1986 (2) TMI 118 - AT - Income Tax

Summary

Issues Involved:
1. Whether Shiv Shakti Trading Co. was a benami of the assessee-firm.
2. The validity of the penalty levied under section 271(1)(c) of the Income-tax Act, 1961.
3. The quantum of penalty to be levied.

Issue-wise Detailed Analysis:

1. Whether Shiv Shakti Trading Co. was a benami of the assessee-firm:
The Tribunal found that Shiv Shakti Trading Co. was a benami of the assessee-firm. The constitution of both firms was similar, with the same profit-sharing ratio among the three groups (Madan Lal, Prem Chand, and Bhagirath Lal). The Tribunal noted that the partners of Shiv Shakti Trading Co. were wives and close relatives of the partners of the assessee-firm, and both firms operated from adjoining premises owned by Bhagirath Lal without any rent being charged to Shiv Shakti Trading Co. The only amount deposited by Shiv Shakti Trading Co. with the assessee-firm was Rs. 20,000, which was deemed insufficient given the extent of transactions (Rs. 51,74,445). The Tribunal concluded that Shiv Shakti Trading Co. was created to divert a portion of the profits of the assessee-firm and held that the burden of proving benami had been discharged.

2. The validity of the penalty levied under section 271(1)(c):
The Income-tax Officer (ITO) levied a penalty of Rs. 1,49,600 under section 271(1)(c) for the benami business income of Rs. 63,795, along with cash credits and sugar loss. The Commissioner (Appeals) deleted the penalty, but the Tribunal restored the ITO's order, emphasizing that the Tribunal had already found Shiv Shakti Trading Co. to be a benami of the assessee-firm. The Tribunal noted that there was no question of any difference of opinion between a lower appellate authority and a higher appellate authority. The Tribunal cited the Supreme Court decision in D. M. Manasvi v. CIT, which held that deliberate creation of a device to conceal income warranted penalty. The Tribunal also noted that the Explanation to section 271(1)(c) was applicable as the difference between the returned and assessed income was more than 20%.

3. The quantum of penalty to be levied:
The Accountant Member directed that only the minimum penalty should be levied, considering the circumstances of the case. The Judicial Member disagreed, arguing that the penalty was not sustainable on multiple grounds. He noted that the penalty levied was more than the minimum required and that the penalty was imposed on multiple additions, some of which were not substantiated. The Judicial Member also pointed out that subsequent orders had diluted the charge of concealment, and the penalty should not be levied. The Third Member agreed with the Accountant Member, emphasizing that the Tribunal's finding that Shiv Shakti Trading Co. was a benami of the assessee-firm was sufficient to justify the penalty. The Third Member concluded that a minimum penalty equal to the income of Shiv Shakti Trading Co. should be levied.

Conclusion:
The Tribunal restored the ITO's order imposing the penalty but directed that only the minimum penalty should be levied. The Third Member's opinion aligned with the Accountant Member, leading to the conclusion that the minimum penalty was exigible based on the Tribunal's finding that Shiv Shakti Trading Co. was a benami of the assessee-firm. The matter was referred to the regular Bench for disposal in accordance with the majority opinion.