1986 (3) TMI 70 - HC - Income Tax

Summary

Issues Involved:
1. Legitimacy of the cash credits included in the assessee's income.
2. Justification of penalty levied u/s 271(1)(c) of the Income-tax Act, 1961.
3. Applicability of the Explanation to section 271(1)(c) of the Act.
4. Reconsideration of the judgment in Addl. CIT v. China Krishnamurthy [1980] 121 ITR 326.

Summary:

1. Legitimacy of the cash credits included in the assessee's income:
The assessee, a registered firm, had a sum of Rs. 4,25,000 included under "Other sources" by the Income-tax Officer, which represented unexplained cash credits. The Appellate Assistant Commissioner accepted the genuineness of Rs. 3,50,000 and upheld Rs. 75,000 as unexplained. The assessee did not appeal against this order, making the assessment of Rs. 75,000 final.

2. Justification of penalty levied u/s 271(1)(c) of the Income-tax Act, 1961:
The Income-tax Officer referred the matter for penalty u/s 271(1)(c) to the Inspecting Assistant Commissioner, who levied a penalty of Rs. 20,000. The Tribunal, however, allowed the assessee's appeal, holding that the assessee had discharged the initial burden of proof within the meaning of the Explanation to section 271(1)(c) and that the Revenue failed to rebut this evidence. Consequently, the penalty was cancelled.

3. Applicability of the Explanation to section 271(1)(c) of the Act:
The court examined whether the penalty could be levied by invoking the Explanation to section 271(1)(c). The Explanation presumes concealment if the returned income is less than 80% of the assessed income unless the assessee proves otherwise. The court found that the Inspecting Assistant Commissioner did not apply his mind independently and merely relied on the assessment proceedings' findings. The evidence provided by the assessee, including a confirmatory letter and sworn statements, was deemed sufficient to discharge the initial burden of proof. The court concluded that the Revenue failed to establish that the assessee concealed income, thereby ruling out the applicability of the Explanation to section 271(1)(c).

4. Reconsideration of the judgment in Addl. CIT v. China Krishnamurthy [1980] 121 ITR 326:
The Division Bench had referred the matter to the Full Bench for reconsideration of the judgment in China Krishnamurthy's case. The court noted that the deletion of the word "deliberately" from section 271(1)(c) by the Finance Act of 1964 did not materially alter the principles governing penalty proceedings. However, the court found it unnecessary to delve into this issue further, as their independent examination of the Explanation to section 271(1)(c) already led to the conclusion that the penalty was not exigible.

Conclusion:
The court answered the question referred by the Tribunal in the affirmative, in favor of the assessee and against the Revenue, and held that the imposition of penalty u/s 271(1)(c) and the Explanation thereto was not justified in law. There was no order as to costs.