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Judgment
Balasubrahmanyan, J.—The assessee in this tax case is a registered partnership firm carrying on business in shall and gram and deriving
income therefrom. For the assessment year 1965-66 relevant to the previous year ended March 31, 1965, the assessee filed a return disclosing an
income of Rs. 23,080. During the examination of accounts, which followed the finding of the return, the ITO found a number of each credits
appearing in the assessee''s books of account. Before the investigation into the genuineness of these credits and their source could get heated up,
the assessee itself came forwards and offered for the purposes of assessment, the amount of peak credit appearing from the account books of the
year. The ITO accepted that offer and brought to tax a sum of Rs. 30,000 which he estimated to be the peaks credit, as part of the income, over
and above what was returned by the assessee. In this process while disbelieving the apparent form of the cash credit entire which figured in the
account books as if they represented moneys lent to the assessee, the ITO also disallowed the interest which was credited by the assessee in the
books of account.
Following the assessment of cash credits and the disallowance of interest thereon, parallel proceedings for levy of penalty on the assessee were
started by the ITO. They were in due course taken over by the IAC. The IAC held that the assessee must be regarded as having concealed
particulars of its income when judged by its own conduct in making an offer to the department authority to add the peak credit of Rs. 30,000. It
may be observed that quite apart from what the assessee did by way this offer in the court of the assessment proceedings before the ITO, the
assessee has also filed a petition before the IAC, purporting to be under s. 271(4A) of the Act, with a request that the concealment of income, if
any, may be condoned and the penalty waived. These subsequent representations of the assessee in the course of penalty proceedings were also
taken note of by the IAC when levying the penalty. The penalty actually imposed was Rs. 24,000.
The assessee took both the order of assessment and the order of penalty in appeal-the one before the AAC and the other before the Tribunal.
The AAC considered that the assessment of the figure of Rs. 30,000 as the peak credit during the account year was not reasonable. He
determined it at Rs. 22,000 giving a reduction of Rs. 8,000 in the total income.
In the appeal before the Tribunal against the order of penalty, the assessee submitted that there was no concealment in its part of any income
and merely because, in the course of assessment proceedings an eagerness was shown to settle the assessment by offering the peak credit as
taxable income, it cannot be held that there was evidence of an actual concealment of that amount as income. The Tribunal accepted this
submission of the assessee. They held that while it was open to the assessing authority to invoke s. 68 of the I.T. Act and treat the unexplained
cash credits as taxable income, the enabling power under the statute was restricted only for assessment purposes. The Tribunal observed that for
the purpose of penalty it would be incumbent on the revenue authorities to make out, by cogent evidence, that there has been a concealment of
income. According to the Tribunal, there was no evidence, whatever, in the instant case to show that the peal credit, determined on the basis of the
cash credit entire in the accounts, really represented the assessee''s concealed income. They, however, considered that on the assessee''s own
showing that the credits were not genuine, the claim for a deduction of interest, which the assessee had made in the assessment, must be regarded
as part of the concealment process. They accordingly held that in respect of the interest disallowed (as well as a gross profit addition made by the
ITO) the assessee was liable to pay penalty. They determined the penalty ultimately at Rs. 2,860, which figure was substituted for the penalty
levied by the IAC in the sum of Rs. 24,000.
This decision is now before us on a case stated by the Tribunal at the instance of the Commissioner. The following questions of law have been
referred by the Tribunal for our consideration:
Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in holding that penalty could not be levied in
respect of the cash creditors added back u/s 68 ?
Whether, on the facts and in the circumstances of the case and having regard to the Explanation to section 271(1)(c), the Appellate Tribunal
was right in canceling the penalty in respect of the addition toward unexplained cash credits especially when the assessee has agreed for the
assessment ?
Whether the Appellate Tribunal''s finding that the assessee has not concealed income in respect of the each credits is a reasonable view to take
on the facts of the case ?
Although as many as three question have been framed, the real issue for decision is whether the Tribunal''s finding that the assessee has not
concealed its income in respect of cash credits can be regarded as a reasonable view of the facts on record. This issue, in our judgment, is fairly
presented in the third question of law before us.
We have earlier referred to the factual background to the case as well as the content of the proceedings before the various authorities. We have
also referred to the reasoning of the Appellate Tribunal. It would have been seen that the Tribunal has not wholly ruled out the Department''s case
about the assessee''s efforts at concealment. All they found was that in so far as the amounts representing cash credits were concerned, there really
was no material for the Department on the basis of which it could confidently be said that they represented the assessee''s income which had not
suffered tax and which was concealed in the garb of cash credit entire in accounts. It is true that the assessee itself has offered the peak credit for
the purpose of assessment. But it is not suggested anywhere in the proceedings either of the ITO or of the IAC that while offering the peak credit
for assessment. Whatever might be the compelling motive there is not a shred of evidence even in the penalty proceedings to show that any of the
credits were not genuine or that they are really camouflaged or concealed income of the assessee. None of the person in whose names the cash
credits appear in the assessee''s books were shown to have been examined by the ITO or even by the IAC for the purpose of making out a case
against the assessee to the effect that they are not genuine loan transactions. In these circumstances, we must accept the ultimate finding of the
Tribunal as one based on a reasonable view of the facts and circumstances of the case. Our answer to question No. 3 is against the Revenue. It
follows that similar answers must be returned for the two other questions as well. Since the Department has failed in this reference, it will pay the
costs of the assessee. Counsel''s fee Rs. 500.