MIRZAPUR CONSTRUCTION CO Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THE Income-tax Appellate Tribunal, Allahabad Bench, Allahabad, has referred the following question for our opinion:

(2.) THE assessee is a registered firm and took out Government contracts. In the year in question, he took out a contract for building a road from Rihand to Singhrauli. A return showing the net income of Rs. 24,814 was filed, which was 1.5% of the contract money received which were to the tune of Rs. 20,46,978. On the 20th February, 1968, counsel for the assessee appeared before the ITO, and discussed the case, and agreed that a net rate of 6.5% be applied to those payments received in each of the years relevant to the assessment years 1964-65 to 1967-68. A revised return was also filed for these years. THE ITO, however, did not accept this return, but took the income from contracts at Rs. 2,04,968, and included in the total income an amount of Rs. 1,38,082 as income from other sources, being amounts deposited by the partners during the course of business. He, thus, computed the total income at Rs. 3,42,780. THE assessee appealed, and the appeal was accepted as the assessee's income was asssessed by applying the rate of 6.5% to the gross receipts from contracts. So far as the addition of Rs. 1,38,082 was concerned that was scaled down to Rs. 21,709. Both the department and the assessee appealed. THE G. P. rate of 6.5% agreed to by the assessee in respect of contracts taken out by him was accepted. So far as the addition in respect of unexplained credit was concerned, the assessee did not challenge it, but urged that the same was reflected in his trading account and as such no separate addition on this score was called for. This contention was accepted. As a result, the appeal filed by the assessee was partly allowed, and that of the department dismissed. As a consequence of the addition made, the ITO issued notice under section 271(1)(c) against the assessee. As the amount of penalty impos-able exceeded Rs. 1,000 the matter was referred to the IAC. THE IAC held that the assessee was guilty of concealment, and had furnished inaccurate particulars, and as a consequence imposed a penalty of Rs. 18,000. In doing so, he relied upon the Explanation added to Section 271(1)(c) which cast the onus on the assessee to prove that the failure to return the correct income was not due to any gross or wilful neglect on his part. THE assessee then appealed to the Tribunal. THE Tribunal noticed the fact that the assessee had filed a return showing a G.P. rate of 1.5% but subsequently he revised it, and disclosed a G.P. rate of 6.5%. On the basis of this, it concluded that the assessee had not shown its correct income in the original return. So far as the revised return is concerned the Tribunal took the view that the assessee had not been able to satisfactorily explain as to how he agreed to the imposition of a rate of 6.5% on his gross receipts from contracts and no advantage could be given to the assessee for filing the revised return. It then considered the question of addition of Rs. 21,709 as income from unexplained cash credits. It noticed the fact that the assessee had not tried to explain these cash credits in the quantum appeal, but had only urged that benefit for these amounts should be given against the addition made in the trading account. From this fact, the Tribunal concluded that the cash credit claimed formed additional income from contract business. Taking these facts into consideration it held that the assessee had filed inaccurate income return, and, therefore, penalty was leviable under section 271(1)(c). However, in view of the fact that the assessee had co-operated with the department by filing a revised return, it reduced the quantum of penalty.