Commissioner of Income Tax vs Sethi Textiles

M.W. Deo, J.—This is an application for calling for a reference from the Appellate Tribunal u/s 256(2) of the Income Tax Act, 1961 (for short " the Act ").

Briefly stated, the facts are that in the case of the non-applicant assessee, for the assessment year 1979-80, addition of Rs. 30,000 in respect of cash credits of Rs. 10,000 in the names of each of the three persons named by him was made and disallowance of Rs. 2,572 relating to interest paid on those cash credits was also made. These findings were confirmed up to the stage of the Tribunal. The Income Tax Officer initiated penalty proceedings u/s 271(1)(c) of the Act treating the said addition and disallowance as concealment of income and consequently levied a penalty of Rs. 17,500 on the assessee. This order of levy of penalty was cancelled by the Commissioner of Income Tax (Appeals). The Tribunal endorsed the order of the Commissioner of Income Tax (Appeals) in appeal.

The Department moved the Tribunal u/s 256(1) of the Act for making a reference to the High Court as follows :

" (1) Whether, on the facts and in the circumstances of the case, the Hon''ble Tribunal is correct in confirming the order of the Commissioner of Income Tax (Appeals) cancelling the penalty u/s 271(1)(c) when the cash credits were not proved ?

(2) Whether, on the facts and in the circumstances of the case, the Tribunal is justified in giving weightage to the evidence of mere possession of agricultural lands by the creditors when the assessee is required to prove not only the capacity of the creditor to advance the loan but also the actual advance ? "

The Tribunal refused the prayer and hence the present application by the Department u/s 256(2), ibid.

Learned counsel for the Department submits that, in the present case, the assessee offered evidence merely of the " capacity " of the creditor to advance the loan when he should have offered evidence also of " actual advance ".

Learned counsel, therefore, submits that such-evidence of only the capacity to advance will not constitute an explanation within the meaning of the Explanation to Section 271(1)(iii), ibid, which runs as under :

" Section 271(1)(iii) :

Explanation 1.--Where, in respect of any facts material to the computation of the total income of any person under this Act, -

(A) such person fails to offer an explanation or offers an explanation which is found by the Assessing Officer or the Deputy Commissioner (Appeals) or the Commissioner (Appeals) to be false, or. "

Learned counsel for the assessee, on the other hand, submits that the burden cast on the assessee is only to offer an explanation which should mean a plausible explanation and not a conclusive proof of advance. Learned counsel for the assessee further submits that the assessee had filed revenue papers to show possession of creditors over agricultural lands to demonstrate the capacity of the creditors to make advance and also produced the creditors before the Income Tax Officer and they were examined by the Income Tax Officer. Learned counsel appears to be acceptable on these facts in view of para 4 of the order passed by the Tribunal in the assessment case on September 8, 1989.

The main contention on behalf of the Department is that the assessee should not have merely offered an explanation as to the capacity of the creditor to advance, but should have also offered explanation of the actual advance. In the present case, we do not think it necessary to decide this contention because, as is clear from a reading of para 4 of the appellate order of the Tribunal dated September 8, 1989, the assessee had offered evidence both of the capacity of the creditors to advance as well as evidence of actual advance by producing the creditors themselves before the Income Tax Officer who had examined them and such examination naturally must be relating to the actual advance of cash credits.

Whether the statements of creditors were reliable or not pertains to appreciation of evidence and as such would constitute a pure question of fact as to concealment. It is well-settled that the High Court does not exercise jurisdiction u/s 256(2) ibid to order a reference on a pure question of fact. See Commissioner of Income Tax (Central), Calcutta Vs. Ashoka Marketing Ltd., and Commissioner of Income Tax, Andhra Pradesh Vs. Kotrika Venkataswamy and Sons, under the corresponding provision u/s 66(2) of the Indian Income Tax Act, 1922.

In the result, there is no force in the application which is accordingly dismissed.