1977 (3) TMI 63 - AT - Income Tax

Summary

Issues Involved:
1. Legitimacy of penalty under Section 271(1)(c) of the Income Tax Act, 1961.
2. Validity of the assessment of unexplained investment under Section 69 of the Income Tax Act.
3. Jurisdiction of the Inspecting Assistant Commissioner (IAC) to levy penalty.
4. Applicability of the Explanation to Section 271(1)(c) of the Income Tax Act.

Detailed Analysis:

1. Legitimacy of Penalty under Section 271(1)(c) of the Income Tax Act, 1961
The IAC levied a penalty of Rs. 50,000 under Section 271(1)(c) for the assessment year 1970-71, alleging that the assessee concealed income from money-lending transactions. The Tribunal found that the penalty could not be sustained as the initial basis for the penalty, the unexplained investment of Rs. 1,68,920, was deleted. The Tribunal emphasized that the penalty proceedings were initiated based on the concealment of income, which no longer existed after the deletion of the addition by the Tribunal.

2. Validity of the Assessment of Unexplained Investment under Section 69 of the Income Tax Act
The ITO initially added Rs. 1,68,920 as unexplained investment under Section 69. The Tribunal deleted this addition, holding that there was no proof that the assessee had advanced loans to this extent during the year of account. The Tribunal clarified that the addition under Section 69 pertains to unexplained investments and does not include income earned from money-lending transactions. Thus, the basis for the penalty under Section 271(1)(c) was invalidated.

3. Jurisdiction of the Inspecting Assistant Commissioner (IAC) to Levy Penalty
The IAC levied the penalty based on the estimated income of Rs. 35,000 from money-lending transactions, which was not the original ground for the penalty initiated by the ITO. The Tribunal held that the IAC acted without jurisdiction as the penalty proceedings were initiated for unexplained investments, not for the estimated income from money-lending. The Tribunal cited the Gujarat High Court decision in Commissioner of Income-tax vs. Lakhdhir Lalji, which held that the IAC cannot levy a penalty on a different footing from the one on which the penalty proceedings were initiated.

4. Applicability of the Explanation to Section 271(1)(c) of the Income Tax Act
The Tribunal examined whether the Explanation to Section 271(1)(c) applied, which shifts the onus to the assessee to prove the absence of fraud or willful neglect. The Tribunal found that the ITO had full details of the debtors and did not issue specific notices under Sections 142(1) or 143(2) to require the production of the alleged pocket notebook. The Tribunal concluded that the assessee did not commit fraud or willful neglect, as the ITO had not proven that the income was indeed earned from money-lending transactions. Thus, the Explanation to Section 271(1)(c) did not apply, and no penalty was leviable.

Conclusion
The Tribunal held that the IAC's order levying the penalty was without jurisdiction and canceled the penalty. The appeal was allowed, and the penalty under Section 271(1)(c) was not sustained on both jurisdictional and substantive grounds. The Tribunal emphasized that the basis for the penalty proceedings had vanished and that the Department had not discharged its onus to prove the concealment of income.