(c) of the Income Tax Act, 1961 (for short "the Act"), are not satisfied in this case. It appear.., that the assessee bad claimed a deduction of Rs.63,993 in the computation of its total income for the assessment year 192-83 as au amount of interest paid to 'Garg Financiers. The deduction claimed was not allowed and the amount of Rs.63,993 was added back to the income of the assessee. It may be observed that the assessee is a partnership firm and the addition of the may amount was upheld in appeal on the quantum side. While completing the assessment proceedings, the Income-tax Officer simultaneously initiated proceedings under section 271(1)(c) of the Act for the imposition of penalty on the ground that the assessee had concealed its income or had furnished inaccurate particulars of such income. The Income-tax Officer was of the view that there was apparently a close relation between the partners of the assessee-firm and Garg Financiers from whom the funds were taken allegedly as interest-bearing loan at 17 percent. per annum. The case of the Revenue was that in fact tire partners of the assessee-turn withdrew money from their respective capital accounts with the assessee-firm and deposited/ transferred the same. to the loaner firm (Gang Financiers) which, in turn, invested those amounts with the assessee. In short, the mount of Rs.63,993 claimed as interest, according to the Revenue, was not a permissible deduction in view of section 40(b) of the Act, being the amount of interest paid is a partner of a firm. On this finding, the assessee was eventually subjected to a penalty of Rs.38,100 by the Income-tax Officer under section 271(l)(c) of the Act after obtaining the approval of the concerned Inspecting Assistant Commissioner of Income-tax. The imposition of penalty was confirmed in appeal by the Commissioner of Income-tax (Appeals).

However, when the matter came to be considered by the Income-tax Appellate Tribunal in second appeal, the Tribunal did not agree with the income-tax authorities and cancelled the penalty order. It held:

"We are not convinced of the argument given by the Departmental authorities that withdrawal or transfer of funds was in the nature of manipulation of accounts in this case. The other firm, to which the funds were transferred was a genuine independent firm. This by air itself cannot be considered to mean that false particulars of income had been filed or that the concealment of income had been effected especially because the transfer of funds was reflected not merely through the book entry, but was passed through bank account also. "

The ultimate findings of the Tribunal were that it was merely a case of difference of opinion and not a case of concealment. It is well-known that under the Act in the hierarchy the Income-tax Appellate Tribunal has been constituted as the final fact-finding authority. It has been entrusted with the power to record its own findings on appreciation of evidence and the material placed before it. It is open to the Tribunal to believe or not believe certain evidence and this is perfectly within its jurisdiction.

In the instant case the Tribunal has discussed the entire material and the circumstances of the case and, thereafter, has recorded its finding considering the totality of the circumstances. The standard of proof for imposition of penalty is different from that on which an addition of an income on the quantum side could be sustained. Where a case set up by the assessee in a given case was found plausible and there could legitimately be two opinions about it, the fact that the Tribunal has accepted one version in preference to the other, does not make out a case for penalty, nor guilt of concealment could be said to have been established. This is what exactly has happened in the instant case. The question whether the assessee was guilty of concealment or furnishing of inaccurate income within the meaning of section 271(1)(c) is essentially one of fact. It could not be shown to us that the Tribunal misdirected itself in any manner in appreciating the material that was before it or it omitted to consider the relevant factors germane to the imposition of penalty for concealment under section 271(1)(c) of the Act.

In view of the above discussion, this application is without merit and is, accordingly, rejected, by saying that the order of the Income-tax Appellate Tribunal is concluded by the findings of fact and does not give rise to any statable question of law.

M.B.A./4086/FCApplication rejected.