Commissioner of Income Tax vs G. Krishnan

Rangarajan, J.—In this reference, the Appellate Tribunal has referred the following three questions :

(1) Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in holding that the addition of Rs. 34,300

representing the payments made by the assessee to Antony and others in connection with the printing of counterfeit hundred rupee notes was

based on ''statements of mere witnesses'' only and the same would not be a positive proof calling for the said addition and, therefore, the addition

should be deleted ?

(2) Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding and had valid materials to hold that the addition of

Rs. 3,23,721 and Rs. 55,337 on account of cash deficit noticed in the cash books should be deleted and whether it was right in holding that the

cash book was not to be relied upon and whether it was justified in relying on material in other cases (which have not become final) to hold that the

assessee could have other resources particularly when the assessee himself has not taken this stand ?

(3) Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in cancelling the penalty of Rs. 1,50,000 levied by

the Inspecting Assistant Commissioner u/s 271(1)(c) of the Act as not warranted ?

In respect of the first question, the Appellate Tribunal noted that the addition was made only on the basis of the statements of witnesses in a

criminal case and even those statements were not given to the assessee for cross-examination, and those statements were not the basis of the

conviction either. The Appellate Tribunal thus found that there was no proof of payment in respect of which the assessee was called upon to

explain the source of funds. Accordingly, the Appellate Tribunal found that this addition was not sustainable.

In respect of the second question, the Appellate Tribunal found that the Department had a cash flow statement prepared on the basis of a diary

which itself was not produced for verification, and even in respect of the entries in the diary, there was no proof of actual expenditure. The

Appellate Tribunal has taken pains to demonstrate that even the available funds such as Income Tax refunds had not been properly taken into

account for the preparation of the cash flow statement, with the result that a proper recasting of the account may even indicate excess of funds

instead of deficit as indicated by the cash flow statement prepared by the Department. Thus, on both the issues, the findings of the Appellate

Tribunal that there was no proof of actual expenditure which was required to be explained by the assessee was based on valid materials and has to

be upheld. Consequently, the cancellation of the penalty imposed u/s 271(1)(c) was also correct. It follows that our answers to all the three

questions are in the affirmative and against the Revenue. No costs.