Commissioner of Income Tax vs Vaid Milk Products Ltd.

This appeal is against a judgment and order rendered by the Income Tax Appellate Tribunal, Amritsar Bench whereby and whereunder penalty

imposed under Section 271(1)(c) of the Income Tax Act. by the Assessing Officer and confirmed by the CIT Appeal, has been struck down.

In the return filed by the Assessee for the relevant assessment year, the Assessee disclosed that it received money on account of share

application and by way of unsecured loans from certain persons. In course of assessment, the Assessing Officer required the Assessee to bring

confirmations in regard thereto. After having had obtained several adjournments, in the form of affidavits, said to have been affirmed by those who

had advanced the loans and deposited share application money, the Assessee purported to confirm those. In the meantime, the Assessing Officer

had asked the Assessee to produce those persons. The Assessee produced some of those persons. The Assessing Officer accepted payments

made by them to the Assessee by way of share application money as well as on account of loans, but, for the reasons recorded, did not accept

deposits received by the Assessee from one Mohd Rafiq Sheikh amounting to Rs. 72,000 by way of share application money and Rs. 50,000 by

way of loan. In respect of other such persons who were, disclosed to have been residing or carrying on business in Kashmir Valley, the Assessee

held out that, for the reasons disclosed by him, he is unable to bring them to Jammu and at the same time also held out that they are also not in a

position to come down to Jammu. The Assessee at that stage required the Assessing Officer to depute any one from the Income Tax Department

to visit Srinagar where the Assessee proposed to produce all those remaining persons. The Assessee also made an application to the Assessing

Officer requesting him to issue summons under Section 131 of the Act to those persons. The Assessing Officer could not depute any one to

examine those persons at Srinagar. The Assessing Officer also did not issue any summon under Section 131 of the Act to those persons. At the

conclusion of the assessment, the Assessing Officer recorded dissatisfaction as to the amounts said to have been deposited by those persons by

way of share application money and loans.

The CIT Appeal, on the appeal preferred by the Assessee, did not interfere with the assessment order. The assessment order, therefore, thus

reached its finality. The Assessing Officer thereupon initiated proceedings to impose penalty and imposed the same under Section 271 (1) (c) of

the Act. The order of penalty was confirmed by the CIT appeal. This order of penalty has been interfered with by the Tribunal by the judgment

and order under appeal.

It is the contention of the appellantdepartment that the Assessee failed to discharge its initial onus to offer satisfaction in regard to the

transactions, being the subject matter of the assessment and, accordingly, while assessment was justified so was the penalty imposed thereafter.

The burden to establish cash credits found in the books of an Assessee remains with the Assessee always. He is required to satisfy the

Assessing Officer in regard to those entries. This satisfaction by law requires to be in the form of explanation. The explanation may or may not be

accepted. If the explanation is given, but not accepted, the question will arise whether the explanation was unjustly not accepted. In the instant

case, the explanation was sought in the form of confirmation, which was given by way of affidavits. The Assessing Officer sought corroboration

thereof by oral evidence to be adduced by those who purported to have given the affidavits. The Assessee, as aforesaid, could produce a few of

them, but could not produce all of them. The reasons therefor had been indicated. The Assessee offered to take at its own costs an officer of the

department to Srinagar for examination of those persons. That was not acceded to.

The Assessee requested, in the circumstances, for issuance of summons under Section 131 of the Act. No summon under Section 131 of the Act

was issued. In the circumstances, it is one thing to say that the Assessing Officer was not satisfied with the explanation as was given and the other

thing is to say that there has been concealment in the particulars of income or furnishing of incorrect particulars of income, which is sine qua non of

clause (c) of Subsection (1) of Section 271 of the Act. In this connection, a look at the explanation would make it clear that in order to come

within the four corners of the Section, the explanation given must be found by the Assessing Officer to be false or the circumstanced would whow

that the Assessee has failed to prove that the explanation given was bonafide.

In the absence of summons being issued under Section 131 of the Act, it could not be said that the explanation was not bonafide, although

independent of that, assuming it could be said that the assessee has failed to substantiate the explanation. There is no finding that the explanation

was false. For this reason, the Tribunal has interfered with. However, while doing so, as it appears to us, the Tribunal has not indicated why it

interfered with that part of the assessment order, where it was found, for reasons recorded, that the amount of money claimed to have been

deposited by Mohd Rafiq Sheikh by way of share application money and by way of loan, as mentioned above, is not acceptable. It appears to us

that there is a finding, which has not been interfered with, that the Assessee has failed to substantiate the same and at the same time, the assessee

did not seek to do anything further in relation thereto. We, accordingly, feel that to that extent, the appeal should be admitted either for remitting

the matter for going into that question or for answering the question of law ""whether failure to substantiate explanation, despite exhausting all

available avenues, would mean failure to prove that the explanation was bonafide and nondisclosure of all facts and materials for computation of

tax.

Admitted. Issue notice.