2004 (10) TMI 50 - HC - Income Tax

Question of law vis- -vis Question of fact - Rejection of application made u/s 256(1) by the Tribunal - Tribunal declined to refer the questions holding that the questions proposed are essentially questions of fact - CIT (Appeals) and ITAT were of the view that in order to impose penalty, there must be a categorical finding of fact that the transaction of loan relied on by the assessee was a bogus transaction. It is only then the question of imposition of penalty may arise. We concur with the view so taken as in our opinion it does not call for any interference. In fact, the view so taken is based on questions of fact and cannot be faulted. - we are not able to find any case much less question of law arising out of the Tribunal s order. The application is thus, liable to be dismissed

Summary

Issues:
1. Application made by the Revenue under section 256(2) of the Income-tax Act, 1961 after the Tribunal rejected their application under section 256(1).
2. Tribunal's refusal to refer questions of law to the High Court, stating they are questions of fact.
3. Imposition of penalty on the assessee under section 271(1)(c) of the Act based on the loans taken being considered bogus.

Analysis:
The judgment pertains to an application made by the Revenue under section 256(2) of the Income-tax Act, 1961, subsequent to the rejection of their application under section 256(1) by the Tribunal. The Tribunal declined to refer questions of law to the High Court, asserting that the proposed questions were essentially questions of fact and did not arise from the Tribunal's order in appeal. The questions related to the justification of holding certain views regarding income from other sources, penalty under section 271(1)(c), and the applicability of certain decisions to the case. The High Court concurred with the Tribunal's decision, stating that the questions were factual in nature and not questions of law eligible for reference.

Regarding the imposition of penalty under section 271(1)(c) of the Act on the assessee for loans considered bogus, the Commissioner of Income-tax (Appeals) and the Tribunal had set aside the penalty, emphasizing the absence of a factual finding that the loans were indeed bogus. Both authorities highlighted the necessity of a clear factual determination that the transactions were fraudulent before imposing a penalty. The High Court agreed with this stance, asserting that the imposition of a penalty required a definitive factual finding of the loan transactions being bogus. The High Court upheld the decisions of the lower authorities, emphasizing that the imposition of penalties is contingent upon establishing the factual nature of the transactions, and in this case, no interference was warranted as the decisions were based on factual considerations.

In conclusion, the High Court dismissed the application, finding no question of law arising from the Tribunal's order. The judgment underscores the importance of factual determinations in matters of penalty imposition under tax laws, emphasizing the need for clear and conclusive findings before penal actions can be justified.