Commissioner of Income Tax vs Jamnadas and Co.

Y.B. Bhatt, J.—The present reference u/s 256(1) of the Income Tax Act, 1961, raises the following questions for our opinion :

"1. Whether, on the facts and in the circumstances of the case the finding of the Appellate Tribunal that in the present case the returned income did not fall short of 80 per cent. of the correct income, referred to the Explanation to clause (c) of sub-section (1) of section 271 of the Income Tax Act, as in force at the relevant time is correct in law?

Whether, on the facts and in the circumstances of the case the Appellate Tribunal was right in law in deleting the penalty imposed on the assessee by the Inspecting Assistant commissioner under clause (c) of sub-section (1) of section 271 of the Income Tax Act, 1961?"

The assessee being a registered partnership firm, was engaged in the business of cotton, cotton seeds, etc., and for the assessment year 1972-73, it had returned an income of Rs. 1,31,460. The business premises of the assessee were searched by the sales tax authorities and on the basis of certain documents discovered and seized, and which came to the attention of the Income Tax Officer, it was discovered that the assessee was engaged in transactions which were not reflected in the regular books of account. Therefore, certain additions were made to the income returned by the assessee. In the present reference, we are concerned only with the addition in respect of cash credit entries for which no evidence was offered by the assessee as regards their genuineness. This amount of addition was originally Rs. 1,22,500, which was reduced by the Appellate Assistant Commissioner in an appeal by the assessee to Rs. 77,500.

The Income Tax Officer issued notice to the assessee u/s 271(1), clause (c), read with section 274 of the Act as to why penalty should not be imposed for concealment of income. Ultimately, the case was transferred to the Inspecting Assistant Commissioner under sub-section (2) of section 274 of the Act.

The Inspecting Assistant Commissioner imposed a penalty of Rs. 80,000 which was challenged by the assessee in appeal before the Tribunal. The Tribunal came to the conclusion that in the instant case the returned income did not fall short of 80 per cent. of the correct income and, therefore, the Explanation below clause (c) of sub-section (1) of section 271 of the Act (as in force at the relevant time) was not attracted. Hence, the present reference by the Revenue.

On a plain reading of the said Explanation to clause (c) of sub-section (1) of Section 271, we find that in order to attract the provisions of the Explanation, the assessee would be required to prove that the failure to return the correct income did not arise from any fraud or any gross or wilful negligence on his part. In other words, if the assessee fails to prove these element, the presumption as contemplated by the said explanation can be raised.

On the question of fact, we find that the Tribunal has noted and observed that it was the assessee''s own explanation during the assessment proceedings before the Income Tax Officer that the correct names as regards the parties who were the holders of the cash credits in the accounts of the assessee were not shown since it was a secret business and it was decided by the assessee that even its employees should not know the correct names of the parties under the various transactions. Moreover, the Income Tax Officer has further observed, and which observation has not been interfered with in any manner by the Tribunal, to the effect that a sum of Rs. 1,22,500 (as shown in part 3 of the return of the assessee) represented credits in secret business agreed to be in the wrong names, and hence the entries were found not proved to be genuine.

On these findings, it is obvious that the assessee has failed to discharge the burden placed upon it by the aforesaid Explanation and, consequently, the presumption under the said Explanation would arise.

As observed hereinabove, the Inspecting Assistant Commissioner has reduced the figure of addition from Rs. 1,22,500 to Rs. 77,500, which is now the relevant figure.

Thus, on the facts of the case, it can only be found that this is a case covered by the Explanation to clause (c) of sub-section (1) of section 271 of the Act. Consequently, the penalty imposed on the assessee by the Inspecting Assistant Commissioner applying clause (c) of sub-section (1) of section 271 of the Act was justified.

In the premises aforesaid, questions Nos. 1 and 2 are answered in the negative, i.e., in favour of the Revenue and against the assessee. The reference stands disposed of accordingly with no order as to costs.