COMMISSIONER OF INCOME-TAX Vs. RAJESHWAR SINGH

JUDGEMENT

(1.) IN this reference under Section 256 (1) of the Income-tax Act, 1961 (hereinafter called "the Act"), the Income-tax Appellate Tribunal, Chandigarh Bench, has referred the following question of law for the opinion of this court:

(2.) SHRI Rajeshwar Singh (hereinafter referred to as "the assessee"), an individual, was dealing in iron goods. While examining his books of account for the accounting period relevant to the assessment year 1970-71, the Income-tax Officer noticed a cash credit of Rs. 10,000 in the name of one Gurdial Singh on March 23, 1970. The assessee explained that the loan was taken by him for purchasing a shop worth Rs. 15,000 and that actually the purchase was effected on May 23, 1970. The creditor was produced and was subjected to examination by the Income-tax Officer and he admitted having advanced a friendly loan of Rs. 10,000. A statement of Kirpal Singh, father of the creditor, Gurdial Singh alias Hardial Singh, was recorded in his village by an Inspector of Income-tax at the back of the assessee, Kirpal Singh stated that he had no knowledge of his son having given a sum of Rs. 10,000 to the assessee. Though the assessee made a specific written request dated March 3, 1975, he was not given the necessary opportunity of cross-examining the said Kirpal Singh. During the assessment proceedings, in addition to the above-noted credit of Rs. 10,000, the Income-tax Officer noticed three other items of cash credits totalling Rs. 10,300 and treated all the credits totalling Rs. 20,300 as "unexplained". The Appellate Assistant Commissioner, however, deleted the cash credit additions totalling Rs. 10,300, but upheld the addition of Rs. 10,000 referred to above. The matter came up in appeal before the Income-tax Appellate Tribunal in respect of the cash credit of Rs. 10,000. The Tribunal also held that the assessee failed to satisfactorily explain the said credit and dismissed the appeal.

(3.) THE Income-tax Officer while framing the assessment had recorded his satisfaction that the assessee had committed an offence in respect of Section 271 (1) (c) of the Act. After the Tribunal confirmed the cash credit addition of Rs. 10,000 as not satisfactorily explained, the Income-tax Officer imposed a penalty of 10,000 by specifically holding that it represented the concealed income of the assessee. The assessee preferred an appeal before the Appellate Assistant Commissioner of Income-tax who cancelled the penalty on the ground that from the statement of Kirpal Singh who was not allowed to be cross-examined by the assessee, it could not be inferred that the concealment charge was proved. The matter was taken up in appeal by the Revenue before the Tribunal and a grievance was made that the Appellate Assistant Commissioner was in error in ignoring the Explanation to Section 271 (1) (c) of the Act while deleting the penalty. It was also argued that once the Tribunal upheld the addition of Rs. 10,000, the penalty was a natural corollary and was rightly levied by the Income-tax Officer. It was contended that the Tribunal's finding that the credit was not satisfactorily proved was tantamount to the assessee being found guilty of concealment. It was further contended that the Explanation to Section 271 (1) (c) of the Act was attracted as the assessed income exceeded 20% of the returned income and the assessee had led no evidence that such assessment did not result from any fraud or gross or wilful neglect on his part. The Tribunal after perusing the assessee's letter dated March 3, 1975, besides a copy of the creditor's account which showed payments back to him on March 31, 1970, and May 22, 1970, and after reproducing the statement of Kirpal Singh, as recorded by the Inspector, came to the conclusion that if the statement of Kirpal Singh helped any one, it helped the assessee and not the Revenue. Though in the statement of the case submitted by the Tribunal, the statement of Kirpal Singh recorded by the Inspector has been reproduced in extenso, it is not necessary to set out the same here.