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Judgment
R.N. Misra, J.—Assessee as also the Revenue made two independent applications to this Court u/s 256(2) of the Income Tax Act of "''1961 (hereinafter referred to as the ''Act'') asking for a direction to the Appellate Tribunal to state a case and refer certain questions said to be of la w arising out of the appellate order of the Tribunal for opinion of the Court. The year of assessment is 1960-61 corresponding to the accounting period ending on 9-5-1959. During'' the year, Assessee had cash credits to the extent of Rs. 1, 96, 593/ - from one Messrs Kandoi Company of Calcutta. The Income Tax Officer did not accept the cash credits as genuine and added a sum of Rs. 1, 10. 000/ - which was the peak amount. The Income Tax Officer did not accept the claim that the cash credits represented genuine loans and treated the amount as income in the hands of the Assessee from undisclosed sources. He directed proceedings u/s 271(1)(c) of the Act to be initiated. The Appellate Assistant Commissioner upheld the addition of cash credits. So did the Tribuflal.
The Inspecting Assistant Commissioner levied penalty of Rs. 50, 000/ -. In appeal against the said penalty, the Tribunal vacated the penalty. Assessee challenges the addition of Rs. 1. 10, 000/ - to its income and the Revenue challenges vacation of imposition of penalty.
The two questions which have been referred to us under direction of the Court are:
(1) Whether in the facts and circumstances of the case, the Revenue is justified in holding that the addition of Rs. 1, 10, 000/ - to the income of the Assessee from undisclosed sources is justified?
(2) Whether in the facts and circumstances of the case, the Tribunal was correct in law in setting aside the levy of penalty?
Assessment is for the year 1960-61. The provisions of Section 68 of the Act would in terms apply to the assessment for the year. The Income Tax Officer by his letter dated 17th of September, 1964, wrote to the Assessee:
On reference to the assessing Income Tax Officer of M/s. Kandoi Co., it appears that it is a so called branch of M/s. Santosh Brothers, Proprietor Banarasilal Agarwala, Calcutta. That Assessee and his branches are merely got up concerns, have not carried on any genuine business but were instrumental in accommodating unscrupulous Assessees by making fictitious entries in their accounts'' of loans taken, advances given and supplying of bogus certificate with regard to the same so that they can be produced before the Income Tax Department in the case of various persons who had concealed income to bring in their books. The assessment made in the case of that Assessee has since been cancelled u/s 33.B by the Commissioner of Income Tax, West Bengal, Calcutta. You can, however, produce a confirmatory letter from the alleged party in regard to all the cash transactions you had with him. Also please state as to why the amount of loan taken from the said party should not be treated as your concealed income from undisclosed sources.
In reply, Assessee furnished by its letter dated 23rd of November, 1964, a statement of the transactions with Kandoi Company along with a confirmation letter and entries and extracts from the account books of the creditor. Assessee also indicated:
... the Petitioner is prepared to file an affidavit that the party M/s. Kandoi Co. of which Banarasilal Agarwala is the proprietor is to my knowledge living at 68 Burtolla street. Calcutta and that he was an Income Tax Assessee and the Petitioner had paid him'' interest through the state Bank of India, Burra Bazar Branch under account payee cheque No. 878898 dated 23-12-1960 and 878897 dated 25-1-1961 for Rs. 1593. 88 np and Rs. 137. 50 np. respectively and that he has received the payments through Allahabad Bank, Calcutta, where the said Kandoi Co. had his current Bank account. A copy of the letter of the State Bank of India, Burra Bazar Branch, dated 28-9-1964 is also enclosed herewith.
... the circumstances under which his assessment has been cancelled u/s 33-B by the Commissioner of Income Tax, West Bengal, Calcutta, are not known to the Petitioner. But the Petitioner''s transactions with the said company are genuine and there is nothing to support the same (as not being genuine). In case your honour has got any doubt regarding the existence of Banarasilal Agarwala and his accounts, your honour may be pleased to summon him to appear before your honour with his accounts and the Petitioner is willing to meet the cost of his travelling and other expenses....
The Income Tax Officer thereafter issued notice to the alleged creditor u/s 131 of the Act on 15-1-1965 fixing 3.2-1965 for appearance. A telegram requesting for adjournment was received and the Income Tax Officer reposted the matter to 17-2-1965. As his assessment order shows, there was no compliance on the date fixed, but on 21-2-1965, ten days adjournment was prayed for and the matter was posted to 2-3-1965. In the order of assessment, the Income Tax Officer has stated
.... Neither compliance was made on that date nor thereafter. It is, therefore, clear that M/s. Kandoi and Co. does not intend producing account books and so asked for several adjournments knowing fully well that the assessment being time barring was to be completed, before 31-3-1965. The Assessee also failed to produce that party. Neither reliance can be placed on the confirmatory letter alleged to have been written by the lender nor on payment of interest having been made by cheque in view of the forceful conclusion of the commissioner of Income Tax, West Bengal, in his order u/s 33-B....
The Appellate assistant commissioner and the Tribunal did not feel impressed with the contentions raised on behalf of the Assessee. Thus the addition made by the Income Tax Officer of the peak amount of Rs. 1, 10, 000/ - has been sustained.
Ordinarily, whether a sum of money found in the accounts of an Assessee is a genuine cash credit or is an entry for covering up Assessee''s own income would be a question of fact. Under the old Income Tax Act of 1922 when an entry stood in the name of a third party and prima facie evidence of the existence of the creditor and carrying of business transactions between the Assessee and the alleged creditor was placed by the Assessee before the Revenue, judicial opinion was that burden lay on the Revenue to establish that the entry was not genuine and actually represented income under the cover of loan. In the instant case, the Income Tax Officer at one stage wanted letters of confirmation from the creditor and Assessee produced such confirmatory letters along with certain further evidence to show that the transactions were bonafide and the creditor did exist and was carrying on loan transactions with the Assessee. Account payee cheques encashed through the State Bank of India by the creditor prima facie supported Assessee''s stand. Learned Standing Counsel contended before us that the account payee cheques and their encashment were events in the chain of frauds. There is no material on the record for such a contention. We cannot say it is impossible, but suspicion cannot provide the basis for a finding even under a Taxing Statute.
A copy of the order of the Commissioner of Income Tax, West Bengal, has been placed before us by learned Standing Counsel. Admittedly Assessee was not a party before the Commissioner and, therefore, would not be bound by the findings recorded in the revision proceeding u/s 33-B of the Income Tax Act of 1922. What has been found by the Commissioner may be true. The Commissioner nowhere recorded a finding that the transactions with the Assessee were bogus. General observations were made regarding the nature of transactions carried on, by the Assessee (creditor of the Assessee before us). Not withstanding the observations in general made in the revisional order, it is quite possible that the transactions with the Assessee may be genuine. The Income Tax Officer as also the other forums in the appellate hierarchy have been swayed away by the observations or findings of the Commissioner in the aforesaid revisional order. Some evidence was before the Income Tax Officer. The Income Tax Officer had accepted the request of the Assessee to call the creditor. It is not a case where there was no response from the creditor. On two occasions he had replied asking for time. There is no basis for the assumption of the Income Tax Officer that the creditor was aware of the position that by 31st of March, 1965, assessment would become time-barred and, therefore, the creditor could escape the clutches of law by dilly dalaying until that day. The delay completing the assessment was essentially on the part of the Income Tax Officer because instead of attending to the assessment in good time, he waited till the very and of the period allowed in law to complete the assessment. We are satisfied that the Income Tax Officer was anxious to close the proceeding as the bar of limitation was about to set in and, therefore, placing undue importance on the decision of the commissioner in the revision proceeding, he concluded the matter. Before the Appellate Tribunal these aspects were canvassed. The tribunal in paragraph 9 of the appellate order observed:
.... In the instant appeal, the Commissioner of income tax, West Bengal, in the Calcutta Assessee''s case, has found as a fact on making a proper inquiry that the Calcutta Assessee did not engage itself in business nor had any permanent address of place of business. The Commissioner of Income Tax, West Bengal also recorded a finding of fact that the Calcutta Assessee was engaged in lending its name to unscrupulous Assessees with an ulterior motive. This finding of fact remains uncotroverted and can be used against the Assessee in judging the 0 genuineness of the alleged loan. A In ding recorded by d quasi-judicial body is final unless the same is set aside by a higher authority. The. Commissioner of Income Tax, West Bengal, while exercised the powers u/s 33-B of the old Act in the case of the Calcutta Assessee was acting as quasi-judicial body. Since engaged in frivolous transactions have been found out by the Commissioner of Income Tax, West Bengal, the onus of proving the genuineness of the credit and how it flowed from the alleged creditor to the Assessee has remained as not discharged especially when the same was put to him and invited to lead evidence to contrary. Mere paying on interest amount as by cheques is also not a conclusive evidence of having received the principal amount of loan from the alleged creditor. The signature on the confirmation letter has not been proved and could not be proved in the absence of the creditor. Although the payment by way of interest was shown to be made for the utilisation of the amount in question from the alleged creditor, the form of the transaction need not be looked in to but the substance of it has to be looked into. The payment of interest, according to us, was for the remuneration of the creditor for lending its name to the Assessee. The Commissioner of Income Tax, West Bengal, also aptly found out that the calcutta Assessee had no means to lend any amount to the Assessee. In the premises, we hold, having regard to the totality of the evidence, that the impugned amount has been rightly included in the assessment of the Assessee as income from undisclosed sources.
Learned Standing Counsel is justified in submitting before us that when the Tribunal takes a sum total view of the evidence before it and records a finding in a dispute of this type, the conclusion in second appeal has got to be accepted as one of fact. We, however, find that in reaching this conclusion, the Appellate Tribunal merely proceeded on the footing that there was a determination of a quasi-judicial authority - the Commissioner of Income Tax of West Bengal - in dealing with a revision u/s 33-B of the old Act (certainly a quasi-judicial authority) and the conclusions reached therein must be taken as final. This view is erroneous in law, inasmuch as the Assessee in this proceeding being not a party to the proceeding before the Commissioner of Income Tax as Calcutta was entitled to establish that the conclusions reached in the revisional order were erroneous. At any rate there being no categorical finding against the Assessee, the Assessee would establish as a fact that loans in his favour were genuine and the general observations in the revisional order would not militate against such a position. The Tribunal completely lost sight of the fact that the Assessee had produced a confirmatory letter in response to the requirement by the Income Tax Officer and so far as producing the creditor was concerned, steps had been taken and notice had been issued to the creditor to appear before the Income Tax Officer. The Income Tax Officer was proceeding in not haste because limitation in the matter of completing the assessment was about to set in. Therefore, he could not give reasonable time to enforce the appearance of the creditor. There is no basis for the conclusion of the Tribunal that the payment of interest was for the remuneration of the creditor for lending its name to the Assessee. This is a conclusion without any evidence. It was not the case of the Revenue that the payments were made for such purpose.
We have no doubts in our minds that the assessment has been made without affording reasonable opportunity to the Assessee and if such an assessment is upheld, the Assessee is bound to feel prejudiced.
Our answer to the first question, therefore, is -In the facts and circumstances of the case, the Revenue was not justified in holding that the addition of Rs. l,l0,000/ - to the income of the Assessee from undisclosed sources was justified.
The manner in which the question has been answered by us and the answer could not be otherwise in the facts of the case is bound to prejudice the Revenue. It is not our intention to indicate that the matter must be taken to have become final. After the record goes back to the Tribunal, the appeal should be re-heard on its own merit with regard to the inclusion of the said amount or otherwise and a decision taken.
The Tribunal vacated the imposition of penalty relying on the decision of the Supreme Court in the case of Commissioner of Income Tax, West Bengal I, and Another Vs. Anwar Ali, . To the penalty proceedings, admittedly the provisions of Section 271(1)(c) of the new Act along with its Explanation apply because the assessment for the year was completed after 1-4-1964 and the direction to initiate the proceeding for imposition of penalty was made after the Explanation came into the statute Book. That position has been settled by certain decisions of this Court. If the cash credit is to be treated as income, undoubtedly the application of the Explanation would be attracted. The ratio in Anwar''s case would not apply and the reasonings upon which the imposition of penalty has been vacated cannot be sustained.
Our answer to the second question, therefore, is:
In the facts and circumstances of the case, the Tribunal was not correct in law in setting aside the levy of penalty.
It must again be made clear that exigibility of penalty being dependent upon the final decision regarding addition of cash credits or otherwise and the Tribunal having not taken the appropriate aspects into consideration in the appeal against the order of penalty, the appeal should be re-heard keeping the law as settled by this Court in view.
We make no order as to costs.
N.K. Das, J.
I agree.