KANTILAL MANILAL Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THE assessee, a partnership firm, was a dealer in medicines. Its return of income for the asst. yr. 1969 70, the previous year being S. Y. 2024, was filed on 12th May, 1969. The assessee returned an income of Rs. 7,874. In the course of the assessment proceedings, the ITO found, upon verification of the cash book of the assessee that the total of the various entries on the credit side as on 26th Dec, 1967, was not correctly made. The total which should have been struck at Rs. 14,105 was actually worked out at Rs. 17,605. The cash book thus reflected excess cash in the sum of Rs. 3,500 in the hands of the assessee. When asked to explain, the assessee pointed out that the discrepancy was the result of a totalling mistake and that the same was set right by an entry made in the cash book on 2nd Oct., 1968, whereunder the cash balance as on that day was reduced by Rs. 3,500. According to the assessee, the sum of Rs. 3,500 was, in fact, never in its hands during the intervening period. The ITO found the explanation to be untrue because on three occasions during the period between 26th Dec., 1967, and 2nd Oct., 1968, the cash balance had actually fallen to the extent of Rs. 1,300 below the amount which should have been in the hands of the assessee, if the totalling mistake has not occurred. In other words, it was found that the assessee was in fact possessed of excess cash during the aforesaid period which he had drawn upon on three different occasions to the extent of Rs. 1,300. When confronted with this evidence, the assessee tendered a further explanation that it had borrowed a temporary loan from one Hathilal Amarchand which was not recorded in the books and that the short fall of Rs. 1,300. On the three relevant days was met from the amount advanced by the said Hathilal. The ITO thereupon examined Hathilal and recorded his statement in regard to the alleged loan. Hathilal denied having advanced any loan to the assessee. An opportunity was afforded to the assessee and its representative to cross examine Hathilal but it was not availed of. In view of the circumstances aforementioned, the ITO came to the conclusion that the assessee had "introduced the income earned by them from undisclosed sources of Rs. 31,500 in the books of account and that this way the assessee firm has concealed the income of Rs. 3,500". The said amount was, therefore, added as income from undisclosed sources and the total income of the assessee was computed at Rs. 11,154. A show cause notice under S. 274 of the IT Act, 1961 (hereinafter referred to as "the Act"), for concealment of the particulars of income was also directed to be issued against the assessee.

(2.) IN view of the fact that the minimum penalty imposable exceeded the prescribed sum, the case was referred to the IAC who issued a fresh notice on 22nd July, 1971, calling upon the assessee to show cause why penalty should not be imposed upon it under S. 271 (1) (c) for concealment of particulars of income for the asst. year 1969 70. The assessee showed cause and took up the same pleas which it had advanced before the ITO in the course of the assessment proceedings. The IAC held :

(3.) THE assessee moved the Tribunal for stating a case in respect of six questions said to arise out of its order. The Tribunal, however, declined to state a case as, in its opinion, the conclusion that there was concealment of income was a question of fact. The assessee thereupon moved this Court for direction to the Tribunal to state the case. This Court directed the Tribunal to draw up a statement and to refer the following question of law : "Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in confirming the levy of penalty of Rs. 3,500 under S. 271 (1) (c) of the IT Act, 1961 ?" The facts narrated above would show that both the IAC and the Tribunal have invoked in aid the Explanation to S. 271 (1) (c) in addition to the main provision of S. 271 (1) (c). They have found that the conditions laid down in the explanation are also satisfied. Since we are in agreement with the said view, we propose to deal with the question referred for our opinion only on the basis of the applicability of the Explanation without entering into the consideration of the further question whether the requirements of S. 271 (1) (c) are independently satisfied.