1974 (7) TMI 15 - HC - Income Tax

Assessment Order Burden Of Proof Cash Credits Income Tax Act Levy Of Penalty Penalty Proceedings Undisclosed Income

Summary

Issues Involved:

1. Validity of the assessment order under section 143(3) due to incomplete penalty proceedings.
2. Treatment of Rs. 3,10,000 as income under section 68 of the Income-tax Act, 1961.
3. Imposition of penalty under section 271(1)(c) with reference to Rs. 3,10,000 and the interest claimed thereon.

Issue-wise Detailed Analysis:

1. Validity of the assessment order under section 143(3):

The first issue questioned whether the assessment order was invalid because the penalty proceedings initiated during the assessment were not completed simultaneously. The assessee argued that the liability under the Income-tax Act, 1961, which includes taxes, penalty, and interest, should be determined in a single proceeding. They contended that the assessment should be completed only after the penalty proceedings are concluded. However, the court referred to its previous judgment in Nawn Estates Private Ltd. v. Commissioner of Income-tax [1977] 106 ITR 384 (Cal) and concluded that assessment and penalty proceedings are separate and need not be concluded simultaneously. The court noted that section 275 of the Act provides a specific period for completing penalty proceedings, indicating legislative intent for separate proceedings. Thus, the first question was answered in the negative and in favor of the revenue.

2. Treatment of Rs. 3,10,000 as income under section 68:

The second issue dealt with whether the addition of Rs. 3,10,000 under section 68 was proper. The assessee argued that cash credit entries were not income under sections 2(22)(e)(ii) and 2(24). They contended that the Income-tax Officer did not enforce the presence of creditors or call for bank statements, and the burden of proof lay with the revenue. The court, however, emphasized that under section 68, the assessee must provide cogent evidence to prove the genuineness of loans. The court noted that the creditors were untraceable, and the assessee did not provide further information. Additionally, some creditors had confessed to not lending the money, and the assessee failed to refute these allegations. The court held that section 68 is a statutory recognition of the established law that unexplained cash credits can be treated as income. Thus, the second question was answered in the affirmative and in favor of the revenue.

3. Imposition of penalty under section 271(1)(c):

The third issue concerned whether penalty could be levied under section 271(1)(c) with reference to Rs. 3,10,000 and the interest claimed. The Tribunal had concluded that apart from the failure to prove the source of the sum, there was no evidence of concealment by the assessee. The court agreed, noting that the confessions by creditors were made in proceedings where the assessee was not a party and had no opportunity to cross-examine. Furthermore, the Income-tax Officer did not call for bank statements. Citing the principles from Commissioner of Income-tax v. Anwar Ali [1970] 76 ITR 696 (SC) and Commissioner of Income-tax v. Satish Churn Law [1969] 71 ITR 275 (Cal), the court held that the Tribunal's conclusion was correct. Thus, the third question was answered in the negative and in favor of the assessee.

Conclusion:

The court answered the first and second questions in favor of the revenue, validating the assessment order and the addition under section 68. The third question was answered in favor of the assessee, negating the imposition of penalty. Each party was directed to bear their own costs.