1992 (2) TMI 41 - HC - Income Tax

Summary

Issues:
- Application for calling for a reference from the Appellate Tribunal under section 256(2) of the Income-tax Act, 1961.
- Confirming the order of the Commissioner of Income-tax (Appeals) canceling the penalty under section 271(1)(c) when cash credits were not proved.
- Justification of giving weightage to the evidence of mere possession of agricultural lands by the creditors.
- Burden on the assessee to offer an explanation of capacity and actual advance in penalty proceedings.
- High Court's jurisdiction under section 256(2) to order a reference on pure questions of fact.

Analysis:
The judgment pertains to an application for a reference from the Appellate Tribunal under section 256(2) of the Income-tax Act, 1961. The case involved an addition of cash credits and disallowance of interest, leading to penalty proceedings under section 271(1)(c) of the Act. The Commissioner of Income-tax (Appeals) canceled the penalty, which was endorsed by the Tribunal. The Department sought a reference to the High Court questioning the confirmation of canceling the penalty when cash credits were not proven and the weightage given to evidence of possession of agricultural lands by creditors.

In the case, the Department argued that the assessee should have provided evidence of both the capacity and actual advance of the creditors, not just the capacity. The Department contended that evidence of only the capacity to advance does not constitute a valid explanation under section 271(1)(iii) of the Act. On the other hand, the assessee's counsel argued that offering a plausible explanation, supported by evidence such as revenue papers showing possession of creditors over agricultural lands, should suffice. The assessee had also produced the creditors before the Income-tax Officer for examination.

The High Court analyzed the facts and found that the assessee had indeed offered evidence of both the capacity and actual advance of the creditors. The Court noted that the examination of the creditors by the Income-tax Officer related to the actual advance of cash credits. The reliability of the creditors' statements and the assessment of evidence constituted questions of fact regarding concealment. The Court cited precedents to establish that it does not have jurisdiction to order a reference on pure questions of fact under section 256(2) of the Act.

Ultimately, the High Court dismissed the application, concluding that there was no merit in ordering a reference based on the pure question of fact. The judgment highlights the importance of providing a plausible explanation supported by evidence in penalty proceedings under the Income-tax Act and the limitations of the High Court's jurisdiction in ordering references on factual matters.