1978 (8) TMI 6 - HC - Income Tax

Summary

Issues Involved:
1. Reopening of assessment under Section 34 of the Indian I.T. Act, 1922.
2. Imposition of penalty under Section 28(1)(c) of the Indian I.T. Act, 1922.
3. Justification of penalty imposition based on evidence.

Detailed Analysis:

Reopening of Assessment under Section 34:
The assessment for the year 1947-48 was reopened under Section 34 of the Indian I.T. Act, 1922, following the Tribunal's direction to reassess the cash credits amounting to Rs. 1,40,000, which were initially scrutinized in the assessment year 1948-49. The assessee's explanation that the amounts were advanced by M/s. Surajmal Nagarmal was rejected by the ITO, AAC, and Tribunal, leading to the inclusion of the said amount as income from undisclosed sources.

Imposition of Penalty under Section 28(1)(c):
The ITO initiated penalty proceedings under Section 28(1)(c) of the Indian I.T. Act, 1922, on the grounds that the assessee had concealed the particulars of its income or deliberately furnished inaccurate particulars. The ITO, with the approval of the IAC, levied a penalty of Rs. 61,250, which was upheld by the AAC and the Tribunal. The Tribunal concluded that the assessee had knowingly furnished inaccurate particulars by making false entries in the names of its employees.

Justification of Penalty Imposition Based on Evidence:
The Tribunal found that the assessee's explanation of the cash credits as amounts received from M/s. Surajmal Nagarmal was unsubstantiated. The Tribunal noted that the assessee initially did not claim that the amounts were from M/s. Surajmal Nagarmal and only did so after being caught by the ITO. The Tribunal held that the assessee's actions amounted to deliberate misrepresentation and concealment of income, justifying the penalty under Section 28(1)(c).

The court directed the Tribunal to refer the question of law regarding the imposition of penalty. The assessee argued that the penalty was imposed based solely on the assessment proceedings without additional facts or reasons. The court, however, found that the assessee had deliberately furnished inaccurate particulars by making false entries in its books and upheld the penalty.

Supporting Case Laws:
- Northern Bengal Jute Trading Co. Ltd. v. CIT [1968] 70 ITR 407 (Cal): The court previously confirmed the addition of Rs. 1,40,000 as income from undisclosed sources, establishing the assessee's failure to prove the source of the cash credits.
- CIT v. Khoday Eswarsa & Sons [1972] 83 ITR 369 (SC): The Supreme Court emphasized that penalty cannot be levied solely based on the assessment order without additional evidence of deliberate concealment or furnishing of inaccurate particulars.
- Sikri & Co. Ltd. v. CIT [1977] 106 ITR 682 (Cal): The court held that failure to prove the source of cash credits alone does not justify penalty without evidence of concealment.
- CIT v. Bhowanipur Motor Accessories Agency Pvt. Ltd. [1978] 113 ITR 703 (Cal): The court upheld the Tribunal's decision to set aside the penalty, emphasizing the need for evidence of deliberate concealment.

Conclusion:
The court concluded that the assessee had deliberately furnished inaccurate particulars of its income and concealed the same as loans, satisfying the conditions under Section 28(1)(c) of the Indian I.T. Act, 1922. The question referred was answered in the affirmative and in favor of the revenue, affirming the imposition of the penalty.