COMMISSIONER OF INCOME TAX Vs. VINAYCHAND HARILAL

JUDGEMENT

(1.) AT the instance of the revenue, the following three questions have been referred to us for our opinion :

(2.) THE facts leading to this reference are as follows : We are concerned in this case with the assessment year 1967 -68. During the previous year relevant to this assessment year, the respondent was a partner of Messrs. Keshavlal and Co., running an oil mill at Mahuva, in Bhavnagar District. The assessee originally filed his return for the assessment year under consideration on August 14, 1967, declaring an income of Rs. 20,024. Later on, in March, 1968, the assessee filed a revised return declaring an additional income of Rs. 600 from 'fatak dalali'. The ITO, while processing the assessment, found that the assessee had encashed demand drafts totalling Rs. 88,455. These demand drafts were obtained by the assessee in his own name and they had been obtained from the branches of Dena Bank at Bombay. Later, on these demand drafts were encashed by the assessee at Mahuva with the Dena Bank. For the purpose of encashment of the demand drafts, the assessee was identified by a partner of the firm of Messrs. Keshavlal and Co. The assessee contended before the ITO that the amount of the demand drafts represented gross receipts of dalali business in which he had earned nominal commission. Subsequently, the assessee changed his stand before the ITO and submitted that the transactions of dalali business were entered into by him as the karta of his HUF and not in his individual capacity. An affidavit was filed by the assessee in support of this contention regarding the HUF. The ITO was not satisfied with the assessee's contention and treated the amount of Rs. 88,455, being the aggregate of the amounts of the demand drafts encashed by the assessee, as the income of the assessee, invoking in support of his conclusion the provisions of s. 69A, and the ITO directed that penalty proceedings under s. 271(1)(c) should be initiated against the assessee.

(3.) THEREAFTER , before the IAC, to whom the case for penalty proceedings was referred the assessee denied that the addition agreed to by him in the assessment proceedings represented the concealed income of the assessee. The assessee's case before the IAC was that the addition was agreed to only for cutting short prolonged litigation and expenses. It was also submitted on behalf of the assessee that no penalty was imposable in this case as the entire case against the assessee was the result of disbelieving the assessee's version regarding his income from dalali business. The IAC rejected the contentions of the assessee and imposed a penalty of Rs. 10,000 and the IAC proceeded on the footing that in the assessment proceedings before the AAC, the assessee had agreed to the addition of the peak amount of Rs. 60,000.