COMMISSIONER OF INCOME TAX Vs. PRAKASAM READYMADE STORES

JUDGEMENT

(1.) THIS tax case raises the question whether, in the events that happened, the Income-Tax Appellate Tribunal was justified in canceling a penalty which had been levied on an assessee for concealment of income under s. 271(1)(c) of the I.T. Act, 1961.

(2.) THE assessee is a firm carrying on business in readymade garments. In it books for the account year, relevant to the assessment year 1972-73, there were entries to show that the assessee had borrowed money on hundis from a number of Multani bankers. THE assessee produced the discharged hundi papers in support of the genuineness of the transactions. THE ITO, however, was disposed to reject this evidence, for two reasons. One was that the hundis had not been discounted by the lenders with scheduled banks. THE other was that the lenders were notaries for indulging in havala transactions, that is to say, transactions which made it appear on fabricated evidence that here were loans advanced by them and repaid to them, without any money passing either way. At this stage of the assessment, to cut further proceedings short and to achieve finality to the tax liability, the assessee made an offer to the effect that the ITO might treat the peak credit in the hundi loans account a the assesse's taxable income for the year. THE offer was made in a letter addressed to the ITO. In that letter, however, the assessee reiterated that the loans were genuine, and the offer was being made only in the interest of a speedy end to the assessment proceedings. THE ITO acted on this letter, and without further ado he completed the assessment, adding to the returned income a sum of Rs. 65,000 which he worked out as the figure of peak credit in the hundi loan account. This addition, incidentally, was reduced to Rs. 46,000 by the commissioner, acting in exercise of his revisional powers.

(3.) THE same approach has been laid down in a recent decision of this court in Addl. CIT v. Smt. V. Kanakammal [1979] 118 ITR 94. THE learned judges have expressed the view that the Explanation to s. 271(1)(c) of the Act does not require the assessee to prove that he had not concealed particulars of his income all he need show in order to rebut the initial presumption against him is that he was neither grossly negligent nor actuated by fraud in the preparation of his return.