Commissioner of Income Tax vs Ratan Lal Agrawal

Satish Chandra, J.—The Tribunal (R.A. Nos. 111 to 120/All./1996) referred the following question of law u/s 256(1) of Income Tax Act, 1961 (hereinafter referred to as the Act'') for the opinion of this Court:

Whether on the facts and in the circumstances of the case, the Hon''ble Tribunal was correct in law in allowing the appeal of the assessee holding that the additions made are intangible and it would be improper to impose any penalty on an addition of this nature ignoring the facts that there was very clear quantification of concealed income detected on the basis of entries recorded in the seized books of account of the assessee which clearly attracts the provisions of Explanation (1) to Section 271(1)(c) of the Income Tax Act, 1961?

The facts, briefly, are that there was a police raid conducted on the assessee''s premises. During the course of search, certain books of account were seized. Later on, these books were taken over by the Income Tax Department. It stood revealed from these books that the assessee has been doing money lending and pawning business on a good scale in HUF status.

A notice was issued to the assessee u/s 148 of the Act for the assessment years 1972-73 to 1979-80. The assessee filed returns in response to the above notice. Finally, the assessee was assessed at Rs. 3,34,056 pertaining to the cash credits. The CIT (A) has given partial relief by sustaining the addition of Rs. 2,54,018. The same was confirmed by the ITAT by dismissing the appeals filed by the assessee.

Later on, the Assessing Officer levied the penalty u/s 271(1)(c) of the Act. The same was upheld by CIT (A) but was cancelled by the Tribunal after observing that the police search took place on 29-7-1975 which is relevant for the assessment year 1976-77, the period of internal emergency in the country. The second search was conducted on 10-8-1983 which is relevant for the assessment year 1984-85. Due to lapse of more than a decade, the cash creditors were not produced so additions were made by Assessing Officer. Finally the same was sustained by ITAT in quantum appeals. But there is no concealment on the part of the assessee. Not being satisfied, the department is before us on the reference applications.

After hearing both the parties, it appears that additions were confirmed in the quantum proceeding which is quite different from the penalty proceeding as both are independent proceedings as per the ratio laid down in the case of Durga Kamal Rice Mills Vs. Commissioner of Income Tax,

Jn the instant case, the assessee was confined to jail in MISA. Unconcerned with the additions which were finally sustained in quantum proceedings. The assessee has given a list of creditors who were not traceable after a gap of about 14 years. The Assessing Officer vide his order dated 23-3-1985 has observed that money was already refunded along with the interest to the cash creditors.

From the above, it appears that there was no mala fide intention on the part of assessee. In the absence of mens rea, no penalty is sustainable as has already been held by this Court in the case of Commissioner of Income Tax Vs. Smt. Shashi Aggarwal and Others, Similar views were expressed by the Hon''ble Delhi High Court in the case of Director of Income Tax (Exemption) Vs. All India Deaf and Dumb Society,

In the light of the above, we decline to interfere with the order of Tribunal regarding the deletion of penalty. The answer to the question is in affirmative, i.e., in favour of the assessee and against the revenue.