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TMI Blog1989 (7) TMI 145X X X X Extracts X X X X X X X X Extracts X X X X ..... r s. 256(1) of the Act was thus rejected. Thereafter, the Hon'ble High Court issued a mandamus in Income-tax Case No. 109 of 1976 by Judgment dt. 22nd Aug., 1977 on an application by the Revenue under s. 256(2) of the IT Act, 1961, to the Tribunal to refer the following question of opinion of the High Court. "Whether, on the facts and in the circumstances, the Tribunal is correct in cancelling the penalty of Rs. 1,76,000 levied under s. 271(1)(c) of the IT Act, 1961"? 3. The Tribunal submitted statement of the case bearing R.A. No. 6(ASR)/79-77 dt. 18th March, 1978 arising out of Tribunal's order in ITA No. 237 (ASR)/75-76. 4. The Hon'ble High Court in IT Ref. No. 6 of 1978 by Judgment dt. 23rd Jan., 1986 has held that the Tribunal decided the appeal, on the basis of law which was applicable before the aforesaid amendment. The reference to this amendment by the Hon'ble Court is with regard to the amendment made, "by the Finance Act No. 5 of 1964". The Hon'ble Court has pointed out that the Full Bench of the Court in the case of Vishwakarma Industries vs. CIT (1982) 29 CTR (P H) 243 (FB) : (1982) 135 ITR 652 (P H) (FB) has overruled the judgment of the Court in the case of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessment made on 5th June, 1971 under s. 144 was cancelled. Thereafter, the assessee filed the return of income on 21st June, 1971 declaring an income of Rs. 3,850 with the following remarks in part IV of the return of income: "1. Since the status of the assessee is resident but not ordinary resident, no outside income has been shown as not derived from business controlled in India. 2. A sum of Rs. 6,04,500 seized by the Enforcement Officer on 17th March, 1971 does not belong to assessee and at any rate it is not income of the assessee. 3. Income from agricultural land is exempt from tax." The above return was, however, revised by the assessee on the 5th July, 1971 declaring an income of Rs. 8,350. In this revised return, the assessee declared a short-term capital gain of Rs. 4,500 from the sale of a shop at Chandigarh in addition to the income from house property at Rs. 3,850 originally declared. 6. When the search at his residential house took place on 17th March, 1971, the assessee was not present therein and his statement as such was not recorded at that time. Later on, the ITO examined the assessee about the source of Rs. 6 Lakhs seized from his bed room. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a report from the Forensic Science Laboratory, Chandigarh, the ITO concluded that the stamp papers, on which the alleged agreement was written, were not purchased on 12th Feb., 1971 but on a later date in order to create documentary evidence to prove the contentions made by the assessee regarding the source of acquisition of the sum of Rs. 6 lakhs. 8. However, during the course of assessment proceedings, the assessee produced all the persons from whom the sum of Rs. 6 lakhs was obtained as recorded supra. The ITO examined each one of these parties and recorded their statements. He, however, held that the assessee's contention that the sum of Rs. 6 lakhs was collected from these parties in cash with the object of purchasing shares of Kartar Bus Service Ltd., Jullundur was not acceptable. He accordingly treated the sum of Rs. 6 lakhs as income from undisclosed sources under s. 69A of the IT Act, 1961. 9. In addition to the sum of Rs. 6 lakhs added to the total income of the assessee on the above basis, the ITO also included the following amount to the total income of the assessee: . . Rs. (i) Loan from his father Shri Niranjan Singh 14,0 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng observations: "(a) Shri Lembar Singh: Rs. 25,000 Shri Lembar Singh is a partner of Bahia Industries, Phagwara. He was produced before the ITO and his statement was recorded in his statement, he deposed that he advanced a sum of Rs. 25,000 to the assessee on 6th March, 1971 out of the withdrawals made by him from the books of the firm Bahia Industries, Phagwara on the same date. The ITO summoned the books of accounts of Bahia Industries for the relevant accounting period and on its scrutiny, he found that on 16th Feb., 1971 when the said sum of Rs. 25,000 is said to have been advanced to the assessee, there was no cash balance. The ITO also noticed that Bahia Industries was a petty concern and its daily sales were only in hundreds. He also found from the entries made on 16th March, 1971, 11th March, 1971, 13th March, 1971, 15th March, 1971 and 16th March, 1971 that the firm entered cash sales in round figures which were quite different from those of their entries made on these dates. The ITO also noticed that the totals written at the end of each date were disturbed and these appeared clear overwritings in the thousand digits. The ITO, therefore, was of the opinion that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... March, 1971 for the purchase of the shares of Kartar Bus Service (P) Ltd. The ITO got necessary enquiries made to verify the statement given by Shri Rachhpal Singh. His enquiries revealed that Shri Rachhpal Sigh was never the owner of the land in question; the land in question which was sold belonged to Smt. Amar Kaur, mother of Shri Rachhpal Singh who obtained these lands from her father Shri Harnam Singh of Johal. The enquiries made by the ITO came to the conclusion that neither Shri Rachhpal Singh was the owner of the land in question nor he was in a position to advance the sum of Rs. 50,000 to the assessee in March, 1971. Since the lady had invested a sum higher than the sale proceeds of the land in October/November, 1970 in purchase of land on 14th June, 1971, Shri Rachhpal Singh was not in a position to possess a sum of Rs. 50,000 for being advanced to the assessee on 16th March, 1971 as alleged. On the basis of the above facts, the ITO did not accept the advance in the name Shri Rachhpal Singh as genuine and added back the amount towards the total income of the assessee. This finding of the ITO was also upheld in appeal by the AAC. We have gone through the statement of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 88,000. He levied the penalty of Rs. 1,76,000 which was 200 per cent. This penalty was challenged in appeal before the Tribunal. 14. After hearing the parties, the Tribunal cancelled the penalty with the following observations: "11. We have heard the learned representatives of the parties and have gone through the record sand, in our opinion, the penalty imposed in this case cannot be upheld. It is true that the impugned sum of Rs. 88,000 said to have been obtained by the assessee from the three creditors was added back towards the total income of the assessee and the explanation furnished b the assessee with regard to the source of the said amounts was not accepted either by the authorities below or by the Tribunal. But we do not find any evidence or material on record to establish that the said amount of Rs. 88,000 represented assessee's income which was consciously concealed. Their Lordships of the Supreme Court in CIT Madras vs. Khoday Eswarsa Sons 1972 CTR (SC) 275 : (1972) 83 ITR 369 (SC) have observed that the penalty proceeding being penalty in character, the Revenue must establish that the receipt of the amount in dispute constitutes income of the assessee. It was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mounts advanced by them to the assessee that does not conclusively established that the assessee was the owner of the impugned amount, which have been added back towards the total income of the assessee by not accepting their testimony. 13. We further find that in the return of income filed by the assessee on 21st June, 1971, the assessee had made a specific mention in part IV of the said return about the sum of Rs. 6,04,000 seized by the Enforcement Officers on 17th March, 1971 and it was stated that the said sum did not belong to the assessee and at any rate it was not his income. This sum of Rs. 6,04,500 also included Rs. 88,000 in the names of three creditors under dispute. This shows that at the earliest opportunity, the assessee had disclosed the fact about the sum of Rs. 6,04,500 recovered at his premises and thus he cannot be considered to have concealed the sum of Rs. 88,000 which was also included in the above sum. On this ground also, the conduct of the assessee cannot be called contumacious nor any charge of concealment of income can be levelied against him." 15. What happended after concellation of the impugned penalty order by the Tribunal has already been recei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rejection of the explanation of the assessee. In this regard, we find that the Tribunal in its order on cross-appeals in quantum, on 31st Oct., 1974 upheld the addition of Rs. 88,000. However, the Tribunal apparently, was aware that it is a now settled law that a mere sustention of a sum as addition to the total income of the assessee does not in itself lead to the conclusion that they was the real income of the assessee and is, therefore, necessarily carrying with it the attributes of imposition of penalty for concealment or for furnishing inaccurate particulars thereof. This becomes evident when the Tribunal, coincidentally constituted of the same members, exercising its mind on the facts of the case, as brought on record during the course of assessment proceedings and as gathered during the course of penalty proceedings, observed as under: "We have heard the learned representatives of the parties and have gone through the records and, in our opinion, the penalty imposed in this case cannot be upheld. It is true that the impugned sum of Rs. 88,000 said to have been obtained by the assessee from the three creditors was added back towards the total income of the assessee and th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eglect could be squarely fastened upon the assessee so as to justify the imposition of penalty of Rs. 1,76,000. In this respect, it is important to note that from the very start, when the assessee was examined by way of a statement on 1st April, 1971 by the ITO, his version has been consistent. Out of the sum of Rs. 6,00,000 seized from his premises, it has been accepted by all sides that to the extent of Rs. 5,31,000, the assessee has been able to establish beyond any reasonable doubt that the money had been collected from various parties for the avowed object of purchasing the shares of Kartar Bus Service Ltd., Jullundur, under an agreement dt. 12th Feb., 1971. It is very important to note that a very substantial sum has been accepted to be coming from the sources indicated by the assessee in the very first statement he made before the ITO. This should lend credence to the statements made by him with regard to other parties as well in so far as the question of invoking Explanation to s. 271(1)(c) is concerned. This is so because despite the best efforts made, the authorities below were not in a position to break any of the parties from whom the assessee claims to have taken the s ..... X X X X Extracts X X X X X X X X Extracts X X X X
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