1991 (6) TMI 33 - HC - Income Tax

Summary

Issues Involved:
1. Cancellation of Penalty under Section 271(1)(c) for Assessment Years 1962-63 and 1963-64.
2. Validity of the Appellate Tribunal's Finding Regarding Fraud, Gross, or Wilful Neglect by the Assessee.

Issue-Wise Detailed Analysis:

1. Cancellation of Penalty under Section 271(1)(c) for Assessment Years 1962-63 and 1963-64:
The key question was whether the Appellate Tribunal was right in cancelling the penalties levied under section 271(1)(c) of the Income-tax Act, 1961. The reassessments for the years 1962-63 and 1963-64 were reopened under section 147(a) due to unproved hundi credits, and penalties were levied by the Inspecting Assistant Commissioner. The Tribunal, however, cancelled these penalties following its earlier orders for the same assessee for the assessment years 1964-65 and 1965-66.

2. Validity of the Appellate Tribunal's Finding Regarding Fraud, Gross, or Wilful Neglect by the Assessee:
The Tribunal found that there was no fraud, gross, or wilful neglect on the part of the assessee based on valid materials. The assessee had produced discharged hundis as prima facie evidence to explain the credits. The Tribunal held that the burden of proof was on the Department to disprove the explanation offered by the assessee, which it failed to do.

Detailed Analysis:

Cancellation of Penalty:
The Department argued that the law applicable for levying penalty should be the one prevailing on the date when the reassessment was completed, i.e., March 22, 1973, and hence, the Explanation to section 271(1)(c) introduced by the Finance Act, 1964, should apply. The assessee contended that the law as it stood on the date when the return was filed should apply, and the Tribunal was correct in following the Supreme Court's decision in Anwar Ali's case [1970] 76 ITR 696.

Validity of Tribunal's Finding:
The Tribunal's decision was influenced by the fact that the assessee had produced discharged hundis and other prima facie evidence. The Tribunal noted that the Department did not take steps to examine the creditors despite having their addresses. The Tribunal concluded that the failure to return the correct income was not due to fraud or wilful neglect by the assessee.

Legal Precedents and Interpretations:
The court discussed various legal precedents and interpretations, including:
- Jain Brothers v. Union of India [1970] 77 ITR 107 (SC): Penalty provisions of the 1961 Act apply if the assessment is completed after April 1, 1962.
- Brij Mohan v. CIT [1979] 120 ITR 1 (SC): Penalty is imposed based on the law in force on the date of concealment.
- Sir Shadilal Sugar and General Mills Ltd. v. CIT [1987] 168 ITR 705 (SC): The High Court's jurisdiction in penalty matters is limited to reviewing whether there was evidence to support the Tribunal's conclusion.

Conclusion:
The court concluded that the Tribunal was justified in cancelling the penalties as the assessee had discharged the initial burden of proof by producing prima facie evidence. The Department failed to prove that the assessee's failure to disclose the income was due to fraud or wilful neglect. Therefore, the court answered the questions in the affirmative, in favor of the assessee, and against the Department. The assessee was entitled to costs, with counsel's fee set at Rs. 500.