COMMISSIONER OF INCOME TAX Vs. RELIABLE TRADING AGENCY

JUDGEMENT

(1.) In this reference under Section 256(1) of the I.T. Act, 1961, the following question has been referred to this court: "Whether, on the facts and in the circumstances of the case and on a correct interpretation of Sections 271(4A) and 271(1)(c) of the I.T. Act, 1961, read with the Explanation thereto, the Appellate Tribunal was justified in cancelling the penalty." 2.The question relates to the assessment year 1964-65. It is not disputed, that the case would be governed by the Explanation to Section 271(1) of the I.T. Act, 1961, which was introduced with effect from the 1st April, 1964. The case would also be governed by the deletion of the expression "deliber ately" before the expression "furnished inaccurate particulars" in Clause (c) of Section 271(1) of the Act. In the course of proceedings for the relevant assess ment year it is stated that the ITO noticed a number of cash deposit accounts. Some of those cash deposit accounts were said to be on account of loans taken on hundis in respect of which a disclosure petition was filed before the Commissioner. There were, however, a number of other cash deposits also. The ITO added to the total income disclosed by the assessee Rs. 42,500 on account of peak of the loan accounts which were covered by the disclosure petition filed before the Commissioner. Besides, he made additions totalling Rs. 35,700 on account of cash deposits, regarding the nature and source of which no satisfactory explanation had been given. It may not be inappropriate to set out the relevant portion of the order of the ITO, which reads as follows : "Other sources.--There are several credits in the names of bogus parties and also credits in the names of partners which have been disclosed by the assessee under Section 271 (4A). Pending settlement of the disclosure petition these disclosed income (sic). -------------------------------------------------------------------------------- Rs. The credits on the basis of peak comes to 42,500 Further credits in the partners a/c. 4,000 46,500 -------------------------------------------------------------------------------- Other loans.--There are a few other credits in the name of different parties in respect of which no satisfactory evidence have been produced by the assessee apart from mere confirmation from these parties. It may be mentioned here that these parties are not assessed to tax, and the alleged loans in the names of these parties were received by the assessee in cash. In view of the above those amounts are treated as the assessee's income from undisclosed sources and taxed accordingly :-- <FRM> -------------------------------------------------------------------------------- Rs. 1. Amtullabu Golimattesjai Lokhandwalla -- mother of Tayob M. Patheria-- stated that the amount of Rs. 10,000 advanced to the assessse was obtained by the lady from her late husband. No documentary or satisfactory evidence is available 10,000 2. Mrs. Zakiya Hussainibhoy Zalliwalla is sister-in-law of the said T. M. Patheria who has given confirmation letter on her behalf. In this case also no evidence is produced 8,000 3. Mr. Yatuyabhoi M. Patheria -- brother of the said T. M. Patheria -- No evidence is given in support of the contention. 7,000 4. Sabir Hossain -- a sum of Rs. 4,000 appears in this name. The party is a teacher in a Madrasa at Calcutta. Apart from his confirmation no evidence is produced to show the sources in his hand-hundi (hence ?) disallowed 4,000 5. Nargisbai Asgarbhoy, Bombay-- No evidence is produced 1,000 6. Mr. Gate Z. Vasi -- No evidence is produced 1,700 -------------------------------------------------------------------------------- </FRM>

(2.) In course of these assessment proceedings the ITO also initiated action for the imposition of penalty under Section 271(1)(c) of the I.T. Act, 1961, and since the minimum penalty imposable exceeded Rs. 1,000 he referred the penalty proceedings to the IAC. The IAC held that the assessee had itself accepted that some of the loans covered by the disclosure petition represented the assessee's income; even in respect of other loan accounts no evidence was produced and the treatment of these amounts as the assessee's income was justified and interest on these loans was a false claim of deduction. He was further of the opinion that, besides, the total income shown in the return, i.e., Rs. 48,648,was much less than 80% of the assessee's total income of Rs. 1,44,724 and the Explanation to Section 271(1)(c) was applicable. He, therefore, imposed a penalty of Rs. 40,000 under Section 271(1)(c). In response to the notice issued by the IAC no one appeared before him but a letter was written. In the letter it was stated that the ITO had not taken the trouble of issuing summons to the various hundi lenders but merely added the same on the basis of disclosure made to the Commissioner. There was no evidence to show that any summons was issued to the alleged hundi lenders. Therefore, this statement must be accepted to be correct. According to the explanation given by the assessee before the IAC the assessee had made the disclosure on the understanding that there would be no penalty. He made the disclosure, the assessee stated, because of difficulties in producing the creditors who had taken advantage of the peculiar situation created by the surrender of a number of hundi bankers to the Commissioner. It was argued that no penalty proceeding was justified in those circumstances. The IAC, however, did not see any merit in this contention in view of the disclosure petition; he, therefore, imposed the penalty as indicated before. In this connection it would be appropriate, in our opinion, to refer to a copy of the disclosure petition upon which reliance was placed. In the disclosure petition under Section 271(4A) it was stated as follows : "1. That assessment for the year 1960-61 had been duly completed. In that year certain cash credits appear in the books of account in the names of four persons which amounted to Rs. 27,000. The peak amount was, of course, less than the above amount. A list of the persons from whom the amounts were taken as loan against execution of hundis had been submitted before the Income-tax Officer and these persons had been examined and'all evidence had been gone through and the loans were accepted as genuine by the learned Income-tax Officer. 2. That in the following assessment years, i.e., 1961-62, and the subsequent years, there were additional loans in the names of different hundiwallas. A list was duly submitted before the Income-tax Officer. These persons were called but strangely enough none of them cared to appear. They are now absolutely non-co-operative. 3. That failing to receive any co-operation from the creditors, I had approached the learned Income-tax Officer for his guidance, who pleaded his inability to help us in this matter in the absence of any acceptable evidence specially books of accounts of the creditors. 4. We have now decided that your Honour should be approached under Section 271(4A). 5. That the list of all hundi loans has been prepared to show the excess amount in each year over that of the earlier year so that the same may be included in our total income. Prayer.--The hundi loans as per statements attached hereto, which are now declared income of the firm and offered for taxation, may kindly be directed to be included in the total income of the respective years and we may be exempted from imposition of any penalty."

(3.) Therefore, it appears that the disclosure petition was made in peculiar circumstances. These alleged hundiwalla persons were called but none of them cared to appear. They were now absolutely non-co-operative and, failing to receive any co-operation from the alleged creditors, the assessee had approached the ITO, who pleaded his inability to help, and in those circumstances in the expectation that penalty would not be levied the assessee merely "agreed that the same might be added in the total income."