COMMISSIONER OF INCOME TAX Vs. PIONEER ENGINEERING SYNDICATE

JUDGEMENT

(1.) AT the instance of the IT Department, the Tribunal has referred to us the following question of law :

(2.) THE assessee is a firm of engineering contractors. It filed a return of income for the asst. yr. 1964 -65. While the assessment proceedings were pending, the assessee filed with the CIT a petition under S. 271(4A) of the Act under which it offered for assessment the peak credit in the accounts in which it had disclosed its borrowings from certain multani bankers. The peak credit worked out to Rs. 3,25,000. The assessee submitted that these loans from multani bankers were repaid during subsequent years. While reiterating that the hundi borrowings were genuine, it expressed surprise that the hundi bankers should have made statements before the Department that the hundis were only accommodation transactions. The assessee, nevertheless, offered the amount of Rs. 3,25,000 for assessment "in order to avoid further complications and also to purchase peace with the Department.". Having offered the amount for assessment, the assessee submitted that no penalty need be levied on the basis of its offer of the peak credit for assessment purposes. The ITO completed the assessment by adding the sum of Rs. 3,25,000 representing the peak credit in the hundi loan account. At the same time, penalty proceedings were also initiated against the assessee under S. 271(1)(c) of the Act on the basis that the assessee itself had offered the hundi loan peak credit as its taxable income. These proceedings were subsequently taken charge of by the IAC. However, he had to drop these proceedings since the assessment made by the ITO, adding the peak credit of Rs. 3,25,000, was subsequently set aside in appeal by the AAC who directed the ITO to recompute the undisclosed income in the hundi loan account. The ITO implemented the remand order by making a reassessment in which, on further consideration, he added only a sum of Rs. 96,434 as unproved hundi loan, as against Rs. 3,25,000, which he added under the same head in the original assessment. On the basis of this reassessment. The IAC. once again conducted penalty proceedings under S. 271(1)(c) of the Act. Ultimately, the IAC levied a penalty of Rs. 23,686. On appeal, the Tribunal accepted the contention of the assessee that its offer during the assessment proceedings to get taxed on the peak credit was only to buy peace with the Department and not on the basis of any admission that the hundi loans were not genuine. The Tribunal, held that the addition made on account of the unproved hundi loans, on an agreed basis, cannot be a ground for holding that the assessee was guilty of concealment of income. It, accordingly, cancelled the penalty levied by the IAC.

(3.) ARISING from the same proceedings, the assessee, for its part, had asked for a reference on the following questions of law :