COMMISSIONER OF INCOME TAX Vs. V RAMAKRISHNAN

JUDGEMENT

(1.) IN these tax case references under section 256(2) of the INcome-tax Act, 1961 (hereinafter referred to as "the Act"), the following question of law has been referred to this court for its opinion "Whether, on the facts and circumstances of the case and having regard to the fact that the Tribunal has sent back for de novo consideration by the Appellate Assistant Commissioner the question of the genuineness of the hundi loans, the Tribunal was justified in cancelling the entire penalty under section 271(1)(c) of the Act for the assessment years 1964-65, 1965-66 and 1966-67 ?" * The assessee is a company deriving its income mainly from managing agency and dividends. For the assessment years 1964-65, 1965-66 and 1966-67, the assessee filed returns of income disclosing Rs. 4, 32, 517, Rs. 5, 79, 918 and Rs. 9, 13, 836, respectively. IN the course of the assessment proceedings, it was found that the assessee had claimed loss of Rs. 70, 350 and Rs. 1, 00, 006 respectively for the assessment years 1964-65 and 1965-66 in the spun pipe plant. Likewise, excess remuneration paid to a financial adviser in a sum of Rs. 24, 000 for the assessment years 1964-65 and 1965-66 was also claimed by the assessee as an allowable item of expenditure.

(2.) THE Income-tax Officer rejected these claims and it was also further found that the assessee had introduced bogus hundi credits and by debiting the hundi credits, there was a resulting diminution of the profits of the business carried on by the assessee and the Income-tax Officer included the hundi amounts with interest and completed the assessment. THE hundi credits together with interest so added were as shown below.RsFor the assessment year 1964-65 : 62, 547For the assessment year 1965-66 : 4, 49, 090For the assessment year 1966-67 : 1, 48, 083Penalty proceedings were initiated under section 271 (1 ) (c) of the Act. On appeal by the assessee against the assessment orders before the Appellate Assistant Commissioner and the Tribunal, the disallowance of the loss in the spun pipe plant claimed by the assessee and the excess remuneration paid were set aside and the proceedings were remitted to the Appellate Assistant Commissioner for fresh consideration in so far as the unexplained hundi credits and interest disallowed were concerned. It is not now in dispute that the assessment proceedings so remitted await finalisation.In the course of the penalty proceedings, it was found that the assessee had concealed particulars of its income. In doing so, the Inspecting Assistant Commissioner took into account the loss claimed in the spun pipe plant for the assessment years 1964-65 and 1965-66, the remuneration claimed to have been paid to the financial adviser for the assessment years 1964-65 and 1965-66 and the hundi loans with interest and brokerage for all the assessment years and by invoking the Explanation to section 271 (1) (c) of the Act, the Inspecting Assistant Commissioner levied penalty as shown below.RsFor the assessment year 1964-65 : 1, 15, 000For the assessment year 1965-66 : 72, 000For the assessment year 1966-67 : 28, 112On appeal by the assessee before the Tribunal, it took the view that no penalty was leviable in respect of the disallowance of the loss in the spun pipe plant in view of its earlier order in I. T. A. NO. 628/MDS/69-70, dated May 31, 1967. Considering the additions on account of the hundi credits, the Tribunal concluded that the assessee had produced the discharged hundi khokas before the authorities in proof of the genuineness of the loans and, in the absence of materials to establish that the claim made by the assessee was bogus, concealment of income was not made out and the levy of penalty for all the assessment years in question could not be sustained. In that view, the penalty levied was deletedLearned counsel for the Revenue contended that, when the assessment proceedings for the relevant assessment years had been remitted to the Appellate Assistant Commissioner for de novo consideration of the genuineness of the hundi loans, it was not open to the Tribunal to go into the merits of the case for the levy of penalty. In support of this contention, learned counsel for the Revenue placed reliance upon the decisions in CIT v. K. R. Chinnikrishna Chetty 1989 (177) ITR 145, 1989 (75) CTR 122 (Mad) and CIT v. Hind Mercantile Corporation (In Liquidation) 1989 (177) ITR 149 (Mad). We are of the view that this contention of learned counsel for the Revenue is well-founded.