Commissioner of Income Tax vs Parmeshwari Dass Sat Pal Barnala

Satish Kumar Mittal, J.—The Income Tax Appellate Tribunal, Chandigarh Bench, Chandigarh (hereinafter referred to as the ITAT), has referred the following substantial question of law, said to be arising out of the order dated 20-7-1993 in ITA No. 968/Chandi./88, in case of the assessee, relating to the assessment year 1979-80, for opinion of this Court:

Whether on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was right in law in deleting penalty imposed u/s 271(1)(c), when addition made by the assessing officer has been upheld by the Income Tax Appellate Tribunal?

The facts of the case are that the assessee was doing the business of commission agent and was a dealer in foodgrains, cotton and rice, etc. The assessee had earned certain commission in its commission agency business. Besides the commission earned in such business, profit of Rs. 1,26,963 was also earned in four transactions. Before the assessing officer, the assessee claimed that profit was passed on by it to those persons on whose behalf transactions had been done. The assessee did not include the said amount of profit in its income. The assessing officer, after rejecting the plea of the assessee, included the said amount to the income of the assessee.

Feeling aggrieved against the order of the assessing officer, the assessee filed appeal before the Commissioner (Appeals) (hereinafter referred to as the Commissioner (Appeals), who deleted the aforesaid addition in part. The Income Tax Appellate Tribunal, in appeal by the revenue, set aside the order of the Commissioner (Appeals) and upheld the order of the assessing officer, after holding that the profit earned in transactions in question was actually belonging to and was income of the assessee. Thus, the addition made by the assessing officer was sustained.

For the abovesaid addition, penalty proceedings were also initiated against the assessee u/s 271(1)(c) of the Act. The assessing officer imposed a penalty of Rs. 71,650. On appeal filed by the assessee, the Commissioner (Appeals) deleted the penalty, while observing that the assessee disclosed all the facts relating to the transactions done by four persons in the Commission agency of the assessee. The assessee had duly credited the amount of commission, received in four transactions, in its commission account. The concerned parties had shown the profits in their cases. Therefore, it was found that the explanation furnished by the assessee was bona fide and his case is fully covered by the proviso to Explanation (I) inserted vide Taxation Laws (Amendment Act, 1975).

Against the said order, the revenue filed appeal before the Income Tax Appellate Tribunal, who vide its order dated 20-7-1993 dismissed the appeal, while observing as under:

We have considered the rival contentions and the decisions of various High Courts, referred to above, and we find that here in the case before us there is no question of any additional evidence required for the levy of penalty. What the assessee is claiming here is that the explanation given in respect of the disputed transactions must be examined in the light whether it was a bona fide one. Mere fact that it has been rejected by the Tribunal in quantum appeal, could not deter the Tribunal in any independent proceedings to find out if the explanation appeared to be genuine. Since the transactions were of a complex nature in view of the business of commission agency, an interpretation given to these transactions could not render the claim of the assessee to be devoid of bona fides. The learned Counsel has argued that the five Explanations inserted in place of one in Section 271(1) with effect from 1-4-1976 made a material difference and, therefore, it must be seen whether the assessee had disclosed all the facts relating to the transactions in a bona fide and true manner. If it is so found, the penalty was not exigible. An adverse view might have been taken in the quantum appeal but assessing officer question in the penalty proceedings is not the same but the entire material has to be examined in the light of Section 271(1)(c) of the Act. The main thrust of the argument of the learned Counsel is that the entire details in respect of parties and sales and purchases were recorded in the books of account and were disclosed. There was nothing which could be called to be concealment on the part of the assessee. He has, therefore, submitted that the case of the assessee is covered by the proviso to Explanation 1 to Section 271(1) of the Act.

We have considered the rival contentions and we find that the Commissioner (Appeals) has taken a correct legal view and the explanation submitted by the assessed has been found to be bona fide. There was no deliberate concealment of particulars of income by the assessee. The assessee endeavoured to explain everything; though his explanation has not been accepted in quantum appeal. We are, therefore, of the view that penalty proceedings being in the nature of quasi-criminal and penal, cannot be sustained. The order of the Tribunal in quantum appeal shall not indeed prejudice the penalty proceedings against the assessee.

Counsel for the revenue submitted that when the addition has been sustained in quantum of income, the penalty should also be held to be leviable because the assessee had been found to have deliberately concealed the income.

We do not find any force in the contention of learned Counsel for the revenue. In the present case, a finding of fact has been recorded by the Income Tax Appellate Tribunal that the explanation given by the assessee in respect of the disputed transactions appears to be genuine and bona fide. He had disclosed all the facts relating to the transactions in a bona fide and true manner. There was nothing which could have been called to be concealed on the part of the assessee. This finding of fact has not been questioned by the revenue in this reference. If the assessee has offered a reasonable explanation to the Income Tax Appellate Tribunal, this court cannot interfere with the findings of the Income Tax Appellate Tribunal. The addition made in the assessment order does not by itself justify the levying of penalty. Since in this case, a pure finding of fact has been recorded to the effect that the explanation furnished by the assessee was reasonable, genuine and bona fide, which has not been challenged, we do not find any reason to interfere in the same.

In view of the above and in the facts and circumstances of the case, the aforesaid substantial question of law raised by the revenue is answered in the affirmative, i.e., against the revenue and in favour of the assessee. The instant reference is answered against the revenue and in favour of the assessee.