1979-VIL-619-ALH-DT
Equivalent Citation: [1980] 125 ITR 243, 3 TAXMANN 250
ALLAHABAD HIGH COURT
Date: 02.11.1979
ADDITIONAL COMMISSIONER OF INCOME-TAX, LUCKNOW
Vs
RAWALPINDI FLOUR MILLS PVT. LIMITED
BENCH
Judge(s) : R. R. RASTOGI., C. S. P. SINGH
JUDGMENT
The judgment of the court was delivered by
RASTOGI J.-This is a reference under s. 256(2) of the I.T. Act, 1961. It relates to the assessment years 1962-63 and 1963-64, and the question involved is whether the cancellation of penalty under s. 271(1)(c) of the Act was justified.
The assessee is a private limited company and at the relevant time was engaged in the business of milling wheat and manufacture of wheat products. For the assessment year 1962-63, the assessment was made on February 19, 1963, on a total loss of Rs. 34,537 which was later on modified to Rs. 45, 108. Subsequently, on information received that during the relevant previous year the assessee had allegedly taken hundi loans from persons who were name lenders, the ITO initiated proceedings under s. 147 of the Act. Pursuant to the notice under s. 148, the assessee filed a return showing a loss of Rs. 45,108. The ITO, however, completed the assessment and determined the total income at Rs. 56,722 which included Rs. 95,000 representing the peak credit as income from undisclosed source.
For the assessment year 1963-64, the position was the same and the amount added for bogus hundi loans was Rs. 1,00,000. On being satisfied that the assessee had concealed its income, the ITO initiated penalty proceedings under s. 271(1)(c) of the Act for both these years and since the minimum penalty exigible exceeded Rs. 1,000, he referred the case to the IAC.
It appears that before the IAC the assessee did not file any explanation whatsoever. The IAC essentially relying upon the material collected during the assessment proceedings and the findings arrived at therein found the assessee guilty of concealing its income or furnishing inaccurate particulars of such income within the meaning of s. 271(1)(c) and imposed penalty in the sums of Rs. 35,360 and Rs. 82,500, respectively being approximately equal to 100 per cent. of the tax sought to be avoided. The assessee appealed before the Income-tax Appellate Tribunal and contended that in view of the decisions in CIT v. Anwar Ali [1970] 76 ITR 696 (SC), CIT v. N. A. Mohamed Haneef [1972] 83 ITR 215 (SC) and CIT v. Khoday Eswarsa and Sons [1972] 83 ITR 369 (SC), the imposition of penalty was not justified. The Tribunal took note of the fact that there were two categories of hundi loans, (a) and (b). In respect of loans falling in category (a), though the payment had been made by cheques, since the creditors had confessed that they had indulged in name-lending transactions, the Appellate Tribunal in the appeal against the assessment did not accept the genuineness of those credits. As for the credits falling in category (b) the view taken by the Tribunal in the appeal against the assessment was that when the assessee had furnished evidence in support of those loans in the form of hundis, cheque payments and broker's certificate, it had placed material which prima facie supported the genuineness of the loans. The Tribunal accepted the genuineness of those transactions, In this way, addition of credits falling in category (a) was due to the fact that the explanation offered by the assessee was found to be unreasonable. That being the position the Tribunal in the penalty appeals held that the principle laid down by the Supreme Court in the aforesaid cases was squarely applicable to this case and hence they deleted the penalty and allowed the appeals. Now, at the instance of the Addl. Commissioner and according to the direction issued by this court, the Appellate Tribunal has drawn up a statement of the case on the question indicated above.
It was contended before us by the learned counsel for the revenue that the decisions of the Supreme Court in the cases of Anwar Ali [1970] 76 ITR 696, N. A. Mohamed Haneef [1972] 83 ITR 215 and Khoday Eswarsa and Sons [1972] 83 ITR 369 would not apply. Rather the decision in D. M. Manasvi v. CIT [1972] 86 ITR 557 (SC), would apply. He also sought to place reliance on the decisions of the Punjab High Court rendered in Jawahar Woollen Textile Mills v. CIT [1973] 92 ITR 510 and Shiv Narain Khanna v. CIT [1977] 107 ITR 542. The view taken by the Punjab High Court in the later cases is that there is no basis for the assumption that some additional material should always be forthcoming for the levy of penalty in addition to the material on which the assessment was based. The very same material can form the basis for the assessment and penalty, depending on the facts and circumstances of the case. The same view was taken in Jawahar Woollen Textile Mills [1973] 92 ITR 510 (P & H).
We have already narrated the facts above and in our opinion the Appellate Tribunal was right in cancelling the penalty. In the instant case during assessment proceedings the assessee had furnished certain explanation in regard to the hundi loans and the Appellate Tribunal did accept that explanation in regard to the loans falling in category (b). As regards the loans falling in category (a) the explanation was not regarded as reasonable. The IAC while imposing the penalty only relied on the material collected during the assessment proceedings and the findings arrived at therein. That material was firstly that the ITO, Bombay, had recorded the statements of some of the creditors who had accepted that they were mere name-lenders and, secondly, that the assessee could not prove the genuineness of loans in assessment proceedings. In our opinion, the statements recorded by the ITO, Bombay, could not be used against the assessee in the assessment proceedings, much less in penalty proceedings, because the assessee was not given an opportunity to cross-examine those persons. As for the second aspect if the assessee failed to prove the genuineness of the loans in assessment proceedings, the addition could be said to be justified but on that ground alone penalty under s. 271(1)(c) could not be imposed. Now the principle laid down in Anwar Ali's case [1970] 76 ITR 696 (SC), is that :
"Proceedings under section 28 of the Indian Income-tax , Act, 1922, are penal in character. The gist of the offence under section 28(1)(c) is that the assessee has concealed the particulars of his income or deliberately furnished inaccurate particulars of such income and the burden is on the department to establish that the receipt of the amount in dispute constitutes income of the assessee. If there is no evidence on the record except the explanation given by the assessee, which explanation has been found to be false, it does not follow that the receipt constitutes his taxable income. It would be perfectly legitimate to say that the mere fact that the explanation of the assessee is false does not necessarily give rise to the inference that the disputed amount represents income. It cannot be said that the finding given in the assessment proceedings for determining or computing the tax is conclusive. However, it is good evidence. Before penalty can be imposed the entirety of circumstances must reasonably point to the conclusion that the disputed amount represented income and that the assessee had consciously concealed the particulars of his income or had deliberately furnished inaccurate particulars."
This decision was followed in N. A. Mohamed Haneef [1972] 83 ITR 215 (SC) as also in Khoday Eswarsa and Sons [1972] 83 ITR 369 (SC). In the later case, after referring to the decision of Anwar Ali's case [1970] 76 ITR 696 (SC), it was observed (at p. 376):
"From the above it is clear that penalty proceedings being penal in character, the department must establish that the receipt of the amount in dispute constitutes income of the assessee. Apart from the falsity of the explanation given by the assessee, the department must have before it, before levying penalty, cogent material or evidence from which it could be inferred that the assessee has consciously concealed the particulars of his income or had deliberately furnished inaccurate particulars in respect of the same and that the disputed amount is revenue receipt. No doubt the original assessment proceedings for computing the tax may be a good item of evidence in the penalty proceedings but the penalty cannot be levied solely on the basis of the reasons given in the original order of assessment. "
In D. M. Manasvi's case [1972] 86 ITR 557 (SC) as well this principle was followed. But since it was clear from the order of the Tribunal that there was positive material to indicate that the business of Kohinoor Mills belonged to the assessee and the whole scheme was to disguise the profits of the assessee as those of a firm of four partners, the imposition of penalty was upheld and it was observed (p. 565) :
" The present is not a case of inference from mere falsity of explanation given by the assessee, but a case wherein there are definite findings that a device had been deliberately created by the assessee for the purpose of concealing his income. The assessee as such can derive no assistance from Anwar Ali's case [1970] 76 ITR 696 (SC)."
The court did not find it necessary to go into that aspect of the matter which was dealt with in CIT v. Khoday Eswarsa and Sons [1972] 83 ITR 369 (SC), that penalty cannot be levied solely on the basis of reasons given in the order of original assessment.
It would be seen, therefore, that the law laid down in the cases of Anwar Ali [1970] 76 ITR 696 (SC), N. A. Mohamed Haneef [1972] 83 ITR 215 (SC) and Khoday Eswarsa and Sons [1972] 83 ITR 369 (SC), as applicable prior to the insertion of the Explanation to s. 271(1)(c), still holds good and it squarely applies to the facts of the present case. Here penalty was imposed by the IAC solely on the basis of material collected during the assessment proceedings and findings arrived at therein. Those findings certainly can be relied upon in penalty proceedings but on their basis alone the imposition of penalty cannot be sustained. This being the position, we agree with the view taken by the Appellate Tribunal.
Our answer to the question referred, therefore, is in the affirmative, in favour of the assessee and against the department. The assessee is entitled to its costs which we assess at Rs. 200 and counsel's fee in like amount.
DISCLAIMER: Though all efforts have been made to reproduce the order accurately and correctly however the access, usage and circulation is subject to the condition that VATinfoline Multimedia is not responsible/liable for any loss or damage caused to anyone due to any mistake/error/omissions.