Commissioner of Income Tax vs Amar Nath

The Income Tax Appellate Tribunal, Allahabad Bench, Allahabad, referred the following question for the opinion of this court :

"Whether, on the facts and in the circumstances of the case, the Tribunal was in law justified in cancelling penalty of Rs. 25,000 imposed by the Inspecting Assistant Commissioner u/s 271(1)(c) of the Income Tax Act, 1961 ?"

The relevant facts as stated in the statement of the case are that the assessee in the status of individual, carried on business in commission agency prior to the assessment year 1968-69. For the assessment year 1968-69 a return was filed showing an income of Rs. 33,233 representing share of profit from a firm, Sohan Lal Sewa Ram Jaggi. The assessee claimed that the individual business was converted into a partnership firm comprising two partners, namely, the assessee and his son, with effect from April 1, 1967.

The Inspecting Assistant Commissioner (IAC) came to the conclusion that the partnership business had come into existence only with effect from August 26, 1967, and prior to that the assessee had carried on his individual business and that he failed to disclose the income from his individual business for the period from April 1, 1967, to August 26, 1967. He, therefore, held that the assessee had concealed the income from his individual business for the aforesaid period and levied penalty for concealment u/s 271(1)(c) of the Income Tax Act, 1961 (briefly, "the Act").

On appeal, the Income Tax Appellate Tribunal held that there could be two views in the matter and, therefore, it was not a fit case for penalty.

The question for consideration is whether, on the facts and in the circumstances of the case, the Appellate Tribunal rightly cancelled the penalty.

The case of the assessee is that the individual business was converted into a partnership with effect from April 1, 1967, though the partnership deed came to be executed on August 26, 1967. The Inspecting Assistant Commissioner was of the view that several interpolations had been made in the books of account to lend credibility to the theory that the partnership had come into existence right from April 1, 1967, but in fact, the partnership had come into existence only with effect from August 26, 1967, and prior to that the business had been carried on by the assessee in the status of individual. On the other hand, the contention of the assessee was that though the partnership deed was executed on August 26, 1967, the partnership business, in fact, was carried on right from the first day of the accounting year i.e., April 1, 1967. In the partnership deed, it is stated that the partnership business commenced from April 1, 1967. On these facts the Tribunal was of the view that two views could be possible and, therefore, it was not a fit case for levying the penalty. It is important to note that the income of the entire year was disclosed by the assessee. The only question was whether the income after August 26, 1967, only, or of the whole year was the income of the partnership.

On these facts, we are of the view that no exception could be taken to the conclusion arrived at by the Appellate Tribunal that there was no concealment on the part of the assessee within the meaning of Section 271(1)(c) of the Act.

The income up to August 26, 1967, may have been assessed in the hands of the assessee in the status of individual, but that does not mean, that the case that income of the whole year was the income of partnership, was wholly ruled out. In this situation, no categorical inference of concealment could be drawn.

For the above reason, the aforementioned question is answered in the affirmative, i.e., in favour of the assessee and against the Revenue.