Commissioner of Income Tax vs Bhaiya Lal Shyam Behari

The Income Tax Appellate Tribunal, Allahabad, has referred the following question of law u/s 256(1) of the Income Tax Act, 1961 (hereinafter referred to as "the Act"), to this Court:

Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in confirming the cancellation of penalty of Rs. 35,000 imposed u/s 271(1)(c) of the Act considered along with Explanation 1 thereto inserted with effect from April 1, 1976 ?

The reference relates to the assessment year 1979-80 in respect of the proceedings initiated for imposition of the penalty u/s 271(1)(c) of the Act.

Briefly stated the facts giving rise to the present reference are as follows:

This is a case of a firm where certain deposits aggregating to Rs. 53,400 were found in the name of six persons in the books of account of the assessee and these deposits were found to be unexplained and added to the income of the assessee. Besides, another addition of Rs. 19,700 was made on account of unexplained petty expenses. Aggrieved by this order, the assessee filed appeal before the learned Commissioner of Income Tax (Appeals), Agra, who confirmed both the additions with direction that the addition on account of unexplained deposits should be made on the basis of peak credit after giving allowance to the debit entries in the account of the creditors and the addition on account of unexplained cash credit was sustained at Rs. 44,500.

In view of the above, the Assessing Officer took the view that there was a concealment of Rs. 64,200 on the part of the assessee for the purpose of Section 271(1)(c) read with Explanation 1 and imposed a penalty of Rs. 35,000 u/s 271(1)(c) of the Income Tax Act, 1961, on the assessee. The assessee filed appeal against the order passed u/s 271(1)(c) before the learned Commissioner of Income Tax (Appeals), Agra, who deleted the said penalty of Rs. 35,000.

It was submitted before the Tribunal that the assessee was nowhere found guilty of fraud or gross or wilful neglect nor was the evidence produced found to be false, fabricated or fraudulent. Reliance was placed on a decision of the hon''ble Calcutta High Court in the case of Commissioner of Income Tax Vs. M.B. Engineering Works (P.) Ltd., where it was held that even the Explanation appended to Section 271(1)(c) did not supersede the ratio of the decision of the hon''ble Supreme Court in the case of Commissioner of Income Tax, West Bengal I, and Another Vs. Anwar Ali, . It was submitted that penalty would not be imposed under the Explanation unless it was shown that the amounts in question were really the income of the assessee. The Tribunal observed that there was no finding of concealment in the penalty order. However, an extract from the penalty order has been given, where the Assessing Officer has held that "the assessee had no plausible explanation and also that the assessee had concealed the income...". The Tribunal further observed that there was no contumacious conduct on the part of the assessee or any wilful neglect or fraud played by them. For these reasons, it was held that it was not a fit case for imposing the penalty and the departmental appeal was dismissed.

We have heard Sri A.N. Mahajan, learned standing counsel appearing for the Department for the Revenue, and Sri Srikrishna Agrawal appearing for the respondent-assessee.

In the statement of the case sent by the Tribunal, it has been specifically mentioned by the Tribunal that the amendment made in Explanation 1 inserted to Section 271(1)(c) of the Act with effect from April 1, 1976, according to which, where the assessee either failed to offer any explanation or offered an explanation, which was found to be false or offered an explanation which he was not able to substantiate, then the amount added would be deemed to represent the income in respect of which particulars have been concealed. There was a proviso below the Explanation according to which Clause (B) would apply in respect of any amount added as a result of rejection of any explanation offered by the assessee if the explanation was bona fide and all the facts relating to the same and material to the computation of his total income were disclosed, was not brought to the notice of the Tribunal at the time of hearing and therefore it was not applied.

The penalty proceedings in the present case relating to the assessment year 1979-80 in which Explanation 1 as inserted with effect from April 1, 1976, was applicable as the Tribunal has failed to consider the effect of the said Explanation 1 and as such the order of the Tribunal deleting the penalty cannot be sustained.

We, accordingly, answer the question referred to above in the negative that is in favour of the Revenue and against the assessee with further direction to decide the matter afresh after considering Explanation 1 to Section 271(1)(c) inserted with effect from April 1, 1976.