CALICUT TRADING CO Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THE original petition is for a direction to the Income-tax Appellate Tribunal, Cochin Bench, to refer to this court the following questions of law:

(2.) THE petitioner is a partnership firm. For the year 1983-84, the petitioner submitted a return on April 28, 1984, disclosing a total income of Rs. 2,74,510. THE Income-tax Officer wrote to the assessee pointing out certain cash credits and other credit balances not accounted for and, therefore, the assessee was asked to furnish evidence to prove the source of the said credits. THE assessee then filed a return on December 22, 1984, which, according to the assessee, was to purchase peace. THE assessment order was passed by the Income-tax Officer, accepting the return, on December 28, 1984, on a total income of Rs. 5,24,510 which included Rs. 2,50,000, the enhanced income returned by the assessee. Subsequently, in the course of the assessment for the assessment year 1984-85, the Income-tax Officer found that the accounts of the partners were credited with a total sum of Rs. 2,50,000 in proportion to their profit-sharing ratio along with a narration that these credits represented additional income offered for assessment in the assessment year 1983-84. THE Income-tax Officer, on December 31, 1985, initiated penalty proceedings in respect of the said income of Rs. 2,50,000 disclosed by the assessee and issued notice to the assessee. In the explanation dated February 13, 1986, the assessee explained that the said amount represented the income disclosed by the assessee for the earlier year 1983-84. THEreafter, on March 27, 1986, a penalty was imposed by the Income-tax Officer on the assessee under Section 271(1)(c) of the Income-tax Act. Aggrieved by the penalty order, the petitioner filed an appeal before the Commissioner of Income-tax (Appeals) who, by his order dated September 5, 1986, confirmed the order of the Income-tax Officer. THE second appeal filed by the assessee before the Income-tax Appellate Tribunal was dismissed on August 19, 1987. THE assessee filed a reference application before the Appellate Tribunal praying for reference of the three questions as questions of law arising out of the order of the Tribunal. THE Tribunal dismissed the reference application observing that whether there was any concealment of income in a given case is purely a question of fact and, therefore, no referable questions of law arose from the appellate order. Aggrieved by the said order, the assessee filed this original petition under Section 256(2) of the Income-tax Act, 1961, praying for reference of the questions as questions of law arising out of the Tribunal's order.

(3.) COUNSEL for the assessee drew our attention to the Wanchoo Committee Report forming the basis of the amendment to Section 271 introduced by way of Explanation 2 to Section 271 to show that the said Explanation can be relied upon only if there is any intangible addition. Where intangible additions made in the earlier years are cited by an assessee as the source of his funds in a subsequent year, the said funds would be deemed to represent the assessee's income, particulars in respect of which have been concealed within the meaning of Clause(c) of Sub-section (1) of Section 271 of the Income-tax Act In so far as there is no intangible addition in the case in question, according to the assessee, Explanation 2 is not attracted. As stated already, all the authorities, as a matter of fact, found that there had been intangible addition of Rs. 2,50,000 and, therefore, we do not find any substance in the said argument. Further, the statement prefacing the recommendation of the Wanchoo Committee also says that: