Vildirect: IncomeTax-caselaws-1980-VIL-724-P&H-DT

1980-VIL-724-P&H-DT

Equivalent Citation: [1982] 136 ITR 799, 5 TAXMANN 73

PUNJAB AND HARYANA HIGH COURT

Date: 28.07.1980

JASH BHAI F. PATEL

COMMISSIONER OF INCOME-TAX, AMRITSAR-II

BENCH

Judge(s) : B. S. DHILLON., M. R. SHARMA

JUDGMENT

The judgment of the court was delivered by

M. R. SHARMA J.-For the assessment year 1964-65, relevant to the accounting period ending on October 17, 1963, the assessee-firm filed the return of income on June 29, 1964. In the course of the assessment proceedings, the ITO noticed the following cash credits in the account books of the assessee.

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S. No. Name of the party Amount

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Rs.

1. M/s. Mohandas Ghanshamdas,

Majith Mandi, Amritsar 15,000

2. M/s. Brijlal Narinder Kumar,

Tunda Talab, Amritsar 20,000

3. M/s. Tola Singh Sohan Singh,

Majith Mandi, Amritsar 13,000

4. M/s. Chopra Trading Co.,

Majith Mandi, Amritsar 18,000

5 . M/s. Avtar Singh & Bros.,

Majith Mandi, Amritsar 10,000

6. M/s. United Trading Co.,

Majith Mandi, Amritsar 50,000

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Total 1,26,000

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The assessee produced the confirmatory letters from the parties concerned to Prove the genuineness of these cash credits. The ITO accepted these items as genuine and completed the assessment on January 15,1966, on a total income of Rs. 84,949.

Later on, Shri Mohandas, proprietor of M/s. Mohandas Ghanshamdas, gave a statement on March 22, 1968, before Shri J. S. Gill, ITO, District II(IX), Amritsar, to the effect that all the loans in the name of M/s. Mohandas Ghanshamdas were bogus. His statement reads as under:

"The entire hundi business done by me under the name of M/s Mohandas Ghanshamdas since its inception up to the assessment year 1967-68, when I ceased to do the business, was completely bogus. None of the hundi loans that may appear in any party's account and claimed by him as advanced by me under the name, M/s. Mohandas Ghanshamdas, was genuine. No loan was advanced in any instance. Only I lent my name (M/s. Mohandas Ghanshamdas) to be used by the parties concerned for bringing into their accounts their own secretive and unaccounted money in the guise of hundi loans taken from me (M/s. Mohandas Ghanshamdas)."

Thereafter, the ITO also found that consequent upon certain raids, certain credits in the names of certain other firms had also been surrendered by various parties. He, therefore, reopened the assessment in the present case on April 6, 1968, under s. 147(a) of the I.T. Act, 1961 (hereinafter called " the Act "). The notice served upon the assessee-firm contained the details of the grounds on the basis of which the assessment had been reopened.

The assessee-firm appeared before the ITO and submitted a return of Rs. 84,949, i.e., the figure at which the assessment has earlier been framed. The assessee-firm asserted that the loans in question were genuine and that all the material facts had been disclosed by it to the ITO and that there was no justification for the reopening of the assessment under s. 147(a) of the Act. The ITO rejected these assertions and on the merits of the case added a sum of Rs. 76,359 (including Rs. 359 as interest) to the income of the assessee-firm from undisclosed sources.

The assessee-firm went up in appeal before the AAC, which was dismissed. The assessee-firm went up in second appeal which was partly allowed and it was held by the Tribunal:

" 1. That the assessee had not disclosed in its original return all material facts fully and truly necessary for its assessment within the meaning of section 147(a) read with Explanation 2 thereto and as such the income-tax Officer was competent to reopen the assessment under the aforesaid provision of law.

2. That the cash credits amounting to Rs. 20,000, Rs. 10,000 and Rs. 18,000 appearing in the names of M/s. Brij Lal Narinder Kumar, M/s. Avtar Singh and Bros. and M/s. Chopra Trading Co. were genuine and as such the addition of Rs. 48,000 could not be made to the income of the assessee, as income from undisclosed sources.

3. That the cash credits amounting to Rs. 15,000 and Rs. 13,000 appearing in the names of M/s. Mohandas Ghanshamdas and M/s. Tola Singh Sohan Singh were fictitious."

Since the assessee-firm was found to have concealed its income and to have given inaccurate particulars thereof, penalty proceedings were also initiated against it. At the relevant time, the minimum penalty imposable exceeded Rs. 1,000 and for that reason the ITO referred the case to the IAC under s. 274(2) of the Act. In due course of time, a penalty of Rs. 76,000 was levied by the IAC on the assessee-firm under s. 271(1)(c) of the Act.

The assessee-firm filed an appeal against this order also. The appellate Tribunal observed as follows :

"It is obvious from the aforesaid order of the Tribunal that the genuineness of the cash credits of Rs. 13,000 appearing in the name of M/s. Tola Singh Sohan Singh was not accepted because the assessee could not produce any satisfactory evidence to substantiate its contention. The explanation of the assessee was rejected by the Tribunal for want of evidence. This fact alone is not, in our opinion, sufficient to justify the levy of penalty. The addition of Rs. 13,000 having been made to the income of the assessee merely by rejecting its explanation, it cannot be said that the assessee concealed its income within the meaning of section 271(1)(c). We are, therefore, of the view that penalty is not leviable in respect of this cash credit of Rs. 13,000."

The position as regards the cash credit of Rs. 15,000 appearing in the name of M/s. Mohandas Ghanshamdas is, however, different. As observed by the Tribunal in the quantum appeal, Shri Mohandas not only stated in his statement dated Match 22, 1968, before Shri J. S. Gill, ITO, that the entire hundi business carried on by him was fictitious, but also confirmed this position in the letter dated March 14, 1970, sent by him to the ITO in the reassessment proceedings. In the face of the statement dated March 22, 1968, and the letter dated March 14, 1970, of Shri Mohandas, there was, as observed by the Tribunal in the quantum proceedings, no scope for doubt about the fictitious nature of this cash credit. This cash credit cannot, therefore, be considered to be at par with the other cash credits in the matter of levy of penalty. In somewhat similar circumstances, the Punjab & Haryana High Court upheld the levy of penalty under s. 271(1)(c) in the case of Jawahar Woollen Textile Mills v. CIT [1973] 92 ITR 510. In that case, the same creditor, i.e., Shri Mohandas, had given two statements on December 29,1966, and January 15, 1966, in two independent income-tax cases to the effect that he was not carrying on the business of money-lending but was merely lending his name as a creditor on payment of 3% commission. However, in the proceedings before the ITO against M/s. Jawahar Woollen and Textile Mills, he confirmed to have advanced the loans to them. He could not, however, produce the account books in support of his statement before the ITO. Taking into consideration the statements of Shri Mohandas recorded on December 21, 1965, and January 15, 1966, and also his statement in the assessment proceedings, the department levied a penalty of Rs. 27,937 on the assessee and the High Court upheld the same. While upholding this penalty, the High Court observed that the conduct of the so-called creditor, Shri Mohandas, was that he was lending his name to different traders as a creditor in order to enable them to escape liability to income-tax and that there was, unlike in the case of Anwar Ali [1970] 76 ITR 696 (SC), satisfactory material on record to prove the concealment of income. The present case is on stronger footing, because whereas Shri Mohandas had supported the claim of M/s. Jawahar Woollen & Textile Mills in the assessment proceedings, he has not at all appeared before the ITO and supported the case of the present assessee.

In other words, the Appellate Tribunal concluded that penalty was leviable on the assessee-firm for having concealed its income to the extent of Rs. 15,000.

On the application made by the assessee-firm, two separate references have been made in two cases. The findings arrived at in the appeal about the quantum of income-tax are the subject-matter of reference in I.T.R. No. III of 1975. In this reference, the following two questions of law have been referred to us for our opinion :

" 1. Whether the Tribunal was right in law in holding that the assessment had been validly reopened under section 147(a) of the Incometax Act, 1961 ?

2. Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the assessee had failed to prove, the genuineness of the cash credits amounting to Rs. 15,000 and Rs. 13,000 appearing in the names of M/s. Mohandas Ghanshamdas and M/s. Tola Singh Sohan Singh ?"

The findings arrived at in the appeal relating to penalty proceedings are the subject-matter of decision in I.T.R. No. 115 of 1975. In this reference, the following question of law has been referred to us for our opinion : " Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in maintaining the penalty of Rs. 4,000 levied of the assessee under section 271(1)(c) of the Income-tax Act, 1961"

Since the two references arise between the same parties and involve common questions of law and fact, they are being disposed of by one judgment.

In the reference wherein the quantum of tax imposed has been challenged, the only point raised by the learned counsel for the assessee-firm is that the names of the hundi dealers having been given by the assesseefirm in the original return there was no justification on the part of the ITO to reopen the assessment under s. 147(a) of the Act. However, the decision on this point stands concluded against the assessee-firm by a Division Bench judgment of this court in Kirpa Ram Ramji Dass v. ITO (Civil Writ No. 3671 of 1971 decided on November 20, 1979-since reported in [1982] 135 ITR 68.)

As far as the second point is concerned, since the proprietor of the money-lending concern himself made a statement that the loans alleged to have been advanced by his firm to various concerns were all bogus, it was open to the Tribunal below to act on such a statement and to infer that the assessee-firm failed to prove the genuineness of the cash credits of the impugned amounts. We, therefore, answer the two questions of law referred to us in I.T.R. No. 111 of 1975 in the affirmative, i.e., against the assessee-firm and in favour of the revenue.

Once a finding is arrived at that the assessee-firm made false entries in its books of account and there was the additional evidence of the money-lending dealer to the effect that he had been indulging in namelending only, it was open to the Tribunal below to come to the conclusion that the assessee-firm had indulged in a deliberate concealment of income and to impose penalty on it. [See in this connection (Hazi Mohd. Mir Ahmed v.CIT [1977] 110 ITR 630 (P&H)). The question of law referred to us in I.T.R. No. 115 of 1975 is also answered in the affirmative, i.e., against the assessee and in favour of the revenue.

No costs.

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