Commissioner of Income Tax vs C.L. Verma

K. Shivashankar Bhat, J.—The revenue has approached this Court to call for reference u/s 256(2) of the income tax Act, 1961 (''the Act'') in respect of the following questions : " 1. Whether, on the facts and in the circumstances of the case, the Tribunal was correct in law in holding that the evidence collected during the course of penalty proceedings could be used for deciding the matter in assessment proceedings ?

Whether, on the facts and in the circumstances of the case, the Tribunal was correct in giving a finding by using the evidence which is already pending adjudication before the Tribunal ?"

In the course of assessment proceedings, the assessee was not able to produce direct evidence in support of his explanation regarding a sum of Rs. 34,200 paid to one Tejram, allegedly to meet the farm expenses. The Assessing Officer wanted Tejram to be proceeded and examined. In view of this failure, the ITO added this sum as the income of the assessee. Thereafter penalty proceedings were initiated u/s 271(1)(c) of the Act.

The order of the Commissioner (Appeals) in the present proceedings discloses that the appellant produced Tejram before the ITO, but the latter did not choose to record the statement of Tejram. Tejram was produced to confirm the statement made by him earlier in an affidavit in support of the payments received by him. Therefore, the Commissioner (Appeals) held that penalty was not leviable. His order concludes thus :

"During penalty proceedings Shri Tejram was produced and on the facts and circumstances of the case, there is no evidence to establish that the cash was not available with the appellant. Therefore, I am of the opinion that the Assessing Officer has not been able to establish concealment on the part of the appellant. The penalty imposed amounting to Rs. 24,620 stands deleted."

This order of the Appellate Commissioner became final. This was taken note of in the appeal filed for the assessment proceedings and the sum of Rs. 34,200 added to the income was deleted.

The revenue contended before the Tribunal that evidence produced in the penalty proceedings cannot be looked into in the assessment proceedings. The Tribunal did not accept this contention. The revenue contends that the order of the Tribunal is vitiated by its reliance on an inadmissible material.

We cannot agree with this contention. It is always permissible for the assessee (or for the revenue) to rely on any material which is relevant to the question of assessability of an amount to tax under the Act. The appellate proceedings before the Tribunal are a continuation of the original assessment proceedings. Penalty proceedings are also held before the assessing authority. Instead of producing Tejram earlier in the assessment proceedings, lie was produced subsequently before the same authority in the penalty proceedings, which again, is an off-shoot of the order made in assessment proceedings. In the circumstances, the first question has to be answered in the affirmative and against the revenue. It is answered accordingly.

The second question did not arise out of the order of the Tribunal, as rightly pointed out by the Tribunal while rejecting the reference application. Hence, it need not be considered. Reference answered accordingly.