Commissioner of Income Tax vs Kanhaiya Lal

N.N. Mathur, J.

The instant reference has been made by the Tribunal, Jaipur, u/s 256(2) of the Income Tax Act at the instance of the revenue seeking opinion of this court on the following questions :

"1. Whether, on the facts and in the circumstances of the case the Tribunal was legally right in excluding the additions of Rs. 92,002 and Rs. 17,003 being unexplained investments in the acquisition of gold and silver ornaments from the purview of penalty u/s 271(1)(c) of the Income Tax Act, 1961 ?

Whether, on the facts and in the circumstances of the case, the decision of Hon''ble Supreme Court The Commissioner of Income Tax Madras Vs. Khoday Eswarsa and Sons, was applicable to the present case in respect of the existing provisions relating to levy of penalty u/s 271(1)(c) read with the Explanations so as to legally justify the Tribunal to grant relief to the assessee in terms of the levy of penalty u/s 271(1)(c) with regard to the extent of Rs. 92,902 and Rs. 17,003, respectively ?"

The facts giving rise to the instant reference are that the respondent-assessee namely, Kanhaiya Lal Doshi is the partner in the firm M/s. Champalal Gordhanlal. In the course of search of his business in residential premises in December, 1983, certain documents, cash, silver, gold, bullion, etc. were found and seized. It revealed from the documents that the assessee was carrying on money-lending business, wherefrom income was earned, but the same was not disclosed in the tax returns. For the assessment year 1984-85 the assessee returned an income of Rs. 1,27,169 inclusive of Rs. 1,06,584 as investment in money-lending business as per order u/s 132(12). The total income was finally computed at Rs. 3,88,400. The assessing officer initiated penalty proceedings u/s 271(1)(c) and levied a penalty of Rs. 1,64,900 being 125 per cent of the tax on concealed income.

On appeal, the Commissioner (Appeals) reduced the quantum of penalty to Rs. 1,31,925 being the minimum leviable under the Act. On further appeal, the Tribunal sustained the penalty referable to the addition made on account of unexplained cash. However, cancelled the penalty referable to other additions. As regards gold and silver ornaments the Tribunal deleted the penalty mainly on the ground that the department failed to establish the question of ownership of the ornaments beyond a reasonable doubt. The Tribunal also found that there was no positive evidence to hold that there was actual investment by the assessee in the gold and silver ornaments. The Tribunal on appreciation of material on record also found that major portion of the gold ornaments, silver ornaments and bullion was accepted as belonging to the other members of the family of the assessee. It was expressed that perusal of the orders of the authorities adjudicating upon the issue on every level, the relief was granted to the assessee and finally ownership of 522.304 grms. of gold ornaments and 4.865 kg. of silver bullion was attributed to him. Thus, on consideration of entire material on record, the Tribunal concluded that the possibility of silver and gold ornaments, the ownership of which has been attributed to the assessee, being vested in other members of the family cannot be ruled out. Thus, the Tribunal relied upon the following passage of decision of the Apex Court in CIT v. Khoday Eswarsa & Sons (supra).

"Penalty proceedings being penal in character, the department must establish that the receipt of the amount in dispute constitutes income of the assessee. Apart from the falsity of the explanation given by the assessee, the department must have before it before levying penalty cogent material or evidence from which it would be inferred that the assessee has consciously concealed the particulars of his income or had deliberately furnished inaccurate particulars in respect of the same and the disputed amount is a revenue receipt."

In view of the finding of fact record by the Tribunal and following the decision of the Apex Court in Khoday''s (supra) the Tribunal held that it was not safe to sustain the penalty referable to the additions made on account of acquisition of silver and gold ornaments by the assessee. Accordingly, the penalty referable to an amount of Rs. 92,902 + Rs. 17,003 was cancelled.

Though the Tribunal has sought opinion as to the application of the law laid down by the Apex Court in The Commissioner of Income Tax Madras Vs. Khoday Eswarsa and Sons, with respect of the existing provisions relating to levy of penalty u/s 271(1)(c) read with Explanations, but there is no discussion either in the order of the Tribunal or in the statement of case as to how the existing provisions has nullified the law laid down by the Apex Court in The Commissioner of Income Tax Madras Vs. Khoday Eswarsa and Sons, It is of course true that the decision of the Apex Court in The Commissioner of Income Tax Madras Vs. Khoday Eswarsa and Sons, was delivered in 1971 and thereafter there has been some change in the provisions of section 271(1)(c) in the year 1975, but the Tribunal while referring the questions has not pointed out as to the material change in the provisions of section 271(1)(c) which in anyway diluted the law laid down by the Apex Court in The Commissioner of Income Tax Madras Vs. Khoday Eswarsa and Sons, Even the learned counsel appearing for the revenue has not addressed on this question before us. Mr. Sandeep Bhandawat learned counsel appearing for the revenue has cited a decision of the Delhi High Court in Commissioner of Income Tax Vs. Jain Brothers, This case does not provide any assistance to the questions referred. No referable question of law arises from the order of the Tribunal. In absence of any discussion in the order of the Tribunal with respect of the question referred, in our opinion no opinion can be rendered by this court.

Thus, the questions referred are returned to the Tribunal unanswered.

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