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TMI Blog1974 (8) TMI 19X X X X Extracts X X X X X X X X Extracts X X X X ..... . The Income-tax Officer while so assessing added the amount of Rs. 10,231 being the amount of interest on bogus hundi loans. In the course of the assessment proceedings, the Income-tax Officer observed that the assessee was liable to pay penalty tinder section 271(1)(c) of the Income-tax Act, 1961, for concealment of income and/or furnishing inaccurate particulars thereof. The matter of penalty was referred to the Inspecting Assistant Commissioner as the minimum penalty leviable exceeded Rs. 1,000. The Inspecting Assistant Commissioner by his order of July 3, 1969, imposed a penalty of Rs. 5,000. While rejecting the contention of the assessee that as they had made a disclosure-petition under section 24(11) of the aforesaid Act, no, penalty could be imposed, the Inspecting Asssistant Commissioner observed that though the assessee had disclosed the hundi loans, the assessee did not withdraw their claim for interest on such loans, and if the hundi loans represented the assessee's own money, interest could not have been claimed as a deduction and the assessee-firm should have filed a revised return. In the opinion of the Inspecting Assistant Commissioner, the assessee's failure to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... issioner levying penalty on slightly different reasoning. As the instance of the assessee, therefore, the Tribunal referred the following question to this court for our opinion : " Whether, on the facts and in the circumstances of the case, the Tribunal has erred in law in relying on the disclosure made by the assessee under subsection (11) of section 24 of the Finance (No. 2) Act, 1965, in holding that the assessee committed gross or wilful neglect within the meaning of the Explanation to section 271(1)(c) ? " In order to appreciate the question which has been referred to us in its proper perspective, it may be necessary to consider how and in what circumstances the disclosure came to be made by the assessee. It appears that the assessee on March 25, 1965, made a petition of settlement before the Inspecting Assistant Commissioner of Income-tax, Rajkot Range, Rajkot. The subject of the petition has been described as one regarding disclosure and settlement petition of M/s. Chhotalal Co., Morvi, for hundies. It has been stated in the said petition that the firm had raised loans from Shroffs of Bombay from S.Y. 2017 to S.Y. 2019, most of which were through banks. However, at t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... four spread-overs to two spread-overs was unexpected and, therefore, the assessee stated in the said letter, " we are resorting to the aforesaid scheme which is to obviate the question of spread-over." It is thereafter that the assessment was made by the Income-tax Officer in the course of which he found that the assessee-firm was liable to pay penalty as in the return made by them for the assessment year 1964-65, they claimed a deduction of the amount of Rs. 10,231 as interest on the hundi loans which were admittedly the income of the assessee-firm. He, therefore, referred the matter to the Inspecting Assistant Commissioner, Income-tax, Rajkot Range, Rajkot, who after considering the explanation of the assessee while passing the order imposing penalty observed as under: It is a fact that the assessee made a disclosure on March 25, 1965, of hundi loans appearing in its books of account. As per this disclosure the assessee admitted that the hundi loans in its books of account were not genuine and that they represented its own money. The assessee, however, did not withdraw its claim for interest on such hundi loans. If the hundi loans represented the assessee's own money, interest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bogus hundi loans arose from gross or wilful neglect on the part of the assessee when he filed the return with full knowledge that the interest of Rs. 10,231 was interest amount paid by the assessee to himself on his own funds. In the opinion of the learned Accountant Member, the assessee for purposes of returning the correct income ought to have added back this amount. The failure on the part of the assessee to return the correct income was thus occasioned by gross or wilful neglect on the part of the assessee, and it was that neglect which was responsible to show the income at a figure less than 80% of the income assessed. The learned Accountant Member, therefore, held that the omission of the assessee was within the Explanation to section 271(1)(c). The learned Judicial Member, however, did not think it necessary to make any finding on the question of concealment. He, however, agreed with the learned Accountant Member on his finding that the failure to make a correct return of income was occasioned by gross or wilful neglect on the part of the assessee and that neglect was responsible to show the income at a figure less than 80% of the income assessed, which rendered the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ses of any assessment proceeding or any proceeding relating to imposition of penalty and in his submission, therefore, the Tribunal was in error in admitting in evidence the contents of the declaration for purposes of finding that the failure to make correct return by claiming deduction of the interest amount on hundi loans was occasioned by gross or wilful neglect of the assessee. The admission which has been taken into consideration by the Tribunal from the declaration under section 24 of the Finance (No. 2) Act of 1965 made by the assessee is from columns (x) and (xi) of the said declaration. Column (x) deals with year-wise disclosed income and column (xi) deals with particulars of disclosed income. In column (x), the declarant has given the details of the two amounts, namely, Rs. 15,000 and Rs. 50,000, as amounts of accommodating hundis used in business in S.Ys. 2018 and 2019, respectively. In column (xi) relating to particulars of disclosed income, the assessee stated against item No. (1) of column (xi) that it was investment by way of accommodating hundies in the business of the firm itself. Mr. Patel, therefore, urged that the Tribunal was, so far as it relied on this so-cal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roposal for settlement by spreading over the disclosed amount of Rs. 65,000 over a period of four years, opted for the scheme envisaged under section 24 of the Finance (No. 2) Act, 1965, as it would obviate the question of spread-over altogether. It may be that the assessee was induced to opt for this scheme under section 24 of the Finance (No. 2) Act, 1965, because the Income-tax Officer did not agree to the original proposal for settlement for spread-over of the period of four years and instead granted spread-over of the period of two years. None-the-less the fact remains that by letter of 30th March, 1966, the assessee opted for the disclosure of income by making a declaration under the scheme as prescribed under section 24 of the Finance (No. 2) Act of 1965. Mr. Patil laid great emphasis on the fact that this letter of March 30, 1966, was in continuation of the previous letter of March 25, 1965, and therefore, both the letters should be read together and the statement made in the declaration under section 24 should not be viewed in isolation. This submission of Mr. Patel is based on a stray statement made in the letter of March 30, 1966, where the assessee referred to his previ ..... X X X X Extracts X X X X X X X X Extracts X X X X
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