Commissioner of Income Tax vs Navnitlal Pochalal

Susanta Chatterji, J.—The Income Tax Appellate Tribunal, Ahmedabad Bench ''B'' (hereinafter referred to as ""the Tribunal""), has referred

the following questions for the opinion of the High Court in compliance with the directions of this court :

Whether, on the facts and in the circumstances of the case, the Appellate Tribunal has been right in law in holding that no penalty u/s 271(1)(c)

and/or Explanation thereto is justified ?

Whether, on the facts and in the circumstances of the case, the Appellate Tribunal has been right in law in holding that the assessee could not be

said to have failed to return the correct income or had filed inaccurate particulars thereof, visiting him with penalty u/s 271(1)(c) read with the

Explanation thereto ?

Whether, in view of the clear facts on record and the admission of the assessee to an addition of Rs. 40,000 as concealed income of the year,

the appellate Tribunal was justified in not sustaining the penalty u/s 271(1)(c) and/or under the Explanation thereto ?

Upon a perusal of the materials on record, we find that the assessee was assessed in the status of individual. During the relevant previous year,

the assessee installed the machinery in his own business at a cost of Rs. 2,32,500. The machinery, according to the assessee, was purchased from

a concern, namely, Simplex Industrial Corporation, and the bill dated May 1, 1969, was said to have been issued by one Mr. D. H. Gajjar,

proprietor of the said Simplex Industrial Corporation. The contention of the assessee was that the assessee had obtained a loan of Rs. 2,30,000

from the Gujarat State Financial Corporation in order to purchase this machinery. The Income Tax Officer summoned Mr. Gajjar and certain

statements were recorded. The assessee, however, did not avail of the opportunity of cross-examining the persons whose statements were

recorded. However, the matter was settled before the Inspecting Assistant Commissioner and a sum of Rs. 40,000 was taken as an amount from

undisclosed source. The Income Tax Officer thereafter made the assessment afresh on the basis of the settlement and included therein a sum of Rs.

40,000 on account of ""income from undisclosed sources"" and proceedings for levy of penalty were initiated. The matter went up to the Tribunal

and the Tribunal accepted the submissions made on behalf of the assessee that it was not open to the Inspecting Assistant Commissioner to rely on

the facts stated in the original assessment order because that assessment order was set aside. The Tribunal also accepted the submission made on

behalf of the assessee that merely because the assessee did not choose to summon those who had given evidence against the assessee before the

Income Tax Officer for cross-examination before the assessment order was made, the Inspecting Assistant Commissioner should not have relied

on the evidence without giving an opportunity to the assessee to cross-examine the witnesses in penalty proceedings. The Tribunal Specifically

found that in the present case simply because the assessee agreed that he should be taxed on the amounts of Rs. 40,000 which was spent by him

from outside the books and the source of which he could not explain, it did not follow that the amount of Rs. 40,000 was the undisclosed income

of the assessee in the assessment year 1970-71. Relying on the judgment in the case of Commissioner of Income Tax, Gujarat-III Vs. Vinaychand

Harilal, the Tribunal decided that no penalty u/s 271(1)(c) or the Explanation thereto is justified.

Mr. Shelat, the learned advocate for the applicant, has, however, tried to convince us that there is no proper analysis of the facts in the present

case. By the admission made by the assessee there is no escape for him from the ultimate penalty proceedings. Our attention has been drawn to

the decision in the case of Additional Commissioner of Income Tax Vs. Chandravilas Hotel, . In the said case, it was found that the Tribunal had

not examined the question whether the income returned by the assessee was bona fide or proper. The facts and circumstances which weighed with

the Inspecting Assistant Commissioner had not been properly appreciated and considered by the Tribunal. The addition made to the total income

of the assessee on account of the book result disclosed by the assessee not being amenable to verification was not the sole ground or basis on

which penalty was levied by the Inspecting Assistant Commissioner. The past history of the assessee''s persistence in maintaining the books of

account in the same manner though they were found unreliable was one of the factors which had gone into consideration in levying penalty and this

factor had been completely overlooked by the Tribunal in setting aside the order of the Inspecting Assistant Commissioner and cancelling the

penalty imposed by him. In the absence of a clear finding by the Tribunal, the question whether the levy of penalty was valid could not be

answered. This court observed, inter alia, that each case has to be considered according to the facts and circumstances of the case. Discussing the

facts of the case in depth, this court, in view of the decision of the Supreme Court in the case of COMMISSIONER OF Income Tax, WEST

BENGAL I Vs. INDIAN MOLASSES CO. P. LTD., declined to answer the question. It is made clear that it would be open to the Tribunal to

dispose of the appeal u/s 260(1) of the Act.

In the instant case, the facts are completely otherwise. In the present case, there is a clear finding by the Tribunal that no materials are on record

to prove that the amount of Rs. 40,000 was the income of the assessee for the year 1970-71 and/or there was any fraud or negligence on his part

to invoke the penalty proceedings. The onus lies upon the authority concerned to prove the fact is clearly absent. The Tribunal, on the facts and

circumstances, has rightly relied upon the decision rendered in Commissioner of Income Tax, Gujarat-III Vs. Vinaychand Harilal, , wherein it has

been held that on the admission of the assessee to the extent that the amount is not properly as lying in his hand of other sources does not ipso

facto absolve the onus of proving the same as the income of the same year in penalty proceedings. Considering all the aspects of the case, we

accordingly answer question No. 1 in the affirmative, against the Revenue and in favour of the assessee and, consequently, questions Nos. 2 and 3

are to be construed as having been answered in favour of the assessee. This reference is accordingly disposed of with no order as to costs.