1974 (2) TMI 11 - HC - Income Tax

Summary

Issues:
- Validity of canceling penalty under section 271(1)(c)/274(2) of the Income-tax Act, 1961 based on unexplained cash credit.
- Applicability of the Explanation to section 271(1)(c) regarding concealment of income.
- Consideration of independent proof for imposing penalty on the ground of concealment of income.
- Comparison with a similar case in Kerala High Court regarding fraud and applicability of the Explanation.

Analysis:

The judgment concerns the cancellation of a penalty under section 271(1)(c)/274(2) of the Income-tax Act, 1961 by the Income-tax Appellate Tribunal. The case involved an individual assessee deriving income from various sources, including a motor workshop, contract business, truck plying on hire, and truck financing for the assessment year 1966-67. Initially, the assessee filed a return showing an income of Rs 7,587, later revised to Rs. 22,630, but the Income-tax Officer determined the income at Rs. 45,758, including an unexplained cash credit of Rs. 16,000. Subsequently, a penalty of Rs. 12,000 was levied under section 271(1)(c) by the Inspecting Assistant Commissioner of Income-tax. The Tribunal, however, set aside the penalty, stating that the mere addition of an item of cash credit does not justify imposing a penalty for concealment of income.

The Tribunal's decision was supported by a Supreme Court judgment in Commissioner of Income-tax v. Anwar Ali [1970] 76 ITR 696 (SC), emphasizing the need for independent proof of deliberate concealment of income. The department argued that the Explanation to section 271(1)(c) applied, deeming concealment if the returned income is less than 80% of the assessed income, subject to certain conditions. However, the Tribunal did not address this argument, and the department failed to raise it properly. Without a finding on the applicability of the Explanation, the court could not answer the question raised under section 256(1) of the Income-tax Act.

The judgment distinguished a Kerala High Court case where the Explanation was found applicable due to the assessee's fraudulent activities. In that case, the Tribunal considered and decided on the Explanation, unlike the present case. Consequently, the court answered the question in favor of the assessee, emphasizing the lack of proper consideration of the Explanation in the current case. The assessee was awarded costs amounting to Rs. 200.