1995 (6) TMI 2 - HC - Income Tax

Account Books Assessed Income Cash Credits Inaccurate Particulars Income Returned Penalty Proceedings Returned Income Less Than 80 Per Cent

Issues Involved:
1. Cancellation of penalty levied under section 271(1)(c) for assessment years 1964-65 and 1965-66.
2. Validity of the Appellate Tribunal's finding regarding the absence of fraud, gross, or willful neglect by the assessee.

Issue-wise Detailed Analysis:

1. Cancellation of Penalty Levied Under Section 271(1)(c) for Assessment Years 1964-65 and 1965-66:

The assessee, a partner in multiple firms, filed returns disclosing income and losses for the assessment years 1964-65 and 1965-66. The Income-tax Officer (ITO) made significant additions to the declared income on the grounds of unexplained credits and disallowed interest payments, leading to the initiation of penalty proceedings under section 271(1)(c) of the Income-tax Act, 1961.

For the assessment year 1964-65, the ITO added Rs. 75,000 under "Other sources" and disallowed Rs. 32,085 claimed as interest, citing the assessee's failure to establish the genuineness of transactions with multani bankers. Despite the assessee producing discharged hundis and account books, the ITO completed the assessment with the additions and initiated penalty proceedings. The Appellate Assistant Commissioner (AAC) confirmed the ITO's order, and the Inspecting Assistant Commissioner (IAC) levied a penalty of Rs. 42,000, which was later canceled by the Tribunal.

For the assessment year 1965-66, the ITO added Rs. 3,30,000 as peak credits and disallowed Rs. 31,742 as interest, again due to the assessee's failure to prove the genuineness of transactions. The AAC deleted the addition of Rs. 3,30,000 but sustained the disallowance of interest. The IAC levied a penalty of Rs. 5,790, which was also canceled by the Tribunal.

The Tribunal concluded that there was no concealment on the part of the assessee warranting penalties under section 271(1)(c). The Tribunal's decision was based on the assessee's consistent disclosure of borrowals from multani bankers and production of relevant documents, which demonstrated no fraud or gross/willful neglect.

2. Validity of the Appellate Tribunal's Finding Regarding the Absence of Fraud, Gross, or Willful Neglect by the Assessee:

The Tribunal's finding that there was no fraud, gross, or willful neglect was based on the assessee's consistent practice of disclosing borrowals from multani bankers and producing discharged hundis and account books. The Tribunal noted that the standard of proof for establishing the genuineness of cash credits in assessment proceedings differs from that required to prove fraud or willful negligence in penalty proceedings.

The Tribunal emphasized that the mere addition of cash credits as income in assessment proceedings does not automatically imply furnishing of inaccurate particulars or concealment of income in penalty proceedings. The Tribunal relied on the fact that the assessee had been disclosing similar transactions for several years and had provided substantial documentation to support the genuineness of the transactions.

The Tribunal also referred to the decision in CIT v. Chandrakant M. Tolia [1992] 195 ITR 593 (Mad), where it was held that penalty under section 271(1)(c) was not exigible in similar circumstances involving the same assessee. The Tribunal distinguished the present case from CIT v. T. K. Manicka Gounder [1989] 178 ITR 274, where the assessee had not disclosed cash credits in the original return, leading to the conclusion of concealment.

The Tribunal's decision was further supported by the Supreme Court's ruling in CIT (Addl.) v. Jeevan Lal Sah [1994] 205 ITR 244, which clarified that the burden shifts to the assessee to prove the absence of fraud or willful negligence when the returned income is less than 80% of the assessed income. The Tribunal found that the assessee had discharged this burden by providing adequate documentation and explanations.

Conclusion:

The High Court upheld the Tribunal's decision, affirming that the assessee had not furnished inaccurate particulars or concealed income warranting penalties under section 271(1)(c). The court emphasized that the Department failed to prove fraud or willful negligence on the part of the assessee. The questions referred were answered in the affirmative and against the Department, with no costs awarded.

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