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TMI Blog1986 (2) TMI 118X X X X Extracts X X X X X X X X Extracts X X X X ..... Kailashwati were common partners as they were partners in the assessee-firm also. Five other partners were ladies which according to the ITO were not aware of the business dealings. Bhagirath Lal joined the said partnership on behalf of his HUF and remaining partner Ramesh Kumar was comparatively new, having no experience of the business. The ITO further noted that the new firm was carrying on business in rice through the assessee-firm and though they had entered into transactions worth Rs. 51,74,445, they had given only security of Rs. 20,000 to the assessee-firm. The ITO had, accordingly, held that Shiv Shakti Trading Co. was a benami of the assessee-firm and had, accordingly, added Rs. 63,795 (which was the income of Shiv Shakti Trading Co.) in the hands of the assessee-firm. The Commissioner (Appeals) had deleted the addition on the short ground that there was no evidence that the fruits of the business activities of Shiv Shakti Trading Co. were enjoyed by the assessee-firm. The Tribunal, however, vacated the order of the Commissioner (Appeals) and restored that of the ITO after noting that the constitution of the assessee-firm and Shiv Shakti Trading Co. was similar as the thr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Shiv Shakti Trading Co. was a benami of the assessee-firm and restored the addition of Rs. 63,795 made by the ITO and vacated the order of the Commissioner (Appeals). It is in this background that the ITO levied penalty of Rs. 1,49,600 in respect of the aforesaid benami business as also in respect of cash credit of Rs. 10,000 in the name of Harbans Kaur and cash credit of Rs. 20,000 in the name of Balwant Singh and sugar loss of Rs. 42,198. The later three items, however, cannot be good ground for levy of penalty. Cash credit of Rs. 10,000 in the name of Smt. Harbans Kaur was restored by the Tribunal to the Commissioner (Appeals) who later held it to be genuine. Cash credit of Rs. 20,000 in the name of Balwant Singh was treated as the assessee-firm's income from undisclosed sources after the IAC had refused to admit in proceedings under section 144B of the Act affidavit of the said creditor's son because in the meanwhile Balwant Singh had died. The addition in sugar again was restored by the Tribunal to the Commissioner (Appeals) who in turn restored it to the ITO and we have not been told what finding the ITO has since given. In these circumstances we are left to consider the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... firm (Ganesh Trading Co.), that Shiv Shakti Trading Co. was a benami of the assessee-firm. In this context we may also note that the assessee-firm was dissolved in the assessment year 1976-77 and a new firm styled 'Shri Ganesh Trading Co.' was constituted and that the ITO held Shiv Shakti Trading Co. to be a benami of Shri Ganesh Trading Co. The Tribunal on a perusal of evidence held that Shiv Shakti Trading Co. was not a benami of Shri Ganesh Trading Co. in the assessment year 1976-77. Thus, the said finding of the Tribunal is not relevant for deciding the matter relating to the assessment year 1975-76. 4. The Supreme Court in D. M. Mansavi v. CIT [1972] 86 ITR 557, held that where there was relevant material before the Tribunal to hold that the assessee had deliberately concealed the particulars of his income, then it was not a case of inference from mere facility of the explanation given by the assessee in the assessment proceedings but it was a case where there were definite findings that a device had been deliberately created by the assessee for the purpose of concealing his income. The relevant discussion is at page 564. Applying the ratio of the said decision to the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 98, the latter three items, however, cannot be good ground for levy of penalty, because "cash credit of Rs. 10,000 in the name of Smt. Harbans Kaur was restored by the Tribunal to the Commissioner (Appeals) who later held it to be genuine. Cash credit of Rs. 20,000 in the names of Balwant Singh was treated as assessee-firm's income from undisclosed sources after IAC had refused to admit in proceedings under section 144B affidavit of the said creditor's son because in the meanwhile Balwant Singh had died. The addition in sugar again was restored by the Tribunal to the Commissioner (Appeals) who in turn restored it to the Income-tax Officer and we have not been told what finding the Income-tax Officer has since given. In these circumstances, we are left to consider the exigibility of penalty under section 271(1) (c) in respect of benami business in the name of Shiv Shakti Trading Co." 3. The above finding is a clincher that my learned brother while fixing the penalty had necessarily the Explanation to section 271(1) (c) in focus, which provides penalty when the difference between the returned and assessed income is more than 20 per cent. No other view is possible in respect of his ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee to explain its position as to why penalty be not levied for concealing particulars of its income under section 271(1) (c), at no point of time the ITO had withdrawn such charge and required the assessee to explain as to how it could come out of the ambit of the Explanation to section 271(1) (c). 7. The ITO levied penalty both with the substantive and the deeming provision of section 271(1) (c). The ITO invoked the provision of section 68 of the Act for making cash credit additions of Rs. 10,000 and Rs. 20,000 in the accounts of Harbans Kaur and Balwant Singh and added Rs. 42,198 as fictitiously claimed loss. The ITO for the purpose of the penalty proceedings in addition to the abovesaid three additions relied on the finding of the Tribunal in restoring the addition of Rs. 63,795 (Shiv Shakti Trading Co. business income) which had come to be vacated by the Commissioner (Appeals). 8. Section 271(1) (c) as applicable for the relevant year has two limbs and there is an Explanation attached to it. Under one limb the assessee can be proceeded against for actual concealment and under the other on the charge of filing of inaccurate particulars of income. But if the assessee is to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee's behaviour pattern and when the authority levying penalty exceeds the minimum on the ground that the circumstances of the case justify that course, it means that the elements of discretion are exercised and once that happens, it must be assumed that the income-tax authority took upon itself to prove concealment. I like to observe and emphasis that where the revenue frames a charge of concealment against a taxpayer, then addition to penalty, the taxpayer may be prosecuted under section 276 of the Act, which course certainly would not be open if the assessee is penalised under the fiction of the Explanation to section 271(1) (c). Therefore, the penalty levied was legally unsustainable as a whole. 11. As mentioned above, my learned brother has given a finding that if at all, the question of levying penalty could be in relation to the addition of Rs. 63,795 only and not with respect to other three additions totalling Rs. 72,198. Now the above addition was connected with the genuineness of the firm Shiv Shakti Trading Co. The Tribunal in Shiv Shakti Trading Co. s' case has held in respect of the assessment years 1975-76 and 1976-77 that the set up was genuine and entitled to regis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Income-tax Act, 1961 for the assessment year 1975-76 but directing that minimum penalty should be levied against 110 per cent imposed by the Income-tax Officer or whether the Judicial Member's opinion that penalty was not leviable on more than one counts, independent of each other, can be held to be correct ?" THIRD MEMBER ORDER Per Shri Ch. G. Krishnamurthy, Senior Vice President -This case has been refereed to me by the President as a Third Member under section 255(4) of the Act to express my opinion on the following difference of opinion that arose between my learned brothers, who heard this appeal in the first instance : "Whether the learned Accountant Member has been correct in reversing the Commissioner (Appeals) order cancelling the penalty of Rs. 1,49,600 levied under section 271(1) (c) of the Income-tax Act, 1961 for the assessment year 1975-76 but directing that minimum penalty should be levied against 110 per cent imposed by the Income-tax Officer or whether the Judicial Member's opinion that penalty was not leviable on more than one counts, independent of each other, can be held to be correct ?". The latter portion of this difference of opinion offered to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ugh the accounts of the assessee-firm. The assessee-firm though put through a large extent of these transactions in its accounts, yet only a security of Rs. 20,000 was taken from the other firm. The shares in the profits and losses of Shiv Shakti Trading Co. in terms of groups remained the same as that of the groups of the assessee-firm as mentioned above. These reasons led the ITO to believe that the firm of Shiv Shakti Trading Co. was a benami of the assessee-firm. He, therefore, added the income of Rs. 63,795, the income shown by the books of Shiv Shakti Trading Co., in the hands of the assessee-firm. There were several other reasons mentioned but I shall not refer to them now. 3. Against this order of the ITO an appeal was preferred before the Commissioner (Appeals) urging that the view taken by the ITO was incorrect and erroneous. He deleted the addition on the ground that there was no evidence to show that the fruits of the business activities of Shiv Shakti Trading Co. were enjoyed by the assessee-firm. Aggrieved by this order, the revenue filed a further appeal before the Tribunal. After going through the facts of the case and evaluating the evidence, the Tribunal held th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it of Shiv Shakti Trading Co. of Rs. 63,795. The learned Accountant Member held that the Tribunal while dealing with the quantum appeal gave a categorical finding that Shiv Shakti Trading Co. was a benami of the assessee-firm, that against the order of the Tribunal not even a reference application was filed by the assessee even though an application was filed under section 256(2) before the Delhi High Court, that the entire facts showed that the assessee has adopted a device with much deliberations for the purpose of diverting profits which genuinely belonged to it and, therefore, concealed the particulars of his income and the case fall squarely within the ruling of the Supreme Court in D. M. Manasvi's case. He held that there is no question of drawing an inference from the mere falsity of the explanation given by the assessee in the assessment proceedings but it was a case where there were definite findings which substantiated that a device was deliberately created by the assessee for the purpose of cancelling the income. He also held that the Explanation to section 271(1) (c), which was invoked by the ITO for levying the penalty, was clearly attracted. He, therefore, restored th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enami of the assessee-firm. He also mentioned that the Delhi High Court directed a reference under section 256(2) of the following three questions which according to him proved that the benami nature of Shiv Shakti Trading Co. was still in doubt and at least did not become final : "1. Whether, on the facts and in the circumstances of the case, there was any evidence to hold that Shiv Shakti Trading Co. was a benami of the assessee-company ? 2. Whether, on the facts and in the circumstances of the case, there was any material with the Tribunal to hold that the burden which lay on the department of proving benami could be treated as discharged ? 3. Whether, on the facts and in the circumstances of the case, the Tribunal had before them any material for setting aside the finding of the Commissioner (Appeals) that Shiv Shakti Trading Co. was not benami of the assessee-firm ?". He further mentioned that at no point the ITO had invoked the Explanation and all along only the main provisions of section 271(1) (c) were being invoked. He held that where the income-tax authorities attempted to prove the charge under the main provision, the Explanation cannot be made to play any role u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dressed to me by the learned counsel on behalf of the assessee Shri C. S. Agarwal and by the learned departmental representative Shri M. K. Chakraborty. Before I proceed further with the matter, I would like to record here a concession that while the assessee's representative did not rely upon that portion of the order of the learned Judicial Member which dealt with the discussion of levy of penalties under section 271(1) (c) and the Explanation to section 271(1) (c), he submitted that he would not adopt these argument as his own. The departmental representative submitted that the purpose of the Explanation was to create a fiction but not to create a separate charge of concealment of income as was supposed by the learned Judicial Member. If the circumstances mentioned in the Explanation are satisfied then an assessee is deemed to have concealed the particulars of his income within the meaning of section 271(1) (c). The Explanation, therefore, is only meant to aid and strengthen the charge of concealment which is to be punished only under section 271(1) (c), either with minimum penalty of 100 per cent subject to maximum of 200 per cent or with no penalty at all. The purpose of the E ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... three groups of the partners is a clear pointer in that direction'. With this observation the Tribunal itself mentioned that the lack of direct evidence to show that the profit earned in the name of Shiv Shakti Trading Co. went to the partners of the appellant would not be so significant to establish the benami nature as and when the proportion of the profit sharing in the three groups points that Shiv Shakti Trading Co. was benami of the assessee-firm. Since the Tribunal relied on profit sharing ratios to conclude about the benami nature while being conscious of the fact that the fruits also should be enjoyed by the ostensible owner (namely, the assessee-firm) to prove benami nature of the transactions, the sameness of the profit-sharing ratios was taken by the Tribunal as proof of the fact that the fruits of the benami transactions were also enjoyed by the assessee-firm. This shows that the Tribunal arrived at the evidence to show that the profit earned in the name of Shiv Shakti Trading Co. went to the partners of the assessee-firm by the sameness of the profit-sharing ratios. Thus, only half the sentence appear to have been considered and not the full sentence and its implicat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , therefore, does not act as bar for clubbing of the income. This proposition of law is so well settled that I do not think it necessary to refer to all those decision here. Therefore, the grant of registration either before or after or in the assessment year to the firm Shiv Shakti Trading Co. will not make any difference. Secondly the finding given by the Tribunal was that Shiv Shakti Trading Co. was the benami of the assessee-firm. The Tribunal gave several reasons. In the light of these reasons the only conclusion that one can draw is that Shiv Shakti Trading Co. was started by the assessee-firm with a view to divert its profits thereby avoid proper taxation. The fact that much of the transactions of about Rs. 32 lakhs were put through the books of the assessee-firm, the fact that none of the partners of Shiv Shakti Trading Co. were aware of the business transactions, the fact that entire finance was provided by the assessee-firm coupled with the fact that the profit-sharing ratio of the three groups is same must show that this was only a device. The fact that the Commissioner (Appeals) has taken a contrary view does not mean that two opinions are possible and, therefore, it sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... endeavoured to show in the earlier part of my opinion that the subsequent events and the conclusions drawn thereupon must be the result of evaluation of the evidence placed. That cannot dilute the finding of fact recorded by the Tribunal for this year unless the facts are identical which does not seem to be the case in this matter. The logical consequence of the conclusion of the Tribunal must in law be given effect to by the authorities concerned and that process cannot wait merely because a reference application is filed before the High Court or is pending before the High Court. However, consequential effect may be given after the receipt of the opinion of the High Court. These two are separate and distinct matters and, therefore, the argument that because a reference application was pending in the High Court, a conclusion different from the one that was drawn by the Tribunal should be drawn does not appear sound and reasonable. 9. For these reasons I agree with the conclusion of the learned Accountant Member that a minimum penalty equal to the income of Shiv Shakti Trading Co. added in the assessment of the assessee-firm is leviable. The matter will now go before the regular B ..... X X X X Extracts X X X X X X X X Extracts X X X X
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