1981 (12) TMI 6 - HC - Income Tax

Summary

Issues Involved:

1. Discrepancy between stock declarations to the bank and stock entries in the assessee's accounts.
2. Legitimacy of penalties levied u/s 271(1)(c) of the I.T. Act, 1961.
3. Assessment of unexplained cash credits.

Summary:

1. Discrepancy between stock declarations to the bank and stock entries in the assessee's accounts:
The assessees, a firm of cotton merchants, declared higher stock quantities to a bank to secure loans, which were not reflected in their own accounts. The ITO added Rs. 94,900 and Rs. 81,845 to the assessee's income for 1959-60 and 1960-61, respectively, based on these discrepancies. The AAC reduced these additions to Rs. 50,000 and Rs. 42,000, considering the declarations to the bank as exaggerated for loan purposes. The Tribunal upheld the AAC's reduced estimates but found no material evidence of actual concealment of income.

2. Legitimacy of penalties levied u/s 271(1)(c) of the I.T. Act, 1961:
Penalties were imposed by the IAC based on the reduced additions, but the Tribunal questioned whether the Department had proven that the assessees concealed their income. The Tribunal noted the lack of evidence showing that the excess stocks were acquired from undisclosed income or disposed of at a profit. The Tribunal concluded that the penalties could not be sustained without clear evidence of concealment, and thus, cancelled the penalties.

3. Assessment of unexplained cash credits:
For the assessment year 1959-60, an additional Rs. 7,000 was added by the ITO as unexplained cash credit, which the assessees did not contest. The Tribunal, referencing the Supreme Court decision in CIT v. Anwar Ali [1970] 76 ITR 696, held that mere addition of unexplained cash credits does not justify penalty for concealment without further evidence.

Conclusion:
The High Court affirmed the Tribunal's decision, agreeing that there was no clinching material to prove the assessees had suppressed stocks or concealed income. The penalties were rightly cancelled, and the court answered the referred question of law in the affirmative, against the Department. The assessees were awarded costs of Rs. 500.