Income-tax---

----Reference---Penalty---Concealment of income---Amount surrendered after survey conducted under 5.133-A---Assessee not strictly adhering to voluntary disclosure---Levy of penalty---Tribunal' whether justified in cancelling penalty---Question of law---Indian Income Tax Act, 1961, Ss.256 & -271(1)(c).

After the Income-tax Officer made assessment for the years 1978-79, 1979-80 and 1980-81 under section 143(1) of the Income Tax Act, 1961, a survey was carried out under section 133-A at the business premises of the assessee, during which the later surrendered Rs.2 lakhs. The assessee applied under section 273-A for spread over of the surrendered amount for the assessment years 1973-74 to 1981-82. Penalty was imposed on the grounds that firstly, the assessee-firm had surrendered the amount when stock taking was in progress; secondly, there was no evidence that the firm had surrendered the sum on condition that no penalty would be levied and, thirdly, the assessee-firm had surrendered the amount on account of excess stock found whereas on March 10, 1981, the assessee had reversed the entry of Rs.2 lakhs on account of excess stock and made fresh entry and increased the closing balance of cash by Rs.2 lakhs. The assessee-firm did not offer any explanation for introducing cash instead of surrender of excess stock. The Income-tax Officer held that all this showed that the assessee had not strictly adhered to voluntary disclosure already made and introduced cash in its account books out of its concealed income. However, the Commissioner of Income-tax (Appeals) accepted the plea of the assessee that the assessing authority could not have enhanced the liability of the assessee after partially accepting the assessee's request for spread over of the surrender. On that premise, the Commissioner of Income-tax (Appeals) cancelled the penalties. The Tribunal dismissed the appeal filed by the Revenue. On an application to direct reference:

Held, that the question whether the Tribunal was right in. law in upholding the order of the Commissioner of Income-tax (Appeals) deleting the penalty had to be referred.

Banaras Chemical Factory v. CIT (1977) 108 ITR 96 (All.); CIT v. Shiv Parshad (1984) 146 ITR 397 (P&H) and Madan (D.B.) v. CIT (1991) 192 ITR 344 (SC) ref.

S. S. Mahajan and Ms. Aparna Mahajan for Petitioner.

G. S. Sandhawalia for Respondent.

JUDGMENT

G.S. SINGHVI, J.---The question of law, reference of-which has been sought by the Revenue under section 256(2) of the Income Tax Act, 1961, in these petitions is:

"Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in law- in upholding the order of the Commissioner of Income-tax (Appeals) vide which. penalty imposed under section 271(1)(c) by the Income-tax Officer was deleted?"

I.T.C. No.62 of 1989 relates to the assessment year 1980-81. I.T.C. No.63 of 1989 relates to the assessment year 1979-80 and I.T.C. No.3 of 1990 relates to the assessment year 1978-79.

Since there is no controversy between the parties on issues of fact, it will be appropriate to take cognizance of some of the facts from I.T.C. No.62 of 1989.

After the Income-tax Officer made assessment for the years 1978-79, 1979-80 and 1980-81 under section 143(1) of the Income Tax Act, 1961, a survey was carried out under section 133-A at the business premises of the assessee, during which the latter surrendered Rs.2 lakhs. On December 17, 1980, the Income-tax Officer reopened the assessment for the aforementioned three years by invoking section 1.43(2)(b). The assessee applied to the Commissioner of Income-tax, Patiala, under section 273-A for spread over of the surrendered amount of Rs.2 lakhs for the assessment years 1973-74 to 1981-82. Thereafter, a notice under section 148 was issued by the Income-tax Officer. Penalty proceedings were also initiated for the assess?ment years 1978-79, 1979-80 and 1980-81. Finally. (sic) to Rs.29,470, Rs.27,230 and Rs.28,110, respectively, on the following grounds:---

"(a) Firstly, the assessee-firm has not surrendered the amount before the start of physical verification of stock. It was surrendered when the stock taking was in progress.

(b) Secondly, perusal of the -statements of Shri Sarup Singh, partner, and Shri Savinder Sigh, partner, does not show that the firm has surrendered a sum of Rs.2,00,000 subject to no penalty under section 271(1)(c).

(c) Thirdly, the assessee-firm has made surrender of Rs.2,00,000 on account of excess stock found whereas on March 10, 1981, the assessee has reversed the entry of Rs.2,00,000 on account of excess stock and made fresh entry and increased the closing balance of cash by Rs.2,00,000. The assessee-firm has not offered any explanation for introducing cash instead of surrender of excess stock. All this goes to show that the assessee has not strictly adhered to voluntary disclosure already made and introduced cash in its account books out of its concealed income. Keeping in view the contradictory en?tries made, i.e., instead of disclosure of stock, cash was introduced, the disclosure made by the assessee-firm cannot be said as true".

However, the Commissioner of Income-tax (Appeals) accepted the plea of the respondent that the assessing authority could not have enhanced the liability of the assessee after partially accepting the assessee's request for spread over of the surrender. On, that premise, the Commissioner of Income?-tax (Appeals) cancelled the penalties. The Income-tax Appellate Tribunal dismissed the appeal filed by the Revenue.

A reference application filed by the Revenue vas dismissed by the Tribunal by observing that no question of law arises for consideration by the High Court.

By placing reliance on the judgments in Banaras Chemicals Factory v. CIT (1977) 108 ITR 96 (All); D.B. Madan v. CIT (1991) 192 ITR 344 (SC) and CWT v. Lallubhai Jogibhai (1994) 207 ITR (St.) 32, Shri Mahajan argued that the question sought by the Revenue is a pure question of law and, therefore, a direction may be issued to the Tribunal to make reference of the same to the High Court. Shri G.S. Sandhawalia relied on a decision of the division Bench in CIT v. Shiv Parshad (1984) 146 ITR 397 and argued that similar question has already been decided by the High Court and, therefore, the same. need not be referred to this Court once again.

After having perused the orders passed by the Commissioner of Income-tax (Appeals) and the Tribunal, we are of the opinion that the question sought for by the Revenue is .a question of law and a direction deserves to be given to the Tribunal to make reference of the same to this Court. Whether this Court will ultimately accept the plea of the Revenue or not is not to be determined at this stage of the proceedings. The only thing to be seen by the Court for the present is whether the question sought for by the petitioner is a question of law or not.

For the reasons mentioned above, the petitions are allowed. The Income-tax Appellate Tribunal is directed to state the question of law framed in these petitions and make reference to this Court and also remit the records of the cases to this Court.

M.B.A./4081/FC???????????????????????????????????????????????????????????????????????????????? Petitions allowed.