M M MEHTA Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) The following question of law has been referred by the Tribunal to this court under Section 256(1) of the I.T. Act, 1961: "Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was justified in holding that the imposition of penalty of Rs. 25,000 under Section 271(1)(c) of the Income-tax Act, 1961, for the assessment year 1970-71 was justified ?"

(2.) The assessee is an individual who had shown income from commission, share of profits and director's remuneration. The assessee filed the return of income for the assessment year 1970-71 declaring an income of Rs. 34,250. During the course of assessment proceedings the ITO found that Shri Bhupen Mehta and Shri Mukesh Mehta, the minor sons of the assessee, filed returns of income for the assessment year 1970-71 showing income from share dealings and share speculation. The income in the case of Shri Bhupen Mehta, as per profit and loss account, was Rs. 10,340 and that of Shri Mukesh Mehta, Rs. 12,574. The ITO on the basis of evidence came to conclusion that these school-going minor children could not appreciate the technicalities and intricacies of business, particularly the share dealing and share speculation. He, accordingly, added these two amounts in the hands of the assessee and also initiated penalty proceedings under Section 271(1)(c) of the Act. Since, however, the minimum penalty imposable exceeded the prescribed limit, he referred the matter to the IAC for the imposition of penalty. The IAC issued a show-cause notice but the asses-sec pleaded that since there was no mens rea in not showing the income in the hands of the assessee, there was no question of levying the penalty. The IAC, however, did not agree with the assessee and levied a penalty of Rs. 25,000.

(3.) Aggrieved by this order, the assessee filed an appeal before the Income-tax Appellate Tribunal. It was contended that in view of the judgment of the Supreme Court in C1T v. Anwar Ali and the judgment of the Madras High Court in N. Annamalai v. CIT [1969] 73 ITR 809, no penalty could be levied on the, assessee. The assessee, as a matter of fact, relied upon a number of judgments of the judicial authorities in support of the fact that no penalty could be levied under such circumstances.