COMMISSIONER OF INCOME TAX Vs. CHIRANJILAL NARANGLAL

JUDGEMENT

(1.) In this reference under Section 256(l)of the I.T. Act, 1961, the following question has been referred to this court:

(2.) The assessment year involved is 1963-64. The assessee submitted a return showing an income of Rs. 27,305. The assessment was completed at Rs. 1 59,728. In the assessed income the ITO included Rs. 1,08,150 as income from undisclosed sources in respect of cash credits. He also disallowed the interest of Rs. 38,000. Out of the addition of Rs. 1,08,150 an addition was made of Rs. 1,03,500 on peak basis in respect of cash credits appearing in the names of the creditors: (i) Vishandas, (ii) S. Amarlal, (iii) N. Kenailal, and (iv) P. Prabhudas. The ITO held that the assessee could not prove the genuineness of these cash credits and that the assessee had also made a disclosure petition in which these credits had been disclosed as the income of the assessee. An addition of Rs. 4,000 was made in respect of the credit appearing in the name of Smt. Rukmini Devi. The ITO found that the creditor had no capacity to advance the loan and she was the relative of the partners of the assessee. The ITO did not accept the genuineness of the loan and treated the same as the income of the assessee from undisclosed, sources. Two more items of Rs. 500 and Rs. 350 were also treated as the income of the assessee from undisclosed sources in respect of loans appearing in the name of Bai Indumati and Bai Gomati Devi. In the penalty proceedings, the assessee by its letter pleaded that the assessee had not concealed any income and that the disclosure petition had been made by both the partners of the firm showing the credits of which the peak was Rs. 1,03,500 on the ground that the creditors were not co-operating for reasons of their own and the partners were compelled to make the disclosures. It was further pleaded that the disclosure made by the partners did not amount to an admission on the part of the assessee as the assessee was a distinct entity from the partners. Next it was urged that the credits were genuine loans from the parties. Further, it was contended that the creditor, Smt. Rukmini Devi, had confirmed the giving of the loan and had appeared along with her books of account which supported the advancing of the loan. It was denied that she was a relative of the partners of the assessee-firm. The assessee requested the IAC to summon the creditors under Section 131 for appearing along with their books of account to enable the assessee to prove the genuineness of the loans. The IAC, however, took the view that the admission made by the partners that the credits were their own undisclosed income was an admission by the assessee and that it was futile to summon the creditors. He, therefore, held that the credits appearing in the names of the aforesaid creditors represented the concealed income of the assessee. He took a similar view with respect to the addition of Rs. 4,000 in the case of Smt. Rukmini Devi. He also held that by claiming the interest of Rs. 3,800, the assessee set up a bogus claim and thereby concealed an income. The IAC held that the assessee had committed default under Section 271(l)(c) and imposed a penalty of Rs. 55,000.

(3.) Being aggrieved by the order of the IAC, the assessee went up in appeal before the Tribunal. After considering the rival contentions of the parties, the Tribunal observed as follows :