COMMISSIONER OF INCOME TAX Vs. SOHAN SINGH

JUDGEMENT

(1.) PURSUANT to the direction given by this Court under S. 256(2) of the IT Act, 1961 (in short "the Act"), the following question has been referred for the opinion of this Court, in the three reference applications filed by the Revenue before the Tribunal, Delhi Bench C ("the Tribunal" for short) :

(2.) THE factual position in a nutshell is as follows : S. Sohan Singh, the assessee, is an individual. The previous year in respect of each of the assessment years concerned ended on 31st March, 1963, 31st March, 1965 and 31st March, 1966, respectively. Assessments were reopened by the Income tax Officer (in short "the ITO") under s. 147 of the Act on the ground that the income had escaped assessment. After reopening of the assessment in each of the years, the ITO clubbed the income of the firm, Preetpal Singh & Co., with the income of the assessee. These additions were made on the ground that the income of the partnership was really that of the assessee. The partnership was constituted as evidenced by a deed of partnership dt. 7th Dec., 1961, with two partners, namely, Smt. Satwant Kaur and Shri Surinder Singh. Three minor partners, namely, Shri Preetpal Singh, Shri Harvinder Pal Singh and Miss Kamal Anand, were admitted to the benefits of the partnership. Smt. Satwant Kaur is mother of the assessee. Shri Surinder Singh is his sister's son. He was also an ex employee of the assessee. The three minors were children of the assessee. The firm discontinued its business on the death of Smt. Satwant Kaur on 27th Feb., 1967. Income of the firm was assessed, but such assessment was made on protective basis as the ITO was of the view that the firm was a benami concern of the assessee. In the assessment proceedings of the firm, the ITO examined Shri Surinder Singh and after taking into account various statements, he clubbed the income of the firm with that of the assessee. Various reasons were given by the ITO for coming to the conclusion regarding Benami character of the firm. On appeal, the Appellate Assistant Commissioner (the "AAC" in short) refused to grant relief and on further appeal before the Tribunal, the action of the ITO was confirmed. The ITO, before the completion of reassessment, issued show cause notices to the assessee to show cause why penalty should not be levied under S. 271(1)(c) of the Act. In the penalty proceedings, the Inspecting Assistant Commissioner (the "IAC" in short) informed the assessee about the requirements of the Explanation to S. 271(1)(c), indicating that the said provision was applicable to the facts of the case. The assessee was required to show cause why penalty should not be imposed on the assessee under that provision. In reply, the stand of the assessee was that penalty proceedings were independent of the assessment proceedings and simply because assessment orders have been passed in the case of the firm considering it as a Benami concern, that would not be sufficient to hold that the assessee concealed income of the firm from his assessment. It was further submitted that none of the reasons for which the ITO held the firm to be Benami was factually correct and the inference drawn was not correct. However, penalties were levied under S. 271(1)(c) of the Act. The matter was carried in appeal before the Tribunal which held that there was nothing on record to show that fraud, gross or wilful neglect could be attributed to the assessee in not returning the correct income in his returns. The prayer for reference made by the Revenue was rejected. However, on being moved under S. 256(2) of the Act, this Court directed the Tribunal to refer the question as set out above.