Commissioner of Income Tax vs Mahavir Prasad Jawahar Lal

B.P. Jeevan Reddy, C.J.—The Tribunal has stated the following question u/s 256(2) of the Income Tax Act, 1961 :

"Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in canceling the penalty levied u/s 271(1)(c)/274 of the Income Tax Act ?"

The assessment year concerned is 1966-67. The assessee is a registered firm dealing in jewellery and also carrying on business as pawnbrokers and money-lenders. It filed a return declaring an income of Rs. 20,405. The assessment was, however, completed on an income of Rs. 88,222. Two amounts were included in the income of the assessee, namely Rs. 15,000 on account of cash credit in the name of one Sri Prem Chand Vaish and Rs. 40,000 on account of cash credit in the name of Sri Ram Gopal Vaish. The Explanation of the assessee with respect to these two cash credit entries was rejected and the same treated as income of the assessee. This was confirmed by the Tribunal also.

Proceedings for penalty were taken u/s 271(1)(c) by the Inspecting Assistant Commissioner and penalty was levied. On appeal, however, the Tribunal set aside the penalty. The Tribunal followed the judgment of the Punjab and Haryana High Court in Additional Commissioner of Income Tax Vs. Karnail Singh V. Kaleran, , holding that the Explanation appended to Section 271(1)(c) by the Finance Act, 1964, did not supersede the decision of the Supreme Court in Commissioner of Income Tax, West Bengal I, and Another Vs. Anwar Ali, . The Tribunal also followed the decision of the Delhi High Court which reiterated the principle in Commissioner of Income Tax, West Bengal I, and Another Vs. Anwar Ali, . Indeed, the Tribunal''s order does not contain any reference to the Explanation and its effect. The said Explanation is referred to only while setting out the principle of the decision of the Punjab and Haryana High Court.

Undoubtedly, the Explanation to Section 271(1)(c) applies in this case. The effect of the said Explanation has boon sot out by the Supreme Court in two recent decisions in Commissioner of Income Tax Vs. Mussadilal Ram Bharose, and Commissioner of Income Tax, Madras Vs. K.R. Sadayappan, . These decisions clearly enunciate the effect of the said Explanation and how it changes the rule relating to burden of proof in such matters.

Since the Tribunal has not examined the case in proper light and has not adopted the proper approach laid down by the said Explanation (as explained in the said decisions of the Supreme Court), it is a proper case where the matter ought to be reconsidered by the Tribunal in the light of the said two decisions of the Supreme Court. Accordingly, we return the reference to the Tribunal for reconsideration of the matter in the light of what has been stated above.

The reference is disposed of accordingly. No costs.