Commissioner of Income Tax vs Lakhraj and Sons

N.V. Balasubramanian. J.

In pursuance of the direction of this court in T. C. P. Nos. 118 and 119 of 1979, the Income Tax Appellate Tribunal, has referred the following

common question of law for the assessment years 1960-61 and 1963-64 u/s 256(1) of the Income Tax Act, 1961, for our opinion :

Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was justified in cancelling the penalty levied u/s 271(1)(c) for

the assessment year 1960-61 especially when the assessment of the income of the Bombay firm in the hands of the assessee has not reached

finality ?

The assessee, Lekhraj and Sons, is a firm carrying on business at Madras. The Income Tax Officer during the course of the assessment for the

assessment year 1960-61 ''noticed that the purchases in Bombay were claimed to have been made through a firm styled Ramchand and Co.,

Bombay, while the assessee paid certain amount of commission and interest to this concern. The Income Tax Officer after going through the

records held that there was no genuine partnership firm in Bombay and the business known as Ramchand and Co. was merely the branch of the

Madras firm. The above finding of the Income Tax Officer was upheld by the Income Tax Appellate Tribunal, Bombay, on May 20, 1963. The

Income Tax Officer on the basis of the above fact, included the income for the assessment year 1961-62 in the assessment of the firm assessed by

him at Madras. The assessment was completed by him on March 16, 1966, and the assessment for 1962-63 was also completed on the same

lines on November 30, 1966. The succeeding Income Tax Officer who completed the assessment for the assessment year 1963-64, following the

findings of his predecessor and re-opened the assessment for the assessment year 1960-61. In the reassessment made for 1960-61 and the

original assessment for the year 1963-64, the Income Tax Officer included a sum of Rs. 29,495 and Rs. 57,157 representing the income of the

Bombay firm, respectively. The Income Tax Officer also initiated proceeding for the penalty for the assessee''s failure to disclose the income from

the Bombay business and referred the matter to the Inspecting Assistant Commissioner for the imposition of penalty.

The assessee preferred an appeal and the Appellate Assistant Commissioner deleted the sum of Rs. 29,495 and Rs. 57,157 representing the

income of the firm, Ramchand and Co., included in the assessments for the assessment years 1960-61 and 1963-64. There were further appeals

before the Income Tax Appellate Tribunal for both the assessment years. The Appellate Tribunal following the earlier order in I.T.A. Nos. 825 and

826/Madras of 1973 dated December 3, 1975, affirmed the finding of the Appellate Assistant Commissioner.

The Inspecting Assistant Commissioner to whom the penalty proceedings were referred, held that the provisions of section 271(1)(c) of the Act

were attracted and imposed a penalty of Rs. 12,000 for the assessment year 1960-61 and Rs. 25,000 for the assessment year 1963-64 under the

provisions of section 271(1)(c) of the Act.

The assessee preferred appeals against the orders of penalty levied by the Inspecting Assistant Commissioner to the Income Tax Appellate

Tribunal and the Income Tax Appellate Tribunal noticed its earlier order wherein it was held that the business of the Bombay firm cannot be held to

be the business of the assessee-firm and, therefore, it directed that the income from the said Bombay business should be deleted from the

assessment of the assessee-firm. The Appellate Tribunal held that since in the quantum appeals, the income has been deleted there is no case for

levy of penalty levied by the Inspecting Assistant Commissioner. Therefore, the Appellate Tribunal held that no penalty could be levied in this case

for both the years under consideration and cancelled the penalties imposed by the Inspecting Assistant Commissioner.

As against the order of the Appellate Tribunal, the Revenue has sought for a reference and on the basis of the directions of this court, the

Appellate Tribunal has stated a case and referred the common question of law set out above.

Mr. C. V. Rajan, learned counsel for the Revenue, submitted that the order of the Income Tax Appellate Tribunal in the quantum appeal was

the subject-matter of consideration before this court in the case of Commissioner of Income Tax Vs. Lekhraj and Sons, relating to the assessment

years 1961-62 and 1962-63 and this court held that there was no determination by the Tribunal as to whether the Bombay firm was genuine or not

and since the Tribunal had not adverted to the aspect relating to the genuineness of the firm, this court directed the Tribunal to rehear the appeal

and record a clear finding regarding the genuineness of the Bombay firm and dispose of the appeal. According to learned counsel for the Revenue

since the matter has been remitted by this court to the Appellate Tribunal to rehear the appeal with reference to the quantum appeals, the order of

the Appellate Tribunal cancelling the penalty should be set aside and the matter should be remitted to the Appellate Tribunal to consider the matter

again.

Mr. S. A. Balasubramanian, learned counsel for assessee, on the other hand, submitted that this court has upheld the finding of the Appellate

Tribunal that the Bombay firm is not a benami of the assessee-firm and, therefore, the Appellate Tribunal was justified in cancelling the penalty.

We have heard the rival submissions of learned counsel for the Revenue as well as learned counsel for the assessee. The fact remains that this

court has directed the Appellate Tribunal to rehear the appeal in the quantum appeal and with reference to the question of genuineness of the

Bombay firm, this court has given a direction to the Tribunal to record a clear finding regarding the genuineness of the Bombay firm. The effect of

the order of this court is that the earlier order of the Appellate Tribunal regarding the quantum of income is set aside and the Tribunal was directed

to hear the appeal on the question whether any additional income is warranted in the hands of the assessee. In the instant case, the Appellate

Tribunal cancelled the penalty because it has deleted the addition in the quantum appeal preferred by the Revenue and as the matter has been

remitted by this court to decide whether the amount is liable to be included in the hands of the assessee or not, we are of the view that this matter

regarding penalty also should go back to the Appellate Tribunal as the Appellate Tribunal has not rendered any independent finding on the question

of the propriety to levy the penalty and the order of the Tribunal cancelling the penalty was based solely on the earlier order of the Tribunal deleting

the addition in the quantum appeal. Therefore, we are of the view that the Appellate Tribunal should consider the matter afresh in the light of the

observation made by this court in CIT v. Lekhraj and Sons [1985] ITR 153

535. In this view of the matter, we are not answering the question of law referred to us but remit the matter to the Appellate Tribunal to

consider the matter afresh as indicated above. No costs.