Commissioner of Income Tax vs Jhaverbhai Biharilal and Co.

This is a reference u/s 256(2) of the Income Tax Act, 1961 (hereinafter called "the Act"). The question referred to us for our opinion is as follows :

"Whether, on the facts and in the circumstances of the case, the Tribunal was correct in law in cancelling the order of penalty u/s 271(1)(c) of the Income Tax Act, 1961, read with the Explanation ?"

In this reference, we are concerned with the assessment year 1968-69. The assessee is a dealer in biri leaves. For the assessment year in question, he showed cash credits of Rs. 80,374 with interest. His claim of credit from others in this regard was not accepted by the Appellate Assistant Commissioner and the Income Tax Appellate Tribunal in the quantum appeals. The sum assessed was Rs. 5,53,340 as against a returned income of Rs. 2,70,451. There being a difference between the returned income and the assessed income of more than twenty per cent., a proceeding for levy of penalty u/s 271(1)(c) read with Section 274(2) of the Act was initiated. Since the penalty to be levied was likely to exceed Rs. 1,000, the Income Tax Officer referred the matter to the Inspecting Assistant Commissioner who levied a penalty of Rs. 85,000. The assessee, being aggrieved by the order of the Inspecting Assistant Commissioner, appealed to the Tribunal. The Tribunal allowed the appeal and set aside the order of penalty.

The Revenue, being aggrieved by the order of the Tribunal deleting the penalty, moved the Tribunal for reference in terms of Section 256(1) of the Act. The reference was refused. The Department thereafter moved this court in terms of Section 256(2) of the Act. This court called for a reference on the point mentioned above for opinion in this case. That is how the reference has fallen for consideration before us.

We find that the quantum assessment itself is still an open question. A reference had been called for by this court u/s 256(2) of the Act at the instance of the assessee. That reference has now been disposed of and is reported in Jhaverbhai Bihari Lal and Co. Vs. Commissioner of Income Tax, . In that reference, the pointed question raised on behalf of the assessee was that the addition of the cash credits of Rs. 80,354 was unwarranted and that the assessee had explained them. This court observed as follows (at p. 597):

"We could have at once directed the deletion of the additions made to the tune of Rs. 80,354 if the identity of the creditors was well established. But, in the instant case, it cannot be said with any amount of precision that the identity of the creditors was fully established. That can be decided only if in spite of summons or registered notices to them,, they do not, or any of them does not, respond. Mr. Agarwal, learned counsel for the alsessee, placed reliance on some of the decisions in which the additions were directed by the High Court in a reference u/s 256 of the Act to be struck down. But, in all those cases, the identity of the creditors was fully established since their G. I. R. Nos. had been given and they were all assessees under the Act whose books of account could very well be used for the purpose of verification. That, however, is not the position in the instant case. This court is not in a position, from the materials on record, to say with any amount of exactitude as to whether those persons are genuine or not. On the facts and in the circumstances of the instant case, therefore, the Tribunal should direct the Income Tax Officer to issue notices to those creditors and only after the return of service, these additions should be made or should be deleted as the facts warrant.

We, accordingly, answer, in the light of the observations made earlier, the question referred to this court in the supplementary statement of the case in the affirmative and hold that the refusal to summon the persons mentioned u/s 131 of the Act vitiated the addition of cash credits amounting to Rs. 80,354 to the assessee''s income as income from other sources. In view of what we have already held earlier, the Tribunal may take appropriate steps by directing the Income Tax Officer to issue notices to the six creditors in question and thereafter to finalise the assessment in relation to the cash credits to the extent aforementioned."

It thus appears that the cash credit assessed is still an open question. That question being open, it cannot be said that there had been a difference between the assessed income and the returned income. Until that is decided, the question of penalty does not arise. In that view of the matter, the question of levy of penalty or the deletion thereof must await the result of the inquiry by the Tribunal in the quantum matter. After that has been disposed of and if the cash credit is deleted, there can be no question of levy of penalty. If, however, the cash credit is not deleted, the Tribunal will proceed afresh to consider and dispose of the question of levy of penalty in accordance with law.

In regard to the onus of establishing concealment, we would only like to observe that the law laid down in a Full Bench decision of this court in Commissioner of Income Tax Vs. Nathulal Agarwala and Sons, has been approved by the Supreme Court in Commissioner of Income Tax Vs. Mussadilal Ram Bharose, . In the special facts, therefore, this matter has to go back to the Tribunal to take action after the disposal of the quantum assessment.

We, therefore, refuse to answer the question referred to us. There shall be no order as to costs. We hope the Tribunal will dispose of the matter expeditiously.

Let a copy of this judgment be transmitted to the Assistant Registrar, Income Tax Appellate Tribunal, in terms of Section 260 of the Income Tax Act, 1961.