Commissioner of Income Tax vs Gurudas Ram Papshi and Bros.

These references u/s 256(2) of the income tax Act, 1961 (''the Act'') have been made by the Tribunal, Patna Bench. The following question of law has been referred for opinion of this Court. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in setting aside the orders of the departmental authorities imposing penalty on the assessee, in view of the law engrafted in section 271(1)(c) of the income tax Act, 1961 and the explanation appended thereto, as it stood at the relevant time ?

From the statement of the case, the following facts emerge. The assessee is a registered firm. The assessment years involved in these references are 1965-66 and 1966-67. 2. For the assessment year 1965-66, the assessee returned an income of Rs. 58,479. The ITO disallowing various expenses and adding Rs. 49,779 as cash credits, computed the total income after depreciation at Rs. 1,31,528. On appeal to the AAC the total income was reduced by Rs. 5,000. On further appeal to the Tribunal, the total income was further reduced by Rs. 14,700 and it stood at Rs. 1,11,828.

For the assessment year 1966-.67, the assessee returned an income of Rs. 68,485. The ITO disallowing various expenses and adding Rs. 8,300 as cash credit computed the total income after depreciation at Rs. 99,883. On appeal to the AAC, the assessment as made by the ITO was confirmed. On further appeal to the Tribunal the total income was reduced to Rs. 99,626.

The ITO initiated proceedings u/s 271(1)(c) for both the assessment years. The matter was referred to the IAC. For the assessment year 1965-66, the IAC by his order dated 14-3-1969 imposed a penalty of Rs. 13,100, a copy of which has been annexed as Annexure A to the statement of the case. For the assessment year 1966-67, the IAC by his order dated 25-3-1970 imposed a penalty of Rs. 6,000. This order has also been marked as Annexure A to the statement of the case.

The assessee appealed before the Tribunal. The Tribunal after hearing the assessee as well as the revenue representative observed that the penalty proceedings were started on the ground of additions of certain expenses and for cash credits and that so far as the cash credits were concerned, the assessee''s explanation was disbelieved and the amounts were added back to its total income. The Tribunal found that the law on the question was settled after the decision of the Supreme Court in the case of Commissioner of Income Tax, West Bengal I, and Another Vs. Anwar Ali, and, there fore, no penalty could be imposed on this ground.

The learned senior standing counsel for the revenue vehemently argued that the appellate orders of the Tribunal were clearly erroneous as after the insertion of the Explanation to section 271(1)(c), the initial onus of proving that there has been no deliberate and negligent act on the part of the assessee lay on the assessee and, unless that was discharged, the onus could not be shifted on to the revenue. On principle the proposition is attractive and very sound. But on a perusal of the Tribunal''s appellate orders, we find that sufficient materials are available on the record to draw an inference that the initial onus has been discharged in this case by the assessee for both the years in question. The point of law raised by the learned senior standing counsel of the department is, therefore, merely an academic one. We do not think in view of the settled law and in view of the findings of fact arrived at by the Tribunal in its appellate order, there is any justification in interfering with the orders passed by the Tribunal. The learned senior standing counsel for the department relied on the case of Commissioner of Income Tax Vs. Parmanand Advani, and on the case of Vishwakarma Industries Vs. Commissioner of Income Tax, . All these cases have been considered by this Court in Tax Case No. 62 of 1974 decided on 16-3-1983. Furthermore the principle is fully discussed and settled by the cases of Commissioner of Income Tax Vs. Patna Timber Works, , Commissioner of Income Tax, Bombay City I Vs. Tata Services Ltd., and Tax Case No. 35 of 1975 decided on 23-3-1983.

We accordingly answer the question referred to the Court in affirmative and hold that on the facts and in the circumstances of the case, the Tribunal was justified in setting aside the orders of the departmental authorities imposing penalty on the assessee under Explanation to section 271(1)(c). In the circumstances of this case, however, we shall make no order as to costs.