Income-tax---

----Penalty---Concealment of income---Imposition of penalty on basis of additions made to assessee's income---Additions deleted by Tribunal- Consequently Tribunal, cancelling penalty ---High Court remitting matter to Tribunal to decide whether amount could be included in income of assessee or not--therefore, Tribunal directed to consider question regarding penalty again---Indian Income Tax Act, 1961, S.271(1)(c).

The assessee was a firm carrying on business at Madras. Purchases in Bombay were made through a firm to which commission and interest were paid. The Income7tax Officer held that the Bombay firm was a branch of the Madras firm. Consequently, two - sums of Rs.29,495 and Rs.57,157 being income of the Bombay firm were included in the income of the assessee for the assessment years 1960-61 and 1963-64, respectively. The Income-tax Officer also initiated penalty proceedings under section 271(1)(c) of the Income Tax Act, 1961, and referred the matter to the Inspecting Assistant Commissioner who held that penalty under section 271(1)(c) was attracted and imposed penalty of Rs.12,000 and Rs.25,000 for the assessment years 1960-61 and 1963-64: On appeal, the Appellate Assistant .Commissioner deleted the additions of Rs.29,495 and Rs.57,157 for the assessment years 1960-61 and 1963-64 which was upheld by the Tribunal. The assessee. preferred appeals against the orders of penalty and the Tribunal cancelled the penalty for both the years. On a reference:

Held, that the penalty was cancelled by the Appellate Tribunal because it had deleted the addition in the quantum appeal preferred by the Revenue. The High Court in the reference against the additions remitted the matter to the Tribunal to decide whether the amount was to be included in the income of the assessee or not. Therefore, the matter regarding penalty should also go back to the Appellate Tribunal as the Tribunal had hot rendered any independent finding regarding the propriety of levy of penalty.

CIT v. Lekhraj & Sons (1985) 154 ITR 535 (Mad.) ref.

C.V. Rajah for the Commissioner.

S.A. Balasubramanian for the Assessee

JUDGMENT

N. V. BALASUBRAMANIAN, J.---In pursuance of direction of this Court in T. C. P. Nos. 118 and 119 of 1979, the Income-tax Appellate Tribunal, has referred the following. common question of law for the assessment years 1960-61 and 1963-64 under section 256(1) of the Income Tax Act, 1961, for our opinion:

"Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was justified in cancelling the penalty levied under section 271(1)(c) for the assessment year 1960-61 especially when the assessment of the income of the Bombay firm in the hands of the assessee has not reached finality?"

The assessee, Lekhraj & Sons, is a firm carrying of business at Madras. The Income-tax Officer during the course of the assessment for the assessment year 1960-61 noticed that the purchases in Bombay were claimed to have been made through a firth styled Ramchand & Co., Bombay, while the assessee paid certain amount of Commission and interest to this concern. The Income-tax Officer after going through the records held that there was no genuine partnership firm in Bombay and the business known as Ramchand & Co., was merely the branch of the Madras firm. The above finding of the Income-tax Officer was upheld by the Income-tax Appellate Tribunal, Bombay, on May 20. 1983. The Income-tax Officer on the basis of the above fact, included the income for the assessment year 1961-62 in the assessment of the firm assessed by him at Madras. The assessment was completed by him on March 16, 1966, and the assessment for 1962-63 was also completed on the same lines on November 30, 1966. The succeeding Income-tax Officer who completed the assessment for the assessment year 1963-64, following the findings of his predecessor and re-opened the assessment for the assessment year 1960-61. In the reassessment made for 1960-61 and the original assessment for the year 1963-64, the Income-tax Officer included a sum of Rs.29,495 and Rs.57,157 representing the income of the Bombay firm, respectively. The Income-tax Officer also initiated proceeding for the penalty for the assessee's failure to disclose the income from the Bombay business and referred the matter to the Inspecting Assistant-Commissioner for the imposition of penalty.

The assessee preferred an appeal and the Appellate Assistant Commissioner deleted the sum of Rs.29,459 and Rs.57,157 representing the income of the firm, Ramchand & Co., included in the assessments for the assessment years 1960-61 and 1963-64. There were further appeals before the Income-tax Appellate Tribunal for both the assessment years. The Appellate Tribunal following the earlier order in I.T.As. Nos.825 and 826/Madras of 1973; dated December 3, 1975, affirmed the finding of the Appellate Assistant Commissioner.

The Inspecting Assistant Commissioner to whom the penalty proceedings were referred, held that the provisions of section 271(1)(c) of the Act were attracted and imposed a penalty of Rs.12,000 for the assessment year 1960-61 and Rs.25,000 for the assessment year 1963-64 under the provisions of section 271(1)(c) of the Act.

The assessee preferred appeals against the orders of penalty levied by the Inspecting Assistant Commissioner to the Income-tax Appellate Tribunal, and the Income7tax Appellate Tribunal noticed its earlier order wherein it was held that the business of the, Bombay' firm cannot be held to be the business of the assessee-firm and, therefore, it directed that the income from the said Bombay business should be deleted from the assessment of the assessee-firm. The Appellate Tribunal held that since in the quantum appeals, the income has been deleted there is no case for levy of penalty levied by the Inspecting Assistant Commissioner. 'Wherefore, the Appellate tribunal held that no penalty could be levied in this case for both the years under consideration and cancelled the penalties imposed by the Inspecting Assistant Commissioner.

As against the order of the Appellate Tribunal, the Revenue has sought for a reference and on the basis of the directions of this Court, the Appellate Tribunal has stated a case and referred the common question of law set out above.

Mr. CN. Rajan, learned counsel for the Revenue, submitted that the order of the Income-tax Appellate Tribunal in the quantum appeal was the subject-matter of consideration before this Court in the case of CIT v. Lekhraj & Sons (1985) 153 ITR 535 relating to the assessment years 1961-62 and 1962-63 and this Court held that there was no determination by the Tribunal as to whether the Bombay firm was genuine or not and since the Tribunal had not adverted to the aspect relating to the genuineness of the firm, this Court directed the Tribunal to rehear the appeal and record a clear finding regarding the genuineness of the Bombay firm and dispose of the appeal. According to learned counsel for the Revenue since the matter has been remitted by this Court to the Appellate Tribunal to rehear the appeal with reference to the quantum appeal, the order of the Appellate Tribunal cancelling the penalty. should be set aside and the matter should be remitted to the Appellate Tribunal to consider the matter again.

Mr. S.A. Balasubramanian, learned counsel for assessee, on the other hand, submitted that his Court has upheld the finding of the Appellate 'Tribunal that the Bombay firm is not a benami of the assessee-firm and, therefore, the Appellate Tribunal was justified in cancelling the penalty.-

We have heard the rival submissions of learned counsel for the Revenue as well as learned counsel for the assessee. The fact remains that this Court has directed the Appellate Tribunal to rehear the appeal in the quantum appeal and with reference to the question of genuineness of the Bombay firm, this Court has given a direction to the Tribunal to record a clear finding regarding the genuineness of the Bombay firm. The effect of the order of this Court is that the earlier order of the Appellate Tribunal regarding the quantum of income is set aside and the Tribunal was directed to hear the appeal on the question whether any additional income is warranted in the hands of the assessee. In the instant case, the Appellate Tribunal cancelled the penalty because it has deleted the addition in the quantum appeal preferred by the Revenue and as the matter has been remitted by this Court to decide whether the amount is liable to be included iii the hands of the assessee or not, we are of the view that this matter regarding penalty also should go back to the Appellate Tribunal as the Appellate Tribunal has not rendered any independent finding on the question of the propriety to levy the penalty and the order of the Tribunal cancelling the penalty was based solely on the earlier order of the Tribunal deleting the addition in the quantum appeal. Therefore, we are of the view that the Appellate Tribunal should consider the matter afresh in the light of the observation made by this Court in CIT v. Lekhraj & Sons (1985) 153 ITR 535. In this view of the matter, we are not answering the question of law referred to us but remit the matter to the Appellate Tribunal to consider the matter afresh as indicated above No costs.

M.B.A./28/FCOrder accordingly